ARIBA INC, S-1/A, 1999-06-01

ARIBA INC
S-1/A, 1999-06-01
PREPACKAGED SOFTWARE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1999

REGISTRATION NO. 333-76953

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------
ARIBA, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0439730
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>

1314 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
(408) 543-3800

(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
KEITH J. KRACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARIBA, INC.
1314 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
(408) 543-3800

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:

BROOKS STOUGH JEFFREY R. VETTER
CRAIG M. SCHMITZ EDWARD M. URSCHEL
DAVID W. KLING PAMELA A. SERGEEFF
STEVEN P. CHEN Fenwick & West LLP
Gunderson Dettmer Stough Two Palo Alto Square
Villeneuve Franklin & Hachigian, LLP Palo Alto, California 94306
155 Constitution Drive (650) 494-0600
Menlo Park, California 94025
(650) 321-2400

--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______

If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE CHART

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.002 par value per share.... 4,600,000 $18.00 $82,800,000 $23,018.40
</TABLE>

(1) Includes shares that the underwriters have the option to purchase to cover
over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).

(3) $13,900 of the Registration Fee was paid in connection with the original
filing on April 23, 1999.

--------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.

ISSUED JUNE 1, 1999

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>

4,000,000 SHARES

[LOGO]
COMMON STOCK

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

ARIBA, INC. IS OFFERING 4,000,000 SHARES OF COMMON STOCK. THIS IS OUR INITIAL
PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $16 AND $18
PER SHARE.

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

WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "ARBA."

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.

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

PRICE $ A SHARE

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

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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS PROCEEDS TO ARIBA
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ARIBA HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
600,000 SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK TO PURCHASERS ON
, 1999.

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

MORGAN STANLEY DEAN WITTER

BT ALEX. BROWN

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

MERRILL LYNCH & CO.

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

INTERNET DISTRIBUTION OFFERED BY

DISCOVER BROKERAGE DIRECT E*TRADE SECURITIES

, 1999
<PAGE>

EDGAR description of artwork:

This graphic depicts a procurement process utilizing the Ariba ORMS and
Ariba.com network. There is a colored bar running down the left and right sides
of the graphic. The top of the left bar contains the title, "ARIBA ORMS
CUSTOMERS". Underneath this title there is a list of customers: "AMD, AUTODESK,
BRISTOL-MEYERS SQUIBB, CADENCE, CALTEX, CHEVRON, CIBC, CISCO SYSTEMS, CITIZENS,
CYPRESS, EARTHGRAINS, FEDEX, HEWLETT-PACKARD, MERCK, NESTLE, OCTEL, PHILIPS,
SEAGATE, SONOCO, TRANSAMERICA, US WEST, VISA". The top of the right bar contains
the title, "ARIBA SUPPLIER LINK MEMBERS". Underneath this title there is a list
of supplier link members: "1-800-BATTERIES, BARNESANDNOBLE.COM, BEYOND.COM,
BOISE CASCADE, BT OFFICE PRODUCTS, CAP, CHEMDEX, COM-KYL, COMPUCOM SYSTEMS,
CORPORATE EXPRESS, CORT FURNITURE RENTAL, DATA IMPRESSIONS, DELL PRODUCTS,
DIGITAL RIVER, ELECTRO RENT, ELECTRONIC SALES SYSTEMS, FATBRAIN.COM, FLOW
SYSTEMS, GRAND & TOY, HARBINGER, HEWLETT-PACKARD, IMAGEX.COM, INACOM,
INTERWORLD, LIFE TECHNOLOGIES, MICROAGE INTEGRATION, NCR SYSTEMEDIA GROUP,
NEWARK ELECTRONICS, OFFICE DEPOT, PCORDER.COM, REYNOLDS & REYNOLDS, ROWECOM,
SCIQUEST, STAPLES, TELEPRESS, US TECHNOLOGIES, W.W. GRAINGER".

Between the two bars, there is additional text and a graphic. Over the text
and graphic, there is the Ariba logo and the title, "INTERNET-BASED
BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE SOLUTIONS FOR OPERATING RESOURCES".

In the upper left-hand corner of this center section, the text reads: "BUYER
BENEFITS Ariba's business-to-business electronic commerce solution links users
to approvers and organizations to their suppliers of operating resources. Our
intranet-based Ariba ORMS network application enables an organization to
streamline and automate complex and unusual business processes. The Ariba ORMS
browser-based user interface is accessible on every desktop and is easy to use.
Using our Ariba solution, end-users can order and receive requested items more
quickly, improving overall productivity. Ariba ORMS also takes advantage of
existing investments in enterprise systems, reducing the need to manually enter
data into these systems. Ariba ORMS provides corporate-wide data analysis and
reporting tools on buying patterns. With this information, organizations can
negotiate more favorable contracts with preferred suppliers and maximize
procurement economies of scale." In the lower right-hand corner of this center
section, the text reads: "SUPPLIER BENEFITS Our Ariba solution provides
suppliers the opportunity to increase sales volume and revenues and reduce their
sales costs. Our Ariba.com network enables suppliers to utilize existing
electronic commerce systems and to differentiate and market their goods and
services in their preferred formats. Once online, suppliers can realize cost
savings and improved efficiencies resulting from automated transactions and
electronic distribution of product information. Our Ariba.com network provides
suppliers with greater access to new and existing customers through a global
presence and availability 24 hours a day, seven days a week. Ariba ORMS and our
Ariba.com network also enable buyers to channel spending to preferred suppliers,
providing these suppliers the opportunity to increase revenues that might
otherwise be lost to maverick buying."

Between these two sections of text, there is a graphic divided in half by a
line with the word, "Firewall" on it. The left part of the graphic has the
title, "INTRANETS" on top, in large, bold text. The central element of the
Intranet portion of the graphic is a box with the identifying text, "ARIBA ORMS"
appearing underneath. Two lines originate from the ARIBA ORMS box. One leads to
two boxes with the identifying text, "Accounting Systems" appearing underneath.
The other leads to a box with the identifying text, "Human Resource Management
Systems" appearing underneath.

Below the ARIBA ORMS box, there is a computer with the identifying text,
"End-User" appearing underneath. An arrow leads from the End-User computer to
another computer with the identifying text, "Approvers" appearing underneath. An
arrow leads from the Approvers computer to three sheets of paper, with the text,
"Transmit Electronic Purchase Order". An arrow leads from the three sheets of
paper to the ARIBA ORMS box.

A pipe leads from the ARIBA ORMS box, across the Firewall line, to the right
part of the graphic, which is titled, "INTERNET". The pipe leads to three boxes,
with the identifying text, "ARIBA.COM" appearing underneath. An arrow leads from
the ARIBA.COM boxes to three boxes that are set slightly apart from each other,
and each of which has the identifying text, "Suppliers" appearing underneath
them. In addition to the arrow, three lines originate from the ARIBA.COM boxes.
One line goes to each Supplier box. The topmost line has a sheet of paper with
the text, "CTML" under it. The middle line has a sheet of paper with the text,
"EDI" under it. The bottom line has a sheet of paper with the text, "HTML" under
it. An arrow leads from the three supplier boxes to a truck with the word,
"Shipment" under it. An arrow leads from the shipment truck back across the
Firewall line to the End-User computer.

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 5
Special Note Regarding Forward-Looking
Statements................................... 17
Use of Proceeds................................ 18
Dividend Policy................................ 18
Capitalization................................. 19
Dilution....................................... 20
Selected Consolidated Financial Data........... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22

<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 34
Management..................................... 49
Certain Transactions........................... 58
Principal Stockholders......................... 59
Description of Capital Stock................... 61
Shares Eligible for Future Sale................ 64
Underwriters................................... 66
Legal Matters.................................. 68
Experts........................................ 68
Additional Information......................... 68
Index to Consolidated Financial Statements..... F-1
</TABLE>

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

We were incorporated in Delaware on September 17, 1996. Our principal
executive offices are located at 1314 Chesapeake Terrace, Sunnyvale, California
94089, and our telephone number is (408) 543-3800. The information on our web
site is not incorporated by reference into this prospectus.

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.

UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus.

In this prospectus, "Ariba," "we," "us," and "our" refer to Ariba, Inc. and
not to the underwriters. Unless otherwise indicated, all information contained
in this prospectus:

- assumes that the underwriters' over-allotment option is not exercised;

- reflects the 2-for-1 split of the common stock effected in March 1999 and
the 2-for-1 split of the common stock effected in April 1999;

- except as noted in the consolidated financial statements, gives effect to
the conversion of all outstanding shares of preferred stock into
17,845,176 shares of common stock effective upon the closing of this
offering; and

- reflects the exercise of a warrant to purchase 524,400 shares of common
stock prior to the closing of this offering.

2
<PAGE>
PROSPECTUS SUMMARY

YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS.

ARIBA

Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources.
Operating resources are the goods and services required to operate a company,
such as information technology and telecommunications equipment, professional
services, MRO (Maintenance, Repair and Operations) supplies, facilities and
office equipment, and expense items. Operating resources are often the largest
segment of corporate expenditures, representing approximately 33% of an average
company's revenues, according to Killen & Associates.

Today, most organizations buy operating resources through paper-based
processes that have remained largely unautomated by the information technology
advances of the last 30 years. With the recent widespread adoption of internal
computer networks based on the Internet protocol, or "intranets," and the
acceptance of the Internet as a business communications platform, organizations
can now automate enterprise-wide and inter-organizational commerce activities.
As a result, Internet-based business-to-business electronic commerce is expected
to grow rapidly from $43 billion in 1998 to $1.3 trillion in 2003, exceeding
business-to-consumer electronic commerce by a factor of nine to one in 2003,
according to Forrester Research. This market is expected to create a substantial
demand for intranet- and Internet-based commerce applications. According to
International Data Corporation, the worldwide market for Internet-based
electronic commerce procurement and order management applications will
experience tremendous growth, increasing from $187 million in 1998 to $8.5
billion in 2003.

Ariba is pioneering the use of intranets and the Internet to automate the
procurement and management of operating resources. Our Operating Resource
Management System, Ariba ORMS, enables organizations to automate the procurement
cycle within their intranets, lowering the costs associated with operating
resources. Our recently launched Ariba.com network is a global
business-to-business electronic commerce network for operating resources that
enables buyers and suppliers to automate transactions on the Internet. Together,
Ariba ORMS and Ariba.com combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources that benefits both buyers and suppliers. Since
we began marketing Ariba ORMS in March 1997, it has been licensed by large,
multinational industry leaders and public sector organizations including
Chevron, Cisco Systems, FedEx, Hewlett-Packard, Philips, U S WEST and Visa.

Our objective is to create the leading Internet-based business-to-business
electronic commerce network for operating resources. Our strategy to achieve
this objective is to take advantage of the buying power of a large multinational
customer base to attract leading operating resource suppliers to our Ariba.com
network. We believe a growing number of suppliers in our Ariba.com network will
in turn draw more buyers to our network. We also believe this growth cycle will
help create a network effect, where the value to each participant in the network
increases with the addition of each new participant, increasing the overall
value of our Ariba solution.

3
<PAGE>
THE OFFERING

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<S> <C>
Common stock offered............................ 4,000,000 shares
Common stock to be outstanding after this 41,741,396 shares
offering......................................
Use of proceeds................................. For working capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... ARBA
</TABLE>

The foregoing information is based on 37,741,396 shares outstanding as of
March 31, 1999, including 524,400 shares issuable upon exercise of a warrant
that will be exercised prior to the closing of this offering. This information
does not include (1) 8,145,260 shares of common stock subject to outstanding
options under our 1996 stock plan as of March 31, 1999 and (2) 46,544 shares of
common stock issuable upon exercise of outstanding warrants. After March 31,
1999, we granted options to purchase an additional 2,847,144 shares of common
stock. See "Capitalization," "Management--1999 Equity Incentive Plan,"
"--Employee Stock Purchase Plan," "--1999 Directors' Stock Option Plan" and Note
3 of Notes to Consolidated Financial Statements.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER SIX MONTHS ENDED
30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues............................................................ $ 760 $ 8,363 $ 1,215 $ 16,338
Gross profit (loss)....................................................... (180) 6,825 688 13,579
Operating expenses........................................................ 4,772 18,346 6,255 21,894
Loss from operations...................................................... (4,952) (11,521) (5,567) (8,315)
Net loss.................................................................. (4,679) (10,953) (5,299) (8,128)
Basic and diluted net loss per share...................................... $ (7.31) $ (1.90) $ (1.19) $ (.84)
Weighted average shares used in computing basic and diluted net loss per
share................................................................... 640 5,762 4,456 9,694
Pro forma basic and diluted net loss per share............................ (.47) $ (.29)
Shares used in computing pro forma basic and diluted net loss per share... 23,263 28,064
</TABLE>

Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred at the date of original issuance, and the exercise of a
warrant for 524,400 shares of common stock, as if the exercise occurred
immediately after issuance on June 30, 1998.

The following table presents the consolidated balance sheet data of Ariba at
March 31, 1999. The pro forma column in the consolidated balance sheet data
below gives effect to (1) the exercise of a warrant to purchase 524,400 shares
of our common stock immediately prior to this offering at an exercise price of
$3.30 per share and (2) the conversion of each outstanding share of preferred
stock into four shares of common stock upon the closing of this offering. The
pro forma as adjusted data gives effect to the sale of the shares of common
stock that we are offering under this prospectus at an assumed initial public
offering price of $17.00 per share after deducting the estimated underwriting
discounts and commissions and estimated offering expenses. See "Use of Proceeds"
and "Capitalization."

<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..................... $ 21,433 $ 23,163 $ 85,253
Working capital....................................................... 3,843 5,573 67,663
Total assets.......................................................... 35,055 36,785 98,875
Long-term debt, net of current portion................................ 646 646 646
Total stockholders' equity............................................ 7,650 9,380 71,470
</TABLE>

4
<PAGE>
RISK FACTORS

THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR
BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED BY ANY OF THE
FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY
OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

ARIBA IS AN EARLY-STAGE COMPANY. OUR LIMITED OPERATING HISTORY MAKES IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.

Ariba was founded in September 1996 and has a limited operating history. Our
limited operating history makes an evaluation of our future prospects very
difficult. We began shipping our first product, the Ariba Operating Resource
Management System, or Ariba ORMS, in June 1997 and began to operate our
Ariba.com network in April 1999. We will encounter risks and difficulties
frequently encountered by early-stage companies in new and rapidly evolving
markets. Many of these risks are described in more detail in this "Risk Factors"
section. We may not successfully address any of these risks. If we do not
successfully address these risks, our business would be seriously harmed.

THE MARKET FOR OUR SOLUTIONS IS AT AN EARLY STAGE. WE NEED A CRITICAL MASS
OF LARGE BUYING ORGANIZATIONS AND THEIR SUPPLIERS TO IMPLEMENT OUR
SOLUTIONS.

The market for Internet-based operating resource applications and services
is at an early stage of development. Our success depends on a significant number
of large buying organizations implementing Ariba ORMS and linking with suppliers
over the Internet through our Ariba.com network. The implementation of Ariba
ORMS by large buying organizations is complex, time consuming and expensive. In
many cases, these organizations must change established business practices and
conduct business in new ways. Our ability to attract additional customers for
our Ariba ORMS products will depend on using our existing customers as reference
accounts. As of March 31, 1999, only 31 customers had licensed our Ariba ORMS
solution and no customers were buying operating resources through our Ariba.com
network. Accordingly, our operating resource solutions may not achieve
significant market acceptance. Unless a critical mass of large buying
organizations and their suppliers join our Ariba.com network, our solutions may
not achieve widespread market acceptance and our business would be seriously
harmed.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.

