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Public Offering Registration - SABA SOFTWARE INC - 1-31-2000

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Public Offering Registration - SABA SOFTWARE INC - 1-31-2000 Powered By Docstoc
					AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2000 REGISTRATION NO. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SABA SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 7372 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) 94-3267638 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

2400 BRIDGE PARKWAY REDWOOD SHORES, CALIFORNIA 94065 (650) 696-3840 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) BOBBY YAZDANI CHIEF EXECUTIVE OFFICER AND PRESIDENT SABA SOFTWARE, INC. 2400 BRIDGE PARKWAY REDWOOD SHORES, CALIFORNIA 94065 (650) 696-3840 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO:
PAUL "CHIP" L. LION III, ESQ. CORI M. ALLEN, ESQ. HEIKE E. FISCHER, ESQ. TIMOTHY J. HARRIS, ESQ. MORRISON & FOERSTER LLP 755 PAGE MILL ROAD PALO ALTO, CA 94304 (650) 813-5600 ALAN F. DENENBERG, ESQ. SHEARMAN & STERLING 1550 EL CAMINO REAL SUITE 100 MENLO PARK, CA 94025 (650) 330-2200

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered in this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, 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, 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, check the following box. [ ] CALCULATION OF REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE ---------------------------------------------------------------------------------------------------------------Common Stock, $.001 par value................. $100,000,000 $26,400 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. 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 THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION. DATED JANUARY 31, 2000. Shares [SABA LOGO] Common Stock

This is an initial public offering of shares of common stock of Saba Software, Inc. All of the shares of common stock are being sold by Saba. Prior to this offering, there has been no public market for the common stock. Saba anticipates that the initial public offering price per share will be between $ and $ . Saba has applied for quotation of the common stock on the Nasdaq National Market under the symbol "SABA". See "Risk Factors" beginning on page 7 to read about factors you should consider before buying shares of our common stock.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Per Share --------$ $ $ Total -----

Initial public offering price............................... Underwriting discount....................................... Proceeds, before expenses, to Saba..........................

$ $ $

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from Saba at the initial public offering price, less the underwriting discount.

The underwriters expect to deliver the shares on , 2000. GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. ROBERTSON STEPHENS BANC OF AMERICA SECURITIES LLC

Prospectus dated , 2000.

[Description of graphics: Set forth on the inside front cover are graphics depicting the following: Across the top is a bar labeled "Saba Learning Networks." Below, there are three columns. The left-hand column is entitled "Saba Customers" and includes a list of the following names: 3Com, Adobe, Agilent, Anheuser-Busch, Baan, BMC Software, Caterpillar, Ceridian, Cisco Systems, Continental Airlines, DaimlerChrysler, Documentum, ExecuTrain, Ford, General Electric, Hillenbrand Industries, Hyundai, Informix Software, International Air Transport Association, Lucent Technologies, PainWebber, PriceWaterhouseCoopers, Procter & Gamble, Qwest Communications, Safeco Insurance, Scient, SGI, Strong Capital, Sun-Netscape Alliance, TECH Connect, Texas Utilities-Europe, U S West, U.S. Department of Veterans Affairs, VERITAS Software, Wells Fargo, Whittman-Hart and York International. The column ends with the sentence "Over 2,000,000 people are licensed to learn on Saba." The column in the middle is entitled "Saba Learning Exchange." The right-hand column is entitled "Saba Learning Providers" and includes a list of the following names: 3Com, Achieve Global, Agilent, Allen Communication, Aptech Worldwide, Baan, Bell Canada Enterprises Media, BMC Software, Cisco Systems, Competence Software, Corporate University Xchange, Crisp Publications, DigitalThink, Documentum, Eloquent, ExecuTrain, General Physics, headlight.com, IBM Catapult, Informix Software, International Air Transport Association, LearningByte International, Lucent Technologies, NETg, PRIMEDIA Workplace, Learning, PROVANT, SGI, SkillSoft, SmartForce, Sun-Netscape Alliance, TECH Connect, Thomson Learning Course Technology, TrainingNet, VCampus, VERTIAS Software, Wilson Learning and Xebec McGraw-Hill. The column ends with the sentence "Over 20,000 learning offerings are available from Saba learning providers.]

PROSPECTUS SUMMARY You should read this summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. Unless otherwise indicated, all information contained in this prospectus relating to our outstanding shares of common stock or options or warrants to purchase our common stock is based upon information as of December 31, 1999 and assumes (1) the conversion of each outstanding share of preferred stock into one share of our common stock, (2) an amendment to our Certificate of Incorporation authorizing 5,000,000 shares of preferred stock and 100,000,000 shares of common stock and (3) no exercise of the underwriters' over-allotment option. SABA We are a leading provider of Internet-based solutions that enable businesses and governments to create and deploy global networks that connect people to learning. Our Internet-based platform and related services enable organizations to procure and deliver learning and systematically close knowledge and competency gaps across their "extended enterprise" of employees, customers, partners and suppliers. In addition, we offer learning providers an Internet-based global marketing and distribution channel. We recently launched the Saba Learning Exchange, an Internet-based business-to-business learning marketplace. The Saba Learning Exchange is designed to enable businesses, governments and learning providers to buy and sell learning offerings, as well as collaborate within learning communities. As of December 31, 1999, over two million people were licensed to learn and more than 20,000 learning offerings were accessible on Saba learning networks. Our significant customers include 3Com, Agilent, Anheuser-Busch, Cisco Systems, Continental Airlines, DaimlerChrysler, Ford, General Electric, Hyundai, Lucent Technologies, Procter & Gamble, Qwest Communications and US West. Our learning offerings are available from over 50 learning providers, including DigitalThink, ExecuTrain, IBM Catapult, International Air Transport Association, NETg, PROVANT, SkillSoft, SmartForce and the Sun-Netscape Alliance. To remain competitive in today's rapidly changing business environment, organizations must continually strive to improve the knowledge and competencies of their extended enterprises. A more knowledgeable and competent extended enterprise leads to improved performance through, among other things, increased productivity, reduced time and expense associated with bringing new products and services to market, and improved customer satisfaction and loyalty. Because of these benefits, many organizations make significant learning investments. However, they are unable to realize the full potential of these investments because traditional learning management solutions typically fail to address the full spectrum of an organization's learning management needs. Additionally, learning providers have faced significant limitations on their ability to develop, market, sell, distribute and improve their content offerings. The rapid adoption of the Internet has created an opportunity to solve many of the shortcomings of the business learning market. The Internet has the potential to significantly improve the procurement, deployment and management of learning offerings. However, existing Internet-based offerings have usually only provided narrow solutions that are not designed to serve as integrated platforms for improving learning across the extended enterprise. As a result, we believe there is a significant opportunity for an Internet-based solution that is designed to create learning networks to meet the needs of businesses, their employees, customers, partners and suppliers, as well as the needs of third-party learning providers. Our integrated solutions consist of the Saba Learning Enterprise and Saba Learning Provider software applications, as well as Saba Learning Exchange. Saba Learning Enterprise is an Internet-based software application that allows enterprises to assess the learning needs of individuals and 3

organizations, select and purchase on-line and off-line learning materials and programs, track individual learners' progress, and manage enterprise-wide learning initiatives. Saba Learning Provider is an Internet-based software application that enables learning providers to develop, market, sell and distribute on-line and off-line learning materials to organizations worldwide. Saba Learning Exchange is a business-to-business learning marketplace that is designed to serve as a single point of access for the highly fragmented learning market. We also provide a full range of strategic consulting, business process reengineering, and technical implementation and support services for our customers. We intend to increase the number of learners and providers using our Internet-based platform in order to create the leading global exchange that connects people to learning. Key elements of our strategy include: - Increasing the number of our Global 2000 and government customers; - Extending penetration within our existing customer base and their affiliates; - Increasing the number of learning offerings in our network; - Expanding Saba Learning Exchange; - Expanding our international presence; and - Developing new uses and markets for the Saba platform. We were incorporated in Delaware in April 1997. Our headquarters are located at 2400 Bridge Parkway, Redwood Shores, California 94065, and our telephone number at this location is (650) 696-3840. We maintain a World Wide Web site at www.saba.com. The reference to this World Wide Web site address does not constitute incorporation by reference of the information contained therein. Saba, the Saba logo, Saba Software, saba.com, Saba Learning Exchange, the phrase "Connecting People to Learning", the phrase "Connect People to Learning", Saba Learning Enterprise, Saba Learning Provider, Saba Learning e-Store and the marks relating to other Saba products and services referenced are our trademarks and service marks. All other trademarks appearing in this prospectus are the property of their respective owners. 4

THE OFFERING
Common stock offered.................... Common stock to be outstanding after the offering................................ Use of proceeds......................... shares shares For general corporate purposes, including working capital and capital expenditures. See "Use of Proceeds". "SABA"

Proposed Nasdaq National Market symbol..................................

The number of shares of our common stock to be outstanding after the offering excludes: - 6,195,469 shares of our common stock subject to outstanding options and warrants as of December 31, 1999; and - 574,700 additional shares of our common stock available for future grant under our stock plans as of December 31, 1999. 5

SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM APRIL 16, 1997 (INCEPTION) THROUGH MAY 31, 1998 --------------CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................................ Gross profit (loss)..................... Total operating expenses................ Loss from operations.................... Net loss................................ Basic and diluted net loss per share(1).............................. Shares used in computing basic and diluted net loss per share(1)......... Pro forma basic and diluted net loss per share (unaudited)..................... Shares used in computing pro forma basic and diluted net loss per share (unaudited)........................... SIX MONTHS ENDED NOVEMBER 30, ------------------1998 1999 --------------(UNAUDITED) $ 483 195 2,807 (2,612) (2,601) (0.20) 12,896 $ $ 5,204 2,476 20,309 (17,833) (17,677) (1.26) 13,996 (0.62) 28,557

YEAR ENDED MAY 31, 1999 -------------

$

40 (32) 1,531 (1,563) (1,571) (0.17) 9,439

$

1,939 675 11,572 (10,897) (10,852) (0.84) 12,987

$

(0.52) 20,881

CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... Working capital............................................. Total assets................................................ Long-term obligations, less current portion................. Total stockholders' equity..................................

NOVEMBER 30, 1999 -----------------------AS ACTUAL ADJUSTED(2) -------------------(UNAUDITED) $29,390 23,955 40,188 2,615 24,961 $

(1) See note 2 of notes to our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share amounts. (2) The as adjusted consolidated balance sheet data gives effect to the sale of our shares of common stock in this offering, at an assumed initial public offering price of $ per share, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses. See "Capitalization". 6

RISK FACTORS You should carefully consider the risks and uncertainties described below and the other information in this prospectus before deciding whether to invest in shares of our common stock. The occurrence of any of the following risks could materially and adversely affect our business, financial condition and operating results. In this case, the trading price of our common stock could decline and you might lose all or part of your investment. WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS ENCOUNTERED BY EARLY-STAGE COMPANIES We were founded in April 1997, shipped our first products in April 1998 and began to operate Saba Learning Exchange in December 1999. Because we have a limited operating history, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early stage companies in rapidly evolving markets. For us, these risks include: - risks that our revenue forecasts may be incorrect because of our limited sales to date and our long sales process; - risks associated with our dependence on Saba Learning Enterprise and Saba Learning Provider, and related services, for substantially all of our revenues for the foreseeable future; - risks that our strategy of establishing Saba Learning Exchange may not be successful; and - risks that fluctuations in our quarterly operating results will be significant relative to our revenues. These risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the other risks described in this section. If we do not successfully address these risks, our business would be significantly harmed. WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND CANNOT ASSURE YOU THAT WE WILL ACHIEVE PROFITABILITY We have incurred significant net losses and negative cash flow from operations since our inception. We incurred net losses of $1.6 million in fiscal 1998, $10.9 million in fiscal 1999 and $17.7 million in the first six months of fiscal 2000. As of November 30, 1999, we had an accumulated deficit of $30.1 million. Although our revenues have increased continuously on a quarterly basis since inception, we have not achieved profitability and cannot be certain that we will be able to sustain these growth rates or realize sufficient revenues to achieve profitability. We expect to derive substantially all of our revenues for the foreseeable future from the licensing of our Saba Learning Enterprise and Saba Learning Provider, and providing related services. Over the longer term, we expect to derive revenues from Saba Learning Exchange, which is based on an evolving and unproven business model. Moreover, we also expect to continue to incur significantly greater sales and marketing, research and development, and general and administrative expenses. In the future, we expect to incur substantial non-cash expenses relating to the amortization of deferred compensation that will contribute to our net losses. As of December 31, 1999, we had an aggregate of $18.9 million of deferred compensation to be amortized. As a result of all of the foregoing, we expect to incur significant losses for the foreseeable future and will need to generate significantly higher revenues in order to achieve profitability. If we achieve profitability, we may not be able to sustain it. 7

FLUCTUATIONS OF OUR QUARTERLY RESULTS COULD CAUSE OUR STOCK PRICE TO EXPERIENCE SIGNIFICANT FLUCTUATIONS OR DECLINES Our quarterly operating results have varied significantly in the past and will likely fluctuate significantly in the future. We believe that quarter-to-quarter comparisons of our revenues and operating results are not necessarily meaningful and should not be relied on as indicators of future performance. Our operating expenses are based on our expectations of future revenues and are relatively fixed in the short term. We plan to increase our operating expenses to expand our sales and marketing operations, fund greater levels of research and development, develop new alliances, increase our services and support capabilities and improve our operational and financial systems. If our revenues do not increase along with these expenses, our business would be seriously harmed and net losses in a given quarter would be even larger than expected. It is possible that in some future quarter our operating results may be below the expectations of public market analysts or investors, which could cause the market price of our common stock to fall. Our quarterly revenues are especially subject to fluctuation because they depend on the sale of a small number of relatively large orders, principally orders for Saba Learning Enterprise and Saba Learning Provider, and related services. As a result, our quarterly operating results may fluctuate significantly if we are unable to complete one or more substantial sales in any given quarter. We generally recognize revenues derived from sales of product licenses and annual support over a twelve-month period and from sales of services as the services are provided. Therefore, if we do not book a sufficient number of large orders in a particular quarter, our revenues in future periods could be lower than expected. We have not fully developed our business model for Saba Learning Exchange, including the structure and amount of the fees we intend to charge. As this business model evolves, the potential for fluctuations in our quarterly results could increase. Furthermore, our quarterly revenues may be affected significantly by other revenue recognition policies and procedures. These policies and procedures may evolve or change over time based on applicable accounting standards and how these standards are interpreted. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". OUR LENGTHY SALES CYCLE COULD CAUSE DELAYS IN REVENUE GROWTH The period between our initial contact with a potential customer and the purchase of our products and services is often long. A customer's decision to purchase our products and services requires the commitment to improve learning, involves a significant allocation of resources, and is influenced by a customer's budgetary cycles. To successfully sell our products and services, we generally must educate our potential customers regarding the use and benefits of our products and services, which can require significant time and resources. Many of our potential customers are large enterprises that generally take longer to make significant business decisions. Our typical sales cycle has been approximately six to 12 months. The delay or failure to complete sales in a particular quarter could reduce our revenues in that quarter, as well as subsequent quarters over which revenues for the sale would likely be recognized. If our sales cycle unexpectedly lengthens in general or for one or more large orders, it would adversely affect the timing of our revenues and our revenue growth. If we were to experience a delay of several weeks on a large order, it could harm our ability to meet our forecasts for a given quarter. WE EXPECT TO DEPEND ON OUR SABA LEARNING ENTERPRISE, SABA LEARNING PROVIDER AND RELATED SERVICES, FOR SUBSTANTIALLY ALL OF OUR REVENUES FOR THE FORESEEABLE FUTURE Saba Learning Enterprise and Saba Learning Provider, and related services, accounted for substantially all of our revenues in fiscal 1999 and for the six months ended November 30, 1999. We anticipate that revenues from our Saba Learning Enterprise and Saba Learning Provider, and related services, will continue to constitute substantially all of our revenues for the foreseeable future. 8

Consequently, a decline in the price of, or demand for, Saba Learning Enterprise or Saba Learning Provider, or their respective failure to achieve broad market acceptance, would seriously harm our business. OUR STRATEGY OF ESTABLISHING SABA LEARNING EXCHANGE IS UNPROVEN AND MAY NOT BE SUCCESSFUL We intend, directly and through strategic relationships, to more fully establish and enhance Saba Learning Exchange, where organizations and learning providers can transact business and collaborate. Our success depends on a significant number of organizations implementing Saba Learning Enterprise and Saba Learning Provider, and conducting business with learning providers over the Internet through Saba Learning Exchange. If this business strategy is flawed, or if we are unable to execute it effectively, our revenues will be seriously harmed. We began operating Saba Learning Exchange in December 1999. Accordingly, we have limited experience developing and operating Saba Learning Exchange. To date, only a limited number of learning providers and organizations are connected to Saba Learning Exchange. It is possible that we, together with the organizations and learning providers who comprise this exchange, will not be able to effectively operate this exchange, both in terms of technical performance as well as commercial viability. It is possible that an insufficient number of organizations and/or learning providers will join and remain in Saba Learning Exchange, and that we will be unable to generate significant revenues from Saba Learning Exchange. Unless a critical mass of organizations and learning providers join Saba Learning Exchange, our solutions may not achieve widespread market acceptance and our business would be seriously harmed. To date, we have not generated significant revenues from Saba Learning Exchange. THE FAILURE TO MAINTAIN OUR RELATIONSHIP WITH CURRENT AND FUTURE CUSTOMERS MAY HARM OUR BUSINESS Because many of our Saba Learning Enterprise customers are Global 2000 organizations, a relatively small number of these organizations account for a substantial portion of the learners on the Saba platform. In addition, the quantity of learning offerings made available by our learning providers through Saba Learning Exchange varies significantly. The concentration of learners within these organizations and learning offerings offered by these key learning providers exposes us to the risk that the loss of even a small number of organizations or learning providers could reduce the viability of Saba Learning Exchange. This would substantially hinder our ability to generate revenues from Saba Learning Exchange as well as our other products. IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS AND ACHIEVE OUR OBJECTIVES We believe our future success will depend upon our ability to retain our key management personnel including Bobby Yazdani, our President and Chief Executive Officer. These employees are not subject to employment contracts. We may not be successful in attracting, assimilating and retaining our key employees in the future. Our future success and our ability to expand our operations will also depend in large part on our ability to attract and retain additional qualified technical, sales and marketing personnel. Competition for these types of employees is intense due to the limited number of qualified professionals and the high demand for them, particularly in the San Francisco Bay Area, where our headquarters is located. We have in the past experienced difficulty in recruiting qualified personnel. Failure to attract, assimilate and retain personnel, particularly technical, sales and marketing personnel, would have a material adverse effect on our business and potential growth. 9

DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS We have experienced a period of rapid and substantial growth that has placed, and if such growth continues, will continue to place a strain on our administrative infrastructure. We have increased the number of our employees from approximately 40 employees at May 31, 1998 to approximately 140 employees at May 31, 1999 and 294 employees at December 31, 1999. This expansion is placing a significant strain on our managerial and financial resources. To manage the expected growth of our operations and personnel, we will be required to: - improve existing and implement new operational, financial and management controls, reporting systems and procedures; - install enhanced management information systems; and - hire, train, retain, motivate and manage our employees. We may not be able to install adequate 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. If we are unable to manage growth effectively, our business would be seriously harmed. OUR REVENUES DEPEND ON A SMALL NUMBER OF LARGE SALES, AND IF WE FAIL TO COMPLETE ONE OR MORE LARGE SALES OR TO COLLECT ACCOUNTS RECEIVABLE FROM THESE LARGE SALES, OUR OPERATING RESULTS WILL BE HARMED To date, we have received a significant portion of our revenues from large sales to a small number of customers. During the six months ended November 30, 1999, our two largest customers, Ford and US West, each accounted for more than 10% of our total revenues and collectively comprised 25% of our total revenues. During fiscal 1999, Baan, Documentum and Wells Fargo each accounted for more than 10% of our total revenues and collectively comprised approximately 66% of our total revenues. In addition, at November 30, 1999, two customers accounted for a total of 41% of our accounts receivable and at May 31, 1999, five customers accounted for a total of 80% of our accounts receivable. Our operating results may be harmed if we are not able to complete one or more substantial sales to any large customers or we are unable to collect accounts receivable from any of our large customers in any future period. INTENSE COMPETITION IN OUR TARGET MARKET COULD IMPAIR OUR ABILITY TO GROW AND TO ACHIEVE PROFITABILITY The market for our products and services is intensely competitive, dynamic and subject to rapid technological change. The intensity of the competition and the pace of change are expected to increase in the future. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any one of which could seriously harm our business. Competitors vary in size and in the scope and breadth of the products and services offered. We encounter competition with respect to different aspects of our solution from a variety of sources including: - companies that operate Internet-based marketplaces for the sale of on-line learning; - companies that operate Internet-based marketplaces for the sale of goods and services that may decide to evolve their marketplaces to include learning offerings; - Internet portals that offer learning content; - companies that market and license training management systems; 10

- enterprise software vendors that offer human resources information systems training modules; and - potential customers' internal development efforts. Because there are relatively low barriers to entry in the electronic commerce market, which comprises a portion of our business model, we expect competition from a variety of established and emerging companies. Many of our competitors have longer operating histories, substantially greater financial, technical, marketing or other resources, or greater name recognition than we do. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Competition could seriously impede our ability to sell additional products and services on terms favorable to us. Our current and potential competitors may develop and market new technologies that render our existing or future products and services obsolete, unmarketable or less competitive. Our current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with other learning solution providers, thereby increasing the availability of their services to address the needs of our current and prospective customers. We may not be able to compete successfully against our current and future competitors, and competitive pressures that we encounter may seriously harm our business. IF WE ARE UNABLE TO MANAGE THE COMPLEXITY OF CONDUCTING BUSINESS GLOBALLY, OUR INTERNATIONAL REVENUES MAY SUFFER International revenues accounted for 4% of our revenues in each of fiscal 1999 and the first six months of fiscal 2000. We intend to expand our international presence in the future. Conducting business outside of the United States is subject to certain risks, including: - changes in regulatory requirements and tariffs; - language barriers; - difficulties in staffing and managing foreign operations; - longer payment cycles and greater difficulty in collecting accounts receivable; - reduced protection of intellectual property rights; - potentially harmful tax consequences; - fluctuating exchange rates; - price controls and other restrictions on foreign currency; - difficulties in obtaining import and export licenses; - the burden of complying with a variety of foreign laws; and - political or economic constraints on international trade or instability. We might not successfully market, sell or distribute our products and services in foreign markets and we cannot be certain that one or more of such factors will not materially adversely affect our future international operations, and consequently, our business and future growth. 11

OUR REVENUES MAY DECREASE IF USE OF THE INTERNET IN THE MARKETS WE TARGET DOES NOT GROW AS PROJECTED The use of the Internet as a means to interconnect organizations and learning providers and to create Saba Leaning Exchange is integral to our business model. Our business strategy is, in part, to create a global, business-to-business learning marketplace for organizations and learning providers to transact business and collaborate. However, the use of the Internet as a means of transacting business is relatively new and has not been accepted by all customers in the markets we have targeted. The failure of the Internet to continue to develop as a commercial or business medium or of significant numbers of organizations and learning providers to transact business and collaborate on the Internet would harm our revenues and earnings. The acceptance and use of the Internet to transact business and collaborate is dependent upon a number of factors, such as the growth and use of the Internet in general, the relative ease of conducting business on the Internet, the efficiencies and improvements that conducting commerce on the Internet provides, the resolution of concerns about transaction security and taxation of transactions on the Internet. A FAILURE TO EXPAND AND IMPROVE THE INFRASTRUCTURE OF THE INTERNET COULD CONSTRAIN THE FUNCTIONALITY OF OUR PRODUCTS AND SERVICES AND THUS LIMIT OUR REVENUES The recent growth in Internet traffic has caused frequent periods of decreased performance, and if Internet usage continues to grow rapidly, the Internet infrastructure may not be able to support this growth and reliability may decline. If outages or delays on the Internet occur frequently or increase in frequency, overall Internet usage including usage of our products and services could grow more slowly or decline. Our ability to increase the speed and scope of our services to customers is ultimately limited by, and depends upon, the speed and reliability of both the Internet and our customers' internal networks. Consequently, the emergence and growth of the market for our products and services depends upon improvements being made to the entire Internet as well as to our individual customers' networking infrastructures to alleviate overloading and congestion. If these improvements are not made, the ability of our customers to use our products and services will be hindered, and our business may suffer. WE ARE EXPOSED TO INTERNET COMMERCE SECURITY RISKS A requirement of the continued growth of Internet-based, business-to-business electronic commerce is the secure transmission of confidential information over public networks. Failure to prevent security breaches of Saba Learning Exchange or our customers' networks, or well publicized security breaches affecting the Internet in general, could significantly harm our growth and revenues. We cannot be certain that advances in computer capabilities, new discoveries in the field of cryptography, or other developments will not result in a compromise or breach of the algorithms we use to protect content and transactions on Saba Learning Exchange or within our customers' networks or proprietary information in our databases. Anyone who is able to circumvent our security measures could misappropriate proprietary and confidential information or could cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to address problems caused by such breaches. Concerns over the security of the Internet and other on-line transactions and the privacy of users may also deter people from using the Internet to conduct transactions that involve transmitting confidential information. WE MAY BECOME SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally, export control laws and laws or regulations directly applicable to Internet commerce. However, due to the increasing popularity and use of the 12

Internet, it is possible that a number of laws and regulations may become applicable to us or may be adopted in the future with respect to the Internet covering issues such as: - user privacy; - taxation; - content; - right to access personal data; - copyrights; - distribution; and - characteristics and quality of services. The applicability of existing laws governing issues such as property ownership, copyrights, and other intellectual property issues, encryption, taxation, libel, export or import matters and personal privacy to the Internet is uncertain. The vast majority of these laws were adopted prior to the broad commercial use of the Internet and related technologies. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes to these laws intended to address these issues, including some recently proposed changes, could create uncertainty in the Internet marketplace. Such uncertainty could reduce demand for our services or increase the cost of doing business due to increased costs of litigation or increased service delivery costs. OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND TO COMPETE, WE MUST CONTINUALLY ENHANCE OUR PRODUCTS AND SERVICES We must continue to enhance and improve the performance, functionality and reliability of our products and services. The software and electronic commerce industries are characterized by rapid technological change, changes in user requirements and preferences, frequent new product and services introductions embodying new technologies and the emergence of new industry standards and practices that could render our products and services obsolete. Our success will depend, in part, on our ability to both internally develop and license leading technologies to enhance our existing products and services, develop new products and services that address the increasingly sophisticated and varied needs of our customers, and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of our technology and other proprietary technology involves significant technical and business risks. We may fail to use new technologies effectively or to adapt our proprietary technology and systems to customer requirements or emerging industry standards. If we are unable to adapt to changing market conditions, customer requirements or emerging industry standards, we may not be able to increase our revenues and expand our business. DELAYS IN RELEASING ENHANCED VERSIONS OF OUR PRODUCTS COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION As part of our strategy, we expect to regularly release new versions of our Saba Learning Enterprise, Saba Learning Provider and Saba Learning Exchange. Even if our new versions contain the features and functionality our customers want, in the event we are unable to timely introduce these new product releases, our competitive position may be harmed. We cannot assure you that we will be able to successfully complete the development of currently planned or future products in a timely and efficient manner. Due to the complexity of these products, internal quality assurance testing and customer testing of pre-commercial releases may reveal product performance issues or desirable feature enhancements that could lead us to postpone the release of these new versions. In addition, 13

the reallocation of resources associated with any postponement would likely cause delays in the development and release of other future products or enhancements to our currently available products. Any delay in releasing other future products or enhancements of our products could cause our stock price to decline. IF WE RELEASE PRODUCTS CONTAINING DEFECTS, WE MAY NEED TO HALT FURTHER SHIPMENTS AND OUR BUSINESS AND REPUTATION WOULD BE HARMED Products as complex as ours often contain unknown and undetected errors or performance problems. Many serious defects are frequently found during the period immediately following introduction and initial shipment of new products or enhancements to existing products. Although we attempt to resolve all errors that we believe would be considered serious by our customers before shipment to them, our products are not error-free. These errors or performance problems could result in lost revenues or delays in customer acceptance and would be detrimental to our business and reputation. In the past, we have discovered errors in our products after introduction. We may not be able to detect and correct errors before releasing our product commercially. We cannot assure you that undetected errors or performance problems in our existing or future products will not be discovered in the future or that known errors considered minor by us will not be considered serious by our customers, resulting in a decrease in our revenues. IF THIRD PARTIES CLAIM THAT WE INFRINGE THEIR PATENTS, IT MAY RESULT IN COSTLY LITIGATION We cannot assure you that third parties will not claim our current or future products or services infringe their rights. Any such claims, with or without merit, could cause costly litigation that could consume significant management time. As the number of product and services offerings in our market increases and functionalities increasingly overlap, companies such as ours may become increasingly subject to infringement claims. Such claims also might require us to enter into royalty or license agreements. If required, we may not be able to obtain such royalty or license agreements, or obtain them on terms acceptable to us. WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY Our success depends upon our proprietary technology. We rely primarily on copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to establish and protect our proprietary rights. As part of our confidentiality procedures, we enter into non-disclosure agreements with our employees. Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization, or develop similar technology independently. In addition, we have filed six provisional patent applications in the U.S. We cannot assure you that any formal or approved patent applications will result from these provisional applications, that any patents that may issue will protect our intellectual property or that any issued patents will not be challenged by third parties. Furthermore, effective protection of intellectual property rights is unavailable or limited in certain foreign countries. We cannot assure you that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products and services or design around any patents or other intellectual property rights we hold. For more detailed information regarding the protection of our proprietary rights see "Business -- Proprietary Rights". WE DO NOT HAVE A DISASTER RECOVERY PLAN OR BACK-UP SYSTEM, AND A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS We currently do not have a disaster recovery plan in effect and do not have fully redundant systems for our services at an alternate site. A disaster could severely harm our business because our services could be interrupted for an indeterminate length of time. Our operations depend upon our 14

ability to maintain and protect our computer systems in our principal facilities in Redwood Shores, California, which are located on or near known earthquake fault zones. Although these systems are designed to be fault tolerant, they are vulnerable to damage from fire, floods, earthquakes, power loss, telecommunications failures and other events. Additionally, we do not carry sufficient business insurance to compensate us for our losses that could occur. WE MUST OUTSOURCE THE MANAGEMENT AND MAINTENANCE OF SABA LEARNING EXCHANGE TO THIRD PARTIES AND WILL DEPEND UPON THEM TO PROVIDE ADEQUATE MANAGEMENT AND MAINTENANCE SERVICES We plan to contract with one or more third parties to expand, manage and maintain the computer and communications equipment and software needed for the day-to-day operations of Saba Learning Exchange. Services provided by any of these third parties will likely include managing the Saba Learning Exchange web server, maintaining communications lines and managing network data centers, which are the locations on our network where data is stored. If we are unable to successfully contract with one or more third parties for these services, we would have to perform these functions ourselves. We may not successfully obtain or perform these services on a timely and cost-effective basis. If the installation of the computer and communications equipment and software needed for the day-to-day operations of Saba Learning Exchange is successfully completed by one or more third parties, we will be entirely dependent on that party or parties to manage, maintain and provide security for Saba Learning Exchange. WE MAY NOT BE ABLE TO SECURE NECESSARY FUNDING IN THE FUTURE We require substantial working capital to fund our business. We have had significant operating losses and negative cash flow from operations since inception and expect this to continue for the foreseeable future. We expect to use the net proceeds of this offering primarily to expand sales and marketing activities, fund research and development, fund continued operations, and possibly make future acquisitions. We believe that these proceeds, together with our existing capital resources, will be sufficient to meet our capital requirements for the next twelve months. However, if our capital requirements increase materially from those currently planned, we may require additional financing sooner than anticipated. If additional funds are raised through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Additional financing may not be available when needed on terms favorable to us or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures. WE INTEND TO PURSUE ACQUISITIONS, AND OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE FAIL TO ADEQUATELY INTEGRATE ACQUIRED BUSINESSES As part of our overall business strategy, we intend to pursue acquisitions of complementary businesses or technologies that would provide additional product or service offerings, additional industry expertise or an expanded geographic presence. Any future acquisition could result in the use of significant amounts of cash, potentially dilutive issuances of equity securities, or the incurrence of debt or amortization of expenses related to goodwill and other intangible assets, any of which could materially adversely affect our business. In addition, acquisitions involve numerous risks, including: - difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company; - the diversion of management's attention from other business concerns; 15

- risks of entering markets in which we have no or limited prior experience; and - the potential loss of key employees of the acquired company. OUR STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY Prior to this offering, there has been no public market for shares of our common stock. An active public trading market may not develop following completion of this offering or, if developed, may not be sustained. The initial public offering price of the shares of our common stock will be determined by negotiation between us and representatives of the underwriters. This price will not necessarily reflect the market price of our common stock following this offering. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The market price for our common stock following this offering will be affected by a number of factors, including those described above and the following: - the announcement of new products and services or product and service enhancements by us or our competitors; - quarterly variations in our results of operations or those of our competitors; - changes in earnings estimates or recommendations by securities analysts that may follow our stock; - developments in our industry; and - general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. In addition, stock prices for many companies in the technology and emerging growth sectors have experienced wide fluctuations that have often been unrelated to the operating performance of such companies. Such factors and fluctuations, as well as general economic, political and market conditions, may materially adversely affect the market price of our common stock. CERTAIN EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER SABA After this offering, our executive officers, directors and principal stockholders (i.e., greater than 5% stockholders) will together control approximately % of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing our change in control and might affect the market price of our common stock. WE FACE YEAR 2000 RISKS Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, beginning on January 1, 2000, computer systems and software used by many companies and organizations in a wide variety of industries, including technology, transportation, utilities, finance and telecommunications, may have produced erroneous results or failed unless they had been modified or upgraded to process date information correctly. We use software, computer technology and other services internally developed and provided by third-party vendors that may fail due to the Year 2000 phenomenon even after January 1, 2000. This failure may involve significant time and expense, and uncorrected problems could seriously harm our business. In addition, the potential failure of our customers to ensure that their operations are Year 2000 compliant could have an adverse effect on them, which in turn could limit their ability to use our products and 16

services or process our invoices in a timely manner. Furthermore, customers or potential customers may delay purchasing our products and services to the extent such customers or potential customers are required to devote resources to resolving the Year 2000 problem. SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THIS OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE If our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of outstanding options and warrants) in the public market following this offering, the market price of our common stock could fall. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Upon completion of this offering, we will have outstanding shares of common stock (based upon shares outstanding as of December 31, 1999), assuming no exercise of outstanding options or warrants after December 31, 1999. Of these shares, the shares sold in this offering will be freely tradable. The remaining shares of common stock outstanding after this offering will be available for sale in the public market as follows:
DATE OF AVAILABILITY FOR SALE ----------------------------At the date of this prospectus.............................. 181 days after the date of this prospectus.................. Periodically thereafter..................................... NUMBER OF SHARES ---------0 31,246,921 5,850,182

THE ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD ADVERSELY AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK Upon the closing of this offering, our Certificate of Incorporation and Bylaws will contain provisions which could make it harder for a third party to acquire us without the consent of our board of directors. For example, if a potential acquiror were to make a hostile bid for us, the acquiror would not be able to call a special meeting of stockholders to remove our board of directors or act by written consent without a meeting. In addition, our board of directors will have staggered terms that makes it difficult to remove them all at once. The acquiror would also be required to provide advance notice of its proposal to remove directors at an annual meeting. The acquiror also will not be able to cumulate votes at a meeting, which will require the acquiror to hold more shares to gain representation on the board of directors than if cumulative voting were permitted. Our board of directors also has the ability to issue preferred stock which would significantly dilute the ownership of a hostile acquiror. In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% stockholders that have not been approved by the board of directors. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation. These provisions may apply even if the offer may be considered beneficial by some stockholders. Our board of directors could choose not to negotiate with an acquiror that it did not feel was in the strategic interests of Saba. If the acquiror was discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by the anti-takeover measures, you could lose the opportunity to sell your shares at a favorable price. YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR SHARES The initial public offering price is substantially higher than the book value per share of our outstanding common stock immediately after the offering. Accordingly, if you purchase common stock in the offering, you will incur immediate dilution of approximately $ , at an assumed initial public offering price of $ per share, in the book value per share of our common stock from the price you pay for our common stock. For additional information on dilution of the book value of your shares, see "Dilution". 17

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks" and "estimates", and variations of these words and similar expressions, are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in "Risk Factors" and elsewhere in this prospectus. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. 18

USE OF PROCEEDS We estimate that our net proceeds from the sale of the shares of common stock that we are offering will be approximately $ million, at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $ million. The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock, to enhance our ability to acquire other businesses, products or technologies and to facilitate future access to public equity markets. We intend to use the net proceeds for general corporate purposes, including working capital and capital expenditures. We may also use a portion of the net proceeds from this offering to acquire or invest in businesses, products or technologies that are complementary to our business. We currently have no commitments or agreements with respect to any acquisitions or investments. We have not determined the amounts we plan to spend on any of the uses described above or the timing of these expenditures. Pending our use of the net proceeds of this offering, we intend to invest them in short-term, investment grade, interest-bearing securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. In addition, our loan agreements prohibit us from paying cash dividends without the consent of the lenders. 19

CAPITALIZATION The following table sets forth our capitalization as of November 30, 1999: - on an actual basis; and - on an as adjusted basis to give effect to the sale of our common stock in this offering at an assumed initial public offering price of $ per share and the receipt of the estimated net proceeds therefrom.
NOVEMBER 30, 1999 ----------------------ACTUAL AS ADJUSTED -----------------(UNAUDITED) (IN THOUSANDS) $ 2,615 $

Long-term obligations net of current portion................ Stockholders' equity: Preferred Stock, $0.001 par value, 23,000,000 shares authorized, 19,648,857 shares designated as convertible preferred stock, 19,568,540 shares issued and outstanding -- actual; 5,000,000 shares authorized, no shares designated, issued or outstanding -- as adjusted............................................... Common stock, $0.001 par value; 50,000,000 shares authorized, 17,213,448 shares issued and outstanding -- actual; 100,000,000 shares authorized, shares issued and outstanding -- as adjusted............................................... Additional paid-in capital................................ Deferred stock compensation............................... Notes receivable from stockholders........................ Accumulated deficit....................................... Total stockholders' equity................................ Total capitalization..............................

20

--

17 66,260 (10,743) (493) (30,100) -------24,961 -------$ 27,576 ========

--------------$ ========

The share numbers above exclude: - 5,640,425 shares of our common stock subject to outstanding options under our 1997 Stock Incentive Plan, at a weighted-average exercise price of $0.13 per share, and 1,158,000 shares of our common stock available for future grant under our 1997 Stock Incentive Plan, as of November 30, 1999; - 6,000,000 shares of our common stock available for future grant under our 2000 Stock Incentive Plan and 2,000,000 shares of our common stock available for future issuance under our 2000 Employee Stock Purchase Plan; and - 262,341 shares issuable upon exercise of outstanding warrants, at a weighted-average exercise price of $1.34 per share. Subsequent to November 30,1999 and through December 31, 1999, we granted options to purchase 706,800 shares of our common stock under our 1997 Stock Incentive Plan at an exercise price of $0.95 per share, issued a warrant to purchase 24,330 shares of our common stock at a per share exercise price equal to 80% of the initial price to the public of the shares offered in this offering, and issued 185,358 shares of our common stock at a purchase price of $0.95 per share. You should read this table together with "Management -- Employee Benefit Plans", "Description of Capital Stock", "Related Party Transactions" and note 8 of the notes to our consolidated financial statements. 20

DILUTION Our pro forma net tangible book value as of November 30,1999 was approximately $ million, or $ per share, assuming the conversion of all outstanding shares of our preferred stock into shares of our common stock. Pro forma net tangible book value per share is determined by dividing the pro forma number of outstanding shares of our common stock into our net tangible book value, which is our total tangible assets less total liabilities. After giving effect to the receipt of the estimated net proceeds from this offering, based on an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and our estimated offering expenses, our pro forma net tangible book value as of November 30, 1999 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution:
Assumed initial public offering price per share............. Pro forma net tangible book value per share as of November 30, 1999............................................... Increase per share attributable to new investors.......... Pro forma net tangible book value per share after this offering.................................................. Dilution per share to new investors......................... $ $ ------------$ =======

The following table sets forth as of November 30, 1999, on the pro forma basis described above, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by investors purchasing shares of common stock in this offering:
SHARES PURCHASED ------------------NUMBER PERCENT -------------% -------======== ----100.0% ===== TOTAL CONSIDERATION ------------------AMOUNT PERCENT -------------$ % -------$ ======== ----100.0% ===== AVERAGE PRICE PER SHARE ------------$ $

Existing stockholders............. New investors..................... Total...................

The above computations assume no exercise of options after November 30, 1999. As of November 30, 1999, there were options outstanding under our 1997 Stock Incentive Plan to purchase a total of 5,640,425 shares of our common stock at a weighted-average exercise price of $0.13 per share. Subsequent to November 30,1999 and through December 31, 1999, we granted options to purchase 706,800 shares of our common stock under our 1997 Stock Incentive Plan at an exercise price of $0.95 per share and issued 185,358 shares of our common stock at a purchase price of $0.95 per share. The above computations assume no exercise of warrants outstanding to purchase 244,914 shares, at a weighted-average exercise price of $1.34 per share, and 24,330 shares, at an exercise price equal to 80% of the initial public offering price. To the extent that any options or warrants are exercised, there will be further dilution to new public investors. See "Capitalization", "Management -- Stock Plans", "-- Executive Compensation", "Related Party Transactions" and note 8 of the notes to our consolidated financial statements. 21

SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with, and are qualified by reference to, our consolidated financial statements and related notes to our consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations". The consolidated statement of operations data for the period from April 16, 1997 (inception) through May 31, 1998, and for the year ended May 31, 1999 and the consolidated balance sheet data as of May 31, 1998 and 1999 are derived from, and are qualified by reference to, our audited consolidated financial statements included elsewhere in this prospectus, which have been audited by Ernst & Young LLP, independent auditors. The consolidated financial data as of November 30, 1999 and for the six months ended November 30, 1998 and 1999 were derived from unaudited financial statements included elsewhere in this prospectus. We have prepared the unaudited information on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for these periods. The historical results are not necessarily indicative of results to be expected in any future period and results for the six months ended November 30, 1999 are not necessarily indicative of results to be expected for the full fiscal year.
PERIOD FROM APRIL 16, 1997 (INCEPTION) THROUGH MAY 31, 1998 -------------CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License...................................... Service...................................... SIX MONTHS ENDED NOVEMBER 30, -------------------1998 1999 --------------(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED MAY 31, 1999 ----------

$

Cost of revenues............................... Gross profit (loss)............................ Operating expenses: Research and development..................... Sales and marketing.......................... General and administrative................... Amortization of deferred compensation........ Total operating expense........................ Loss from operations........................... Interest income (expense), net................. Net loss....................................... Net loss per share(1).......................... Shares used in computing basic and diluted net loss per share(1)............................ Pro forma basic and diluted net loss per share (unaudited).................................. Shares used in computing pro forma basic and diluted net loss per share (unaudited).......

7 33 ------40 ------72 ------(32)

$

612 1,327 -------1,939 -------1,264 -------675

$

119 364 -------483 -------288 -------195

$

1,920 3,284 -------5,204 -------2,728 -------2,476

694 535 302 -------1,531 ------(1,563) (8) ------$(1,571) ======= $ (0.17) ======= 9,439 =======

3,627 6,319 1,437 189 -------11,572 -------(10,897) 45 -------$(10,852) ======== $ (0.84) ======== 12,987 ======== $ (0.52) ======== 20,881 ========

934 1,467 406 --------2,807 -------(2,612) 11 -------$ (2,601) ======== $ (0.20) ======== 12,896 ========

6,246 8,560 1,992 3,511 -------20,309 -------(17,833) 156 -------$(17,677) ======== $ (1.26) ======== 13,996 ======== $ (0.62) ======== 28,557 ========

22

MAY 31, ---------------1998 1999 ----------CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... Working capital (deficiency)................................ Total assets................................................ Long-term obligations, less current portion................. Total stockholders' equity (deficit)........................ ) $ 41 (481) 239 578 (974) $10,384 7,807 14,068 1,010 8,429

NOVEMBER 30, 1999 -----------(UNAUDITED) (IN THOUSANDS $29,390 23,955 40,188 2,615 24,961

(1) See note 2 of notes to our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share amounts. 23

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations together with the consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus. OVERVIEW General We are a leading provider of Internet-based solutions that enable businesses and governments to create and deploy global networks that connect people to learning. We provide an Internet-based platform and related services that enable organizations to procure and deliver learning and systematically close knowledge and competency gaps across their extended enterprises. At the same time, we offer learning providers a global marketing and distribution channel. We recently launched the Saba Learning Exchange, an Internet-based business-to-business learning marketplace. We commenced operations in April 1997 and, through March 1998, focused substantially all of our efforts on research activities, developing our products and building our business infrastructure. We shipped our first Saba Learning Enterprise and Saba Learning Provider products and began to generate revenues from software license fees, implementation and consulting services fees and support fees in April 1998. We began to operate Saba Learning Exchange in December 1999. To date, we have not generated significant revenues from the Saba Learning Exchange. Sources of Revenues and Revenue Recognition To date, we have generated revenues primarily from licensing Saba Learning Enterprise and Saba Learning Provider and providing related services, including implementation, consulting, support and education. In the future, in addition to such license and services revenues, we intend to pursue transaction-based and other forms of revenues from Saba Learning Exchange. Our license agreements generally provide that our customers pay a license fee based on a specified number of learners and the type of software modules licensed. Customers can subsequently pay additional license fees to allow additional learners to use previously licensed modules or to license additional modules. Customers that license Saba Learning Enterprise and Saba Learning Provider generally enter into one year support agreements pursuant to which they are entitled to receive software upgrades and technical support. Customers may also purchase implementation, consulting, support and education services from us. Although we generally provide implementation and consulting services on a time and materials basis, a significant portion of these services have been provided on a fixed fee basis. Our support and education services are offered for a fixed fee. In the future, we expect to rely in significant part on third-party consulting organizations to perform implementation, consulting and education services. We recognize license revenues in accordance with the provisions of American Institute of Certified Public Accountants, or AICPA, Statement of Position 97-2, "Software Revenue Recognition", as amended by Statement of Position 98-4, "Deferral of the Effective Date of Certain Provisions of SOP 97-2." We recognize revenue in accordance with the Statement of Position 97-2, as amended. Our agreements provide for support for which we have not established vendor specific objective 24

evidence. Therefore, we recognize license revenues monthly over the initial support period, generally one year, if all of the following conditions are met: - There is persuasive evidence of an arrangement; - We have delivered the product to the customer; - Collection of the license fees is probable; and - The amount of the fee to be paid by the customer is fixed or determinable. If an agreement with a customer provides that the customer has the right, during a specified period, to accept or reject our products, subject to the foregoing conditions, license revenues are recognized ratably over the remainder of the support period beginning upon the earlier of customer acceptance or the expiration of the acceptance period. License and services revenues deferred to future periods are reflected as deferred revenues on our balance sheet. The AICPA has also issued Statement of Position 98-9 which is effective for us for transactions entered into beginning January 1, 2000. However, full implementation guidelines for this standard have not yet been issued. Once available, such implementation guidelines could lead to unanticipated changes in our current revenue recognition policies, which changes could significantly affect our operating results. Software support revenues are recognized monthly over the term of the support contract, typically one year. Revenues from other professional services are recognized as the services are provided. Cost of Revenues Our cost of revenues includes cost of our license revenues and cost of our services revenues. Our cost of license revenues include the cost of manuals and product documentation, production media and shipping costs. Our cost of services revenues include salaries and related expenses for our professional services organization. Because our cost of services revenues is greater than cost of license revenues, cost of revenues may fluctuate based on the mix of products and services sold. Operating Expenses Our operating expenses are classified into three general operational categories: sales and marketing, research and development and general and administrative. In addition, our operating expenses include amortization of deferred stock compensation. We classify all charges to the research and development, sales and marketing and general and administrative expense categories based on the nature of the expenditures. Each of these three categories include commonly recurring expenditures such as salaries, employee benefits, travel and entertainment costs, and allocated communication, rent and depreciation costs. We allocate these expenses to each of the functional areas that derive a benefit from such expenses based upon their respective headcount. The research and development category of operating expense also includes purchased technology. The sales and marketing category of operating expenses also includes sales commissions, and expenditures related to public relations and advertising, trade shows and marketing collateral materials. The general and administrative category of operating expenses also includes administrative and professional services fees. In connection with the granting of stock options to, and restricted stock purchases by, our employees, we recorded deferred stock compensation totaling approximately $14.4 million as of November 30, 1999. This amount represents the difference between the exercise or purchase price, as applicable, and the deemed fair value of our common stock for financial accounting purposes on the date these stock options were granted or purchase agreements for restricted stock were signed. This amount is included as a component of stockholders' equity and is being amortized by charges to 25

operations over the vesting period of the options or restricted stock. As of December 31, 1999, we expect to record an additional $9.3 million of deferred stock compensation for stock options granted subsequent to November 30, 1999. The amortization of the remaining deferred stock compensation will result in additional charges to operations through fiscal 2005. History of Losses We have incurred significant net losses and negative cash flows from operations since our inception. As of November 30, 1999, we had an accumulated deficit of $30.1 million. Although our revenues have increased on a quarterly basis since May 31, 1998, we have not achieved profitability and cannot be certain that we will be able to sustain these growth rates or realize sufficient revenues to achieve profitability. We expect to continue to incur significantly greater operating expenses. We also expect to incur substantial non-cash expenses relating to stock based compensation. As a result, we expect to incur significant losses for the foreseeable future and will need to generate significantly higher revenues in order to achieve profitability. If we achieve profitability, we may not be able to sustain it. We had 294 full-time employees as of December 31, 1999. We intend to hire a significant number of employees in the future. This expansion places significant demands on our management and operational resources. To manage this rapid growth, we must invest in scalable operational systems, procedures and controls. We must also be able to recruit qualified candidates to manage our expanding operations. We expect future expansion to continue to challenge our ability to hire, train, manage and retain our employees. Additional personnel will increase our operating expenses in the foreseeable future. Limited Operating History We have a limited operating history that makes it difficult to forecast our future operating results. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early state of development, particularly companies in new and rapidly evolving markets, such as electronic commerce and Internet software. We may not be successful in addressing these risks and difficulties. Although we have experienced significant growth in revenues in recent periods, we do not believe that prior growth rates are sustainable or indicative of our future operating results. RESULTS OF OPERATIONS SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998 Revenues Total revenues increased to $5.2 million for the six months ended November 30, 1999, from $483,000 for the six months ended November 30, 1998. This rapid growth in revenues reflects our relatively early stage of development, and we do not expect revenues to increase at the same rate in the future. During the six months ended November 30, 1999, Ford and US West each accounted for more than 10% of our revenues and collectively comprised approximately 25% of our revenues. License revenues increased to $1.9 million, or 37% of total revenues, for the six months ended November 30, 1999, from $119,000, or 25% of total revenues, for the six months ended November 30, 1998. The increase in the amount of license revenues is primarily attributable to an increase in sales of licenses to new customers resulting from increased headcount in our sales force and, to a lesser extent, the commencement of international operations. 26

Services revenues increased to $3.3 million, or 63% of total revenues, for the six months ended November 30, 1999, from $364,000 or 75% of total revenues, for the six months ended November 30, 1998. The increase in dollar amount of service revenues is primarily attributable to increased implementation and consulting services performed in connection with increased license sales and to support services sold to our new customers. Deferred license and services revenues reflected on our balance sheet were $7.5 million at November 30, 1999. The mix of license and services revenues as a percentage of total revenues has varied significantly due to our relatively early stage of development. Cost of Revenues Total cost of revenues increased to $2.7 million for the six months ended November 30, 1999, from $288,000 for the six months ended November 30, 1998. To date, our cost of product license revenues has been insignificant. The increase in the amount of cost of revenues is primarily attributable to the hiring of additional employees to support increased customer demand for our implementation and consulting services. Cost of services revenues represented 83% of services revenues for the six months ended November 30, 1999 and 79% of services revenues for the six months ended November 30, 1998. The increase in the cost of services as a percentage of services revenues is primarily attributable to the inability to fully utilize these new employees prior to their completion of required Saba learning. Operating Expenses Research and development. Research and development expenses increased to $6.2 million for the six months ended November 30, 1999, from $934,000 for the six months ended November 30, 1998. This increase is primarily attributable to an increase in the number of employees engaged in research and development and a $1.3 million expense related to the purchase of an early stage product framework which had not yet reached technological feasibility. To date, all software development costs have been expensed in the period incurred. We believe that continued investment in research and development is critical to attaining our strategic objectives, and we anticipate that research and development expenses will continue to increase in absolute dollars due to our internal product development. Sales and marketing. Sales and marketing expenses increased to $8.6 million for the six months ended November 30, 1999, from $1.5 million for the six months ended November 30, 1998. This increase is primarily attributable to an increase in the number of employees in our sales and marketing organizations, and related costs, such as increased sales commissions and costs associated with the establishment of sales offices in additional domestic and international locations. We anticipate that the amount of sales and marketing expenses will continue to increase due to the planned growth of our sales force and to expected additional increases in advertising and marketing programs and other promotional activities. General and administrative. General and administrative expenses increased to $2.0 million for the six months ended November 30, 1999, from $406,000 for the six months ended November 30, 1998. This increase is primarily attributable to an increase in the number of executive, finance and administrative employees and in the amount of administrative and professional services fees. We expect that the amount of general and administrative expenses will continue to increase in future periods as we add personnel to support the expansion of our operations, incur additional expenses related to the anticipated growth of our business both domestically and internationally, and assume the responsibilities of a public company. 27

Amortization of deferred stock compensation. During the six month period ended November 30, 1999, we recorded deferred stock compensation of $13.2 million and amortization of $3.5 million. Interest income, net Interest income, net consists of interest income, interest expense and other non-operating expenses. Interest income, net increased to $156,000 for the six months ended November 30, 1999, from $11,000 for the six months ended November 30, 1998. This increase is attributable primarily to interest income from average invested cash proceeds from financing activities, partially offset by interest expense related to equipment loans, the proceeds of which were used to purchase computer equipment and office furniture and equipment. YEARS ENDED MAY 31, 1999 AND 1998 The following discussion includes, with respect to fiscal 1998 data, data from the period commencing on April 16, 1997 (inception) through May 31, 1997. Revenues Total revenues increased to $1.9 million in fiscal 1999, from $40,000 in fiscal 1998. In fiscal 1999, Baan, Norwest and Documentum each accounted for more than 10% of our revenues and collectively comprised approximately 66% of our revenues. License revenues increased to $612,000, or 32% of total revenues, in fiscal 1999, from $7,000, or 18% of total revenues, in fiscal 1998. The increase in the amount of license revenues is attributable to a full year of sales of licenses for our products in fiscal 1999 after their commercial release in late fiscal 1998. Services revenues increased to $1.3 million, or 68% of total revenues, in fiscal 1999, from $33,000 or 83% of total revenues, in fiscal 1998. The increase in dollar amount of service revenues is primarily attributable to increased implementation and consulting services performed in connection with increased license sales and to support services sold to our new customers. Deferred license and services revenues reflected on our balance sheet were $1.8 million at May 31, 1999. Cost of Revenues Total cost of revenues increased to $1.3 million in fiscal 1999, from $72,000 in fiscal 1998. This increase is primarily attributable to the hiring of additional employees to support increased customer demand for our implementation and consulting. Operating Expenses Research and development. Research and development expenses increased to $3.6 million in fiscal 1999, from $694,000 in fiscal 1998. This increase is primarily attributable to the hiring of additional employees to support the development of new products. Sales and marketing. Sales and marketing expenses increased to $6.3 million in fiscal 1999, from $535,000 in fiscal 1998. This increase resulted primarily from building a direct sales force and investing in sales and marketing infrastructure, including personnel-related expense, travel expenses and related facility and equipment costs, as well as increased marketing activities. 28

General and administrative. General and administrative expenses increased to $1.4 million in fiscal 1999, from $302,000 in fiscal 1998. This increase is primarily attributable to an increase in the number of executive, finance and administrative employees to support the growth of our business. Amortization of deferred stock compensation. We recorded deferred stock compensation of $1.3 million in fiscal 1999. Of this deferred stock compensation, $189,000 was amortized in fiscal 1999. Interest income, net Interest income, net consists of interest income, interest expense and other non-operating expenses. Interest income, net increased to $45,000 in fiscal 1999, from an expense of $8,000 in fiscal 1998. This change from expense to income is attributable primarily to interest income on higher average cash balances relating to financing activities which offset higher capital costs. Provision for Income Taxes From inception through May 31, 1999, we incurred net losses for federal and state tax purposes and have not recognized any tax provision or benefit. As of May 31, 1999, we had approximately $9.0 million of federal and state net operating loss carryforwards to offset future taxable income. The federal and state tax net operating loss carryforwards are available to reduce future taxable income and expire at various dates into fiscal 2019. Given our limited operating history, our losses incurred to date and the difficulty in accurately forecasting our future results, management does not believe that the realization of the related deferred income tax asset meets the criteria required by generally accepted accounting principles. Therefore, we have recorded a 100% valuation allowance against the deferred income tax asset. See note 9 of the notes to our consolidated financial statements. QUARTERLY RESULTS OF OPERATIONS The following tables set forth consolidated statement of operations data for each of the six quarters in the period ended November 30, 1999. This information has been derived from our unaudited consolidated financial statements that, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this information. You should read this information in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this prospectus. We have experienced and expect to continue to experience fluctuations in operating results from quarter to quarter. We incurred net losses in each quarter since inception and expect to continue to incur losses in the foreseeable future. You should not draw any conclusions about our future results from the results of operations for any quarter, as quarterly results are not indicative of the results for a full fiscal year or any other period. 29

Revenues: License.......................... Services....................... Total revenues......... Cost of revenues................. Gross profit..................... Operating expenses: Research and development....... Sales and marketing............ General and administrative..... Amortization of deferred stock compensation................ Total operating expenses............. Loss from operations............. Interest income (expense), net... Net loss.........................