We incurred net losses of $4.7 million in fiscal 1997 and $11.0 million in
fiscal 1998. As of March 31, 1999, we had an accumulated deficit of
approximately $23.8 million. We expect to derive substantially all of our
revenues for the foreseeable future from licensing Ariba ORMS. Although these
revenues have grown in recent quarters, we may not be able to sustain these
growth rates. In fact, we may not have any revenue growth, and our revenues
could decline. Over the longer term, we expect to derive revenues from our
Ariba.com network, which is based on an unproven business model. Moreover, we
expect to incur significant sales and marketing, research and development, and
general and administrative expenses. In the future, we expect to incur
substantial non-cash costs relating to the amortization of deferred compensation
which will contribute to our net losses. For example, as of March 31, 1999, we
had recorded an aggregate of $17.9 million of deferred compensation. We expect
to record additional deferred compensation with respect to stock option grants
made during April 1999 of at least $16.0 million. As a result, we expect to
incur significant losses for the foreseeable future. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

5
<PAGE>
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.

Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.

Our quarterly operating results may vary depending on a number of factors,
including:

- Demand for both Ariba ORMS and the Ariba.com network;

- Actions taken by our competitors, including new product introductions and
enhancements;

- Delays or reductions in spending for, or the implementation of,
application software by our potential customers as companies attempt to
stabilize their computer systems prior to January 1, 2000 in order to
reduce the risk of computer system problems associated with the Year 2000;

- Ability to scale our network and operations to support large numbers of
customers, suppliers and transactions;

- Ability to develop, introduce and market new products and enhancements to
our existing products on a timely basis;

- Changes in our pricing policies or those of our competitors;

- Ability to expand our sales and marketing operations, including hiring
additional sales personnel;

- Size and timing of sales of our products and services;

- Success in maintaining and enhancing existing relationships and developing
new relationships with strategic partners, including systems integrators
and other implementation partners;

- Compensation policies that compensate sales personnel based on achieving
annual quotas;

- Ability to control costs;

- Technological changes in our markets;

- Deferrals of customer orders in anticipation of product enhancements or
new products;

- Customer budget cycles and changes in these budget cycles; and

- General economic factors.

Our quarterly revenues are especially subject to fluctuation because they
depend on the sale of a small number of relatively large orders for our Ariba
ORMS products 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. In many cases, we recognize revenues from product
sales on a percentage of completion basis. Accordingly, our ability to recognize
these revenues is subject to delays associated with our customers' ability to
complete the implementation of Ariba ORMS in a timely manner. In some cases, we
recognize revenues on a subscription basis over the life of the subscriptions
specified in the contract, which is typically 12 months. 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 our Ariba.com network. 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

6
<PAGE>
interpreted. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

We plan to increase our operating expenses to expand our sales and marketing
operations, fund greater levels of research and development, develop new
partnerships, make tenant improvements to our new facilities, increase our
professional services and support capabilities and improve our operational and
financial systems. If our revenues do not increase along with these expenses,
our business, operating results and financial condition could be seriously
harmed and net losses in a given quarter could be even larger than expected.

In addition, because our expense levels are relatively fixed in the near
term and are based in part on expectations of our future revenues, any decline
in our revenues to a level that is below our expectations would have a
disproportionately adverse impact on our operating results.

WE EXPECT TO DEPEND ON OUR ARIBA ORMS SOLUTION FOR SUBSTANTIALLY ALL OF OUR
REVENUES FOR THE FORESEEABLE FUTURE.

Our Ariba ORMS products and related services accounted for all of our
revenues in fiscal 1998 and for the six months ended March 31, 1999. We
anticipate that revenues from our Ariba ORMS products and related services will
continue to constitute substantially all of our revenues for the foreseeable
future. Consequently, a decline in the price of, or demand for, our Ariba ORMS
solution, or its failure to achieve broad market acceptance, would seriously
harm our business.

IMPLEMENTATION OF OUR ARIBA ORMS SOLUTION BY LARGE CUSTOMERS IS COMPLEX,
TIME CONSUMING AND EXPENSIVE. WE FREQUENTLY EXPERIENCE LONG SALES AND
IMPLEMENTATION CYCLES.

Ariba ORMS is an enterprise-wide solution that must be deployed with many
users within a buying organization. Its implementation by large buying
organizations is complex, time consuming and expensive. In many cases, our
customers must change established business practices and conduct business in new
ways. In addition, they must generally consider a wide range of other issues
before committing to purchase our product, including product benefits, ease of
installation, ability to work with existing computer systems, ability to support
a larger user base, functionality and reliability. Furthermore, because we are
one of the first companies to offer an Internet-based operating resource
management system, many customers will be addressing these issues for the first
time in the context of managing and procuring operating resources. As a result,
we must educate potential customers on the use and benefits of our products and
services. In addition, we believe that the purchase of our products is often
discretionary and generally involves a significant commitment of capital and
other resources by a customer. It frequently takes several months to finalize a
sale and requires approval at a number of management levels within the customer
organization. The implementation and deployment of our products requires a
significant commitment of resources by our customers and third-party and/or our
professional services organizations. Because we target large customers, our
sales cycles range from four to 24 months and average approximately nine months.

OUR ARIBA.COM NETWORK WAS ONLY RECENTLY INTRODUCED AND IS AT AN EARLY STAGE
OF DEVELOPMENT AND MARKET ACCEPTANCE. WE HAVE NOT ESTABLISHED OUR PRICING
AND REVENUE MODEL FOR OUR ARIBA.COM NETWORK.

We began operating our Ariba.com network in April 1999. As of May 31, 1999,
only one customer was buying operating resources through our Ariba.com network
from a limited number of online suppliers. Broad and timely acceptance of our
Ariba.com network, which is critical to our future success, is subject to a
number of significant risks. These risks include:

- Operating resource management and procurement on the Internet is a new
market;

- Our network's ability to support large numbers of buyers and suppliers is
unproven;

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- Our need to enhance the interface between our Ariba ORMS product and our
Ariba.com network;

- Our need to significantly enhance the features and services of our
Ariba.com network to achieve widespread commercial acceptance of our
network; and

- Our need to significantly expand our internal resources to support planned
growth of our Ariba.com network.

Although we expect to derive a significant portion of our long-term future
revenue from our Ariba.com network, we have not yet established our pricing and
revenue model for the services associated with our Ariba.com network. If we are
unable to establish a pricing and revenue model acceptable to our customers, our
Ariba.com network may not be commercially successful. This would seriously harm
our business, particularly if we experience a decline in the growth or growth
rate of revenues from our Ariba ORMS solution.

WE PLAN TO CONTRACT WITH A THIRD PARTY TO EXPAND, MANAGE AND MAINTAIN THE
COMPUTER AND COMMUNICATIONS EQUIPMENT AND SOFTWARE NEEDED FOR THE DAY-TO-DAY
OPERATIONS OF OUR ARIBA.COM NETWORK.

We plan to contract with a third party to expand, manage and maintain the
computer and communications equipment and software needed for the day-to-day
operations of our Ariba.com network. Services provided by the third party will
likely include managing our Ariba.com network web server, maintaining
communications lines and managing network data centers, which are the locations
on our network where data is stored. We are engaged in discussions with a large
third party to obtain these services but have not entered into a contract with
this party. If we do not contract with this third party, we would have to obtain
similar services from another provider or 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 our Ariba.com
network is successfully completed by a third party, we will be entirely
dependent on that party to manage, maintain and provide security for it.

THE BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE INDUSTRY IS VERY COMPETITIVE
AND WE FACE INTENSE COMPETITION FROM MANY PARTICIPANTS IN THIS INDUSTRY. IF
WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR BUSINESS WILL BE SERIOUSLY
HARMED.

The market for our solution is intensely competitive, evolving and subject
to rapid technological change. We expect the intensity of competition 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 primarily encounter competition
with respect to different aspects of our solution from Captura Software, Clarus,
Commerce One, Concur Technologies, Extensity, GE Information Services,
Intelysis, Netscape Communications and TRADE'ex Electronic Commerce Systems. We
may also encounter competition from several major enterprise software
developers, such as Oracle, PeopleSoft and SAP. In addition, because there are
relatively low barriers to entry in the operating resource management software
market, we expect additional competition from other established and emerging
companies, as the operational resource management software market continues to
develop and expand. For example, third parties that currently help implement
Ariba ORMS could begin to market products and services that compete with our
own. We could also face competition from companies who introduce an
Internet-based operating resource management solution.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources than us, significantly greater name recognition and a larger installed
base of customers. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. In the past, we

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have lost potential customers to competitors for various reasons, including
lower prices and other incentives not matched by us. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We also expect that competition will increase as a
result of industry consolidations.

We may not be able to compete successfully against our current and future
competitors.

WE EXPECT REVENUES FROM ARIBA ORMS TO BE CONCENTRATED IN A RELATIVELY SMALL
NUMBER OF CUSTOMERS.

In fiscal 1998, five customers accounted for more than 10% of our total
revenues and, in the six months ended March 31, 1999, two customers accounted
for more than 10% of our total revenues. We may continue to derive a significant
portion of our revenues from a relatively small number of customers in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

WE RELY ON THIRD PARTIES TO IMPLEMENT ARIBA ORMS.

We rely, and expect to rely increasingly, on a number of third parties to
implement Ariba ORMS at customer sites. If we are unable to establish and
maintain effective, long-term relationships with our implementation providers,
or if these providers do not meet the needs or expectations of our customers,
our business would be seriously harmed. This strategy will also require that we
develop new relationships with additional third-party implementation providers
to provide these services if the number of Ariba ORMS implementations continues
to increase. Our current implementation partners are not contractually required
to continue to help implement Ariba ORMS. As a result of the limited resources
and capacities of many third-party implementation providers, we may be unable to
establish or maintain relationships with third parties having sufficient
resources to provide the necessary implementation services to support our needs.
If these resources are unavailable, we will be required to provide these
services internally, which would significantly limit our ability to meet our
customers' implementation needs. A number of our competitors, including Oracle,
SAP and PeopleSoft, have significantly more well-established relationships with
these third parties and, as a result, these third parties may be more likely to
recommend competitors' products and services rather than our own. In addition,
we cannot control the level and quality of service provided by our current and
future implementation partners.

WE DEPEND ON SUPPLIERS FOR THE SUCCESS OF OUR ARIBA.COM NETWORK.

We expect to depend on suppliers joining our Ariba.com network. Any failure
of suppliers to join our Ariba.com network in sufficient and increasing numbers
would make our network less attractive to buyers and consequently other
suppliers. In order to provide buyers on our Ariba.com network an organized
method for accessing operating resources, we rely on suppliers to maintain
web-based catalogs, indexing services and other content aggregation tools. Our
inability to access and index these catalogs and services would result in our
customers having fewer products and services available to them through our
solution, which would adversely affect the perceived usefulness of our Ariba.com
network.

WE DEPEND ON THE INTRODUCTION OF NEW VERSIONS OF ARIBA ORMS AND ON ENHANCING
THE FUNCTIONALITY AND SERVICES OFFERED BY OUR ARIBA.COM NETWORK.

If we are unable to develop new software products or enhancements to our
existing products on a timely and cost-effective basis, or if new products or
enhancements do not achieve market acceptance, our business would be seriously
harmed. The life cycles of our products are difficult to predict because the
market for our products is new and emerging, and is characterized by rapid
technological change, changing customer needs and evolving industry standards.
The introduction of products employing new technologies and emerging industry
standards could render our existing products or services obsolete and
unmarketable.

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For example, Ariba ORMS is written in the Java computer language. If a new
software language becomes standard in our industry or is considered more robust
than Java, we may need to rewrite Ariba ORMS in another language in order to
remain competitive.

To be successful, our products and services must keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
market acceptance.

In developing new products and services, we may:

- Fail to develop and market products that respond to technological changes
or evolving industry standards in a timely or cost-effective manner;

- Encounter products, capabilities or technologies developed by others that
render our products and services obsolete or noncompetitive or that
shorten the life cycles of our existing products and services;

- Experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and
services; or

- Fail to develop new products and services that adequately meet the
requirements of the marketplace or achieve market acceptance.

IF WE FAIL TO RELEASE OUR PRODUCTS IN A TIMELY MANNER, OR IF OUR PRODUCTS DO
NOT ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS WOULD BE SERIOUSLY HARMED.

We may fail to introduce or deliver new potential offerings on a timely
basis or at all. In the past, we have experienced delays in the commencement of
commercial shipments of our new releases. If new releases or potential new
products are delayed or do not achieve market acceptance, we could experience a
delay or loss of revenues and customer frustration. Customers may delay
purchases of Ariba ORMS in anticipation of future releases. If customers defer
material orders of Ariba ORMS in anticipation of new releases or new product
introductions, our business would be seriously harmed.

NEW VERSIONS AND RELEASES OF ARIBA ORMS MAY CONTAIN ERRORS OR DEFECTS.

Ariba ORMS is complex and, accordingly, may contain undetected errors or
failures when first introduced or as new versions are released. This may result
in loss of, or delay in, market acceptance of our products. We have in the past
discovered software errors in our new releases and new products after their
introduction. In the past, we discovered problems with respect to the ability of
software written in Java to scale to allow for large numbers of concurrent users
of Ariba ORMS. We have experienced delays in release, lost revenues and customer
frustration during the period required to correct these errors. We may in the
future discover errors, including Year 2000 errors and additional scalability
limitations, in new releases or new products after the commencement of
commercial shipments. In addition, a delay in the commercial release of the next
version of Ariba ORMS could also slow the growth of our Ariba.com network.

WE COULD BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS AND THIRD PARTY
LIABILITY CLAIMS RELATED TO PRODUCTS AND SERVICES PURCHASED THROUGH OUR
ARIBA.COM NETWORK.

Our customers use our products and services to manage their operating
resources. Any errors, defects or other performance problems could result in
financial or other damages to our customers. A product liability claim brought
against us, even if not successful, would likely be time consuming and costly
and could seriously harm our business. Although our customer license agreements
typically contain provisions designed to limit our exposure to product liability
claims, existing or future laws or unfavorable judicial decisions could negate
these limitation of liability provisions.

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We plan to have our Ariba.com network provide our customers with indices of
products that can be purchased from suppliers participating in our Ariba.com
network. The law relating to the liability of providers of listings of products
and services sold over the Internet for errors, defects or other performance
problems with respect to those products and services is currently unsettled. We
will not pre-screen the types of products and services that may be purchased
through our Ariba.com network. Some of these products and services could contain
performance or other problems. We may not successfully avoid civil or criminal
liability for problems related to the products and services sold through our
Ariba.com network. Any claims or litigation could still require expenditures in
terms of management time and other resources to defend ourselves. Liability of
this sort could require us to implement measures to reduce our exposure to this
liability, which may require us, among other things, to expend substantial
resources or to discontinue certain product or service offerings or to take
precautions to ensure that certain products and services are not available
through our Ariba.com network.

OUR SUCCESS DEPENDS ON RETAINING OUR CURRENT KEY PERSONNEL AND ATTRACTING
ADDITIONAL KEY PERSONNEL, PARTICULARLY IN THE AREAS OF DIRECT SALES AND
RESEARCH AND DEVELOPMENT.

Our future performance depends on the continued service of our senior
management, product development and sales personnel, in particular Keith Krach,
our President and Chief Executive Officer. None of these persons, including Mr.
Krach, is bound by an employment agreement, and we do not carry key person life
insurance. The loss of the services of one or more of our key personnel could
seriously harm our business. Our future success also depends on our continuing
ability to attract, hire, train and retain a substantial number of highly
skilled managerial, technical, sales, marketing and customer support personnel.
We are particularly dependent on hiring additional personnel to increase our
direct sales and research and development organizations. In addition, new hires
frequently require extensive training before they achieve desired levels of
productivity. Competition for qualified personnel is intense, and we may fail to
retain our key employees or to attract or retain other highly qualified
personnel.

IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY IS INADEQUATE, OUR
COMPETITORS MAY GAIN ACCESS TO OUR TECHNOLOGY, AND WE MAY LOSE CUSTOMERS.

We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.

We license rather than sell Ariba ORMS and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. 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. We cannot assure you that
any of our proprietary rights with respect to our Ariba.com network will be
viable or of value in the future because the validity, enforceability and type
of protection of proprietary rights in Internet-related industries are uncertain
and still evolving.

We have no patents, and none may be issued from our existing patent
application. Our future patents, if any, may be successfully challenged or may
not provide us with any competitive advantages. We may not develop proprietary
products or technologies that are patentable.

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States. Our means of protecting our proprietary rights may not be adequate and
our competitors may independently develop similar technology, duplicate our
products or design around patents issued to us or our other intellectual
property.

There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future, third parties may claim that we or our current or potential
future products infringe their intellectual property. We expect that software
product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business.

We must now, and may in the future have to, license or otherwise obtain
access to intellectual property of third parties. For example, we are currently
dependent on developers' licenses from enterprise resource planning, database,
human resource and other system software vendors in order to ensure compliance
of our Ariba ORMS products with their management systems. We may not be able to
obtain any required third party intellectual property in the future.

IN ORDER TO MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE AND
IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS.

We have recently experienced a period of significant expansion of our
operations that has placed a significant strain upon our management systems and
resources. If we are unable to manage our growth and expansion, our business
will be seriously harmed. In addition, we have recently hired a significant
number of employees and plan to further increase our total headcount. We also
plan to expand the geographic scope of our customer base and operations. This
expansion has resulted and will continue to result in substantial demands on our
management resources. Our ability to compete effectively and to manage future
expansion of our operations, if any, will require us to continue to improve our
financial and management controls, reporting systems and procedures on a timely
basis, and expand, train and manage our employee work force. We are currently
implementing new systems to manage our financial and human resources
infrastructure. We may encounter difficulties in transitioning to the new
enterprise resource planning software system. Even after we implement this
system, our personnel, systems, procedures and controls may be inadequate to
support our future operations.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THE SYSTEMS WE USE ARE NOT YEAR
2000 COMPLIANT OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR
PURCHASING PATTERNS AS A RESULT OF THE YEAR 2000 PROBLEM.

The risks posed by Year 2000 issues could adversely affect our business in a
number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information technology
systems nevertheless could be substantially impaired or cease to operate due to
Year 2000 problems. Additionally, we rely on information technology supplied by
third parties, and our participating sellers also are heavily dependent on
information technology systems and on their own third-party vendor systems. Year
2000 problems experienced by us or any of these third parties could materially
adversely affect our business. Additionally, the Internet could face serious
disruptions arising from the Year 2000 problem.

Many of our customers and potential customers have implemented policies that
prohibit or strongly discourage making changes or additions to their internal
computer systems until after January 1, 2000. We will experience fewer sales if
potential customers who might otherwise purchase our Ariba ORMS product delay
the purchase and implementation of Ariba ORMS until after January 1, 2000 in an
effort to stabilize their internal computer systems in order to cope with the
Year 2000 problem or because their information

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technology budgets have been diverted to address Year 2000 issues. If our
potential customers delay purchasing or implementing Ariba ORMS in preparation
for the Year 2000 problem, our business would be seriously harmed. In addition,
because the revenues from some of our customers are recognized on a percentage
of completion basis, any implementation delays by these customers caused by
their needs to address Year 2000 issues will defer our ability to recognize this
revenue.

We cannot guarantee that any of our participating sellers or other Internet
vendors will be Year 2000 compliant in a timely manner, or that there will not
be significant interoperability problems among information technology systems.
We also cannot guarantee that buyers and suppliers will be able to utilize our
Ariba.com network without serious disruptions arising from the Year 2000
problem. Given the pervasive nature of the Year 2000 problem, we cannot
guarantee that disruptions in other industries and market segments will not
adversely affect our business. Moreover, the costs related to Year 2000
compliance, which thus far have not been material, could ultimately be
significant. In the event that we experience disruptions as a result of the Year
2000 problem, our business could be seriously harmed.

IF WE EXPAND OUR INTERNATIONAL SALES AND MARKETING ACTIVITIES, OUR BUSINESS
WILL BE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.

To be successful, we believe we must expand our international operations and
hire additional international personnel. Therefore, we expect to commit
significant resources to expand our international sales and marketing
activities. If successful, we will be subject to a number of risks associated
with international business activities. These risks generally include:

- Currency exchange rate fluctuations;

- Seasonal fluctuations in purchasing patterns;

- Unexpected changes in regulatory requirements;

- Tariffs, export controls and other trade barriers;

- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;

- Difficulties in managing and staffing international operations;

- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;

- The burdens of complying with a wide variety of foreign laws;

- The risks related to the recent global economic turbulence and adverse
economic circumstances in Asia; and

- Political instability.

WE MAY NEED TO MAKE ACQUISITIONS IN ORDER TO REMAIN COMPETITIVE IN OUR
MARKET. OUR BUSINESS COULD BE ADVERSELY AFFECTED AS A RESULT OF ANY OF THESE
FUTURE ACQUISITIONS.

In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with one or more significant acquisitions in
which the consideration included cash, we could be required to use a substantial
portion of our available cash, including proceeds of this offering, to
consummate any acquisition. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize

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significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our business.

RISKS RELATED TO THE INTERNET INDUSTRY

WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ELECTRONIC
COMMERCE. IF THE USE OF THE INTERNET AND ELECTRONIC COMMERCE DO NOT GROW AS
ANTICIPATED, OUR BUSINESS WILL BE SERIOUSLY HARMED.

Our Ariba.com network depends on the increased acceptance and use of the
Internet as a medium of commerce. Rapid growth in the use of the Internet is a
recent phenomenon. As a result, acceptance and use may not continue to develop
at historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.

Our business would be seriously harmed if:

- Use of the Internet and other online services does not continue to
increase or increases more slowly than expected;

- The technology underlying the Internet and other online services does not
effectively support any expansion that may occur; or

- The Internet and other online services do not create a viable commercial
marketplace, inhibiting the development of electronic commerce and
reducing the need for our products and services.

WE DEPEND ON THE ACCEPTANCE OF THE INTERNET AS A COMMERCIAL MARKETPLACE AND
THIS ACCEPTANCE MAY NOT OCCUR ON A TIMELY BASIS.

The Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons. These include:

- Potentially inadequate development of the necessary communication and
computer network technology, particularly if rapid growth of the Internet
continues;

- Delayed development of enabling technologies and performance improvements;

- Delays in the development or adoption of new standards and protocols; and

- Increased governmental regulation.

SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
ELECTRONIC COMMERCE.

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other web sites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the web for commerce and communications.
Anyone who circumvents our security measures could misappropriate proprietary
information or cause interruptions in our services or operations. The Internet
is a public network, and data is sent over this network from many sources. In
the past, computer viruses, software programs that disable or impair computers,
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our customers or
suppliers, which could disrupt our Ariba.com network or make it inaccessible to
customers or suppliers. We may be required to expend significant capital and
other resources to protect against the threat of security breaches or to
alleviate problems caused by breaches. To the extent that our activities may
involve the storage and

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transmission of proprietary information, such as credit card numbers, security
breaches, could expose us to a risk of loss or litigation and possible
liability. Our security measures may be inadequate to prevent security breaches,
and our business would be harmed if we do not prevent them.

OUR ARIBA.COM NETWORK MAY EXPERIENCE PERFORMANCE PROBLEMS OR DELAYS AS A
RESULT OF HIGH VOLUMES OF TRAFFIC.

Our Ariba.com network is currently operating on a limited basis. If the
volume of traffic on the web site for our Ariba.com network increases, our
Ariba.com network may in the future experience slower response times or other
problems. In addition, users will depend on Internet service providers,
telecommunications companies and the efficient operation of their computer
networks and other computer equipment for access to our Ariba.com network. Each
of these has experienced significant outages in the past and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. Any delays in response time or performance problems could cause users
of our Ariba.com network to perceive this service as not functioning properly
and therefore cause them to use other methods to procure their operating
resources.

INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES
AND OTHER TAXES ON THE SALE OF, OUR PRODUCTS AND SERVICES OR ON PRODUCTS AND
SERVICES PURCHASED THROUGH OUR ARIBA.COM NETWORK.

As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. It is possible that legislation
could expose companies involved in electronic commerce to liability, which could
limit the growth of electronic commerce generally. Legislation could dampen the
growth in Internet usage and decrease its acceptance as a communications and
commercial medium. If enacted, these laws, rules or regulations could limit the
market for our products and services.

We do not collect sales or other similar taxes in respect of goods and
services purchased through our Ariba.com network. However, one or more states
may seek to impose sales tax collection obligations on out-of-state companies
like us that engage in or facilitate electronic commerce. A number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services over the Internet. These proposals, if
adopted, could substantially impair the growth of electronic commerce and could
adversely affect our opportunity to derive financial benefit from such
activities. Moreover, a successful assertion by one or more states or any
foreign country that we should collect sales or other taxes on the exchange of
goods and services through our Ariba.com network could seriously harm our
business.

Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. This
legislation could ultimately be enacted into law or this legislation could
contain a limited time period in which this tax moratorium will apply. In the
event that the tax moratorium is imposed for a limited time period, legislation
could be renewed at the end of this period. Failure to enact or renew this
legislation could allow various states to impose taxes on electronic commerce,
and the imposition of these taxes could seriously harm our business.

RISKS RELATED TO THIS OFFERING

IN THE FUTURE WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN ORDER TO REMAIN
COMPETITIVE IN THE BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE INDUSTRY. THIS
CAPITAL MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL.

We expect the net proceeds from this offering will be sufficient to meet our
working capital and capital expenditure needs for at least the next 12 months.
After that, we may need to raise additional funds and we cannot be certain that
we will be able to obtain additional financing on favorable terms, if at all. If

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we cannot raise funds on acceptable terms, if and when needed, we may not be
able to develop or enhance our products and services, take advantage of future
opportunities, grow our business or respond to competitive pressures or
unanticipated requirements, which could seriously harm our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INVESTORS PURCHASING SHARES IN THIS OFFERING.

Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering. We will negotiate and determine the initial public offering
price with the representatives of the underwriters based on several factors.
This price may vary from the market price of the common stock after the
offering. You may be unable to sell your shares of common stock at or above the
offering price. The market price of the common stock may fluctuate significantly
in response to the following factors, some of which are beyond our control:

- Variations in our quarterly operating results;

- Changes in securities analysts' estimates of our financial performance;

- Changes in market valuations of similar companies;

- Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;

- Loss of a major customer or failure to complete significant license
transactions;

- Additions or departures of key personnel; and

- Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of software and Internet-based
companies.

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK PRICE VOLATILITY.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.

OUR STOCK PRICE COULD BE AFFECTED BY SHARES OF OUR COMMON STOCK BECOMING
AVAILABLE FOR SALE IN THE FUTURE.

Sales of a substantial number of shares of common stock in the public market
after this offering could depress the market price of the common stock and could
impair our ability to raise capital through the sale of additional equity
securities. For a description of shares of our common stock that are available
for future sale, see "Shares Eligible for Future Sale."

PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION.

We expect that the initial public offering price of our common stock will be
substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the initial public offering
price. To the extent these outstanding options are ultimately exercised, there
will be further dilution to investors in this offering. See "Dilution."

16
<PAGE>

WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. See "Description of Capital Stock--Anti-Takeover Effects of
Provisions of our Amended and Restated Certificate of Incorporation and Delaware
Law."

OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
CONTROL ARIBA AND COULD LIMIT THE ABILITY OF OUR OTHER STOCKHOLDERS TO
INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER TRANSACTIONS SUBMITTED
FOR A VOTE OF OUR STOCKHOLDERS.

Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
62.5% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions which could have the effect of delaying or preventing a third party
from acquiring control over us. We plan to reserve up to 10% of the shares
offered in this offering under a directed share program for employees and their
friends and family under which these persons would be able to purchase shares in
this offering at the initial public offering price. This could have the effect
of delaying or preventing a change of control of Ariba. See "Principal
Stockholders."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.

17
<PAGE>
USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock we are offering will be approximately $62.1 million, or $71.6
million if the underwriters exercise their over-allotment option in full, at an
assumed initial public offering price of $17.00 per share, after deducting
underwriting discounts and commissions and after deducting estimated offering
expenses payable by Ariba. The primary purposes of this offering are to obtain
additional equity capital, create a public market for our common stock and
facilitate future access to public markets.

We intend to use the net proceeds we receive from the offering for working
capital and general corporate purposes. Although we may use a portion of the net
proceeds to acquire technology or businesses that are complementary to our
business, there are no current plans in this regard. Pending their use, we plan
to invest the net proceeds in short-term, interest-bearing, investment grade
securities.

DIVIDEND POLICY

We have not paid any cash dividends since our inception and do not intend to
pay any cash dividends in the foreseeable future.

18
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of March 31, 1999. The
pro forma information reflects (1) the conversion of all shares of convertible
preferred stock outstanding as of March 31, 1999 into 17,845,176 shares of
common stock on completion of this offering and (2) the exercise of a warrant to
purchase 524,400 shares of common stock at an exercise price of $3.30. The as
adjusted information reflects the foregoing as well as the sale of the shares of
common stock in this offering, at an assumed initial public offering price of
$17.00 per share and the receipt of the net proceeds from the sale of common
stock after deducting the estimated expenses and underwriting discounts and
commissions payable by Ariba.

The outstanding share information excludes:

- 8,145,260 shares of common stock issuable on exercise of outstanding
options as of March 31, 1999 with a weighted average exercise price of
$2.00 per share;

- 46,544 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $3.18 per share;

- 1,340,700 shares of stock reserved for issuance under our stock plan as of
March 31, 1999;

- 2,600,000 shares of stock reserved for issuance under our stock plan
subsequent to March 31, 1999; and

- 6,900,000 shares of stock reserved for issuance under stock plans which
will become effective upon the closing of this offering.

You should read this table with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes. See "Use of Proceeds" and "Management--1999
Equity Incentive Plan," "--Employee Stock Purchase Plan," and "--1999 Directors'
Stock Option Plan."

<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Long-term liabilities, less current portion.......................... $ 646 $ 646 $ 646
Stockholders' equity:
Convertible preferred stock, $.002 par value per share,
actual--10,000,000 shares authorized, 4,461,294 shares issued and
outstanding; pro forma and as adjusted-- 20,000,000 shares
authorized, no shares issued and outstanding..................... 9 -- --
Common stock, $.002 par value per share, actual--
80,000,000 shares authorized, 19,371,820 shares issued and
outstanding; pro forma--200,000,000 shares authorized, 37,741,396
shares issued and outstanding; as adjusted-- 200,000,000 shares
authorized, 41,741,396 shares issued and outstanding............. 39 75 83
Additional paid-in capital......................................... 49,339 51,042 113,124
Deferred stock-based compensation.................................. (17,942) (17,942) (17,942)
Accumulated other comprehensive loss............................... (35) (35) (35)
Accumulated deficit................................................ (23,760) (23,760) (23,760)
---------- ----------- -----------
Total stockholders' equity....................................... 7,650 9,380 71,470
---------- ----------- -----------
Total capitalization........................................... $ 8,296 $ 10,026 $ 72,116
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

19
<PAGE>
DILUTION

The pro forma net tangible book value of our common stock as of March 31,
1999 was $9.4 million or approximately $.25 per share. Pro forma net tangible
book value per share represents the amount of our stockholders' equity, less
intangible assets, divided by 37,741,396 shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this offering and the
exercise of a warrant to purchase 524,400 shares of common stock at an exercise
price of $3.30.

Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering made hereby and the pro forma net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to the sale by us of 4,000,000 shares of common stock in this
offering at an assumed initial offering price of $17.00 per share, and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses and the application of the estimated net proceeds, our pro
forma net tangible book value as of March 31, 1999, would have been $71.5
million, or $1.71 per share. This represents an immediate increase in net
tangible book value of $1.46 per share to existing stockholders and an immediate
dilution in net tangible book value of $15.29 per share to purchasers of common
stock in this offering, as illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 17.00
---------
Pro forma net tangible book value per share as of March 31, 1999.......... $ .25
---------
Increase per share attributable to new investors.......................... 1.46
---------
Pro forma net tangible book value per share after this offering............. 1.71
---------
Net tangible book value dilution per share to new investors................. $ 15.29
---------
---------
</TABLE>

The following table sets forth, on a pro forma basis, as of March 31, 1999,
the number of shares of common stock, purchased from Ariba, the total
consideration paid or to be paid, and the average price per share paid or to be
paid by existing stockholders and by new investors of an assumed initial
offering price of $17.00 per share, before deducting the estimated expenses and
underwriting discounts and commissions payable by Ariba:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 37,741,396 90.4% $ 27,579,000 28.9% $ .73
New stockholders............................... 4,000,000 9.6 68,000,000 71.1 17.00
------------ --------- ------------- ---------
Total...................................... 41,741,396 100.0% $ 95,579,000 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>

As of March 31, 1999, there were options outstanding to purchase a total of
8,145,260 shares of common stock at a weighted average exercise price of $2.00
per share under our 1996 Stock Plan and 1,340,700 were reserved for future
issuance. In addition, as of March 31, 1999, there were outstanding warrants to
purchase a total of 570,944 shares of common stock at a weighted average
exercise price of $3.29 per share, 524,400 of which will be exercised prior to
the closing of this offering. After March 31, 1999, we increased the number of
shares reserved for issuance under our 1996 Stock Plan by 2,600,000 shares and
granted options to purchase an additional 2,847,144 shares of common stock. To
the extent outstanding options or warrants are exercised, there will be further
dilution to new investors. See Note 3 of Notes to Consolidated Financial
Statements.

20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to the
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included elsewhere in
this prospectus. The consolidated statement of operations data for each of the
two years in the period ended September 30, 1998, and the consolidated balance
sheet data at September 30, 1997 and 1998, are derived from our consolidated
financial statements that have been audited by KPMG LLP, independent auditors,
and are included elsewhere in this prospectus. The consolidated balance sheet
data as of March 31, 1999 and the consolidated statement of operations data for
the six months ended March 31, 1998 and 1999 are derived from unaudited
consolidated financial statements included elsewhere in this prospectus and
include, in the opinion of management, all adjustments consisting only of normal
recurring adjustments, that we consider necessary for the fair presentation of
our financial position and results of operations for those periods. Activity for
the period from September 17, 1996 (inception) to September 30, 1996 consisted
of the sale of common stock and preferred stock for approximately $6.0 million
and earned interest of approximately $1,000 on this amount.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.................................................................. $ 630 $ 6,040 $ 807 $ 10,500
Maintenance and service.................................................. 130 2,323 408 5,838
--------- --------- --------- ---------
Total revenues......................................................... 760 8,363 1,215 16,338
--------- --------- --------- ---------
Cost of revenues:
License.................................................................. 13 165 17 250
Maintenance and service.................................................. 927 1,373 510 2,509
--------- --------- --------- ---------
Total cost of revenues................................................. 940 1,538 527 2,759
--------- --------- --------- ---------
Gross profit (loss)........................................................ (180) 6,825 688 13,579
--------- --------- --------- ---------
Operating expenses:
Sales and marketing...................................................... 2,235 10,311 3,333 11,302
Research and development................................................. 1,899 4,499 1,963 3,849
General and administrative............................................... 588 2,580 880 2,698
Amortization of stock-based compensation................................. 50 956 79 4,045
--------- --------- --------- ---------
Total operating expenses............................................... 4,772 18,346 6,255 21,894
--------- --------- --------- ---------
Loss from operations....................................................... (4,952) (11,521) (5,567) (8,315)
Other income, net.......................................................... 273 568 268 187
--------- --------- --------- ---------
Net loss................................................................... $ (4,679) $ (10,953) $ (5,299) $ (8,128)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss per share....................................... $ (7.31) $ (1.90) $ (1.19) $ (.84)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares used in computing basic and diluted net loss per
share(1)................................................................. 640 5,762 4,456 9,694
--------- --------- --------- ---------
--------- --------- --------- ---------
Pro forma basic and diluted net loss per share............................. (.47) $ (.29)
--------- ---------
--------- ---------
Shares used in computing pro forma basic and diluted net loss per
share(2)................................................................. 23,263 28,064
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................................. $ 15,471 $ 13,932 $ 21,433
Working capital.................................................................... 13,685 8,151 3,843
Total assets....................................................................... 16,800 19,242 35,055
Long-term liabilities.............................................................. 140 647 646
Accumulated deficit................................................................ (4,679) (15,632) (23,760)
Total stockholders' equity......................................................... 14,517 9,959 7,650
</TABLE>

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

(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used to compute basic and
diluted net loss per share.

(2) Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of our convertible preferred stock to common
stock, as if the conversion occurred at the date of original issuance and
the exercise of a warrant for 524,400 shares of common stock, as if the
exercise occurred immediately after issuance on June 30, 1998.

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF ARIBA SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND ARIBA'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.

OVERVIEW

Ariba is a leading provider of intranet- and Internet-based business to
business electronic commerce solutions for operating resources. We were founded
in September 1996 and from that date through March 1997 were in the development
stage, conducting research and developing our initial products. In March 1997,
we began selling our Ariba ORMS products and related services and currently sell
them primarily in the United States, and to a lesser extent in Europe, through
our direct sales force.

Through March 31, 1999, our revenues have been principally derived from
licenses of our Ariba ORMS products, maintenance and support contracts and from
the delivery of implementation consulting and training services. Customers who
license our Ariba ORMS products also generally purchase maintenance contracts
which provide software upgrades and technical support over a stated term, which
is usually a twelve month period. Customers may purchase implementation services
from us, but we expect to increasingly rely on third-party consulting
organizations to deliver these services directly to our customers. We also offer
fee-based training services to our customers.

On October 1, 1997, we adopted Statement of Position, or SOP, 97-2, SOFTWARE
REVENUE RECOGNITION, which supersedes SOP 91-1, SOFTWARE REVENUE RECOGNITION.
The adoption of SOP 97-2 did not have a material effect on our operating
results. SOP 97-2 generally requires revenues earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. Revenue allocated to software licenses is
generally recognized upon delivery of the products or ratably over a contractual
period if unspecified software products are to be delivered during that period.
Starting in fiscal 1999, our standard license agreement provides customers the
right to future unspecified software licenses. Accordingly, payments received
from our customers upon the signing of these license agreements are deferred,
and the revenue is recognized ratably over the contract period. Revenue
allocated to maintenance is recognized ratably over the maintenance term and
revenue allocated to training and other service elements is recognized as the
services are performed.

When we manage the implementation process for our customers, the services
are considered essential to the functionality of the software products.
Accordingly, both the software license revenue and service revenue is recognized
using the percentage of completion method in accordance with the provisions of
SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE AND CERTAIN PRODUCTION
TYPE CONTRACTS. The implementation of our products can take several months or
more depending on the objectives of the customers, the complexity of the
customers' information technology environments and the resources directed by the
customers to the implementation projects.

Customers who license our software products receive a server capacity
license, one or more of the Ariba ORMS modules and adapters to interface with
financial, human resource and other existing enterprise systems. The fee for the
server capacity license is based on the customer's estimated annual volume of
line items of purchasing transactions. The license fees for the software modules
and adapters consist of individual prices for each module or adapter.

The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of our Ariba ORMS products to their needs. The
server capacity license entitles customers to execute the

22
<PAGE>
licensed volume of line items of purchasing transactions during any annual
period following their purchase of the server license. Ariba's customers
generally purchase estimated server capacity at the time of the purchase of the
server license. Following the initial implementation of Ariba ORMS, and based on
the reporting and analysis tools available through Ariba ORMS, our customers are
able to understand their annual transaction volume more fully. Customers who
exceed their estimated volume can purchase additional server capacity. However,
there are no recurring annual license fees. To date, three customers have
purchased additional annual server capacity licenses.

Our cost of license revenues include royalties due to third parties for
integrated technology, the cost of manuals and product documentation, production
media used to deliver our products and shipping costs, including the costs
associated with the electronic transmission of software to new customers. Our
cost of maintenance and service revenues includes salaries and related expenses
for our customer support, implementation and training services organizations,
costs of third parties contracted to provide consulting services to customers
and an allocation of our facilities, communications and depreciation expenses.

Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. We
classify all charges to these operating expense categories based on the nature
of the expenditures. Although each category includes expenses that are unique to
the category type, there are commonly recurring expenditures that are typically
included in these categories in our operating expenses, such as salaries,
employee benefits, incentive compensation, bonuses, sales commissions, travel
and entertainment costs, telephone, communication, rent and facilities costs,
and third-party professional services fees. The sales and marketing category of
operating expenses includes expenditures specific to the marketing group, such
as public relations and advertising, trade shows, marketing collateral materials
and customer advisory council meetings.

We allocate the total costs for overhead and facilities to each of the
functional areas that use the overhead and facilities services based on their
headcount. These allocated charges include facility rent for the corporate
office, communication charges and depreciation expense for office furniture and
equipment.

In connection with the granting of stock options to our employees, we
recorded deferred stock-based compensation totaling approximately $22.4 million
as of March 31, 1999. This amount represents the difference between the exercise
price and the deemed fair value of our common stock for accounting purposes on
the date these stock options were granted. This amount is included as a
component of stockholders' equity and is being amortized on an accelerated basis
by charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board Interpretation No.
28. During fiscal 1998, we recorded $830,000 of stock-based compensation
amortization expense and, during the six months ended March 31, 1999, we
recorded $3.9 million of stock-based compensation amortization expense. For
example, as of March 31, 1999, we had recorded an aggregate of $17.9 million of
deferred compensation. We expect to record additional deferred compensation with
respect to stock option grants made during April 1999 of at least $16.0 million.
The amortization of the remaining deferred stock-based compensation will result
in additional charges to operations through fiscal 2003. The amortization of
stock-based compensation is classified as a separate component of operating
expenses in our consolidated statement of operations.

Although revenues consistently increased from quarter to quarter, we
incurred significant costs to develop our technology and products and to recruit
and train personnel for our engineering, sales, marketing, professional services
and administration departments. As a result, we incurred significant losses
since inception, and, as of March 31, 1999, had an accumulated deficit of $23.8
million. We believe our success is contingent on increasing our customer base,
developing our Ariba ORMS products and developing our Ariba.com network. We
intend to continue to invest heavily in sales, marketing and research and
development. We therefore expect to continue to incur substantial operating
losses for the foreseeable future.

23
<PAGE>
We had 232 full-time employees as of March 31, 1999 and 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
and increased demand, we must invest in and implement 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.

Our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of
operating results should not be relied upon as predictive of future performance.
The 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. We may not be
successful in addressing such risks and difficulties. Although we have
experienced significant percentage growth in revenues in recent periods, we do
not believe that prior growth rates are sustainable or indicative of future
operating results.

24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following tables set forth consolidated statement of operations data for
each of the six quarters ended March 31, 1999, as well as the percentage of our
total revenues represented by each item. This information has been derived from
our unaudited consolidated financial statements. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements contained in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information. You should read this
information in conjunction with our annual audited consolidated financial
statements and related notes appearing elsewhere in this prospectus. You should
not draw any conclusions about our future results from the results of operations
for any quarter.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License....................................................... $ 362 $ 445 $ 1,693 $ 3,540 $ 4,827 $ 5,673
Maintenance and service....................................... 126 282 770 1,145 2,025 3,813
-------- -------- -------- --------- -------- ---------
Total revenues.............................................. 488 727 2,463 4,685 6,852 9,486
-------- -------- -------- --------- -------- ---------
Cost of revenues:
License....................................................... 4 13 87 61 53 197
Maintenance and service....................................... 333 177 362 501 902 1,607
-------- -------- -------- --------- -------- ---------
Total cost of revenues...................................... 337 190 449 562 955 1,804
-------- -------- -------- --------- -------- ---------
Gross profit.................................................... 151 537 2,014 4,123 5,897 7,682
Operating expenses:
Sales and marketing........................................... 1,521 1,812 3,040 3,938 4,399 6,903
Research and development...................................... 919 1,044 1,197 1,339 1,649 2,200
General and administrative.................................... 392 488 551 1,149 1,201 1,497
Amortization of stock-based compensation...................... 13 66 404 473 1,113 2,932
-------- -------- -------- --------- -------- ---------
Total operating expenses.................................... 2,845 3,410 5,192 6,899 8,362 13,532
-------- -------- -------- --------- -------- ---------
Loss from operations............................................ (2,694) (2,873) (3,178) (2,776) (2,465) (5,850)
Other income, net............................................... 174 94 151 149 106 81
-------- -------- -------- --------- -------- ---------
Net loss........................................................ $(2,520) $(2,779) $(3,027) $(2,627) $(2,359) $(5,769)
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
</TABLE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License....................................................... 74.2% 61.2% 68.7% 75.6% 70.4% 59.8%
Maintenance and service....................................... 25.8 38.8 31.3 24.4 29.6 40.2
-------- -------- -------- --------- -------- ---------
Total revenues.............................................. 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- --------- -------- ---------
Cost of revenues:
License....................................................... .8 1.8 3.5 1.3 .8 2.1
Maintenance and service....................................... 68.2 24.4 14.7 10.7 13.2 16.9
-------- -------- -------- --------- -------- ---------
Total cost of revenues...................................... 69.1 26.2 18.2 12.0 13.9 19.1
-------- -------- -------- --------- -------- ---------
Gross profit.................................................... 31.0 73.8 81.8 88.0 86.1 80.9
Operating expenses:
Sales and marketing........................................... 311.7 249.2 123.4 84.1 64.2 72.8
Research and development...................................... 188.3 143.6 48.6 28.6 24.1 23.2
General and administrative.................................... 80.3 67.1 22.4 24.5 17.5 15.8
Amortization of stock-based compensation...................... 2.7 9.1 16.4 10.1 16.2 30.9
-------- -------- -------- --------- -------- ---------
Total operating expenses.................................... 583.0 469.0 210.8 147.3 122.0 142.7
-------- -------- -------- --------- -------- ---------
Loss from operations............................................ (552.0) (395.2) (129.0) (59.3) (36.1) (61.8)
Other income, net............................................... 35.7 12.9 6.1 3.2 1.5 .9
-------- -------- -------- --------- -------- ---------
Net loss........................................................ (516.3)% (382.3)% (122.9)% (56.1)% (34.4)% (60.8)%
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
</TABLE>

25
<PAGE>
Our quarterly operating results are expected to vary significantly from
quarter to quarter and are difficult or impossible to predict.

SIX QUARTERS ENDED MARCH 31, 1999

REVENUES

LICENSE. Our license revenues increased in each of the six quarters ended
March 31, 1999. During this period of time we grew our total sales headcount
from 23 to 55. This contributed to an increase in the number of customers from 5
to 31 and led to increases in license revenues from the sale of our Ariba ORMS
products.

MAINTENANCE AND SERVICE. Our maintenance and service revenues also
increased in each of the six quarters ended March 31, 1999. During this period
of time we were directly involved in the implementation process at most of our
initial customers' locations and were involved in an advisory capacity with all
of our new customers. Our service revenues grew as the number of active
implementations increased during this six quarter period. Our maintenance
revenues grew in each quarter during the six quarters ended March 31, 1999, as
the revenues from the maintenance contracts that we sold to our growing customer
base were recognized over the period of the maintenance contracts.

COST OF REVENUES

LICENSE. We integrate certain technology into our Ariba ORMS products that
is developed by third party software developers. As our products are shipped to
customers, we incur royalty costs payable to these developers. Beginning in the
quarter ended March 31, 1998, we began to incur these costs, which grew from
$13,000 during that quarter to $197,000 during the quarter ended March 31, 1999.
In the second quarter of fiscal 1998, we licensed certain report writing
technology from a third-party software developer. This technology was integrated
into our product releases and product upgrades beginning in June 1998. At that
time, we shipped upgrades with this new technology to all of our previous
customers and incurred royalty costs for those shipments. As a result, our cost
of license revenues in the third quarter of fiscal 1998 was higher than the
fourth quarter of that year.