THREE MONTHS ENDED -------------------------------------------------------------AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30, 1998 1998 1999 1999 1999 1999 -----------------------------------------(UNAUDITED) (IN THOUSANDS) $ 15 141 ----156 ----98 ----58 225 234 146 -----605 ----(547) 17 ----$(530) ===== $ 104 223 ------327 ------190 ------137 709 1,233 260 -------2,202 ------(2,065) (6) ------$(2,071) ======= $ 179 375 ------554 ------347 ------207 980 1,325 385 -------2,690 ------(2,483) 18 ------$(2,465) ======= $ 314 588 ------902 ------629 ------273 1,713 3,527 646 189 ------6,075 ------(5,802) 16 ------$(5,786) ======= $ 668 1,039 ------1,707 ------956 ------751 3,522 3,427 901 1,385 ------9,235 ------(8,484) 48 ------$(8,436) ======= $ 1,252 2,245 ------3,497 ------1,772 ------1,725 2,724 5,133 1,091 2,126 ------11,074 ------(9,349) 108 ------$(9,241) =======

Our results of operations could vary significantly from quarter to quarter. We expect to incur significant sale and marketing expenses to promote our products and services. Therefore, our quarterly operating results are likely to be particularly affected by the number of customers licensing our products during any quarter as well as sales and marketing, research and development and other expenses for a particular period. If revenues fall below our expectations, we will not be able to reduce our spending rapidly in response to the shortfall. We anticipate that our sales will continue to have long sales cycles. Therefore, the timing of future customer contracts could be difficult to predict, making it very difficult to predict revenues between quarters, and our operating results may vary significantly. Other factors that could affect our quarterly operating results include those described below and elsewhere in this prospectus: - dependence of our revenues on a small number of larger orders; - our ability to attract new customers; - any changes in revenue recognition policies and provisions and interpretations of these provisions; - our ability to license additional products to current customers; - the announcement or introduction of new products or services by us or our competitors; - changes in the pricing of our products and services or those of our competitors; - variability in the mix of our products and services revenues in any quarter; - technical difficulties or service interruptions of our computer network systems or the Internet generally; and - the amount and timing of operating costs and capital expenditures relating to expansion of our business. 30

LIQUIDITY AND CAPITAL RESOURCES Since inception, we have funded our operations primarily through the sale of equity securities, through which we have raised net proceeds of $51.2 million through November 30, 1999, equipment leases and other debt. As of November 30, 1999, we had outstanding equipment leases and notes payable of $1.4 million. As of November 30, 1999, we had approximately $29.4 million of cash and cash equivalents. Cash used in operating activities was $10.1 million during the six months ended November 30, 1999, $7.7 million in fiscal 1999 and $1.0 million in fiscal 1998. The cash used during these periods was primarily attributable to net losses of $17.7 million during the six months ended November 30, 1999, $10.9 million in fiscal 1999 and $1.6 million in fiscal 1998. Investments in property and equipment, excluding equipment acquired under capital leases, were $1.4 million during the six months ended November 30, 1999, $1.1 million in fiscal 1999 and $70,000 in fiscal 1998. Cash provided by financing activities was $30.5 million during the six months ended November 30, 1999, $19.4 million in fiscal 1999 and $1.1 million in fiscal 1998 resulting primarily from net proceeds from the sale of preferred stock and, to a lesser extent, from bank borrowings. These amounts were partially offset by payments on capital lease obligations and notes payable. As of November 30, 1999, we did not have any material commitments for capital expenditures. Our principal commitments consisted of obligations of $33.3 million under operating leases and $1.1 million under capital leases. We currently anticipate that the net proceeds from our offering, together with our available cash resources and credit facilities, will be sufficient to meet our presently anticipated working capital, capital expenditure and business expansion requirements for at least the next 12 months. However, we may need to raise additional funds within the next 12 months to support expansion, develop new or enhanced applications and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. Our future liquidity and capital requirements will depend upon numerous factors, including the success of our existing and new product and service offerings and competing technological and market developments. We may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, if needed, will be available on terms acceptable to us, or at all. YEAR 2000 Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, beginning on January 1, 2000, computer systems and software used by many companies and organizations in a wide variety of industries, including technology, transportation, utilities, finance and telecommunications, may have produced erroneous results or failed unless they had been modified or upgraded to process date information correctly. We use software, computer technology and other services internally developed and provided by third-party vendors that may fail due to the Year 2000 phenomenon even after January 1, 2000. This failure may involve significant time and expense, and uncorrected problems could seriously harm our business. In addition, the potential failure of our customers to ensure that their operations are Year 2000 compliant could have an adverse effect on them, which in turn could limit their ability to use our products and services or process our invoices in a timely manner. Furthermore, customers or potential customers may delay purchasing our products and services to the extent such customers or potential customers are required to devote resources to resolving the Year 2000 problem. 31

MARKET AND CURRENCY RISK We develop and market our products in North America, Europe and the Asia-Pacific region. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. To date, a substantial majority of our sales have been made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates. However, due to the short-term nature of our investments, we believe that there is no material risk exposure. RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". We are required to adopt SFAS No. 133, as amended, for the year ending May 31, 2001. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because we currently hold no derivative financial instruments and do not currently engage in hedging activities, adoption of SFAS No. 133 is expected to have no material impact on our financial condition or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 regarding recognition, presentation and disclosure of revenues. We believe that SAB No. 101 does not have any material effect on our accounting practices or financial results. 32

BUSINESS OVERVIEW We are a leading provider of Internet-based solutions that enable businesses and governments to create and deploy global networks that connect people to learning. Organizations face a rapidly changing environment in which a principal source of competitive advantage is the depth and breadth of the knowledge and competencies possessed by their "extended enterprise"of employees, customers, partners and suppliers. We provide an Internet-based platform and related services that enable businesses to procure and deliver learning and systematically close knowledge and competency gaps across their extended enterprises. At the same time, we offer learning providers an Internet-based global marketing and distribution channel. Building upon our growing base of learners and learning offerings, we recently launched the Saba Learning Exchange, an Internet-based business-to-business learning marketplace. The Saba Learning Exchange is designed to enable businesses, governments and learning providers to buy and sell learning offerings, as well as collaborate within learning communities. Our offerings are designed to cost-effectively meet the needs of both organizations and learning providers. Organizations implementing our solutions can establish knowledge and competency goals, assess gaps relative to these goals, source and distribute learning needed to close these gaps, and continuously track and measure progress. Our solutions also enable learning providers to develop, market, sell, deliver and improve their learning offerings. Learning offerings supported by our solution can be from internal or external providers, and offered in many languages, off-line or on-line, and over private or public networks. This breadth of functionality allows organizations that use our solutions to: - Accelerate responsiveness to changing business needs. An organization's employees, customers, partners and suppliers can be quickly educated through the distribution of targeted learning to speed responsiveness to changing business objectives. - Enhance customer satisfaction and loyalty. Organizations can provide relevant and updated product and usage knowledge to customers leading to improved satisfaction and loyalty. - Improve recruitment and retention. Learning can be used as a tool to recruit and retain employees, by offering learners an opportunity to improve their performance and enhance their knowledge. - Align disparate business units. Learning can be used to align disparate workforces, for example, recently acquired or merged businesses and geographically-dispersed business units. - Ensure regulatory compliance. Targeted knowledge and competencies can be deployed to ensure compliance with applicable laws, such as those governing the health care, financial services, transportation, chemical and energy industries. As of December 31, 1999, over two million people were licensed to learn and more than 20,000 learning offerings were accessible on Saba learning networks. To increase this base of learners and learning offerings quickly, we intend to continue to target large organizations, including Global 2000 and government organizations, and their learning providers. Our significant customers include 3Com, Agilent, Anheuser-Busch, Cisco Systems, Continental Airlines, DaimlerChrysler, Ford, General Electric, Hyundai, Lucent Technologies, Procter & Gamble, Qwest Communications and US West. Our content offerings are available from over 50 learning providers, including DigitalThink, ExecuTrain, IBM Catapult, International Air Transport Association, NETg, PROVANT, SkillSoft, SmartForce and the Sun-Netscape Alliance. Some of our customers, such as Cisco Systems, act as learning content providers and also license learners for their extended enterprise. 33

INDUSTRY BACKGROUND Traditional Learning Solutions Organizations face an increasingly competitive environment driven by rapid and constant change, globalization and technological advancements. To remain competitive, organizations must continually work on improving the knowledge and competencies not only of their employees, but also of their customers, partners and suppliers. By educating their extended enterprise, organizations can improve performance by, among other things, increasing productivity, reducing the time and expense associated with bringing new products and services to market, and improving customer satisfaction and loyalty. TRAINING Magazine estimates that the training budget of U.S. enterprises was approximately $63 billion in 1999 and the Department of Labor estimates that federal and state governments spent approximately $35 billion on training in 1999. We believe that the worldwide education budget for businesses is significantly higher. Despite the focus and spending on learning, many businesses struggle to realize significant strategic benefits from learning investments due to the significant shortcomings of traditional learning management solutions. Most of the learning management solutions offered today, which include systems developed in-house and third party systems intended for back-office support of employee training, have a number of shortcomings. These solutions typically: - Are unable to identify and systematically close knowledge and competency gaps. Most organizations today lack the systems to identify and assess knowledge and competency gaps across their extended enterprise. They have limited ability to identify and offer appropriate learning to address each individual's needs, track performance improvement at the individual level or across a department or organization, and generate associated management reports that effectively measure the return on their learning investment. - Are unable to personalize learning. Traditional learning management systems do not provide the breadth of relevant learning offerings required to meet the learning needs, language requirements and learning style of each individual in the extended enterprise. Consequently, learners are typically limited to "one-size-fits-all" learning offerings. - Are limited in their ability to source offerings. The learning industry is highly fragmented with a multitude of content providers and a large number of buyers within organizations. The lack of a learning marketplace results in significant time and resources spent on locating relevant content. - Are difficult to update. The lack of enterprise-wide learning management systems makes it difficult for both organizations and learning providers to disseminate time-sensitive information, such as schedules and updated learning offerings. - Are costly and inefficient to deploy and manage across the extended enterprise. Traditional learning management systems are often costly and inefficient. They rely on a combination of manual and automated processes, and are difficult to deploy across geographically dispersed extended enterprises. As a result of these shortcomings, individuals within the extended enterprise do not receive required knowledge or attain necessary competencies in a timely fashion. Consequently, organizations suffer numerous inefficiencies, such as delays in time to market, reduced sales force productivity and violations of safety and other regulations. The providers of learning offerings have faced significant limitations on their ability to develop, market, distribute, sell and improve their offerings. Most learning providers have had limited marketing and distribution channels, making it difficult to cost-effectively reach new customers and markets. They have also been unable to estimate and aggregate demand for their content, as demand within 34

enterprises is highly fragmented, with a multitude of decision-makers and learning buyers. Therefore, many of these providers have no choice but to deliver solutions that are typically in the form of "one-size-fits-all, just-in-case" learning offerings that are not tailored to the knowledge needs and learning style of the individual learner. The Need for an Internet-Based Solution The rapid adoption of the Internet has created an opportunity to solve many of the shortcomings in the business learning market. The Internet is one of the fastest-growing global communications mediums in history and is dramatically changing the way businesses and individuals communicate and share information. International Data Corporation, or IDC, estimates that the number of Internet users worldwide will grow from 142 million in 1998 to 502 million in 2003. In addition, according to Forrester Research, business-to-business electronic commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003, underscoring the significance of this marketing and procurement channel. This rapid growth and deployment of the Internet as a business platform for worldwide communication and commerce is fundamentally transforming the way businesses interact with their employees, customers, partners and suppliers, creating the opportunity to streamline complex processes, lower costs and improve productivity. The Internet has the potential to significantly improve the procurement, deployment and management of learning. However, existing Internet-based offerings have usually only provided narrow solutions that are not designed to serve as an integrated platform for improving knowledge and competency across the extended enterprise. As a result, we believe there is a significant opportunity for an Internet-based solution that is designed to create learning networks to meet the needs of businesses, their employees, customers, partners and suppliers, as well as the needs of third party learning providers. THE SABA SOLUTION We are a leading provider of Internet-based solutions that enable businesses and governments to create and deploy global networks that connect people to learning. Our integrated solutions consist of the Saba Learning Enterprise and Saba Learning Provider software applications, as well as the Saba Learning Exchange, an Internet-based business-to-business learning marketplace. Our platform is standards-based, content-neutral and designed to enable the procurement, deployment and management of on-line or off-line learning in many languages across the extended enterprise. Saba Learning Enterprise is an Internet-based software application that allows enterprises to assess the learning needs of individuals and organizations, select and purchase on-line and off-line learning materials and programs, track individual learners' progress and manage enterprise-wide learning initiatives and processes. Saba Learning Provider is an Internet-based software application that enables learning providers to develop, market, sell and distribute on-line and off-line learning materials to organizations worldwide. We also provide a full range of strategic consulting, business process reengineering, and technical implementation and support services for our business customers and learning providers. Our established base of organizations and learning providers will form the basis of Saba Learning Exchange. We believe that the efficiencies created by this exchange will attract a growing number of organizations and learning providers. As more organizations use the Saba Learning Exchange to procure, deploy and manage their learning programs, we believe they will attract more learning providers to our exchange. As we attract additional learning providers, we believe that even more organizations will be encouraged to use our services, resulting in a network effect, where the value of our services to each participant increases with the addition of new participants. 35

Benefits to Organizations Our offerings are designed to meet the learning needs of extended enterprises. They enable organizations to offer a diverse array of on-line or off-line learning to achieve a variety of objectives. Examples include quickly educating a worldwide sales force in conjunction with new product introductions, disseminating information to ensure compliance with new government regulations, integrating geographically dispersed or recently-acquired business units and enabling customers to achieve higher utility from products and services about which they are now more knowledgeable. With our products, organizations can systematically identify and cost-effectively close knowledge and competency gaps across their extended enterprises. Our extensive network of learning providers allows organizations to select and deliver the breadth of learning content required to meet the learning needs of individuals. Additionally, our solutions include standardized tracking and measurement tools as well as consulting services to better monitor the progress of individuals and the effectiveness of different learning offerings. This centralization and automation of the procurement and management of learning enables organizations to realize a higher return on learning investments through reduced learning provider search and selection costs, improved distribution of learning content across the extended enterprise and improved productivity and performance. Benefits to Learning Providers We offer learning providers a powerful marketing and distribution channel to sell their content and other offerings to organizations worldwide, extending their reach to new customers and across existing business customers' enterprises. We provide a range of options to serve the diverse needs of our learning providers, including: placing simple hyper-links on Saba Learning Exchange to their own websites, incorporating electronic versions of their paper-based catalogs on Saba Learning Exchange, delivering their content electronically to learning organizations and creating fully hosted, commerce- enabled electronic storefronts within Saba Learning Exchange. Moreover, by providing channels for end-user feedback, our learning providers are able to continuously improve their offerings and reduce their time to market for new content and services. In addition, our learning providers are able to take advantage of our management tools that assist them with expanding their offerings, aggregating demand for their offerings, budgeting, managing customer profiles, conducting electronic commerce, invoicing, tracking inventory and measuring and improving resource utilization. Benefits to Learners Learners on our platform are able to improve performance and increase the value of their intellectual capital by accessing relevant on-line and off-line learning offerings. Our platform also allows learners to better understand knowledge requirements and provides them with the means to assess and close their knowledge gaps. The "around-the-clock" availability of our Internet-based platform provides learners with the convenience and flexibility to choose offerings that fit their personal schedules. In addition, customized learning reduces the wasted time and effort resulting from "one-size-fits-all, just-in-case" programs. STRATEGY We intend to increase the number of learners and providers using our Internet-based platform in order to create the leading global exchange that connects people to learning. Key elements of our strategy include: 36

Increase the number of our Global 2000 and government customers Global 2000 and government organizations have large budgets dedicated to the education and development of their employees, customers, suppliers and partners. We believe that continuing to add these "anchor tenants" to our customer base will strengthen our leadership position, provide significant follow-on revenue opportunities and enhance the attractiveness of the Saba Learning Exchange for learning providers. We intend to continue to add these large organizations by establishing strategic relationships, adding to our direct sales force and enhancing the value of our offerings to these customers. Extend penetration within our existing customer base and their affiliates Our existing customers have broad extended enterprises that include customers, suppliers and partners that are directly or indirectly experiencing the benefits of Saba solutions. We believe that this exposure, which allows potential customers to benefit first hand from our solutions, creates demand, generates recognition within a customer's industry and accelerates adoption of our products. We intend to capitalize on this exposure to expand our customer base. Additionally, we intend to increase penetration within our existing customer base by cross-selling our products and services to other divisions and geographic regions within these customers. Increase the number of learning offerings in our network In order to increase the number of learning offerings on Saba Learning Exchange, we intend to increase the number of learning providers in our network. We believe that the expansion of our learning provider base will strengthen our market position, provide us with a significant source of competitive advantage and increase the value that we provide to our customer base. We intend to target providers of diverse and high quality content, including high technology companies, independent training providers and colleges and universities. Expand Saba Learning Exchange We intend to expand Saba Learning Exchange to become the leading global business-to-business learning marketplace. Saba Learning Exchange is designed to be an open-architecture, flexible, scalable, global, Internet-based learning platform supporting multiple languages, currencies and data formats. Through the expansion of Saba Learning Exchange, learning providers will have access to a large number of buyers, buyers will have access to a wide selection of learning offerings and both buyers and sellers will have the ability to collaborate. We believe Saba Learning Exchange will allow us to attract additional learning providers and that even more organizations will be encouraged to use our services, resulting in a network effect, where the value of our services to each participant increases with the addition of new participants. Expand our international presence We plan to capitalize on international opportunities by establishing additional international sales offices, expanding our network of international learning content providers and, where appropriate, establishing strategic alliances to enter new geographic markets. We currently have international sales offices in Australia, Canada, Germany, India and the United Kingdom. Many of our customers are large multinational organizations which are deploying our solution globally, and we are creating both regional and international exchanges to benefit them. Currently, our platform enables learning in English, French, German and Spanish, and we intend to adapt it for other languages. We also plan to leverage our existing customer base and the benefits of our solutions to further our international expansion. 37

Develop new uses and markets for the Saba platform We intend to utilize our open, scalable, standards-based architecture to develop new applications and address new markets for our learning platform. Our architecture will allow us to take advantage of emerging technologies to further extend the reach of our platform. For instance, our architecture allows for the possible distribution of learning content through the growing number of emerging Internet-enabled appliances such as personal digital assistants, cellular telephones, pagers, television set-top boxes and on-line kiosks. We also intend to continue to develop our products to enable us to address markets beyond learning. PRODUCTS AND SERVICES We have two product families: Saba Learning Enterprise and Saba Learning Provider. In addition, we offer Saba Learning Exchange and provide associated services to our customers. The functionality of these products and the scope of our service offerings are described more fully below. Saba Learning Enterprise Saba Learning Enterprise enables businesses to cost-effectively close critical knowledge and competency gaps. Anyone within an organization who oversees the learning of others inside or outside the organization can use this product to establish knowledge and competency goals, assess gaps relative to these goals, source and distribute learning needed to close these gaps and continuously track and measure progress. The underlying business objectives may include speed to market, regulatory compliance, recruitment and retention of employees, and management of change. Examples of specific initiatives include: - sales executives using Saba Learning Enterprise to set product knowledge certification requirements for the direct sales force and resellers; - maintenance executives setting and updating knowledge requirements for technicians as products change; and - supply chain executives setting and managing supplier training requirements on design guidelines and quality. Saba Learning Enterprise provides management with broad reporting and procurement capabilities and pre- and post-learning competency assessment. Saba Learning Enterprise leads managers through a simple process to help them set knowledge targets and close knowledge gaps across the extended enterprise. Using a standard Internet-browser, a manager can establish knowledge targets by role and by competency for any group of learners. The manager can then select and make available a range of offerings to learners by subscribing to them, while simultaneously forecasting the costs associated with such learning. Learners can use Saba Learning Enterprise to assess their knowledge relative to targets and identify knowledge gaps. They can select from, register for and participate in on-line or off-line offerings and keep track of their progress and test results. Concurrently, the manager can track and report on each individual's progress. Finally, management can use Saba Learning Enterprise to compare actual versus budgeted learning expenditures and to assess the return on learning investments. Saba Learning Provider Saba Learning Provider enables both internal and third-party learning providers to cost-effectively develop, market, sell, and distribute consistent learning on a worldwide basis. Third-party content providers can use our product to gain access to a large number of customers and manage their offerings. Learning providers within organizations, such as corporate universities, can distribute 38

offerings across their extended enterprises. Additionally, they may market and sell learning outside of their extended enterprises, if they choose to do so, thereby converting what has traditionally been viewed as a cost center into a source of revenue. Saba Learning Provider categorizes each offering in the learning provider's catalog in several ways: by competency, certification, role, industry, language, geography and delivery method. Additionally, providers can control the distribution of their offerings by limiting access to authorized learners. For example, distribution of information and training for new products can be limited to the sales force. Learning providers can assess demand, market to organizations using our platform, transact with electronic commerce capability, manage assets and inventory such as classrooms and supplies to meet demand for off-line learning, deliver on-line learning, and take advantage of multiple reporting capabilities to better manage their business. Our products can also be used by independent learning providers to establish electronic storefronts which can be accessed through their websites or through Saba Learning Exchange. Saba Learning Exchange Saba Learning Exchange is our recently launched global business-to-business learning marketplace that is designed to meet the learning needs of learning providers and learning organizations. Saba Learning Exchange has broad functionality, including: - search capability for the thousands of publicly available offerings by competency, certification, role, industry, geography, language, provider and delivery method; - access to private learning networks and offerings via secure pass codes; - community features such as chat rooms and discussion groups for buyers, users and providers of learning solutions; and - electronic commerce capabilities. Managers within organizations can use Saba Learning Exchange to find offerings that close knowledge and competency gaps in the groups of people they manage. Learning providers can use Saba Learning Exchange to market learning. We believe that we will attract additional learning providers to Saba Learning Exchange as we add to our base of over two million licensed learners. As we attract additional learning providers and they bring more offerings to Saba Learning Exchange, we believe that even more organizations will be encouraged to use Saba Learning Exchange, resulting in a network effect, where the value of our services to each participant increases with the addition of each new participant. Services We offer comprehensive services to assist in the successful implementation of our products. As of December 31, 1999, we employed 77 people worldwide in services-related activities. Our global services organization supports multiple consulting functions, including: - Strategic consulting. We assist in the definition of areas where learning has the greatest impact on business results and in the establishment of strategies to optimize learning investments. - Implementation consulting. Our implementation services include the definition of learning objectives, the design of phased plans for achieving these objectives, technical solution specifications, establishment of implementation timelines and resource requirements, installation of Saba solutions, systems configuration, data loading, custom report and notification design, website development, enterprise system integration and post-implementation assessment. 39

- Customer support. We provide several support options so that customers may utilize their own resources to the degree desired and leverage their existing investments in customer support. Options include enterprise support, an end-user help desk and on-site support. - Education solutions. We provide product training and learning content conversion to prepare project team members, administrators, and learners for managing and using Saba products. We are in the process of establishing relationships with systems integrators. CUSTOMERS Our customers include a wide spectrum of large, global organizations. Customers that have licensed at least 1,000 learners as of December 31, 1999 include:
Automotive DaimlerChrysler Ford Hyundai Consumer Procter & Gamble Financial Services PaineWebber Strong Capital Wells Fargo Food and Beverage Anheuser-Busch Government U.S. Department of Veterans Affairs High Technology Adobe Agilent Baan BMC Software Ceridian Documentum Informix Software SGI Sun-Netscape Alliance VERITAS Software Insurance Safeco Insurance Manufacturing Caterpillar General Electric Hillenbrand Industries York International Professional Services PricewaterhouseCoopers Scient Whittman-Hart Telecommunications Qwest Communications US West Telecommunications Equipment 3Com Cisco Systems Lucent Technologies Training Providers DigitalThink ExecuTrain TECH Connect Transportation Continental Airlines International Air Transport Association Utilities Texas Utilities -- Europe

40

ALLIANCES We have entered into alliance agreements with content providers, custom content developers, and learning delivery tool providers in order to increase the range of content offerings available to licensed learners. There are over 40 Learning Content Alliance members with numerous content offerings available through Saba Learning Exchange. Over 20 Custom Content Alliance developers are available to develop customized content to meet a particular user's needs. Our recently formed Learning Delivery Tool Alliance currently has five members who provide delivery tools such as on-line classrooms or satellite delivery to content developers and providers. Many companies are members of more than one alliance. Selected members of these alliances include the following: Achieve Global Allen Communication Aptech Worldwide Bell Canada Enterprises Media Caliber Learning Network Centra Competence Software Corporate University Xchange Crisp Publications DigitalThink Eloquent headlight.com IBM Catapult General Physics InterWise LearningByte International LearnLinc NETg ONE TOUCH Systems PRIMEDIA Healthcare PROVANT SkillSoft SmartForce TECH Connect Thomson Learning Course Technology TrainingNet VCampus Wilson Learning Xebec McGraw-Hill SALES AND MARKETING We license our products to organizations primarily through a worldwide direct sales force. Our direct sales efforts target large organizations including Global 2000 businesses and government organizations. As of December 31, 1999, we had 88 sales and marketing professionals located in 17 sales offices, 10 of which offices are in the United States. Our sales process includes pre-sales lead qualification, identification of key buyers and influencers, working with prospective clients to help shape their vision of a learning solution and educating them on Saba products and services. Our sales professionals continue to work with clients after they have selected Saba products and services, and advise them on the entire procurement and implementation process from due diligence and funding approval through implementation and post-implementation services. We focus our marketing efforts on sales lead generation, sales support, creating market awareness of our solutions and establishing strategic relationships. Our marketing activities include seminar programs, speaking engagements, industry trade-shows, website programs, e-mail programs, public relation events and direct mailings. We have also established an Advisory Board of 14 industry leaders. Members include senior executives from Global 2000 and government organizations, consulting firm principals, and academics. We believe our Advisory Board will assist us in gaining broad marketplace acceptance and will enhance our marketing capabilities. TECHNOLOGY Our product architecture facilitates the rapid development, deployment, and customization of Internet-based solutions for organizational learning. Our products share a common core foundation, based on widely-adopted standard Internet technology that leverages thin client computing and electronic commerce capabilities over the Internet. 41

The Core Foundation Our core foundation consists of a scalable application server and a database server, and uses standard web-browser clients. The core foundation accelerates application development by providing transaction management, persistence management, and resource pooling services so application developers can focus on building business logic and user interfaces. Key features of this core foundation include: - Open interfaces. Published Java application programming interfaces, or APIs, enable developers to build custom Saba application extensions, and public database views allow analysts to design custom reports using standard reporting tools. - Scalability. Scalability is accomplished using load-balancing techniques, allowing multiple servers to be deployed to handle peak periods when the largest number of concurrent users are expected on the system. - Standard relational database server. We use standard relational database servers. To enhance performance and ensure that users are served efficiently, the core foundation executes database-stored procedures to optimize intense database processing. The core foundation currently supports Oracle, Microsoft SQL Server and Informix Dynamic Server databases. - Java-based application server. The business and application logic reside on a Java application server. This Java-based architecture allows us to deploy a site across a farm of servers with diverse operating environments, such as Microsoft Windows NT, Sun Solaris or HP UX. - Electronic commerce enabled. The core foundation includes interfaces to external electronic payment services, enabling real-time electronic commerce. - Multiple language support. The core foundation is designed to support multiple languages. Currently supported languages include English, French, German, and Spanish. - Workflow monitoring of learning object changes. A workflow component applies business rules when learning objects change. For example, e-mail can automatically be sent to students when details about their class change. - Integration with legacy enterprise applications. The core foundation is capable of exchanging data with external legacy systems. We provide connectors to popular human resources and financial systems. Research and Development Our research and development operations are divided into two departments: one focusing on our software platform and applications, and one focusing on Saba Learning Exchange. These two departments share resources and collaborate on design and development. These departments are further divided into teams that are responsible for platform and infrastructure development, application development, user interface and application design, enterprise connectivity, Internet applications and design, quality assurance, documentation, and release management. As of December 31, 1999, we had 98 research and development employees. Our development methodology provides guidelines for planning, controlling and implementing projects. To continue to address market requirements, we involve our consulting, support, and sales teams, as well as our customers, in the product development cycle. We conduct our development efforts at multiple sites in the United States and India, which enables development 24 hours per day. 42

COMPETITION The market for our products and services is intensely competitive, dynamic and subject to rapid technological change. The intensity of competition and the pace of change are expected to increase in the future. Competitors vary in size and in the scope and breadth of the products and services they offer. Although we believe that we offer the most comprehensive Internet-based learning platform, we encounter competition with respect to different aspects of our solution from a variety of sources including: - companies that operate Internet-based marketplaces for the sale of on-line learning; - companies that operate Internet-based marketplaces for the sale of goods and services and could potentially decide to evolve their marketplaces to include content offerings; - Internet portals that offer learning content; - companies that market and license training management systems; - enterprise software vendors that offer human resources information systems training modules; and - potential customers' internal development efforts. We expect additional competition from other established and emerging companies as the market for Internet-based, business-to-business learning solutions continues to evolve. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any one of which could seriously harm our business. We believe the principal competitive features affecting our market include: - breadth and depth of the solution; - a significant installed base of Global 2000 and government customers; - the ability to support on-line as well as traditional content offerings; - product quality and performance; - product features and functions; - customer service and support; - ease of implementation; - core technology; and - price/performance. Although we believe that our solutions currently compete favorably with respect to these factors, our market is relatively new and is changing rapidly. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, technical, service, support, marketing and other resources. PROPRIETARY RIGHTS Proprietary rights are important to our success and our competitive position. To protect our proprietary rights, we rely on copyright, trademark, and trade secret laws, confidentiality procedures and contractual provisions. 43

We license rather than sell our software products and require our customers to enter into written license agreements, which impose restrictions on the use of the software. Our Internet edition products are licensed pursuant to Internet-based agreements, rather than by a means of a formal, written contract. Users of these products "click" on a dialog box and are deemed to agree to electronically displayed terms and conditions. Because these agreements are not signed, there is a possibility that a court, arbitrator or regulatory body could deem this type of agreement to be unenforceable or determine that the terms and conditions governing the agreement do not fully protect our intellectual property rights. Therefore, we cannot assure you that this user agreement will afford us adequate protection. In addition, we seek to avoid disclosure of our trade secrets through a number of means, including but not limited to, requiring those persons with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. In addition, we have filed six provisional patent applications in the U.S. We cannot assure you that any formal or approved patent applications will result from these provisional applications, that any patents that may issue will protect our intellectual property or that any issued patents will not be challenged by third parties. Furthermore, other parties may independently develop similar or competing technologies or design around any patents that may be issued to us. It is possible that any patent issued to us may not provide any competitive advantages, that we may not develop future proprietary products or technologies that are patentable, and that the patents of others may seriously limit our ability to do business. In this regard, we have not performed any comprehensive analysis of patents of others that may limit our ability to do business. We have applied for registration of several trademarks, including "Saba", in the United States and in various foreign countries and will seek to register additional trademarks as appropriate. There can be no assurance that we will be successful in obtaining the trademarks for which we have applied. Even if these applications are approved, the trademarks may be successfully challenged by others or invalidated. If the applications are not approved because third parties own the trademarks, the use of the trademarks will be restricted unless we enter into arrangements with the third parties which may be unavailable on commercially reasonable terms. We cannot assure you that any of our proprietary rights with respect to our products or services will be viable or of value in the future since the validity, enforceability and type of protection of proprietary rights in Internet-related industries are uncertain and still evolving. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States, and effective copyright, trademark and trade secret protection may not be available in those jurisdictions. Our means of protecting our proprietary rights may not be adequate to protect us from the infringement or misappropriation of such rights by others. In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, particularly in the software and Internet-related industries. We could become subject to intellectual property infringement claims as the number of our competitors grows and our products and services overlap with competitive offerings. These claims, even if not meritorious, could be expensive to defend and could divert management's attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial award of damages and to develop noninfringing technology, obtain a license or cease selling the products that contain the infringing intellectual property. We may 44

be unable to develop noninfringing technology or obtain a license on commercially reasonable terms, if at all. EMPLOYEES As of December 31, 1999, we had a total of 294 employees, including 98 in research and development, 88 in sales and marketing, 77 in services and 31 in administration and finance. Of these employees, 241 were located in North America and 53 were located outside of North America. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good. Our future success depends on our continuing ability to attract and retain highly qualified technical, sales and senior management personnel. FACILITIES Our principal executive offices occupy approximately 48,000 square feet in Redwood Shores, California under a lease that expires in April 2014. We have additional facilities in the Atlanta, Boston, Chicago, Columbus, Dallas, Denver, Detroit, Houston, Irvine, Los Angeles, Minneapolis, New York City, and Washington D.C. metropolitan areas and in Australia, Canada, Germany, India and the United Kingdom. We believe that our facilities are adequate to meet our needs for the foreseeable future. 45

MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors, and their ages and positions as of January 31, 2000 are as follows:
NAME ---Bobby Yazdani............................ Terry Carlitz............................ Chris Helgeson........................... Stuart Jacobson.......................... Brook Manville........................... David Martin............................. Michael Toepel........................... Peter Williams........................... Nicholas Zaldastani...................... Douglas Allred........................... Robert Cohn(1)........................... Joseph Costello(1)(2).................... Joe Kiani(2)............................. Michael Moritz(2)........................ AGE --36 48 43 42 49 35 38 38 42 49 50 46 35 45 POSITION(S) ----------Chief Executive Officer, President and Chairman of the Board of Directors Chief Financial Officer and Director Vice President, Research and Development Vice President, Sales and Alliances Chief Learning Officer and Chief Customer Evangelist Vice President, Marketing Vice President, Services Vice President, Corporate Development, General Counsel and Secretary Vice President, Internet Services Director Director Director Director Director

(1) Member of Compensation Committee (2) Member of Audit Committee Bobby Yazdani founded Saba and has been our President and Chief Executive Officer since our inception in April 1997. From 1988 until founding Saba, Mr. Yazdani served in various positions at Oracle, most recently as Senior Director. Mr. Yazdani holds a B.A. from the University of California, Berkeley. Terry Carlitz has served as our Chief Financial Officer and a director since joining us in July 1999. From May 1998 until July 1999, Ms. Carlitz served as Senior Vice President Finance and Operations and Chief Financial Officer of SPL WorldGroup, a provider of information technology consulting and enterprise solutions. From February 1995 until May 1998, Ms. Carlitz served as Vice President Finance and Chief Financial Officer of Infinity Financial Technology, a developer of trading and financial risk management software, throughout its initial public offering and subsequent merger with SunGard Data Systems. From February 1993 until February 1995, Ms. Carlitz served as Director, Business Development and Strategic Investments of Apple. Ms. Carlitz holds a B.S. from San Jose State University and an M.B.A. from Stanford University. Chris Helgeson has served as our Vice President, Research and Development since joining us in June 1999. From September 1998 until May 1999, Mr. Helgeson served as Chief Technical Officer of Business Projects, a provider of Internet-based collaboration software. From October 1996 until August 1998, Mr. Helgeson served as Vice President, Engineering and Vice President, Technology of Carnelian, a provider of Internet-based publishing and delivery software. From June 1995 until September 1996, Mr. Helgeson served as Vice President, Engineering of Verity, a provider of knowledge retrieval software. Mr. Helgeson holds a B.S. and B.A. from the University of California, Berkeley. Stuart Jacobson has served as our Vice President, Sales and Alliances since joining us in January 1999. From May 1998 until December 1999, Mr. Jacobson served as a consultant to various software 46

companies. From August 1994 until April 1998, Mr. Jacobson served as Executive Vice President of Novadigm, a provider of automated software management solutions. Mr. Jacobson holds a B.A. from Lewis & Clark College. Brook Manville has served as our Chief Learning Officer and Chief Customer Evangelist since joining us in August 1999. From January 1988 until July 1999, Mr. Manville was employed by McKinsey & Company, a management consulting firm, where he was a partner from July 1994 until July 1999. Mr. Manville holds a B.A. from Yale University, an M.A. from Oxford University, and a Ph.D. from Yale University. David Martin has served as our Vice President, Marketing since joining us in November 1997. From November 1995 until October 1997, Mr. Martin served as a Vice President of SuccessFactors.com, a provider of enterprise competency management software. From October 1990 until November 1995, Mr. Martin served as a Vice President of Oracle. Mr. Martin holds a B.S. from the Massachusetts Institute of Technology. Michael Toepel has served as our Vice President, Services since joining us in August 1999. From January 1998 until June 1999, Mr. Toepel served as President and Chief Executive Officer of Bay Logics, a provider of infrastructure asset management software. From February 1994 until January 1998, Mr. Toepel served as Vice President, Sales and Marketing at SMG, a provider of real estate asset management software. Mr. Toepel holds a B.A. from the University of Texas at Austin and an M.B.A. from the University of Texas at Austin Graduate School of Business. Peter Williams has served as Vice President, Corporate Development and General Counsel of Saba since joining us in October 1999 and has served as our Secretary since our inception in April 1997. Mr. Williams has been a partner at Morrison & Foerster LLP, an international law firm, since January 1995. Mr. Williams holds B.A. degrees from the University of California, Los Angeles and a J.D. from Santa Clara University. Nicholas Zaldastani has served as our Vice President, Internet Services since joining us in June 1999. From August 1997 until May 1999, Mr. Zaldastani served as principal of Zaldastani.com, a strategic consulting firm which advised growth-stage software companies, including Saba. From July 1994 until July 1997, Mr. Zaldastani served as President and Chief Executive Officer of Open Horizon, a provider of Internet and enterprise connectivity software. From July 1988 until June 1994, Mr. Zaldastani served in various positions at Oracle, most recently as a Director in the Applications Division. Mr. Zaldastani holds a B.S. from Duke University and an M.B.A. from the Harvard Business School. Douglas Allred has been a director of Saba since January 2000. Mr. Allred has served as Senior Vice President, Customer Advocacy of Cisco Systems since July 1991. Mr. Allred holds a B.S. from Washington State University. Robert Cohn has been a director of Saba since December 1998. From September 1997 until May 1999, Mr. Cohn served as Executive Vice President of Lucent Technologies. From June 1982 until September 1997, Mr. Cohn served as founder, Chief Executive Officer and Chairman of the Board of Octel Communications, a provider of voice messaging systems. Mr. Cohn presently serves as a director of Chapters Online Inc. Mr. Cohn holds a B.S. from the University of Florida and an M.B.A. from Stanford University. Joseph Costello has been a director of Saba since October 1999. Mr. Costello has served as founder, Chairman of the Board and Chief Executive Officer of think3, a provider of mechanical computer aided design software, since February 1998. From March 1987 until October 1997, Mr. Costello served as President and Chief Executive Officer of Cadence Design Systems, a provider of product development services and technology to electronics companies. Mr. Costello presently serves as a director of Zamba, a consulting and systems integration company focused on the customer care market, Calico Commerce, a provider of seller-focused electronic commerce software 47

and services, and Clarify, a provider of front-office sales and service software. Mr. Costello holds a B.S. from Harvey Mudd College, M.S. from Yale University and M.S. from the University of California, Berkeley. Joe Kiani has been a director of Saba since July 1997. Mr. Kiani has served as co-founder, Chairman of the Board and President and Chief Executive Officer of Masimo, a provider of signal processing and sensor technology to the medical device industry, since February 1989. Mr. Kiani holds a B.S. and M.S. from San Diego State University. Michael Moritz has been a director of Saba since August 1998. Mr. Moritz has been a general partner of Sequoia Capital, a venture capital firm, since 1986. Mr. Moritz serves as a director of Agile Software, a provider of product content management software, eToys, Flextronics, a provider of electronics products manufacturing and logistical services, PlanetRX.com, an online healthcare destination, Webvan Group and Yahoo! Mr. Moritz holds an M.A. from Christ Church, Oxford. BOARD COMPOSITION We currently have authorized seven directors. Our Certificate of Incorporation provides for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, a portion of our board of directors will be elected each year. To implement the classified structure, two of the nominees to the board have been elected to one-year terms, two have been elected to two-year terms and three of the nominees to the board have been elected to three year terms. Messrs. Cohn and Kiani have been designated Class I directors whose term expires at the 2001 annual meeting of stockholders. Ms. Carlitz and Mr. Costello have been designated Class II directors whose term expires at the 2002 annual meeting of stockholders. Messrs. Allred, Moritz and Yazdani have been designated Class III directors whose term expires at the 2003 annual meeting of stockholders. For more information on our classified board, see "Description of Capital Stock -- Anti-takeover Effects of Provisions of our Certificate of Incorporation and Bylaws, and Delaware Law". Our executive officers are appointed by, and serve at the discretion of, our board of directors. Each of our officers and directors, excluding non-employee directors, devotes substantially full time to our affairs. Our non-employee directors devote such time to our affairs as is necessary to discharge their duties. There are no familial relationships among any of our directors, officers or key employees. BOARD COMMITTEES Our Audit Committee reviews, acts on and reports to our board of directors with respect to various auditing and accounting matters, including the selection of our independent accountants, the scope of the annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices. Messrs. Costello, Kiani and Moritz are the members of our Audit Committee. Our Compensation Committee establishes salaries, incentives and other forms of compensation for executive officers and other key employees. This Committee also administers our incentive compensation and benefit plans. Messrs. Cohn and Costello are the members of our Compensation Committee. COMPENSATION COMMITTEE, INSIDER PARTICIPATION AND INTERLOCKS None of the members of our Compensation Committee is an officer or employee of Saba. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has such an interlocking relationship existed in the past. 48

DIRECTOR COMPENSATION We do not pay directors cash compensation for their services as directors or members of committees of the board of directors. We do reimburse them for their reasonable expenses incurred in attending meetings of the board of directors. In addition, each new non-employee director receives an option to purchase 20,000 shares of our common stock upon joining the board of directors. These options vest in two equal installments on the first and second annual stockholder meetings following the date of joining the board of directors. Each incumbent non-employee director is granted an option to purchase an additional 10,000 shares of our common stock at each annual meeting of stockholders thereafter. These options vest at the next annual meeting of stockholders. No options will be granted to any non-employee director who serves on our board of directors at the effective time of this offering until all shares of common stock held by the director have fully vested. See "Stock Plans -- 2000 Stock Incentive Plan". EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation of our Chief Executive Officer and each of our executive officers whose aggregate cash compensation exceeded $100,000 during fiscal 1999 (collectively, our "Named Executive Officers"). SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION -----------------------NAME AND PRINCIPAL POSITION --------------------------Bobby Yazdani................................. President and Chief Executive Officer David Martin.................................. Vice President, Marketing Stuart Jacobson............................... Vice President, Sales and Alliances SALARY($) --------140,000(2) 84,163 53,923(3) BONUS($)(1) -----------90,000 21,591 LONG-TERM COMPENSATION -----------SECURITIES UNDERLYING OPTIONS -------------280,000

(1) Includes bonus amounts earned in fiscal 1998 and paid in fiscal 1999. (2) Does not include $136,075 in deferred compensation earned by Mr. Yazdani in fiscal 1998 and paid in fiscal 1999. (3) Reflects a partial year of service as an employee. Mr. Jacobson's annual target compensation is $240,000. Does not include $53,000 paid to Mr. Jacobson in fiscal 1999 for consulting services performed prior to joining us as a full-time employee. 49

OPTION GRANTS IN FISCAL YEAR 1999 The following table sets forth certain information for each of our Named Executive Officers concerning stock options granted to them during fiscal 1999.
INDIVIDUAL GRANTS --------------------------------------------------------NUMBER OF SECURITIES PERCENT OF TOTAL UNDERLYING OPTIONS EXERCISE OPTIONS GRANTED TO PRICE EXPIRATION GRANTED(1) EMPLOYEES(2) PER SHARE(3) DATE(4) ----------------------------------------------------280,000 9.15% $0.07 01/08/2009 POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM(5) -------------------5%($) 10%($) ----------------$12,326 $31,237

Bobby Yazdani..................... David Martin...................... Stuart Jacobson(6)................

(1) Options granted pursuant to our 1997 Stock Incentive Plan. 25% of the options granted vest one year from the date of grant. Thereafter the remaining 75% of the options granted vest quarterly over the next three years. (2) In fiscal 1999, we granted options to employees to purchase an aggregate of 3,060,500 shares. (3) In determining the fair market value of our common stock, our board of directors considered various factors, including our financial condition and business prospects, our operating results, the absence of a market for our common stock and the risks normally associated with high technology companies. The exercise price may be paid in cash, check, promissory note, shares of our common stock, through a cashless exercise procedure involving same-day sale of the purchased shares or any combination of such methods. (4) Options may terminate before their expiration dates if the optionee's status as an employee or consultant is terminated or upon the optionee's death or disability. (5) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock prices. (6) Does not include 360,000 shares of common stock issued subsequent to fiscal 1999 and subject to a right of repurchase in favor of Saba which lapses over time. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES The following table sets forth certain information concerning exercises of stock options during fiscal 1999 by each of our Named Executive Officers and the number and value of unexercised options held by each of our Named Executive Officers on May 31, 1999.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT MAY 31, 1999(#) --------------------------EXERCISABLE UNEXERCISABLE ------------------------225,000 375,000 -280,000 VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT MAY 31, 1999($)(1) --------------------------EXERCISABLE UNEXERCISABLE ------------------------$56,250 $93,750 -64,400

NAME ---Bobby Yazdani................ David Martin................. Stuart Jacobson..............

SHARES ACQUIRED ON EXERCISE(#) --------------

VALUE REALIZED($) --------------

(1) The value of "in-the-money" stock options represents the positive spread between the exercise price of stock options and the fair market value for our common stock of $0.30 per share as of May 31, 1999, as determined by our Board of Directors. 50

STOCK PLANS We have adopted a 1997 Stock Incentive Plan, a 2000 Stock Incentive Plan and a 2000 Employee Stock Purchase Plan. The purpose of each plan is to enhance our long-term stockholder value by offering our employees, directors, officers, consultants, agents, advisors and independent contractors the opportunity to promote and participate in our growth and success, and to encourage these people to remain in our service and acquire and maintain stock ownership in us. Our board of directors or a committee appointed by the board may administer the plans. 1997 Stock Incentive Plan. In July 1997, we adopted our 1997 Stock Incentive Plan. As of December 31, 1999, we had reserved 8,615,550 shares of common stock for the grant of stock options and other equity incentive awards under the 1997 Incentive Plan, which we increased to 9,815,550 shares in January 2000. As of December 31, 1999, there were options to purchase 5,926,225 shares of common stock outstanding under the 1997 Incentive Plan with exercise prices ranging from $0.05 to $0.95 per share, 2,114,625 shares had been issued pursuant to the exercise of options or equity incentive awards under the 1997 Incentive Plan, and 574,700 shares of common stock were available for the grant of stock options and other equity incentive awards under the 1997 Incentive Plan. Our board of directors determined that no further stock options or other equity incentive awards will be granted under the 1997 Incentive Plan after the initial public offering. 2000 Stock Incentive Plan. In January 2000, we adopted our 2000 Stock Incentive Plan. We have reserved 6,000,000 shares of common stock for the grant of stock options and other equity incentive awards under the 2000 Incentive Plan. Annual increases will be added to the 2000 Incentive Plan equal to the lesser of: (A) 3,000,000 shares, (B) 5% of all outstanding shares of our common stock or (C) a lesser amount determined by our board of directors. As of the date of this prospectus, no options or other equity incentive awards have been granted under the 2000 Incentive Plan. The administrator has the authority to select individuals who are to receive options or other equity incentive awards under the 2000 Incentive Plan and to specify the terms and conditions of options or other equity incentive awards granted (including whether or not such options are incentive or nonstatutory stock options), the vesting provisions, the term and the exercise price. The 2000 Incentive Plan provides that we may grant incentive stock options within the meaning of Section 422 of the Internal Revenue Code to employees, including our officers and employee directors, and we may grant nonstatutory stock options to employees and consultants, including non-employee directors. The exercise price of incentive stock options granted under the 2000 Incentive Plan shall equal the fair market value of our common stock on the date of grant (except in the case of grants to any person holding more than 10% of the total combined voting power of all classes of our, or any of our parent's or subsidiaries', stock in which case the exercise price shall equal 110% of the fair market value on the date of grant). The exercise price of nonqualified stock options shall not be less than 85% of the fair market value on the date of grant (except in the case of grants to any person holding more than 10% of the total combined voting power of all classes of our, or any of our parent's or subsidiaries', stock in which case the exercise price shall equal 110% of the fair market value on the date of grant). Option holders may pay for an exercise in cash or other consideration, including a promissory note, as approved by the administrator. Generally, options granted under the 2000 Incentive Plan (other than those granted to non-employee directors) will vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 12 quarters, such that all shares are vested after four years. Unless otherwise provided by the administrator, an option granted under the 2000 Stock Plan generally expires 6 years from the date of grant (five years in the case of an incentive stock option granted to any person holding more than 10% of the total combined voting power of all classes of our, or any of our parent's or subsidiary's, stock). Upon the optionee's termination of employment or service with us or any of our affiliates without cause, the option will 51

terminate in three months. Upon the optionee's termination of employment or service with us or any of our affiliates for cause, the option may be terminated immediately. Upon the optionee's death or disability, the option will terminate 12 months after the optionee's death or disability. In addition, options granted under our 2000 Stock Plan are not generally transferable by the optionee except by will or the laws of descent and distribution and generally are exercisable during the lifetime of the optionee only by such optionee. In the event we merge with or into another corporation or dispose of all or substantially all of our assets, or in the event of other transactions in which our stockholders before the transaction own less than 50% of the total combined voting power of all our outstanding securities after the transaction, all outstanding awards under the 2000 Incentive Plan will terminate unless they are assumed or equivalent awards are substituted by the successor corporation or any of its parents or subsidiaries. The 2000 Incentive Plan also provides for automatic grants to non-employee directors. Each new non-employee director receives an option to purchase 20,000 shares of our common stock upon joining the board of directors. These options vest in two equal installments on the first and second annual stockholder meetings following the date of joining the board of directors. Each incumbent non-employee director is granted an option to purchase an additional 10,000 shares of our common stock at each annual meeting of stockholders following such director's election of reelection. These options vest at the next annual meeting of stockholders. No options will be granted to any non-employee director who serves on our board of directors at the effective time of this offering until all shares of common stock held by the director have fully vested. Options granted to non-employee directors pursuant to the automatic grant provisions of the 2000 Incentive Plan will be nonqualified stock options with an exercise price equal to the fair market value of our common stock as of the date of grant. Grants to non-employee directors are subject to the general requirements of the 2000 Incentive Plan. 2000 Employee Stock Purchase Plan. In January 2000, we also adopted our 2000 Employee Stock Purchase Plan. We have reserved 2,000,000 shares of common stock for issuance under the 2000 Purchase Plan. Annual increases will be added to the 2000 Purchase Plan equal to the lesser of: (A) 2,000,000 shares, (B) 2% of all outstanding shares of our common stock or (C) a lesser amount determined by our board of directors. Our 2000 Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code in order to provide our employees with an opportunity to purchase common stock through payroll deductions. All of our employees (and employees of our "subsidiary corporation" and "parent corporation" (as defined by the Internal Revenue Code) designated by the administrator, if any) whose customary employment is for more than five months in any calendar year and more than 20 hours per week are eligible to participate in the 2000 Purchase Plan. In addition, employees must have been employed for three business days or more to participate in the 2000 Purchase Plan. Non-employee directors, consultants, and employees subject to the rules or laws of a foreign jurisdiction that prohibit or make impractical the participation of such persons in the 2000 Purchase Plan are not eligible to participate in the 2000 Purchase Plan. The 2000 Purchase Plan designates offer periods, purchase periods and exercise dates. The 2000 Purchase Plan provides for overlapping or consecutive 24-month offer periods. Each offer period includes four six-month purchase periods commencing each January 1 and July 1 (except that the initial purchase period commenced on the effective date of this offering and will end on December 31, 2000). Exercise dates are the last date of each purchase period, that is June 30 and December 31. In the event we merge with or into another corporation or dispose of all or substantially all of our assets, or in the event of other transactions in which our stockholders before the transaction own less than 50% of the total combined voting power of all our outstanding securities after the transaction, the administrator may elect to shorten the offer period then in progress. 52

On the first day of each offer period, a participating employee is granted a purchase right, which is a form of option to be automatically exercised on the next exercise date. Deductions are to be made from the salary of participants (in accordance with their authorizations) and credited to their accounts under the 2000 Purchase Plan. When the purchase right is exercised, the participant's withheld salary is used to purchase shares of common stock. The price per share at which shares of common stock are to be purchased under the 2000 Purchase Plan for any six month period is the lesser of (A) 85% of the fair market value of the common stock on the date of the grant of the option (the commencement of the offer period) or (B) 85% of the fair market value of the common stock on the exercise date (the last day of the offer period). Payroll deductions may range from 1% to 15% (in whole-percentage increments) of a participant's regular base pay, bonuses and commissions, exclusive of overtime, shift premiums, and reimbursements or other expense allowances. Participants may not make direct cash payments to their accounts. For any six-month period the employee may purchase up to 500 shares, and for any calendar year, the employee may purchase up to $25,000 worth of stock. The Internal Revenue Code imposes certain additional limitations on the amount of common stock that may be purchased during any calendar year. 53

PRINCIPAL STOCKHOLDERS The following table sets forth certain information known to us with respect to beneficial ownership of our common stock as of December 31, 1999 as adjusted to reflect the sale of shares offered hereby, by - each person known by us to own beneficially more than 5% of the outstanding shares of common stock, - each of our directors, - each Named Executive Officer (see "Management -- Executive Compensation"), and - all current executive officers and directors as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of December 31, 1999 are deemed outstanding. Percentage of beneficial ownership as of December 31, 1999 is based upon 37,097,103 shares of common stock outstanding prior to this offering and shares of common stock outstanding after this offering. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person's name. Except as otherwise indicated, the address of each of the persons in this table is: c/o Saba Software, Inc., 2400 Bridge Parkway, Redwood Shores, California 94065.
NUMBER OF SHARES ---------8,672,710 8,672,710 PERCENTAGE PRIOR TO THIS OFFERING ------------23.4% 23.4 PERCENTAGE AFTER THIS OFFERING -------------

NAME OF BENEFICIAL OWNER -----------------------Entities affiliated with Sequoia Capital(1)......... 3000 Sand Hill Road, Building 4, Suite 280 Menlo Park, CA 94025 Michael Moritz(2)................................... c/o Sequoia Capital 3000 Sand Hill Road, Building 4, Suite 280 Menlo Park, CA 94025 Bobby Yazdani(3).................................... London Pacific Life & Annuity Company............... 3109 Poplarwood Court, Suite 108 Raleigh, NC 27604 Entities affiliated with Crosslink Capital, Inc.(4)........................................... 555 California Street, Suite 2350 San Francisco, CA 94104 Kamyar Kaviani...................................... 5301 Water Wheel Court Rockville, MD 20855 Terry Carlitz(5).................................... Stuart Jacobson(6).................................. David Martin(7)..................................... Joe Kiani(8)........................................ Joseph Costello(9).................................. Robert Cohn(10)..................................... Douglas Allred(11).................................. All executive officers and directors as a group (14 persons)(12)......................................

7,500,000 2,631,284

20.2 7.1

2,605,613 2,042,250 695,000 495,547 494,611 283,333 232,012 292,608 -19,790,859

7.0 5.5 1.9 1.3 1.3

* * * *

53.1

* Less than 1% of the outstanding common stock. 54

(1) Includes 6,371,375 shares held by Sequoia Capital VIII, 80,837 shares held by Sequoia International Technology Partners VIII, 421,760 shares held by Sequoia International Technology Partners VIII(Q), 140,586 shares held by CMS Partners LLC, 14,781 shares held by Sequoia 1997, 1,468,453 shares held by Sequoia Capital Franchise Fund and 174,918 shares held by Sequoia Capital Franchise Partners. (2) Includes 8,672,710 shares held by the entities affiliated with Sequoia Capital. Mr. Moritz disclaims beneficial ownership of shares held by these entities except to the extent of his pecuniary interest in these entities, if any. (3) Includes 33,333 shares of common stock held in trust for the benefit of Mr. Yazdani's children. Mr. Yazdani disclaims beneficial ownership of these shares. (4) Includes 882,279 shares held by Crosslink Omega Ventures III, L.L.C., 1,375,823 shares held by Crosslink Offshore Omega Ventures III, 121,638 shares held by Omega Bayview, L.L.C., 182,195 shares held by Crosslink Crossover Fund III, L.P., 43,678 shares held by Crosslink Crossover Fund III, L.P. Excludes an aggregate of 100,000 additional shares of common stock held by certain of these funds and acquired after December 31, 1999. (5) Includes 655,000 shares of common stock subject to a right of repurchase in favor of Saba which lapses over time. (6) Includes 360,000 shares of common stock subject to a right of repurchase in favor of Saba which lapses over time and options to purchase 70,000 shares of common stock exercisable within 60 days of December 31, 1999. (7) Includes warrants to purchase 14,283 shares of common stock exercisable within 60 days of December 31, 1999 and options to purchase 37,500 shares of common stock exercisable within 60 days of December 31, 1999. (8) Includes options to purchase 83,333 shares of common stock exercisable within 60 days of December 31, 1999. Excludes 20,000 shares of common stock purchased after December 31, 1999. (9) Includes 185,358 shares of common stock subject to a right of repurchase in favor of Saba which lapses over time. (10) Includes 121,500 shares of common stock subject to a right of repurchase in favor of Saba which lapses over time. Also includes 162,753 shares held in trust for the benefit of certain members of Mr. Cohn's family. Mr. Cohn disclaims beneficial ownership as to the 162,753 shares. Excludes 20,000 shares of common stock purchased after December 31, 1999, of which 11,125 are held in trust for the benefit of members of Mr. Cohn's family. Mr. Cohn also disclaims beneficial ownership of these 11,125 shares. (11) Excludes 245,789 shares of common stock issued after December 31, 1999, of which 185,358 shares are subject to a right of repurchase in favor of Saba which lapses over time. (12) Includes options to purchase 195,833 shares of common stock exercisable within 60 days of December 31, 1999, held by all executive officers and directors of Saba. Includes 49,283 shares of common stock issuable upon exercise of warrants within 60 days of December 31, 1999 held by all executive officers and directors of Saba. Includes 2,355,716 shares of common stock held by all executive officers and directors of Saba subject to a right of repurchase in favor of Saba which lapses over time. Does not include 425,816 shares of common stock acquired by executive officers and directors after December 31, 1999, of which 325,358 shares are subject to a right of repurchase in favor of Saba which lapses over time. As to disclaimers of beneficial ownership, see footnotes 2, 3 and 10 above. 55

RELATED PARTY TRANSACTIONS PREFERRED STOCK ISSUANCES In July 1997, we issued shares of Series A preferred stock in private placements to investors at a purchase price of $0.48 per share. In August 1998, we issued shares of Series B preferred stock in private placements to investors at a purchase price of $0.70014 per share. In April 1999, we issued shares of Series C preferred stock in private placements to investors at a purchase price of $3.0512 per share. In November 1999, we issued shares of Series D preferred stock in private placements to investors at a purchase price of $5.3586 per share. Upon the closing of our initial public offering, each share of Series A, Series B, Series C and Series D preferred stock will convert into one share of common stock. Pursuant to such private placements, we sold shares of preferred stock to the following officers, directors or beneficial owners of more than 5% of our outstanding common stock:
NUMBER OF SHARES OF PREFERRED STOCK -----------------------------------------------SERIES A SERIES B SERIES C SERIES D --------------------------------156,250 ----5,713,143(2) --142,828 ---1,769,795(3) 2,001,750(6) -49,160 49,160(9) -65,547 839,772(4) 503,863(7) --23,495(10) 46,654 --

PURCHASER --------Entities affiliated with Sequoia Capital(1).............................. Entities affiliates with Crosslink Capital, Inc.(5).......................... Kamyar Kaviani(8)......................... David Martin.............................. Robert Cohn............................... Joseph Costello........................... Stuart Jacobson...........................

(1) Mr. Moritz is a General Partner of Sequoia Capital and funds affiliated with Sequoia Capital own beneficially more than 5% of the outstanding shares of our common stock. For a description of this affiliation and disclaimers of beneficial ownership, see "Principal Stockholders". (2) Includes 5,177,822 shares purchased by Sequoia Capital VIII, 65,701 shares purchased by Sequoia International Technology Partners VIII, 342,788 shares purchased by Sequoia International Technology Partners VIII (Q), 114,263 shares purchased by CMS Partners and 12,569 shares purchased by Sequoia 1997. (3) Includes 594,062 shares purchased by Sequoia Capital VIII, 7,538 shares purchased by Sequoia International Technology Partners VIII, 39,329 shares purchased by Sequoia International Technology Partners VIII (Q), 1,442 shares purchased by Sequoia 1997, 947,168 shares purchased by Sequoia Capital Franchise Fund and 167,147 shares purchased by Sequoia Capital Franchise Partners. (4) Includes 282,286 shares purchased by Sequoia Capital VIII, 3,573 shares purchased by Sequoia International Technology Partners VIII, 18,643 shares purchased by Sequoia International Technology Partners VIII (Q), 6,214 shares purchased by CMS Partners, 465,569 shares purchased by Sequoia Capital Franchise Fund and 63,487 shares purchased by Sequoia Capital Franchise Partners. (5) Funds affiliated with Crosslink Capital, Inc. own beneficially more than 5% of the outstanding shares of our common stock. (6) Includes 677,806 shares purchased by Omega Ventures III, L.L.C., 1,056,970 shares purchased by RS & Co. Offshore Omega Ventures III, 93,448 shares purchased by Omega Bayview, L.L.C. and 173,526 shares purchased by Crossover Fund II, L.P. 56

(7) Includes 23,522 shares purchased by Omeaga Bayview, L.L.C., 170,612 shares purchased by Crosslink Omega Ventures III, L.L.C., 266,051 shares purchased by Crosslink Offshore Omega Ventures III and 43,678 shares purchased by Crosslink Crossover Fund III, L.P. (8) At the time of Mr. Kaviani's purchase, he was a director of Saba. Mr. Kaviani also owns beneficially more than 5% of the outstanding shares of our common stock. (9) Includes 49,160 shares of common stock held by Robert or Martha A. Cohn, TTEES, The Wellington Trust U/A/D 1-30-86. (10) Includes 23,495 shares of common stock held by Robert or Martha A. Cohn, TTEES, The Wellington Trust U/A/D 1-30-86. We believe that the shares sold in transactions described above were sold at fair market value and the terms of the other arrangements described above were no less favorable to us than we could have obtained from unaffiliated third parties. COMMON STOCK ISSUANCES In November 1997, we sold 2,570,000 shares of common stock to Mr. Kaviani for an aggregate consideration of $128,500 pursuant to a stock purchase agreement. In connection with such sale, Mr. Kaviani gave us a promissory note in the principal amount of $43,500. In September 1999, we sold 695,000 shares of common stock to Ms. Carlitz, our Chief Financial Officer and one of our directors, for an aggregate consideration of $208,500 pursuant to a restricted stock purchase agreement. In connection with such sale, Ms. Carlitz gave us a secured, full-recourse promissory note in the principal amount of $144,375 secured by the pledge of 481,250 shares of common stock pursuant to a stock pledge agreement. In September 1999, we sold 360,000 shares of common stock to Mr. Jacobson, our Vice President, Sales and Alliances, for an aggregate consideration of $108,000 pursuant to a restricted stock purchase agreement. In connection with such sale, Mr. Jacobson gave us a secured, full-recourse promissory note in the principal amount of $81,000 secured by the pledge of 270,000 shares of common stock pursuant to a stock pledge agreement. In September 1999, we sold 200,000 shares of common stock to Mr. Toepel, our Vice President, Services, for an aggregate consideration of $60,000 pursuant to a restricted stock purchase agreement. In connection with such sale, Mr. Toepel gave us a secured, full-recourse promissory note in the principal amount of $45,000 secured by the pledge of 150,000 shares of common stock pursuant to a stock pledge agreement. In September 1999, we sold 630,000 shares of common stock to Mr. Williams, our Vice President, Corporate Development, General Counsel and Secretary, for an aggregate consideration of $189,000 pursuant to a restricted stock purchase agreement. In connection with such sale, Mr. Williams gave us a secured, full-recourse promissory note in the principal amount of $141,750 secured by the pledge of 472,500 shares of common stock pursuant to a stock pledge agreement. In January 2000, we sold 185,358 shares of common stock to Mr. Allred, one of our directors, for an aggregate consideration of $176,090 pursuant to a restricted stock purchase agreement. In January 2000, we sold 140,000 shares of common stock to Mr. Helgeson, our Vice President, Research and Development, for an aggregate consideration of $133,000 pursuant to a restricted stock purchase agreement. In connection with such sale, Mr. Helgeson gave us a secured, full-recourse promissory note in the principal amount of $95,000 secured by the pledge of 100,000 shares of common stock pursuant to a stock pledge agreement. 57

We believe that the shares sold in transactions described above were sold at fair market value and the terms of the other arrangements described above were no less favorable than we could have obtained from unaffiliated third parties. WARRANT ISSUANCES In December 1997 in connection with our Series B preferred stock financing, at which time Mr. Martin was a director of Saba, we entered into a Note and Warrant Purchase Agreement with Mr. Martin pursuant to which we issued to Mr. Martin a Convertible Promissory Note in the principal amount of $100,000 and warrants to purchase up to 14,283 shares of common stock at a price of $0.70014 per share. In January 2000, we issued to entities affiliated with Crosslink Capital, Inc. warrants to purchase up to 100,000 shares of common stock at an exercise price of $0.01 per share. The warrant was exercised in January 2000. OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS We granted options to the following executive officers to purchase shares of common stock on the date, for the number of shares, with an exercise price as indicated opposite each person's name:
SECURITIES UNDERLYING OPTIONS ---------140,000 280,000 600,000

NAME ---Chris Helgeson......................... Stuart Jacobson........................ David Martin...........................

OPTION DATE ----------07/09/1999 01/08/1999 11/22/1997

EXERCISE PRICE -------------$0.30 0.07 0.05

For a description of compensation arrangements we have with our executive officers and officers, see "Management". OTHER TRANSACTIONS In August 1997, we issued 5,876,016 shares of common stock to HTR, Inc. in exchange for intellectual property. In connection with the acquisition of HTR, Inc. by a third party in October 1997, we repurchased all 5,876,016 shares using a promissory note in the principal amount of $150,000, which was secured by a pledge of 7,500 shares of our common stock held by Mr. Yazdani, our President and Chief Executive Officer. At the time of the initial issuance to HTR, Inc., Mr. Kaviani was a director of Saba and an affiliate of HTR, Inc. In addition, the period from our inception through May 31, 1998, we recorded $26,000 in services revenues from HTR, Inc. 58

DESCRIPTION OF CAPITAL STOCK AUTHORIZED AND OUTSTANDING CAPITAL STOCK We are authorized to issue up to 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. The following description of our capital stock is not complete and is qualified in its entirety by our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, both of which will be effective as of the completion of this offering and which were included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable Delaware law. COMMON STOCK As of December 31, 1999, there were 37,097,103 shares of common stock outstanding held of record by approximately 131 stockholders. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. The board of directors may declare a dividend out of funds legally available therefor and, subject to preferences applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably any such dividends. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in all of our assets. Holders of our common stock have no preemptive rights or other subscription rights to convert their shares into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, all outstanding shares of our preferred stock will be converted into an aggregate of 19,568,540 shares of common stock. The board of directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the privileges and rights of each series. These privileges and rights may be greater than those of the common stock. The board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. Therefore, we could issue preferred stock quickly with terms calculated to delay or prevent a change in control of Saba or make removal of management more difficult. Additionally, if we issue preferred stock, then the market price of common stock may decrease, and voting and other rights may decrease. We have no plans to issue any preferred stock. WARRANTS As of December 31, 1999 there were warrants outstanding to purchase up to 269,244 shares, with per share exercise prices ranging from $0.10 to 80% of the initial price to the public of the shares offered in this offering. All of these warrants, except for warrants to purchase up to 104,626 shares, will terminate if not exercised prior to the closing of this offering. REGISTRATION RIGHTS After the SEC declares this registration statement effective, and assuming we comply with various other requirements, the holders of approximately 26,692,870 shares of common stock will hold registration rights. These rights are held under the terms of an agreement between us and various stockholders. Under the terms of this agreement, if we propose to register any of our securities under the Securities Act, either for our own account or for other security holders, we must give the holders of registration rights notice of such registration and include a portion of their shares of common stock 59

in such registration if they so choose at our expense. In addition, some holders of registration rights may require us to file a registration statement under the Securities Act at our expense with respect to their shares of common stock. We are required to use our commercially reasonable efforts to effect such registration. All of these registration rights are subject to specific conditions and limitations, among them the right of the underwriters of any offering to limit the number of shares included in such registration and our right not to effect a registration in specific situations. Under this agreement, we have agreed to bear all registration expenses (other than underwriting discounts and commissions and fees, and specific fees and disbursements of counsel of the holders of registration rights). We have agreed to indemnify the holders of registration rights against specific liabilities under the Securities Act. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS, AND DELAWARE LAW Upon the closing of this offering, some provisions of Delaware law and our Certificate of Incorporation and Bylaws could make the following more difficult: - acquisition of Saba by means of a tender offer, - acquisition of Saba by means of a proxy contest or otherwise, or - removal of our incumbent officers and directors. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages of discouraging such proposals because negotiation of such proposals could result in an improvement of their terms. Election and Removal of Directors. Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see the section entitled "Management -- Board Composition". This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us because it generally makes it more difficult for stockholders to replace a majority of the directors. Stockholder Meetings. Under our Bylaws, only the board of directors, the Chairman of the Board and the President may call special meetings of stockholders. Requirements for Advance Notification of Stockholder Nominations and Proposals. Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless the "business combination" or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns or within three years prior to the determination of interested stockholder status, did own, 15% or more of a corporation's voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions 60

not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders. Elimination of Stockholder Action By Written Consent. Our Certificate of Incorporation eliminates the right of stockholders to act by written consent without a meeting. Elimination of Cumulative Voting. Our Certificate of Incorporation and Bylaws do not provide for cumulative voting in the election of directors. Cumulative voting provides for a minority stockholder to vote a portion or all of its shares for one or more candidates for seats on the board of directors. Without cumulative voting, a minority stockholder will not be able to gain as many seats on our board of directors based on the number of shares of our stock that such stockholder holds than if cumulative voting were permitted. The elimination of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence the board of directors' decision regarding a takeover. Undesignated Preferred Stock. The authorization of undesignated preferred stock makes it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of Saba. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of Saba. Amendment of Charter Provisions. The amendment of any of the above provisions would require approval by holders of at least 66 2/3% of the outstanding common stock. LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION Our Certificate of Incorporation includes provisions that limit the personal liability of our officers and directors for monetary damages for breach of their fiduciary duties as directors, except for liability that cannot be eliminated under the Delaware General Corporation Law. The Delaware General Corporation Law does not permit a provision in a corporation's Certificate of Incorporation that would eliminate such liability (i) for any breach of their duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for any unlawful payment of a dividend or unlawful stock repurchase or redemption, as provided in Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. While these provisions provide directors with protection from awards for monetary damages for breaches of their duty of care, they do not eliminate such duty. Accordingly, these provisions will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his or her duty of care. The provisions described above apply to an officer of a corporation only if he or she is a director of such corporation and is acting in his or her capacity as director, and do not apply to the officers of the corporation who are not directors. Our Bylaws provide that, to the fullest extent permitted by the Delaware General Corporation Law, we may indemnify our directors, officers and employees and agents. In addition, we anticipate that each director will enter into an indemnification agreement pursuant to which we will indemnify such director to the fullest extent permitted by the Delaware General Corporation Law. At present, there is no pending litigation or proceeding involving any of our directors or officers in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. We have entered into indemnification agreements with each of our executive officers and directors, in addition to the indemnification provided in our Bylaws. These agreements, among other things, provide for indemnification of our executive officers and directors for expenses, judgments, fines and settlement amounts incurred by any such person in any action or proceeding arising out of 61

such person's services as an executive officer or director at our request. We believe these provisions and agreements are necessary to attract and retain qualified persons as executive officers and directors. LISTING Application has been made for quotation of our common stock on the Nasdaq National Market under the symbol "SABA". TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is . Its address is , and its telephone number is . 62

SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, we will have shares of common stock outstanding based on shares outstanding as of December 31, 1999. Of these shares, the shares sold in this offering will be freely transferable without restriction under the Securities Act, unless they are held by our "affiliates" as that term is used under the Securities Act and the Regulations promulgated thereunder. The remaining 37,097,103 outstanding shares were sold by us in reliance on exemptions from the registration requirements of the Securities Act and are restricted securities within the meaning of Rule 144 under the Securities Act. Beginning 181 days after the date of this prospectus, approximately 31,246,921 shares will become eligible for sale subject to the provisions of Rule 144, Rule 144(k) or Rule 701 upon the expiration of agreements not to sell these shares entered into between the underwriters and stockholders of Saba. Beginning 181 days after the date of this prospectus, approximately 378,750 additional shares will become eligible for sale subject to vested options as of the Effective Date in compliance with Rule 701 and upon the expiration of agreements not to sell these shares entered into between the underwriters and optionholders of Saba. Any shares subject to lock-up agreements may be released at any time, without notice, by the underwriters. See "Risk Factors -- Shares Eligible for Future Sale". In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned restricted shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the effectiveness of the registration statement of which this prospectus is a part, a number of shares that does not exceed the greater of 1% of the then outstanding shares of common stock (approximately shares immediately after this offering) or the average weekly trading volume in the common stock during the four calendar weeks preceding this sale, subject to the filing of a Form 144 with respect to this sale and other limitations and restrictions. In addition, a person who is not deemed to have been an affiliate of Saba at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell their shares under Rule 144(k) without regard to the requirements described above. Any employee, officer or director of or consultant to Saba who purchased his or her shares prior to the effectiveness of the registration statement of which this prospectus is a part or who holds vested options as of that date pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permits non-affiliates to sell their Rule 701 shares without having to comply with the public-information, holding-period, volume-limitation or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding-period restrictions, in each case commencing 90 days after the effectiveness of the registration statement of which this prospectus is a part. However, we and some of our officers, directors and other stockholders have agreed not to sell or otherwise dispose of any shares of common stock for the 180-day period after the date of this prospectus without the prior written consent of the underwriters. See "Underwriting". As soon as practicable after the effectiveness of the registration statement of which this prospectus is a part, we intend to file a registration statement on Form S-8 under the Securities Act to register shares of common stock reserved for issuance under the 1997 Stock Incentive Plan, the 2000 Stock Incentive Plan and the 2000 Employee Stock Purchase Plan, thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act. These registration statements will become effective immediately upon filing. Prior to this offering, there has been no public market for our common stock, and any sale of substantial amounts in the open market may adversely affect the market price of our common stock offered in this offering. 63

LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Morrison & Foerster LLP, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Shearman & Sterling, Menlo Park, California. Peter Williams, a partner with Morrison & Foerster LLP, counsel to the Company, also serves as our Vice President, Corporate Development, General Counsel and Secretary. Mr. Williams holds 668,000 shares of our common stock. EXPERTS Ernst & Young LLP, independent auditors, have audited Saba Software, Inc.'s consolidated financial statements at May 31, 1998 and 1999, and for the period from April 16, 1997 (inception) through May 31, 1998 and for the year ended May 31, 1999, as set forth in their report. We have included Saba Software, Inc.'s consolidated financial statements in this prospectus and registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. CHANGE IN ACCOUNTANTS In August 1999, we engaged Ernst & Young LLP to audit our financial statements and dismissed Deloitte & Touche LLP as our principal accountant. The board of directors has approved the appointment of Ernst & Young LLP as our principal accountant. In connection with the services conducted by Deloitte & Touche LLP for any period there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which, if not resolved to Deloitte & Touche LLP's satisfaction, would have caused them to reference the subject matter of the disagreement in their opinion. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Some items are omitted in accordance with the rules and regulations of the SEC. For further information with respect to Saba and our common stock offered in this offering, we refer you to the registration statement and the attached exhibits and schedules. Statements made in this prospectus as to the contents of any document referred to in this prospectus are not necessarily complete. With respect to each document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matter involved. The registration statement, including exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at the North Western Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies of these materials may be obtained from these offices after payment of fees prescribed by the SEC. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. 64

UNDERWRITING Saba and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, FleetBoston Robertson Stephens Inc. and Banc of America Securities LLC are the representatives of the underwriters.
Underwriters -----------Goldman, Sachs & Co......................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.................................... FleetBoston Robertson Stephens Inc.......................... Banc of America Securities LLC.............................. Total........................................ Number of Shares ----------------

-------========

If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional shares from Saba to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by Saba. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
Paid by Saba -----------Per share............................................... Total................................................... No Exercise ----------$ $ Full Exercise ------------$ $

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. Saba and its directors, officers, employees and other stockholders have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This agreement does not apply to any issuance under any existing employee benefit plans or, with respect to individuals, transfers by gift, will or intestate succession, or with respect to partnerships, transfers to partners, provided that in each case the transferee agrees to be bound by the restriction for any remaining period. See "Shares Eligible for Future Sale" for a discussion of transfer restrictions. Prior to the offering, there has been no public market for the shares. The initial public offering price for the common stock will be negotiated among Saba and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be Saba's historical performance, estimates of the business potential 65

and earnings prospects of Saba, an assessment of Saba's management and the consideration of the above factors in relation to market valuation of companies in related businesses. Saba has applied for quotation of its common stock on the Nasdaq National Market under the symbol "SABA". In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. At the request of Saba, the underwriters are reserving up to shares of common stock for sale at the initial public offering price to directors, officers, employees and friends through a directed share program. The number of shares of common stock available for sale to the general public in the public offering will be reduced to the extent these persons purchase these reserved shares. Any shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered hereby. In November 1999, an entity affiliated with Goldman, Sachs & Co. purchased an aggregate of 839,772 shares of our Series D preferred stock for an aggregate purchase price of approximately $4.5 million. In January 2000, these shares were transferred to an affiliated investment entity. In November 1999, an individual affiliated with Banc of America Securities LLC purchased an aggregate of 18,195 shares of our Series D preferred stock for an aggregate purchase price of approximately $100,000. In August 1998 an individual affiliated with Banc of America Securities LLC purchased an aggregate of 71,414 shares of our Series B preferred stock for approximately $50,000, and in April 1999 purchased an aggregate of 10,712 shares of our common stock for approximately $7,500. In August 1998 an individual affiliated with FleetBoston Robertson Stephens Inc. purchased an aggregate of 35,707 shares of our Series B preferred for approximately $25,000, and in November 1999 purchased 5,458 shares of our Series C preferred stock for approximately $16,650. Saba estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $1.0 million. Saba has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933. 66

SABA SOFTWARE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---F-2 F-3 F-4 F-5 F-6 F-7

Report of Ernst & Young LLP, Independent Auditors........... Consolidated Balance Sheets................................. Consolidated Statements of Operations....................... Consolidated Statements of Stockholders' Equity (Deficit)... Consolidated Statements of Cash Flows....................... Notes to Consolidated Financial Statements..................

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Saba Software, Inc. We have audited the accompanying consolidated balance sheets of Saba Software, Inc. as of May 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the period from April 16, 1997 (inception) through May 31, 1998 and the year ended May 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Saba Software, Inc. at May 31, 1998 and 1999, and the consolidated results of its operations and its cash flows for the period from April 16, 1997 (inception) through May 31, 1998 and year ended May 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP Walnut Creek, California December 16, 1999, except for Note 12, as to which the date is January 28, 2000.

F-2

SABA SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
PRO FORMA STOCKHOLDERS' EQUITY NOVEMBER 30, 1999 ------------(UNAUDITED)

MAY 31, ----------------1998 1999 ------------Current assets: Cash and cash equivalents................................... Accounts receivable (net of allowance of none at May 31, 1998, $124 at May 31, 1999, and $214 at November 30, 1999)................................................... Prepaid expenses and other current assets................. Total current assets................................ Property and equipment, net................................. Other assets................................................ Total assets........................................ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... Accrued compensation and related expenses................. Accrued expenses.......................................... Deferred revenue.......................................... Note payable to related party............................. Current portion of capital lease obligations.............. Total current liabilities........................... Deferred revenue............................................ Notes payable............................................... Convertible debt............................................ Capital lease obligations, less current portion............. Total liabilities................................... Commitments Stockholders' equity (deficit): Convertible preferred stock, issuable in series: $0.001 par value; authorized: 5,000,000 shares at May 31, 1998, 14,700,000 shares at May 31, 1999 and 23,000,000 shares at November 30, 1999; issued and outstanding: 749,996 shares at May 31, 1998, 13,942,771 shares at May 31, 1999 and 19,568,540 shares at November 30, 1999 (none pro forma); Aggregate liquidation preference of $20,432 at May 31, 1999......................................... Common stock, $0.001 par value; authorized: 50,000,000 shares; issued: 15,799,174 shares at May 31, 1998; 16,326,168 shares at May 31, 1999 and 17,213,448 shares at November 30, 1999 (36,754,698 shares pro forma)...... Additional paid-in capital................................ Deferred stock compensation............................... Notes receivable from stockholders........................ Treasury stock; 3,609,174 shares at May 31, 1998, 3,112,456 shares at May 31, 1999 and none at November 30, 1999 (none pro forma), at cost...................... Accumulated deficit....................................... Total stockholders' equity (deficit)................ Total liabilities and stockholders' equity (deficit)......................................... $ 41 $10,384 1,930 122 ------12,436 1,122 510 ------$14,068 ======= $ 1,667 1,132 600 1,197 -33 ------4,629 626 329 -55 ------5,639

NOVEMBER 30, 1999 -----------(UNAUDITED) $29,390 6,872 305 ------36,567 3,111 510 ------$40,188 ======= $ 2,988 1,404 1,958 6,081 -181 ------12,612 1,417 329 -869 ------15,227

84 29 ------154 85 -------$ 239 ======= $ 201 195 26 81 120 12 ------635 --565 13 ------1,213

1

14

20

$

--

16 627 -(10) (37) (1,571) ------(974) ------$ 239 =======

16 21,925 (1,092) -(11) (12,423) ------8,429 ------$14,068 =======

17 66,260 (10,743) (493) -(30,100) ------24,961 ------$40,188 =======

37 66,260 (10,743) (493) -(30,100) -------$ 24,961 ========

See Accompanying Notes to Consolidated Financial Statements. F-3

SABA SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM APRIL 16, 1997 (INCEPTION) THROUGH MAY 31, 1998 -------------Revenues: License.......................................... Services....................................... Total revenues......................... Cost of revenues: Cost of license................................ Cost of services............................... $ 7 33 ------40 -------72 ------72 ------(32) 694 535 302 -------1,531 ------(1,563) 7 (15) ------$(1,571) ======= $ (0.17) ======= 9,439 =======

YEAR ENDED MAY 31, 1999 ---------$ 612 1,327 -------1,939 --------1,264 -------1,264 -------675 3,627 6,319 1,437 189 -------11,572 -------(10,897) 93 (48) -------$(10,852) ======== $ (0.84) ======== 12,987 ======== $ (0.52) ======== 20,881 ========

SIX MONTHS ENDED NOVEMBER 30, -----------------1998 1999 -------------(UNAUDITED) $ 119 364 ------483 -------288 ------288 ------195 934 1,467 406 -------2,807 ------(2,612) 58 (47) ------$(2,601) ======= $ (0.20) ======= 12,896 ======= $ 1,920 3,284 -------5,204 --------2,728 -------2,728 -------2,476 6,246 8,560 1,992 3,511 -------20,309 -------(17,833) 229 (73) -------$(17,677) ======== $ (1.26) ======== 13,996 ======== $ (0.62) ======== 28,557 ========

Gross profit (loss).............................. Operating expenses: Research and development....................... Sales and marketing............................ General and administrative..................... Amortization of deferred stock compensation.... Total operating expenses............... Loss from operations............................. Interest and other income, net................... Interest expense................................. Net loss......................................... Basic and diluted net loss per share............. Shares used in computing basic and diluted net loss per share................................. Pro forma basic and diluted net loss per share (unaudited).................................... Shares used in computing pro forma basic and diluted net loss per share (unaudited).........

See Accompanying Notes to Consolidated Financial Statements. F-4

SABA SOFTWARE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
CONVERTIBLE PREFERRED STOCK ------------------SHARES AMOUNT ------------------749,996 -------------749,996 --5,713,143 2,870,854 4,608,778 -------------13,942,771 ---5,625,769 -------------19,568,540 ========== $----1 ------1 --6 3 4 ------14 ---6 ------$20 === NOTES RECEIVABLE FROM STOCKHOLDERS -----------$ ---(32) (25) 47 -------(10) (54) 64 ------------(493) -----------$(493) =====

Issuance of common stock to founders........................... Issuance of common stock for in-process research and development....................... Purchase of treasury stock......... Issuance of common stock for cash and notes receivable.............. Issuance of convertible preferred stock for cash and notes, net of issuance costs.................... Collections under notes receivable........................ Issuance of common stock in connection with exercise of stock options........................... Issuance of common stock options for services...................... Net loss and comprehensive loss.... Balances at May 31, 1998........... Issuance of common stock for cash and notes......................... Collections under notes receivable........................ Issuance of convertible preferred stock for cash, net of issuance costs............................. Conversion of convertible debt into convertible preferred stock....... Issuance of convertible preferred stock for cash, net of issuance costs............................. Issuance of common stock options and warrants for services......... Deferred stock compensation........ Amortization of deferred stock compensation...................... Net loss and comprehensive loss.... Balances at May 31, 1999........... Issuance of common stock for cash and notes (unaudited)............. Issuance of common stock in connection with exercise of stock options........................... Issuance of common stock in connection with warrant exercise.......................... Issuance of convertible preferred stock for cash (unaudited)........ Issuance of warrant for convertible preferred stock (unaudited)....... Deferred stock compensation (unaudited)....................... Amortization of deferred stock compensation (unaudited).......... Net loss and comprehensive loss (unaudited)....................... Balances at November 30, 1999 (unaudited).......................

COMMON STOCK ------------------SHARES AMOUNT --------------7,500,000 5,876,016 -2,163,158 --260,000 -----------15,799,174 526,994 -----------------16,326,168 592,339 -294,941 --------------17,213,448 ========== $ 8 6 -2 -------16 -----------16 1 ---------$17 ===

ADDITIONAL PAID-IN CAPITAL ---------$ 7 144 -106 352 -13 5 -------627 35 -3,953 2,007 14,014 8 1,281 --------21,925 656 76 206 30,075 160 13,162 --------$66,260 =======

DEFERRED STOCK COMPENSATION -----------$ -----------------------(1,281) 189 --------(1,092) -----(13,162) 3,511 --------$(10,743) ========

Issuance of common stock to founders........................... Issuance of common stock for in-process research and development....................... Purchase of treasury stock......... Issuance of common stock for cash and notes receivable.............. Issuance of convertible preferred stock for cash and notes, net of issuance costs.................... Collections under notes receivable........................ Issuance of common stock in connection with exercise of stock options........................... Issuance of common stock options for services...................... Net loss and comprehensive loss.... Balances at May 31, 1998........... Issuance of common stock for cash and notes.........................

TREASURY STOCK ------------------SHARES AMOUNT ----------------(5,876,016) 2,266,842 --------------(3,609,174) 496,718 $ --

ACCUMULATED DEFICIT ----------$ --------(1,571) -------(1,571) --

TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ------------$ 15 150 (150) 189 328 47 13 5 (1,571) -------(974) 7

-(150) 113 ---------(37) 26

Collections under notes receivable........................ Issuance of convertible preferred stock for cash, net of issuance costs............................. Conversion of convertible debt into convertible preferred stock....... Issuance of convertible preferred stock for cash, net of issuance costs............................. Issuance of common stock options and warrants for services......... Deferred stock compensation........ Amortization of deferred stock compensation...................... Net loss and comprehensive loss.... Balances at May 31, 1999........... Issuance of common stock for cash and notes (unaudited)............. Issuance of common stock in connection with exercise of stock options........................... Issuance of common stock in connection with warrant exercise.......................... Issuance of convertible preferred stock for cash (unaudited)........ Issuance of warrant for convertible preferred stock (unaudited)....... Deferred stock compensation (unaudited)....................... Amortization of deferred stock compensation (unaudited).......... Net loss and comprehensive loss (unaudited)....................... Balances at November 30, 1999 (unaudited).......................

-----------------(3,112,456) 1,618,019 1,494,437 ----------------==========

------------(11) 6 5 ----------$ -=====

-------(10,852) -------(12,423) -------(17,677) -------$(30,100) ========

64 3,959 2,010 14,018 8 -189 (10,852) -------8,429 170 81 206 30,081 160 -3,511 (17,677) -------$ 24,961 ========

See Accompanying Notes to Consolidated Financial Statements. F-5

SABA SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM APRIL 16, 1997 (INCEPTION) THROUGH MAY 31, 1998 -------------OPERATING ACTIVITIES: Net loss.................................................... Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................. Amortization of deferred stock compensation............... Issuance of common stock for services..................... Write-off of in-process research and development.......... Changes in operating assets and liabilities: Accounts receivable..................................... Prepaid expenses and other current assets............... Accounts payable........................................ Accrued compensation and related expenses............... Accrued expenses........................................ Deferred revenue........................................ Net cash used in operating activities....................... INVESTING ACTIVITIES: Purchases of property and equipment, net.................... Increase in other assets.................................... Net cash used in investing activities....................... FINANCING ACTIVITIES: Net proceeds from issuance of convertible preferred stock... Proceeds from issuance of common stock...................... Borrowings under line of credit agreement................... Repayments of borrowings under line of credit agreement..... Proceeds from issuance of convertible debt.................. Principal payments under capital lease obligations.......... Collections on notes receivable from stockholders........... Repayments of note payable to related party................. Net cash provided by financing activities................... Increase in cash and equivalents............................ Cash and equivalents, beginning of period................... Cash and equivalents, end of period......................... SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: Equipment purchased under capital lease obligations......... Common stock issued for notes receivable from stockholders.............................................. Common stock issued for in-process research and development............................................... Warrant issued for purchase of Series C convertible preferred stock for financing............................. Note payable issued in connection with the purchase of treasury stock............................................ Conversion of convertible debt into convertible preferred stock..................................................... SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION: Cash paid for interest...................................... $(1,571) 10 -5 150 (84) (29) 201 195 26 81 ------(1,016) ------(70) -------(70) ------328 217 --565 -47 (30) ------1,127 ------41 -------$ 41 ======= $ 25 ======= $ 57 ======= $ 150 ======= $ -======= $ 150 ======= $ -======= $ -=======

YEAR ENDED MAY 31, 1999 ---------$(10,852) 106 189 8 -(1,846) (93) 1,466 937 574 1,742 -------(7,769) -------(1,069) (181) -------(1,250) -------17,977 7 542 (542) 1,445 (11) 64 (120) -------19,362 -------10,343 41 -------$ 10,384 ======== $ 75 ======== $ 54 ======== $ -======== $ -======== $ -======== $ 2,010 ======== $ 17 ========

SIX MONTHS ENDED NOVEMBER 30, -----------------1998 1999 -------------(UNAUDITED) $(2,601) 22 ---(581) (61) 163 (77) 249 385 ------(2,501) ------(366) (168) ------(534) ------3,936 ---1,445 (6) 64 (120) ------5,319 ------2,284 41 ------$ 2,325 ======= $ -======= $ 54 ======= $ -======= $ -======= $ -======= $ 2,010 ======= $ 12 ======= $(17,677) 494 3,511 --(4,942) (38) 1,321 272 1,283 5,675 -------(10,101) -------(1,379) --------(1,379) -------30,081 457 ---(52) ---------30,486 -------19,006 10,384 -------$ 29,390 ======== $ 1,014 ======== $ 493 ======== $ -======== $ 160 ======== $ -======== $ -======== $ 51 ========

See Accompanying Notes to Consolidated Financial Statements. F-6

]SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF AND FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998 AND 1999 IS UNAUDITED) 1. THE COMPANY Saba Software, Inc. ("Saba") provides Internet-based solutions that enable businesses and governments to create and deploy global networks that connect people to learning. Saba provides an Internet-based platform and related services that deliver a comprehensive learning solution to organizations and their "extended enterprise" of employees, customers, partners and suppliers. Saba's solutions enable organizations to procure and deliver learning and systematically close knowledge and competency gaps across their extended enterprises. In addition, Saba offers learning providers a global marketing and distribution channel. Saba recently launched the Saba Learning Exchange, an Internet-based business-to-business learning marketplace. Saba was incorporated in the state of Delaware in April 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Saba and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements for fiscal 1998 include the results of operations of Saba from inception on April 16, 1997. Operations for the period from April 16, 1997 (inception) through May 31, 1997 were not significant. UNAUDITED INTERIM FINANCIAL INFORMATION The interim financial information as of November 30, 1999 and for the six months ended November 30, 1998 and 1999 is unaudited but includes all adjustments, consisting only of normal recurring adjustments that management considers necessary for a fair presentation of Saba's consolidated financial position at that date and its consolidated results of operations and cash flows for those periods. Operating results for the six months ended November 30, 1999 are not necessarily indicative of results that may be expected for any future periods. USE OF ESTIMATES The preparation of 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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ materially from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly liquid short-term investments with insignificant interest rate risk and original maturities from date of purchase of three months or less. Cash and cash equivalents are stated at cost, which approximates fair value. F-7

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject Saba to concentrations of risk include cash and cash equivalents and accounts receivable. Cash and cash equivalents consist principally of demand deposit and money market accounts held with domestic financial institutions with high credit standing. Management believes the financial risks associated with these financial instruments are minimal. Saba conducts business with companies in various industries primarily in the United States. Saba generally does not require collateral. Saba Learning Enterprise, Saba Learning Provider and related services accounted for substantially all of Saba's revenues in fiscal 1999 and for the six months ended November 30, 1999. An allowance is maintained for potential credit issues, and to date, such losses have been within management's expectations. Saba recorded changes to operations, which increased its allowance for uncollectible accounts by $18,000 in fiscal 1998, $133,000 in fiscal 1999 and $96,000 in the six months ended November 30, 1999. Amounts written-off as reductions to the allowance totaled $18,000 fiscal 1998, $9,000 in fiscal 1999 and $6,000 in the six months ended November 30, 1999. At May 31, 1998, one customer accounted for 94% of accounts receivable. At May 31, 1999, five customers accounted for a total of 80% of accounts receivable and at November 30, 1999, two customers accounted for a total of 41% of accounts receivable. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful life of the related assets, generally three to five years. Assets acquired under capital lease obligations are amortized over the assets' estimated useful lives. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the life of the lease. SOFTWARE DEVELOPMENT COSTS Saba accounts for software development costs in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, whereby costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized. Technological feasibility is established upon completion of a working model. Through November 30, 1999, software development costs incurred subsequent to the establishment of technological feasibility have not been significant, and all software development costs have been charged to research and development expense in the accompanying consolidated statements of operations. INCOME TAXES Saba accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the use of the liability method. Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. F-8

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) STOCK OPTIONS AND EQUITY INSTRUMENTS EXCHANGED FOR SERVICES Saba accounts for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees and has adopted the disclosure-only alternative of SFAS No. 123, Accounting for Stock Based Compensation ("SFAS 123"). The value of options, warrants and restricted stock exchanged for services rendered by non-employees or assets acquired are valued using the Black-Scholes option pricing model. To calculate the expense or asset value, Saba uses either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. NET LOSS PER SHARE Basic and diluted net loss per share information for all periods is presented under the requirements of SFAS No. 128, Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period, less shares subject to repurchase. Diluted net loss per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, shares subject to repurchase, warrants and convertible preferred stock, in the weighted-average number of common shares outstanding for a period, if dilutive. All potentially dilutive securities have been excluded from the computation, as their effect is anti-dilutive. Pro forma net loss per share has been computed as described above and also gives effect, to the conversion of preferred shares not included above that will automatically convert upon completion of Saba's initial public offering of common stock, using the if-converted method. F-9

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The calculation of historical and pro forma basic and diluted net loss per share is as follows:
PERIOD FROM APRIL 16, 1997 SIX MONTHS ENDED (INCEPTION) NOVEMBER 30, THROUGH YEAR ENDED ------------------MAY 31, 1998 MAY 31, 1999 1998 1999 -------------------------------------(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) $(1,571) ======= 9,439 -------$(10,852) ======== 13,051 (64) -------$(2,601) ======= 12,896 -------$(17,677) ======== 14,802 (806) --------

HISTORICAL Net loss............................ Weighted-average shares of common stock outstanding.............. Weighted-average shares of common stock subject to repurchase.... Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share................. Basic and diluted net loss per share.......................... PRO FORMA Net loss.......................... Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share (from above).... Adjustment to reflect the effect of the assumed conversion of convertible preferred stock from the date of issuance...... Weighted-average shares outstanding used in computing pro forma basic and diluted net loss per share................. Pro forma basic and diluted net loss per share.................

9,439 ======= $ (0.17) =======

12,987 ======== $ (0.84) ======== $(10,852) ========

12,896 ======= $ (0.20) =======

13,996 ======== $ (1.26) ======== $(17,677) ========

12,987

13,996

7,894 --------

14,561 --------

20,881 ======== $ (0.52) ========

28,557 ======== $ (0.62) ========

REVENUE RECOGNITION Saba recognizes license revenues in accordance with the provisions of American Institute of Certified Public Accountants, or AICPA, Statement of Position ("SOP") 97-2 "Software Revenue Recognition" as amended by SOP 98-4, "Deferral of the Effective Date of Certain Provisions of SOP 97-2." Saba has not established vendor specific objective evidence for support and therefore, recognizes revenues from license agreements ratably over the support period if there is persuasive evidence of an arrangement, the software is delivered, collection is probable, and the fee is fixed or determinable. If an acceptance period is required, license revenues are recognized ratably over the term of the contract beginning upon the earlier of customer acceptance or the expiration of the acceptance period. Contract terms range from one to four years. F-10

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Saba recognizes revenues from professional services as the services are provided. If an agreement includes both license and service elements, the license fee is recognized beginning on delivery of the software, provided services do not include significant customization or modification of the base product, and the payment terms for licenses are not subject to additional acceptance criteria. In cases where license fee payments are contingent on the acceptance of services, recognition of revenues is deferred for both the license and the service elements until the acceptance criteria are met. Software support revenues are recognized ratably over the term of the support contract, typically one year. Saba believes its current revenue recognition policies and practices are consistent with SOP 97-2 and SOP 98-4. Additionally, the AICPA issued SOP 98-9 in December 1998, which amends portions of SOP 97-2 and is effective for transactions entered into beginning June 1, 2000. Full implementation guidelines for this standard have not yet been issued. Once available, the implementation guidelines could lead to unanticipated changes in Saba's current revenue recognition policies and changes could affect the timing of its future revenues. Accounts receivable includes amounts earned but unbilled as of May 31, 1999 and November 30, 1999 of $14,000 and $103,000, respectively. Deferred revenue consists of license fees to be recognized in future periods, prepaid fees for services and support agreements. ADVERTISING EXPENSE Advertising costs are expensed as incurred. Saba incurred $14,000 in advertising costs in fiscal 1998 and $110,000 in fiscal 1999. OTHER COMPREHENSIVE INCOME Saba has no material components of other comprehensive income (loss) and, accordingly, net loss is equal to comprehensive loss in all periods. INTERNAL-USE SOFTWARE In March 1998, the American Institute of Certified Public Accountants issues SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires that entities capitalize certain costs related to internal use software once certain criteria have been met. Saba is required to implement SOP 98-1 in fiscal 2000. Adoption of SOP 98-1 is not expected to have a material impact on Saba's consolidated financial position or results of operations. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133, as recently amended, is effective for fiscal years beginning after June 15, 2000. Management believes the adoption of SFAS 133 will not have a material effect on Saba's consolidated financial position or results of operations. F-11

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following (in thousands):
MAY 31, -------------1998 1999 --------$ 89 $ 805 1 334 5 99 --------95 1,238 (10) (116) --------$ 85 $1,122 ==== ======

Computer equipment.......................................... Office furniture and fixtures............................... Leasehold improvements...................................... Less accumulated depreciation and amortization..............

4. RELATED PARTY TRANSACTIONS In August 1997, Saba issued 5,876,016 shares of common stock to HTR, Inc. in exchange for intellectual property. In connection with the acquisition of HTR, Inc. by a third party in October 1997, Saba repurchased all 5,876,016 shares using a promissory note in the principal amount of $150,000, which was secured by a pledge of 7,500 shares of Saba's common stock held by Saba's President. At the time of the initial issuance to HTR, Inc., a director of Saba was also an affiliate of HTR, Inc. During the period from inception through May 31, 1998, $26,000 in services revenues were recognized from HTR, Inc. 5. CONVERTIBLE DEBT Saba issued 6% convertible debt to third-parties for cash proceeds totaling $565,000 in fiscal 1998 and $1,445,000 in fiscal 1999. The convertible debt converted into 2,870,854 shares of Series B convertible preferred stock in August 1998 at a conversion price of $0.70 per share. 6. NOTES PAYABLE In November 1998, Saba entered into an equipment line of credit with a bank, which provided for borrowings of up to $750,000. The note executed under the agreement accrued interest at 7.75% per annum and was to be repaid in monthly installments of principal and interest over 36 months. In April 1999, all amounts outstanding under the line of credit were repaid. In March 1999, Saba entered into an operating lease agreement for office space beginning in May 1999 and executed non-interest bearing notes payable to the lessor totaling $329,000 under this agreement for the deposit on the building. Principal under the notes is due on December 1, 2000 and May 1, 2001. 7. LEASE COMMITMENTS Saba leases its office facilities under various noncancelable operating leases that expire at various dates through 2014. During fiscal 1999, Saba also financed the acquisition of furniture and equipment under capital leases. At May 31, 1999, the original cost of the assets under capital leases was F-12

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) $75,000 and the accumulated depreciation was $15,000. Future minimum lease payments under these leases are as follows:
CAPITAL LEASES ------$ 40 25 25 12 -----102 (14) ---88 (33) ---$ 55 ==== OPERATING LEASES --------$ 1,125 1,541 2,213 2,233 2,097 24,071 ------$33,280 =======

YEAR ENDING MAY 31: 2000........................................................ 2001........................................................ 2002........................................................ 2003........................................................ 2004........................................................ Thereafter..................................................

Less amounts representing interest.......................... Present value of minimum lease payments..................... Less current portion of minimum lease payments..............

Rent expense was $59,000 in fiscal 1998 and $473,000 in fiscal 1999. In April 1999, Saba entered into an additional lease line of credit agreement with a financing institution which provides for borrowings of up to $1.5 million to finance equipment and software purchases through October 2000. Borrowings are due in monthly installments through April 2004 plus interest at 8.3% and are secured by the underlying assets. There were no amounts outstanding under this agreement at May 31, 1999. 8. STOCKHOLDERS' EQUITY (DEFICIT) CONVERTIBLE PREFERRED STOCK Convertible preferred stock consists of the following at May 31, 1999:
SERIES -----SHARES DESIGNATED ---------749,996 8,583,997 4,716,364 ---------14,050,357 ========== SHARES ISSUED AND OUTSTANDING --------------749,996 8,583,997 4,608,778 ---------13,942,771 ========== AGGREGATE LIQUIDATION PREFERENCE --------------------$ 359,998 6,010,000 14,062,351 ----------$20,432,349 ===========

A B C

Significant terms of the convertible preferred stock are as follows: Each share of Series A, B and C convertible preferred stock is convertible, at the option of the holder, into the number of shares of common stock determined by dividing the original issue price by the conversion price applicable to each share on the conversion date. Each share will automatically convert into shares of common stock at the conversion price upon the earlier of the sale of common stock in a qualified initial public offering, with an offering price of at least $5.25 per share and $10,000,000 in aggregate or the date specified by written consent or agreement of the holders of a majority of the outstanding shares of Series A, B and C convertible F-13

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) preferred stock and two-thirds of the outstanding shares of Series C convertible preferred stock, voting as a separate class. Each share of Series A, B and C convertible preferred stock has voting rights equivalent to the number of shares of common stock into which it is convertible. Each share of Series A, B and C convertible preferred stock is entitled to a non-cumulative dividend of $0.0384 per share, $0.056 per share and $0.2441 per share, respectively, when and if declared by the Board of Directors. In the event of Saba's voluntary or involuntary liquidation, dissolution or winding up, the holders of Series B and C convertible preferred stock are entitled to receive, prior and in preference to any distribution of any of Saba's assets to the holders of Series A convertible preferred stock or common stock an amount equal to $0.70014 for each outstanding share of Series B convertible preferred stock and $3.0512 for each outstanding share of Series C convertible preferred stock and any declared but unpaid dividends. Upon the completion of the distribution, the Series A convertible preferred stockholders shall be entitled to receive, prior and in preference to any distribution of any of Saba's remaining assets to the holders of Saba's common stock an amount equal to $0.48 for each outstanding share of Series A plus any declared but unpaid dividends. If upon occurrence of such event, the assets and funds distributed among the holders of the Series A convertible preferred stock are insufficient to permit the payment to holders the full preferential amounts, the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series A convertible preferred stock in proportion to the amounts of stock owned by each holder. SERIES C CONVERTIBLE PREFERRED STOCK WARRANTS In June 1999, Saba issued warrants to purchase 80,296 shares of series C convertible preferred stock at $3.05 per share to a lessor in connection with obtaining a lease line of credit. The warrants expire on the earlier of five years from the date of issuance or three years from the closing date of Saba's initial public offering. The warrants were immediately exercisable and remain outstanding at November 30, 1999. The fair value of the warrants, approximately $160,000, will be amortized as additional interest expense over the forty-two month term of the lease agreement. SERIES D CONVERTIBLE PREFERRED STOCK In November 1999, Saba issued 5,598,479 shares of Series D convertible preferred stock in exchange for cash proceeds totaling $30 million. In connection with the sale of Series D convertible preferred stock, the liquidation preferences of the Series B and C convertible preferred stock were changed from a form of participating preferred to non-participating preferred. COMMON STOCK WARRANTS In connection with the issuance of convertible debt, Saba issued warrants to purchase 87,125 shares of common stock in fiscal 1998 and 349,573 shares of common stock in fiscal 1999 at an exercise price of $0.70 per share to individuals and firms who participated in the debt financing. The warrants were immediately exercisable and expire on the earlier of five years from the date of issuance or the closing date of Saba's initial public offering. The fair value of these warrants was insignificant at the issuance date. F-14

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During fiscal 1999, Saba issued warrants to purchase 35,000 shares of common stock at an exercise price of $0.10 per share and 16,000 shares at an exercise price of $0.70 per share for services rendered. The warrants were immediately exercisable and expire on the earlier of two years from the date of issuance or the closing date of Saba's initial public offering. The fair value of these warrants was insignificant at the issuance date. At May 31, 1999, warrants to purchase 487,698 shares of common stock remained outstanding. STOCK OPTION PLAN Under the 1997 Stock Option Plan (the "Plan"), Saba may grant options to purchase up to 7,500,000 shares of common stock to employees, directors and consultants at prices not less than the fair market value at date of grant for incentive stock options and not less than 85% of fair market value for non-statutory stock options (110% in certain circumstances). Options generally expire ten years from the date of grant. Options generally vest over four years. Some options are exercisable upon grant and are subject to repurchase in the case of termination of employment prior to vesting. Shares subject to repurchase totaled 143,000 at May 31, 1999 and 2,353,358 at November 30, 1999. Saba has granted options to non-employees for services performed and to be performed after the date of the grant. In connection with these option grants, Saba recognized expense of $5,000 in fiscal 1998 and $8,000 in fiscal 1999, based on the options' fair value, determined using the Black-Scholes option-pricing model. Details of activity under the Plan are as follows:
NUMBER OF SHARES ---------3,225,000 (260,000) ---------2,965,000 3,060,500 (286,000) ---------5,739,500 ---------1,714,300 (1,507,125) (306,250) ---------5,640,425 ========== WEIGHTED-AVERAGE EXERCISE PRICE PER SHARE ---------------$0.05 0.05 0.05 0.07 0.06 0.06 0.30 0.05 0.10 0.13

Granted..................................................... Exercised................................................... Balance, May 31, 1998....................................... Granted..................................................... Canceled.................................................... Balance, May 31, 1999....................................... Granted (unaudited)......................................... Exercised (unaudited)....................................... Canceled (unaudited)........................................ Balance, November 31, 1999 (unaudited)......................

F-15

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Additional information regarding options outstanding as of May 31, 1999 is as follows:
OPTIONS OUTSTANDING ------------------------------------------------WEIGHTED-AVERAGE REMAINING NUMBER CONTRACTUAL LIFE WEIGHTED-AVERAGE OUTSTANDING (YEARS) EXERCISE PRICE ----------------------------------------4,068,000 8.56 $0.05 1,538,000 9.58 0.07 133,500 9.91 0.30 --------5,739,500 =========

EXERCISE PRICES -------$0.05 0.07 0.30

OPTIONS EXERCISABLE ---------------------------WEIGHTED-AVERAGE NUMBER EXERCISE PRICE -----------------------1,239,583 $0.05 ------------1,239,583 =========

At May 31, 1999, 1,500,500 shares were available for future grants under the Plan. Saba recorded deferred stock compensation of approximately $1.3 million during fiscal 1999 and $13.2 million during the six months ended November 30, 1999 representing the difference between the exercise price and the deemed fair value for financial accounting purposes of Saba's common stock on the grant date for certain stock options granted to employees. In the absence of a public market for Saba's common stock, the deemed fair value was based on the price per share of recent convertible preferred stock financings, less a discount to give effect to the superior rights of the convertible preferred stock. These amounts are being amortized by charges to operations over the vesting periods of the individual stock options using a graded vesting method. Amortization of deferred stock compensation amounted to approximately $189,000 for fiscal 1999 and approximately $3.5 million for the six months ended November 30, 1999. PRO FORMA DISCLOSURES OF THE EFFECT OF DEFERRED STOCK COMPENSATION Pro forma information regarding net loss and net loss per share, which is required by SFAS 123, has been determined as if Saba had accounted for its employee stock options under the fair value method of SFAS 123. The fair value of these options was estimated at the date of grant using the Minimum Value option pricing model, with the following assumptions for fiscal 1998 and 1999: expected life of 60 months, risk-free interest rate of 5.5% and dividend yield of zero. The weighted-average fair value of options granted for fiscal 1998 and 1999 was $0.02 and $0.44, respectively. Had compensation cost for Saba's stock compensation plans been determined using the fair value at the grant dates for awards under these plans calculated using the Minimum Value method of SFAS 123, the Company's historical net loss and basic and diluted net loss per share would have been increased to the pro forma amounts indicated below (in thousands except per share amounts):
PERIODS FROM APRIL 16, 1997 (INCEPTION) THROUGH MAY 31, 1998 -------------$ (1,577) ======== $ (0.17) ========

Net loss -- pro forma............................... Net loss per share -- pro forma.....................

YEAR ENDED MAY 31, 1999 ---------$ (10,857) ========= $ (0.84) =========

The pro forma impact of options on the net loss for fiscal 1998 and 1999 is not representative of the effects on net income (loss) for future years, as future years will include the effects of additional years of stock option grants. F-16

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SHARES OF COMMON STOCK RESERVED FOR FUTURE ISSUANCE Saba has reserved shares of common stock for issuance as follows at May 31, 1999:
Conversion of convertible preferred stock................... Stock options outstanding................................... Stock options available for future grant.................... Warrants to purchase preferred and common stock............. 14,050,357 5,739,500 1,500,500 557,282 ---------21,847,639 ==========

In October 1999, the Board of Directors reserved an additional 1,115,000 shares of common stock for issuance under the 1997 Option Plan. RESTRICTED COMMON STOCK In September 1999, certain company executives executed full-recourse promissory notes for purchases of 2,025,000 shares of restricted common stock. The notes bear interest at 5.5% per annum, are payable over terms that range from three to four years and are secured by the shares of common stock underlying the notes as well as the assets owned by the officers. 9. INCOME TAXES There has been no provision for U.S. federal, U.S. state, or foreign income taxes for any period because Saba has incurred operating losses in all periods and for all jurisdictions. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets are as follows:
MAY 31, ---------------1998 1999 ----------$ 434 25 88 ----547 (547) ----$ -===== $ 3,610 676 569 ------4,855 (4,855) ------$ -=======

Deferred tax assets: Net operating loss carryforwards....................... Deferred revenue....................................... Other reserves and accruals............................ Valuation allowance...................................... Net deferred tax assets..................................

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $547,000 in fiscal 1998 and $4.3 million in fiscal 1999. As of May 31, 1999, Saba had net operating loss carryforwards for federal income tax purposes of approximately $9.0 million, which expire in fiscal 2012 to 2019. Saba also had net operating loss carryforwards for state income tax purposes of approximately $9.0 million expiring in fiscal 2006. Utilization of the net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation could result in the expiration of the net operating loss before utilization. F-17

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. RETIREMENT PLAN Saba has established the Saba Software 401(k) Plan (the "401(k) Plan") under section 401(k) of the Internal Revenue Code covering substantially all of its employees. Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings subject to an annual contribution limit. Saba may also make matching contributions equal to a discretionary percentage of the employees' deferral. To date, no matching contributions have been made. 11. SEGMENT INFORMATION Saba operates primarily in a single operating segment, providing software and services that connect people to learning over the Internet. Geographic Information Saba operates in the United States, Europe and Asia-Pacific. Less than 10% of revenues were derived from outside the United States in all periods. At May 31, 1998 and 1999 and November 30, 1999, less than 10% of Saba's assets were located outside the United States. Major Customers For fiscal 1998, three customers accounted for 39%, 28% and 20% of revenues and for fiscal 1999, three customers accounted for 35%, 20% and 11% of revenues. For the six months ended November 30, 1998, two customers accounted for 28% and 23% of revenues and for the six months ended November 30,1999, two customers accounted for 15% and 10% of revenues. 12. SUBSEQUENT EVENTS In January 2000, the Board of Directors adopted the 2000 Stock Incentive Plan (the "2000 Plan") and reserved 6,000,000 shares for grant under the 2000 Plan. The terms of the 2000 Plan are substantially similar to the 1997 Option Plan. The 2000 Plan also provides for automatic grants to non-employee directors. PROPOSED PUBLIC OFFERING OF COMMON STOCK In January 2000, the Board of Directors authorized Saba to proceed with an initial public offering of its common stock. If the offering is consummated as presently anticipated, all shares of outstanding convertible preferred stock will automatically convert to common stock. The unaudited pro forma stockholders' equity (deficit) at November 30, 1999 gives effect to the conversion of all outstanding shares of convertible preferred stock at that date into 19,541,250 shares of common stock upon the completion of the initial public offering. In January 2000, Saba's Board of Directors approved an amendment to Saba's Certificate of Incorporation to change the authorized capital stock to 5,000,000 shares of preferred stock and 100,000,000 shares of common stock. This amendment is effective as of the closing of Saba's initial public offering. Saba also increased the number of options available for grant under its 1997 Stock Incentive Plan by 1,200,000 shares. F-18

SABA SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) EMPLOYEE STOCK PURCHASE PLAN The Board of Directors adopted the 2000 Employee Stock Purchase Plan in January 2000, pending stockholder approval, to be effective upon the completion of Saba's initial public offering of its common stock. A total of 2,000,000 shares of common stock will be reserved for issuance under the plan. Eligible employees may purchase common stock at 85% of the lesser of the fair market value of Saba's common stock on the first day of the applicable two-year offering period or the last day of the applicable six-month purchase period. GRANT OF STOCK OPTIONS AND RESTRICTED STOCK In December 1999, Saba granted to employees options to purchase a total of 706,800 shares of common stock and issued 325,358 shares restricted common stock at $0.95 per share, which resulted in additional deferred stock compensation of approximately $10.6 million. COMMON STOCK WARRANTS In December 1999, Saba issued a warrant to a customer to purchase 24,330 shares of common stock. The warrant is exercisable at the earlier of December 31, 2000 or filing of a qualified registration statement with the Securities and Exchange Commission and has a term of three years and an exercise price of 80% of Saba's initial public offering price. In January 2000, Saba issued a warrant to an existing investor to purchase 100,000 shares of common stock at an exercise price of $0.01 per share. The warrant is immediately exercisable and expires on January 31, 2000. F-19

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

TABLE OF CONTENTS
PAGE ---3 7 18 19 19 20 21 22 24 33 46 54 56 59 63 64 64 64 64 65 F-1

Summary............................... Risk Factors.......................... Special Note Regarding ForwardLooking Statements.................. Use of Proceeds....................... Dividend Policy....................... Capitalization........................ Dilution.............................. Selected Consolidated Financial Data................................ Management's Discussion and Analysis of Financial Condition and Results of Operations....................... Business.............................. Management............................ Principal Stockholders................ Related Party Transactions............ Description of Capital Stock.......... Shares Eligible for Future Sale....... Legal Matters......................... Experts............................... Change in Accountants................. Additional Information................ Underwriting.......................... Index to Consolidated Financial Statements..........................

Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Shares SABA SOFTWARE, INC. Common Stock [SABA LOGO] GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. ROBERTSON STEPHENS BANC OF AMERICA SECURITIES LLC Representatives of the Underwriters

PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses to be paid by the Registrant in connection with the distribution of the securities being registered, other than underwriting discounts and commissions, are as follows:
AMOUNT* ---------$ 26,400 10,500 95,000 300,000 10,000 300,000 15,000 200,000 43,100 ---------$1,000,000 ==========

Securities and Exchange Commission Filing Fee............... NASD Filing Fee............................................. Nasdaq National Market Listing Fee.......................... Accounting Fees and Expenses................................ Blue Sky Fees and Expenses.................................. Legal Fees and Expenses..................................... Transfer Agent and Registrar Fees and Expenses.............. Printing Expenses........................................... Miscellaneous Expenses...................................... Total.............................................