MAINTENANCE AND SERVICE. Beginning in the second quarter of fiscal 1997, we
began to hire implementation and technical support personnel. In each subsequent
quarter, we hired additional implementation and technical support personnel. In
the third quarter of fiscal 1998, we began to hire training personnel to provide
training services to customers and third-party implementation partners. During
the six quarters ended March 31, 1999, our implementation, technical support and
training personnel grew from 13 to 50. The personnel costs associated with this
headcount grew from $282,000 during the quarter ended December 31, 1997 to $1.4
million during the quarter ended March 31, 1999.

GROSS PROFIT

Our gross profit increased in each of the six quarters ended March 31, 1999.
The increases were primarily due to the increase in our customer base and the
incremental amounts of revenues that were recognized in each quarter.

OPERATING EXPENSES

SALES AND MARKETING. Our sales and marketing expenses increased in each of
the six quarters ended March 31, 1999. The increases are primarily attributable
to increased sales commissions, expanded marketing programs for trade shows and
customer advisory council meetings, the expansion of our regional sales office
and international subsidiary locations, and the hiring of additional marketing
and sales personnel. During this period of time our sales and marketing
personnel costs grew from $979,000 to $5.5 million, our sales and marketing
travel and entertainment costs grew from $191,000 to $342,000 and our sales and
marketing facility and office costs grew from $283,000 to $536,000.

26
<PAGE>

RESEARCH AND DEVELOPMENT. Our research and development expenses
consistently increased in each quarter during the six quarters ended March 31,
1999. Personnel costs are the largest component of this expense category and
grew from $604,000 during the quarter ended December 31, 1997 to $1.8 million
during the quarter ended March 31, 1999. During this period of time, we have
consistently increased the number of research and development personnel to
develop subsequent releases of our Ariba ORMS products. We primarily hire these
people from Silicon Valley. The market for qualified people in this area is
competitive, and costs associated with finding and retaining qualified personnel
are high. The increased number of personnel and the increased cost per person
have contributed to our consistent increases in research and development
expenses.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in each of the six quarters ended March 31, 1999, as a result of the addition of
finance, information technology, legal and administrative personnel and the
purchase and implementation of our financial and human resource system
infrastructure. During this period of time our general and administrative
personnel costs grew from $262,000 to $852,000 and our professional services
costs grew from $90,000 to $365,000.

RESULTS OF OPERATIONS

Our activities for the period from September 17, 1996 (inception) to
September 30, 1996 consisted of the sale of common stock and preferred stock for
approximately $6.0 million and earned interest of approximately $1,000 on this
amount. Accordingly we have reflected this activity in our fiscal 1997 results.
If we had separately reflected our fiscal 1996 results, interest expense would
have been $1,000 less than reflected in our fiscal 1997 results. The following
table sets forth consolidated statement of operations data for each of the
comparative periods indicated as a percentage of total revenues.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
License............................................................... 82.9% 72.2% 66.4% 64.3%
Maintenance and service............................................... 17.1 27.8 33.6 35.7
--------- --------- --------- ---------
Total revenues...................................................... 100.0 100.0 100.0 100.0
--------- --------- --------- ---------
Cost of revenues:
License............................................................... 1.7 2.0 1.4 1.5
Maintenance and service............................................... 122.0 16.4 42.0 15.4
--------- --------- --------- ---------
Total cost of revenues.............................................. 123.7 18.4 43.4 16.9
--------- --------- --------- ---------
Gross profit (loss)..................................................... (23.7) 81.6 56.6 83.1
Operating expenses:
Sales and marketing................................................... 294.1 123.3 274.3 69.2
Research and development.............................................. 249.8 53.8 161.6 23.6
General and administrative............................................ 77.4 30.9 72.4 16.5
Amortization of stock-based compensation.............................. 6.6 11.4 6.5 24.8
--------- --------- --------- ---------
Total operating expenses............................................ 627.9 219.4 514.8 134.0
--------- --------- --------- ---------
Loss from operations.................................................... (651.6) (137.8) (458.2) (50.9)
Other income, net....................................................... 35.9 6.8 22.1 1.1
--------- --------- --------- ---------
Net loss................................................................ (615.7)% (131.0)% (436.1)% (49.8)%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

27
<PAGE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1999

REVENUES

LICENSE. License revenues increased from $807,000 for the six months ended
March 31, 1998 to $10.5 million for the six months ended March 31, 1999. This
increase is primarily attributable to an increase in sales to new customers
resulting from increased headcount in our sales force and, to a lesser extent,
the commencement of international operations. Sales to new customers accounted
for license revenues of $10.3 million for the six months ended March 31, 1999,
which includes $1.2 million of license revenues from international operations.
Total headcount in our sales department increased from 24 people at March 31,
1998 to 55 people at March 31, 1999.

MAINTENANCE AND SERVICE. Maintenance and service revenues increased from
$408,000 for the six months ended March 31, 1998 to $5.8 million for the six
months ended March 31, 1999. This increase is attributable to the increased
licensing activity described above, which has resulted in increased revenues
from customer implementations and maintenance contracts.

During the six months ended March 31, 1998, six customers accounted for more
than 10% of total revenues, and, in the six months ended March 31, 1999, two
customers accounted for more than 10% of revenues. Revenues from international
sales were insignificant for the six months ended March 31, 1998 and $1.1
million for the six months ended March 31, 1999. Our international revenues
during the six months ended March 31, 1999 were derived from sales in Canada and
The Netherlands.

COST OF REVENUES

LICENSE. Cost of license revenues increased from $17,000 for the six months
ended March 31, 1998 to $250,000 for the six months ended March 31, 1999. This
increase in the cost of license revenues is primarily attributable to royalties
and, to a lesser extent, packaging costs for shipments to new customers and
shipments of product updates to existing customers. Royalties increased from
$13,000 for the six months ended March 31, 1998 to $249,000 for the six months
ended March 31, 1999.

MAINTENANCE AND SERVICE. Cost of maintenance and service revenues increased
from $510,000 for the six months ended March 31, 1998 to $2.5 million for the
six months ended March 31, 1999. This increase is primarily attributable to
increases in the number of implementation, training and technical support
personnel, which increased from 13 people at March 31, 1998 to 50 people at
March 31, 1999.

GROSS PROFIT

Gross profit increased from $688,000 for the six months ended March 31, 1998
to $13.6 million for the six months ended March 31, 1999. The increase is
attributable to the growth in our customer base, which contributed to increased
revenues from software licenses, implementation and maintenance services.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses increased from $3.3
million for the six months ended March 31, 1998 to $11.3 million for the six
months ended March 31, 1999. The increase in the total amount of sales and
marketing expenses is attributable to increased sales commissions, an increase
in the number of sales and marketing employees and increases in marketing
program spending. Expenses relating to sales and marketing personnel, including
sales commissions, increased from $2.1 million for the six months ended March
31, 1998 to $8.8 million for the six months ended March 31, 1999. Marketing
program spending increased from $230,000 for the six months ended March 31, 1998
to $1.2 million for the six months ended March 31, 1999. We believe these
expenses will continue to increase in absolute dollar amounts in future periods
as we expect to continue to expand our sales and marketing efforts.

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<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$2.0 million for the six months ended March 31, 1998 to $3.8 million for the six
months ended March 31, 1999. The increase in the total amount of research and
development expenses is attributable to increases in the number of research and
development personnel. 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,
as a result, we expect research and development expenses to increase
significantly in future periods.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $880,000 for the six months ended March 31, 1998 to $2.7 million for the
six months ended March 31, 1999. This increase is primarily attributable to the
increase in the number of administrative personnel and professional services
fees, and, to a lesser extent, to increased communication costs, particularly to
remote offices, the implementation costs to install our financial and human
resource systems and increased facility costs. Expenses relating to general and
administrative personnel increased from $640,000 for the six months ended March
31, 1998 to $1.5 million for the six months ended March 31, 1999. Professional
services fees increased from $163,000 for the six months ended March 31, 1998 to
$683,000 for the six months ended March 31, 1999. We believe general and
administrative expenses will increase in absolute dollars, as we expect to add
personnel to support our expanding operations, incur additional costs related to
the growth of our business, and assume the responsibilities of a public company.

OTHER INCOME, NET

Other income, net consists of interest income, interest expense and other
non-operating expenses and decreased from $268,000 for the six months ended
March 31, 1998 to $187,000 for the six months ended March 31, 1999. This
decrease is attributable to increases in interest expense during the six months
ended March 31, 1999 over the same period in the previous year. This interest
expense results from capital equipment loans used to purchase computer equipment
and office furniture and equipment.

FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1998

REVENUES

LICENSE. License revenues increased from $630,000 in fiscal 1997 to $6.0
million in fiscal 1998. This increase is primarily attributable to an increase
in sales to new customers resulting from increased headcount in our sales force.
Sales to new customers accounted for license revenues of $5.5 million for fiscal
1998. Total headcount in our sales department increased from 15 people at
September 30, 1997 to 35 people at September 30, 1998. During fiscal 1997, three
customers accounted for more than 10% of total revenues and during fiscal 1998,
five customers accounted for more than 10% of total revenues.

MAINTENANCE AND SERVICE. Maintenance and service revenues increased from
$130,000 in fiscal 1997 to $2.3 million in fiscal 1998. During this period of
time our total implementation personnel resources grew from 10 to 21. As these
resources grew, our implementation revenue increased because these resources
were providing implementation services at existing and new customers. Our
maintenance revenue also increased during this period of time as our customer
base increased.

COST OF REVENUES

LICENSE. Cost of license revenues increased from $13,000 in fiscal 1997 to
$165,000 in fiscal 1998. This increase in the cost of license revenues is
primarily attributable to royalties and, to a lesser extent, packaging costs for
shipments to new customers and shipments of product updates to existing
customers. After paying no royalties in fiscal 1997, we paid $154,000 in
royalties in fiscal 1998.

MAINTENANCE AND SERVICE. Cost of maintenance and service revenues increased
from $927,000 in fiscal 1997 to $1.4 million in fiscal 1998. This increase is
primarily attributable to increases in the number of

29
<PAGE>

implementation, training and technical support personnel, which increased from
12 people at September 30, 1997 to 26 people at September 30, 1998.

GROSS PROFIT

We incurred a gross loss of $180,000 in fiscal 1997, and we earned a gross
profit of $6.8 million in fiscal 1998. This increase is attributable to a
greater amount of revenues from our growing customer base and the accrual of
anticipated losses from implementation projects in fiscal 1997 and in the first
quarter of fiscal 1998. During this period of time we entered into fixed-fee
implementation service contracts with certain customers. Fixed-fee
implementation projects can be unprofitable because of the scope of the work and
the amount of changes that can occur after the project begins. In accordance
with the provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE
AND CERTAIN PRODUCTION TYPE CONTRACTS, whenever we anticipate a loss from an
implementation agreement we accrue for the estimated amount of the loss. We
believed that these fixed-fee projects would be unprofitable and accordingly
accrued for such losses.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses increased from $2.2
million in fiscal 1997 to $10.3 million in fiscal 1998. The increase is
attributable to increased sales commissions, a larger number of sales and
marketing employees and increases in marketing program spending. Expenses
relating to sales and marketing personnel, including sales commissions,
increased from $1.4 million in fiscal 1997 to $5.7 million in fiscal 1998.
Marketing program spending increased from $516,000 in fiscal 1997 to $1.7
million in fiscal 1998.

RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$1.9 million in fiscal 1997 to $4.5 million in fiscal 1998. This increase is
attributable to the growing number of research and development personnel.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $588,000 in fiscal 1997 to $2.6 million in fiscal 1998. This increase is
primarily attributable to the increase in the number of general and
administrative personnel and professional services fees, and, to a lesser
extent, to increased communication costs, particularly to remote offices, the
implementation costs to install our financial and human resource systems
infrastructure and increased facility costs from our expanded facility. Expenses
relating to general and administrative personnel increased from $433,000 in
fiscal 1997 to $1.7 million in fiscal 1998. Professional services fees increased
from $120,000 in fiscal 1997 to $428,000 in fiscal 1998.

OTHER INCOME, NET

Other income, net increased from $273,000 in fiscal 1997 to $568,000 in
fiscal 1998. This is attributable to an increase in interest income on our
deposits in our operating and investment accounts.

PROVISION FOR INCOME TAXES

We incurred operating losses for all periods from inception through March
31, 1999, and therefore have not recorded a provision for income taxes. We have
recorded a valuation allowance for the full amount of our net deferred tax
assets, as the future realization of the tax benefit is not currently likely.

As of September 30, 1998, we had net operating loss carry-forwards for
federal tax purposes of approximately $11.5 million and for state tax purposes
of approximately $8.3 million. These federal and state tax loss carry-forwards
are available to reduce future taxable income and expire at various dates into
fiscal 2012. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may limit the amount of net operating loss
carry-forwards that could be utilized annually in the future to offset taxable
income.

30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations through private sales of
preferred stock, with net proceeds of $23.2 million, bank loans and equipment
leases. As of March 31, 1999, we had $21.4 million in cash, cash equivalents and
short-term investments, and $3.8 million in working capital.

Net cash used in operating activities was $3.1 million in fiscal 1997 and
$4.9 million in fiscal 1998. Net cash from operating activities was $10.0
million in the six months ended March 31, 1999. Net cash flows from operating
activities in each period reflect increasing net losses and, to a lesser extent,
accounts receivable offset in part by increases in accrued compensation and
liabilities. Net cash from operating activities in the six months ended March
31, 1999 reflects $14.4 million of deferred revenue from customer payments that
were not recognized as revenue.

Net cash used in investing activities was $1.0 million in fiscal 1997, $6.5
million in fiscal 1998 and $4.1 million in the six months ended March 31, 1999.
Cash used in investing activities reflects purchases of property and equipment
in each period, purchases of short-term investments in fiscal 1998 and in the
six months ended March 31, 1999, and proceeds from the sale of short-term
investments in the six months ended March 31, 1999.

Net cash from financing activities was $19.5 million in fiscal 1997, $4.2
million in fiscal 1998, and $374,000 in the six months ended March 31, 1999.
These cash flows reflect primarily proceeds from private sales of preferred
stock.

Capital expenditures, including capital leases, were $995,000 in fiscal
1997, $2.0 million in fiscal 1998, and $2.4 million in the six months ended
March 31, 1999. Our capital expenditures consisted of purchases of operating
resources to manage our operations, including computer hardware and software,
office furniture and equipment and leasehold improvements. We expect that our
capital expenditures will continue to increase in the future. Since inception,
we have generally funded capital expenditures either through the use of working
capital or with capital leases. In connection with the relocation of our
headquarters, we are planning to make approximately $8.0 million in leasehold
improvements. We will also need to purchase additional operating resources. We
intend to enter into a loan agreement to finance these commitments. To the
extent we are unable to secure this financing, we may be required to apply a
portion of the proceeds from this offering toward these expenditures.

We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of the common stock in this offering will be sufficient
to meet our working capital and operating resource expenditure requirements for
at least the next two years. Thereafter, we may find it necessary to obtain
additional equity or debt financing. In the event additional financing is
required, we may not be able to raise it on acceptable terms or at all.

YEAR 2000 READINESS

The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.

We designed all of our products to be Year 2000 compliant when configured
and used in accordance with the related documentation, and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our products are Year 2000 compliant. However, we have
not tested our products for Year 2000 compliance. We continue to respond to
customer questions about prior versions of our products on a case-by-case basis.

31
<PAGE>
We have defined Year 2000 compliant as the ability to:

- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;

- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;

- Respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;

- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and

- Recognize year 2000 as a leap year.