* All amounts are estimates except the SEC filing fee, the NASD filing fee and the Nasdaq National Market listing fee. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under Section 145 of the General Corporate Law of the State of Delaware, the Registrant has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Amended and Restated Bylaws (Exhibit 3.3 hereto) also provide for mandatory indemnification of its directors and executive officers, and permissive indemnification of its employees and agents, to the fullest extent permissible under Delaware law. The Registrant's Amended and Restated Certificate of Incorporation (Exhibits 3.1 and 3.2 hereto) provides that the liability of its directors for monetary damages shall be eliminated to the fullest extent permissible under Delaware law. Pursuant to Delaware law, this includes elimination of liability for monetary damages for breach of the directors' fiduciary duty of care to the Registrant and its stockholders. These provisions do not eliminate the directors' duty of care and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. Prior to the effective date of the Registration Statement, the Registrant will have entered into agreements with its directors and certain of its executive officers that require the Registrant to indemnify such persons against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason II-1

of the fact that such person is or was a director or officer of the Registrant or any of its affiliated enterprises, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. The Registrant intends to obtain in conjunction with the effectiveness of the Registration Statement a policy of directors' and officers' liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES For the period from April 16, 1997 to December 31, 1999, the Registrant has issued and sold the following unregistered securities: 1. During the period, the Registrant granted stock options to employees, directors and consultants under its 1997 Stock Incentive Plan (the "Stock Plan") covering an aggregate of 8,706,600 shares of the Registrant's common stock, at exercise prices ranging from $0.05 to $0.95 with a weighted average exercise price of $0.18 per share. 2. During the period, the Registrant issued and sold an aggregate of 2,064,625 shares of its common stock to 30 employees, directors and consultants for an aggregate amount of $109,726.25 upon exercise of stock options granted pursuant to the Registrant's Stock Plan. 3. In addition, during the period, the Registrant issued and sold an aggregate of 2,502,916 shares of its common stock to 8 employees and directors for an aggregate amount of $845,701.50. 4. During the period, the Registrant issued and sold an aggregate of 749,996 shares of its Series A Preferred Stock, convertible into 749,996 shares of its common stock, for an aggregate purchase price of $360,000. 5. During the period, the Registrant issued and sold an aggregate of 8,583,997 shares of its Series B Preferred Stock, convertible into 8,583,997 shares of its common stock, for an aggregate purchase price of $6,009,999.66. 6. During the period, the Registrant issued an aggregate of 4636,068 shares of its Series C Preferred Stock, convertible into 4,636,068 shares of its common stock, for an aggregate purchase price of $14,145,570.68. 7. During the period, the Registrant issued and sold an aggregate of 5,598,479 shares of its Series D Preferred Stock, convertible into 5,598,479 shares of its common stock, for an aggregate purchase price of $30,000,009.57. 8. During the period, the Registrant issued warrants for a total of 587,698 shares of its Common Stock, for an aggregate exercise price of $684,913.76. 9. During the period, the Registrant issued warrants for a total of 80,296 shares of its Series C Preferred Stock, for an aggregate exercise price of $244,999. II-2

10. During the period, the Registrant issued and sold an aggregate of 323,080 shares of its Common Stock for an aggregate amount of $226,201.23 upon exercise of warrants to purchase Common Stock. The sale and issuance of securities in the transactions described in paragraphs 1 through 10 above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated thereunder in that they were offered and sold either pursuant to written compensatory benefit plans or pursuant to a written contract relating to compensation, as provided by Rule 701 or were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) thereof. Appropriate legends were affixed to the stock certificates issued in the above transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. No underwriters were employed in any of the above transactions. ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (a) Exhibits The exhibits are as set forth in the Exhibit Index. (b) Consolidated Financial Statement Schedules All schedules have been omitted since they are not required or are not applicable or the required information is shown in the consolidated financial statements or related notes. ITEM 17. UNDERTAKINGS The Registrant hereby undertakes to provide the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time the Commission declared it effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3

SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redwood Shores, State of California on January 31, 2000. SABA SOFTWARE, INC.
By: /s/ BOBBY YAZDANI

-----------------------------------Bobby Yazdani President and Chief Executive Officer

POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Bobby Yazdani, Terry Carlitz and Peter Williams as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462 promulgated under the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE --------/s/ BOBBY YAZDANI ----------------------------------------------------Bobby Yazdani TITLE ----Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) Chief Financial Officer and Director (Principal Financial and Accounting Officer) Director DATE ---January 31, 2000

/s/ TERRY CARLITZ ----------------------------------------------------Terry Carlitz /s/ DOUGLAS ALLRED ----------------------------------------------------Douglas Allred /s/ ROBERT COHN ----------------------------------------------------Robert Cohn /s/ JOSEPH COSTELLO ----------------------------------------------------Joseph Costello /s/ JOSEPH KIANI ----------------------------------------------------Joseph Kiani /s/ MICHAEL MORITZ ----------------------------------------------------Michael Moritz

January 31, 2000

January 31, 2000

Director

January 31, 2000

Director

January 31, 2000

Director

January 31, 2000

Director

January 31, 2000

II-4

EXHIBIT INDEX
EXHIBIT NUMBER ------1.1* 3.1 3.2* 3.3 3.4* 4.1 5.1* 10.1 10.2 10.3 10.4 10.5 10.6 10.7 16.1 23.1* 23.2 24.1 27.1 DOCUMENT -------Form of Underwriting Agreement. Certificate of Incorporation of the Registrant. Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed effective as of the closing of the offering. Bylaws of Registrant. Form of Amended and Restated Bylaws of Registrant to be effective as of the closing of the offering. Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4. Opinion of Morrison & Foerster LLP. Form of Indemnification Agreement between the Registrant and each of its officers and directors. 1997 Stock Incentive Plan. 2000 Stock Incentive Plan. 2000 Employee Stock Purchase Plan. Third Amended and Restated Investors' Rights Agreement. Forms of Restricted Stock Purchase Agreements. Lease Agreement dated March 16, 1999 between the Registrant and Westport Joint Venture for the Registrant's Redwood Shores, California headquarters. Letter from Deloitte & Touche LLP. Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1. Consent of Ernst & Young LLP Independent Auditors. Powers of Attorney. Reference is made to Page II-4. Financial Data Schedule.

* To be filed by amendment.

EXHIBIT 3.1 SABA SOFTWARE, INC. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION SABA SOFTWARE, INC., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Saba Software, Inc., the original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on April 16, 1997, under the name of Saba Software, Inc. 2. Pursuant to Section 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and amends the provisions of this corporation's Certificate of Incorporation. 3. The terms and provisions of this Amended and Restated Certificate of Incorporation have been duly approved by vote of the required number of shares of each outstanding class of stock of this corporation pursuant to Subsection 242 of the General Corporation Law of the State of Delaware. 4. The text of the Amended and Restated Certificate of Incorporation is hereby restated and amended to read in its entirety as set forth in Exhibit A attached hereto. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed this 5th day of November 1999. SABA SOFTWARE, INC.

Babak Yazdani, President and Chief Executive Officer ATTEST:

Peter E. Williams III, Secretary

EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SABA SOFTWARE, INC., A DELAWARE CORPORATION I The name of this corporation is Saba Software, Inc. II The address of the registered office of the corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle, 19805. The name of its registered agent at such address is Corporation Service Company. III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. IV A. Classes of Stock. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Seventy Three Million (73,000,000) shares, Fifty Million (50,000,000) shares of which shall be Common Stock (the "Common Stock") and Twenty Three Million (23,000,000) shares of which shall be Preferred Stock (the "Preferred Stock"). The Common Stock shall have a par value of $0.001 per share and the Preferred Stock shall have a par value of $0.001 per share. B. Rights, Preferences and Restrictions of Preferred Stock. The Preferred Stock authorized by this Certificate of Incorporation may be issued from time to time in one or more series. The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Preferred Stock, which series shall consist of Seven Hundred Forty Nine Thousand Nine Hundred Ninety Six (749,996) shares, the Series B Preferred Stock, which series shall consist of Eight Million Five Hundred Eighty Three Thousand Nine Hundred Ninety Seven (8,583,997) shares, the Series C Preferred Stock, which series shall consist of Four Million Seven Hundred Sixteen Thousand Three Hundred Sixty Four (4,716,364) shares and the Series D Preferred

Stock, which series shall consist of Five Million Five Hundred Ninety Eight Thousand Five Hundred (5,598,500) shares, are as set forth below in this Article IV(B). Subject to compliance with applicable protective voting rights which have been or may be granted to the Preferred Stock or series thereof in Certificates of Designation or this corporation's Certificate of Incorporation ("Protective Provisions"), the Board of Directors is hereby authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or of any of them. Subject to compliance with applicable Protective Provisions, but notwithstanding any other rights of the Preferred Stock or any series thereof, the rights, privileges, preferences and restrictions of any such additional series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent), or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. Subject to compliance with applicable Protective Provisions, the Board of Directors is also authorized to increase or decrease the number of shares of any series, prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. 1. Dividend Provisions. Subject to the rights of series of Preferred Stock which may from time to time come into existence, the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock of this corporation, at the rate of $0.0384 per share (appropriately adjusted for any stock split, stock dividend, combination or other recapitalization (collectively, a "Recapitalization") of the Series A Preferred Stock) of Series A Preferred Stock per annum, $0.056 per share (appropriately adjusted for any Recapitalization of the Series B Preferred Stock) of Series B Preferred Stock per annum, $0.2441 per share (appropriately adjusted for any Recapitalization of the Series C Preferred Stock) of Series C Preferred Stock per annum and $0.4287 per share (appropriately adjusted for any Recapitalization of the Series D Preferred Stock) of Series D Preferred Stock per annum, when, as and if declared by the Board of Directors of this corporation. Such dividends shall not be cumulative. 2. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, subject to the rights of series of Preferred Stock which may from time to time come into existence, the holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.70014 for each outstanding share of Series B Preferred Stock 2

(the "Original Series B Issue Price") plus any declared and unpaid dividends with respect to the Series B Preferred Stock, (ii) $3.0512 for each outstanding share of Series C Preferred Stock (the "Original Series C Issue Price") plus any declared and unpaid dividends with respect to the Series C Preferred Stock and (iii) $5.3586 for each outstanding share of Series D Preferred Stock (the "Original Series D Issue Price") plus any declared and unpaid dividends with respect to the Series D Preferred Stock . If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of Preferred Stock which may from time to time come into existence, the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) Upon the completion of the distribution required in subparagraph (a) of this Section 2 and any other distribution that may be required with respect to series of Preferred Stock that may from time to time come into existence, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.48 for each outstanding share of Series A Preferred Stock (the "Original Series A Issue Price") and (ii) any declared and unpaid dividends with respect to the Series A Preferred Stock. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of Preferred Stock which may from time to time come into existence, the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the amount of such stock owned by each such holder. (c) Upon the completion of the distributions required in subparagraphs (a) and (b) of this Section 2 and any other distribution that may be required with respect to series of Preferred Stock that may from time to time come into existence, the remaining assets of the corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each. (d) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of this corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any merger effected exclusively for the purpose of changing the domicile of the corporation); or (B) a sale of all or substantially all of the assets of the corporation; unless the corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for 3

the corporation's acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity. (ii) In any of such events, if the consideration received by the corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the corporation. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors of the corporation. (iii) In the event the requirements of this subsection 2(d) are not complied with, this corporation shall forthwith either cause such closing to be postponed until such time as the requirements of this Section 2 have been complied with; or cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(d)(iv) hereof. (iv) The corporation shall give each holder of record of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the corporation has given the first notice provided for herein or sooner than ten (10) days after the corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened 4

upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of Preferred Stock. 3. Conversion. The holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of this corporation or any transfer agent for such Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Series A Issue Price, Original Series B Issue Price, Original Series C Issue Price or Original Series D Issue Price, respectively, by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date that the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be the Original Series A Issue Price, Original Series B Issue Price, Original Series C Issue Price and Original Series D Issue Price, respectively; provided, however, that the Conversion Prices for the Preferred Stock shall be subject to adjustment as set forth in subsection (d) of this Section 3. (b) Automatic Conversion. Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (i) the corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $7.50 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and $10,000,000 in the aggregate or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock voting together as a single class and two-thirds of the then outstanding shares of Series C Preferred Stock voting as a separate class. (c) Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Preferred Stock, and shall give written notice to this corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons 5

entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten public offering of securities registered pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (d) Conversion Price Adjustments of Preferred Stock. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows: (i) (A) If the corporation shall issue, after the date on which any shares of Series D Preferred Stock were first issued (the "Series D Purchase Date"), any Additional Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price for the applicable series of Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series of Preferred Stock in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying the Conversion Price for such series of Preferred Stock by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the corporation for such issuance would purchase at the Conversion Price for such series of Preferred Stock; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock. (B) No adjustment of the Conversion Price for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to 3 years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of 3 years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 3(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this corporation for any underwriting or otherwise in connection with the issuance and sale thereof. 6

(D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment. (E) In the case of the issuance (whether before, on or after the Series D Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 3(d)(i) and subsection 3(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 3(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 3(d)(i)(C) and (d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. 7

(4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 3(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 3(d)(i)(E)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this corporation after the Series D Purchase Date other than: (A) Common Stock issued pursuant to a transaction described in subsection 3(d)(iii) hereof, (B) shares of Common Stock issuable or issued to employees, consultants or directors of this corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of this corporation ("Incentive Equity"), (C) shares of Common Stock issued or issuable to vendors (if in transactions with primarily non-financing purposes) of this corporation directly or pursuant to options or warrants approved by the Board of Directors of this corporation, or (D) shares of Common Stock issued or issuable (I) in a public offering before or in connection with which all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock will be converted to Common Stock or (II) upon exercise of warrants or rights granted to underwriters in connection with such a public offering. 8

(iii) In the event the corporation should at any time or from time to time after the Series D Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Prices of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. (iv) If the number of shares of Common Stock outstanding at any time after the Series D Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Prices for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (e) Other Distributions. In the event this corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 3(d)(iii), then, in each such case for the purpose of this subsection 3(e), the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the corporation into which their shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the corporation entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in Section 2 or this Section 3) provision shall be made so that the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock the number of shares of stock or other securities or property of the Company or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D 9

Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Conversion Prices then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) No Impairment. This corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, 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 hereunder by this corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock against impairment. (h) No Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issued upon conversion of any share or shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock pursuant to this Section 3, this corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock. (i) Notices of Record Date. In the event of any taking by this corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any 10

class or any other securities or property, or to receive any other right, this corporation shall mail to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. This corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation. (k) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this corporation. 4. Voting Rights. (a) General. Except as otherwise expressly provided herein, the holder of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock could then be converted and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the Bylaws of this corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock held by each holder could be converted) shall be rounded to be nearest whole number (with one-half being rounded upward). 11

(b) Voting for Election of Directors. So long as a majority of the shares of Series B Preferred Stock issued and outstanding as of the Series D Purchase Date shall remain outstanding, (i) the holders of shares of Series B Preferred Stock shall be entitled, voting separately as a single class, to elect one (1) director of the corporation at or pursuant to each meeting or consent of the corporation's stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director, (ii) the holders of shares of Common Stock and Series A Preferred Stock shall be entitled, voting together as a single class, to elect two (2) directors of the corporation at or pursuant to each meeting or consent of the corporation's stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors, and (iii) the holders of shares of Common Stock and Preferred Stock shall be entitled, voting together in accordance with Section 4(a) hereof, to elect the remaining directors of the corporation at or pursuant to each meeting or consent of the corporation's stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. 5. Protective Provisions. (a) Series A Preferred Stock. So long as shares of Series A Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class, take any action to: (1) alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock so as to affect materially and adversely the shares; (2) increase or decrease (other than by conversion) the total number of authorized shares of Series A Preferred Stock; or (3) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series A Preferred Stock upon liquidation. (b) Series B Preferred Stock. So long as shares of Series B Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock, voting as a separate class, take any action to: (1) alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect materially and adversely the shares; (2) increase or decrease (other than by conversion) the total number of authorized shares of Series B Preferred Stock; or (3) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security 12

having a preference over, or being on a parity with, the Series B Preferred Stock upon liquidation. (c) Series C Preferred Stock. So long as shares of Series C Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least two-thirds (2/3) of the then outstanding shares of Series C Preferred Stock, voting as a separate class, take any action to: (1) alter or change the rights, preferences or privileges of the shares of Series C Preferred Stock so as to affect materially and adversely the shares; (2) increase or decrease (other than by conversion) the total number of authorized shares of Series C Preferred Stock; or (3) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series C Preferred Stock upon liquidation. (d) Series D Preferred Stock. So long as shares of Series D Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock, voting as a separate class, take any action to: (1) alter or change the rights, preferences or privileges of the shares of Series D Preferred Stock so as to affect materially and adversely the shares; (2) increase or decrease (other than by conversion) the total number of authorized shares of Series D Preferred Stock; or (3) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series D Preferred Stock upon liquidation. (e) Series A Stock, Series B Stock, Series C Stock and Series D Stock. So long as shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as a single class: (1) sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effect any transaction or series of related transactions in which more than 50% of the voting power of the corporation is disposed of; or 13

(2) declare or pay any dividend or otherwise make a distribution on any shares of Common Stock or Preferred Stock or redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares or Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to (i) the repurchase of shares of Common Stock from employees, officers, directors, consultants or any other persons or entities performing services for this corporation or any subsidiary pursuant to agreements under which this corporation has the option to repurchase such shares at cost or at cost upon certain events, such as the termination of employment, or (ii) the repurchase of shares of Common Stock or Preferred Stock pursuant to the right of first refusal set forth in the corporation's Bylaws. 6. Status of Converted Stock. In the event any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so converted shall be canceled and shall not be issuable by the corporation. The Certificate of Incorporation of this corporation shall be appropriately amended to effect the corresponding reduction in the corporation's authorized capital stock. C. Common Stock. 1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the corporation, the assets of the corporation shall be distributed as provided in Section 2 of Division (B) of this Article IV hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of this corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. V The corporation is to have perpetual existence. 14

VI Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the same compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. VII For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation, and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided: 1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot. 2. After the original or other Bylaws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of Section 109 of the General Corporation Law of the State of Delaware, and, after the corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the Bylaws of the corporation may be exercised by the Board of Directors of the corporation; provided, however, that any provision for the classification of directors of the corporation for staggered terms pursuant to the provision of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by the stockholders of the corporation entitled to vote unless provisions for such classification shall be set forth in this certificate of incorporation. 15

3. Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the Certificate of Incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection (b) of Section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class. VIII The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the provision of paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. IX The corporation shall, to the fullest extent permitted by the provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person. X From time to time any of the provisions of this Certificate of Incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article X. XI Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the corporation. 16

EXHIBIT 3.3 AMENDED & RESTATED BYLAWS OF SABA SOFTWARE, INC. A Delaware Corporation ARTICLE 1

TABLE OF CONTENTS
PAGE ------------------------------------------------------------------------------------ARTICLE 1 OFFICES...............................................................1 SECTION 1.1 REGISTERED OFFICE.....................................................1 SECTION 1.2 OTHER OFFICES.........................................................1 ARTICLE SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION ARTICLE SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 STOCKHOLDERS' MEETINGS................................................1 PLACE OF MEETINGS.....................................................1 ANNUAL MEETINGS.......................................................1 SPECIAL MEETINGS......................................................1 NOTICE OF MEETINGS....................................................2 QUORUM................................................................2 VOTING RIGHTS.........................................................3 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.........................4 LIST OF STOCKHOLDERS..................................................5 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS..............................5 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.........5 ACTION WITHOUT MEETING................................................6 DIRECTORS.............................................................7 NUMBER AND TERM OF OFFICE.............................................7 POWERS................................................................7 VACANCIES.............................................................7 RESIGNATIONS AND REMOVALS.............................................7 MEETINGS..............................................................8 QUORUM AND VOTING.....................................................8 ACTION WITHOUT MEETING................................................9 FEES AND COMPENSATION.................................................9 COMMITTEES............................................................9 OFFICERS.............................................................10 OFFICERS DESIGNATED..................................................10 TENURE AND DUTIES OF OFFICERS........................................10 EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION...................................................11 EXECUTION OF CORPORATE INSTRUMENTS...................................11 VOTING OF SECURITIES OWNED BY CORPORATION............................12 SHARES OF STOCK......................................................12 FORM AND EXECUTION OF CERTIFICATES...................................12 LOST CERTIFICATES....................................................13 TRANSFERS............................................................13 FIXING RECORD DATES..................................................13 REGISTERED STOCKHOLDERS..............................................14 OTHER SECURITIES OF THE CORPORATION..................................14

ARTICLE 4 SECTION 4.1 SECTION 4.2 ARTICLE 5 SECTION 5.1 SECTION 5.2 ARTICLE SECTION SECTION SECTION SECTION SECTION 6 6.1 6.2 6.3 6.4 6.5

ARTICLE 7

i

TABLE OF CONTENTS (CONTINUED)
PAGE ------------------------------------------------------------------------------------ARTICLE 8 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.........14 SECTION 8.1 RIGHT TO INDEMNIFICATION.............................................14 SECTION 8.2 AUTHORITY TO ADVANCE EXPENSES........................................15 SECTION 8.3 RIGHT OF CLAIMANT TO BRING SUIT......................................15 SECTION 8.4 PROVISIONS NONEXCLUSIVE..............................................16 SECTION 8.5 AUTHORITY TO INSURE..................................................16 SECTION 8.6 SURVIVAL OF RIGHTS...................................................16 SECTION 8.7 SETTLEMENT OF CLAIMS.................................................16 SECTION 9.8 EFFECT OF AMENDMENT..................................................16 SECTION 8.9 SUBROGATION..........................................................16 SECTION 8.10 NO DUPLICATION OF PAYMENTS...........................................16 ARTICLE 9 ARTICLE 10 NOTICES..............................................................16 RIGHT OF FIRST REFUSAL...............................................17

SECTION 10.1 RIGHT OF FIRST REFUSAL...............................................17 ARTICLE 11 AMENDMENTS...........................................................19

ii

AMENDED AND RESTATED BYLAWS OF SABA SOFTWARE, INC. a Delaware corporation

ARTICLE 1 OFFICES SECTION 1.1 REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be at 1013 Centre Road, in the City of Wilmington, County of New Castle, in the State of Delaware. The Corporation Service Company is the registered agent of the Corporation. SECTION 1.2 OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at 2121 South El Camino Real, Suite 703, San Mateo, CA 94402, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE 2 STOCKHOLDERS' MEETINGS SECTION 2.1 PLACE OF MEETINGS. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 1.2 of Article 1 hereof. SECTION 2.2 ANNUAL MEETINGS. The annual meetings of the stockholders of the corporation for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors, or, if not so designated, then at 11:00 a.m. on the 2nd Wednesday in April in each year if not a legal holiday, and, if a legal holiday, at the same hour and place on the next succeeding day not a holiday. SECTION 2.3 SPECIAL MEETINGS. Special Meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the President or the Board of Directors at any time. 1

SECTION 2.4 NOTICE OF MEETINGS. (a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, date and hour and purpose or purposes of the meeting, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than twenty (20) nor more than sixty (60) days prior to such meeting. (b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section. (c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (e) Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given. SECTION 2.5 QUORUM. (a) At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 2

(b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation. (c) Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. SECTION 2.6 VOTING RIGHTS. (a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. (b) Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three years from its date unless the proxy provides for a longer period. (c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority: (1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. (2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. Such authorization can be established by the signature of the stockholder on the proxy, either in writing or by a signature stamp or facsimile signature, or by a number or symbol from which the identity of the stockholder can be determined, or by any other procedure deemed appropriate by the inspectors or other persons making the determination as to due authorization. 3

If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. (d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. (a) The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the Inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. SECTION 2.8 LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete 4

list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.9, provided, however, that nothing in this Section 2.9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS. In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days notice or public 5

disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 2.11 ACTION WITHOUT MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE 3 DIRECTORS SECTION 3.1 NUMBER AND TERM OF OFFICE. The number of directors which shall constitute the whole of the Board of Directors shall be no less than three (3) or more than five (5) until changed by amendment of the Certificate of Incorporation or by a bylaw amending this Section 3.1 duly adopted by the vote or written consent of holders of a majority of the outstanding shares or by the Board of Directors. The exact number of directors shall be fixed from time to time, within the limits specified in 6

the Certificate of Incorporation or in this Section 3.1, by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by the Board of Directors. Subject to the foregoing provisions for changing the number of directors, the number of directors of the corporation has been fixed at three (3). With the exception of the first Board of Directors, which shall be elected by the incorporator, and except as provided in Section 3.3 of this Article 3, the directors shall be elected by a plurality vote of the shares represented in person or by proxy, at the stockholder's annual meeting in each year and entitled to vote on the election of directors. Elected directors shall hold office until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these bylaws. SECTION 3.2 POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors. SECTION 3.3 VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 3.4 below) to elect the number of directors then constituting the whole Board. SECTION 3.4 RESIGNATIONS AND REMOVALS. (a) Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. (b) At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors, or any individual director, may be removed from office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors. SECTION 3.5 MEETINGS. (a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders' meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors 7

shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 1.2 of Article 1 hereof. Regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolutions of the Board of Directors or the written consent of all directors. (c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors. (d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram or facsimile at least 48 hours before the start of the meeting, or sent by first class mail at lease 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. SECTION 3.6 QUORUM AND VOTING. (a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1 of Article 3 of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws. (c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 3.7 ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee. 8

SECTION 3.8 FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. SECTION 3.9 COMMITTEES. (a) Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to adopt an agreement or merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders of the Corporation a dissolution of the Corporation or a revocation of a dissolution, or to amend these Bylaws. (b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (c) Term. The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 3.9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 3.9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 1.2 of Article 1 hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any 9

special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. ARTICLE 4 OFFICERS SECTION 4.1 OFFICERS DESIGNATED. The officers of the corporation shall be a Chairman of the Board of Directors and a President, and one or more Vice-Presidents, a Secretary, and a Treasurer. The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors or the Chairman of the Board or the President may also appoint one or more assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. SECTION 4.2 TENURE AND DUTIES OF OFFICERS. (a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation. (b) Duties of the Chairman of the Board of Directors. The Chairman of the Board of Directors (if there be such an officer appointed) shall be the chief executive officer of the corporation and, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (c) Duties of President. The President shall be the chief executive officer of the corporation in the absence of the Chairman of the Board and shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) Duties of Vice-Presidents. The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity 10

with these Bylaws, of all meetings of the stockholders, and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) Duties of Treasurer. The Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. ARTICLE 5 EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS. (a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation. (b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (c) All checks and drafts drawn on banks or other depositories on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do. SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President. 11

ARTICLE 6 SHARES OF STOCK SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice-President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, 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 shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, 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. SECTION 6.2 LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 6.3 TRANSFERS. Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed. SECTION 6.4 FIXING RECORD DATES. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders 12

shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 6.5 REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE 7 OTHER SECURITIES OF THE CORPORATION All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice-President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the 13

manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE 8 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 8.1 RIGHT TO INDEMNIFICATION. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an "Agent"), shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter "Expenses"); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 8.3 of this Article, the corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right. SECTION 8.2 AUTHORITY TO ADVANCE EXPENSES. Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not 14

entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon. SECTION 8.3 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 8.1 or 8.2 of this Article is not paid in full by the corporation within 90 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. SECTION 8.4 PROVISIONS NONEXCLUSIVE. The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate, agreement, or vote of the stockholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence. SECTION 8.5 AUTHORITY TO INSURE. The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article. SECTION 8.6 SURVIVAL OF RIGHTS. The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. SECTION 8.7 SETTLEMENT OF CLAIMS. The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. SECTION 8.8 EFFECT OF AMENDMENT. Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification. 15

SECTION 8.9 SUBROGATION. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. SECTION 8.10 NO DUPLICATION OF PAYMENTS. The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. ARTICLE 9 NOTICES Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. Any notice required to be given to any director may be given by the method hereinabove stated, or by telegram or other means of electronic transmission, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have filed in writing with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 1.2 of Article 1 hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as 16

if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. ARTICLE 10 RIGHT OF FIRST REFUSAL SECTION 10.1 RIGHT OF FIRST REFUSAL. No stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of Preferred Stock or Common Stock of the corporation (collectively, "Securities") or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw: (a) If the stockholder receives from anyone a bona fide offer acceptable to the stockholder to purchase any Securities held by such stockholder, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the type and number of Securities to be transferred, the price per share and all other terms and conditions of the offer. (b) For fifteen (15) days following receipt of such notice, the corporation or its assigns shall have the option to purchase all or, with the consent of the stockholder, any lesser part of the Securities specified in the notice at the price and upon the terms set forth in such bona fide offer. In the event the corporation elects to purchase all or, as agreed by the stockholder, a lesser part, of the Securities, it shall give written notice to the selling stockholder of its election and settlement for said Securities shall be made as provided below in paragraph (c). (c) In the event the corporation elects to acquire any of the Securities of the selling stockholder as specified in said selling stockholder's notice, the Secretary of the corporation shall so notify the selling stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said selling stockholder's notice; provided that if the terms of payment set forth in said selling stockholder's notice were other than cash against delivery, the corporation shall pay for said Securities on the same terms and conditions set forth in said selling stockholder's notice. (d) In the event the corporation does not elect to acquire all of the Securities specified in the selling stockholder's notice, said selling stockholder may, within the sixty (60) day period following the expiration of the option rights granted to the corporation, sell elsewhere the Securities specified in said selling stockholder's notice which were not acquired by the corporation, in accordance with the provisions of paragraph (c) of this bylaw, provided that said sale shall not be on terms and conditions more favorable to the purchaser than those contained in the bona fide offer set forth in said selling stockholder's notice. All Securities so sold by said selling stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (e) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: (1) A stockholder's transfer of any or all Securities held either during such stockholder's lifetime or on death by will or intestacy to such stockholder's immediate 17

family. "Immediate family" as used herein shall mean spouse, lineal descendent, father, mother, brother, or sister of the stockholder making such transfer. (2) A stockholder's bona fide pledge or mortgage of any Securities with a commercial lending institution, provided that any subsequent transfer of said Securities by said institution shall be conducted in the manner set forth in this bylaw. (3) A stockholder's transfer of any or all of such stockholder's Securities to any other stockholder of the corporation. (4) A stockholder's transfer of any or all of such stockholder's Securities to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate stockholder's transfer of any or all of its Securities pursuant to and in accordance with the terms of any merger, consolidation, reclassification of Securities or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder. (6) A corporate stockholder's transfer of any or all of its Securities to any or all of its stockholders. (7) A transfer of any or all of the Securities held by a stockholder which is a limited or general partnership to any or all of its partners. In any such case, the transferee, assignee, or other recipient shall receive and hold such Securities subject to the provisions of this bylaw, and there shall be no further transfer of such Securities except in accord with this bylaw. (f) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those Securities to be sold by the selling stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation. (g) Any sale or transfer, or purported sale or transfer, of Securities shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed. (h) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On July 27, 2007, or (2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended. 18

(i) The certificates representing the Securities shall bear the following legend so long as the foregoing right of first refusal remains in effect: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION, AS PROVIDED IN THE BYLAWS OF THE CORPORATION." ARTICLE 11 AMENDMENTS These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 2.11 of Article 2, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors. 19

CERTIFICATE OF SECRETARY The undersigned, Secretary of SABA Software, Inc., a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the Bylaws of said Corporation, with all amendments to date of this Certificate. WITNESS the signature of the undersigned this 27th day of July, 1997.

Secretary 20

EXHIBIT 10.1 INDEMNIFICATION AGREEMENT THIS AGREEMENT is entered into, effective as of January ___, 2000, by and between Saba Software, Inc., a Delaware corporation (the "Company"), and __________________________ ("Indemnitee"). WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available; WHEREAS, Indemnitee is a director and/or officer of the Company; WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims currently being asserted against directors and officers of corporations; WHEREAS, the Certificate of Incorporation and Bylaws of the Company require the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted under Delaware law, and the Indemnitee has been serving and continues to serve as a director and/or officer of the Company in part in reliance on the Company's Certificate of Incorporation and Bylaws; and WHEREAS, in recognition of Indemnitee's need for (i) substantial protection against personal liability based on Indemnitee's reliance on the aforesaid Certificate of Incorporation and Bylaws, (ii) specific contractual assurance that the protection promised by the Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Certificate of Incorporation and Bylaws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), and (iii) an inducement to provide effective services to the Company as a director and/or officer, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted under Delaware law and as set forth in this Agreement, and, to the extent insurance is maintained, to provide for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies. NOW, THEREFORE, in consideration of the above premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties agree as follows:

1. Certain Definitions: (a) Board: the Board of Directors of the Company. (b) Affiliate: any corporation or other person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified. (c) Change in Control: shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))(other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and other than any person holding shares of the Company on the date that the Company first registers under the Act or any transferee of such individual if such transferee is a spouse or lineal descendant of the transferee or a trust for the benefit of the individual, his spouse or lineal descendants), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the total voting power represented by the Company's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets. (d) Expenses: any expense, liability, or loss, including attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, any federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, and all other costs and obligations, paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding relating to any Indemnifiable Event. (e) Indemnifiable Event: any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another

foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by Indemnitee in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company, as described above. (f) Independent Counsel: the person or body appointed in connection with Section 3. (g) Proceeding: any threatened, pending, or completed action, suit, or proceeding (including an action by or in the right of the Company), or any inquiry, hearing, or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other. (h) Reviewing Party: the person or body appointed in accordance with Section 3. (i) Voting Securities: any securities of the Company that vote generally in the election of directors. 2. Agreement to Indemnify. (a) General Agreement. In the event Indemnitee was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses to the fullest extent permitted by law, as the same exists or may hereafter be amended or interpreted (but in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the Company to provide broader indemnification rights than were permitted prior thereto). The parties hereto intend that this Agreement shall provide for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Company's Certificate of Incorporation, its Bylaws, vote of its stockholders or disinterested directors, or applicable law. (b) Initiation of Proceeding. Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless (i) the Company has joined in or the Board has consented to the initiation of such Proceeding; (ii) the Proceeding is one to enforce indemnification rights under Section 5; or (iii) the Proceeding is instituted after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) and Independent Counsel has approved its initiation. 2

(c) Expense Advances. If so requested by Indemnitee, the Company shall advance (within ten business days of such request) any and all Expenses to Indemnitee (an "Expense Advance"); provided that (i) such an Expense Advance shall be made only upon delivery to the Company of an undertaking by or on behalf of the Indemnitee to repay the amount thereof if it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, and (ii) if and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid. If Indemnitee has commenced or commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, as provided in Section 4, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding, and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have lapsed). Indemnitee's obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon. (d) Mandatory Indemnification. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. (e) Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. (f) Prohibited Indemnification. No indemnification pursuant to this Agreement shall be paid by the Company on account of any Proceeding in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state, or local laws. 3. Reviewing Party. Prior to any Change in Control, the Reviewing Party shall be any appropriate person or body consisting of a member or members of the Board or any other person or body appointed by the Board who is not a party to the particular Proceeding with respect to which Indemnitee is seeking indemnification; after a Change in Control, the Independent Counsel referred to below shall become the Reviewing Party. With respect to all matters arising after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under applicable law or the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, the Company shall seek legal advice only from Independent Counsel selected by 3

Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with indemnification matters) within the last five years. The Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee should be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Counsel and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the engagement of Independent Counsel pursuant hereto. 4. Indemnification Process and Appeal. (a) Indemnification Payment. Indemnitee shall be entitled to indemnification of Expenses, and shall receive payment thereof, from the Company in accordance with this Agreement as soon as practicable after Indemnitee has made written demand on the Company for indemnification, unless the Reviewing Party has given a written opinion to the Company that Indemnitee is not entitled to indemnification under applicable law. (b) Suit to Enforce Rights. Regardless of any action by the Reviewing Party, if Indemnitee has not received full indemnification within thirty days after making a demand in accordance with Section 4(a), Indemnitee shall have the right to enforce its indemnification rights under this Agreement by commencing litigation in any court in the State of California or the State of Delaware having subject matter jurisdiction thereof seeking an initial determination by the court or challenging any determination by the Reviewing Party or any aspect thereof. The Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party not challenged by the Indemnitee shall be binding on the Company and Indemnitee. The remedy provided for in this Section 4 shall be in addition to any other remedies available to Indemnitee at law or in equity. (c) Defense to Indemnification, Burden of Proof, and Presumptions. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense or determination shall be on the Company. Neither the failure of the Reviewing Party or the Company (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action by Indemnitee that indemnification of the claimant is proper under the circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor an actual determination by the Reviewing Party or Company (including its Board, independent legal counsel, or its stockholders) that the Indemnitee had not met such applicable standard of conduct, 4

shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, the termination of any claim, action, suit, or proceeding, by judgment, order, settlement (whether with or without court approval), conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 5. Indemnification for Expenses Incurred in Enforcing Rights. The Company shall indemnify Indemnitee against any and all Expenses that are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under applicable law or the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, and/or (ii) recovery under directors' and officers' liability insurance policies maintained by the Company, but only in the event that Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. In addition, the Company shall, if so requested by Indemnitee, advance the foregoing Expenses to Indemnitee, subject to and in accordance with Section 2(c). 6. Notification and Defense of Proceeding. (a) Notice. Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee, except as provided in Section 6(c). (b) Defense. With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof, the Company will be entitled to participate in the Proceeding at its own expense and except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any Proceeding, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ legal counsel in such Proceeding, but all Expenses related thereto incurred after notice from the Company of its assumption of the defense shall be at Indemnitee's expense unless: (i) the employment of legal counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of the Proceeding, (iii) after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the 5

employment of counsel by Indemnitee has been approved by the Independent Counsel, or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases all Expenses of the Proceeding shall be borne by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the determination provided for in (ii), (iii) and (iv) above. (c) Settlement of Claims. The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company's written consent, such consent not to be unreasonably withheld; provided, however, that if a Change in Control has occurred (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; the Company's liability hereunder shall not be excused if participation in the Proceeding by the Company was barred by this Agreement. 7. Establishment of Trust. In the event of a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) the Company shall, upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in, and/or defending any Proceeding relating to an Indemnifiable Event. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Independent Counsel. The terms of the Trust shall provide that (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of the Indemnitee, (ii) the Trustee shall advance, within ten business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the same circumstances for which the Indemnitee would be required to reimburse the Company under Section 2(c) of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by the Independent Counsel or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its obligations under this Agreement. All income earned on the assets held in the Trust shall be reported as income by the Company for federal, state, local, and foreign tax purposes. The Company shall pay all costs of establishing and maintaining the Trust and shall indemnify the Trustee against any and all 6

expenses (including attorneys' fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the establishment and maintenance of the Trust. 8. Non-Exclusivity. The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Certificate of Incorporation, Bylaws, applicable law, or otherwise; provided, however, that this Agreement shall supersede any prior indemnification agreement between the Company and the Indemnitee. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification than would be afforded currently under the Company's Certificate of Incorporation, Bylaws, applicable law, or this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change. 9. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing general and/or directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. 10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any Affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs, executors, or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances. Any claim or cause of action of the Company or its Affiliate shall be extinguished and deemed released unless asserted by the timely filing and notice of a legal action within such period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, the shorter period shall govern. 11. Amendment of this Agreement. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof. 12. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 13. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder. 7

14. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable Event even though he may have ceased to serve in such capacity at the time of any Proceeding. 15. Severability. If any provision (or portion thereof) of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void, or otherwise unenforceable, that is not itself invalid, void, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, void, or unenforceable. 16. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State without giving effect to its principles of conflicts of laws. 8

17. Notices. All notices, demands, and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and addressed to the Company at: Saba Software, Inc. 2400 Bridge Parkway Redwood Shores, CA 94065 Attention: Bobby Yazdani, President and CEO and to Indemnitee at:

Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to have been received on the date of hand delivery or on the third business day after mailing. 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day specified above. SABA SOFTWARE, INC. By: Bobby Yazdani, President and CEO INDEMNITEE By: 10

EXHIBIT 10.2 SABA SOFTWARE, INC. AMENDED AND RESTATED 1997 STOCK INCENTIVE PLAN 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of the Committees appointed to administer the Plan. (b) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, California corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein. (c) "Award" means the grant of an Option, Restricted Stock, or other right or benefit under the Plan. (d) "Award Agreement" means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto. (e) "Board" means the Board of Directors of the Company. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means any committee appointed by the Board to administer the Plan. (h) "Common Stock" means the common stock of the Company. (i) "Company" means Saba Software, Inc., a Delaware corporation. (j) "Consultant" means any person who is engaged by the Company or Related Entity to render consulting or advisory services as an independent contractor and is compensated for such services. (k) "Continuous Status as an Employee, Director or Consultant" means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Status as an Employee, Director or Consultant shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers between locations of the Company or among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change 1

in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. (l) "Corporate Transaction" means any of the following stockholder-approved transactions to which the Company is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger. (m) "Director" means a member of the Board. (n) "Employee" means any person, including an Officer or Director, who is an employee of the Company or any Related Entity. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (p) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (ii) In the absence of an established market of the type described in (i), above, for the Common Stock, the Fair Market Value thereof shall be determined by the Administrator in good faith and in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. 2

(q) "Grantee" means an Employee, Director or Consultant who receives an Award under the Plan. (r) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code (s) "Non-Qualified Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (t) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (u) "Option" means a stock option granted pursuant to the Plan. (v) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (w) "Plan" means this Amended and Restated 1997 Stock Incentive Plan. (x) "Registration Date" means the closing of the first sale of Common Stock to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. (y) "Related Entity" means any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds an ownership interest, directly or indirectly. (z) "Restricted Stock" means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator. (aa) "Share" means a share of the Common Stock. (bb) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. (a) Subject to the provisions of Section 11(a) below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is 6,000,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. (b) If an Award expires or becomes unexercisable without having been exercised in full, or if any unissued Shares are retained by the Company upon exercise of an 3

Award in order to satisfy the exercise price for such Award or any withholding taxes due with respect to such Award, such unissued or retained Shares shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Plan Administrator. With respect to grants of Awards to Employees, Directors, Officers or Consultants, the Plan shall be administered by (A) the Board or (B) a Committee (or a subcommittee of the Committee) designated by the Board, which Committee shall be constituted in such a manner as to satisfy Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. (b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: (i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder; (ii) to determine whether and to what extent Awards are granted hereunder; (iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder; (iv) to approve forms of Award Agreement for use under the Plan; (v) to determine the terms and conditions of any Award granted hereunder; (vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; (vii) to amend the terms of any outstanding Award granted under the Plan, including a reduction in the exercise price of any Award to reflect a reduction in the Fair Market Value of the Common Stock since the grant date of the Award, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Award shall not be made without the Grantee's written consent; 4

(viii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; and (ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be conclusive and binding on all persons. 5. Eligibility. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time. 6. Terms and Conditions of Awards. (a) Type of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) an Option, or similar right with an exercise or conversion privilege at a fixed or variable price related to the Common Stock and/or the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Common Stock or securities issued by a Related Entity. Such awards include, without limitation, Options, and sales or bonuses of Restricted Stock. An Award may consist of one such security or benefit, or two or more of them in any combination or alternative. (b) Designation of Award. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the grant date of the relevant Option. (c) Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, 5

earnings per share, total stockholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. (d) Early Exercise. The Award may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or to any other restriction the Administrator determines to be appropriate. (e) Term of Award. The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement. (f) Non-Transferability of Awards. Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee. (g) Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Award is so granted within a reasonable time after the date of such grant. 7. Award Exercise or Purchase Price, Consideration, Taxes and Reload Options. (a) Exercise or Purchase Price. The exercise or purchase price, if any, for an Award shall be as follows: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. 6

(ii) In the case of a Non-Qualified Stock Option: (A) granted to a person who, at the time of the grant of such Option, Iowns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any person other than a person described in the preceding paragraph, the per Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant. (iii) In the case of the sale of Shares: (A) granted to a person who, at the time of the grant of such Award, or at the time the purchase is consummated, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share purchase price shall be not less than one hundred percent (100%) of the Fair Market Value per share on the date of grant. (B) granted to any person other than a person described in the preceding paragraph, the per Share purchase price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant. (b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following: (i) cash; (ii) check; (iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; (iv) if the exercise occurs on or after the Registration Date, surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); 7

(v) if the exercise occurs on or after the Registration Date, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Award and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (vi) any combination of the foregoing methods of payment. (c) Taxes. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations. (d) Reload Options. In the event the exercise price or tax withholding of an Option is satisfied by the Company or the Grantee's employer withholding Shares otherwise deliverable to the Grantee, the Administrator may issue the Grantee an additional Option, with terms identical to the Award Agreement under which the Option was exercised, but at an exercise price as determined by the Administrator in accordance with the Plan. 8. Exercise of Award. (a) Procedure for Exercise; Rights as a Stockholder. (i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement but in the case of an Option, in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted, subject to reasonable conditions such as continued employment. However, in the case of an Option granted to an Officer, Director or Consultant, the Award Agreement may provide that the Option may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established in the Award Agreement. (ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised has been received by the Company. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Award, notwithstanding the exercise of an Option or other Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 11(a), below. 8

(b) Exercise of Award Following Termination of Employment, Director or Consulting Relationship. In the event of termination of an Grantee's Continuous Status as an Employee, Director or Consultant for any reason other than disability or death (but not in the event of an Grantee's change of status from Employee to Consultant or from Consultant to Employee), such Grantee may, but only within three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Award as set forth in the Award Agreement), exercise his or her Award to the extent that the Grantee was entitled to exercise it at the date of such termination or to such other extent as may be determined by the Administrator. The Grantee's Award Agreement may provide that upon the termination of the Grantee's Continuous Status as an Employee, Director or Consultant for "Cause," the Grantee's right to exercise the Award shall terminate concurrently with the termination of Grantee's Continuous Status as an Employee, Director or Consultant. The term "Cause" shall be as defined in the Award Agreement. If the Grantee should die within three (3) months after the date of such termination, the Grantee's estate or the person who acquired the right to exercise the Award by bequest or inheritance may exercise the Award to the extent that the Grantee was entitled to exercise it at the date of such termination within twelve (12) months of the Grantee's date of death, but in no event later than the expiration date of the term of such Award as set forth in the Award Agreement. In the event of an Grantee's change of status from Employee to Consultant, an Employee's Incentive Stock Option shall convert automatically to a Non-Qualified Stock Option on the day three (3) months and one day following such change of status. To the extent that the Grantee is not entitled to exercise the Award at the date of termination, or if the Grantee does not exercise such Award to the extent so entitled within the time specified herein, the Award shall terminate. (c) Disability of Grantee. In the event of termination of an Grantee's Continuous Status as an Employee, Director or Consultant as a result of his or her disability, Grantee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Award as set forth in the Award Agreement), exercise the Award to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Non-Qualified Stock Option on the day three (3) months and one day following such termination. To the extent that the Grantee is not entitled to exercise the Award at the date of termination, or if Grantee does not exercise such Award to the extent so entitled within the time specified herein, the Award shall terminate. (d) Death of Grantee. In the event of the death of an Grantee, the Award may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement), by the Grantee's estate or by a person who acquired the right to exercise the Award by bequest or inheritance, but only to the extent that the Grantee was entitled to exercise the Award at the date of death. If, at the time of death, the Grantee was not entitled to exercise his or her entire Award, the Shares covered by the unexercisable portion of the Award shall immediately revert to the Plan. If, after death, the Grantee's estate or a person who acquired the right to exercise the Award by bequest or inheritance does not exercise the Award within the time specified herein, the Award shall terminate. 9

(e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Award previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee at the time that such offer is made. 9. Conditions Upon Issuance of Shares. (a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. 10. Repurchase Rights. If the provisions of an Award Agreement grant to the Company the right to repurchase Shares upon termination of the Grantee's Continuous Status as an Employee, Director or Consultant, the Award Agreement shall provide that the repurchase price will be either: (a) Not less than the Fair Market Value of the Shares to be repurchased on the date of termination of the Grantee's Continuous Status as an Employee, Director or Consultant, and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the Shares within ninety (90) days of the termination of the Grantee's Continuous Status as an Employee, Director or Consultant (or in the case of Shares issued upon exercise of Awards after the date of termination of the Grantee's Continuous Status as an Employee, Director or Consultant, within ninety (90) days after the date of the Award exercise), and the right terminates when the Company's securities become publicly traded; or (b) The original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least twenty percent (20%) of the Shares subject to the Award per year over five (5) years from the date the Award is granted (without respect to the date the Award was exercised or became exercisable), and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the Shares within ninety (90) days of termination of the Grantee's Continuous Status as an Employee, Director or Consultant (or in the case of Shares issued upon exercise of Awards after the date of termination of the Grantee's Continuous Status as an Employee, Director or Consultant, within ninety (90) days after the date of the Award exercise). (c) In addition to the restrictions set forth in (a) and (b) above, the Shares held by an Officer, Director or Consultant may be subject to additional or greater restrictions. 10

11. Adjustments Upon Changes in Capitalization or Corporate Transaction. (a) Adjustments upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, as well as the price per share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other similar event resulting in an increase or decrease in the number of issued shares of Common Stock. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award. (b) Corporate Transaction. Except as provided otherwise in an individual Award Agreement, in the event of any Corporate Transaction, each outstanding Award will terminate immediately prior to the specified effective date of such Corporate Transaction, unless the Award is assumed or an equivalent Award is substituted by the successor corporation or a Parent or Subsidiary of such successor corporation. For the purposes of this subsection, the Award shall be considered assumed or substituted for an equivalent Award if, following the Corporate Transaction, the Award confers, for each Share subject to the Award immediately prior to the Corporate Transaction, (i) the consideration (whether stock, cash, or other securities or property) received in the Corporate Transaction by holders of Common Stock for each Share subject to the Award held on the effective date of the Corporate Transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares), or (ii) the right to purchase such consideration in the case of an Option or similar Award; provided, however, that if such consideration received in the Corporate Transaction was not solely common stock of the successor corporation or its Parent or a Subsidiary, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise or exchange of the Award for each Share subject to the Award to be solely common stock of the successor corporation or its Parent or a Subsidiary equal in fair market value to the per share consideration received by holders of Common Stock in the Corporate Transaction. 12. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. 13. Amendment, Suspension or Termination of the Plan. (a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. 11

(b) No Award may be granted during any suspension of the Plan or after termination of the Plan. (c) Any amendment, suspension or termination of the Plan shall not affect Awards already granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. 14. Reservation of Shares. (a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. (b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. No Effect on Terms of Employment/Consulting. The Plan shall not confer upon any Grantee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 16. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. Any Award exercised before stockholder approval is obtained shall be rescinded if stockholder approval is not obtained within the time prescribed, and Shares issued on the exercise of any such Award shall not be counted in determining whether stockholder approval is obtained. 17. Information to Grantees. The Company shall provide to each Grantee, during the period for which such Grantee has one or more Awards outstanding, copies of financial statements at least annually. 12

SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address: NAME ADDRESS ADDRESS

You have been granted an option to purchase shares of Common Stock of the Company, subject to the terms and conditions of the Plan and the Option Agreement, as follows:
Grant Number Date of Grant Vesting Commencement Date Exercise Price per Share Total Number of Shares Granted Total Exercise Price Type of Option: 000XXX DATE DATE OF HIRE $0.XX XX,XXX $X,XXX X________Incentive Stock Option _________Non-Qualified Stock Option Term/Expiration Date: DATE (10 YEARS)

Vesting Schedule: Subject to other limitations set forth in the Option Agreement, the Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 3/48 of the Shares subject to the Option shall vest on each quarterly anniversary of the Vesting Commencement Date thereafter. During any authorized leave of absence, the vesting of the Option as provided in this schedule shall cease after the leave of absence exceeds a period of ninety (90) days. Vesting of the Option shall resume upon the Optionee's termination of the leave of absence and return to service with the Company. In the event of the Optionee's change in status from Employee to Consultant, vesting of the Option shall continue only to the extent determined by the Administrator as of such change in status. 1

Termination Period: Except in the event of termination of the Optionee's Continuous Status as an Employee, Director or Consultant for "Cause" (as defined below), the Option may be exercised within three (3) months from termination of the Optionee's Continuous Status as an Employee, Director or Consultant or such longer period as may be applicable upon death or disability of the Optionee as provided in the Option Agreement. In the event of the Optionee's change in status from Employee to Consultant or Consultant to Employee, the Option shall remain in effect; provided, however, that in the event of a change in status from Employee to Consultant, the Optionee's Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on the day three (3) months and one day following such change in status. In no event shall the Option be exercised later than the Term/Expiration Date as provided above. In the event of termination of the Optionee's Continuous Status as an Employee, Director or Consultant for "Cause," the Optionee's right to exercise the Option shall terminate concurrently with the termination of the Optionee's Continuous Status as an Employee, Director or Consultant. Definition of "Cause": For purposes of the Option, termination of the Optionee's Continuous Status as an Employee, Director or Consultant shall be for "Cause" as such term is defined in the Optionee's employment agreement, or in the absence of such definition, then as in the opinion of the Company, the Optionee: (i) acts in bad faith and to the detriment of the Company; (ii) refuses or fails to act in accordance with any specific direction or order of the Company; (iii) exhibits in regard to his employment unfitness or unavailability for service, unsatisfactory performance, misconduct, but not disability; (iv) exhibits dishonesty, habitual neglect, or incompetence, but not disability; or (v) is convicted of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. At least 30 days prior to terminating the Optionee's Continuous Status as an Employee, Director or Consultant pursuant to (ii) or (iii) above, the Company shall provide the Optionee with notice of the Company's intent to terminate, the Company's reason therefor, and an opportunity for the Optionee to cure such defects in his service to the Company's satisfaction. During this 30 day (or longer) period, the Optionee shall not be entitled to exercise the Option, but the Option shall continue to vest in accordance with the Vesting Schedule. IN WITNESS WHEREOF, the Company and the Optionee have executed this Notice of Stock Option Grant and agree that the Option is to be governed by the terms and conditions of this Notice of Stock Option Grant, the Plan, and the Option Agreement. Saba Software, Inc., a Delaware corporation By: Its: President & CEO 2

THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE OF STOCK OPTION GRANT, THE OPTION AGREEMENT, NOR IN THE COMPANY'S 1997 STOCK INCENTIVE PLAN, SHALL CONFER UPON THE OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. The Optionee acknowledges receipt of a copy of the Plan and the Option Agreement, and represents that he is familiar with the terms and provisions thereof, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee has reviewed this Notice of Stock Option Grant, the Plan, and the Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Notice of Stock Option Grant and fully understands all provisions of this Notice of Stock Option Grant, the Plan, and the Option Agreement. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board or Administrator upon any questions arising under this Notice of Stock Option Grant, the Plan, and the Option Agreement. The Optionee further agrees to notify the Company upon any change in the residence address indicated in this Notice of Stock Option Grant.
Dated: ----------------------Signed: --------------------------------Optionee

3

SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN STOCK OPTION AGREEMENT 1. Grant of Option. Saba Software, Inc., a Delaware corporation (the "Company"), hereby grants to the Optionee named in the Notice of Stock Option Grant (the "Optionee"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to the terms, definitions and provisions of the Notice of Stock Option Grant and the Company's 1997 Stock Incentive Plan (the "Plan") adopted by the Company, which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice of Stock Option Grant as an Incentive Stock Option, the Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Section 422(d) of the Code, the Option shall be treated as a Non-Qualified Stock Option. 2. Exercise of Option. (a) Right to Exercise. The Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement. The Option shall be subject to the provisions of Section 11(b) of the Plan relating to the exercisability or termination of the Option in the event of a Corporate Transaction. No partial exercise of the Option may be for less than the lessor of five percent (5%) of the total number of Shares subject to the Option or the remaining number of Shares subject to the Option. In no event shall the Company issue fractional Shares. (b) Method of Exercise. The Option shall be exercisable only by delivery of an Exercise Notice (attached as Exhibit A) which shall state the election to exercise the Option, the whole number of Shares in respect of which the Option is being exercised, and such other provisions as may be required by the Administrator. Such Exercise Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company accompanied by payment of the Exercise Price. The Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of the Option unless such issuance and such exercise shall comply with all Applicable Laws. Assuming such compliance, for income tax purposes, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. (c) Taxes. No Shares will be issued to the Optionee or other person pursuant to the exercise of the Option until the Optionee or other person has made arrangements acceptable to the Administrator for the satisfaction of foreign, federal, state and local income and employment tax withholding obligations. 3. Optionee's Representations. In the event the Shares purchasable pursuant to the exercise of the Option have not been registered under the Securities Act of 1933, as amended, at the time the Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all 4

or any portion the Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B. 4. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee; provided, however, that such exercise method does not then violate an Applicable Law: (a) cash; (b) check; (c) if the exercise occurs on or after the Registration Date, surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Option) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate Exercise Price of the Shares as to which the Option is being exercised (but only to the extent that such exercise of the Option would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price); or (d) if the exercise occurs on or after the Registration Date, delivery of a properly executed Exercise Notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price. 5. Restrictions on Exercise. The Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company. In addition, the Option may not be exercised if the issuance of the Shares subject to the Option upon such exercise would constitute a violation of any Applicable Laws. 6. Termination of Relationship. In the event the Optionee's Continuous Status as an Employee, Director or Consultant terminates, the Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise the Option during the Termination Period set out in the Notice of Stock Option Grant. Except as provided in Sections 7 and 8, below, to the extent that the Optionee was not entitled to exercise the Option on the Termination Date, or if the Optionee does not exercise the Option within the Termination Period, the Option shall terminate. 7. Disability of Optionee. In the event the Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of his or her disability, the Optionee may, but only within twelve (12) months from the Termination Date (and in no event later than the Term/Expiration Date), exercise the Option to the extent otherwise entitled to exercise it on the Termination Date; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code and the Option is an Incentive Stock Option, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on the day three (3) months and one day following the Termination Date. To the extent that the Optionee was not entitled to exercise the Option on the Termination Date, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate. 8. Death of Optionee. In the event of the Optionee's death, the Option may be exercised at any time within twelve (12) months following the date of death (and in no event later than the Term/Expiration Date), by the Optionee's estate or by a person who acquired the right to exercise the 5

Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. To the extent that the Optionee was not entitled to exercise the Option on the date of death, or the Option is not exercised to the extent so entitled within the time specified herein, the Option shall terminate. 9. Non-Transferability of Option. The Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of the Option shall be binding upon the executors, administrators, heirs and successors of the Optionee. 10. Term of Option. The Option may be exercised only within the term set out in the Notice of Stock Option Grant. 11. Company's Right of First Refusal. (a) Transfer Notice. Neither the Optionee nor a transferee (either being sometimes referred to herein as the "Holder") shall sell, hypothecate, encumber or otherwise transfer any Shares or any right or interest therein without first obtaining the prior written consent of the Company. In the event the Holder desires to accept a bona fide third-party offer for any or all of the Shares the Holder shall provide the Company with written notice (the "Transfer Notice") of: (i) The Holder's intention to transfer; (ii) The name of the proposed transferee; (iii) The number of Shares to be transferred; and (iv) The proposed transfer price or value and terms thereof. (b) First Refusal Exercise Notice. Within 45 days after receipt of the Transfer Notice (the "Option Period") the Company and/or its assigns shall have the right to purchase (the "Right of First Refusal") all, but not less than all of the Shares which are described in the Transfer Notice (the "Offered Shares") at the per share price or value and in accordance with the terms stated in the Transfer Notice, which Right of First Refusal shall be exercised by written notice (the "First Refusal Exercise Notice") to the Holder setting forth the number of Offered Shares the Company and/or its assigns elects to purchase, provided that the number equals all of the Offered Shares. (c) Payment Terms. The Company shall consummate the purchase of the Offered Shares on the terms set forth in the Transfer Notice within 15 days after delivery of the First Refusal Exercise Notice; provided, however, that in the event the Transfer Notice provides for the payment for the Offered Shares other than in cash, the Company and/or its assigns shall have the right to pay for the Offered Shares by the discounted cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Administrator. Upon payment for the Offered Shares to the Holder or into escrow for the benefit of the Holder, the Company or its assigns shall become the legal and beneficial owner of the Offered Shares and all rights and interest therein or related thereto, and the Company shall have the right to transfer the Offered Shares to its own name or its assigns without the further action by the Holder. (d) Assignment. Whenever the Company shall have the right to purchase Shares under this Right of First Refusal, the Company may designate and assign one or more employees, 6

officers, directors or shareholders of the Company or other persons or organizations, to exercise all or a part of the Company's Right of First Refusal. (e) Non-Exercise. If the Company and/or its assigns do not collectively elect to exercise the Right of First Refusal within the specified 45-day period or such earlier time if the Company and/or its assigns notifies the Holder that it will not exercise the Right of First Refusal, then the Holder may transfer the Shares upon the terms and conditions stated in the Transfer Notice, provided that: (i) The transfer is made within 120 days of the date of the Transfer Notice; and (ii) The transferee agrees in writing that such Shares shall be held subject to the provisions of this Right of First Refusal. (f) Expiration of Transfer Period. Following such 120-day period, no transfer of the Offered Shares and no change in the terms of the transfer as stated in the Transfer Notice (including the name of the proposed transferee) shall be permitted without a new written Transfer Notice prepared and submitted in accordance with the requirements of this Right of First Refusal. (g) Exception for Certain Family Transfers. Anything to the contrary contained in this section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's Immediate Family or a trust for the benefit of the Optionee or the Optionee's Immediate Family shall be exempt from the provisions of this Right of First Refusal. "Immediate Family" as used herein shall mean spouse, domestic partner (as determined by the Administrator), child, lineal descendant or antecedent, father, mother, brother or sister and the lineal descendants of such individuals. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Right of First Refusal, and there shall be no further transfer of such Shares except in accordance with the terms of this Right of First Refusal. (h) Termination of Right of First Refusal. The provisions of this Right of First Refusal shall terminate as to all Shares upon the Registration Date. (i) Additional Shares or Substituted Securities. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class effected without the Company's receipt of consideration, any new, substituted or additional securities or other property which is by reason of any such transaction distributed with respect to the Shares shall be immediately subject to the Right of First Refusal, but only to the extent the Shares are at the time covered by such right. (j) Corporate Transaction. Immediately prior to the consummation of a Corporate Transaction, the Right of First Refusal shall automatically lapse in its entirety, except to the extent the Right of First Refusal is to be assigned to the successor corporation (or its parent company) in connection with such Corporate Transaction, the right shall apply to the new capital stock or other property received in exchange for the Shares in consummation of the Corporate Transaction, but only to the extent the Shares are at the time covered by such right. 12. Company's Repurchase Right. (a) Grant of Repurchase Right. The Company is hereby granted the right (the "Repurchase Right"), exercisable at any time (i) during the sixty (60) day period following the Termination Date, (ii) during the sixty (60) day period following an exercise of the Option that occurs 7

after the Termination Date, or (iii) during the sixty (60) day period immediately prior to a Corporate Transaction, or the merger of the Company into or with a corporation that is a member of a "controlled group" (within the meaning of Section 267(f) of the Code) of which the Company is a member, to repurchase all or (at the discretion of the Company and with the consent of the Optionee) any portion of the Shares. (b) Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to each Holder of the Shares prior to the expiration of the applicable sixty (60) day period specified above. The notice shall indicate the number of Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of notice. On the date on which the repurchase is to be effected, the Company and/or its assigns shall pay to the Holder in cash or cash equivalents (including the cancellation of any purchase-money indebtedness) an amount equal to the Fair Market Value on the Termination Date, if any, and if none, on the date immediately prior to the day on which the repurchase is to be effected, of the Shares which are to be repurchased from the Holder. Upon such payment or into escrow for the benefit of the Holder, the Company and/or its assigns shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest thereon or related thereto, and the Company shall have the right to transfer to its own name or its assigns the number of Shares being repurchased, without further action by the Holder. (c) Assignment. Whenever the Company shall have the right to purchase Shares under this Repurchase Right, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations, to exercise all or a part of the Company's Repurchase Right. (d) Termination of the Repurchase Right. The Repurchase Right shall terminate with respect to any Shares for which it is not timely exercised. In addition, the Repurchase Right shall terminate, and cease to be exercisable, with respect to all Shares upon the Registration Date. (e) Additional Shares or Substituted Securities. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class effected without the Company's receipt of consideration, any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is by reason of any such transaction distributed with respect to the Shares shall be immediately subject to the Repurchase Right, but only to the extent the Shares are at the time covered by such right. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such transaction upon the Company's capital structure. (f) Corporate Transaction. Immediately prior to the consummation of a Corporate Transaction, the Repurchase Right shall automatically lapse in its entirety, except to the extent the Repurchase Right is to be assigned to the successor corporation (or its parent company) in connection with such Corporate Transaction, the right shall apply to the new capital stock or other property (including cash paid other than as a regular cash dividend) received in exchange for the Shares in consummation of the Corporate Transaction, but only to the extent the Shares are at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Right to reflect the effect of the Corporate Transaction upon the Company's capital structure. 13. Stop-Transfer Notices. In order to ensure compliance with the restrictions on transfer referred to in the legends placed upon certificates evidencing ownership of the Shares, the Company may 8

issue appropriate "stop transfer" instructions to its transfer agent, if any, and, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. 14. Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Option Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 15. Tax Consequences. Set forth below is a brief summary as of the date of this Option Agreement of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES. (a) Exercise of Incentive Stock Option. If the Option qualifies as an Incentive Stock Option, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (b) Exercise of Incentive Stock Option Following Disability. If the Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an Incentive Stock Option within three (3) months of such termination for the Incentive Stock Option to be qualified as an Incentive Stock Option. (c) Exercise of Non-Qualified Stock Option. There may be a regular federal income tax liability upon the exercise of a Non-Qualified Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from the Optionee's compensation or collect from the Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (d) Disposition of Shares. In the case of a Non-Qualified Stock Option, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes and subject to tax at a maximum rate of 28%. For Shares held more than 18 months, the maximum rate falls to 20%. If the Non-Qualified Stock Option is exercised after December 31, 2000 and the Shares acquired upon such exercise are held for more than five years, the maximum rate falls to 18%. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for at least one year after receipt of the Shares and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares also will be treated as long-term capital gain for federal income tax purposes and subject to the same tax rates and holding periods that apply to Shares acquired upon exercise of a Non-Qualified Stock Option. If Shares purchased under an Incentive Stock Option are disposed of within such one-year or two-year periods, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the Shares. 9

16. Lock-Up Agreement. (a) Agreement. The Optionee, if requested by the Company and the lead underwriter of any public offering of the Common Stock or other securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of any interest in any Common Stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock (except Common Stock included in such public offering or acquired on the public market after such offering) during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act of 1933, as amended, or such shorter period of time as the Lead Underwriter shall specify. The Optionee further agrees to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agrees that the Company may impose stop-transfer instructions with respect to such Common Stock subject until the end of such period. The Company and the Optionee acknowledge that each Lead Underwriter of a public offering of the Company's stock, during the period of such offering and for the 180-day period thereafter, is an intended beneficiary of this Section 16. (b) Permitted Transfers. Notwithstanding the foregoing, Section 16(a) shall not prohibit the Optionee from transferring any shares of Common Stock or securities convertible into or exchangeable or exercisable for the Company's Common Stock to the extent such transfer is not otherwise prohibited by this Option Agreement, either during the Optionee's lifetime or on death by will or intestacy to the Optionee's immediate family or to a trust the beneficiaries of which are exclusively the Optionee and/or a member or members of the Optionee's immediate family; provided, however, that prior to any such transfer, each transferee shall execute an agreement pursuant to which each transferee shall agree to receive and hold such securities subject to the provisions of Section 16 hereof. For the purposes of this subsection, the term "immediate family" shall mean spouse, domestic partner (as determined by the Administrator), child, lineal descendant or antecedent, father, mother, brother or sister and the lineal descendants of such individuals. (c) No Amendment Without Consent of Underwriter. During the period from identification as a Lead Underwriter in connection with any public offering of the Company's Common Stock until the earlier of (i) the expiration of the lock-up period specified in Section 16(a) in connection with such offering or (ii) the abandonment of such offering by the Company and the Lead Underwriter, the provisions of this Section 16 may not be amended or waived except with the consent of the Lead Underwriter. 17. Entire Agreement: Governing Law. The Notice of Stock Option Grant, the Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. These agreements are governed by California law except for that body of law pertaining to conflict of laws. 18. Headings. The captions used in the Notice of Stock Option Grant and this Option Agreement are inserted for convenience and shall not be deemed a part of the Option for construction or interpretation. 19. Interpretation. Any dispute regarding the interpretation of the Notice of Stock Option Grant, the Plan, and this Option Agreement shall be submitted by the Optionee or by the Company forthwith to the Board or the Administrator that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such dispute by the Board or the Administrator shall be final and binding on all persons. 10

EXHIBIT A SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN EXERCISE NOTICE Saba Software, Inc. 2400 Bridge Parkway Redwood Shores, CA 94065-1166 Attention: Secretary 1. Exercise of Option. Effective as of today, ____________________, ________, the undersigned (the "Optionee") hereby elects to exercise the Optionee's option to purchase ___________ shares of the Common Stock (the "Shares") of Saba Software, Inc. (the "Company") under and pursuant to the Company's 1997 Stock Incentive Plan (the "Plan") and the [ ] Incentive [ ] Non-Qualified Stock Option Agreement and Notice of Stock Option Grant dated ______________, ________ (the "Option Agreement"). 2. Representations of the Optionee. The Optionee acknowledges that the Optionee has received, read and understood the Notice of Stock Option Grant, the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. Rights as Shareholder. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11(a) of the Plan. The Optionee shall enjoy rights as a shareholder until such time as the Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal or the Repurchase Right. Upon such exercise, the Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of the Option Agreement, and the Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation. 4. Delivery of Payment. The Optionee herewith delivers to the Company the full Exercise Price for the Shares. 5. Tax Consultation. The Optionee understands that the Optionee may suffer adverse tax consequences as a result of the Optionee's purchase or disposition of the Shares. The Optionee represents that the Optionee has consulted with any tax consultants the Optionee deems 1

advisable in connection with the purchase or disposition of the Shares and that the Optionee is not relying on the Company for any tax advice. 6. Taxes. The Optionee agrees to satisfy all applicable federal, state and local income and employment tax withholding obligations and herewith delivers to the Company the full amount of such obligations or has made arrangements acceptable to the Company to satisfy such obligations. In the case of an Incentive Stock Option, the Optionee also agrees, as partial consideration for the designation of the Option as an Incentive Stock Option, to notify the Company in writing within thirty (30) days of any disposition of any shares acquired by exercise of the Option if such disposition occurs within two (2) years from the Grant Date or within one (1) year from the date the Shares were transferred to the Optionee. If the Company is required to satisfy any federal, state or local income or employment tax withholding obligations as a result of such an early disposition, the Optionee agrees to satisfy the amount of such withholding in a manner that the Administrator prescribes. 7. Restrictive Legends. The Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL AND A REPURCHASE RIGHT HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER SUCH TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE RIGHT ARE BINDING ON TRANSFEREES OF THESE SHARES. 8. Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon the Optionee and his or her heirs, executors, administrators, successors and assigns. 2

9. Headings. The captions used in this Exercise Notice are inserted for convenience and shall not be deemed a part of this agreement for construction or interpretation. 10. Interpretation. Any dispute regarding the interpretation of this Exercise Notice shall be submitted by the Optionee or by the Company forthwith to the Company's Board of Directors or the Administrator that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or Administrator shall be final and binding on all persons. 11. Governing Law; Severability. This Exercise Notice shall be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Exercise Notice be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 12. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 13. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this agreement. 14. Entire Agreement. The Notice of Stock Option Grant, the Plan and the Option Agreement are incorporated herein by reference and together with this Exercise Notice constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and the Optionee.
Submitted by: OPTIONEE: Accepted by: SABA SOFTWARE, INC. By: -------------------------------------

--------------------------------(Signature) Address: ----------------------------------------------------------------Tel: -----------------------------

Its: ------------------------------------

Address: 2400 Bridge Parkway Redwood Shores, CA 94065-1166

3

EXHIBIT B SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: COMPANY: SECURITY: NUMBER OF SHARES: DATE: ---------------------------------------SABA SOFTWARE, INC. COMMON STOCK -------------------------------------------------------------------------------

In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public 1

offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Optionee:

Date: , 2

EXHIBIT 10.3 SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of the Committees appointed to administer the Plan. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. (c) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein. (d) "Award" means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or other right or benefit under the Plan. (e) "Award Agreement" means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto. (f) "Board" means the Board of Directors of the Company. (g) "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or (ii) a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded up to the next whole 1

number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors. (h) "Code" means the Internal Revenue Code of 1986, as amended. (i) "Committee" means any committee appointed by the Board to administer the Plan. (j) "Common Stock" means the common stock of the Company. (k) "Company" means Saba Software, Inc., a Delaware corporation. (l) "Consultant" means any person (other than an Employee or a Director, solely with respect to rendering services in such person's capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity. (m) "Continuing Directors" means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36) months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. (n) "Continuous Service" means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. (o) "Corporate Transaction" means any of the following transactions: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting 2

power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or (iv) acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities (whether or not in a transaction also constituting a Change in Control), but excluding any such transaction that the Administrator determines shall not be a Corporate Transaction. (p) "Director" means a member of the Board or the board of directors of any Related Entity. (q) "Disability" means that a Grantee is permanently unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment. A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion. (r) "Dividend Equivalent Right" means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock. (s) "Employee" means any person, including an Officer or Director, who is an employee of the Company or any Related Entity. The payment of a director's fee by the Company or a Related Entity shall not be sufficient to constitute "employment" by the Company. (t) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (u) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (ii) In the absence of an established market for the Common Stock of the type described in (i), above, the Fair Market Value thereof shall be determined by the Administrator in good faith. 3

(v) "Grantee" means an Employee, Director or Consultant who receives an Award pursuant to an Award Agreement under the Plan. (w) "Immediate Family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Grantee's household (other than a tenant or employee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or the Grantee) control the management of assets, and any other entity in which these persons (or the Grantee) own more than fifty percent (50%) of the voting interests. (x) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (y) "Non-Qualified Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (z) "Officer" means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (aa) "Option" means an option to purchase Shares pursuant to an Award Agreement granted under the Plan. (bb) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (cc) "Performance Shares" means Shares or an Award denominated in Shares which may be earned in whole or in part upon attainment of performance criteria established by the Administrator. (dd) "Performance Units" means an Award which may be earned in whole or in part upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator. (ee) "Plan" means this 2000 Stock Incentive Plan. (ff) "Registration Date" means the first to occur of (i) the closing of the first sale to the general public of (A) the Common Stock or (B) the same class of securities of a successor corporation (or its Parent) issued pursuant to a Corporate Transaction in exchange for or in substitution of the Common Stock, pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended; and (ii) in the event of a Corporate Transaction, the date of the consummation of the Corporate Transaction if the same class of securities of the successor corporation (or its Parent) issuable in such Corporate Transaction shall have been sold to the general public pursuant to a 4

registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended on or prior to the date of consummation of such Corporate Transaction. (gg) "Related Entity" means any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a substantial ownership interest, directly or indirectly. (hh) "Related Entity Disposition" means the sale, distribution or other disposition by the Company, a Parent or a Subsidiary of all or substantially all of the interests of the Company, a Parent or a Subsidiary in any Related Entity effected by a sale, merger or consolidation or other transaction involving that Related Entity or the sale of all or substantially all of the assets of that Related Entity, other than any Related Entity Disposition to the Company, a Parent or a Subsidiary. (ii) "Restricted Stock" means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator. (jj) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor thereto. (kk) "SAR" means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock. (ll) "Share" means a share of the Common Stock. (mm) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. (a) Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is Six Million (6,000,000) Shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to five percent (5%) of the number of Shares outstanding as of such date or a lesser number of Shares determined by the Administrator. Notwithstanding the foregoing, subject to the provisions of Section 10, below, of the number of Shares specified above, the maximum aggregate number of Shares available for grant of Incentive Stock Options shall be 6,000,000 Shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the lesser of (x) 3,000,000 Shares, (y) five percent (5%) of the number of Shares outstanding as of such date, or (z) a lesser number of Shares determined by the Administrator. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock. 5

(b) Any Shares covered by an Award (or portion of an Award) which is forfeited or canceled, expires or is settled in cash, shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Plan Administrator. (i) Administration with Respect to Directors and Officers. With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. (ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time. (iii) Administration Errors. In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws. (b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: (i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder; (ii) to determine whether and to what extent Awards are granted hereunder; (iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder; (iv) to approve forms of Award Agreements for use under the Plan; 6

(v) to determine the terms and conditions of any Award granted hereunder; (vi) to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Award shall not be made without the Grantee's written consent; (vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan, including without limitation, any notice of Award or Award Agreement, granted pursuant to the Plan; (viii) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and (ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. 5. Eligibility. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time. 6. Terms and Conditions of Awards. (a) Type of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Shares. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units or Performance Shares, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative. (b) Designation of Award. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year 7

(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted. (c) Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share, total stockholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. (d) Acquisitions and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction. (e) Deferral of Award Payment. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program. (f) Award Exchange Programs. The Administrator may establish one or more programs under the Plan to permit selected Grantees to exchange an Award under the Plan for one or more other types of Awards under the Plan on such terms and conditions as determined by the Administrator from time to time. (g) Separate Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time. (h) Early Exercise. The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant 8

to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate. (i) Term of Award. The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Incentive Stock Option shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement. (j) Transferability of Awards. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee; provided, however, that the Grantee may designate a beneficiary of the Grantee's Incentive Stock Option in the event of the Grantee's death on a beneficiary designation form provided by the Administrator. Other Awards may be transferred by gift or through a domestic relations order to members of the Grantee's Immediate Family to the extent provided in the Award Agreement or in the manner and to the extent determined by the Administrator. (k) Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Award is so granted within a reasonable time after the date of such grant. 7. Award Exercise or Purchase Price, Consideration and Taxes. (a) Exercise or Purchase Price. The exercise or purchase price, if any, for an Award shall be as follows: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. 9

(ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator. (iii) In the case of other Awards, such price as is determined by the Administrator. (iv) Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the principles of Section 424(a) of the Code. (b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following; provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law: (i) cash; (ii) check; (iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; (iv) surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); (v) with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or (vi) any combination of the foregoing methods of payment. (c) Taxes. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the 10

Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award, the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations. 8. Exercise of Award. (a) Procedure for Exercise; Rights as a Stockholder. (i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement. (ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Award, notwithstanding the exercise of an Option or other Award. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 10, below. (b) Exercise of Award Following Termination of Continuous Service. (i) An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee's Continuous Service only to the extent provided in the Award Agreement. (ii) Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee's Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first. (iii) Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee's Continuous Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement. 11

9. Conditions Upon Issuance of Shares. (a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. 10. Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the maximum number of Shares with respect to which Options and SARs may be granted to any Employee in any fiscal year of the Company, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or similar event affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock to which Section 424(a) of the Code applies or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award. 11. Corporate Transactions/Related Entity Dispositions. Except as may be provided in an Award Agreement: (a) Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate. However, all such Awards shall not terminate if they are, in connection with the Corporate Transaction, assumed by the successor corporation or Parent thereof. (b) Effective upon the consummation of a Related Entity Disposition, for purposes of the Plan and all Awards, the Continuous Service of each Grantee who is at the time engaged primarily in service to the Related Entity involved in such Related Entity Disposition shall be deemed to terminate and each Award of such Grantee which is at the time outstanding under the Plan shall be exercisable in accordance with the terms of the Award Agreement 12

evidencing such Award. However, such Continuous Service shall be not to deemed to terminate if such Award is, in connection with the Related Entity Disposition, assumed by the successor entity or its parent. 12. Effective Date and Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. Subject to Section 17, below, and Applicable Laws, Awards may be granted under the Plan upon its becoming effective. 13. Amendment, Suspension or Termination of the Plan. (a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) No Award may be granted during any suspension of the Plan or after termination of the Plan. (c) Any amendment, suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall not affect Awards already granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. 14. Reservation of Shares. (a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. (b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall not confer upon any Grantee any right with respect to the Grantee's Continuous Service, nor shall it interfere in any way with his or her right or the Company's right to terminate the Grantee's Continuous Service at any time, with or without cause. 16. No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or 13

amount of benefits is related to level of compensation. The Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended. 17. Stockholder Approval. The grant of Incentive Stock Options under the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted excluding Incentive Stock Options issued in substitution for outstanding Incentive Stock Options pursuant to Section 424(a) of the Code. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. The Administrator may grant Incentive Stock Options under the Plan prior to approval by the stockholders, but until such approval is obtained, no such Incentive Stock Option shall be exercisable. In the event that stockholder approval is not obtained within the twelve (12) month period provided above, all Incentive Stock Options previously granted under the Plan shall be exercisable as Non-Qualified Stock Options. 14

SABA SOFTWARE, INC. 2000 NON-EMPLOYEE DIRECTOR OPTION PROGRAM ARTICLE I ESTABLISHMENT AND PURPOSE OF THE PROGRAM 1.01 ESTABLISHMENT OF PROGRAM The Saba Software, Inc. 2000 Non-Employee Director Option Program (the "Program") is adopted pursuant to the Saba Software, Inc. 2000 Stock Incentive Plan (the "Plan") and, in addition to the terms and conditions set forth below, is subject to the provisions of the Plan. 1.02 PURPOSE OF PROGRAM The purpose of the Program is to enhance the ability of the Company to attract and retain directors who are not Employees ("Non-Employee Directors") through a program of automatic Option grants. 1.03 EFFECTIVE DATE OF THE PROGRAM The Program is effective as of the Registration Date. ARTICLE II DEFINITIONS Capitalized terms in this Program, unless otherwise defined herein, have the meaning given to them in the Plan. ARTICLE III OPTION TERMS 3.01 INITIAL GRANT TO NEW DIRECTORS A Non-Qualified Stock Option to purchase 20,000 shares of Common Stock shall be granted ("Initial Grant") to each Non-Employee Director who is first elected to the Company's Board of Directors after the Registration Date, such Initial Grant to be made upon the date each such Non-Employee Director first becomes a Non-Employee Director. Each Initial Grant under the Program shall vest and become exercisable as to one-half (1/2) of the shares of Common Stock subject to the Option at the next annual meeting of the Company's stockholders following the 15

date of grant of such Option, and the remaining one-half (1/2) of the shares of Common Stock subject to the Option shall vest at the second annual meeting of the Company's stockholders following the date of grant of such Option, such that the Option will be fully exercisable at the second annual meeting of the Company's stockholders. 3.02 RENEWAL GRANTS TO INCUMBENT DIRECTORS Immediately following each annual meeting of the Company's stockholders, each Non-Employee Director who continues as a Non-Employee Director following such annual meeting shall be granted a Non-Qualified Stock Option to purchase 10,000 shares of Common Stock ("Subsequent Grant"); provided that no Subsequent Grant shall be made to any Non-Employee Director that is serving as a director on the date of the adoption of the Plan until all options and shares of Common Stock held by the director have fully vested (not taking into account options and shares that vest on the day of the annual meeting of the Company's stockholders at which such Subsequent Grant is to occur). Each such Subsequent Grant shall be made on the date of the annual stockholders' meeting in question. Each Subsequent Grant under the Program shall vest and become exercisable as to the full amount at the subsequent annual meeting of the Company's stockholders. 3.03 EXERCISE PRICE The exercise price per share of Common Stock of each Initial Grant and Subsequent Grant shall be one hundred percent (100%) of the Fair Market Value per Share on the date of grant. 3.04 CORPORATE TRANSACTION (a) In the event of a Corporate Transaction, each Option which is at the time outstanding under the Program automatically shall become fully vested and exercisable immediately prior to the effective date of such Corporate Transaction. Effective upon the consummation of the Corporate Transaction, all outstanding Options under the Program shall terminate. However, all such Options shall not terminate if the Options are, in connection with the Corporate Transaction, assumed by the successor corporation or Parent thereof. (b) In the event of a Change in Control (other than a Change in Control which also is a Corporate Transaction), each Option which is at the time outstanding under the Program automatically shall become fully vested and exercisable, immediately prior to the specified effective date of such Change in Control. Each such Option shall remain so exercisable until the expiration or sooner termination of the applicable Option term. 3.05 OTHER TERMS The Administrator shall determine the remaining terms and conditions of the Options awarded under the Program. 16

SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN NOTICE OF STOCK OPTION AWARD Grantee's Name and Address: _________________________________________

You have been granted an option to purchase shares of Common Stock, subject to the terms and conditions of this Notice of Stock Option Award (the "Notice"), the Saba Software, Inc. 2000 Stock Incentive Plan, as amended from time to time (the "Plan") and the Stock Option Award Agreement (the "Option Agreement") attached hereto, as follows. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice.
Award Number Date of Award Vesting Commencement Date Exercise Price per Share Total Number of Shares subject to the Option Total Exercise Price Type of Option: ____________________________________ ____________________________________ ____________________________________ $___________________________________ ____________________________________ $___________________________________ _______ _______ Expiration Date: Post-Termination Exercise Period: Incentive Stock Option Non-Qualified Stock Option

____________________________________ Three (3) Months

Vesting Schedule: Subject to Grantee's Continuous Service and other limitations set forth in this Notice, the Plan and the Option Agreement, the Option may be exercised, in whole or in part, in accordance with the following schedule: [25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date. 3/48 of the Shares subject to the Option shall vest on each quarterly anniversary of the Vesting Commencement Date, beginning at the 15-month anniversary of the Vesting Commencement Date.] During any authorized leave of absence, the vesting of the Option as provided in this schedule shall cease after the leave of absence exceeds a period of ninety (90) days. Vesting of the Option shall resume upon the Grantee's termination of the leave of absence and return to service to the Company or a Related Entity. 17

In the event of the Grantee's change in status from Employee to Consultant or from an Employee whose customary employment is 20 hours or more per week to an Employee whose customary employment is fewer than 20 hours per week, vesting of the Option shall continue only to the extent determined by the Administrator as of such change in status. In the event of termination of the Grantee's Continuous Service for Cause, the Grantee's right to exercise the Option shall terminate concurrently with the termination of the Grantee's Continuous Service. IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Option is to be governed by the terms and conditions of this Notice, the Plan, and the Option Agreement. Saba Software, Inc., a Delaware corporation By:______________________________________ Title: __________________________________ THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY, GRANTEE'S STATUS IS AT WILL. The Grantee acknowledges receipt of a copy of the Plan and the Option Agreement, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Option subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice, the Plan, and the Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice, and fully understands all provisions of this Notice, the Plan and the Option Agreement. The Grantee hereby agrees that all disputes arising out of or relating to this Notice, the Plan and the Option Agreement shall be resolved in accordance with Section 13 of the Option Agreement. The Grantee further agrees to notify the Company upon any change in the residence address indicated in this Notice. Dated: ______________________ Signed: ___________________________________ Grantee 18

AWARD NUMBER: ___________ SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN STOCK OPTION AWARD AGREEMENT 1. Grant of Option. Saba Software, Inc., a Delaware corporation (the "Company"), hereby grants to the Grantee (the "Grantee") named in the Notice of Stock Option Award (the "Notice"), an option (the "Option") to purchase the Total Number of Shares of Common Stock subject to the Option (the "Shares") set forth in the Notice, at the Exercise Price per Share set forth in the Notice (the "Exercise Price") subject to the terms and provisions of the Notice, this Stock Option Award Agreement (the "Option Agreement") and the Company's 2000 Stock Incentive Plan, as amended from time to time (the "Plan"), which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice as an Incentive Stock Option, the Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by the Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is awarded. 2. Exercise of Option. (a). Right to Exercise. The Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice and with the applicable provisions of the Plan and this Option Agreement. The Option shall be subject to the provisions of Section 11 of the Plan relating to the exercisability or termination of the Option in the event of a Corporate Transaction, Change in Control or Related Entity Disposition. No partial exercise of the Option may be for less than the lesser of five percent (5%) of the total number of Shares subject to the Option or the remaining number of Shares subject to the Option. In no event shall the Company issue fractional Shares. (b). Method of Exercise. The Option shall be exercisable only by delivery of an Exercise Notice (attached as Exhibit A) which shall state the election to exercise the Option, the whole number of Shares in respect of which the Option is being exercised, such other representations and agreements as to the holder's investment intent with respect to such Shares and such other provisions as may be required by the Administrator. The Exercise Notice shall be signed by the Grantee and shall be delivered in person, by certified mail, or by such other method as determined from time to time by the Administrator to the 1

Company accompanied by payment of the Exercise Price. The Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price, which, to the extent selected, shall be deemed to be satisfied by use of the broker-dealer sale and remittance procedure to pay the Exercise Price provided in Section 3(d), below. (c). Taxes. No Shares will be delivered to the Grantee or other person pursuant to the exercise of the Option until the Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of applicable income tax, employment tax, and social security tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of the Option, the Company or the Grantee's employer may offset or withhold (from any amount owed by the Company or the Grantee's employer to the Grantee) or collect from the Grantee or other person an amount sufficient to satisfy such tax obligations and/or the employer's withholding obligations. 3. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Grantee; provided, however, that such exercise method does not then violate any Applicable Law and, provided further, that the portion of the Exercise Price equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law: (a). cash; (b). check; (c). surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Option) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate Exercise Price of the Shares as to which the Option is being exercised (but only to the extent that such exercise of the Option would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price); or (d). payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (i) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (ii) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction. 2

4. Restrictions on Exercise. The Option may not be exercised if the issuance of the Shares subject to the Option upon such exercise would constitute a violation of any Applicable Laws. In addition, the Option, if an Incentive Stock Option, may not be exercised until such time as the Plan has been approved by the stockholders of the Company. 5. Termination or Change of Continuous Service. In the event the Grantee's Continuous Service terminates, the Grantee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise the Option during the Post-Termination Exercise Period. In the event of termination of the Grantee's Continuous Service for Cause, the Grantee's right to exercise the Option shall, except, as otherwise determined by the Administrator, terminate concurrently with he termination of the Grantee's Continuous Service. In no event shall the Option be exercised later than the Expiration Date set forth in the Notice. In the event of the Grantee's change in status from Employee, Director or Consultant to any other status of Employee, Director or Consultant, the Option shall remain in effect and, except to the extent otherwise determined by the Administrator, continue to vest; provided, however, that with respect to any Incentive Stock Option that shall remain in effect after a change in status from Employee to Director or Consultant, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following such change in status. Except as provided in Sections 6 and 7 below, to the extent that the Grantee is not entitled to exercise the Option on the Termination Date, or if the Grantee does not exercise the Option within the Post-Termination Exercise Period, the Option shall terminate. 6. Disability of Grantee. In the event the Grantee's Continuous Service terminates as a result of his or her Disability, the Grantee may, but only within twelve (12) months from the Termination Date (and in no event later than the Expiration Date), exercise the Option to the extent he or she was otherwise entitled to exercise it on the Termination Date; provided, however, that if such Disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code and the Option is an Incentive Stock Option, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the Termination Date. To the extent that the Grantee is not entitled to exercise the Option on the Termination Date, or if the Grantee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate. 7. Death of Grantee. In the event of the termination of the Grantee's Continuous Service as a result of his or her death, or in the event of the Grantee's death during the Post-Termination Exercise Period or during the twelve (12) month period following the Grantee's termination of Continuous Service as a result of his or her Disability, the Grantee's estate, or a person who acquired the right to exercise the Option by bequest or inheritance, may exercise the Option, but only to the extent the Grantee could exercise the Option at the date of termination, within twelve (12) months from the date of death (but in no event later than the Expiration Date). To the extent that the Grantee is not entitled to exercise the Option on the date of death, or if the Option is not exercised to the extent so entitled within the time specified herein, the Option shall terminate. 8. Transferability of Option. The Option, if an Incentive Stock Option, may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the Grantee only by the Grantee; provided, however, that the 3

Grantee may designate a beneficiary of the Grantee's Incentive Stock Option in the event of the Grantee's death on a beneficiary designation form provided by the Administrator. The Option, if a Non-Qualified Stock Option may be transferred to any person by will and by the laws of descent and distribution. Non-Qualified Stock Options also may be transferred during the lifetime of the Grantee by gift and pursuant to a domestic relations order to members of the Grantee's Immediate Family to the extent and in the manner determined by the Administrator. The terms of the Option shall be binding upon the executors, administrators, heirs, successors and transferees of the Grantee. 9. Term of Option. The Option may be exercised no later than the Expiration Date set forth in the Notice or such earlier date as otherwise provided herein. 10. Tax Consequences. Set forth below is a brief summary as of the date of this Option Agreement of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES. (a). Exercise of Incentive Stock Option. If the Option qualifies as an Incentive Stock Option, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as income for purposes of the alternative minimum tax for federal tax purposes and may subject the Grantee to the alternative minimum tax in the year of exercise. (b). Exercise of Incentive Stock Option Following Disability. If the Grantee's Continuous Service terminates as a result of Disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Grantee must exercise an Incentive Stock Option within three (3) months of such termination for the Incentive Stock Option to be qualified as an Incentive Stock Option. (c). Exercise of Non-Qualified Stock Option. On exercise of a Non-Qualified Stock Option, the Grantee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If the Grantee is an Employee or a former Employee, the Company will be required to withhold from the Grantee's compensation or collect from the Grantee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (d). Disposition of Shares. In the case of a Non-Qualified Stock Option, if Shares are held for more than one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes and subject to tax at a maximum 4

rate of 20%. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for more than one year after receipt of the Shares and are disposed more than two years after the Date of Award, any gain realized on disposition of the Shares also will be treated as capital gain for federal income tax purposes and subject to the same tax rates and holding periods that apply to Shares acquired upon exercise of a Non-Qualified Stock Option. If Shares purchased under an Incentive Stock Option are disposed of prior to the expiration of such one-year or two-year periods, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the Shares. 11. Entire Agreement; Governing Law. The Notice, the Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee's interest except by means of a writing signed by the Company and the Grantee. Nothing in the Notice, the Plan and this Option Agreement (except as expressly provided therein) is intended to confer any rights or remedies on any persons other than the parties. The Notice, the Plan and this Option Agreement are to be construed in accordance with and governed by the internal laws of the State of California (as permitted by Section 1646.5 of the California Civil Code, or any similar successor provision) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Should any provision of the Notice, the Plan or this Option Agreement be determined by a court of law to be illegal or unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless remain effective and shall remain enforceable. 12. Headings. The captions used in the Notice and this Option Agreement are inserted for convenience and shall not be deemed a part of the Option for construction or interpretation. 13. Dispute Resolution. The provisions of this Section 13 shall be the exclusive means of resolving disputes arising out of or relating to the Notice, the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's assignees pursuant to Section 8 (the "parties") shall attempt in good faith to resolve any disputes arising out of or relating to the Notice, the Plan and this Option Agreement by negotiation between individuals who have authority to settle the controversy. Negotiations shall be commenced by either party by notice of a written statement of the party's position and the name and title of the individual who will represent the party. Within thirty (30) days of the written notification, the parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to resolve the dispute. If the dispute has not been resolved by negotiation, the parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the Plan or this Option Agreement shall be brought in the United States District Court, Northern District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California state court in the County of San Mateo) and that the parties shall submit to the jurisdiction of 5

such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 13 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable. 14. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail (if the parties are within the United States) or upon deposit for delivery by an internationally recognized express mail courier service (for international delivery of notice), with postage and fees prepaid, addressed to the other party at its address as shown beneath its signature in the Notice, or to such other address as such party may designate in writing from time to time to the other party. 6

EXHIBIT A SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN EXERCISE NOTICE Saba Software, Inc. 2400 Bridge Parkway Redwood Shores, CA 94065 Attention: Secretary 1. Exercise of Option. Effective as of today, ______________, ___ the undersigned (the "Grantee") hereby elects to exercise the Grantee's option to purchase ___________ shares of the Common Stock (the "Shares") of Saba Software, Inc. (the "Company") under and pursuant to the Company's 2000 Stock Incentive Plan, as amended from time to time (the "Plan") and the [ ] Incentive [ ] Non-Qualified Stock Option Award Agreement (the "Option Agreement") and Notice of Stock Option Award (the "Notice") dated ______________, ________. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Exercise Notice. 2. Representations of the Grantee. The Grantee acknowledges that the Grantee has received, read and understood the Notice, the Plan, and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. Rights as Stockholder. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. 4. Delivery of Payment. The Grantee herewith delivers to the Company the full Exercise Price for the Shares, which, to the extent selected, shall be deemed to be satisfied by use of the broker-dealer sale and remittance procedure to pay the Exercise Price provided in Section 3(d) of the Option Agreement. 5. Tax Consultation. The Grantee understands that the Grantee may suffer adverse tax consequences as a result of the Grantee's purchase or disposition of the Shares. The Grantee represents that the Grantee has consulted with any tax advisors the Grantee deems advisable in connection with the purchase or disposition of the Shares and that the Grantee is not relying on the Company for any tax advice 7

6. Taxes. The Grantee agrees to satisfy all applicable federal, state and local income and employment tax withholding obligations and herewith delivers to the Company the full amount of such obligations or has made arrangements acceptable to the Company to satisfy such obligations. In the case of an Incentive Stock Option, the Grantee also agrees, as partial consideration for the designation of the Option as an Incentive Stock Option, to notify the Company in writing within thirty (30) days of any disposition of any shares acquired by exercise of the Option if such disposition occurs within two (2) years from the Date of Award or within one (1) year from the date the Shares were transferred to the Grantee. If the Company is required to satisfy any federal, state or local income or employment tax withholding obligations as a result of such an early disposition, the Grantee agrees to satisfy the amount of such withholding in a manner that the Administrator prescribes. 7. Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this agreement shall inure to the benefit of the successors and assigns of the Company. This Exercise Notice shall be binding upon the Grantee and his or her heirs, executors, administrators, successors and assigns. 8. Headings. The captions used in this Exercise Notice are inserted for convenience and shall not be deemed a part of this agreement for construction or interpretation. 9. Dispute Resolution. The provisions of Section 13 of the Option Agreement shall be the exclusive means of resolving disputes arising out of or relating to this Exercise Notice. 10. Governing Law; Severability. This Exercise Notice is to be construed in accordance with and governed by the internal laws of the State of California (as permitted by Section 1646.5 of the California Civil Code, or any similar successor provision) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Should any provision of this Exercise Notice be determined by a court of law to be illegal or unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless remain effective and shall remain enforceable. 11. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, (if the parties are within the United States) or upon deposit for delivery by an internationally recognized express mail courier service (for international delivery of notice) with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 12. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this agreement. 13. Entire Agreement. The Notice, the Plan, and the Option Agreement are incorporated herein by reference, and together with this Exercise Notice constitute the entire 8

agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee's interest except by means of a writing signed by the Company and the Grantee. Nothing in the Notice, the Plan, the Option Agreement and this Exercise Notice (except as expressly provided therein) is intended to confer any rights or remedies on any persons other than the parties.
Submitted by: GRANTEE: Accepted by: SABA SOFTWARE, INC. By: ---------------------------------Title: ------------------------------Address: ------2400 Bridge Parkway Redwood Shores, C 94065

--------------------------------(Signature) Address: -----------------------------------------------------------------------

9

EXHIBIT 10.4 SABA SOFTWARE, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 2000 Employee Stock Purchase Plan of Saba Software, Inc. 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Parents or Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means either the Board or a committee of the Board that is responsible for the administration of the Plan as is designated from time to time by resolution of the Board. (b) "Applicable Laws" means the legal requirements relating to the administration of employee stock purchase plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to participation in the Plan by residents therein. (c) "Board" means the Board of Directors of the Company. (d) "Change in Control" means a change in ownership or control of the Company effected through the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Common Stock" means the common stock of the Company. (g) "Company" means Saba Software, Inc., a Delaware corporation. (h) "Compensation" means an Employee's base salary, bonuses and commissions from the Company or one or more Designated Parents or Subsidiaries, including such amounts of base salary as are deferred by the Employee (i) under a qualified cash or deferred arrangement described in Section 401(k) of the Code, or (ii) to a plan qualified under Section 125 of the Code. Compensation does 1

not include overtime, annual awards, other incentive payments (except to the extent expressly referenced in the first sentence), reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensation, contributions (other than contributions described in the first sentence) made on the Employee's behalf by the Company or one or more Designated Parents or Subsidiaries under any employee benefit or welfare plan now or hereafter established, and any other payments not specifically referenced in the first sentence. (i) "Corporate Transaction" means any of the following transactions: (1) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (2) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with complete liquidation or dissolution of the Company; (3) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or (4) acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities (whether or not in a transaction also constituting a Change in Control), but excluding any such transaction that the Administrator determines shall not be a Corporate Transaction (j) "Designated Parents or Subsidiaries" means the Parents or Subsidiaries which have been designated by the Administrator from time to time as eligible to participate in the Plan. (k) "Effective Date" means the effective date of the Registration Statement relating to the Company's initial public offering of its Common Stock. However, should any Designated Parent or Subsidiary become a participating company in the Plan after such date, then such entity shall designate a separate Effective Date with respect to its employee-participants. (l) "Employee" means any individual, including an officer or director, who is an employee of the Company or a Designated Parent or Subsidiary for purposes of Section 423 of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the individual's employer. Where the period of leave exceeds ninety (90) days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will 2

be deemed to have terminated on the ninety-first (91st) day of such leave, for purposes of determining eligibility to participate in the Plan. (m) "Enrollment Date" means the first day of each Offer Period. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (o) "Exercise Date" means the last day of each Purchase Period. (p) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (1) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a share of Common Stock for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a share of Common Stock on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (2) In the absence of an established market of the type described in (1), above, for the Common Stock, and subject to (3), below, the Fair Market Value thereof shall be determined by the Administrator in good faith; or (3) On the initial Effective Date of the Plan, the Fair Market Value shall be the price at which the Board, or if applicable, the Pricing Committee of the Board, and the underwriters agree to offer the Common Stock to the public in the initial public offering of the Common Stock. (q) "Offer Period" means an Offer Period established pursuant to Section 4 hereof. (r) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (s) "Participant" means an Employee of the Company or Designated Parent or Subsidiary who is actively participating in the Plan. (t) "Plan" means this Employee Stock Purchase Plan. (u) "Purchase Period" means a period of approximately six months, commencing on January 1 and July 1 of each year and terminating on the next following June 30 or December 3

31, respectively; provided, however, that the first Purchase Period shall commence on the Effective Date and shall end on December 31, 2000. (v) "Purchase Price" shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower. (w) "Reserves" means the sum of the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (x) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Eligibility. (a) General. Any individual who is an Employee on a given Enrollment Date shall be eligible to participate in the Plan for the Offer Period commencing with such Enrollment Date. (b) Limitations on Grant and Accrual. Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (taking into account stock owned by any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Parent or Subsidiary, or (ii) which permits the Employee's rights to purchase stock under all employee stock purchase plans of the Company and its Parents or Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the Fair Market Value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. The determination of the accrual of the right to purchase stock shall be made in accordance with Section 423(b)(8) of the Code and the regulations thereunder. (c) Other Limits on Eligibility. Notwithstanding Subsection (a), above, the following Employees shall not be eligible to participate in the Plan for any relevant Offer Period: (i) Employees whose customary employment is 20 hours or less per week; (ii) Employees whose customary employment is for not more than five months in any calendar year; (iii) Employees who have been employed for fewer than three business days; and (iv) Employees who are subject to rules or laws of a foreign jurisdiction that prohibit or make impractical the participation of such Employees in the Plan. 4. Offer Periods. (a) The Plan shall be implemented through overlapping or consecutive Offer Periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Section 19 hereof. The maximum duration of an Offer Period 4

shall be twenty-seven (27) months. Initially, the Plan shall be implemented through overlapping Offer Periods of twenty-four (24) months' duration commencing each January 1 and July 1 following the Effective Date (except that the initial Offer Period shall commence on the Effective Date and shall end on June 30, 2002. (b) A Participant shall be granted a separate option for each Offer Period in which he or she participates. The option shall be granted on the Enrollment Date and shall be automatically exercised in successive installments on the Exercise Dates ending within the Offer Period. (c) If on the first day of any Purchase Period in an Offer Period in which a Participant is participating, the Fair Market Value of the Common Stock is less than the Fair Market Value of the Common Stock on the Enrollment Date of the Offer Period (after taking into account any adjustment during the Offer Period pursuant to Section 18(a)), the Offer Period shall be terminated automatically and the Participant shall be enrolled automatically in the new Offer Period which has its first Purchase Period commencing on that date, provided the Participant is eligible to participate in the Plan on that date and has not elected to terminate participation in the Plan. (d) Except as specifically provided herein, the acquisition of Common Stock through participation in the Plan for any Offer Period shall neither limit nor require the acquisition of Common Stock by a Participant in any subsequent Offer Period. 5. Participation. (a) An eligible Employee may become a Participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the designated payroll office of the Company at least ten (10) business days prior to the Enrollment Date for the Offer Period in which such participation will commence, unless a later time for filing the subscription agreement is set by the Administrator for all eligible Employees with respect to a given Offer Period. (b) Payroll deductions for a Participant shall commence with the first partial or full payroll period beginning on the Enrollment Date and shall end on the last complete payroll period during the Offer Period, unless sooner terminated by the Participant as provided in Section 10. 6. Payroll Deductions. (a) At the time a Participant files a subscription agreement, the Participant shall elect to have payroll deductions made during the Offer Period in amounts between one percent (1%) and not exceeding fifteen percent (15%) of the Compensation which the Participant receives during the Offer Period. (b) All payroll deductions made for a Participant shall be credited to the Participant's account under the Plan and will be withheld in whole percentages only. A Participant may not make any additional payments into such account. 5

(c) A Participant may discontinue participation in the Plan as provided in Section 10, or may increase or decrease the rate of payroll deductions during the Offer Period by completing and filing with the Company a change of status notice in the form of Exhibit B to this Plan authorizing an increase or decrease in the payroll deduction rate. Any increase or decrease in the rate of a Participant's payroll deductions shall be effective with the first full payroll period commencing ten (10) business days after the Company's receipt of the change of status notice unless the Company elects to process a given change in participation more quickly. A Participant's subscription agreement (as modified by any change of status notice) shall remain in effect for successive Offer Periods unless terminated as provided in Section 10. The Administrator shall be authorized to limit the number of payroll deduction rate changes during any Offer Period. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant's payroll deductions may be decreased to 0% at such time during any Purchase Period which is scheduled to end during the current calendar year (the "Current Purchase Period") that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in a prior Purchase Period which ended during that calendar year plus all payroll deductions accumulated with respect to the Current Purchase Period equal $21,250. Payroll deductions shall recommence at the rate provided in such Participant's subscription agreement, as amended, at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10. 7. Grant of Option. On the Enrollment Date, each Participant shall be granted an option to purchase (at the applicable Purchase Price) two thousand (2000) shares of the Common Stock, subject to adjustment as provided in Section 18 hereof; provided (i) that such option shall be subject to the limitations set forth in Sections 3(b), 6 and 12 hereof, and (ii) the maximum number of shares of Common Stock a Participant shall be permitted to purchase in any Purchase Period shall be five hundred (500) shares, subject to adjustment as provided in Section 18 hereof. Exercise of the option shall occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10, and the option, to the extent not exercised, shall expire on the last day of the Offer Period. 8. Exercise of Option. Unless a Participant withdraws from the Plan as provided in Section 10, below, the Participant's option for the purchase of shares will be exercised automatically on each Exercise Date, by applying the accumulated payroll deductions in the Participant's account to purchase the number of full shares subject to the option by dividing such Participant's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price. No fractional shares will be purchased; any payroll deductions accumulated in a Participant's account which are not sufficient to purchase a full share shall be carried over to the next Purchase Period or Offer Period, whichever applies, or returned to the Participant, if the Participant withdraws from the Plan. Notwithstanding the foregoing, any amount remaining in a Participant's account following the purchase of shares on the Exercise Date due to the application of Section 423(b)(8) of the Code or Section 7, above, shall be returned to the Participant and shall not be carried over 6

to the next Offer Period. During a Participant's lifetime, a Participant's option to purchase shares hereunder is exercisable only by the Participant. 9. Delivery. Upon receipt of a request from a Participant after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to such Participant, as promptly as practicable, of a certificate representing the shares purchased upon exercise of the Participant's option. 10. Withdrawal; Termination of Employment. (a) A Participant may either (i) withdraw all but not less than all the payroll deductions credited to the Participant's account and not yet used to exercise the Participant's option under the Plan or (ii) terminate future payroll deductions, but allow accumulated payroll deductions to be used to exercise the Participant's option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. If the Participant elects withdrawal alternative (i) described above, all of the Participant's payroll deductions credited to the Participant's account will be paid to such Participant as promptly as practicable after receipt of notice of withdrawal, such Participant's option for the Offer Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Offer Period. If the Participant elects withdrawal alternative (ii) described above, no further payroll deductions for the purchase of shares will be made during the Offer Period, all of the Participant's payroll deductions credited to the Participant's account will be applied to the exercise of the Participant's option on the next Exercise Date, and after such Exercise Date, such Participant's option for the Offer Period will be automatically terminated. If a Participant withdraws from an Offer Period, payroll deductions will not resume at the beginning of the succeeding Offer Period unless the Participant delivers to the Company a new subscription agreement. (b) Upon termination of a Participant's employment relationship (as described in Section 2(k)) at a time more than three (3) months from the next scheduled Exercise Date, the payroll deductions credited to such Participant's account during the Offer Period but not yet used to exercise the option will be returned to such Participant or, in the case of his/her death, to the person or persons entitled thereto under Section 14, and such Participant's option will be automatically terminated. Upon termination of a Participant's employment relationship (as described in Section 2(k)) within three (3) months of the next scheduled Exercise Date, the payroll deductions credited to such Participant's account during the Offer Period but not yet used to exercise the option will be applied to the purchase of Common Stock on the next Exercise Date, unless the Participant (or in the case of the Participant's death, the person or persons entitled to the Participant's account balance under Section 14) withdraws from the Plan by submitting a change of status notice in accordance with subsection (a) of this Section 10. In such a case, no further payroll deductions will be credited to the Participant's account following the Participant's termination of employment and the Participant's option under the Plan will be automatically terminated after the purchase of Common Stock on the next scheduled Exercise Date. 7

11. Interest. No interest shall accrue on the payroll deductions credited to a Participant's account under the Plan. 12. Stock. (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 18, the maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be two million (2,000,000) shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the least of (i) two million (2,000,000) shares, (ii) two percent (2%) of the outstanding shares on such date, or (iii) a lesser number of shares determined by the Administrator. If on a given Exercise Date the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Administrator shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) A Participant will have no interest or voting right in shares covered by the Participant's option until such shares are actually purchased on the Participant's behalf in accordance with the applicable provisions of the Plan. No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. (c) Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and his or her spouse. 13. Administration. The Plan shall be administered by the Administrator which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Administrator shall, to the full extent permitted by Applicable Law, be final and binding upon all persons. 14. Designation of Beneficiary. (a) Each Participant will file a written designation of a beneficiary who is to receive any shares and cash, if any, from the Participant's account under the Plan in the event of such Participant's death. If a Participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the Participant (and the Participant's spouse, if any) at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living (or in existence) at the time of such Participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Administrator), the Administrator shall deliver such shares and/or cash to the spouse (or domestic partner, as determined by the Administrator) of the Participant, or if no spouse (or domestic partner) is known to the 8

Administrator, then to the issue of the Participant, such distribution to be made per stirpes (by right of representation), or if no issue are known to the Administrator, then to the heirs at law of the Participant determined under in accordance with Section 27. 15. Transferability. Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 14 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Administrator may treat such act as an election to withdraw funds from an Offer Period in accordance with Section 10. 16. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to Participants at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization; Corporate Transactions. (a) Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the Reserves, the Purchase Price, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, (ii) any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock to which Section 424(a) of the Code applies; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the Reserves and the Purchase Price. (b) Corporate Transactions. In the event of a proposed Corporate Transaction, each option under the Plan shall be assumed by such successor corporation or a parent or subsidiary of such successor corporation, unless the Administrator determines, in the exercise of its sole discretion and in lieu of such assumption, to shorten the Offer Period then in progress by setting a new Exercise Date (the "New Exercise Date"). If the Administrator shortens the Offer Period then in progress in lieu of assumption in the event of a Corporate Transaction, the Administrator shall notify each Participant in writing, at least ten (10) days prior to the New Exercise Date, that the Exercise Date for the Participant's option has been changed to the New 9

Exercise Date and that the Participant's option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offer Period as provided in Section 10. For purposes of this Subsection, an option granted under the Plan shall be deemed to be assumed if, in connection with the Corporate Transaction, the option is replaced with a comparable option with respect to shares of capital stock of the successor corporation or Parent thereof. The determination of option comparability shall be made by the Administrator prior to the Corporate Transaction and its determination shall be final, binding and conclusive on all persons. 19. Amendment or Termination. (a) The Administrator may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18, no such termination can affect options previously granted, provided that an Offer Period may be terminated by the Administrator on any Exercise Date if the Administrator determines that the termination of the Offer Period is in the best interests of the Company and its stockholders. Except as provided in Section 18, no amendment may make any change in any option theretofore granted which adversely affects the rights of any Participant without the consent of affected Participants. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other Applicable Law), the Company shall obtain stockholder approval in such a manner and to such a degree as required. (b) Without stockholder consent and without regard to whether any Participant rights may be considered to have been "adversely affected," the Administrator shall be entitled to limit the frequency and/or number of changes in the amount withheld during Offer Periods, change the length of Purchase Periods within any Offer Period, determine the length of any future Offer Period, whether future Offer Periods shall be consecutive or overlapping, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant's Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable and which are consistent with the Plan. 20. Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Administrator at the location, or by the person, designated by the Administrator for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the Participant to represent and warrant at the 10

time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned Applicable Laws. In addition, no options shall be exercised or shares issued hereunder before the Plan shall have been approved by stockholders of the Company as provided in Section 23. 22. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 19. 23. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. 24. No Employment Rights. The Plan does not, directly or indirectly, create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Company or a Designated Parent or Subsidiary, and it shall not be deemed to interfere in any way with such employer's right to terminate, or otherwise modify, an employee's employment at any time. 25. No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Designated Parent or Subsidiary, participation in the Plan shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Designated Parent or Subsidiary, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended. 26. Effect of Plan. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Participant, including, without limitation, such Participant's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant. 27. Governing Law. The Plan is to be construed in accordance with and governed by the internal laws of the State of California (as permitted by Section 1646.5 of the California Civil Code, or any similar successor provision) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties, except to the extent the internal laws of the State of California are superseded by the laws of the United States. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 11

EXHIBIT A Saba Software, Inc. 2000 Employee Stock Purchase Plan SUBSCRIPTION AGREEMENT Effective with the Offer Period beginning on: [ ] ESPP Effective Date [ ] <JANUARY 1, 200__> or [ ] <JULY 1, 200__> 1. PERSONAL INFORMATION <MODIFY DATA REQUESTED AS APPROPRIATE>
Legal Name (Please Print) __________________________________________ (Last) (First) (MI) Street Address______________________________________________________ City, State/Country, Zip____________________________________________ Social Security No. __ __ __ - __ __ - __ __ __ __Employee I.D. No. _______________ ___________ Location Department ___________________________ Daytime Telephone ___________________________ E-Mail Address ___________________________ Manager Mgr. Location

2. ELIGIBILITY Any Employee whose customary employment is more than 20 hours per week and more than five months per calendar year, who has been an Employee for more than three business days and who does not hold (directly or indirectly) five percent (5%) or more of the combined voting power of the Company, a parent or a subsidiary, whether in stock or options to acquire stock is eligible to participate in the Saba Software, Inc. 2000 Employee Stock Purchase Plan (the "ESPP"); provided, however, that Employees who are subject to the rules or laws of a foreign jurisdiction that prohibit or make impractical the participation of such Employees in the ESPP are not eligible to participate. 3. DEFINITIONS Each capitalized term in this Subscription Agreement shall have the meaning set forth in the ESPP. 4. SUBSCRIPTION I hereby elect to participate in the ESPP and subscribe to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the ESPP. I have received a complete copy of the ESPP and a prospectus describing the ESPP and understand that my participation in the ESPP is in all respects subject to the terms of the ESPP. The effectiveness of this Subscription Agreement is dependent on my eligibility to participate in the ESPP. 5. PAYROLL DEDUCTION AUTHORIZATION I hereby authorize payroll deductions from my Compensation during the Offer Period in the percentage specified below (payroll reductions may not exceed 15% of Compensation nor $21,250 per calendar year):
---------------------------------------------------------------------------------------------------------Percentage to be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% ----------------------------------------------------------------------------------------------------------

6. ESPP ACCOUNTS AND PURCHASE PRICE I understand that all payroll deductions will be credited to my account under the ESPP. No additional payments may be made to my account. No interest will be credited on funds held in the account at any time including any refund of the account caused by withdrawal from the ESPP. All payroll deductions shall be accumulated for the purchase of Company Common Stock at the applicable Purchase Price determined in accordance with the ESPP. 7. WITHDRAWAL AND CHANGES IN PAYROLL DEDUCTION I understand that I may discontinue my participation in the ESPP at any time prior to an Exercise Date as provided in Section 10 of the ESPP, but if I do not withdraw from the ESPP, any accumulated payroll deductions will be applied automatically to purchase Company Common Stock. I may increase or decrease the rate of my payroll deductions in whole percentage increments to not less than one percent (1%) on one occasion during any Purchase Period by completing and timely filing a Change of Status Notice. Any increase or decrease will be effective for the full payroll period occurring after ten (10) business days from the Company's receipt of the Change of Status Notice. 8. PERPETUAL SUBSCRIPTION I understand that this Subscription Agreement shall remain in effect for successive Offer Periods until I withdraw from participation in the ESPP, or termination of the ESPP. A-1

9. TAXES I have reviewed the ESPP prospectus discussion of the federal tax consequences of participation in the ESPP and consulted with tax consultants as I deemed advisable prior to my participation in the ESPP. I hereby agree to notify the Company in writing within thirty (30) days of any disposition (transfer or sale) of any shares purchased under the ESPP if such disposition occurs within two (2) years of the Enrollment Date (the first day of the Offer Period during which the shares were purchased) or within one (1) year of the Exercise Date (the date I purchased such shares), and I will make adequate provision to the Company for foreign, federal, state or other tax withholding obligations, if any, which arise upon the disposition of the shares. In addition, the Company may withhold from my Compensation any amount necessary to meet applicable tax withholding obligations incident to my participation in the ESPP, including any withholding necessary to make available to the Company any tax deductions or benefits contingent on such withholding. 10. DESIGNATION OF BENEFICIARY In the event of my death, I hereby designate the following person or trust as my beneficiary to receive all payments and shares due to me under the ESPP: [ ] I am single [ ] I am married
Beneficiary (please print) _________________________________________ (Last) (First) (MI) Street Address _____________________________________________________ City, State/Country, Zip ___________________________________________ Relationship to Beneficiary (if any) ___________________________

11. TERMINATION OF ESPP I understand that the Company has the right, exercisable in its sole discretion, to amend or terminate the ESPP at any time, and a termination may be effective as early as an Exercise Date (after purchase of shares on such date) within each outstanding Offer Period.
Date: __________________________ Employee Signature:__________________________________________ __________________________________________ spouse's signature (if beneficiary is other than spouse)

A-2

EXHIBIT B Saba Software, Inc. 2000 Employee Stock Purchase Plan CHANGE OF STATUS NOTICE

Participant Name (Please Print)

Social Security Number WITHDRAWAL FROM ESPP I hereby withdraw from the Saba Software, Inc. 2000 Employee Stock Purchase Plan (the "ESPP") and agree that my option under the applicable Offer Period will be automatically terminated and all accumulated payroll deductions credited to my account will be refunded to me or applied to the purchase of Common Stock depending on the alternative indicated below. No further payroll deductions will be made for the purchase of shares in the applicable Offer Period and I shall be eligible to participate in a future Offer Period only by timely delivery to the Company of a new Subscription Agreement. [ ] WITHDRAWAL AND PURCHASE OF COMMON STOCK Payroll deductions will terminate, but your account balance will be applied to purchase Common Stock on the next Exercise Date. Any remaining balance will be refunded. [ ] WITHDRAWAL WITHOUT PURCHASE OF COMMON STOCK Entire account balance will be refunded to me and no Common Stock will be purchased on the next Exercise Date provided this notice is submitted to the Company ten (10) business days prior to the next Exercise Date.

[ ] CHANGE IN PAYROLL DEDUCTION I hereby elect to change my rate of payroll deduction under the ESPP as follows (select one):
---------------------------------------------------------------------------------------------------------Percentage to be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% ----------------------------------------------------------------------------------------------------------

An increase or a decrease in payroll deduction will be effective for the first full payroll period commencing no fewer than ten (10) business days following the Company's receipt of this notice, unless this change is processed more quickly.