We have tested software obtained from third parties that is incorporated
into our products, and we are seeking assurances from our vendors that licensed
software is Year 2000 compliant. To date, we have received assurances from the
vendors of our enterprise resource planning software, and technology support
software as to their Year 2000 compliance. Despite testing by us and current and
potential customers, and assurances from developers of products incorporated
into our products, our products may contain undetected errors or defects
associated with Year 2000 date functions. Known or unknown errors or defects in
our products could result in delay or loss of revenues, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
liability from our customers, any of which could seriously harm our business.

Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is uncertain
whether or to what extent we may be affected by it.

We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We have not initiated an assessment of our
non-information technology systems, although we have received a favorable
assessment of the Year 2000 compliance of our new headquarters in Mountain View,
California. We expect to complete testing of our information technology systems
in 1999. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from these vendors that their
systems are Year 2000 compliant. We are not currently aware of any material
operational issues or costs associated with preparing our internal information
technology and non-information technology systems for the Year 2000. However, we
may experience material unanticipated problems and costs caused by undetected
errors or defects in the technology used in our internal information technology
and non-information technology systems.

We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could be
seriously harmed.

We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could seriously harm our business.

We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not anticipate the need to do

32
<PAGE>
so. The cost of developing and implementing such a plan may itself be material.
Finally, we are also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failure interruptions.

Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:

- The inability of our customers to use our products and services to procure
and manage their operating resources;

- Claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and

- Our inability to manage our own business.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. We are in the
process of evaluating the effects of this change on our reporting segments. We
will adopt SFAS No. 131 in fiscal 1999.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position, or SOP, 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We do not expect SOP 98-1
to have a material effect on our financial position, results of operations or
cash flow. We will adopt SOP 98-1 in fiscal 2000.

In April 1998, the AcSEC issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. Under SOP 98-5, the cost of start-up activities should be expensed
as incurred. We expect that the adoption of SOP 98-5 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to adopt SOP 98-5 in fiscal 2000.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because Ariba
does not currently hold any derivative instruments and does not engage in
hedging activities, we expect the adoption of SFAS No. 133 will not have a
material impact on our financial position, results of operations or cash flows.
We will be required to adopt SFAS No. 133 in fiscal 2000.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We develop products in the United States 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. As all sales are currently 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, particularly since the majority of our
investments are in short-term instruments. Due to the short-term nature of our
investments, we believe that there is no material risk exposure. Therefore, no
quantitative tabular disclosures are required.

33
<PAGE>
BUSINESS

THE PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
FORWARD-LOOKING STATEMENTS.

OVERVIEW

Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources. Our
Operating Resource Management System, Ariba ORMS, enables organizations to
automate the procurement cycle within their "intranets," internal computer
networks which are based on the Internet protocol, lowering the costs associated
with operating resources. Our recently launched Ariba.com network is a global
business-to-business electronic commerce network for operating resources that
enables buyers and suppliers to automate transactions on the Internet. Together,
Ariba ORMS and Ariba.com combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources that benefits both buyers and suppliers. Since
we began marketing Ariba ORMS in March 1997, it has been licensed by large,
multinational industry leaders and public sector organizations including
Chevron, Cisco Systems, FedEx, Hewlett-Packard, Philips, U S WEST and Visa.

INDUSTRY BACKGROUND

GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE

The Internet has emerged as the fastest growing communication medium in
history. With over 97 million users at the end of 1998, growing to 320 million
users by 2002, as estimated by International Data Corporation, the Internet is
dramatically changing how businesses and individuals communicate and share
information. The Internet has created new opportunities for conducting commerce,
such as business-to-consumer and person-to-person electronic commerce. Recently,
the widespread adoption of intranets and the acceptance of the Internet as a
business communications platform has created a foundation for
business-to-business electronic commerce that will enable organizations to
streamline complex processes, lower costs and improve productivity.

With this foundation, Internet-based business-to-business electronic
commerce is poised for rapid growth and is expected to represent a significantly
larger opportunity than business-to-consumer or person-to-person electronic
commerce. According to Forrester Research, business-to-business electronic
commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003,
accounting for more than 90% of the dollar value of electronic commerce in the
United States. This market is expected to create a substantial demand for
Internet-based electronic commerce applications. According to International Data
Corporation, the worldwide market for Internet-based electronic commerce
procurement and order management applications is expected to experience
tremendous growth, increasing from $187 million in 1998 to $8.5 billion in 2003.

TRADITIONAL APPROACHES TO BUYING OPERATING RESOURCES

Operating resources are the goods and services required to operate a
company, ranging from significant items, such as information technology,
telecommunications equipment and professional

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services, to recurring items, such as MRO (Maintenance, Repair and Operations)
supplies, travel and entertainment expenses, and office equipment. Operating
resource expenditures are distinct from manufacturing resource expenditures,
such as raw materials and other costs of goods sold, and from human resource
expenditures, such as wages, salaries and benefits. According to Killen &
Associates, operating resource expenditures are often the largest segment of
corporate expenditures, representing approximately 33% of an average company's
total revenues.

Today, most organizations buy operating resources through paper-based or
semi-automated processes. These processes are costly, time consuming and complex
and often include the re-keying of information, lengthy approval cycles and
significant involvement of financial and administrative personnel. AMR estimates
that the cost per procurement transaction ranges from $75 to $175, often
exceeding the cost of the items being purchased. In addition, these time
consuming processes often result in fulfillment delays to end-users, leading to
productivity losses.

Beyond the time and expense associated with manual processing costs,
organizations suffer even greater costs when they cannot fully exploit
procurement economies of scale. Most organizations lack the systems that enable
them to monitor purchases and compile data necessary to negotiate better volume
discounts with preferred suppliers. In addition, most organizations suffer from
a problem known as "maverick buying," which occurs when personnel do not follow
internal guidelines as to which suppliers to use for operating resource
purchases. When preferred suppliers are not used, organizations pay a premium.
AMR estimates that maverick buying accounts for one-third of operating resource
expenditures, costing organizations a 15% to 27% premium on those purchases.

Traditional procurement processes also result in missed revenue
opportunities and additional costs to suppliers. When buyers are unable to
channel purchases to preferred suppliers, these suppliers lose revenue.
Suppliers also suffer from inefficient, error prone and manually-intensive order
fulfillment processes. Many suppliers dedicate significant resources to the
manual entry of information from faxed or phoned-in purchase orders and the
manual processing of paper checks, invoices and ship notices. Suppliers also
spend significant resources on customer acquisition and sales costs, including
the production and distribution of paper catalogs. Without fully automated and
integrated electronic commerce technologies, both buyers and suppliers incur
substantial extraneous costs in conducting commerce.

OPPORTUNITY FOR BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE SOLUTIONS FOR
OPERATING RESOURCES

Over the past 30 years, information technologies have brought automation to
departmental operations such as manufacturing resource planning, financial
management, sales force automation and human resource management. However, the
information technology platforms that made departmental automation possible did
not provide enterprise-wide connectivity within organizations or connectivity
between organizations. Thus, the processes linking end-users to approvers and
organizations to suppliers for operating resources are today largely
paper-based. With the widespread implementation of intranets and the adoption of
the Internet as a business communication platform, organizations can now
automate enterprise-wide and inter-organizational commerce activities. The
availability of this technology creates a significant market opportunity for
Internet-based business-to-business electronic commerce solutions for operating
resources.

For buyers, a solution must include a user-friendly, intranet-based system
that links end-users, approvers and administrative personnel with an integrated
global network that connects buying organizations with suppliers. This system
must be flexible enough to meet the unique business process requirements of
large, multinational organizations and must be highly scalable, reliable and
rapidly deployable. It must take advantage of an organization's existing
investments in information technologies by working with and connecting to
multiple financial, human resource and enterprise resource planning systems. The
system must provide data reporting and analytical tools that enable analysis of
end-user spending patterns and provide insight into savings opportunities. For
suppliers, the solution must be easy

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to implement, based on open standards and build upon existing investments in
on-line catalogs and order processing technologies. Additionally, the solution
should offer suppliers the opportunity to expand their customer base by
providing access to a critical mass of buyers. Addressing these requirements for
both buyers and suppliers is critical to enabling full scale
business-to-business electronic commerce for operating resources.

THE ARIBA SOLUTION

Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources. Our
solution consists of two components, our intranet-based Ariba ORMS (Operating
Resource Management System) network application and our Internet-based Ariba.com
network. Ariba ORMS is a robust, scalable and reliable network application that
operates primarily within a buying organization's intranet. Ariba ORMS enables
an organization to reduce processing costs and improve productivity by
automating the procurement cycle and linking end-users throughout an
organization with internal approvers and financial systems. Ariba ORMS also
enables organizations to reduce the cost of operating resources by channeling
purchases to preferred suppliers. Our recently launched Ariba.com network is a
global business-to-business electronic commerce network for operating resources,
enabling buyers and suppliers to automate transactions on the Internet.
Together, Ariba ORMS and our Ariba.com network combine intranet-based network
applications with an Internet-based network to create a business-to-business
electronic commerce solution for operating resources benefiting both buyers and
suppliers.

We believe our solution provides the following benefits:

BENEFITS TO BUYERS:

SIGNIFICANTLY REDUCED PROCESSING COSTS AND INCREASED PRODUCTIVITY. By
automating the operating resource procurement process, our Ariba solution
allows organizations to achieve significant cost savings and productivity
enhancements. Ariba ORMS enables an organization to streamline and automate
complex and unusual business processes. Ariba ORMS also takes advantage of
existing investments in financial, human resource and enterprise resource
planning systems, which reduces or eliminates the need to manually enter
data into these systems. As a result, our Ariba solution allows
organizations to focus on value-added activities such as negotiating better
discounts with preferred suppliers. Through our solution, end-users can
order and receive requested items more quickly and with less effort,
improving overall productivity.

SUBSTANTIALLY REDUCED COSTS OF OPERATING RESOURCES. Our Ariba solution
enables organizations to maximize procurement economies of scale, lowering
the overall costs of operating resources. Ariba ORMS provides corporate-wide
data, analysis and reporting tools on buying patterns, enabling
organizations to negotiate more favorable contracts with preferred
suppliers. Our Ariba solution in turn routes transactions to these preferred
suppliers automatically. Moreover, Ariba ORMS is accessible on every
desktop, is easy-to-use and streamlines the procurement process. These
benefits minimize the frustration to end-users that often results in
maverick buying, further enabling organizations to take advantage of
negotiated discounts with preferred suppliers.

BENEFITS TO SUPPLIERS:

INCREASED VOLUME AND REVENUE OPPORTUNITIES. Ariba ORMS and our Ariba.com
network enable buyers to channel spending to preferred suppliers, providing
these suppliers the opportunity to increase revenues. Our Ariba.com network
provides suppliers with greater access to new and existing customers through
a global presence and availability 24 hours a day, seven days a week. In
addition, by taking advantage of suppliers' web-based catalog capabilities,
our solution enables suppliers to differentiate and market their goods and
services in their preferred format.

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<PAGE>

REDUCED SALES COSTS. Our Ariba solution enables suppliers to reduce sales
costs in several ways. By automating transactions, suppliers can reduce the
costs associated with, and reduce the potential for error inherent in,
paper-based ordering and payment processes. Product information can be
distributed electronically, reducing the cost of printed product catalog
distribution. In addition, suppliers can utilize their existing investments
in electronic commerce systems, including catalogs and product web pages.

We believe that the benefits of Ariba ORMS and our Ariba.com network will
create a growth cycle that increases the value of our Ariba solution to both
buyers and suppliers over time. As buyers benefit from the efficiencies of our
Ariba solution, we believe suppliers will be drawn to our Ariba.com network by
the aggregated purchasing power of buyers using our network. As more suppliers
offer operating resources through the network, more buyers are encouraged to
join our network.

THE ARIBA GROWTH STRATEGY

Our objective is to create the leading Internet-based business-to-business
electronic commerce network for operating resources. Key elements of our
strategy to achieve this objective include:

TARGET LARGE MULTINATIONAL BUYERS IN A BROAD RANGE OF INDUSTRIES. We intend
to continue to target large, multinational corporations and public sector
institutions, benefiting from our first-mover advantage with many of these
organizations. We believe these organizations will be the most likely early
beneficiaries of an automated, reliable, robust and scalable procurement
solution and can provide strong customer references. Furthermore, we believe the
large spending power these organizations can channel through our Ariba.com
network will attract suppliers to the network. Finally, these organizations have
demanding requirements and rigorously test our products, assisting us in
designing a robust, reliable and scalable solution.

CREATE A NETWORK EFFECT BY ATTRACTING THE LARGEST BUYERS AND SUPPLIERS TO
OUR ARIBA.COM NETWORK. As Ariba ORMS is deployed to a critical mass of large
buyers in numerous industries, we intend to build upon the buying power of these
large organizations to attract suppliers to our Ariba.com network. We believe a
growing number of suppliers in our Ariba.com network will in turn draw more
buyers to our network. We also believe this growth cycle will help create a
network effect, where the value to each participant in the network increases
with the addition of each new participant, increasing the overall value of our
Ariba solution.

EXTEND AND BUILD UPON THE ARIBA COMMUNITY OF PARTNERS. We intend to build
upon our strategic relationships with industry leaders in the areas of
electronic commerce systems, information technology consulting, distribution and
content aggregation. We are working with these partners to accelerate our
Ariba.com network rollout, provide additional customer implementation
capabilities, expand our customer base and increase the content available on our
Ariba.com network. These relationships allow us to focus on our core area of
expertise, while taking advantage of the strengths of complementary technologies
and the influence of these industry leaders. We believe that these
relationships, as well as others that we intend to pursue, will enable the rapid
and widespread deployment of our electronic commerce solution.

PROVIDE SUPERIOR CUSTOMER SATISFACTION. We believe a loyal base of
reference customers affords us a significant competitive advantage. Therefore,
we intend to continue to focus significant resources on customer satisfaction
programs. In order to foster a culture of customer satisfaction as our highest
priority, all of our employees with variable compensation are paid in part based
on customer satisfaction as measured by an independent third party organization.
We continue to make use of a number of other programs to promote superior
customer satisfaction including our customer-driven development process and our
frequent customer advisory councils.

EXPAND GLOBAL OPERATIONS. We intend to aggressively grow our global
presence by expanding our worldwide field sales, marketing and services
organizations. To complement this strategy, we intend to

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<PAGE>

continue to globalize our operations and expand our corporate and administrative
organizations and systems. We also intend to enter into a strategic relationship
with a third party to expand the computer and communications equipment and
software required to support the day-to-day operations of our Ariba.com network
on a global basis.

ARIBA PRODUCTS AND SERVICES

Ariba provides a comprehensive intranet- and Internet-based
business-to-business electronic commerce solution for operating resources. This
solution consists of two components, Ariba ORMS and our Ariba.com network. Ariba
ORMS is a network application that operates primarily within a buying
organization's internal network. Ariba ORMS enables organizations to reduce
processing costs and improve productivity by automating the procurement cycle,
linking end-users throughout the organization with approvers and financial
systems. Ariba ORMS also enables organizations to reduce the cost of operating
resources by channeling purchases to preferred suppliers. As orders are
generated and approved, Ariba ORMS automates commerce transactions securely with
suppliers on the Internet through our Ariba.com network. Our recently launched
Ariba.com network is a global business-to-business electronic commerce network
for operating resources that enables buying organizations, suppliers and
distributors to automate transactions on the Internet. Together, Ariba ORMS and
our Ariba.com network combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources benefiting both buyers and suppliers.

Edgar description of artwork:

This graphic depicts the various elements of the Ariba ORMS product and the
Ariba.com network. There are two three-dimensional boxes separated by a
three-dimensional square slice labeled "Firewall." The left box is labeled
"ARIBA ORMS" on the side, and the right box is labeled "ARIBA.COM" on the side.
The left box, the center "Firewall" and the right box are connected by a
cylindrical pipe running through the center of each of them. The top of the left
box is separated into six sections. The sections are labeled as follows: "MRO,"
"Service," "Capital Equipment," "eForms," "Expense Mgmt." and "P-Card." Each of
the labels is attached to its respective section by a line. The labels are
arranged vertically in a column and are collectively labeled "Modules" in bold
print. The bottom of the left box is separated into five sections. The sections
are labeled as follows: "SAP," "PeopleSoft," "Oracle," "Authentication" and
"General API." Each of the labels is attached to its respective section by a
line. The labels are arranged vertically in a column and are collectively
labeled "Adapters" in bold print. The end of the left box displays a picture of
Ariba's web site. The graphic also contains a blow-up of this web page, which is
labeled "User-Friendly Web-based Interface." The only legible wording on the web
site is the Ariba logo in the upper left hand corner and the words "Welcome to
Ariba" in a circle in the middle of the page. The remainder of the page contains
a ring of links to other pages on Ariba's web site.

The top of the right box is separated into five sections. The sections are
labeled as follows: "Buyer Sourcing," "On-line Registration," "Catalog
Indexing," "News, Information, Services" and "Ariba Supplier Link." Each of the
labels is attached to its respective section by a line. The labels are arranged
vertically in a column and are collectively labeled "Tools" in bold print. The
bottom of the right box is separated into six sections. The sections are labeled
as follows: "Email/Fax," "XML/CXML," "CIF," "EDI," "OBI" and "HTML." Each of the
labels is attached to its respective section by a line. The labels are arranged
vertically in a column and are collectively labeled "Multi-protocol Translators"
in bold print.

ARIBA ORMS

Ariba ORMS is a robust, scalable and reliable network application that
operates primarily within a buying organization's intranet. Ariba ORMS enables
organizations to reduce processing costs and improve productivity by automating
the procurement cycle, linking end-users throughout the organization with
approvers and financial systems. Ariba ORMS also enables organizations to reduce
the cost of operating resources by channeling purchases to preferred suppliers.
Ariba ORMS is designed to connect large numbers of end-users, approvers and
administrative personnel through web-based applications that automate
procurement and finance processes. Ariba ORMS works with multiple enterprise
systems simultaneously, in addition to providing real-time electronic access to
important procurement information, such as supplier product specifications,
price lists, web sites and order status.

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The primary characteristics of Ariba ORMS are:

USER FRIENDLY, WEB-BASED INTERFACES. The browser-based user interface
enables users throughout an organization to take full advantage of Ariba
ORMS from their desktop and with minimal training. Wizards, software that
provides automated assistance, guide less experienced users through the
acquisition process, while an advanced user interface makes the system more
productive for experienced users.

ELECTRONIC BUSINESS PROCESS AUTOMATION. Ariba ORMS provides flexible
workflow capable of streamlining and automating even the most complex or
unusual business processes of large, multinational organizations. This
flexible workflow can be customized for the unique processes of an
organization and can be tailored to respond to end-user input, system events
or any extrinsic or intrinsic data in the procurement cycle.

SIMULTANEOUS INTERACTION WITH MULTIPLE ENTERPRISE SYSTEMS. Ariba ORMS works
with and connects to leading finance, human resource management and
enterprise resource planning systems from vendors such as PeopleSoft, SAP
and Oracle. In addition, Ariba ORMS provides a comprehensive API
(Application Programming Interface) to connect and work with other legacy
systems through adapters that are sold as separate products. A single Ariba
ORMS installation can connect with multiple enterprise applications
simultaneously through real-time or scheduled interfaces. These interfaces
also enable Ariba ORMS to utilize standard user authentication and directory
services such as LDAP (Lightweight Directory Access Protocol) and
Microsoft's Active Directory.

INFORMATION ACCESS. With powerful analytical and reporting tools, Ariba
ORMS enables organizations to evaluate data collected throughout the process
of acquiring, receiving and paying for operating resources. By employing
these analytical tools, an organization can analyze purchasing patterns to
streamline the procurement process, negotiate more favorable terms with
preferred suppliers and gain insight into additional savings opportunities.

INTERFACE WITH OUR ARIBA.COM NETWORK. Ariba ORMS allows organizations to
automate commerce transactions with suppliers over the Internet and through
our Ariba.com network. By adhering to open standards, Ariba ORMS provides a
variety of methods for suppliers to communicate electronically with buying
organizations through our Ariba.com network. Ariba ORMS also allows
suppliers to take advantage of their existing web-based catalogs to provide
product information to buyers.

MULTI-PLATFORM ARCHITECTURE. The Ariba ORMS server currently supports
industry-standard approaches to high-performance databases and
multi-processor hardware. Ariba ORMS currently supports Microsoft Windows NT
and Unix platforms including Hewlett-Packard HP-UX and Sun Solaris.

ARIBA ORMS MODULES

Ariba ORMS modules are designed specifically for the procurement and
management of different operating resources. Each module contains powerful
reporting and data analysis tools that enable operations managers to monitor the
requisition process and identify areas for cost reductions.

The Ariba ORMS modules are:

ARIBA MRO. Ariba MRO allows organizations to manage purchases associated
with maintenance, repair and operations supplies. These items are primarily
ordered through electronic catalogs and may include office products,
information technologies and facilities items.

ARIBA SERVICES. Ariba Services are specifically designed to address the
unique data collection requirements for the procurement of professional
services, such as facility, legal, temporary and

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<PAGE>
maintenance services. Purchasing professional services, unlike commodities,
involves a number of different variables, such as scope of services needed,
qualification of personnel and duration of the services. Ariba Services can
integrate this data to process requisitions obtained from the end-user at
various points in the requisitioning, procurement and receiving cycle.

ARIBA CAPITAL EQUIPMENT. Ariba Capital Equipment addresses the specific
needs of capital equipment purchases such as manufacturing, facilities or
information technology equipment. The procurement of capital equipment often
requires unique data such as different accounting, asset identification and
tracking information. Ariba Capital Equipment can be easily configured to
suit an organization's specific accounting and tracking needs.

ARIBA EFORMS. Ariba eForms allow organizations to create custom forms,
which can be attached to existing Ariba applications or used to create new
applications for nearly any type of operating resource request. Ariba eForms
are created using XML (eXtensible Markup Language), a robust definition
language that allows organizations to design forms that capture information
from end-users and route the information for internal approval. Each Ariba
eForm can have its own approval rules and can incorporate standard data from
Ariba ORMS including financial accounting and human resources information.

ARIBA EXPENSE MANAGEMENT. Ariba Expense Management automates the expense
reporting process associated with expenditures such as travel and
entertainment. Ariba Expense Management provides a robust set of features to
generate expense reports automatically from electronic credit card, travel
card or procurement card data feeds and can route expense reports to
functional, travel and expense managers.

ARIBA P-CARD RECONCILIATION. Ariba P-Card Reconciliation provides support
for the use of P-Cards, which are credit cards designed specifically for
business procurement. P-Cards can be allocated to a given user or an
accounting entity. Electronic P-Card statements from financial institutions
can be read automatically by Ariba ORMS and reconciled against purchases
made, flagging any exceptions or inconsistencies.

ARIBA ORMS ENTERPRISE ADAPTERS

Ariba ORMS enterprise adapters are designed specifically to connect to or
integrate with leading finance, human resource management and enterprise
resource and planning systems. Integration refers to the ability of Ariba ORMS
adapters to exchange information with an organization's enterprise systems,
eliminating the need for manual transfer of critical information from Ariba ORMS
to these systems. Ariba ORMS enterprise adapters can integrate with standard
implementations of these systems or can be configured to integrate with custom
installations of the enterprise system. These adapters enable a single Ariba
ORMS installation to integrate with multiple enterprise applications
simultaneously.

ARIBA SAP ADAPTER. Ariba SAP Adapter provides real-time and scheduled
integration with SAP applications through standard programming interfaces
for personnel, accounting, distribution, supplier and financial information.

ARIBA PEOPLESOFT ADAPTER. Ariba PeopleSoft Adapter allows real-time and
scheduled integration with PeopleSoft finance, distribution and human
resources management systems through PeopleSoft's message agent for
administrative, personnel, accounting, distribution, supplier and financial
information.

ARIBA ORACLE ADAPTER. Ariba Oracle Adapter allows real-time and scheduled
integration with Oracle applications for personnel, accounting,
distribution, supplier and financial information.

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<PAGE>
ARIBA AUTHENTICATION ADAPTER. Ariba Authentication Adapter provides
integration with standard user authentication and directory services such as
LDAP (Lightweight Directory Access Protocol) and Microsoft's Active
Directory.

ARIBA GENERAL API ADAPTER. Ariba General API Adapter provides integration
with existing and legacy enterprise systems to interface information with
Ariba ORMS on a real-time or scheduled basis.

Customers who purchase our software products receive a server capacity
license, one or more of the Ariba ORMS modules and adapters to interface with
enterprise financial and human resource systems. The license fee for the server
capacity license is based on the customer's annual volume of line items of
purchasing transactions. The license fees for the software modules and adapters
consist of individual prices for each module or adapter.

The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of the Ariba ORMS system to their needs. The server
capacity license entitles customers to execute the licensed volume of line items
of purchasing transactions during any annual period following their purchase of
the server license. Ariba's customers generally purchase estimated server
capacity at the time of the purchase of the server license. Following the
initial implementation of Ariba ORMS, and based on the reporting and analysis
tools available through Ariba ORMS, our customers are able to understand their
annual transaction volume more fully. Customers who exceed their estimated
volume can purchase additional server capacity. However, there are no recurring
annual license fees. To date, three customers have purchased additional annual
server capacity licenses.

OUR ARIBA.COM NETWORK

Our Ariba.com network is an Internet-based operating resource solution
designed to provide access to large amounts of supplier product information and
to enable electronic commerce transactions over the Internet. Our Ariba.com
network bridges buyer and supplier networks on the Internet and offers catalog
and content management, order transaction routing and multi-protocol support for
numerous electronic commerce standards.

Our multi-protocol network allows buyers to send transactions from Ariba
ORMS in one standard format; it then converts the order into the supplier's
preferred transaction format, such as CXML (Commerce eXtensible Markup
Language), a format used on the Internet to describe commerce data and
documents, or EDI (Electronic Data Interchange), a format used to exchange data
and documents electronically. This feature eliminates the need for a single
standard for electronic commerce and gives suppliers the freedom to transact in
their preferred protocols.

Our Ariba.com network also allows suppliers to utilize their existing
electronic commerce systems to provide information about their products and
services. Suppliers can send electronic catalogs through standard formats such
as CIF (Catalog Interchange Format), a format commonly used to transfer catalog
information electronically, and CXML. In addition, buyers can link to a
supplier's web site using a technology called CXML Punch-out. CXML Punch-out
allows a buyer to select a product utilizing a supplier's web site while keeping
the purchasing process within our Ariba ORMS system for internal approval,
accounting and administrative controls. This feature is particularly useful for
suppliers with robust web sites, electronic product configuration systems and
large product catalogs. In addition, suppliers can take advantage of their
existing web-based catalog capabilities to differentiate and market their goods
and services.

The key components of our Ariba.com network are:

OPEN STANDARDS MULTI-PROTOCOL TRANSACTION NETWORK. Our Ariba.com network
automatically routes and translates transactions between buyers and
suppliers using most major electronic commerce standards, including: XML;
CXML; Internet EDI; VAN EDI (Value Added Networks for EDI); a subset of the
OBI standard (Open Buying on the Internet), a protocol for buying goods and
services

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<PAGE>

on the Internet; HTML (Hyper-Text Markup Language), a format commonly used
to define content for web pages; e-mail; auto-fax and CIF. This enables
buyers to conduct business with suppliers independent of the type of
electronic commerce systems used by the supplier.

WEB-BASED CONTENT ACCESS AND INDEXING. Our Ariba.com network uses a
scalable approach for content management. This approach employs indexing,
rather than content aggregation, to connect buying organizations using Ariba
ORMS to suppliers' existing web-based catalogs. This indexing approach
eliminates the need to aggregate content in a central repository, yet
provides robust and comprehensive searching tools to buyers. In addition,
our Ariba.com network allows suppliers to take advantage of existing
electronic commerce web-based catalogs through CIF, CXML and CXML Punch-out.

ARIBA SUPPLIER LINK. In December 1998, we announced our Ariba Supplier Link
program, an initiative to integrate supplier content into our Ariba.com
network. Members of Ariba Supplier Link provide buying organizations using
Ariba ORMS access to indices of millions of items from thousands of
manufacturers.

SUPPLIER SELF-MANAGEMENT AND REGISTRATION. To conduct commerce with all
buying organizations using Ariba ORMS, suppliers need only to register once
and continue to manage their relationships online, in their preferred
transaction standards and configurations without the need for additional
software.

NEWS, INFORMATION AND SERVICES. Our Ariba.com network provides news,
information and services of interest to business buyers and suppliers such
as sourcing, supplier, financial and industry information.

Our Ariba.com network is designed for high-performance databases and
multi-processing hardware and utilizes a multi-server configuration to allow
workloads to be shared across multiple servers and the site to maintain
availability of online service. We intend to enter into an outsourcing
relationship with a third party to build and operate the network and platform
infrastructure for our Ariba.com network. This network and platform
infrastructure consists of the computer and communications equipment and
software that allow buyers and suppliers to exchange information over our
Ariba.com network. It will be difficult for us to operate our Ariba.com network
if we are unable to contract with a third party as we would have to perform
these functions ourselves or obtain similar services from another provider, and
we may not successfully perform or obtain these services for our Ariba.com
network on a timely and cost-effective basis.

Although we expect to derive revenue from our Ariba.com network in the
future, we have not yet established our pricing and revenue model for the
services associated with our network. If we are unable to establish a pricing
and revenue model acceptable to our customers, our Ariba.com network may not be
commercially successful. As of May 31, 1999, only one customer was buying
operating resources through our network from a limited number of linked
suppliers.

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CUSTOMERS

We target large, multinational market leaders in a broad range of
industries. As of May 31, 1999, customers that have purchased licenses for Ariba
ORMS include:

<TABLE>
<S> <C>
Advanced Micro Devices Motorola
Boehringer-Ingelheim Nestle USA
Autodesk Octel Messaging Division of Lucent
Bristol-Myers Squibb Technologies
Cadence Design Systems Parametric Technology Corporation
Caltex Philips Electronics
Canadian Imperial Bank of Commerce Purdue University
Chevron SAir Group
Cisco Systems Seagate Technology
Citizens Telecommunications Sonoco Products
Cypress Semiconductor Staples
Earthgrains The State of California
FedEx Transamerica
General Motors U S WEST
Hewlett-Packard Visa International
Merck Visa USA
</TABLE>

SUPPLIERS

In December 1998, we announced our Ariba Supplier Link or "ASL" program,
which is an initiative to provide supplier content to Ariba ORMS customers
electronically. We have over 40 members in our program. These members include
individual manufacturers, distributors, resellers, content management solution
providers and sourcing organizations. Our ASL members include the following
companies:

<TABLE>
<S> <C>
1.800.Batteries Hewlett-Packard
1Nine Systems ImageX.com
Anderson Unicom Group Inacom
Barnesandnoble.com Interworld
Beyond.com Ironside Technologies
Boise Cascade Office Products Life Technologies
BT Office Products International MicroAge Integration
CAP MicroAge Toronto
Chemdex NCR Systemedia Group
Collabria Neoforma
Com-Kyl Newark Electronics
Compucom Systems Office Depot
Contact East PCNet
Corporate Express PcOrder.com
Cort Furniture Rental Reynolds and Reynolds
Data Impressions RoweCom
Dell Products Saqqara Systems
Digital River SciQuest
Electro Rent Staples
Electronic Sales Systems Technicon
EMAX Solution Partners Telepress
Fatbrain.com US Technologies
Flow Systems ViewTek
Grand & Toy W.W. Grainger
Harbinger Wood Associates
</TABLE>

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STRATEGIC RELATIONSHIPS

To ensure that we deliver a comprehensive solution to our customers, we have
established strategic relationships with organizations in four general
categories: hardware platforms; software platforms; electronic commerce; and
systems integrators. Our hardware partners include Cisco Systems,
Hewlett-Packard and Sun Microsystems. These relationships help ensure the
reliability, scalability and performance of the Ariba solution on these
platforms. In addition, we intend to enter into an outsourcing relationship with
a third party to build and operate the network and platform infrastructure for
our Ariba.com network. Our electronic commerce partners include American
Express, Sterling Commerce and Visa International.