B-1

[ ] CHANGE OF BENEFICIARY [ ] I am single [ ] I am married This change of beneficiary shall terminate my previous beneficiary designation under the ESPP. In the event of my death, I hereby designate the following person or trust as my beneficiary to receive all payments and shares due to me under the ESPP:
Beneficiary (please print) ______________________________________ (Last) (First) (MI) Street Address __________________________________________________ City, State/Country, Zip ________________________________________ Relationship to Beneficiary (if any) ______________________________

Date: __________________________

Employee Signature:__________________________________________ __________________________________________ spouse's signature (if beneficiary is other than spouse)

B-2

EXHIBIT 10.5 SABA SOFTWARE, INC. THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

THIS THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made as of November 10, 1999, by and between Saba Software, Inc., a Delaware corporation (the "Company"), each of the investors listed on Schedule A hereto (each an "Investor" and collectively the "Investors"), and Babak Yazdani (the "Founder"). RECITALS WHEREAS, certain of the Investors (the "Existing Investors") hold shares of the Company's Series A Preferred Stock (the "Series A Preferred Stock"), the Company's Series B Preferred Stock (the "Series B Preferred Stock"), the Company's Series C Preferred Stock (the "Series C Preferred Stock") and/or shares of Common Stock issuable upon the conversion thereof and possess registration rights and other rights pursuant to a Second Amended and Restated Investors' Rights Agreement, dated as of April 14, 1999, by and among the Company, the Founder and the Existing Investors (the "Prior Agreement"); WHEREAS, the Founder and the Existing Investors are holders of at least that number of Registrable Securities (as defined in the Prior Agreement) required to amend each section of the Prior Agreement pursuant to Section 3.7 thereof; WHEREAS, the Company and certain Investors have entered into, as of the date hereof, a Series D Preferred Stock Purchase Agreement (the "Series D Agreement") pursuant to which the Company will issue and sell shares of the Series D Preferred Stock of the Company (the "Series D Preferred Stock"); WHEREAS, certain of the Company's and such Investors' obligations under the Series D Agreement are conditioned upon the execution and delivery of this Agreement by such Investors, the holders of a majority of the outstanding shares of Series B Preferred Stock, the holders of two-thirds (2/3) of the outstanding shares of Series C Preferred Stock, and the holders of a majority of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock voting together as a single class, the Founder and the Company. NOW, THEREFORE, in consideration of the mutual premises and covenants set forth herein, the Company, the Existing Investors and the Founder hereby agree that the Prior Agreement shall be amended and restated as set forth herein, and the parties hereto further agree as follows: 1. REGISTRATION RIGHTS. The Company covenants and agrees as follows: 1.1. DEFINITIONS. For purposes of this Agreement: 1

(a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Founder's Shares" means the 7,000,000 shares of Common Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations (collectively, a "Recapitalization")) issued to the Founder. (c) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof. (e) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (f) The term "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) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, (ii) the Founder's Shares and (iii) 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 shares referenced in (i) or (ii) above, excluding in all cases, however, any Registrable Securities that have been sold by a person in a transaction in which his or her rights under this Section 1 are not assigned or that have been sold by a person pursuant to a registration statement under the Act covering such Registrable Securities that has been declared effective by the SEC or in an open market transaction under Rule 144 of the Act. Notwithstanding anything to the contrary set forth in this Section 1.1(g), neither the Common Stock issuable or issued upon conversion of the Series A Preferred Stock or the Founder's Shares (or any shares of Common Stock otherwise deemed "Registrable Securities" with respect thereto pursuant to clause (iii) of this Section 1.1(g)) shall be deemed Registrable Securities and the holders thereof shall not be deemed Holders for the purposes of Section 1.2, 1.6, 1.12, and 1.14. (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. 2

1.2. REQUEST FOR REGISTRATION. (a) If the Company shall receive at any time after the earlier of the five-year anniversary of the date hereof or 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 an SEC Rule 145 transaction), a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of at least twenty-five percent (25%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $7,500,000), then the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and (ii) as soon as practicable, use commercially reasonable efforts to effect the registration under the Act of all Registrable Securities which the Holders request to be registered, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company, within twenty (20) days of the mailing of such notice by the Company in accordance with Section 3.5, subject to the limitations of subsection 1.2(b). (b) If the Holders initiating the registration request hereunder ("Initiating 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. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. 3

(c) Not withstanding the foregoing, if the Company shall furnish to 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 120 days after receipt of the request of the Initiating Holders; 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: (i) After the Company has effected two (2) registrations requested by the Holders of Registrable Securities pursuant to this Section 1.2 and such registrations have been declared or ordered effective; (ii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.12 below. 1.3. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) 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 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 or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, use its reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4. OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: 4

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use commercially reasonable efforts to cause such registration statement to become effective; (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (c) Furnish to each Holder such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as it may reasonably request from time to time in order to facilitate the disposition of Registrable Securities owned by it; (d) Use commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already required to qualify to do business or subject to service in such jurisdiction and except as may be required by the Act; (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. 1.5. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to 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 5

such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6. EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company (including fees and disbursements of counsel for the Company in its capacity as counsel to the selling Holders hereunder; if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one counsel for the selling Holders) shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2. 1.7. EXPENSES OF COMPANY 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 Section 1.3 for each Holder, 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 in its capacity as counsel to the selling Holders thereunder (if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one counsel for the selling Holders selected by them), but excluding underwriting discounts and commissions relating to Registrable Securities. 1.8. UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the number of shares of Holders' securities to be included in such offering shall be reduced in such manner as the Company and the underwriters determine to permit the success of such offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall (i) the amount of securities of the selling Holders of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholders' securities are included, (ii) notwithstanding (i) above, any shares 6

being sold by a stockholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering, or (iii) the number of shares of Registrable Securities to be included in such underwriting (excluding any Founder's Shares) be reduced unless the Founder's Shares are first entirely excluded from such underwriting. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, 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. 1.9. 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. 1.10. 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 or the 1934 Act, 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, or any rule or regulation promulgated under the Act or the 1934 Act; 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; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to (1) amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), or (2) 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 expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the 7

registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other stockholder of the Company that is selling securities in such registration statement and any controlling person of any such underwriter or such other stockholder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act or the 1934 Act, 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 expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(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 1.10(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 under this subsection 1.10(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.10 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 1.10, 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 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, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to 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 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. 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 8

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 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11. 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 or pursuant to a registration on Form S-3, 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) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) 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 (d) 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), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (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 or pursuant to such form. 1.12. FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders a written request or requests that the Company effect a registration on Form S9

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: (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, use commercially reasonable efforts to 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 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 1.12: (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 $5,000,000; (3) if the Company shall furnish to the Holders 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 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 60 days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.12; or (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 use commercially reasonable efforts to 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. All expenses other than underwriting discounts and commissions incurred in connection with the first three (3) registrations requested pursuant to Section 1.12, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company (including fees and disbursements of counsel for the Company in its capacity as counsel to the selling Holders hereunder; if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one counsel for the selling Holders) shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.12 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to have the Company bear the expenses of one (1) Form S-3 registration pursuant to this Section 1.12. 10

Except as provided in the immediately preceding sentence, all expenses incurred in connection with a registration requested pursuant to this Section 1.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders and counsel for the Company, shall be borne pro rata by the Holder or Holders participating in the Form S-3 Registration. Registrations effected pursuant to this Section 1.12 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.13. 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 Eight Hundred Thousand (800,000) shares of Registrable Securities (subject to appropriate adjustment for Recapitalizations), provided: (a) the Company is, within a reasonable time after 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 1.15 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, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.14. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. 1.15. "MARKET STAND-OFF" AGREEMENT. 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 11

donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; (b) such market stand-off time period shall not exceed 180 days; and (c) all officers and directors of the Company, all holders of one percent (1%) or more of the outstanding equity securities of the Company, and all other persons with registration rights enter into similar agreements. 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. Notwithstanding the foregoing, the obligations described in this Section 1.15 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 1.16. TERMINATION OF REGISTRATION RIGHTS. (a) No Holder shall be entitled to exercise any right provided for in this Section 1 after three (3) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its Common Stock to the general public. (b) In addition, the right of any Holder to request registration or inclusion in any registration pursuant to Section 1.3 shall terminate on the closing of the first Company-initiated registered public offering of Common Stock of the Company if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any 90-day period, or on such date after the closing of the first Company-initiated registered public offering of Common Stock of the Company as all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any 90-day period. 2. COVENANTS OF THE COMPANY. 2.1. DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each Investor holding at least Eight Hundred Thousand (800,000) shares of Registrable Securities (subject to appropriate adjustment for any Recapitalization): (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a 12

balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and 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 forty-five (45) 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, schedule as to the sources and application of funds for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter. (c) within thirty (30) days of the end of each month, an unaudited income statement and schedule as to the sources and application of funds and balance sheet for and as of the end of such month, in reasonable detail; (d) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget for the next fiscal year, including balance sheets and sources and applications of funds statements and, as soon as prepared, any other budgets or revised budgets prepared by the Company; (e) with respect to the financial statements called for in subsections 2.1(b) and 2.1(c), an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; and (f) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investor or any assignee of the Investor may from time to time reasonably request, provided, however, that the Company shall not be obligated under this subsection 2.1(f) or any other subsection of Section 2.1 to provide information which could adversely affect the attorney-client privilege between the Company and its counsel or which it deems in good faith to be a trade secret or similar confidential information, and provided further that the Company may require the Investor to execute a nondisclosure agreement prior to disclosure of any such information. 2.2. INSPECTION. The Company shall permit Investors holding at least Eight Hundred Thousand (800,000) shares of Registrable Securities (subject to appropriate adjustment for any Recapitalization) to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which the Company reasonably considers to be a trade secret or similar confidential information. 2.3. TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The covenants set forth in Sections 2.1 and 2.2 shall terminate and be of no further force or effect when the sale 13

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 12(g) or 15(d) of the 1934 Act, whichever event shall first occur. 2.4. RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Major Investor (as hereinafter defined) a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.4, a Major Investor shall mean any Investor that holds at least Eight Hundred Thousand (800,000) shares (subject to appropriate adjustment for any Recapitalization) of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Common Stock issued upon conversion thereof and any person who acquires at least Eight Hundred Thousand (800,000) shares (subject to appropriate adjustment for any Recapitalization) of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Common Stock issued upon conversion thereof. For purposes of this Section 2.4, Investor includes any general partners and affiliates of an Investor. An Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions: (a) The Company shall deliver a written notice ("Notice") to the Major Investors stating (i) its bona fide intention to offer such shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) By written notification received by the Company, within 20 calendar days after the giving of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series B Preferred Stock Series C Preferred Stock and Series D Preferred Stock then held by such Major Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). (c) If all Shares referred to in the Notice are not elected to be obtained as provided in subsection 2.4(b) hereof, the Company may, during the 60-day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. 14

(d) The right of first offer in this Section 2.4 shall not be applicable to (i) the issuance or sale of Common Stock to officers, directors, employees or consultants for the primary purpose of soliciting or retaining their employment or services if such issuance is approved by the Board of Directors, (ii) to or after consummation of a firm commitment underwritten public offering of shares of Common Stock registered under the Act, (iii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) the issuance of securities in connection with a bona fide business acquisition by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, or (v) the issuance or sale of Common Stock, or securities convertible into or exchangeable for Common Stock (A) in connection with any borrowings, direct or indirect, from financial institutions by the Company, whether or not presently authorized, including any type of loan or payment evidenced by any type of debt instrument, (B) to vendors or customers or to other persons in similar commercial situations with the Company if such issuance is approved by the Board of Directors or (C) in connection with obtaining lease financing, whether issued to a lessor, guarantor or other person. (e) The right of first refusal set forth in this Section 2.4 may not be assigned or transferred, except, other than with respect to a direct competitor of the Company, as reasonably determined by the Company, that (i) such right is assignable by each Major Investor to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Act, controlling, controlled by or under common control with, any such Major Investor, and (ii) such right is assignable to a transferee or assignee who holds after such transfer at least Eight Hundred Thousand (800,000) shares of Registrable Securities (subject to appropriate adjustment for any Recapitalization). 3. MISCELLANEOUS. 3.1. 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, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 3.2. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 3.3. 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. 3.4. 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. 15

3.5. NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified; or (ii) by deposit with an overnight delivery service or with the United States Post Office, by certified mail, postage prepaid, and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 3.6. 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. 3.7. AMENDMENTS AND WAIVERS. Any term of Section 1 of this Agreement may be amended and the observance of any term of Section 1 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, the holders of a majority of the then-outstanding Registrable Securities subject to or enjoying the rights under the provisions being amended or waived, and the holders of at least two-thirds (2/3) of the then-outstanding shares of Common Stock issued or issuable upon conversion of the Series C Preferred Stock subject to or enjoying the rights under the provisions being amended or waived. Any term of Section 2 of this Agreement may be amended and the observance of any term of Section 2 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, the holders of a majority of the then-outstanding shares of Common Stock issued or issuable upon conversion of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, and the holders of at least two-thirds (2/3) of the then-outstanding shares of Common Stock issued or issuable upon conversion of the Series C Preferred Stock. Any term of Section 3 of this Agreement may be amended and the observance of any term of Section 3 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, the holders of a majority of the Registrable Securities then outstanding, and the holders of at least two-thirds (2/3) of the then-outstanding shares of Common Stock issued or issuable upon conversion of the Series C Preferred Stock. Any amendment or waiver effected in accordance with this Section 3.7 shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 3.8. 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. 3.9. AGGREGATION OF STOCK. All shares of Registrable Securities held or acquired by affiliated or associated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 16

3.10. AMENDMENT OF PRIOR AGREEMENT AND WAIVER OF RIGHT OF FIRST REFUSAL. Effective upon the later of (i) the Closing (as defined in the Series D Agreement) and (ii) the execution and delivery of this Agreement by the Company, the Founder and Existing Investors holding at least that number of Registrable Securities (as defined in the Prior Agreement) required to amend the Prior Agreement pursuant to Section 3.7 thereof, the Prior Agreement shall be amended and restated in its entirety as set forth herein. Effective upon the execution and delivery of this Agreement by the Company and Existing Investors holding at least that number of Registrable Securities (as defined in the Prior Agreement) required to waive the provisions of Section 2.4 of the Prior Agreement pursuant to Section 3.7 thereof, the Major Investors hereby waive any right to receive notice of, and to participate in, the sale by the Company of (i) any shares of Series D Preferred Stock pursuant to the Series D Agreement and (ii) any other securities of the Company sold prior to the Closing (as defined in the Series D Agreement). 3.11. 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. 17

Third Amended and Restated Investors' Rights Agreement IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SABA SOFTWARE, INC. By: Babak Yazdani, President Address: 2400 Bridge Parkway Redwood Shores, CA 94065 FOUNDER: By: Babak Yazdani INVESTORS: By: Name: Address:

Third Amended and Restated Investors' Rights Agreement Schedule A Schedule of Investors Kamyar Kaviani Mohammad J. Kaviani Farzin Arsanjani Patrick Bischoff Gaurav Mehra Brett Newbold Abraham Kleinfeld Kaveh Chehrehsa Wayne A. Merrick Atri Chatterjee Richard Beard Sequoia Capital VIII Sequoia International Technology Partners VIII Sequoia International Technology Partners VIII (Q) CMS Partners LLC Sequoia 1997 Klaus Murko Axel Doehner Clark Callander Nick Zaldastani Benigna Kirsten Joachim R. Kirsten Larry Solomon Baum Family Trust Broadview Associates David Lamond Stuart Rudick Nina Bischoff Ludwig Schloesser Hans Christoph von Mitschke-Collande Dieter Bischoff Marc Benioff John Martin Christopher von Mitschke-Collande Uwe Fischer David C. Martin David C. and Kim S. Martin Grant Ricketts Mark Hoefig Andrew Loveless Mindful Partners L.P. Stuart Rudick cust Tmima Rudick Martin Rudick

Marie Codling Ed Ott Omega Ventures III, L.L.C. RS & Co. Offshore Omega Ventures III Omega Bayview, L.L.C. Crossover Fund II, L.P. Tullius Partners, LLC Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners Comdisco, Inc. Robert or Martha A. Cohn, TTEES, The Wellington Trust U/A/D 1-30-86 Stuart Jacobson David Lamond Patrick Bischoff David C. Martin Carola Stroehlein John Martin Christopher von Mitschke-Collande Mindful Partners L.P. Stuart Rudick The Hollis Trust, Nathaniel de Rothschild Trustee Nathaniel de Rothschild Amitabh Shukla Janet McCabe Clark Callander Peter J. Mooney as nominee for the Broadview Partners Group Crosslink Omega Ventures III, L.L.C. Crosslink Offshore Omega Ventures III Omega Bayview, L.L.C. Crosslink Crossover Fund III, L.P. Sequoia Capital VIII Sequoia International Technology Partners VIII Sequoia International Technology Partners VIII(Q) CMS Partners LLC Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners Comdisco, Inc. Robert or Martha A. Cohn, TTEES, The Wellington Trust U/A/D 1-30-86 Stuart L. Rudick Delaware Charter Guarantee & Trust Company TTEE FBO Stuart Rudick GTC IRA Rollover Stuart Rudick Cust. Tmima Rudick CAUTMA Until Age 18 Mindful Partners, L.P. The Hollis Trust, Nathaniel de Rothschild Trustee Nathaniel de Rothschild London Pacific Life & Annuity Company

Third Amended and Restated Investors' Rights Agreement Goldman Sachs Group State Street Bank and Trust Company as Trustee for Northrup Grumman Corporation Master Trust Upstart Communications, Inc. Howard Marc Block Tim Crossely Philip Brook Manville Jeffrey S. Milum Daniel H. Case, III Joseph B. Costello

SABA SOFTWARE, INC. AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THIS AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Amendment") is made as of _______________, 2000, by and between Saba Software, Inc., a Delaware corporation (the "Company"), certain holders of capital stock of the Company (the "Existing Investors") and General Electric Company, a New York corporation acting through its Power Systems business unit (the "Warrantholder"). RECITALS WHEREAS, each of the Existing Investors holds that number of shares of Common Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock of the Company and/or shares of Common Stock issued upon conversion thereof set forth beneath such Existing Investor's name on the signature page hereto, and possesses registration rights, information rights, rights of first refusal, and other rights pursuant to the Third Amended and Restated Investors' Rights Agreement, dated as of November 10, 1999 (the "Investors' Rights Agreement"); WHEREAS, the Warrantholder has been issued a warrant (the "Warrant") to purchase a certain number of shares of Common Stock of the Company (the "Warrant Shares") pursuant to that certain Warrant to Purchase Shares of Common Stock of Saba Software, Inc. dated as of December 30, 1999 (the "Warrant Agreement"); WHEREAS, the Existing Investors are holders of a majority of the outstanding Registrable Securities (as defined in the Investors' Rights Agreement) and the Existing Investors are the holders of at least two-thirds of the outstanding shares of Common Stock issued or issuable upon conversion of the Series C Preferred Stock of the Company currently outstanding; WHEREAS, the Company and such Existing Investors desire to amend the Investors' Rights Agreement as provided herein; and NOW, THEREFORE, in consideration of the mutual premises and covenants set forth herein, the Existing Investors and the Company hereby agree that the Investors' Rights Agreement shall be amended as set forth herein, and the parties hereto further agree as follows: 1. Amendment of Definition of "Registrable Securities". Section 1.1(g) of the Investors' Rights Agreement is hereby amended to read as follows:

(g) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, (ii) the Founder's Shares, (iii) solely for purposes of Sections 1 and 3 of the Agreement, the Common Stock issued upon exercise of that certain Warrant to Purchase Shares of Common Stock of Saba Software, Inc., by and between the Company and General Electric Company acting through its Power Systems business unit and dated as of December 30, 1999 (the "Warrant Shares") and (iv) 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 shares referenced in (i), (ii) or (iii) above, excluding in all cases, however, any Registrable Securities that have been sold by a person in a transaction in which his or her rights under this Section 1 are not assigned or that have been sold by a person pursuant to a registration statement under the Act covering such Registrable Securities that has been declared effective by the SEC or in an open market transaction under Rule 144 of the Act. Notwithstanding anything to the contrary set forth in this Section 1.1(g), neither the Common Stock issuable or issued upon conversion of the Series A Preferred Stock or the Founder's Shares (or any shares of Common Stock otherwise deemed "Registrable Securities" with respect thereto pursuant to clause (iv) of this Section 1.1(g)) shall be deemed Registrable Securities and the holders thereof shall not be deemed Holders for the purposes of Section 1.2, 1.6, 1.12, and 1.14. Notwithstanding anything to the contrary set forth in this Section 1.1(g), neither the Warrant Shares nor any shares of Common Stock otherwise deemed "Registrable Securities" with respect thereto pursuant to clause (iv) of this Section 1.1(g) shall be deemed Registrable Securities and the holders thereof shall not be deemed Holders for the purposes of (i) Section 1.14, and (ii) determining whether the Company is required to effect a registration or file a registration statement pursuant to Section 1.2 or Section 1.12. 2. Amendment of Underwriting Requirements for "Demand" Registrations. The penultimate sentence of Section 1.2(b) of the Investors' Rights Agreement is hereby amended to read as follows: Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting; provided, further, that the number of shares of Registrable Securities to be included in such underwriting (excluding any Warrant Shares or other securities issuable upon the exercise of warrants or options granted to vendors or customers of the Company ("Vendor/Customer Shares") which are entitled to be included in such underwriting) shall not be reduced unless the Warrant Shares and Vendor/Customer Shares are first entirely excluded from such underwriting. 3. Amendment of Underwriting Requirements for "Piggy-Back" Registration. Section 1.8 of the Investors' Rights Agreement is hereby amended to read as follows: 1.8. UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required 2

under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the number of shares of Holders' securities to be included in such offering shall be reduced in such manner as the Company and the underwriters determine to permit the success of such offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall (i) the amount of securities of the selling Holders of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholders' securities are included, (ii) notwithstanding clause (i) above and except as provided in clause (iii) below, any shares being sold by a stockholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering, (iii) the number of shares of Registrable Securities to be included in such underwriting (excluding any Warrant Shares or Vendor/Customer Shares which are entitled to be included in such underwriting), be reduced unless the Warrant Shares and Vendor/Customer Shares are first entirely excluded from such underwriting, and (iv) the number of shares of Registrable Securities to be included in such underwriting (excluding any Founder's Shares, Warrant Shares and Vendor/Customer Shares) be reduced unless the Founder's Shares are first entirely excluded from such underwriting. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, 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. 4. Amendment of Underwriting Requirements for "Form S-3" Registrations. Section 1.12(b) of the Investors' Rights Agreement is hereby amended by adding the following sentence to the end of such Section 1.12(b): Notwithstanding any other provision of this Section 1.12, if the underwriter of shares to be registered and sold pursuant to this Section 1.12 advises, in writing, the Holders desiring to participate in such registration that marketing factors require a limitation of the number of shares to be underwritten, then the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Holders initiating the registration request hereunder, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting (excluding any Warrant Shares or Vendor/Customer Shares which are entitled to be included in such underwriting) shall not be reduced unless the Warrant Shares and Vendor/Customer Shares are first entirely excluded from such underwriting. 3

5. Agreement to be Bound. Upon execution of this Amendment, the Warrantholder shall be deemed to be a party to the Investors' Rights Agreement and Warrantholder agrees to be subject to the terms and conditions thereof. 6. Interpretation of Amendment. This Amendment shall be considered a part of and construed in conjunction with the Investors' Rights Agreement. In the event of any inconsistency or conflict between the Investors' Rights Agreement and this Amendment, the terms, conditions and provisions of this Amendment shall govern and control. 7. Continuance of Investors' Rights Agreement. Except as expressly modified by this Amendment, the Investors' Rights Agreement will continue in full force and effect in accordance with its terms. 8. Miscellaneous. 8.1 Amendment of Investors' Rights Agreement. Effective upon the execution and delivery of this Amendment by the Company, the Warrantholder and the Existing Investors, the Investors' Rights Agreement shall be amended as herein provided pursuant to Section 3.7 of the Investors' Rights Agreement. This Amendment is entered into on behalf of all Investors (as defined in the Investors' Rights Agreement) and shall be binding upon each holder of any Registrable Securities currently outstanding, each future holder of all such Registrable Securities, the Warrantholder and the Company. 8.2 Governing Law. This Amendment shall be governed by and construed under the laws of the State of California, as applied to agreements among California residents entered into and to be performed entirely within California. 8.3 Counterparts. 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 and the same instrument. 8.4 Entire Agreement. The Investors' Rights Agreement and this Amendment constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. All previous discussions and agreements with respect to such subject matter are superseded by the Investors' Rights Agreement and this Amendment. *** 4

Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. COMPANY: Saba Software, Inc. By: Babak Yazdani, President WARRANTHOLDER: General Electric Company By: Name: Its: EXISTING INVESTOR: Babak Yazdani (7,000,000 shares of Common Stock) By: Babak Yazdani

Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement EXISTING INVESTORS: Sequoia Capital VIII (5,177,822 shares of Series B Preferred Stock) (594,062 shares of Series C Preferred Stock) (282,286 shares of Series D Preferred Stock) Sequoia International Technology Partners VIII (65,701 shares of Series B Preferred Stock) (7,538 shares of Series C Preferred Stock) (3,573 shares of Series D Preferred Stock) Sequoia International Technology Partners VIII (Q) (342,788 shares of Series B Preferred Stock) (39,329 shares of Series C Preferred Stock) (18,643 shares of Series D Preferred Stock) By: SC VIII Management LLC, a California limited liability partner Its: General Partner By: Managing Member CMS Partners LLC (114,263 shares of Series B Preferred Stock) (13,109 shares of Series C Preferred Stock) (6,214 shares of Series D Preferred Stock) Sequoia 1997 (12,569 shares of Series B Preferred Stock) (1,442 shares of Series C Preferred Stock) By: Sequoia Capital Franchise Fund (947,168 shares of Series C Preferred Stock) (465,569 shares of Series D Preferred Stock)

Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement Sequoia Capital Franchise Partners (167,147 shares of Series C Preferred Stock) (63,487 shares of Series D Preferred Stock) By: SCFF Management, LLC, a Delaware limited liability company Its: General Partner By: Managing Member

Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement EXISTING INVESTORS: Omega Ventures III, L.L.C. (677,806 shares of Series C Preferred Stock) RS & Co. Offshore Omega Ventures III (1,056,970 shares of Series C Preferred Stock) By: RS Omega III Holdings, L.L.C. Its: Authorized Signatory By: Managing Member Omega Bayview, L.L.C. (93,448 shares of Series C Preferred Stock) (23,522 shares of Series D Preferred Stock) By: Authorized Signatory Crossover Fund II, L.P. (173,526 shares of Series C Preferred Stock) By: Crossover Investment Management, L.L.C. Its: General Partner By: Managing Member Crosslink Omega Ventures III, L.L.C. (170,612 shares of Series D Preferred Stock) By: Crosslink Offshore Omega Ventures III (266,051 shares of Series D Preferred Stock) By:

Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement Crosslink Crossover Fund III, L.P. (43,678 shares of Series D Preferred Stock) By:

EXHIBIT 10.6 SABA SOFTWARE, INC. RESTRICTED STOCK PURCHASE AGREEMENT THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of ______________, by and between Saba Software, Inc., a Delaware corporation (the "Company"), and _________________ ("Recipient"). WITNESSETH WHEREAS, the Company regards Recipient as a valuable contributor to the Company and has determined that it would be in the interest of the Company and its stockholders to sell the Stock (as defined below) provided for in this Agreement to Recipient as an incentive for continued service with the Company and increased achievements in the future by Recipient; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties to this Agreement hereby agree as follows: AGREEMENT 1. Restricted Stock Purchase. (a) Contemporaneously with the execution of this Agreement, the Company will issue and sell to Recipient ___________ shares of Common Stock, par value $0.001 per share, of the Company (the "Stock") for a consideration of $___________ per share (the "Purchase Price"). Payment for the Stock in the amount of the Purchase Price multiplied by the number of shares issued hereunder shall be made to the Company upon execution of this Agreement. Such payment shall be made in cash, by check or wire transfer payable to the Company, by execution of a promissory note substantially in the form attached hereto as Exhibit A (the "Note"), or any combination of the foregoing. Stock certificates evidencing the Stock will be retained by the Company, accompanied by blank stock powers executed by Recipient, for the period during which the Stock constitutes Restricted Stock (as defined below) pursuant to the terms of Sections 2, 3 and 4 hereof. (b) All shares of Stock issued hereunder shall be deemed issued to Recipient as fully paid and nonassessable shares, and Recipient shall have all rights of a stockholder with respect thereto, including the right to vote, receive dividends (including stock dividends), participate in stock splits or other recapitalizations, and exchange such shares in a merger, consolidation or other reorganization. The term "Stock," in addition to the shares purchased pursuant to this Agreement, also refers to all securities received in replacement of the Stock, as a stock dividend or as a result of any stock split, recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Recipient is entitled by reason of Recipient's ownership of the Stock. 1

2. Restrictions. (a) No Stock issued to the Recipient hereunder shall be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Recipient prior to the date when the Recipient shall become vested in such Stock pursuant to Section 3 or 4 hereof, and such Stock shall constitute "Restricted Stock" until such date. Any attempt to transfer Stock in violation of this Section 2 shall be null and void and shall be disregarded by the Company. (b) In addition, Restricted Stock shall be subject to a repurchase option in favor of the Company (the "Repurchase Option"). The Repurchase Option shall be subject to the following terms and conditions: (i) In the event of the voluntary or involuntary termination of Recipient as an employee of the Company for any reason, with or without cause (including death or disability), the Company shall, upon the date of such termination, have an irrevocable, exclusive option for a period of ninety (90) days from such date to repurchase any or all Restricted Stock from Recipient or any person receiving the Restricted Stock by operation of law of other involuntary transfer, at the original Purchase Price for the Restricted Stock. The Repurchase Option may be assigned by the Company to any third person or entity. (ii) The Repurchase Option shall be exercised by written notice by the Company or its assignee to Recipient or his or her executor and, at the Company's or its assignee's option, by delivery to the Recipient or his or her executor, with such notice, of (A) a check in the amount of the Purchase Price for the Restricted Stock being repurchased, (B) in the event that Recipient is indebted to the Company or its assignee, by cancellation by the Company or its assignee of an amount of such indebtedness equal to the Purchase Price for the Restricted Stock being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such Purchase Price. Upon delivery by the Company or its assignee of such notice and payment of the Purchase Price, the Company or its assignee shall become the legal and beneficial owner of the Restricted Stock being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its or its assignee's own name the number of shares of Restricted Stock being repurchased by the Company or its assignee, without further action by Recipient. (c) For purposes of facilitating the enforcement of the provisions of this Section 2, Recipient agrees, immediately upon receipt of the certificate(s) for the Stock, to deliver such certificate(s), together with an Assignment Separate from Certificate, in substantially the form of that attached hereto as Exhibit B, executed in blank by Recipient and Recipient's spouse (if required for transfer) with respect to each such stock certificate, to the Secretary or Assistant Secretary of the Company, or their designee, to hold in escrow for so long as such Stock remains Restricted Stock, with the authority to take all such actions and to effectuate all such transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Agreement in accordance with the terms hereof. Recipient hereby acknowledges that the appointment of the Secretary or Assistant Secretary of the Company (or their designee) as the escrow holder hereunder with the stated authorities is a material inducement to the Company to make this Agreement and that such appointment is coupled with an interest and is accordingly irrevocable. Recipient agrees that such escrow holder shall not be 2

liable to any party hereto (or to any other party) for any actions or omissions unless such escrow holder is grossly negligent relative thereto. The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. 3. Vesting. For purposes of this Agreement, the term "vest" shall mean with respect to any share of the Stock that such share is no longer Restricted Stock subject to the restrictions on transfer set forth in Section 2 and that such share is released from the Repurchase Option. If Recipient would become vested in any fraction of a share of Stock on any date, such fractional share shall not vest and shall remain Restricted Stock until the Recipient becomes vested in the entire share. The shares of Stock subject to this Agreement shall vest as follows: (a) ________________ percent (___%) of the shares of Stock subject to this Agreement shall vest on ________________; and (b) the remaining ______________ percent (___%) of the shares of Stock subject to this Agreement shall vest in ________________ installments commencing on ________________ and continuing quarterly thereafter until all shares of Stock have become fully vested. Notwithstanding the vesting schedule set forth in this Section 3, upon termination without Cause (as defined below) by the Company of Recipient's employment with the Company, an additional fifty percent (50%) of the shares of Stock or, if less, all of the remaining shares of Restricted Stock, shall immediately vest and thereby be released from the Repurchase Option. For the purpose of this Section 3, "Cause" shall mean: (i) any act or failure to act by Recipient that was performed in bad faith and to the detriment of the Company; (ii) recipient refuses or fails to act in accordance with any lawful, reasonable direction or order of the Board of Directors of the Company and such refusal or failure has a materially adverse effect on the Company's business; (iii) Recipient exhibits willful misconduct or dishonesty in the management of the affairs of the Company; or (iv) Recipient is convicted of a felony and such conviction has a material adverse effect on the Company or on Recipient's ability to serve as an employee of the Company. 4. Corporate Transaction. (a) For purposes of this Section 4, a "Corporate Transaction" shall include any of the following stockholder-approved transactions to which the Company is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for (1) a transaction the principal purpose of which is to change the state of the Company's incorporation, or (2) a transaction in which the Company's stockholders immediately prior to such merger or consolidation hold (by virtue of securities received in exchange for their shares in the Company) securities of the surviving entity representing more than fifty percent (50%) of the total voting power of such surviving entity immediately after such transaction; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company unless the Company's stockholders immediately prior to such 3

sale, transfer or other disposition hold (by virtue of securities received in exchange for their shares in the Company) securities of the purchaser or other transferee representing more than fifty percent (50%) of the total voting power of such entity immediately after such transaction; or (iii) any reverse merger in which the Company is the surviving entity but in which the Company's stockholders immediately prior to such merger do not hold (by virtue of their shares in the Company) securities of the surviving entity held immediately prior to such transaction representing more than fifty percent (50%) of the total voting power of the surviving entity immediately after such transaction. (b) In the event of any Corporate Transaction, all of the Restricted Stock shall, immediately prior to the specified effective date of the Corporate Transaction, vest and thereby be released from the Repurchase Option. 5. Withholding of Taxes. Recipient shall provide the Company with a copy of any timely election made pursuant to Section 83(b) of the Internal Revenue Code or similar provision of state law (collectively, an "83(b) Election"), a form of which election is attached hereto as Exhibit C. If Recipient makes a timely 83(b) Election, Recipient shall immediately pay the Company the amount necessary to satisfy any applicable federal, state, and local income and employment tax withholding requirements. If Recipient does not make a timely 83(b) Election, Recipient shall, either at the time that the restrictions lapse under this Agreement or at the time withholding is otherwise required by any applicable law, pay the Company the amount necessary to satisfy any applicable federal, state, and local income and employment tax withholding requirements. 6. Additional Securities. Any securities received as the result of ownership of Restricted Stock (hereinafter called "Additional Securities"), including, without limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization, shall be retained by the Company in the same manner and subject to the same conditions as the Restricted Stock with respect to which they were issued. Recipient shall be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, but the Recipient may not direct the Company to sell any such warrant or option. If Additional Securities consist of a convertible security, Recipient may exercise any conversion right, and any securities so acquired shall be deemed Additional Securities. Additional Securities shall be subject to the provisions of Sections 2,3 and 4 above in the same manner as the Restricted Stock. 7. Investment Representations. (a) This Agreement is made in reliance upon the Recipient's representation to the Company, which by its acceptance hereof the Recipient hereby confirms, that the shares of Stock to be received by Recipient will be acquired for investment for his or her own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that he or she has no present intention of selling, granting participation in, or otherwise distributing the same, but subject nevertheless to any requirement of law that the disposition of his or her property shall at all times be within his or her control. 4

(b) The Recipient understands that the Stock is not registered under the Securities Act of 1933, as amended (the "1933 Act"), on the basis that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from registration under the 1933 Act pursuant to Section 4(2) thereof, and that the Company's reliance on such exemption is predicated on the Recipient's representations set forth herein. The Recipient realizes that the basis for the exemption may not be present if, notwithstanding such representations, the Recipient has in mind merely acquiring shares of the Stock for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Recipient does not have any such intention. (c) The Recipient understands that the Stock may not be sold, transferred, or otherwise disposed of without registration under the 1933 Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Stock or an available exemption from registration under the 1933 Act, the Stock must be held indefinitely. In particular, the Recipient is aware that the Stock may not be sold pursuant to Rule 144 or Rule 701 promulgated under the 1933 Act unless all of the conditions of the applicable Rules are met. Among the conditions for use of Rule 144 is the availability of current information to the public about the Company. Such information is not now available, and the Company has no present plans to make such information available. The Recipient represents that, in the absence of an effective registration statement covering the Stock, it will sell, transfer, or otherwise dispose of the Stock only in a manner consistent with its representations set forth herein and then only in accordance with the provisions of paragraph 7(d) hereof. (d) The Recipient agrees that in no event will it make a transfer or disposition of any of the Stock (other than pursuant to an effective registration statement under the 1933 Act), unless and until (i) the Recipient shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the disposition, and (ii) if requested by the Company, at the expense of the Recipient or transferee, the Recipient shall have furnished to the Company either (A) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such transfer may be made without registration under the 1933 Act or (B) a "no action" letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto. (e) The Recipient represents and warrants to the Company that he or she is an "accredited investor" within the meaning of Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect and, for the purpose of Section 25102(f) of the California Corporations Code, he or she is excluded from the count of "purchasers" pursuant to Rule 260.102.13 thereunder. 8. Legends; Stop Transfer. (a) All certificates for shares of the Stock shall bear substantially the following legends: 5

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THAT CERTAIN RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE NAMED SHAREHOLDER. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH SUCH AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) The certificates for shares of the Stock shall also bear the following legend required by the Bylaws of the Company and any other legends required by applicable state corporate or securities laws: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY, AS PROVIDED IN THE BYLAWS OF THE COMPANY. (c) In addition, the Company shall make a notation regarding the restrictions on transfer of the Stock in its stockbooks, and shares of the Stock shall be transferred on the books of the Company only if transferred or sold pursuant to an effective registration statement under the 1933 Act covering such shares or pursuant to and in compliance with the provisions of paragraph 6(d) hereof. 9. NO EFFECT ON TERMS OF EMPLOYMENT. THIS AGREEMENT SHALL NOT CONFER UPON RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF RECIPIENT'S EMPLOYMENT WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE RIGHT OF RECIPIENT OR THE COMPANY TO TERMINATE RECIPIENT'S EMPLOYMENT WITH THE COMPANY AT ANY TIME FOR ANY REASON WITH OR WITHOUT CAUSE OR CHANGE THE TERMS OF EMPLOYMENT OF RECIPIENT. 6

10. Lock-Up Agreement. (a) Agreement. Recipient, if requested by the Company and the lead underwriter of any public offering of the Common Stock or other securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of any interest in any Common Stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock (except Common Stock included in such public offering or acquired on the public market after such offering) during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act, or such shorter period of time as the Lead Underwriter shall specify. Recipient further agrees to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agrees that the Company may impose stop-transfer instructions with respect to such Common Stock subject until the end of such period. The Company and Recipient acknowledge that each Lead Underwriter of a public offering of the Company's stock, during the period of such offering and for the 180-day period thereafter, is an intended beneficiary of this Section 10. (b) Permitted Transfers. Notwithstanding the foregoing, Section 10(a) hereof shall not prohibit Recipient from transferring any shares of Common Stock or securities convertible into or exchangeable or exercisable for the Company's Common Stock to the extent such transfer is not otherwise prohibited by this Agreement, either during Recipient's lifetime or on death by will or intestacy to Recipient's immediate family or to a trust the beneficiaries of which are exclusively Recipient and/or a member or members of Recipient's immediate family; provided, however, that prior to any such transfer, each transferee shall execute an agreement pursuant to which each transferee shall agree to receive and hold such securities subject to the provisions of this Section 10. For the purposes of this paragraph, the term "immediate family" shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor. (c) No Amendment Without Consent of Underwriter. During the period from identification as a Lead Underwriter in connection with any public offering of the Company's Common Stock until the earlier of (i) the expiration of the lock-up period specified in Section 10(a) hereof in connection with such offering or (ii) the abandonment of such offering by the Company and the Lead Underwriter, the provisions of this Section 10 may not be amended or waived except with the consent of the Lead Underwriter. 11. California Law. This agreement is to be construed in accordance with and governed by the internal laws of the State of California as permitted by Section 1646.5 of the California Civil Code (or any similar successor provision) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. 12. Notice. Any notice required to be given under the terms of this Agreement shall be addressed to the Company in care of its Secretary at the office of the Company at 2400 Bridge Parkway, Bldg. 12, Redwood Shores, CA 94065, and any notice to be given to Recipient shall be addressed to him at the address given by Recipient beneath his or her signature to this Agreement, or such other address as either party to this Agreement may 7

hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office regularly maintained by the United States. 13. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company. Where the context permits, "Recipient" as used in this Agreement shall include Recipient's executor, administrator or other legal representative or the person or persons to whom Recipient's rights pass by will or the applicable laws of descent and distribution. 14. Spousal Consent. Recipient shall cause his or her spouse to execute a Consent of Spouse in substantially the form of that attached hereto as Exhibit D concurrently with the execution of this Agreement or, if later, at the time Recipient becomes married. 15. California Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 16. Employee and Employment References. References in this Agreement that imply that the Recipient is an employee of the Company, including, without limitation, references regarding Recipient's employment with the Company, shall be deemed to include services provided to the Company by Recipient in a consulting capacity and, to the extent that Recipient is providing services in a consulting capacity, shall not be deemed to imply that Recipient is an employee of the Company. IN WITNESS WHEREOF, the parties hereto have duly executed this Restricted Stock Purchase Agreement as of the date first above written.
SABA SOFTWARE, INC., a Delaware corporation By: ---------------------------------Bobby Yazdani, President and Chief Executive Officer RECIPIENT:

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Address: 8

EXHIBIT A SECURED, FULL-RECOURSE PROMISSORY NOTE
$ ------------------------------FOR VALUE RECEIVED, the undersigned, _________________

("Maker"), promises to pay to Saba Software, Inc., a Delaware corporation ("Payee"), at 2400 Bridge Parkway, Building 12, Redwood Shores, California 94065, or such other place as Payee may from time to time designate, without counterclaim, deduction or offset of any kind, in lawful money of the United States, the principal sum of one hundred forty one thousand seven hundred fifty dollars ($___________) plus interest thereon, as set forth below. 1. INTEREST. Interest on the principal sum of this Note shall accrue at the simple rate of ___% per annum, based on a 365 day year and the actual number of days elapsed. 2. PRINCIPAL AND INTEREST PAYMENTS. On each of the first three (3) twelve (12) month anniversaries of the date of this Note, all accrued interest on the outstanding principal amount of this Note and principal in the amount of $___________ shall be due and payable hereunder; provided, that, if such payment date is not a business day, then payment shall be due on the first business day following such payment date. 3. PREPAYMENT. (a) Permissive. This Note may be prepaid in whole or in part, at any time, without penalty or premium. (b) Mandatory Prepayment. Maker shall be required to prepay all principal and accrued but unpaid interest due under this Note within ten (10) business days after a termination for any reason of Maker's employment with Payee. 4. APPLICATION OF PAYMENTS. All payments and prepayments received by Payee shall be applied first to accrued interest, then to other charges due with respect to this Note or the Pledge Agreement (as defined below), and then to the unpaid principal balance. 5. SECURITY. This Note is secured by a Stock Pledge Agreement in the form attached hereto as Attachment A (the "Pledge Agreement"), encumbering certain shares of Common Stock of Payee held by Maker, and the proceeds thereof (the "Collateral"). 1

6. DEFAULT AND REMEDIES. a. Default. Maker will be in default under this Note if (i) Maker fails to make a payment of principal and/or interest hereunder when due or declared due, whether at scheduled maturity, by acceleration or otherwise, within ten (10) business days after receipt of written notice of such nonpayment; (ii) except as permitted by the Pledge Agreement, Maker agrees to or does sell, convey, encumber, hypothecate or otherwise alienate the Collateral, or any part thereof, of any interest therein, or if divested of its title to the Collateral or any interest therein in any manner or any way, whether voluntarily or involuntarily, without the prior written consent of Holder, or if any other person or entity with a security interest in the Collateral exercises or seeks to exercise the remedies of a secured party with respect to the Collateral; or (iii) Maker files a petition in bankruptcy, is adjudicated insolvent, petitions or applies to any tribunal for the appointment of a receiver, custodian, or any trustee for Maker or commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction or any such proceeding has been commenced against Maker which remains undismissed for a period of sixty (60) days. b. Remedies. Upon Maker's default, Payee may (i) upon written notice to Maker, declare the entire principal sum and all accrued and unpaid interest hereunder immediately due and payable and (ii) exercise any and all of the remedies provided in the Pledge Agreement and applicable law. 7. MISCELLANEOUS. a. All communications or notices required or given under this Note shall be given in accordance with the provisions of Section 12(e) of the Pledge Agreement. b. This Note may be modified only by a written agreement executed by Maker and Payee. c. This Note shall be governed by California law. d. The terms of this Note shall inure to the benefit of and bind Maker and Payee and their respective heirs, legal representatives and successors and assigns. e. Time is of the essence with respect to all matters set forth in this Note. f. If this Note is destroyed, lost or stolen, Maker will deliver a new note to Payee on the same terms and conditions as this Note with a notation of the unpaid principal and accrued and unpaid interest in substitution of the prior Note. Payee shall furnish to Maker reasonable evidence that the Note was destroyed, lost or stolen and any security or indemnity that may be reasonably required by Maker in connection with the replacement of this Note. 2

IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first above written. MAKER:

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ATTACHMENT A STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (the "Agreement") is entered into as of ___________, by and between ___________ ("Debtor") and Saba Software, Inc., a Delaware corporation ("Secured Party"). RECITALS A. Secured Party has loaned Debtor the principal sum of $___________, which is evidenced by a promissory note of even date herewith for such principal amount (the "Note"). B. As a condition to making of the loan evidenced by the Note, Secured Party has required that the Note be secured, upon the terms herein provided, by certain shares of the Common Stock of Secured Party held by Debtor. NOW, THEREFORE, in consideration of the foregoing and the further promises contained herein, Debtor and Secured Party agree as follows: AGREEMENT 1. GRANT OF SECURITY INTEREST. To secure full payment and performance of Debtor's obligations under the Note and each and every obligation of Debtor under this Agreement (collectively the "Obligations"), when due (whether at the stated maturity, by acceleration or otherwise), Debtor hereby pledges the Collateral (defined below in Section 2), and grants a security interest in the Collateral, to Secured Party. 2. COLLATERAL. "Collateral" means ___________ shares of the Common Stock of Secured Party (the "Pledged Stock"), evidenced by Common Stock Certificate No. ____ (the "Certificate"), duly registered in the name of Debtor, together with all property rights as may derive from or accrue to the same, including without limitation, additional shares (whether as a result of stock splits, stock dividends or otherwise) or replacement securities representing interests in Secured Party or an affiliate or successor in interest of Secured Party, and all dividends (whether in cash, stock or other forms) and other income or proceeds derived therefrom or receivable or received on the sale, exchange, collection or other disposition thereof, whether voluntary or involuntary, and distributions with respect thereto. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged, or otherwise disposed of, whether such disposition is voluntary or involuntary. 3. DELIVERY OF COLLATERAL. On or prior to the execution of this Agreement, Debtor has delivered or will deliver the Certificate, together with a stock power duly executed in blank by Debtor to the Secured Party for purposes of perfecting Secured Party's security interest hereunder and in accordance with the terms of this Agreement. Upon payment from time to time of the principal amount of the Note, or any portion thereof, Secured Party shall, at Debtor's 1

request, take all steps reasonably necessary to cause the redelivery to Debtor of such portion of the Collateral corresponding to such payment. 4. STOCK ADJUSTMENTS. Secured Party shall have the right to collect and hold any shares of stock or securities of any class or kind distributed on account of the Pledged Stock by reason of any stock dividend, distribution, reclassification or other change in the capital structure of Secured Party, all of which shall be delivered by Debtor to Secured Party and held by Secured Party in accordance with the terms of this Agreement. 5. COVENANTS OF DEBTOR. In addition to other covenants of Debtor contained in this Agreement, Debtor shall: (i) from time to time promptly execute and deliver to Secured Party all such stock powers, assignments, financing statements and other instruments or documents as may be necessary in order to more fully evidence and perfect the security interest of Secured Party in the Collateral and promptly furnish Secured Party with any information or writings which Secured Party may reasonably request concerning the Collateral; (ii) appear in and defend any action or proceeding which may affect Debtor's title to or Secured Party's interest in the Collateral; and (iii) keep the Collateral free of all levies and security interests or other liens or changes except those approved in writing by Secured Party. 6. DEBTOR'S RIGHTS IN COLLATERAL. (a) The parties agree that the grant of a security interest in, and the assignment and pledge of, the Collateral to Secured Party hereunder is intended solely for the purpose of securing the Obligations. Accordingly, prior to the occurrence of an Event of Default (as that term is defined in Section 10) and the exercise of rights and remedies afforded Secured Party as a result of such Event of Default, and to the extent not inconsistent with the terms of this Agreement, Debtor will be entitled to exercise rights as the owner of the Pledged Stock and will be entitled to receive and retain, any cash distributions or allocations ("Distributions") and to exercise any other rights appurtenant to the ownership of the Collateral. Without limiting the generality of the foregoing, prior to the occurrence of an Event of Default, Debtor will have the sole and absolute right to: (i) vote or exercise any and all other consensual rights in respect of the Collateral, provided, however, that Debtor may not consent to any amendment or modification of the Certificate of Incorporation or Bylaws of Debtor that materially adversely affects Secured Party's interest in the Collateral (including, without limitation, any amendment or modification creating additional or different transfer restrictions on the Common Stock of Debtor in a manner that is different from any other shares of Debtor's Common Stock); and (ii) receive, retain, use or alienate any Distributions free and clear of the interest of Secured Party. 2

(b) After an Event of Default and the exercise of rights and remedies by Secured Party, all rights of Debtor to exercise the voting and other contractual rights which it would otherwise be entitled to exercise pursuant to this Section 6 and to receive and retain the Distributions which it would otherwise be authorized to receive and retain under this Section 6 will cease. Following the occurrence of an Event of Default and pending delivery to Secured Party of any Distributions, Debtor will hold the same in trust for Secured Party, free and clear of all liens and claims whatsoever other than the interest of Secured Party. 7. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Secured Party that: (i) The execution, delivery and performance of this Agreement does not conflict with any law or any agreement or undertaking of which Debtor is a party or by which Debtor is bound; (ii) Except for the rights of Debtor and Secured Party, no other person will have any right, title, claim or interest (by way of security interest or other lien or charge or otherwise) in, against or to the Collateral; and (iii) All information presently or subsequently supplied to Secured Party by or on behalf of Debtor with respect to the Collateral is true and correct. 8. RIGHTS OF SECURED PARTY. (a) Secured Party, upon ten (10) days written notice to Debtor if Debtor fails to perform any of its obligations hereunder, may, but need not, perform such acts to preserve its rights and the value of the Collateral. Debtor hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact (which appointment is coupled with an interest) to do any such act, and to exercise such rights and powers as Debtor might exercise with respect to the Collateral in connection therewith. No failure to so act by Secured Party will relieve Debtor of Debtor's duties under this Agreement or in any way impair or discharge the obligations, and no such failure to act will result in any liability to Debtor or any third party on the part of Secured Party. (b) Secured Party does not assume any of the obligations or liabilities of Debtor arising under any of the Collateral or any agreement in respect thereto. 9. CARE OF COLLATERAL. (a) Secured Party will use reasonable care in the custody and preservation of any Collateral in its possession. The parties further agree that such care as Secured Party gives to the safekeeping of its own property of like kind will constitute reasonable care of the Collateral when in Secured Party's possession; provided, however, that Secured Party will not be required to make any presentment, demand or protest, or give any notice and need not take any action to preserve any rights any prior party or any other person in connection with the Obligations or with respect to the Collateral. 3

(b) Secured Party will not be responsible for or have any liability for the form, legal sufficiency, genuineness, or legal effect of any signature, description, guaranty, instruction, or document related to the Collateral. (c) Debtor agrees that Secured Party will not in any way or manner be liable or responsible for any diminution in the value of the Collateral resulting from the sale or other disposition of the Collateral at Debtor's request, or from the failure of Secured Party to sell or consent to the sale, liquidation, reinvestment or other disposition of the Collateral, or for any act or default by any bailee, forwarding agency, transfer agent or any person whomsoever, in connection with the Collateral. 10. DEFAULT. An "Event of Default" will have occurred if: (a) There is an occurrence of an event of default under the Note, subject to applicable grace periods, if any; or (b) Debtor breaches any provision of this Agreement, and such breach continues after written notice from Secured Party for a period of ten (10) business days or such longer period of time reasonably required to remedy the breach, provided Debtor promptly commences remedial action with ten (10) business days of such written notice and thereafter diligently pursues the remedial action. 11. REMEDIES. (a) Upon the occurrence of an Event of Default, as defined in Section 10 above, Secured Party may, at Secured Party's option: (i) exercise with respect to the Collateral all of the remedies of a secured party under Articles 8 and 9 of the California Commercial Code (the "Code"). Without limiting the foregoing and subject to subsection (b) below, Secured Party shall have the right to sell or otherwise dispose of the Collateral in accordance with the provisions of the Code. At any such sale, Secured Party shall have the right to purchase all or any part of the Collateral and may credit bid amounts owing under the Note. In view of the fact that federal and state securities laws may impose certain restrictions on the method by which a sale of the Pledged Stock and any other Collateral consisting of securities may be effected, Debtor agrees that upon the occurrence of an Event of Default, Secured Party may from time to time attempt to sell all or any part of the Pledged Stock and any other Collateral consisting of securities by means of a private placement restricting the prospective purchasers to those who satisfy the requirements for available exemptions under applicable securities laws. In so doing, Secured Party may solicit offers to buy the Pledged Stock and any other Collateral consisting of securities from a limited number of investors deemed by Secured Party to satisfy those standards. If Secured Party solicits such offers from not less than three (3) such investors, then the acceptance by Secured Party of the highest offer(s) obtained therefrom shall be deemed to be a commercially reasonable method of disposition of the Pledged Stock and any other Collateral consisting of securities. Debtor further agrees that, to the extent notice of sale shall be required by law, ten (10) days' prior notice to Debtor shall constitute reasonable notice. Secured Party shall not be obligated to proceed with any sale of Collateral regardless of notice of sale having been given. Nothing herein shall be 4

deemed to limit or restrict Secured Party in disposing of the Collateral in other commercially reasonable ways; (ii) exercise any and all remedies available under law or in equity; and (iii) recover from Debtor all costs and expenses, including attorneys' fees and expenses, incurred by Secured Party in exercising any right or remedy provided for hereunder or by law, which costs and expenses are included in the Obligations secured by the Collateral. (b) Nothing herein shall be construed to limit Secured Party's right to seek a deficiency judgment against Debtor. (c) No delay or omission to exercise any right or remedy of Secured Party upon a default by Debtor will constitute a waiver of any right or remedy of Secured Party or be construed as a waiver of any similar default which occurs later. Debtor waives any right to require Secured Party to proceed against any other person or to exhaust any Collateral or to pursue any other remedy in Secured Party's power. (d) It is the intention of the parties that the grant of the security interest and assignment and pledge of the Collateral to Secured Party, and the exercise by Secured Party of any right or remedy granted in this Agreement, is in addition to all other security interests and remedies given to Secured Party by virtue of any statute or rule of law or any other agreement, all of which security interests and remedies are cumulative and, to the maximum extent permitted by applicable law, may be exercised successively and concurrently without impairing the rights and remedies of Secured Party under this Agreement. 12. MISCELLANEOUS. (a) SUCCESSORS. The terms of this Agreement will inure to the benefit of and bind the parties hereto and their respective successors, assigns, executors, heirs and legal representatives. (b) ENTIRE AGREEMENT; SEVERABILITY. This Agreement contains the entire security agreement between Secured Party and Debtor with respect to the Pledged Stock and may be modified only by a writing signed by Secured Party and Debtor. If any of the provisions of this Agreement are held invalid or unenforceable, this Agreement will be construed as if not containing the invalid or unenforceable provisions. (c) CHOICE OF LAW. This Agreement will be construed in accordance with and governed by the laws of the State of California. (d) ATTORNEYS' FEES. In any action brought to enforce the terms of this Agreement, the prevailing party will be reimbursed by the losing party for its reasonable costs and expenses incurred in such action, including reasonable attorneys' fees. (e) NOTICES. All notices, requests, demands and other communications to be given pursuant to the terms of this Agreement shall be in writing and shall be delivered 5

personally, telecopied or sent by recognized overnight delivery service, and shall be deemed given when so delivered personally, telecopied or received, as follows (i) If to Secured Party: Saba Software, Inc. 2400 Bridge Parkway, Building 12 Redwood Shores, CA 94065 (ii) If to Debtor: Any party may change its address or telecopier number by prior written notice to the other party. (f) TIME. Time is of the essence of each and every provision of this Agreement. (g) COUNTERPARTS. This Agreement may be executed by facsimile and in any number of counterparts, and when so executed shall have the same force and effect as though all signatures appeared on one document. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. SECURED PARTY: SABA SOFTWARE, INC. By: Title: DEBTOR:

6

EXHIBIT B ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement between the undersigned ("Recipient") and Saba Software, Inc. dated __________ ____, 1999 (the "Agreement"), Recipient hereby sells, assigns and transfers unto _______________ _________________ (_________) shares of Common Stock of Saba Software, Inc. standing in Recipient's name on the books of said corporation represented by Certificate No. _________ herewith and does hereby irrevocably constitute and appoint _____________________________________________________________ to transfer said stock on the books of the within-named corporation with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated:__________________, 19___ By: Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its repurchase option set forth in the Agreement without requiring additional signatures on the part of Recipient. 1

ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code, as amended, to include in gross income for 1999 the amount of any compensation taxable in connection with the taxpayer's receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are: TAXPAYER'S NAME: ___________ SPOUSE'S NAME: TAXPAYER'S SOCIAL SECURITY NO.: SPOUSE'S SOCIAL SECURITY NO.: TAXABLE YEAR: CALENDAR YEAR ADDRESS: 2. The property which is the subject of this election is: ___________ shares of Common Stock (the "Shares") of Saba Software, Inc., a Delaware corporation (the "Company"). 3. The Shares were transferred to the undersigned on _____________. 4. The Shares are subject to the following restriction: Upon a termination of the undersigned's employment with the Company, the Company has the right to repurchase unvested Shares at the original purchase price. The Shares shall vest, and the Company's repurchase right shall lapse, as to ____________ percent (__%) of the Shares on ______________ and as to ______________ percent (______%) of the Shares in ________________ installments commencing on _________________. 5. The fair market value of the property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is: $___________ per Share x ___________ Shares = $_________________. 6. The undersigned contributed $___________ per Share x ___________ Shares for the Shares transferred or a total of $_____________. The undersigned has submitted a copy of this statement to the Company. 1

The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The undersigned taxpayer is the person performing the services in connection with the transfer of said property. The undersigned will file this election with the Internal Revenue Service office in which he or she files his or her annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed. Additionally, the undersigned will include a copy of the election with his or her income tax return for the taxable year in which property is transferred. The undersigned understands that this election will also be effective as an election under California law. THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED EXCEPT WITH THE CONSENT OF THE COMMISSIONER OF THE INTERNAL REVENUE SERVICE. DATED: __________________, 1999 The undersigned spouse of taxpayer joins in this election. DATED: __________________, 1999 Spouse of Taxpayer 2

EXHIBIT D CONSENT OF SPOUSE I, _____________________, spouse of ___________, have read and approved the foregoing Agreement. In consideration of the right of my spouse to purchase shares of Saba Software, Inc. as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement insofar as I may have any rights under the community property laws of the State of California or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. DATED: __________________, 1999

EXHIBIT 10.7 SABA SOFTWARE, INC. RESTRICTED STOCK PURCHASE AGREEMENT THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of ___________, by and between Saba Software, Inc., a Delaware corporation (the "Company"), and ___________ ("Recipient"). WITNESSETH WHEREAS, the Company regards Recipient as a valuable contributor to the Company and has determined that it would be in the interest of the Company and its stockholders to sell the Stock (as defined below) provided for in this Agreement to Recipient as an incentive for continued service with the Company and increased achievements in the future by Recipient; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties to this Agreement hereby agree as follows: AGREEMENT 1. Restricted Stock Purchase. (a) Contemporaneously with the execution of this Agreement, the Company will issue and sell to Recipient ___________ shares of Common Stock, par value $0.001 per share, of the Company (the "Stock") for a consideration of $___________ per share (the "Purchase Price"). Payment for the Stock in the amount of the Purchase Price multiplied by the number of shares issued hereunder shall be made to the Company upon execution of this Agreement. Such payment shall be made in cash, by check or wire transfer payable to the Company, by execution of a promissory note substantially in the form attached hereto as Exhibit A (the "Note"), or any combination of the foregoing. Stock certificates evidencing the Stock will be retained by the Company, accompanied by blank stock powers executed by Recipient, for the period during which the Stock constitutes Restricted Stock (as defined below) pursuant to the terms of Sections 2 and 3 hereof. (b) All shares of Stock issued hereunder shall be deemed issued to Recipient as fully paid and nonassessable shares, and Recipient shall have all rights of a stockholder with respect thereto, including the right to vote, receive dividends (including stock dividends), participate in stock splits or other recapitalizations, and exchange such shares in a merger, consolidation or other reorganization. The term "Stock," in addition to the shares purchased pursuant to this Agreement, also refers to all securities received in replacement of the Stock, as a stock dividend or as a result of any stock split, recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Recipient is entitled by reason of Recipient's ownership of the Stock. 1

2. Restrictions. (a) No Stock issued to the Recipient hereunder shall be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Recipient prior to the date when the Recipient shall become vested in such Stock pursuant to Section 3 hereof, and such Stock shall constitute "Restricted Stock" until such date. Any attempt to transfer Stock in violation of this Section 2 shall be null and void and shall be disregarded by the Company. (b) In addition, Restricted Stock shall be subject to a repurchase option in favor of the Company (the "Repurchase Option"). The Repurchase Option shall be subject to the following terms and conditions: (i) In the event of the voluntary or involuntary termination of Recipient as an employee of the Company for any reason, with or without cause (including death or disability), the Company shall, upon the date of such termination, have an irrevocable, exclusive option for a period of ninety (90) days from such date to repurchase any or all Restricted Stock from Recipient or any person receiving the Restricted Stock by operation of law of other involuntary transfer, at the original Purchase Price for the Restricted Stock. The Repurchase Option may be assigned by the Company to any third person or entity. (ii) The Repurchase Option shall be exercised by written notice by the Company or its assignee to Recipient or his or her executor and, at the Company's or its assignee's option, by delivery to the Recipient or his or her executor, with such notice, of (A) a check in the amount of the Purchase Price for the Restricted Stock being repurchased, (B) in the event that Recipient is indebted to the Company or its assignee, by cancellation by the Company or its assignee of an amount of such indebtedness equal to the Purchase Price for the Restricted Stock being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such Purchase Price. Upon delivery by the Company or its assignee of such notice and payment of the Purchase Price, the Company or its assignee shall become the legal and beneficial owner of the Restricted Stock being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its or its assignee's own name the number of shares of Restricted Stock being repurchased by the Company or its assignee, without further action by Recipient. (c) For purposes of facilitating the enforcement of the provisions of this Section 2, Recipient agrees, immediately upon receipt of the certificate(s) for the Stock, to deliver such certificate(s), together with an Assignment Separate from Certificate, in substantially the form of that attached hereto as Exhibit B, executed in blank by Recipient and Recipient's spouse (if required for transfer) with respect to each such stock certificate, to the Secretary or Assistant Secretary of the Company, or their designee, to hold in escrow for so long as such Stock remains Restricted Stock, with the authority to take all such actions and to effectuate all such transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Agreement in accordance with the terms hereof. Recipient hereby acknowledges that the appointment of the Secretary or Assistant Secretary of the Company (or their designee) as the escrow holder hereunder with the stated authorities is a material inducement to the Company to make this Agreement and that such appointment is coupled with an interest and is accordingly irrevocable. Recipient agrees that such escrow holder shall not be 2

liable to any party hereto (or to any other party) for any actions or omissions unless such escrow holder is grossly negligent relative thereto. The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. 3. Vesting. For purposes of this Agreement, the term "vest" shall mean with respect to any share of the Stock that such share is no longer Restricted Stock subject to the restrictions on transfer set forth in Section 2 and that such share is released from the Repurchase Option. If Recipient would become vested in any fraction of a share of Stock on any date, such fractional share shall not vest and shall remain Restricted Stock until the Recipient becomes vested in the entire share. The shares of Stock subject to this Agreement shall vest as follows: (a) __________________ percent (___%) of the shares of Stock subject to this Agreement shall vest on _________________; and (b) the remaining ____________ percent (___%) of the shares of Stock subject to this Agreement shall vest in ______________ installments commencing on ______________ and continuing quarterly thereafter until all shares of Stock have become fully vested. 4. Withholding of Taxes. Recipient shall provide the Company with a copy of any timely election made pursuant to Section 83(b) of the Internal Revenue Code or similar provision of state law (collectively, an "83(b) Election"), a form of which election is attached hereto as Exhibit C. If Recipient makes a timely 83(b) Election, Recipient shall immediately pay the Company the amount necessary to satisfy any applicable federal, state, and local income and employment tax withholding requirements. If Recipient does not make a timely 83(b) Election, Recipient shall, either at the time that the restrictions lapse under this Agreement or at the time withholding is otherwise required by any applicable law, pay the Company the amount necessary to satisfy any applicable federal, state, and local income and employment tax withholding requirements. 5. Additional Securities. Any securities received as the result of ownership of Restricted Stock (hereinafter called "Additional Securities"), including, without limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization, shall be retained by the Company in the same manner and subject to the same conditions as the Restricted Stock with respect to which they were issued. Recipient shall be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, but the Recipient may not direct the Company to sell any such warrant or option. If Additional Securities consist of a convertible security, Recipient may exercise any conversion right, and any securities so acquired shall be deemed Additional Securities. Additional Securities shall be subject to the provisions of Sections 2,3 and 4 above in the same manner as the Restricted Stock. 3

6. Investment Representations. (a) This Agreement is made in reliance upon the Recipient's representation to the Company, which by its acceptance hereof the Recipient hereby confirms, that the shares of Stock to be received by Recipient will be acquired for investment for his or her own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that he or she has no present intention of selling, granting participation in, or otherwise distributing the same, but subject nevertheless to any requirement of law that the disposition of his or her property shall at all times be within his or her control. (b) The Recipient understands that the Stock is not registered under the Securities Act of 1933, as amended (the "1933 Act"), on the basis that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from registration under the 1933 Act pursuant to Section 4(2) thereof, and that the Company's reliance on such exemption is predicated on the Recipient's representations set forth herein. The Recipient realizes that the basis for the exemption may not be present if, notwithstanding such representations, the Recipient has in mind merely acquiring shares of the Stock for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Recipient does not have any such intention. (c) The Recipient understands that the Stock may not be sold, transferred, or otherwise disposed of without registration under the 1933 Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Stock or an available exemption from registration under the 1933 Act, the Stock must be held indefinitely. In particular, the Recipient is aware that the Stock may not be sold pursuant to Rule 144 or Rule 701 promulgated under the 1933 Act unless all of the conditions of the applicable Rules are met. Among the conditions for use of Rule 144 is the availability of current information to the public about the Company. Such information is not now available, and the Company has no present plans to make such information available. The Recipient represents that, in the absence of an effective registration statement covering the Stock, it will sell, transfer, or otherwise dispose of the Stock only in a manner consistent with its representations set forth herein and then only in accordance with the provisions of paragraph 6(d) hereof. (d) The Recipient agrees that in no event will it make a transfer or disposition of any of the Stock (other than pursuant to an effective registration statement under the 1933 Act), unless and until (i) the Recipient shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the disposition, and (ii) if requested by the Company, at the expense of the Recipient or transferee, the Recipient shall have furnished to the Company either (A) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such transfer may be made without registration under the 1933 Act or (B) a "no action" letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto. (e) The Recipient represents and warrants to the Company that he or she is an "accredited investor" within the meaning of Securities and Exchange Commission Rule 501 4

of Regulation D, as presently in effect and, for the purpose of Section 25102(f) of the California Corporations Code, he or she is excluded from the count of "purchasers" pursuant to Rule 260.102.13 thereunder. 7. Legends; Stop Transfer. (a) All certificates for shares of the Stock shall bear substantially the following legends: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THAT CERTAIN RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE NAMED SHAREHOLDER. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH SUCH AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) The certificates for shares of the Stock shall also bear the following legend required by the Bylaws of the Company and any other legends required by applicable state corporate or securities laws: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY, AS PROVIDED IN THE BYLAWS OF THE COMPANY. (c) In addition, the Company shall make a notation regarding the restrictions on transfer of the Stock in its stockbooks, and shares of the Stock shall be transferred on the books of the Company only if transferred or sold pursuant to an effective registration statement under the 1933 Act covering such shares or pursuant to and in compliance with the provisions of paragraph 6(d) hereof. 8. NO EFFECT ON TERMS OF EMPLOYMENT. THIS AGREEMENT SHALL NOT CONFER UPON RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF RECIPIENT'S EMPLOYMENT WITH THE 5

COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE RIGHT OF RECIPIENT OR THE COMPANY TO TERMINATE RECIPIENT'S EMPLOYMENT WITH THE COMPANY AT ANY TIME FOR ANY REASON WITH OR WITHOUT CAUSE OR CHANGE THE TERMS OF EMPLOYMENT OF RECIPIENT. 9. Lock-Up Agreement. (a) Agreement. Recipient, if requested by the Company and the lead underwriter of any public offering of the Common Stock or other securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of any interest in any Common Stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock (except Common Stock included in such public offering or acquired on the public market after such offering) during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act, or such shorter period of time as the Lead Underwriter shall specify. Recipient further agrees to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agrees that the Company may impose stop-transfer instructions with respect to such Common Stock subject until the end of such period. The Company and Recipient acknowledge that each Lead Underwriter of a public offering of the Company's stock, during the period of such offering and for the 180-day period thereafter, is an intended beneficiary of this Section 9. (b) Permitted Transfers. Notwithstanding the foregoing, Section 9(a) hereof shall not prohibit Recipient from transferring any shares of Common Stock or securities convertible into or exchangeable or exercisable for the Company's Common Stock to the extent such transfer is not otherwise prohibited by this Agreement, either during Recipient's lifetime or on death by will or intestacy to Recipient's immediate family or to a trust the beneficiaries of which are exclusively Recipient and/or a member or members of Recipient's immediate family; provided, however, that prior to any such transfer, each transferee shall execute an agreement pursuant to which each transferee shall agree to receive and hold such securities subject to the provisions of this Section 9. For the purposes of this paragraph, the term "immediate family" shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor. (c) No Amendment Without Consent of Underwriter. During the period from identification as a Lead Underwriter in connection with any public offering of the Company's Common Stock until the earlier of (i) the expiration of the lock-up period specified in Section 9(a) hereof in connection with such offering or (ii) the abandonment of such offering by the Company and the Lead Underwriter, the provisions of this Section 9 may not be amended or waived except with the consent of the Lead Underwriter. 10. California Law. This agreement is to be construed in accordance with and governed by the internal laws of the State of California as permitted by Section 1646.5 of the California Civil Code (or any similar successor provision) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. 6

11. Notice. Any notice required to be given under the terms of this Agreement shall be addressed to the Company in care of its Secretary at the office of the Company at 2400 Bridge Parkway, Bldg. 12, Redwood Shores, CA 94065, and any notice to be given to Recipient shall be addressed to him at the address given by Recipient beneath his or her signature to this Agreement, or such other address as either party to this Agreement may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office regularly maintained by the United States. 12. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company. Where the context permits, "Recipient" as used in this Agreement shall include Recipient's executor, administrator or other legal representative or the person or persons to whom Recipient's rights pass by will or the applicable laws of descent and distribution. 13. Spousal Consent. Recipient shall cause his or her spouse to execute a Consent of Spouse in substantially the form of that attached hereto as Exhibit D concurrently with the execution of this Agreement or, if later, at the time Recipient becomes married. 14. California Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 15. Employee and Employment References. References in this Agreement that imply that the Recipient is an employee of the Company, including, without limitation, references regarding Recipient's employment with the Company, shall be deemed to include services provided to the Company by Recipient in a consulting capacity and, to the extent that Recipient is providing services in a consulting capacity, shall not be deemed to imply that Recipient is an employee of the Company. 7

IN WITNESS WHEREOF, the parties hereto have duly executed this Restricted Stock Purchase Agreement as of the date first above written.
SABA SOFTWARE, INC., a Delaware corporation By: ------------------------------Bobby Yazdani, President and Chief Executive Officer RECIPIENT:

------------------------------------------------------------------------------Address: ---------------------------------------------------------------

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EXHIBIT A SECURED, FULL-RECOURSE PROMISSORY NOTE
$ --------------------FOR VALUE RECEIVED, the undersigned, ___________ ("Maker"),

promises to pay to Saba Software, Inc., a Delaware corporation ("Payee"), at 2400 Bridge Parkway, Building 12, Redwood Shores, California 94065, or such other place as Payee may from time to time designate, without counterclaim, deduction or offset of any kind, in lawful money of the United States, the principal sum of eighty one thousand dollars ($___________) plus interest thereon, as set forth below. 1. INTEREST. Interest on the principal sum of this Note shall accrue at the simple rate of ____% per annum, based on a 365 day year and the actual number of days elapsed. 2. PRINCIPAL AND INTEREST PAYMENTS. On each of the first three (3) twelve (12) month anniversaries of the date of this Note, all accrued interest on the outstanding principal amount of this Note and principal in the amount of $______________ shall be due and payable hereunder; provided, that, if such payment date is not a business day, then payment shall be due on the first business day following such payment date. 3. PREPAYMENT. (a) Permissive. This Note may be prepaid in whole or in part, at any time, without penalty or premium. (b) Mandatory Prepayment. Maker shall be required to prepay all principal and accrued but unpaid interest due under this Note within ten (10) business days after a termination for any reason of Maker's employment with Payee. 4. APPLICATION OF PAYMENTS. All payments and prepayments received by Payee shall be applied first to accrued interest, then to other charges due with respect to this Note or the Pledge Agreement (as defined below), and then to the unpaid principal balance. 5. SECURITY. This Note is secured by a Stock Pledge Agreement in the form attached hereto as Attachment A (the "Pledge Agreement"), encumbering certain shares of Common Stock of Payee held by Maker, and the proceeds thereof (the "Collateral"). 1

6. DEFAULT AND REMEDIES. a. Default. Maker will be in default under this Note if (i) Maker fails to make a payment of principal and/or interest hereunder when due or declared due, whether at scheduled maturity, by acceleration or otherwise, within ten (10) business days after receipt of written notice of such nonpayment; (ii) except as permitted by the Pledge Agreement, Maker agrees to or does sell, convey, encumber, hypothecate or otherwise alienate the Collateral, or any part thereof, of any interest therein, or if divested of its title to the Collateral or any interest therein in any manner or any way, whether voluntarily or involuntarily, without the prior written consent of Holder, or if any other person or entity with a security interest in the Collateral exercises or seeks to exercise the remedies of a secured party with respect to the Collateral; or (iii) Maker files a petition in bankruptcy, is adjudicated insolvent, petitions or applies to any tribunal for the appointment of a receiver, custodian, or any trustee for Maker or commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction or any such proceeding has been commenced against Maker which remains undismissed for a period of sixty (60) days. b. Remedies. Upon Maker's default, Payee may (i) upon written notice to Maker, declare the entire principal sum and all accrued and unpaid interest hereunder immediately due and payable and (ii) exercise any and all of the remedies provided in the Pledge Agreement and applicable law. 7. MISCELLANEOUS. a. All communications or notices required or given under this Note shall be given in accordance with the provisions of Section 12(e) of the Pledge Agreement. b. This Note may be modified only by a written agreement executed by Maker and Payee. c. This Note shall be governed by California law. d. The terms of this Note shall inure to the benefit of and bind Maker and Payee and their respective heirs, legal representatives and successors and assigns. e. Time is of the essence with respect to all matters set forth in this Note. f. If this Note is destroyed, lost or stolen, Maker will deliver a new note to Payee on the same terms and conditions as this Note with a notation of the unpaid principal and accrued and unpaid interest in substitution of the prior Note. Payee shall furnish to Maker reasonable evidence that the Note was destroyed, lost or stolen and any security or indemnity that may be reasonably required by Maker in connection with the replacement of this Note. 2

IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first above written. MAKER:

3

ATTACHMENT A STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (the "Agreement") is entered into as of ___________, by and between ___________ ("Debtor") and Saba Software, Inc., a Delaware corporation ("Secured Party"). RECITALS A. Secured Party has loaned Debtor the principal sum of $___________, which is evidenced by a promissory note of even date herewith for such principal amount (the "Note"). B. As a condition to making of the loan evidenced by the Note, Secured Party has required that the Note be secured, upon the terms herein provided, by certain shares of the Common Stock of Secured Party held by Debtor. NOW, THEREFORE, in consideration of the foregoing and the further promises contained herein, Debtor and Secured Party agree as follows: AGREEMENT 1. GRANT OF SECURITY INTEREST. To secure full payment and performance of Debtor's obligations under the Note and each and every obligation of Debtor under this Agreement (collectively the "Obligations"), when due (whether at the stated maturity, by acceleration or otherwise), Debtor hereby pledges the Collateral (defined below in Section 2), and grants a security interest in the Collateral, to Secured Party. 2. COLLATERAL. "Collateral" means __________ shares of the Common Stock of Secured Party (the "Pledged Stock"), evidenced by Common Stock Certificate No. ____ (the "Certificate"), duly registered in the name of Debtor, together with all property rights as may derive from or accrue to the same, including without limitation, additional shares (whether as a result of stock splits, stock dividends or otherwise) or replacement securities representing interests in Secured Party or an affiliate or successor in interest of Secured Party, and all dividends (whether in cash, stock or other forms) and other income or proceeds derived therefrom or receivable or received on the sale, exchange, collection or other disposition thereof, whether voluntary or involuntary, and distributions with respect thereto. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged, or otherwise disposed of, whether such disposition is voluntary or involuntary. 3. DELIVERY OF COLLATERAL. On or prior to the execution of this Agreement, Debtor has delivered or will deliver the Certificate, together with a stock power duly executed in blank by Debtor to the Secured Party for purposes of perfecting Secured Party's security interest hereunder and in accordance with the terms of this Agreement. Upon payment from time to time of the principal amount of the Note, or any portion thereof, Secured Party shall, at Debtor's 1

request, take all steps reasonably necessary to cause the redelivery to Debtor of such portion of the Collateral corresponding to such payment. 4. STOCK ADJUSTMENTS. Secured Party shall have the right to collect and hold any shares of stock or securities of any class or kind distributed on account of the Pledged Stock by reason of any stock dividend, distribution, reclassification or other change in the capital structure of Secured Party, all of which shall be delivered by Debtor to Secured Party and held by Secured Party in accordance with the terms of this Agreement. 5. COVENANTS OF DEBTOR. In addition to other covenants of Debtor contained in this Agreement, Debtor shall: (i) from time to time promptly execute and deliver to Secured Party all such stock powers, assignments, financing statements and other instruments or documents as may be necessary in order to more fully evidence and perfect the security interest of Secured Party in the Collateral and promptly furnish Secured Party with any information or writings which Secured Party may reasonably request concerning the Collateral; (ii) appear in and defend any action or proceeding which may affect Debtor's title to or Secured Party's interest in the Collateral; and (iii) keep the Collateral free of all levies and security interests or other liens or changes except those approved in writing by Secured Party. 6. DEBTOR'S RIGHTS IN COLLATERAL. (a) The parties agree that the grant of a security interest in, and the assignment and pledge of, the Collateral to Secured Party hereunder is intended solely for the purpose of securing the Obligations. Accordingly, prior to the occurrence of an Event of Default (as that term is defined in Section 10) and the exercise of rights and remedies afforded Secured Party as a result of such Event of Default, and to the extent not inconsistent with the terms of this Agreement, Debtor will be entitled to exercise rights as the owner of the Pledged Stock and will be entitled to receive and retain, any cash distributions or allocations ("Distributions") and to exercise any other rights appurtenant to the ownership of the Collateral. Without limiting the generality of the foregoing, prior to the occurrence of an Event of Default, Debtor will have the sole and absolute right to: (i) vote or exercise any and all other consensual rights in respect of the Collateral, provided, however, that Debtor may not consent to any amendment or modification of the Certificate of Incorporation or Bylaws of Debtor that materially adversely affects Secured Party's interest in the Collateral (including, without limitation, any amendment or modification creating additional or different transfer restrictions on the Common Stock of Debtor in a manner that is different from any other shares of Debtor's Common Stock); and (ii) receive, retain, use or alienate any Distributions free and clear of the interest of Secured Party. 2

(b) After an Event of Default and the exercise of rights and remedies by Secured Party, all rights of Debtor to exercise the voting and other contractual rights which it would otherwise be entitled to exercise pursuant to this Section 6 and to receive and retain the Distributions which it would otherwise be authorized to receive and retain under this Section 6 will cease. Following the occurrence of an Event of Default and pending delivery to Secured Party of any Distributions, Debtor will hold the same in trust for Secured Party, free and clear of all liens and claims whatsoever other than the interest of Secured Party. 7. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Secured Party that: (i) The execution, delivery and performance of this Agreement does not conflict with any law or any agreement or undertaking of which Debtor is a party or by which Debtor is bound; (ii) Except for the rights of Debtor and Secured Party, no other person will have any right, title, claim or interest (by way of security interest or other lien or charge or otherwise) in, against or to the Collateral; and (iii) All information presently or subsequently supplied to Secured Party by or on behalf of Debtor with respect to the Collateral is true and correct. 8. RIGHTS OF SECURED PARTY. (a) Secured Party, upon ten (10) days written notice to Debtor if Debtor fails to perform any of its obligations hereunder, may, but need not, perform such acts to preserve its rights and the value of the Collateral. Debtor hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact (which appointment is coupled with an interest) to do any such act, and to exercise such rights and powers as Debtor might exercise with respect to the Collateral in connection therewith. No failure to so act by Secured Party will relieve Debtor of Debtor's duties under this Agreement or in any way impair or discharge the obligations, and no such failure to act will result in any liability to Debtor or any third party on the part of Secured Party. (b) Secured Party does not assume any of the obligations or liabilities of Debtor arising under any of the Collateral or any agreement in respect thereto. 9. CARE OF COLLATERAL. (a) Secured Party will use reasonable care in the custody and preservation of any Collateral in its possession. The parties further agree that such care as Secured Party gives to the safekeeping of its own property of like kind will constitute reasonable care of the Collateral when in Secured Party's possession; provided, however, that Secured Party will not be required to make any presentment, demand or protest, or give any notice and need not take any action to preserve any rights any prior party or any other person in connection with the Obligations or with respect to the Collateral. 3

(b) Secured Party will not be responsible for or have any liability for the form, legal sufficiency, genuineness, or legal effect of any signature, description, guaranty, instruction, or document related to the Collateral. (c) Debtor agrees that Secured Party will not in any way or manner be liable or responsible for any diminution in the value of the Collateral resulting from the sale or other disposition of the Collateral at Debtor's request, or from the failure of Secured Party to sell or consent to the sale, liquidation, reinvestment or other disposition of the Collateral, or for any act or default by any bailee, forwarding agency, transfer agent or any person whomsoever, in connection with the Collateral. 10. DEFAULT. An "Event of Default" will have occurred if: (a) There is an occurrence of an event of default under the Note, subject to applicable grace periods, if any; or (b) Debtor breaches any provision of this Agreement, and such breach continues after written notice from Secured Party for a period of ten (10) business days or such longer period of time reasonably required to remedy the breach, provided Debtor promptly commences remedial action with ten (10) business days of such written notice and thereafter diligently pursues the remedial action. 11. REMEDIES. (a) Upon the occurrence of an Event of Default, as defined in Section 10 above, Secured Party may, at Secured Party's option: (i) exercise with respect to the Collateral all of the remedies of a secured party under Articles 8 and 9 of the California Commercial Code (the "Code"). Without limiting the foregoing and subject to subsection (b) below, Secured Party shall have the right to sell or otherwise dispose of the Collateral in accordance with the provisions of the Code. At any such sale, Secured Party shall have the right to purchase all or any part of the Collateral and may credit bid amounts owing under the Note. In view of the fact that federal and state securities laws may impose certain restrictions on the method by which a sale of the Pledged Stock and any other Collateral consisting of securities may be effected, Debtor agrees that upon the occurrence of an Event of Default, Secured Party may from time to time attempt to sell all or any part of the Pledged Stock and any other Collateral consisting of securities by means of a private placement restricting the prospective purchasers to those who satisfy the requirements for available exemptions under applicable securities laws. In so doing, Secured Party may solicit offers to buy the Pledged Stock and any other Collateral consisting of securities from a limited number of investors deemed by Secured Party to satisfy those standards. If Secured Party solicits such offers from not less than three (3) such investors, then the acceptance by Secured Party of the highest offer(s) obtained therefrom shall be deemed to be a commercially reasonable method of disposition of the Pledged Stock and any other Collateral consisting of securities. Debtor further agrees that, to the extent notice of sale shall be required by law, ten (10) days' prior notice to Debtor shall constitute reasonable notice. Secured Party shall not be obligated to proceed with any sale of Collateral regardless of notice of sale having been given. Nothing herein shall be 4

deemed to limit or restrict Secured Party in disposing of the Collateral in other commercially reasonable ways; (ii) exercise any and all remedies available under law or in equity; and (iii) recover from Debtor all costs and expenses, including attorneys' fees and expenses, incurred by Secured Party in exercising any right or remedy provided for hereunder or by law, which costs and expenses are included in the Obligations secured by the Collateral. (b) Nothing herein shall be construed to limit Secured Party's right to seek a deficiency judgment against Debtor. (c) No delay or omission to exercise any right or remedy of Secured Party upon a default by Debtor will constitute a waiver of any right or remedy of Secured Party or be construed as a waiver of any similar default which occurs later. Debtor waives any right to require Secured Party to proceed against any other person or to exhaust any Collateral or to pursue any other remedy in Secured Party's power. (d) It is the intention of the parties that the grant of the security interest and assignment and pledge of the Collateral to Secured Party, and the exercise by Secured Party of any right or remedy granted in this Agreement, is in addition to all other security interests and remedies given to Secured Party by virtue of any statute or rule of law or any other agreement, all of which security interests and remedies are cumulative and, to the maximum extent permitted by applicable law, may be exercised successively and concurrently without impairing the rights and remedies of Secured Party under this Agreement. 12. MISCELLANEOUS. (a) SUCCESSORS. The terms of this Agreement will inure to the benefit of and bind the parties hereto and their respective successors, assigns, executors, heirs and legal representatives. (b) ENTIRE AGREEMENT; SEVERABILITY. This Agreement contains the entire security agreement between Secured Party and Debtor with respect to the Pledged Stock and may be modified only by a writing signed by Secured Party and Debtor. If any of the provisions of this Agreement are held invalid or unenforceable, this Agreement will be construed as if not containing the invalid or unenforceable provisions. (c) CHOICE OF LAW. This Agreement will be construed in accordance with and governed by the laws of the State of California. (d) ATTORNEYS' FEES. In any action brought to enforce the terms of this Agreement, the prevailing party will be reimbursed by the losing party for its reasonable costs and expenses incurred in such action, including reasonable attorneys' fees. (e) NOTICES. All notices, requests, demands and other communications to be given pursuant to the terms of this Agreement shall be in writing and shall be delivered 5

personally, telecopied or sent by recognized overnight delivery service, and shall be deemed given when so delivered personally, telecopied or received, as follows (i) If to Secured Party: Saba Software, Inc. 2400 Bridge Parkway, Building 12 Redwood Shores, CA 94065 (ii) If to Debtor:

Any party may change its address or telecopier number by prior written notice to the other party. (f) TIME. Time is of the essence of each and every provision of this Agreement. (g) COUNTERPARTS. This Agreement may be executed by facsimile and in any number of counterparts, and when so executed shall have the same force and effect as though all signatures appeared on one document. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. SECURED PARTY: SABA SOFTWARE, INC. By: Title: DEBTOR:

6

EXHIBIT B ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement between the undersigned ("Recipient") and Saba Software, Inc. dated __________ ____, 1999 (the "Agreement"), Recipient hereby sells, assigns and transfers unto _______________ _________________ (_________) shares of Common Stock of Saba Software, Inc. standing in Recipient's name on the books of said corporation represented by Certificate No. _________ herewith and does hereby irrevocably constitute and appoint _____________________________________ ____________________________ to transfer said stock on the books of the within-named corporation with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: ________________, 19___ By: Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its repurchase option set forth in the Agreement without requiring additional signatures on the part of Recipient. 1

EXHIBIT C ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code, as amended, to include in gross income for 1999 the amount of any compensation taxable in connection with the taxpayer's receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are: TAXPAYER'S NAME: ___________ SPOUSE'S NAME: TAXPAYER'S SOCIAL SECURITY NO.: SPOUSE'S SOCIAL SECURITY NO.: TAXABLE YEAR: Calendar Year 1999 ADDRESS: 2. The property which is the subject of this election is: ___________ shares of Common Stock (the "Shares") of Saba Software, Inc., a Delaware corporation (the "Company"). 3. The Shares were transferred to the undersigned on ___________. 4. The Shares are subject to the following restriction: Upon a termination of the undersigned's employment with the Company, the Company has the right to repurchase unvested Shares at the original purchase price. The Shares shall vest, and the Company's repurchase right shall lapse, as to ________________ percent (__%) of the Shares on ______________ and as to the remaining _____________ percent (___%) of the Shares in _________________________ installments commencing on ______________. 5. The fair market value of the property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is: $___________ per Share x ___________ Shares = $______________. 6. The undersigned contributed $___________ per Share x ___________ Shares for the Shares transferred or a total of $____________. The undersigned has submitted a copy of this statement to the Company. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described 1

property. The undersigned taxpayer is the person performing the services in connection with the transfer of said property. The undersigned will file this election with the Internal Revenue Service office in which he or she files his or her annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed. Additionally, the undersigned will include a copy of the election with his or her income tax return for the taxable year in which property is transferred. The undersigned understands that this election will also be effective as an election under California law. THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED EXCEPT WITH THE CONSENT OF THE COMMISSIONER OF THE INTERNAL REVENUE SERVICE. DATED: __________________, 1999 The undersigned spouse of taxpayer joins in this election. DATED: __________________, 1999 Spouse of Taxpayer 2

EXHIBIT D CONSENT OF SPOUSE I, _____________________, spouse of ___________, have read and approved the foregoing Agreement. In consideration of the right of my spouse to purchase shares of Saba Software, Inc. as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement insofar as I may have any rights under the community property laws of the State of California or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: ____________, 1999 ----------------------------------------

Exhibit 10.7 LEASE AGREEMENT BLDG: Westport 12 OWNER: 90 PROP: 912 UNIT: 200 TENANT: 91201 THIS LEASE, made this 16th day of March, 1999 between WESTPORT JOINT VENTURE, a California general partnership, hereinafter called Landlord, and SABA SOFTWARE, INCORPORATED, a Delaware corporation, hereinafter called Tenant. WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in red on Exhibit "A", attached hereto and incorporated herein by this reference thereto more particularly described as follows: Subject to Paragraph 54, for the period beginning on May 1,1999 through November 30, 2000, Premises shall mean the second floor and related Common Area on the first floor (for a total square footage of 25, 884+ square feet) of that certain 48,384 +/- square foot, two-story building located at 2400 Bridge Parkway, Redwood City, California 94065 as shown in Red on Exhibit B attached hereto (the "Initial Leased Premises"); beginning December 1, 2000 through April 30, 2001, the Premises shall be increased to approximately 36,000+ square feet; and beginning May 1, 2001, Premises shall mean one hundred percent of the Building, with the total additional 22,500+/- square feet (the "Must Take Space") shown in Blue on Exhibit B attached hereto. Said Premises is more particularly shown within the area outlined in Red and Blue on Exhibit A attached hereto. The entire parcel, of which the Premises is a part, is shown within the area outlined in Green on Exhibit A attached. The Initial Leased Premises shall be improved by Landlord as shown on Exhibit B, and is leased in the configuration as shown in Red on Exhibit B attached hereto. The Must Take Space shall be improved pursuant to Lease Paragraph 54. As used herein the Complex shall mean and include all of the land outlined in Green and described in Exhibit "A", attached hereto, and all of the buildings, common area private roads within the Complex, improvements, fixtures and equipment now or hereafter situated on said land. Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance. 1. USE Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, light manufacturing, research and development, and storage and other uses necessary for Tenant to conduct Tenant's business, provided that such uses shall be in accordance with all applicable governmental laws and ordinances and for no other purpose. Tenant shall not do or permit to be done in or about the Premises or the Complex nor bring or keep or permit to be brought or kept in or about the Premises or the Complex anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Complex or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Complex or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises or the Complex which will in any way obstruct or interfere with the rights of other tenants or occupants of the Complex or injure or unreasonably annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Complex. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon the floors, walls, or ceiling, which endanger the structure, or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of common area of the Complex. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, attorney's fees, or liability arising out of failure of Tenant to comply with any applicable law. Tenant shall comply with any covenant, condition, or restriction ("CC&R's") affecting the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Complex. 2. TERM * A. The term of this Lease shall be for a period of FIFTEEN (15) years (unless sooner terminated as hereinafter provided) and, subject to Paragraph 2(B) and 3, shall commence on the 1st day of May, 1999 and end on the 30th day April, 2014. B. Possession of the Premises shall be deemed tendered and the term of this Lease shall commence when the first of the following occurs:

(a) One day after a Certificate of Occupancy is granted by the proper governmental agency, or, if the governmental agency having jurisdiction over the area in which the Premises are situated does not issue certificates of occupancy, then the same number of days after certification by Landlord's architect or contractor that Landlord's construction work has been completed; or (b) Upon the occupancy of the Premises by any of Tenant's operating personnel; or (c) When the Tenant Improvements have been substantially completed for Tenant's use and occupancy, in accordance and compliance with Exhibit B of this Lease Agreement; or (d) As otherwise agreed in writing. 3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be liable to Tenant for any loss or damage resulting therefrom; but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlord's delivery of possession, as specified in Paragraph 2(b), above. The above is, however, subject to the provisions that [ILLEGIBLE] 60 days from the commencement date herein (except those delays caused by Acts of God, strikes, war, utilities, governmental [ILLEGIBLE] materials, and delays beyond Landlord's control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. * It is agreed in the event said Lease commences on a date other than the first day of the month the term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent scheduled for the projected commencement date as shown in Paragraph 43.

4. RENT A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice, or demand, and Landlord agrees to accept as Basic Rent for the leased Premises the total sum of THIRTY ONE MILLION FIVE HUNDRED SIXTY FIVE THOUSAND FIVE HUNDRED EIGHTY EIGHT AND 40/100 ($31,565,588.40) Dollars in lawful money of the United States of America, payable as follows: SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE. B. Time for Payment. In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to the number of days in the partial month. In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to the number of days in the partial month. C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rental as set forth in this Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the delinquent rental due, a late charge for each rental payment in default ten (10) days. Said late charge shall equal ten (10%) percent of each rental payment so in default. D. Additional Rent. Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as Additional Rent the following: (a) Tenant's proportionate share of all Taxes relating to the Complex as set forth in Paragraph 12, and (b) Tenant's proportionate share of all insurance premiums relating to the Complex, as set forth in Paragraph 15, and (c) Tenant's proportionate share of expenses for the operation, management, maintenance and repair of the Building (including common areas of the Building) and Common Areas of the Complex in which the Premises are located as set forth in Paragraph 7, and (d) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including attorneys' fees and legal expenses, that may accrue thereto in the event of Tenant's failure to pay such amounts, and all damages, reasonable costs and expenses which Landlord may incur by reason of default of Tenant or failure on Tenant's part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of rent. The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within 120 days of the end of each calendar year or more frequently if Landlord so elects to do so at Landlord's sole and absolute discretion, as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord crediting to Tenant (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease) any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent items. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365. E. Fixed Management Fee. Beginning with the Commencement Date of the Term of the Lease, Tenant shall pay, in addition to the Basic Rent and Additional Rent, a fixed management fee equal to 3% of the Basic Rent due for each month during the Lease Term ("Management Fee"). The Management Fee shall be paid to A&P Property Management Company at 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord at 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054 or to such other person or to such other place as Landlord may from time to time designate in writing.

*G. Security Deposit. Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of FOUR HUNDRED SIXTY NINE THOUSAND THREE HUNDRED TWENTY FOUR AND 80/100 ($469,324.80) Dollars. Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith. Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) at the expiration of the Lease term and after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer said Deposit to Landlord's successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor. [ILLEGIBLE] AND COMMON AREA Subject to the terms and conditions of this Lease and such Rules and Regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Complex in which the Premises are located, and their respective employees, invitees and customers, and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas, and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Complex in which the Premises are located, which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interests of the occupants of the Complex. The Rules and Regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such Rules and Regulations may be amended by Landlord form time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy to Tenant. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Complex of any of said Rules and Regulations. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord. * $140,313.60 Cash due upon Lease execution. $68,486.40 Promissory Note due December 1, 2000. $260,524.80 Promissory Note due May 1, 2001. page 2 of 8

6. PARKING. Tenant shall have the right to use with other tenants or occupants of the Complex 117 parking spaces in the common parking areas of the Complex. Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use parking spaces in excess of said 117 spaces allocated to Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion, to specifically designate the location of Tenant's parking spaces within the common parking areas of the Complex in the event of a dispute among the tenants occupying the building and/or Complex referred to herein, in which event Tenant agrees that Tenant. Tenant's employees, agents, representatives and/or invitees shall not use any parking spaces other than those parking spaces specifically designated by Landlord for Tenant's use. Said parking spaces, if specifically designated by Landlord to Tenant, may be relocated by Landlord at any time, and from time to time. Landlord reserves the right, at Landlord's sole discretion, to rescind any specific designation of parking spaces, thereby returning Tenant's parking spaces to the common parking area. Landlord shall give Tenant written notice of any change in Tenant's parking spaces. Tenant shall not, at any time, park, or permit to be parked, any trucks or vehicles adjacent to the loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park, or permit the parking of Tenant's trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or others, in any portion of the common area not designated by Landlord for such use by Tenant. Tenant shall not park nor permit to be parked, any inoperative vehicles or equipment on any portion of the common parking area or other common areas of the Complex. Tenant agrees to assume responsibility for compliance by its employees with the parking provision contained herein. If Tenant or its employees park in other than such designated parking areas, then Landlord may charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for each day or partial day each such vehicle is parked in any area other than that designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow away from the Complex any vehicle belonging to Tenant or Tenant's employees parked in violation of these provisions, or to attach violation stickers or notices to such vehicles. Tenant shall use the parking areas for vehicle parking only, and shall not use the parking areas for storage. See Paragraph 55. 7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As Additional Rent and in accordance with Paragraph 4D of this Lease. Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance and replacement of landscaped areas, lakes, private roads within the Complex and roads with reciprocal easement areas; parking lots and paved areas (including repairs, replacement, resealing and restriping), sidewalks, driveways, maintenance, repair and replacement of all fixtures and electrical, mechanical, and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however that in the event Landlord makes such capital improvements. Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not a rate greater than the anticipated savings in the operating expenses. "Additional Debt" as used herein shall not include Landlord's debt repayments; interest on charges; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation; interest, or executive salaries. As Additional Rent and in accordance with paragraph 4D of this Lease. Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of operation (including common utilities), management, maintenance, and repair of the building (including common areas such as lobbies, restrooms, janitor's closets, hallways, elevators, mechanical and telephone rooms, stairwells, entrances, spaces above the ceilings and janitorization of said common areas) in which the Premises are located. The maintenance items herein referred to include, but are not limited to, all windows, window frames, plate glass, glazing, truck doors, main plumbing systems of the building (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), main electrical systems (such as panels and conduits), heating and airconditioning systems (such as compressors, fans, air handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building common area interiors (such as wall coverings, window covering, floor coverings and partitioning), ceilings, building exterior doors, skylights (if any), automatic fire extinguishing systems, and elevators; license, permit, and inspection fees; security; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements. Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. Tenant hereby waives all rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. See Paragraph 56. 8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the building and improvements included in the Premises in their present condition and without representation or warranty by Landlord as to the condition of such building or as to the use or occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire, normal wear and tear excepted), with all interior walls painted, or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and heating equipment serviced by a reputable and licensed service firm and in good operating condition (provided the maintenance of such equipment has been Tenant's responsibility during

the term of this Lease) together with all alterations, additions, and improvements which may have been made in, to, or on the Premises (except movable trade fixtures installed at the expense of Tenant) except that Tenant shall ascertain from Landlord within thirty (30) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such removal at Tenant's sole cost. If the Premises be not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. 9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first and obtained by Tenant, but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. Landlord reserves the right to approve all contractors and mechanics proposed by Tenant to make such alterations and additions. Tenant shall retain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting, and floor installations made by Tenant, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make such alteration or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of work. Tenant shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Complex for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within fifteen (15) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant. Notwithstanding anything to the contrary herein, under no circumstances shall Tenant be authorized to penetrate the soil to a depth that exceeds three and one-half feet from the uppermost surface of the soil. 10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and [illegible], and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, janitorization, plumbing systems within the non-common areas of the Premises (such as water and drain lines, sinks), electrical systems within the non-common areas of the Premises (such as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and airconditioning controls within the non-common areas of the Premises (such as mixing boxes, thermostats, time clocks, supply and return grills), all interior improvements within the premises including but not limited to: wall coverings, window coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors (both interior and exterior, including closing mechanisms, latches, locks), and all other interior improvements of any nature whatsoever. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. See Paragraph 57. page 3 of 8

11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED As additional Rent and in accordance with paragraph 4D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of all utility charges such as water, gas, electricity, telephone, telex and other electronic communications service, sewer service, waste-pick-up and any other utilities, materials or services furnished directly to the building in which the Premises are located, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Provided that Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this Lease to be performed or observed by it, Landlord shall furnish to the Premises between the hours of 8:00 AM and 6:00 PM, Mondays through Fridays (holidays excepted) and subject to the rules and regulations of the Complex hereinbefore referred to, reasonable quantities of water, gas and electricity suitable for the intended use of the Premises and heat and airconditioning required in Landlord's judgment for the comfortable use and occupation of the Premises for such purposes. Tenant may, from time to time, have its staff and equipment operate on a twenty-four (24) hour-a-day, seven (7) day-a-week schedule, and Tenant shall pay for any extra utilities used by Tenant. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the building heating, ventilating and airconditioning systems. Whenever heat generating machines, equipment, or any other devices (including exhaust fans) are used in the Premises by Tenant which affect the temperature or otherwise maintained by the airconditioning system, Landlord shall have the right to install supplementary airconditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises (including, without limitation), electronic data processing machines or machines using current in excess of 110 Volts which will in any way increase the amount of electricity, gas, water or airconditioning usually furnished or supplied to premises being used as general office space, or connect with electric current (except through existing electrical outlets in the Premises), or with gas or water pipes any apparatus or device for the purposes of using electric current, gas, or water. If Tenant shall require water, gas, or electric current in excess of that usually furnished or supplied to premises being used as general office space, Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld and Landlord may cause an electric current, gas, or water meter to be installed in the Premises in order to measure the amount of electric current, gas or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, all charges for such excess water, gas and electric current consumed (as shown by such meters and at the rates then charged by the furnishing public utility); and any additional expense incurred by Landlord in keeping account of electric current, gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. See Paragraph 58. 12. TAXES A. As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real Property Taxes, which prorata share shall be allocated to the leased Premises by square footage or other equitable basis, as calculated by Landlord. The term "Real Property Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership of the Complex) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Complex (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein; any improvements located within the Complex (regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Complex; or parking areas, public utilities, or energy within the Complex; (ii) all charges, levies or fees imposed by reason of environmental regulation or other governmental control of the Complex; and (iii) all costs and fees (including attorneys' fees) incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If at any time during the term of this Lease the taxation or assessment of the Complex prevailing as of the commencement date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Complex or Landlord's interest therein or (ii) on or measured by the gross receipts, income or rentals from the Complex, on Landlord's business of leasing the Complex, or computed in any manner with respect to the operation of the Complex, then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Complex, then only that part of such real Property Tax that is fairly allocable to the Complex shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. Tenant shall not be responsible for any real estate tax increase herein that are attributable solely to extraordinary improvements in excess of typical office tenant improvements for other tenants in the Complex. B. Taxes on Tenant's Property (a) Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade

fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall upon demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, and any amounts so recovered shall belong to Tenant. (b) If the Tenant improvements in the Premises, whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which standard office improvements in other space in the Complex are assessed, then the real property taxes and assessments levied against Landlord or the Complex by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of 12Ba, above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant improvements are assessed at a higher valuation than standard office improvements in other space in the Complex, such records shall be binding on both the Landlord and the Tenant. If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual cost of construction shall be used. 13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force during the term of this Lease a policy of commercial general liability insurance with a combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for injuries to or death of persons occurring in, on or about the Premises or the Complex, and property damage. The policy or policies affecting such insurance, certificates of insurance of which shall be furnished to Landlord, shall name Landlord as additional insureds, and shall insure any liability of Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder, shall be issued by an insurance company admitted to transact business in the State of California; and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days' prior written notice to Landlord. If, during the term of this Lease, in the considered opinion of Landlord's Lender, insurance advisor, or counsel, the amount of insurance described in this paragraph 13 is not adequate, Tenant agrees to increase said coverage to such reasonable amount as Landlord's Lender, insurance advisor, or counsel shall deem adequate. 14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE Tenant shall maintain a policy or policies of fire and property damage insurance in "all risk" form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and leasehold improvements within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. [ILLEGIBLE] policies of workman's compensation insurance and any other employee benefit insurance sufficient to comply with all laws. 15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the deductibles on insurance claims and the cost of policy or policies of insurance covering loss or damage to the Premises and Complex in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risks" insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such insurance cost is increased due to Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Complex. Landlord and Tenant do each hereby respectively release the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing party's insurance policies, irrespective of the cause of such fire or casualty; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. page 4 of 8

16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Complex by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises or the Complex but excluding, however, the willful misconduct or negligence of Landlord, its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to persons or damage to property to the extent arising from the willful misconduct or the negligence of Landlord, its agents, servants, employees, invitees, or contractors. Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorneys' fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises, or any part thereof, from any cause whatsoever. 17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This paragraph shall not be interpreted as requiring Tenant to make structural changes or improvements, except to the extent such changes or improvements are required as a result of Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to said Premises, or any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Premises. 18. LIENS Tenant shall keep the Premises and the Complex free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record. Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America. 19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. As a condition for granting this consent to any assignment, transfer, or subletting, Landlord shall require Tenant to pay to Landlord, as additional Rent, all rents and/or additional consideration due Tenant from its assignees, transferees, or subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the assigned, transferred and/or subleased space; provided, however, that before sharing such excess rent, Tenant shall first be entitled to recover from such excess rent the amount of any reasonable leasing commissions related to said transaction paid by Tenant to third parties not affiliated with Tenant. Tenant shall, by thirty (30) days written notice, advise Landlord of its intent to assign or transfer Tenant's interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. Within thirty (30) days after receipt of said written notice, if Tenant intends to assign or sublet more than fifty percent (50%) of the Premises, Landlord may, in its sole discretion, elect to terminate this Lease as to the portion of the Premises described in Tenant's notice on the date specified in Tenant's notice by giving written notice of such election to terminate. If no such notice to terminate is given to Tenant within said thirty (30) day period, Tenant may proceed to locate an acceptable sublessee, assignee, or other transferee for presentment to Landlord for Landlord's approval, all in accordance with the terms, covenants, and conditions of this paragraph 19. If Tenant intends to sublet the entire Premises and Landlord elects to terminate this Lease, this Lease shall be terminated on the date specified in Tenant's notice. If, however, this Lease shall terminate pursuant to the foregoing with respect to less than all the Premises, the rent, as defined and reserved hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Tenant, and this Lease as so amended shall continue in full force and effect. In the event Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, with the prior written consent of Landlord, no assignee, transferee or subtenant shall assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by any other person shall not release Tenant from any of Tenant's obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by Tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord. As a condition to its consent, Landlord shall require Tenant to pay all expenses in connection with the assignment, and Landlord shall require Tenant's assignee or transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease. Notwithstanding the above, in no event will Landlord consent to a sub-sublease. See Paragraph 50. 20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest of Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as "Lender") to Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lender's deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Notwithstanding any such subordination, Tenant's possession

under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. 21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after at least 24 hours notice (except in emergencies) have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder; to submit the Premises to prospective purchasers, mortgagers or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises and any portion of the Complex, all without abatement of rent; and may erect scaffolding and other necessary structures in or through the Premises where reasonably required by the character of the work to be performed; provided, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical. For each of the foregoing purposes, any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Complex and to change the name, number or designation by which the Complex is commonly known, and none of the foregoing shall be deemed an actual or constructive eviction of Tenant, or shall entitle Tenant to any reduction of rent hereunder. 22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvency or similar action elects to reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action. Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual percuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises. Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in [ILLEGIBLE] or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default in the payment of rental or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other default under this Lease. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (a) The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select a third licensed real estate page 5 of 8

broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. (b). The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession; acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. (c). The right to terminate this Lease by giving notice to Tenant in accordance with applicable law. (d). To the extent permitted by law, the right and power, to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. Landlord may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the cost of such subletting, including, but not limited to, reasonable attorneys' fees, and any real estate commissions actually paid, and the cost of such alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as rent for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder. Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. For all purposes set forth in this subparagraph d. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time hereafter elect to terminate this Lease for such previous breach. (e). The right to have a receiver appointed for Tenant upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord pursuant to subparagraph d. above. 23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time during the term of this Lease and if Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. 24. DESTRUCTION In the event the Premises are destroyed in whole or in part from any cause, except for routine maintenance and repairs and incidental damage and destruction caused from vandalism and accidents for which Tenant is responsible for under Paragraph 10, Landlord may, at its option: (a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or (b) Terminate this Lease, (providing that the Premises is damaged to the extent of at least 33 1/3% of the replacement cost). If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction. Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not cancelled according to the provisions above. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the California Civil Code.

In the event that the building in which the premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease whether the Premises be inured or not. Notwithstanding anything to the contrary herein, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds are insufficient to cover 100% of the rebuilding costs net of the deductible, and in such event, the Lease shall terminate within 20 days of Landlord's receipt of notice of the uninsured event or insufficient funds to cover said costs. 25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, moving costs or loss of goodwill, shall be and remain the property of Tenant. If (i) any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, or (ii) any of the foregoing events occur with respect to the taking of any space in the Complex not leased hereby, or if any such spaces so taken or conveyed in lieu of such taking and Landlord shall decide to discontinue the use and operation of the Complex, or decide to demolish, alter or rebuild the Complex, then, in any of such events Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor. In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business. Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intentions so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the rent from the date of such taking or conveyance to the date of termination. If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total areas of the [ILLEGIBLE COPY] 26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the complex or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned. Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Complex and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. 27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale. Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender to Landlord is prior and paramount to the Lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other terms, conditions and covenants herein contained. 28. HOLDING OVER Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month at the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term.

29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, standing the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord; that there are no uncured defaults in Landlord's performance, and that not more than one month's rent has been paid in advance. 30. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises, and no such changes, or any changes in plans for any other portions of the Complex shall affect this Lease or entitle Tenant to any reduction or rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawings supplied to Tenant and verification of the accuracy of such drawings rests with Tenant. 31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this Lease to be performed or observed by Tenant shall be performed or observed by Tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder and such failure shall continue for five (5) days after written notice by Landlord, or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for thirty (30) days after written notice thereof by Landlord, Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may, but shall not be obligated to, make any such payment or perform any such other term or covenant on Tenant's part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment or performance by Landlord, shall be paid (and Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder. 32. ATTORNEYS'S FEES. (A) In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgement. (B) Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorney's fee. 33. WAIVER The waiver by either party of the other party's failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof. 34. NOTICES All notices, demands, requests, advices or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advices or designations by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises or if sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices demands, requests, advices or designations by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices at 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or designation referred to in this paragraph shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be. 35. EXAMINATION OF LEASE Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. 36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by-laws of said corporation (or partnership in accordance with the partnership agreement) and that this

Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (i) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein; (ii) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership) (iii) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership) (iv) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (v) no judgement will be taken against any partner of Landlord; (vi) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing; (vii) ?? execution will ever be levied against the assets of any partner of Landlord; (viii) these covenants and agreement are enforceable both by Landlord and also by any partner of Landlord. Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law. page 7 of 8

40. MISCELLANEOUS AND GENERAL PROVISIONS a. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises. b. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. c. The term "Premises" includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term "Landlord" or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term "Tenant" or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligation of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. d. Time is of the essence of this Lease and of each and all of its provisions. e. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenant's Premises are a part. f. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement. g. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other. h. Tenant further agrees to execute any amendments required by a lender to enable Landlord to obtain financing, so long as Tenant's rights or obligations hereunder are not substantially affected. i. Paragraphs 43 through 58 are added hereto and are included as a part of this lease. j. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof. k. Tenant covenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 41. BROKERS Tenant warrants that it had dealings with only the following real estate brokers or agents in connection with the negotiation of this Lease: none and that it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 42. SIGNS No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises, upon expiration or other sooner termination of this Lease, Tenant at Tenant's sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign. All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Tenants shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year last written below.

LANDLORD: WESTPORT JOINT VENTURE a California general partnership JOHN ARRILLAGA SURVIVOR'S TRUST By: /s/ JOHN ARRILLAGA -------------------------------------John Arrillaga, Trustee Date: 4/9/99 ----------------------------------PEERY PRIVATE INVESTMENT COMPANY-WP, L.P. a California Limited Partnership

TENANT: SABA SOFTWARE INCORPORATED a Delaware corporation By: /s/ BARRY JOHANSETAN ------------------------------Title: VP FINANCE, ADMIN ----------------------------

Type or Print Name BARRY JOHANSETAN ----------------Date: 4/9/99 ------------------------------

By: /s/ RICHARD T. PEERY -------------------------------------Richard T. Peery, Trustee of the Richard T. Peery Separate Property Trust dated 7/20/77, as its General Partner

Date: 4/9/99 PEERY PUBLIC INVESTMENT COMPANY-WP, L.P. a California limited partnership
By: /s/ RICHARD T. PEERY -------------------------------------Richard T. Peery, Trustee of the Richard T. Peery Separate Property Trust dated 7/20/77, as its General Partner Date: 4/9/99 -----------------------------------

page 8 of 8

Paragraphs 43 through 58 to Lease Agreement dated March 16, 1999, By and Between Westport Joint Venture, a California joint venture, as Landlord, and Saba Software, Incorporated, a Delaware corporation, as Tenant for 48,384+ Square Feet of Space Located at 2400 Bridge Parkway, Redwood City, California. 43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum of THIRTY ONE MILLION FIVE HUNDRED SIXTY FIVE THOUSAND FIVE HUNDRED EIGHTY EIGHT AND 40/100 DOLLARS ($31,565,588.40), shall be payable as follows: On May 1, 1999, the sum of FORTY ONE THOUSAND TWO HUNDRED FIFTY AND NO/100 DOLLARS ($41,250.00) shall be due, and a like sum due on the first day of each month thereafter, through and including November 1, 1999. On December 1, 1999, the sum of SEVENTY ONE THOUSAND ONE HUNDRED EIGHTY ONE AND NO/100 DOLLARS ($71,181.00) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2000. On May 1, 2000, the sum of SEVENTY FIVE THOUSAND SIXTY THREE AND 60/100 DOLLARS ($75,063.60) shall be due, and a like sum due on the first day of each month thereafter, through and including November 1, 2000. On December 1, 2000, the sum of ONE HUNDRED FOUR THOUSAND FOUR HUNDRED AND NO/100 DOLLARS ($104,400.00) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2001. On May 1, 2001, the sum of ONE HUNDRED FORTY SEVEN THOUSAND FIVE HUNDRED SEVENTY ONE AND 20/100 DOLLARS ($147,571.20) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2002. On May 1, 2002, the sum of ONE HUNDRED FIFTY FOUR THOUSAND EIGHT HUNDRED TWENTY EIGHT AND 80/100 DOLLARS ($154,828.80) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2003. On May 1, 2003, the sum of ONE HUNDRED SIXTY TWO THOUSAND EIGHTY SIX AND 40/100 DOLLARS ($162,086.40) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2004. On May 1, 2004, the sum of ONE HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FORTY FOUR AND NO/100 DOLLARS ($169,344.00) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2005. On May 1, 2005, the sum of ONE HUNDRED SEVENTY SIX THOUSAND SIX HUNDRED ONE AND 60/100 DOLLARS ($176,601.60) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2006. On May 1, 2006, the sum of ONE HUNDRED EIGHTY THREE THOUSAND EIGHT HUNDRED FIFTY NINE AND 20/100 DOLLARS ($183,859.20) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2007. On May 1, 2007, the sum of ONE HUNDRED NINETY ONE THOUSAND ONE HUNDRED SIXTEEN AND 80/100 DOLLARS ($191,116.80) shall be due, and a like sum on the first day of each month thereafter, through and including April 1, 2008. On May 1, 2008, the sum of ONE HUNDRED NINETY EIGHT THOUSAND THREE HUNDRED SEVENTY FOUR AND 40/100 DOLLARS ($198,374.40) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2009. On May 1, 2009, the sum of TWO HUNDRED FIVE THOUSAND SIX HUNDRED THIRTY TWO AND NO/100 DOLLARS ($205,632.00) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2010. On May 1, 2010, the sum of TWO HUNDRED TWELVE THOUSAND EIGHT HUNDRED EIGHTY NINE AND 60/100 DOLLARS ($212,889.60) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2011. 9

On May 1, 2011, the sum of TWO HUNDRED TWENTY THOUSAND ONE HUNDRED FORTY SEVEN AND 20/100 DOLLARS ($220,147.20) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2012. On May 1, 2012, the sum of TWO HUNDRED TWENTY SEVEN THOUSAND FOUR HUNDRED FOUR AND 80/100 DOLLARS ($227,404.80) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2013. On May 1, 2013, the sum of TWO HUNDRED THIRTY FOUR THOUSAND SIX HUNDRED SIXTY TWO AND 40/100 DOLLARS ($234,662.40) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2014; or until the entire aggregate sum of THIRTY ONE MILLION FIVE HUNDRED SIXTY FIVE THOUSAND FIVE HUNDRED EIGHTY EIGHT AND 40/100 DOLLARS ($31,565,588.40) has been paid. 44. "AS-IS" BASIS: Subject only Paragraphs 45 and 54 below and to Landlord making the improvements shown on Exhibit B to be attached hereto, it is hereby agreed that the Premises leased hereunder is leased strictly on an "as-is" basis and in its present condition, and in the configuration as shown on Exhibit B to be attached hereto, and by reference made a part hereof. It is specifically agreed between the parties that after Landlord makes the interior improvements as shown on Exhibit B, Landlord shall not be required to make, nor be responsible for any cost, in connection with any repair, restoration, and/or improvement to the Premises in order for this Lease to commence, or thereafter, throughout the Term of this Lease. Notwithstanding anything to the contrary within this Lease, Landlord makes no warranty or representation of any kind or nature whatsoever as to the condition or repair of the Premises, nor as to the use or occupancy which may be made thereof. 45. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and expense, construct certain interior improvements (the "Tenant Improvements") in the Initial Leased Premises, as shown on Exhibit B to be attached to the Lease and Landlord agrees to deliver the Premises leased hereunder to Tenant, at Landlord's expense, in the configuration shown in Red on Exhibit B to be attached hereto. Notwithstanding anything to the contrary above, it is specifically understood and agreed that Landlord shall be required to furnish only a standard air conditioning/heating system, normal electrical outlets, standard fire sprinkler systems, standard bathroom, standard lobby, 2'x4' suspended acoustical tile drop ceiling throughout the entire space leased, carpeting and/or vinyl-coated floor tile, and standard office partitions and doors, as shown on Exhibit B to be attached hereto; provided however, that any special HVAC and/or plumbing and/or electrical requirements over and above that normally supplied by Landlord shall be 100 percent the responsibility of and be paid for 100 percent by Tenant. Notwithstanding anything to the contrary, it is agreed that in the event Tenant makes changes, additions, or modifications to the plans and specifications to be constructed by Landlord as set forth herein, or improvements are installed for Tenant in excess of those to be provided Tenant by Landlord as set forth on Exhibit B, any increased cost(s) resulting from said changes, additions, and/or modifications and/or improvements in excess of those to be provided Tenant shall be contracted for with Landlord and paid for one hundred percent (100%) by Tenant. The interior shall be constructed in accordance with Exhibit B of the Lease, it being agreed, however, that if the interior improvements constructed by Landlord relating thereto, do not conform exactly to the plans and specifications as set forth in the Lease, and the general appearance, structural integrity, and Tenant's uses and occupancy of the Premises and interior improvements relating thereto are not materially or unreasonably affected by such deviation, it is agreed that the commencement date of the Lease, and Tenant's obligation to pay rental, shall not be affected, and Tenant hereby agrees, in such event, to accept the Premises and interior improvements as constructed by Landlord. Tenant shall have thirty (30) days after the Commencement Date to provide Landlord with a "punch list" pertaining to Landlord's work with respect to Tenant's interior improvements. As soon as reasonably possible thereafter, Landlord, or one of Landlord's representatives (if so approved by Landlord), and Tenant shall conduct a joint walk-through of the Premises (if Landlord so requires), and inspect such Tenant Improvements, using their best efforts to agree on the incomplete or defective construction related to the __________ _______________ by Landlord. After such inspection has been completed, Landlord shall prepare, and both parties shall sign, a list of all "punch list" items which the parties reasonably agree are to be corrected by Landlord (but which shall exclude any damage or defects caused by Tenant, its employees, agents or parties Tenant has contracted with to work on the Premises). Landlord shall have thirty (30) days thereafter (or longer if necessary, provided Landlord is diligently pursuing the completion of the same) to complete, at Landlord's expense, the repairs on the "punch list" without the Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder being affected. This Paragraph shall be of no force and effect if Tenant shall fail to give any such notice to Landlord within thirty (30) days after the Commencement 10

Date of this Lease. 46. CONSENT: Whenever the consent of one party to the other is required hereunder, such consent shall not be unreasonably withheld. 47. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provisions of this Lease shall be invalid, unenforceable, or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 48. ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby assigns to Tenant all of Landlord's Contractor's warranties related to the tenant improvements provided for Tenant by Landlord as stated in Paragraph 45 and shall cooperate with Tenant in enforcing any of such warranties except that Landlord shall not be required to pay any legal fees or incur any expenses in this regard. 49. ASSESSMENT CREDITS: The demised property herein may be subject to a special assessment levied by the City of Redwood City as part of an Improvement District. As a part of said special assessment proceedings (if any), additional bonds were or may be sold and assessments were or may be levied to provide for construction contingencies and reserve funds. Interest shall be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited. For example: if (i) the property is subject to an annual assessment of $1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's assessment which reduces the assessment amount shown on the property tax bill from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to Landlord said $200.00 credit as Additional Rent. 50. ASSIGNMENT AND SUBLETTING (CONTINUED): A. Notwithstanding the foregoing, Landlord and Tenant agree that it shall not be unreasonable for Landlord to refuse to consent to a proposed assignment, sublease or other transfer ("Proposed Transfer") if the Premises or another portion of the Property would become subject to additional or different Government Requirements as a direct or indirect consequence of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. However, Landlord may, in its sole discretion, consent to such a Proposed Transfer where Landlord is indemnified by Tenant and (i) Subtenant or (ii) Assignee, in form and substance satisfactory to Landlord's counsel, by Tenant and/or the Proposed Transferee from and against any and all costs, expenses, obligations and liability arising out of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. B. Any and all sublease agreement(s) between Tenant and any and all subtenant(s) (which agreements must be consented to by Landlord, pursuant to the requirements of this Lease) shall contain the following language: "If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and (2) Subtenant hereby waives any and all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever (collectively, "Claims"), whether such matters are known or unknown, latent or apparent, suspected or unsuspected, foreseeable or unforeseeable, which Subtenant may have arising out of or in connection with any such early termination of this Sublease. Subtenant knowingly and intentionally waives any and all protection which is or may be given by Section 1542 of the California Civil Code which provides as follows: "A 11

general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor. The term of his Sublease is therefore subject to early termination. Subtenant's initials here below evidence (a) Subtenant's consideration of and agreement to this early termination provision, (b) Subtenant's acknowledgment that, in determining the net benefits to be derived by Subtenant under the terms of this Sublease, Subtenant has anticipated the potential for early termination, and (c) Subtenant's agreement to the general waiver and release of Claims above. Initials: ___________ Initials: ___________ Subtenant Tenant C. Landlord hereby agrees to consent to Tenant's assigning or subletting said Lease to: (i) any parent or subsidiary corporation, affiliate, or corporation with which Tenant merges or consolidates, provided that the net worth of said parent or subsidiary corporation, affiliate, or said corporation has a net worth equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such assignment, merger, or consolidation (whichever is greater); or (ii) any third party or entity to whom Tenant sells all or substantially all of its assets; provided, that the net worth of the resulting or acquiring corporation has a net worth after the merger, consolidation or acquisition equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such merger, consolidation or acquisition (whichever is greater). No such assignment or subletting will release the Tenant from its liability and responsibility under this Lease to the extent Tenant continues in existence following such transaction. Notwithstanding the above, Tenant shall be required to (a) give Landlord written notice prior to such assignment or subletting to any party as described in (i) and (ii) above, (b) execute Landlord's consent document prepared by Landlord reflecting the assignment or subletting and (c) pay Landlord's costs for processing said Consent prior to the effective date of said assignment or sublease. 51. BANKRUPTCY AND DEFAULT. Paragraph 22 is modified to provide that with respect to non-monetary defaults not involving Tenant's failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion. 52. ABANDONMENT. Paragraph 23 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated and maintained to the extent necessary to prevent damage to the Premises or its systems. 53. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with respect to the existence or use of "Hazardous Materials" (as defined herein) on, in, under or about the Premises and real property located beneath said Premises and the common areas of the Complex (hereinafter collectively referred to as the "Property"): A. As used herein, the term "Hazardous Materials" shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including without limitation, [illegible] or derivatives or fractions thereof, polychlorinated bipheryls, or asbestos). As used herein, the term "Environmental Laws" shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety. 12

B. Tenant shall obtain Landlord's written consent, which may be withheld in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous Materials activities (defined below); provided, however, that Landlord's consent shall not be required for normal use in compliance with applicable Environmental Laws of customary household and office supplies, such as mild cleaners, lubricants and copier toner. As used herein, the term "Tenant's Hazardous Materials Activities" shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant's use of the Property, or by Tenant or by any of Tenant's agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees. Tenant agrees that any and all Tenant's Hazardous Materials Activities shall be conducted in strict, full compliance with applicable Environmental Laws at Tenant's expense, and shall not result in any contamination of the Property or the environment. Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant's Hazardous Materials Activities of which Tenant becomes aware. If Tenant's Hazardous Materials Activities other than normal use of customary household and office supplies, Tenant also agrees at Tenant's expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as Landlord reasonably deems necessary (Landlord shall have no obligation to evaluate the need for any such installation or to require any such installation); (ii) provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant's Hazardous Material Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant's findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections. C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant's Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant's Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities. D. If Landlord, in its sole discretion, believes that the Property has become contaminated as a result of Tenant's Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorney's fees Landlord incurs with respect to such investigation, that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord's prior written consent which may be withheld in Landlord's discretion. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence. E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys', consultants' and other experts' fees and costs), and damages, which arise from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 53 (collectively, "Tenant's Environmental Indemnification"). Tenant's Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant's Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant's expense, any and all environmental 13

investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action (collectively, "Response Actions"). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions. F. Landlord hereby informs Tenant, and Tenant hereby acknowledges, that the Premises and adjacent properties overlie a former solid waste landfill site commonly known as the Westport Landfill ("Former Landfill"). Landlord further informs Tenant, and Tenant hereby acknowledges, that (i) prior testing has detected the presence of low levels of certain volatile and semi-volatile organic compounds and other contaminants in the groundwater, in the leachate from the landfilled solid waste, and/or in certain surface waters of the Property, as more fully described in Section 2.3.2 of the report entitled "Revised Discharge Monitoring Plan, Westport Landfill Site, Redwood City, California" prepared by Geomatrix Consultants, dated May 1996 ("Discharge Plan"), (ii) methane gas is or may be generated by the landfilled solid waste (item "i" immediately preceding and this item "ii" are hereafter collectively referred to as the "Landfill Contamination"), and (iii) the Premises and the Former Landfill are subject to the California Regional Water Quality Control Board's ("Regional Board") Waste Discharge Requirements Order No. 94-181 (the "Order"). The Order is attached hereto as Exhibit C. As evidenced by their initials set forth immediately below, Tenant acknowledges that Landlord has provided Tenant with copies of the environmental reports listed on Exhibit D, and Tenant acknowledges that Tenant and Tenant's experts (if any) have had ample opportunity to review such reports and that Tenant has satisfied itself as to the environmental conditions of the Property and the suitability of such conditions for Tenant's intended use of the Property.
Initial: ----------Tenant Initial: ---------Landlord

G. Landlord shall indemnify, defend, and hold harmless Tenant against any and all claims asserted by third parties (excluding any agents, employees, contractors, vendors, invitees, visitors, future subtenants and assignees of Tenant, and excluding any other parties related to Tenant), including all liabilities, judgments, damages, suits, orders, government directives, costs and expenses in connection with such claims, which arise from (i) the Landfill Contamination, or (ii) the Order, as may be amended ("Landlord's Environmental Indemnity"); provided, however that Landlord's Environmental Indemnity shall be subject to the following limitations and conditions: (1) Landlord's Environmental Indemnity shall not apply to any economic or consequential damages suffered by Tenant, including but not limited to loss of business or profits. (2) Landlord's Environmental Indemnity shall not apply, without limitation, to any releases caused by Tenant's Hazardous Materials Activities. (3) Tenant acknowledges that Landlord must comply with the Order, as may be amended, and with directives of government authorities including the Regional Board, with respect to the Contamination and the Former Landfill. Tenant further acknowledges that groundwater monitoring wells, methane recovery wells and equipment, and other environmental control devices are located on and about the Premises and may be modified or added to during the term of the Lease (collectively, "Environmental Equipment"), and that environmental investigation, monitoring, closure and post-closure activities (collectively, "Environmental Activities") will be performed on the Premises during the term of the Lease. Tenant shall allow Landlord, and any other party named as a discharger under the Order, as may be amended, and their respective agents, consultants and contractors, and agents of governmental environmental authorities with jurisdiction ("Government Representatives") to enter the Premises to access the Environmental Equipment and to perform Environmental Activities during the term of the Lease, provided that Tenant's use and occupancy of the Premises shall not unreasonably be disturbed. (4) Tenant and Landlord shall reasonably cooperate with each other regarding any Environmental Activities to be performed, and regarding any Environmental Equipment to be installed, maintained, or removed on the Premises during the term of the Lease. (5) Tenant shall be responsible at its expense for repairing any Environmental Equipment damaged due to the negligence of Tenant or Tenant's agents, employees, contractors, vendors, invitees, visitors, future subtenants or assignees (such terms "invitees" and "visitors" are used in this Paragraph 54 shall not include Landlord or any other party named as a discharger under the Order as may be amended, or any of their respective agents, consultants or contractors, or any Government Representatives). 14

It is agreed that the Tenant's responsibilities related to Hazardous Materials will survive the expiration or termination of this Lease and that Landlord may obtain specific performance of Tenant's responsibilities under this Paragraph 53. 54. MUST-TAKE SPACE: As consideration to Tenant, Landlord has agreed to allow Tenant to phase into the entire Building as noted below. This Lease provides the obligation for Tenant to phase into additional space (located on the first floor of the Building in areas to be selected by Landlord) on two separate dates following the Commencement Date of the Lease. The date of the first phase in is December 1, 2000 and the estimated phase in square footage is 10,116+/- square feet including Tenant's share of the Common Area of the Building (hereinafter referred to as Must-Take Space #1); the date of the second phase in is April 1, 2001 and the estimated square footage is 12,384+/- (hereinafter referred to as Must-Take Space #2). Reference to the "Must-Take Space" herein after refers to Must-Take Space #1 and Must-Take Space #2. As of April 1, 2001, Tenant's total square footage leased shall equal one hundred percent (100%) of said Building. The parties understand that the exact square footage of the Must-Take Space #1 & the Must-Take Space #2 is unknown at this time and will be measured by Landlord once the locations of said Must-Take Space are determined by Landlord. Upon completion of construction of the demising walls of the Must-Take Space, Landlord shall calculate the total square footage of the Must-Take Space #1 and the Must-Take Space #2 (including Tenant's share of the Common Area, the sum of which is the hereinafter referred to as the "Actual Square Footage"). On the final determination of the Actual Square Footage of the Must-Take Space #1 and of Must-Take Space #2, the parties shall execute an amendment to this Lease stating said Actual Square Footage and adjusting the Basic Rent accordingly. Tenant acknowledges that the Basic Rent projected in the Rent schedule is based on the Actual Square Footage for (i) Must-Take Space #1 being 10,116 square feet at the then monthly per square foot rate of $2.90 and (ii) Must-Take Space #2 being 12,384 square feet at then monthly per square foot rate of $3.05. Any change in the Actual Square Footage will result in an adjustment to the Basic Rent Schedule. Execution of said amendment shall not be a condition precedent to the effectiveness of the increase in square footage and the resultant adjustment in Rent. The Must-Take Space shall be leased to Tenant in its then "as-is" condition and configuration as of the respective phase in dates (i.e., Landlord shall not be required to construct any improvements in, or contribute any tenant improvement allowance for the Must-Take Space other than installing the demising walls, dropped ceiling and carpeting (with materials similar to those used on the second floor of the Leased Premises). Except as otherwise noted in this Lease, beginning on the respective phase in dates and continuing for the balance of the Lease Term (including extensions, if any), the Must-Take Space shall be part of the Premises under this Lease. Tenant's lease of the Must-Take Space shall be on the same terms and conditions as those affecting the Initial Premises, including the same Monthly Basic Rent rate as then applies to the Initial Premises. Landlord shall tender the Must-Take Space to Tenant on the aforementioned date; however, Landlord shall not be liable to Tenant or otherwise be in default under this Lease if Landlord is unable to tender the Must-Take Space to Tenant on the projected delivery date(s) due to the failure of any other tenant to timely vacate and surrender to Landlord the Must-Take Space or any portion of it. Landlord agrees to use its commercially reasonable efforts to enforce its right to possession of the Must-Take Space against such other tenant should it be necessary to do so. Tenant's obligation to pay Basic Rent on the respective Must-Take Space will not commence until Landlord tenders the respective Must-Take Space to Tenant. In the event of a delay in said delivery, the Basic Rent schedule and the Aggregate Rent will be amended accordingly. Landlord's failure to so tender any portion of the Must-Take Space on the respective date(s) identified above (i) shall not affect the Lease or Tenant's obligation to pay Rent as related to the portion of the Building that Landlord has tendered possession to Tenant, and (ii) shall not give Tenant reason to terminate the Lease or cancel Tenant's obligation to lease said Must-Take Space. Notwithstanding anything to the contrary above, due to Landlord's accommodating Tenant and allowing tenant to phase into the entire Building, Tenant shall be responsible for one hundred percent (100%) of all Additional Rent expenses on the entire Building as if Tenant has leased one hundred percent (100%) of said Building from the original Lease Commencement Date. However, during the period any part of the Must-Take Space is leased by Landlord to a third party tenant prior to Tenant phasing into the Must-Take Space #1 and/or Must-Take Space #2 as noted above, Landlord shall adjust Tenant's share of the Additional Rent expenses on a pro-rata basis based on the total square footage leased by Landlord to a third party tenant. Tenant understands that prior to the respective phase in dates, Landlord may, from time to time, lease all or any part of the Must-Take Space to one or more third party tenants, and that portion of the Must-Take Space so leased will be leased between 15

Landlord and said third party tenants; provided that in no event will Landlord lease any portion of the Must-Take Space for a period that exceeds the respective phase in date. Notwithstanding anything to the contrary herein, in the event Tenant is, at any time in material default of this Lease prior to the respective phase in date(s) and Tenant has not cured the default as provided for in this Lease, Landlord shall have the right, but not the obligation, to rescind Tenant's right to phase into said Must-Take Space by giving written notice to Tenant within thirty (30) days of said material default by Tenant, and this Lease shall continue, absent this Paragraph 54, for the remaining Term hereof. 55. PARKING CONTINUED: Subject to Paragraph 54 above, (i) effective December 1, 2000, Tenant's non-exclusive parking spaces shall increase to approximately 162 spaces (the total number of parking spaces is subject to the actual square footage occupied by Tenant) and (ii) effective May 1, 2001 (i) Tenant's non-exclusive parking space shall increase to 218 spaces. 56. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED: Effective May 1, 2001, Tenant shall occupy one hundred percent (100%) of the Building in which the Premises are located, and as a result, Lease Paragraph 7 shall be deleted in its entirety and replaced with the following: "7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX: As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance and replacement of landscaped areas, lakes, parking lots and paved areas (including repair, replacement, resealing and restriping), sidewalks, driveways and private roads within the Complex and roads with reciprocal easement areas; maintenance, repair, and replacement of all fixtures and electrical, mechanical and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employees benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen percent (15%) per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. "Additional Rent" as used herein shall not include Landlord's debt repayments, interest on charges; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation; interest, or executive salaries." 57. TENANT MAINTENANCE: A. It is understood that as of the Lease Commencement Date, Tenant shall be the sole occupant of the building located at 2400 Bridge Parkway, Redwood City, of which the Leased Premises is a part. Tenant agrees that, until such time as Landlord leases any portion of the remaining vacant space in the building to a third party, Tenant shall be responsible for the maintenance and repair, as defined in Lease Paragraph 10 ("Tenant Maintenance"), for the entire building, including, but not limited to, the entire HVAC system, electrical systems and plumbing systems within the Building. B. Effective May 1, 2001, Tenant shall occupy one hundred percent (100%) of the Building in which the Premises are located, and as a result, Lease Paragraph 10 shall be deleted in its entirety and replaced with the following: "10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, or replacement, and in good and sanitary 16

condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, janitorization, all windows (interior and exterior), window frames, plate glass and glazing (destroyed by accident or act of third parties), truck doors, plumbing systems (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), electrical systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs, tubes and ballasts), heating and air conditioning systems (such as compressors, fans, air handlers, ducts, mixing boxes, thermostats, time clocks, boilers, heaters, supply and return grills), structural elements and exterior surfaces of the building, store fronts, roofs, downspouts, all interior improvements within the Premises including but not limited to wall coverings, window coverings, carpet, floor coverings, partitioning, ceilings, doors (both interior and exterior), including closing mechanisms, latches, locks, skylights (if any), automatic fire extinguishing systems, and elevators and all other interior improvements of any nature whatsoever. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. Tenant hereby waives all rights under, and benefits of, Subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. In the event any of the above maintenance responsibilities apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such maintenance responsibilities and charges shall be allocated to the Leased Premises by square footage or other equitable basis as calculated and determined by Landlord." 58. UTILITIES CONTINUED: A. It is understood that as of the Lease Commencement Date, Tenant shall be the sole occupant of the building located at 2400 Bride Parkway, Redwood City, of which the Leased Premises is a part. Tenant agrees to be responsible for paying 100% of the utilities, including, but not limited to, water, sewer, gas and electricity, for the entire building until such time as the remaining vacant space in the building is leased. Tenant agrees that the utilities for said building will be placed in Tenant's name and that Tenant will pay all utilities directly to the respective company(s). When any of the remaining vacant space in said building is leased, Landlord will notify Tenant and Landlord will transfer all utilities into Landlord's name and subject to the entire provisions of this Paragraph 56A, Tenant will pay its pro rata charge for said utilities monthly in advance as described in and subject to Paragraph 4 "Rent" and Paragraph 8 "Utilities" of this Lease. If Tenant shall require water, gas, or electric current in excess of that usually furnished or supplied to Premises being used as general office space, Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld and Landlord may cause an electric current, gas and/or water meter to be installed in the Premises in order to measure the amount of electric current, gas or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, all charges for water, gas and electric current consumed by Tenant (as shown by such meters and at the rates then charged by the furnishing public utility); and any additional expense incurred by Landlord in keeping account of electric current, gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. B. Subject to Paragraph 54 above, effective May 1, 2001, Tenant shall lease 100% of the Building from Landlord, and shall be responsible for paying to the respective utility companies one hundred percent of the utilities for the Building. Effective May 1, 2001, Lease Paragraph 11 ("UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED") shall be deleted in its entirety and shall be replaced with the following: "11. UTILITIES: Tenant shall pay promptly, as the same become due, all charges for water, gas, electricity, telephone, telex and other electronic communications service, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the Term of this Lease, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of Rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord." 17

[PARCEL I AND II MAP]

EXHIBIT C CALIFORNIA REGIONAL WATER QUALITY CONTROL BOARD SAN FRANCISCO BAY REGION ORDER NO. 94-181 UPDATED WASTE DISCHARGE REQUIREMENT FOR: WESTPORT INVESTMENTS (PEERY/ARRILLAGA) PARKWOOD 101/Westport Landfill REDWOOD CITY, SAN MATEO COUNTY The California Regional Water Quality Control Board, San Francisco Bay Region, (hereinafter called the Board), finds that: 1. Westport Investments Inc. is the site's legal owner hereinafter referred to as the discharger. The site is located adjacent to Belmont Slough in Redwood City as shown in Figure 1, which is incorporated herein as a part of this Order. No waste has been disposed of at the site since 1970, and the site is considered a closed site. PURPOSE OF UPDATING ORDER: 2. The primary objectives of this order are to revise the site's groundwater and leachate monitoring program, and to bring the site into compliance with the current regulations of Article 5, Title 23, Division 3, Chapter 15 of the California Code of Regulations. Additionally, this Order requires the discharger to reconstruct those portions of the landfill which do not meet the requirements of Section 2581, Article 8, of Chapter 15. SITE DESCRIPTION: 3. The site is located approximately one mile east of Highway 101, and it is bordered by Belmont Slough to the north and west, and by an existing residential development and Marine World Parkway to the east and south. The site is divided into three areas. Two of these areas, the mound (35 acres) and panhandle (10 acres) areas, are associated with refuse fill and currently have a cap (with a varying thickness) overlying them. The third area (40 acres), between the refuse fill areas and the levees, is a low-lying area that does not contain refuse. The site's surface soils are currently composed largely of fill that has been used to establish a cap over the refuse fill area, or used to fill the low-lying elevations. 1

SITE HISTORY: 4. The site was a tidal marshlands until approximately 1910, at which time the area was diked and used for pasture lands. The area was used as a refuse disposal site from 1948 to about 1970. Disposal in the panhandle area of the site reportedly ceased in about 1963, while disposal in the mound area continued until 1970 (Levin-Fricke, 1989a). The site has been closed in accordance with the Board's Order No. 76-77 dated October 18, 1977. Closure involved placement of low permeability soils, Bay Mud clays and construction fill, over the top of the refuse. 5. On July 20, 1976 Waste Discharge Requirements (WDRs) Order No. 76-77 was adopted for the site. On October 18, 1977 Order NO. 76-77 was revised by the adoption of Order NO. 77-134. 6. On March 2, 1994 United Soil Engineering, Inc., (USC), conducted an investigation to determine the thickness of the landfill's cover. A total of 77 borings were advanced to a depth of 6 feet. USC's investigation revealed that an additional one to two feet of clay or low permeability soils are required to achieve a minimum thickness for most part of the landfill's cover. [Note: Section 2581 of Article 8 requires two feet of appropriate materials as a foundation layer for the final cover, one foot of soil with a permeability of (less than or equal to) 10(-6) cm/sec and one foot of protective cover soil.] 7. In some portion of the landfill, the thickness of final cover does not meet the requirements of Article 8 of Chapter 15. GEOLOGIC SETTING OF THE SITE: 8. The sediments underlying the landfill consist primarily of shallow Bay deposits comprised of "Bay mud" clays and silty clays. Stiff to very stiff sandy clay/clayey sand was encountered below the Bay Mud extending to a depth of approximately 200 feet below ground surface. According to Cooper Engineers (Cooper, 1983), a moderately permeable sequence of clay, sand, and gravel underlies the stiff clays, beginning at a depth of 200 feet below ground surface. Franciscan bedrock was reported to be at a depth of approximately 300 feet below ground surface (bgs) along the western side of the site and 500 feet bgs along the eastern side of the site as reported by Cooper Engineers (1983). A general geologic cross section of the South Bay, including the site, is shown in Figure 2. HYDROGEOLOGIC SETTING OF THE SITE: 9. Investigations have shown that the groundwater movement is radially away from the mounded areas. However, the potential flow directions are likely influenced by the presence of the operating leachate collection and recovery system located along a line 2

approximately 10 feet from the southern border of the mound area. Groundwater flow may also be influenced by the presence of landfill gas barriers installed off site on the Peninsula Landing site, south of the Panhandle, and on the Boardwalk site south of the Mound area. 10. The direction of deeper groundwater flow cannot be established with a high level of certainty because of the relatively discontinuous nature of the water bearing zones in the low permeability clay layer beneath the recent Bay Mud. However, based on a study conducted by Mclaren (McLaren, 1989), "...regional hydrogeologic condition suggest that deeper groundwater moves in an easterly direction toward San Francisco Bay." 11. A comparison of the shallow and deep groundwater levels have indicated the existence of a slightly downward vertical gradient except for well P-1A and P-1B. In October of 1988, an upward gradient was observed for the two aforementioned monitoring wells. However, subsequent studies for these wells showed a downward vertical gradient. 12. Confined aquifer zones of moderate permeability which are the major groundwater sources for the region, are located at a depth of 190 to 200 feet beneath the site. This aquifer zone is an extension of the major artesian basin of the South Bay and Santa Clara Valley and consists chiefly of unconsolidated Quarternary alluvium. 13. The beneficial uses of Belmont slough, and South San Francisco Bay are as follows: a. Wildlife habitat b. Brackish and salt water marshes c. Water contact recreation d. Non-water contact water recreation e. Commercial and sport fishing f. Preservation of rare and endangered species g. Esturaine habitat h. Fish migration and spawning 14. The present and potential beneficial uses of the deeper groundwater are as follows: a. Domestic and municipal water supply b. Industrial process supply c. Industrial service supply d. Agricultural supply WASTES AND THEIR CLASSIFICATION: 15. Approximately 45 acres of the project site were used for landfill disposal of municipal solid waste and incinerator ash from 1948 to 1970. About 650,000 cubic yards of fill material has been disposed of at the site. The refuse material at the site consisted of 3

paper, glass, plastic, and minor amounts of wood and rock fragments and incinerator ashes. MONITORING PROGRAM: 16. There are 10 existing on-site groundwater monitoring wells and 2 off-site wells to the south of the site, near Marine World Parkway. These wells were installed by various consultants in conjunction with the evaluation of groundwater conditions for the entire 85-acre site. Seven wells monitor landfill leachate. 17. An investigation was conducted by LEVIN-FRICKE during the period from August through December 1988 to characterize soil and groundwater quality at the landfill in accordance with the Solid Waste Assessment Test (SWAT) requirements. This investigation concluded that the landfill was leaking low levels of contaminants. 18. The discharger shall initiate a semi-annual monitoring program for the existing monitoring network which consists of 6 leachate wells (P-2A, P-1A, S-1A, S-2, S-5, LW-1), five deep groundwater wells (UGP-1, P-2B, P-1B, MW-1, MW-2), 21 shallow groundwater wells (UPG-2, P-8, P-7, K-1, P-3, K-3, K-4, P-5, P5-1, K-5, MW-3, MW3-1, MW3-2, S-3A, S-4A, P-4, K-2, P-6), and 4 surface water monitoring points (SW-1, SW-2, SW-3, SW-4) as shown in Figure 1 of the attached discharge monitoring program. The points of compliance for shallow and deep groundwater zones have been identified as those wells which monitor the shallow and the deep groundwater zones beneath the site. 19. Federal Regulations [40 Code of Federal Regulations (CFR) Parts 122, 123, and 124] require specific categories of industrial activities, including landfills, to obtain a NPDES permit for storm water discharges. The State Water Resources Control Board has issued a General Permit for Storm Water Discharges Associated with Industrial Activities (NPDES Permit No. CAS000001). This facility is subject to these requirements. Pursuant to the Stormwater Discharge Program, this facility is required to submit a Notice of Intent for coverage under the General Permit; to prepare and implement a monitoring program; and to submit an annual report. Compliance with the monitoring and reporting requirements of this Order are intended to assure compliance with the requirements of the General Permit. EXISTING LEACHATE CONTROL SYSTEM: 20. The leachate collection system of the site consists of two trenches. The trenches were excavated to depths of 8 to 13 feet bgs. The approximate locations of the leachate trenches are shown in Figure 3. The leachate collection and recovery system has been 4

operational in Trench No. 1 since installation. Leachate Trench No. 1 is fitted with an automatic pumping system that periodically pumps leachate from manhole No. 1 to the sanitary sewer as needed to maintain a low level of leachate in the trench. The pumping system for Trench No. 2 is not currently operating because migration of leachate has been mitigated to some extent by the relatively impervious clays at the site. CALIFORNIA ENVIRONMENTAL QUALITY ACT 21. This site is exempt from the provisions of the California Environmental Quality Act (CEQA) pursuant to Section 15308, Title 14 of the California Code of Regulation. However, any subsequent development of closed landfill may not be exempt from CEQA. 22. Sanitary landfills could potentially impact groundwater if not properly designed maintain and/or operated. Groundwater can also be affected by water that percolates through waste materials and extracts or dissolves substances from it and carries them into the groundwater. 23. The preceding impacts are mitigated or avoided by design measures to control erosion and assure containment of waste and leachate through the use of leachate collection and removal systems. 24. The Board has notified the discharger and interested agencies and persons of its intent to prescribe waste discharge requirements for the discharge, and has provided them with an opportunity to submit their written views and recommendations. 25. The Board in a public meeting heard and considered all comments pertaining to the discharge. IT IS HEREBY ORDERED that the dischargers, their agents, successors and assigns are to complete closure activities (modifications of clay cap), conduct postclosure maintenance and monitoring pursuant to authority in Title 23, Chapter 15, Section 2581 and California Water Code Division 7 and the following: A. PROHIBITIONS 1. Wastes shall not be in contact with ponded water. 2. Leachate from wastes and ponded water containing leachate or in contact with refuse shall not be discharged to waters of the State or of the United States. 3. Wastes of any origin and type shall not be deposited or stored at this site after the adoption of this Order. 5

4. The discharger, or any future owner or operator of this site, shall not cause the following conditions to exist in waters of the State at any place outside the waste management facility: a. Surface Waters 1. Floating, suspended, or deposited macroscopic particulate matter or foam. 2. Bottom deposits or aquatic growth. 3. Adversely alter temperature, turbidity, or apparent color beyond natural background levels. 4. Visible, floating, suspended or deposited oil or other products of petroleum origin. 5. Toxic or other deleterious substances to be present in concentrations or quantities which may cause deleterious effects on aquatic biota, wildlife or waterfowl, or which render any of these unfit for human consumption either at levels created in the receiving waters or as a result of biological concentrations. [Note: the surface water and shallow groundwater on and in the vicinity of the site are not used for human consumption since they are brackish and/or saline] b. Groundwater The groundwater shall not be degraded as a result of the waste maintained at the facility. B. SPECIFICATIONS 1. All reports pursuant to this Order shall be prepared under the supervision of a registered civil engineer, California registered geologist or certified engineering geologist. 2. The site shall be protected from any washout or erosion of wastes from inundation which could occur as a result of a 100-year 24-hour precipitation event, or as the result of flooding with a return frequency of 100 years. 3. The existing leachate control facility shall be maintained and remain operational as long as leachate is present and it poses a threat to water quality. 6

4. All conveyance control facilities and hydraulic structures shall be maintained to ensure normal flow of liquid and to prevent hydraulic pressure buildup within the pipeline. 5. The discharger shall assure that the foundation of the site, the refuse fill, and the structures which control leachate, surface drainage, erosion and gas for this site are constructed and maintained to withstand conditions generated during maximum probable earthquake. 6. The facility's Leachate Collection and Removal System (LCRS) must be capable of creating an inward leachate gradient which shall prevent leachate migration offsite. 7. The existing LCRS shall be inspected monthly or more frequently as necessary and any accumulated fluid shall be removed. 8. The exterior surfaces (cap) shall be graded to promote lateral runoff of precipitation and to ensure that ponding does not occur. 9. A detailed survey of the landfill's cap must be made, to assure that construction is in compliance with the requirement of Article 8 of Chapter 15. 10. The discharger shall maintain and monitor the waste unit to prevent a statistically significant increase to exist between water quality at the point of compliance as provided in Section 2550.5, Article 5 of Chapter 15. 11. In the event of a release of a constituent of concern beyond the Point of Compliance, the site will begin a Compliance Period pursuant to Section 2550.6(a). During the Compliance Period, the discharger shall perform an Evaluation Monitoring Program and a Corrective Action Program. 12. The discharger shall install any reasonable additional groundwater and leachate monitoring devices required to fulfill the terms of any Discharge Monitoring Program issued by the Executive Officer. 13. Methane and other landfill gases shall be adequately vented, removed from the landfill units, or otherwise controlled to minimize the danger of explosion, adverse health effects, nuisance conditions, or the impairment of beneficial uses of water due to migration through the vadose (unsaturated) zone in accordance with applicable regulatory requirements. 14. This Board considers the property owner and site operator to have continuing responsibility for correcting any problems which arise in the future as a result 7

of this waste discharge or related operations during the active life and post-closure maintenance period. 15. The discharger shall maintain all devices or designed features, installed in accordance with this Order such that they continue to operate as intended without interruption as provided for by the performance standards adopted by the California Integrated Waste Management Board. 16. The discharger shall provide and maintain a minimum of two permanent surveyed monuments near the landfill from which the location and elevation of wastes, containment structures, and monitoring facilities can be determined throughout the post-closure and maintenance periods. These monuments shall be installed by a licensed land surveyor or registered civil engineer. 17. The Regional Board shall be notified immediately of any failure occurring in the waste management unit. Any failure which threatens the integrity of containment features or the landfill shall be promptly corrected after approval of the method and schedule by the Executive Officer. 18. The discharger shall comply with all applicable provisions of Chapter 15 that are not specifically referred to in this Order. 19. The discharger must reconstruct the final cover to meet the requirements of CCR Title 23. 20. The discharger shall maintain the facility so as to prevent a statistically significant increase in water quality parameters at the point of compliance as provided in Section 2550.5. According to Section 2550.2 and 2550.3 of Chapter 15, the discharger is also required to establish a Water Quality Protection Standards (WQPS) and a list of Constituents of Concern (COCs). The discharger shall meet the following schedule in implementing the requirements of this Provision. The discharger shall monitor a minimum of four quarters (one year) for the parameters listed in Table 2. Based upon the results of the monitoring, the discharger shall propose a revised list of COC's and monitoring parameters in accordance with the requirements of this Order and Article 5 of Chapter 15. Within 15 months following the adoption of this Order, the discharger shall submit a monitoring program to include a statistical analysis method to the Board for approval by the Executive Officer. A non statistical method (e.g., concentration trend analysis and comparison to practical quantitation limits) will be utilized to evaluate the significance of groundwater data until the proposed statistical methods are approved by the Board.

C. PROVISIONS 1. The discharger shall comply with all Prohibitions, Specifications, and Provisions of this Order, immediately upon adoption of this Order or as provided below. 2. The discharger shall submit a detailed POST EARTHQUAKE INSPECTION AND CORRECTIVE ACTION PLAN acceptable to the Executive Officer to be implemented in the event of any earthquake generating ground shaking of Richter Magnitude 7 or greater or within 30 miles of the landfill. The report shall describe the containment features, and ground water monitoring and leachate control facilities potentially impacted by the static and seismic deformations of the landfill. The plan shall provide for reporting results of the post earthquake inspection to the Board within 72 hours of the occurrence of the earthquake. Immediately after an earthquake event causing damage to the landfill structures, the corrective action plan shall be implemented and this Board shall be notified of any damage. REPORT DUE DATE: WITHIN THREE MONTHS OF ADOPTION OF THIS ORDER 3. The discharger shall submit a CONTINGENCY PLAN to be instituted in the event of a leak or spill from the leachate facilities. The discharger shall give immediate notification to the San Francisco Bay Regional Water Quality Control Board, the Local Enforcement Agency (LEA), and the California Department of Toxic Substance Control. The discharger shall initiate its corrective action plan to stop and contain the migration of pollutants from the site. REPORT DUE DATE: WITHIN THREE MONTHS OF ADOPTION OF THIS ORDER 4. The discharger shall file with the Regional Board Discharge Monitoring Reports prepared under the supervision of a registered civil engineer or registered geologist performed according to any DISCHARGE MONITORING PROGRAM issued by the Executive Officer. 5. The reports pursuant to these Provisions shall be prepared under the supervision of a registered engineer or certified engineering geologist. 6. The discharger shall comply with all applicable items of the attached Discharge Monitoring Program, or any amendments thereafter. 7. In the event of any change in control of ownership of land or waste discharge 9

facilities presently owned or controlled by the Discharger, the Discharger shall notify the succeeding owner or operator of the existence of this Order by letter, a copy of which shall be immediately forwarded to this office. To assume operations of this Order, the succeeding owner or operator must apply in writing to the Executive Officer requesting transfer of the Order. (Refer to Standard Provisions referenced above). The request must contain the requesting entity's full legal name, the address and telephone number of the persons responsible for contract with the Board and a statement. The statement shall comply with the signatory paragraph described in Standard Provisions and state that the new owner or operator assumes full responsibility for compliance with this Order. Failure to submit the request shall be considered a discharge without requirements, a violation of the California Water Code. 8. The discharger shall immediately notify the Board of any flooding, equipment failure, slope failure, or other change in site conditions which could impair the integrity of waste or leachate contaminant facilities or precipitation and drainage control structures. NOTIFICATION: IMMEDIATELY REPORT DUE DATE: WITHIN 7 DAYS AFTER THE INCIDENT 9. The discharger shall prepare, implement and submit a Storm Water Pollution Prevention Plan in accordance with requirements specified in State Water Resources Control Board General Permit for Storm Water Discharges Associated with Industrial Activities (NPDES Permit No. CAS000001). REPORT DUE DATE: APRIL 1, 1995 10. The discharger must reconstruct those portions of the landfill's cap which do not meet the requirements of Article 8, Section 2581 of Chapter 15. The discharge is required to submit a complete and comprehensive construction plan with 60 days of the adoption of this Order. 11. This order requires the discharger to initiate the semi-annual self monitoring program as defined in the attached Parts A & B. 12. The discharger shall maintain a copy of this Order at the site so as to be available at all times to site operating personnel. 13. This Board considers the property owner and site operator to have continuing responsibility for correcting any problems which may arise in the future as 10

result of this waste discharge or related operations. 14. The discharge shall permit the Board or its authorized representative, upon presentation of credentials: a. Immediate entry upon the premises on which wastes are located or in which any required records are kept. b. Access to copy any records required to be kept under the terms and conditions of this Order. c. Inspection of any treatment equipment, monitoring equipment, or monitoring method required by this Order or by any other California State Agency. d. Sampling of any discharge or ground water governed by this Order. 15. These requirements do not authorize commission of any act causing injury to the property of another or of the public; do not convey any property rights; do not remove liability under federal, state or local laws; and do not authorize the discharge of wastes without appropriate permits from other agencies or organizations. 16. This Order is subject to Board review and updating, as necessary, to comply with changing State or Federal laws, regulations, policies, or guidelines; changes in the Board's Basin Plan; or changes in the discharge characteristics. 17. Copies of all correspondence, reports, and documents pertaining to compliance with the Prohibitions, Specifications and Provisions of this Order, shall also be provided to the Environmental Health Services Division of San Mateo County. 18. The discharger shall analyze groundwater, leachate and surface water samples for the parameters as presented in Table 2 of the Discharge Monitoring Program for the Parkwood 101/westport landfill. 19. TASK 1: DOCUMENTATION OF INSTALLATION OF ADDITIONAL GROUNDWATER MONITORING WELLS Completion Date: March 1, 1995 The discharger is required to submit a technical report acceptable to the Executive Officer that documents that the monitoring wells (MW3-1, MW3-2, P5-1, LW-1) listed in Table No. 1 in Part B of the attached Self Monitoring Program have been installed. 11

20. This Order rescinds Orders No. 76-77 and 77-134. I, Steven R. Ritchie Executive Officer, do hereby certify that the foregoing is a full, complete, and correct copy of an Order adopted by the California Regional Water Quality Control Board, San Francisco Bay Region, December 14, 1994.
/s/ STEVEN R. RITCHIE --------------------Steven R. Ritchie Executive Officer

Attachments: 1. Figures: 1. Site Location Map 2. General Geologic X-Section 3. Leachate Trenches Location Map 2. Discharge Monitoring Program References: Cooper Engineers (1983). Geotechnical and Waste Management Engineering Studies for Approval of Concept Plan, Lands of Parkwood 101 Associates, Redwood City, California. Levin-Fricke, Inc. (1989). Solid Waste Assessment Test Investigation Report, Westport Landfill Site, Redwood City, California. November. McLaren Engineers (1989). Drat Supplemental Environmental Impact Report, Westport Development Project. October. United Soil Engineering INC. (1994). Clay Cap Thickness Investigation, Westport Office Park, Marine World Parkway, Redwood City, California. 12

FIGURE NO. 1 SITE LOCATION MAP

FIGURE NO. 2 GENERAL GEOLOGIC S-SECTION

FIGURE NO. 3 LEACHATE TRENCHES LOCATION MAP

CALIFORNIA REGIONAL WATER QUALITY CONTROL BOARD SAN FRANCISCO BAY REGION DISCHARGE MONITORING PROGRAM FOR WESTPORT INVESTMENTS INC. PARKWOOD 101 CLOSED LANDFILL REDWOOD CITY, SAN MATEO COUNTY ORDER NO. 94-181 CONSISTS OF PART A AND PART B

PART A A. GENERAL Reporting responsibilities of waste dischargers are specified in Sections 13225(a), 13267(b), 13383, and 13387(b) of the California Water Code and this Regional Board's Resolution No. 73-16. This Discharge Monitoring Program is issued in accordance with Provision C.4 of Regional Board Order No. 94-181. The principal purposes of a discharge monitoring program are: (1) to document compliance with waste discharge requirements and prohibitions established by the Board, (2) to facilitate self-policing by the waste discharger in the prevention and abatement of pollution arising from waste discharge, (3) to develop or assist in the development of standards of performance, and toxicity standards, (4) to assist the discharger in complying with the requirements of Article 5, Chapter 15 as revised July 1, 1991. B. SAMPLING AND ANALYTICAL METHODS Sample collection, storage, and analyses shall be performed according to the most recent version of EPA Standard Methods and in accordance with an approved sampling and analysis plan. Water and waste analysis shall be performed by a laboratory approved for these analyses by the State of California. The director of the laboratory whose name appears on the certification shall supervise all analytical work in his/her laboratory and he/she or their authorized representative shall sign all reports of such work submitted to the Regional Board. All monitoring instruments and equipment shall be properly calibrated and maintained to ensure accuracy of measurements. C. DEFINITION OF TERMS 1. A grab sample is a discrete sample collected at any time. 2. Receiving waters refers to any surface water which actually or potentially receives surface or groundwater which pass over, through, or under waste materials or contaminated soils. In this case, the groundwater beneath and adjacent to the landfill 2

areas and the surface runoff from the site are considered receiving waters. 3. Standard observations refer to: a. Receiving Waters 1) Floating and suspended materials of waste origin: presence or absence, source and size of affected area. 2) Discoloration and turbidity: description of color, source, and size of affected area. 3) Evidence of odors, presence or absence, characterization, source, and distance of travel from source. 4) Evidence of beneficial use: presence of water associated wildlife. 5) Flow rate. 6) Weather conditions: wind direction and estimated velocity, total precipitation during the previous five days and on the day of observation. b. Perimeter of the waste management unit 1) Evidence of liquid leaving or entering the waste management unit, estimated size of affected area and flow rate. (Show affected area on a map.) 2) Evidence of odors, presence or absence, characterization, source, and distance of travel from source. 3) Evidence of erosion and/or daylighted refuse. c. The waste management unit 1) Evidence of ponded water at any point on the waste management facility. 2) Evidence of odors, presence or absence, characterization, source, and distance of travel from source. 3) Evidence of erosion and/or daylighted refuse. 4) Standard Analysis (SA) and measurements are listed on Table 2 (attached). D. SAMPLING, ANALYSIS, AND OBSERVATIONS The discharger is required to perform sampling, analyses, and observations in the following media: 1. Groundwater per Section 2550.7(b) 2. Surface water per Section 2550.7(c) and per the general requirements specified in Section 2550.7(e) of Article 5, Chapter 15 and 3. Vadose zone per Section 2550.7(d). This item is neither feasible nor applicable for this landfill. 3

8150 w/ Once in 5 yr 3 capillary column ----------------------------------------------------------------------------Arsenic 7061 Semi-annual 3 ----------------------------------------------------------------------------Cadmium 7131 Semi-annual 3 ----------------------------------------------------------------------------Chromium 6010 Semi-annual 3 ----------------------------------------------------------------------------Copper 6010 Semi-annual 3 ----------------------------------------------------------------------------Lead 7421 Semi-annual 3 ----------------------------------------------------------------------------Mercury 7470 Semi-annual 3 ----------------------------------------------------------------------------Nickel 6010 Semi-annual 3 ----------------------------------------------------------------------------Selenium 7740 Semi-annual 3 ----------------------------------------------------------------------------Silver 6010 Semi-annual 3 ----------------------------------------------------------------------------Zinc 6010 Semi-annual 3 -----------------------------------------------------------------------------

Chlorinated Herbicides

1. Not Applicable 2. Methods for Chemical Analysis of Water and Wastes, EPA600/4/79/029, revised March 1983 3. EPA SW-846 4. Only for surface water monitoring 2

Table 2 - Discharge Monitoring Plan, List of Analytical Parameters
Method Parameters (USEPA) Frequency Reference -------------------------------------------------------------------------------Leachate Level Measurements Field Semi-annual 1 -------------------------------------------------------------------------------Water Level Measurements Field Semi-annual 1 -------------------------------------------------------------------------------Temperature Measurements Field Semi-annual 1 -------------------------------------------------------------------------------Electrical Conductivity Field Semi-annual 3 -------------------------------------------------------------------------------pH Field Semi-annual 3 -------------------------------------------------------------------------------Total Organic Carbon 415.1 Semi-annual 2 -------------------------------------------------------------------------------Total Nitrogen (the sum of Nitrate 351.2 Semi-annual 2 Nitrogen and Kjeldahl Nitrogen) -------------------------------------------------------------------------------Turbidity Field Semi-annual 1, 4 -------------------------------------------------------------------------------Alkalinity, bicarbonate 310.1 Semi-annual 2 -------------------------------------------------------------------------------Alkalinity, hydroxide 310.1 Semi-annual 2 -------------------------------------------------------------------------------Biological Oxygen Demand 410.4 Semi-annual 4 -------------------------------------------------------------------------------Ammonia as N (nonionized) 350.1 Semi-annual 4 -------------------------------------------------------------------------------Chemical Oxygen Demand 410.2 Semi-annual 2, 4 -------------------------------------------------------------------------------Total Dissolved Solids 160.1 Semi-annual 2, 4 -------------------------------------------------------------------------------Total Suspended Solids 160.2 Semi-annual 2, 4 -------------------------------------------------------------------------------Volatile Organic Compounds 8260 w/ Once in 5 yrs 3 (Appendix I) capillary column -------------------------------------------------------------------------------Volatile Organic Compounds 8260/w Once in 5 yrs 3 (Appendix I & II) capillary column -------------------------------------------------------------------------------Appendix II 8270 Once in 5 yrs 3 Semi-volatile Organics Compounds -------------------------------------------------------------------------------Organophosphorus Pesticides & 8140 w/ Once in 5 yrs 3 PCB's capillary column --------------------------------------------------------------------------------

1

E. RECORDS TO BE MAINTAINED Written reports shall be maintained by the discharger or laboratory, and shall be retained for a minimum of five years. This period of retention shall be extended during the course of any unresolved litigation regarding this discharge or when requested by the Board. Such records shall show the following for each sample: 1. Identity of sample and sample station number. 2. Date and time of sampling. 3. Date and time of analyses, and name of the personal performing the analyses. 4. Complete procedure used, including method of preserving the sample, and the identity and volumes of reagents used where applicable; or reference to standard EPA methods. 5. Calculation of results. 6. Results of analyses, and detection limits for each analysis. F. REPORTS TO BE FILED WITH THE BOARD 1. Written detection monitoring reports shall be filed by the 15th day of the month following the report period. In addition, an annual report shall be filed as indicated in F.3 below. The reports shall be comprised of the following: a. Letter of Transmittal A letter transmitting the essential points in each report should accompany each report. Such a letter shall include a discussion of any requirement violations found during the last report period, and actions taken or planned for correcting the violations. If the discharger has previously submitted a detailed time schedule for correcting requirement violations, a reference to the correspondence transmitting such schedule will be satisfactory. If no violations have occurred in the last report period, this shall be stated in the letter of transmittal. Monitoring reports and the letter transmitting the monitoring reports shall be signed by a principal executive officer at the level of vice president or his duly authorized representative, if such representative is responsible for the overall operation of the facility from which the discharge originates. The letter shall contain a statement by the official, under penalty of perjury, that to the best of the signer's knowledge, the report is true, complete, and correct. b. Each monitoring report shall include a compliance evaluation summary. The summary shall contain: 4

1) A graphic description of the velocity and direction of groundwater flow under/around the waste management unit, based upon the past and present water level elevations and pertinent visual observations. A statistical evaluation of the water quality monitoring data for all groundwater compliance points (As required under Part B (Table 1)). 2) The method and time of water level measurement, the type of pump used for purging, pump placement in the well; method of purging, pumping rate, equipment and methods used to monitor field PH, temperature, and conductivity during purging, calibration of the field equipment, results of the PH, temperature conductivity and turbidity testing, well recovery time, and method of disposing of the purge water. 3) Type of pump used, pump placement for sampling, a detailed description of the sampling procedure; number and description of equipment, field and travel blanks; number and description of duplicate samples; type of sample containers and preservatives used, the date and time of sampling, the name and qualification of the person actually taking the samples, and any other observations. c. A map or aerial photograph shall accompany each report showing observation and monitoring station locations. d. Laboratory statements of results of analyses specified in Part B must be included in each report. The director of the laboratory whose name appears on the laboratory certification shall supervise all analytical work in his/her laboratory and shall sign all reports of such work submitted to the Board. 1) The methods of analyses and detection limits must be appropriate for the expected concentrations. Specific methods of analyses must be identified. If methods other than EPA approved methods or Standard Methods are used, the exact methodology must be submitted for review and approval by the Executive Officer prior to use. 2) In addition to the results of the analyses, laboratory quality assurance/quality control (QA/QC) information must be included in the monitoring report. The laboratory QA/QC information should include the method, equipment and analytical detection limits; the recovery rates; and explanation for any recovery rate that is outside of the normal range specified by the EPA for that method; the results of equipment and method blanks; the results of spiked and surrogate samples; the frequency of quality control analysis; and the name of the person(s) performing the analyses. e. An evaluation of the effectiveness of the leachate-monitoring or control facilities, 5

which includes an evaluation of leachate buildup within the disposal units, a summary of leachate volumes removed from the units, and a discussion of the leachate disposal methods utilized. f. A summary and certification of completion of all standard observations for the waste management unit, the perimeter of the waste management unit, and the receiving waters. g. The quantity and types of wastes disposed of during the past quarter, and the locations of the disposal operations. 2. CONTINGENCY REPORTING a. A report shall be made by telephone of any seepage from the disposal area immediately after it is discovered. A written report shall be filed with the Board within five days thereafter. This report shall contain the following information: 1) a map showing the location(s) of discharge; 2) approximate flow rate; 3) nature of effects; i.e., all pertinent observations and analyses; and 4) corrective measures underway or proposed. b. A report shall be made in writing to the Board within seven days of determining that a statistically significant increase occurred at a point of compliance (between a down gradient sample and a WQPS). Notification shall indicate what WQPS(s) has/have been exceeded. The discharger shall immediately re-sample at the compliance point where this difference has been found and reanalyze. c. If re-sampling and analysis confirms the earlier finding of a statistically significant increase between monitoring results and WQPS(s), the discharger must submit to the Board an amended Report of Waste Discharge as specified in Section 2550.8(k)(5) for establishment of an Evaluation Monitoring Program (EMP) meeting the requirements of Section 2550.9 of Chapter 15. d. Within 180 days of determining statistically significant evidence of a release, submit to the regional board an engineering feasibility study for a Corrective Action Program (CAP) necessary to meet the requirements of Section 2550.10. At a minimum, the feasibility study shall contain a detailed description of the corrective action measures that could be taken to achieve background concentrations for all constituents of concern. 3. REPORTING By January 31 of each year, the discharger shall submit an annual report to the Board 6

covering the previous calendar year. This report shall contain: a. Tabular and graphical summaries of the monitoring data obtained during the previous year; the report should be accompanied by a 5-1/4" or 3-1/2" computer data disk, MS-DOS ASCII format, tabulating the year's data. b. A comprehensive discussion of the compliance record, and the corrective actions taken or planned which may be needed to bring the discharger into full compliance with the waste discharge requirements. c. A map showing the area, if any, in which filling has been completed during the previous calendar year. [Not applicable for this site] d. A written summary of the groundwater analyses indicating any change in the quality of the groundwater. e. An evaluation of the effectiveness of the leachate monitoring/control facilities, which includes an evaluation of leachate buildup within the disposal units, a summary of leachate volumes removed from the units, and a discussion of the leachate disposal methods utilized. 4. WELL LOGS A boring log and a monitoring well construction log shall be submitted for each new sampling well established for this monitoring program, as well as a report of inspection or certification that each well has been constructed in accordance with the construction standards of the Department of Water Resources. These shall be submitted within 30 days after well installation. 7

PART B 1. DESCRIPTION OF OBSERVATION STATIONS AND SCHEDULE OF OBSERVATIONS A. ON-SITE OBSERVATIONS -- Report Semi-annually
STATION V-1 thru V-'n' DESCRIPTION Located on the waste disposal area as delineated by a 500 foot grid network. Located at equidistant intervals not exceeding 1000 feet around the perimeter of the waste management unit. OBSERVATIONS Standard observations for the waste management unit. Standard observations for the perimeter. FREQUENCY Quarterly

P-1 thru P-'n' (perimeter)

Quarterly

A map showing visual and perimeter compliance points (V and P stations) shall be submitted by the discharger in the semi-annually monitoring report. B. GROUNDWATER, LEACHATE AND SURFACE WATER MONITORING REPORT SEMI-ANNUALLY Groundwater, surface water, leachate and seepage monitoring points shall be monitored as outlined below on Table 1 and Table 2 and shown on Figure 1 (Attached). During the wet season (October through April), estimate or calculate the volume of storm water discharge from each outfall and collect and analyze samples of storm water discharge from two storm events during each wet season which produce 8

significant storm water discharge as defined in State Water Resources Control Board Order No. 92-12-DWQ (General Permit for Storm Water Discharges). The samples must be analyzed for: - pH, total suspended solids (TSS), specific conductance, and total organic carbon (TOC). - Toxic chemicals and other pollutants that are likely to be present in storm water discharge in significant quantities.

TABLE 1 MONITORING POINTS FOR EACH MONITORING MEDIUM:
UPGRADIENT MONITORING MEDIA POINTS OF COMPLIANCE WELLS --------------------------------------------Surface Water SW1, SW2, SW3 SW1 ---------------------------------------------------------------------------Groundwater Deep groundwater UPG-1 Monitoring Wells: P-2B, P-1B, MW-1, MW-2. Shallow Groundwater UPG-2 Monitoring Wells: P-8, P7, K-1, P-3, K-3,* K-4, P5, P5-1, K-5, MW-3, MW3-1, MW3-2, S-3A, S4A, P-4, K-2, P-6 ---------------------------------------------------------------------------Leachate *P-2A, P-1A, LW-1, SNot Applicable 1A, S-2, S-5 ----------------------------------------------------------------------------

* Leachate wells are not considered compliance points * K-4 is not a compliance groundwater monitoring well C. FACILITIES MONITORING The discharger shall inspect all facilities to ensure proper and safe operations once per quarter and report quarterly. The facilities to be monitored shall include, but not be limited to: a. Leachate collection and removal systems; b. Surface water monitoring points; c. Shallow and deep groundwater monitoring wells; d. Perimeter diversion channels; e. Leachate wells; 10

I, Steven Ritchie Executive Officer, hereby certify that the foregoing Self-Monitoring Program: 1. Has been developed in accordance with the procedures set forth in this Board's Resolution No. 73-16 in order to obtain data and document compliance with waste discharge requirements established in this Board's Order No. 94-181. 2. Is effective on the date shown below. 3. May be reviewed or modified at any time subsequent to the effective date, upon written notice from the Executive Officer.
/s/ STEVEN R. RITCHIE ---------------------------------------Steven R. Ritchie Executive Officer

Date Ordered: December 14, 1994 Attachments: Figure 1 - Monitoring Points Location Map Table 2 - Discharge Monitoring Plan 11

FIGURE 1 [MONITORING POINTS LOCATION MAP]

EXHIBIT "D" HAZARDOUS MATERIALS REPORTS PROVIDED TO TENANT 1) Applicability of ChemRisk Assessment for the Westport Site, Dated October 1989, to Currently Proposed Site Development Plan - Report dated June 28, 1994, prepared by ChemRisk 2) Draft Supplement Environment Impact Report for Westport Development Project dated October 1989, prepared by McLaren 3) Revised Discharge Monitoring Plan for Westport Landfill Site Dated May 1996 prepared by Geomatrix Consultants

EXHIBIT 16.1 January 31, 2000 Securities and Exchange Commission Mail Stop 11-3 450 5th Street, N.W. Washington, D.C. 20549 Dear Sirs/Madams: We have read and agree with the comments included under "Change in Accountants" of the Registration Statement of Saba Software, Inc. on Form S-1 dated January 31, 2000. Yours truly,
/s/ DELOITTE & TOUCHE LLP

EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated December 16, 1999, except for Note 12, as to which the date is January 28, 2000, in the Registration Statement (Form S-1) and related Prospectus of Saba Software, Inc. for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP Walnut Creek, California January 28, 2000

ARTICLE 5 MULTIPLIER: 1,000

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS BASIC EPS DILUTED

YEAR MAY 31 1999 JUN 01 1998 MAY 31 1999 10,384 0 2,054 124 0 12,436 1,238 116 14,068 4,629 0 0 14 16 8,399 14,068 0 1,939 0 1,264 11,572 133 48 (10,852) 0 (10,852) 0 0 0 (10,852) (0.84) (0.84)

6 MOS MAY 31 2000 JUN 01 1999 NOV 30 1999 29,390 0 7,086 214 0 36,567 3,706 595 40,188 12,612 0 0 20 17 24,924 40,188 0 5,204 0 2,728 20,309 96 73 (17,677) 0 (17,677) 0 0 0 (17,677) (1.26) (1.26)