We have system integrator relationships with Andersen Consulting, Deloitte &
Touche, Ernst & Young, KPMG, PricewaterhouseCoopers, Cambridge Technology
Partners, Computer Sciences Corporation, Core Technologies, SRA International,
Tier Technologies and TSA Associates. These system integrators implement our
products and often assist us with sales lead generation. We have certified and
trained approximately 125 consultants in these organizations for the
implementation and operation of our products.

We rely, and expect to increasingly rely, on a number of third parties to
implement, support and recommend our products during the evaluation stage of a
customer's purchase process. If we are unable to maintain or increase the number
and quality of our relationships with providers that recommend, implement or
support operating resources management systems, our business will be seriously
harmed. A number of our competitors, including Oracle, SAP and PeopleSoft, have
significantly more established relationships with such providers and, as a
result, these firms may be more likely to recommend competitors' products and
services rather than our products and services. Furthermore, it is possible that
our current implementation partners, many of which have significantly greater
financial, technical, marketing and other resources than we have, could begin to
market software products and services that compete with our products and
services.

SALES AND IMPLEMENTATION

We sell our software primarily through our worldwide direct sales
organization. As of March 31, 1999, our direct sales force consisted of 55 sales
professionals located in 14 domestic locations and offices in Canada, the United
Kingdom and The Netherlands. Application specialists that provide pre-sales
support to potential customers on product information and deployment
capabilities complement our direct sales force. We plan to expand our direct
sales force.

During our sales process, we typically approach senior executive management
teams including the chief financial officer, chief information officer and chief
executive officer of our potential customers. We utilize sales teams consisting
of both sales and technical professionals who work with our strategic partners
to create organization-specific proposals, presentations and demonstrations that
address the specific needs of each potential customer.

Ariba provides professional services to augment the implementation efforts
of customers and systems integrators. This organization provides professional
services on the strategy, methodology and technical implementation of Ariba
ORMS. As of March 31, 1999, our professional services organization consisted of
41 employees.

We believe that strategic partnerships will assist us in gaining broad
market acceptance as well as enhance our marketing, sales and distribution
capabilities. We have therefore developed close relationships with a number of
strategic integrators and technology providers. These companies have worked with
us and participated in joint sales calls to several of our large accounts. See
"--Strategic Relationships."

44
<PAGE>
MARKETING

We focus our marketing efforts toward educating our target market,
generating new sales opportunities, and creating awareness for our
business-to-business electronic commerce solutions. We conduct a variety of
marketing programs worldwide to educate our target market. We have engaged in
marketing activities such as business seminars, trade shows, press relations and
industry analyst programs and advisory councils.

Our marketing organization also serves an integral role in acquiring,
organizing and prioritizing customer and industry feedback in order to help
provide product direction to our development organizations. We formalized this
customer-driven approach by establishing advisory council meetings, made up of
numerous industry experts, to provide forums for discussing customer needs and
requirements. To date, we have held ten of these events. Our most recent
advisory council meeting was attended by over 800 people, including procurement,
information technology and finance executives. In addition to providing
information to prospective customers, advisory council meetings provide a useful
forum in which to share information, test product concepts and collect data on
customer and industry needs. We have also augmented advisory council meetings
with a detailed product management process that surveys customer and market
needs to predict and prioritize future customer requirements. We also have
marketing relationships with Andersen Consulting, Cisco Systems,
Hewlett-Packard, Sun Microsystems and Visa International. These relationships
provide collaborative resources to help extend the reach of our presence in the
marketplace. We intend to continue to pursue these programs in the future.

CUSTOMER SERVICE, TRAINING AND SUPPORT

We believe that customer satisfaction is essential for our long-term success
and offer comprehensive customer assistance programs. Our technical support
provides dependable and timely resolution of customer technical inquiries and is
available to clients by telephone, over the web or by electronic mail. We use a
customer service automation system to track each customer inquiry until it is
resolved. Our education services group delivers education and training to our
clients and partners. We offer a comprehensive series of classes to provide the
knowledge and skills to successfully deploy, use and maintain our products and
solutions. These courses focus on the technical aspects of our products as well
as real-world business issues and processes. All of our classes include lecture,
demonstration, discussion and hands-on use of our solutions. Classes are held
regularly in our training facilities at our headquarters in Sunnyvale,
California. Our customer support and training organizations consisted of 22
employees as of March 31, 1999.

RESEARCH AND DEVELOPMENT

We originally introduced Ariba ORMS in May 1997 and have released a number
of product enhancements in five subsequent major releases. We began to operate
our Ariba.com network in April 1999 and continue to provide enhancements to this
Internet platform on an ongoing basis. As of March 31, 1999, our research and
development organizations were comprised of 74 employees.

Our research and development operations are divided into two organizations,
one focusing on Ariba ORMS and the other focusing on our Ariba.com network. Our
Ariba ORMS organization has eight teams that include server and infrastructure
development, user interface and application design, tools development,
enterprise integration, quality assurance, documentation, release management and
advanced development. Our Ariba.com network organization has five teams that
include Internet applications and design, platform and infrastructure
engineering, operations, quality assurance and documentation. Both the Ariba
ORMS and our Ariba.com network organizations regularly share resources and
collaborate on code development, quality assurance and documentation.

We believe our software and Internet applications teams and core
technologies represent a significant competitive advantage. The software and
Internet applications development organizations include a number of key members
from past engineering organizations that have developed Internet applications

45
<PAGE>
and services, and have extensive experience with Java programming. We believe a
technically skilled and highly productive development organization is a key
component for the success of new product offerings. We must attract and retain
highly qualified employees to further our research and development efforts. Our
business could be seriously harmed if we are not able to hire and retain a
sufficient number of these individuals.

We cannot be sure that existing and future development efforts will be
completed within our anticipated schedules or that, if completed, they will have
the features or quality necessary to make them successful in the marketplace. In
addition, the widespread adoption of our Ariba.com network by our customers
depends in part on the adoption and implementation of the next version of our
Ariba ORMS product, which is not scheduled for commercial release until later
this year. Future delays in this release or problems in the development or
marketing of product enhancements, Internet services or applications or new
products could seriously harm the deployment of our Ariba.com network and could
harm our business. Further, despite testing by us and by current and potential
customers, errors could be found in our products. We may not be able to
successfully correct these errors in a timely and cost effective manner. If we
are not able to develop new products or enhancements to existing products or
corrections on a timely and cost-effective basis, or if these new products or
enhancements do not have the features or quality necessary to make them
successful in the marketplace, our business will be seriously harmed.

We expect that most of our enhancements to existing and future products will
be developed internally. However, we currently license certain
externally-developed technologies and will continue to evaluate
externally-developed technologies to integrate with our solutions. These
externally developed technologies, if suffering from defects, quality issues or
the lack of product functionality required to make our solutions successful in
the marketplace, may seriously impact and harm our business.

COMPETITION

The market for our solution is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is 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 vendors including
Captura Software, Clarus, Commerce One, Concur Technologies, Extensity, GE
Information Services, Intelysis, Netscape Communications and TRADE'ex Electronic
Commerce Systems. We may also encounter competition from several major
enterprise software developers, such as Oracle, PeopleSoft and SAP. In addition,
because there are relatively low barriers to entry in the operating resource
management software market, we expect additional competition from other
established and emerging companies, as the operational resource management
software market continues to develop and expand.

We believe that the principal competitive factors affecting our market
include a significant base of reference customers, breadth and depth of
solution, critical mass of buyers and suppliers, product quality and
performance, customer service, core technology, product features, ability to
implement solutions and value of solution. Although we believe that our
solutions currently compete favorably with respect to these factors, our market
is relatively new and is evolving rapidly. We may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources.

Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than us,
significantly greater name recognition and a larger installed base of customers.
In addition, many of our competitors have well-established relationships with
our current and potential customers and have extensive knowledge of our
industry. In the past, we have lost potential customers to competitors for
various reasons, including lower prices and other incentives not matched by

46
<PAGE>
us. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. We also expect that competition
will increase as a result of industry consolidations.

We may not be able to compete successfully against our current and future
competitors.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

We license rather than sell Ariba ORMS and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. 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. We cannot assure you that
any of our proprietary rights with respect to our Ariba.com network 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.

We presently have one U.S. patent application pending. It is possible that
the patent that we have applied for, if issued, or our potential future patents
may be successfully challenged or that no patent will be issued from our patent
application. It is also possible that we may not develop proprietary products or
technologies that are patentable, that any patent issued to us may not provide
us with any competitive advantages, or that the patents of others will seriously
harm our ability to do business.

We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in Ariba ORMS to
perform key functions. For example, we license reporting software from Actuate.
If we are unable to continue to license any of this software on commercially
reasonable terms, we will face delays in releases of our software until
equivalent technology can be identified, licensed or developed, and integrated
into our current product. These delays if they occur could seriously harm our
business.

Ariba and the Ariba logo are registered as trademarks in the United States.
In addition, we have the following trademarks registered in one or more foreign
countries: Ariba, the Ariba logo, the Ariba "boomerang" design, ORM, ORMS and
Walk-Up UI. We also have filed applications to register these trademarks in
several countries. We have filed trademark applications in the United States for
Ariba.com and Ariba.com Network. The above mentioned trademark applications are
subject to review by the applicable governmental authority, may be opposed by
private parties, and may not issue.

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 our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.

There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or

47
<PAGE>
potential future products infringe their intellectual property. We expect that
software product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business.

EMPLOYEES

As of March 31, 1999, we had a total of 232 employees, including 74 in
research and development, 69 in sales and marketing, 63 in customer support,
professional services and training, and 26 in administration and finance. Of
these employees, 221 were located in the United States and 11 were located
outside the United States. 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 operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement. Our future success also depends on our
continuing ability to attract and retain highly qualified technical, sales and
senior management personnel. Competition for these personnel is intense, and we
may not be able to retain our key technical, sales and senior management
personnel or attract these personnel in the future. We have experienced
difficulty in recruiting qualified technical, sales and senior management
personnel, and we expect to experience these difficulties in the future. If we
are unable to hire and retain qualified personnel in the future, this inability
could seriously harm our business.

FACILITIES

Our principal sales, marketing, research, development and administrative
office occupies approximately 33,000 square feet in Sunnyvale, California, under
a lease that expires on August 31, 2004. In addition, we also lease sales and
support offices in the metropolitan areas of Atlanta, Amsterdam, Boston,
Chicago, Columbus, Dallas, Detroit, London, Los Angeles, Melbourne, Milwaukee,
Minneapolis, New York, St. Louis, Toronto, Washington, D.C. and Zurich. In
September 1999, we intend to move our headquarters to expanded facilities
located in approximately 130,000 square feet in Mountain View, California. Our
sublease for this facility expires in October 2006.

48
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of Ariba, and their ages as of March
31, 1999, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Keith J. Krach....................................... 42 President, Chief Executive Officer and Chairman of
the Board of Directors
Edward P. Kinsey..................................... 42 Chief Financial Officer, Vice President-- Finance &
Administration and Secretary
Robert J. DeSantis................................... 35 Vice President--International Operations
Rune C. Eliasen...................................... 44 Vice President--Customer Services
K. Charly Kleissner.................................. 42 Vice President--Engineering
Robert D. Lent....................................... 45 Vice President--Business Development
Paul L. Melchiorre................................... 38 Vice President--North American Operations
David L. Rome........................................ 50 Vice President--Marketing
Paul C. M. Touw...................................... 34 Vice President--Corporate Strategy
Paul Hegarty......................................... 34 Director
Robert C. Kagle...................................... 43 Director
John B. Mumford...................................... 55 Director
Hatim A. Tyabji...................................... 54 Director
</TABLE>

KEITH J. KRACH, a co-founder of Ariba, has served as Chairman of the Board
of Directors, Chief Executive Officer and President since our inception in
September 1996. From March 1996 to September 1996, Mr. Krach served as an
Entrepreneur in Residence at Benchmark Capital. From October 1988 to August
1995, Mr. Krach served as Chief Operating Officer of Rasna Corporation, a
mechanical computer-aided design automation software company. Prior to joining
Rasna, Mr. Krach held various positions with General Motors, including General
Manager and Vice President of GMF Robotics. Mr. Krach holds a Bachelor of
Science degree in Industrial Engineering from Purdue University and a Master of
Business Administration from Harvard Business School.

EDWARD P. KINSEY, a co-founder of Ariba, has served as Chief Financial
Officer, Secretary and Vice President of Finance and Administration since our
inception in September 1996. From October 1995 to August 1996, Mr. Kinsey served
as the Chief Financial Officer and Vice President of Finance of CenterView
Software, an Internet development tools company. From March 1994 to October
1996, Mr. Kinsey served as Corporate Controller of Rasna Corporation and, from
July 1988 to March 1994, Mr. Kinsey served in various capacities at
Zenger-Miller, Inc., a management and supervisory skills training and
development company, most recently as the Chief Financial Officer and Vice
President of Operations. Prior to 1988, Mr. Kinsey held management positions at
Peat Marwick Mitchell and at Price Waterhouse. Mr. Kinsey is a Certified Public
Accountant in California and Ohio and holds a Bachelor of Business
Administration degree in Accounting from the University of Toledo.

ROBERT J. DESANTIS, a co-founder of Ariba, has served as Vice President of
International Operations since July 1998 and Vice President of Sales from our
inception in September 1996 to July 1998. From October 1995 to September 1996,
Mr. DeSantis worked as a consultant in the venture capital community. From
August 1990 to October 1995, Mr. DeSantis served as Vice President of Sales and
Vice President of European Operations at Rasna Corporation. Prior to joining
Rasna, Mr. DeSantis served as Director of Sales for Structural Research and
Analysis Corporation, a design analysis software company, and as a member of the
technical staff of Hughes Aircraft Company. Mr. DeSantis holds a Bachelor of
Science degree in Mechanical Engineering from the University of Rhode Island.

49
<PAGE>
RUNE C. ELIASEN has served as Ariba's Vice President of Customer Services
since March 1997. From August 1995 to February 1997, Mr. Eliasen served as Vice
President of Operations at CBT Systems, Inc., a computer training development
company. From March 1989 to August 1995, Mr. Eliasen served as the Vice
President of Operations at Rasna Corporation. Prior to joining Rasna, Mr.
Eliasen held various senior engineering management positions at General Motors
and Ford Motor Company. Mr. Eliasen holds a Bachelor of Science degree in
Aeronautical and Astronautical Engineering from Purdue University.

K. CHARLY KLEISSNER has served as Ariba's Vice President of Engineering
since July 1997. From June 1996 to July 1997, Dr. Kleissner was Vice President
of Product Development at DataMind Corporation, a data mining software tools
development company. From April 1994 to June 1996, Dr. Kleissner held various
senior engineering management positions at NeXT Software Inc., a software
development company. Prior to joining NeXT, Dr. Kleissner held various senior
engineering management positions at Digital Equipment Corporation and
Hewlett-Packard Company. Dr. Kleissner holds a Ph.D. in Computer Science from
the University of Technology, Vienna and a Master of Science degree in Computer
Science from the Institute of Technology at the University of Vienna.

ROBERT D. LENT, a co-founder of Ariba, has served as Vice President of
Business Development since December 1997. From January 1993 to September 1996,
Mr. Lent was Vice President of U.S. Marketing for Inmac, a supplier of
networking and computing equipment. Prior to joining Inmac, he held various
senior product-marketing positions at Quantum, a mass storage company, and
Softbridge Microsystems. Mr. Lent began his career with Deloitte & Touche LLP.
Mr. Lent is a Certified Public Accountant and holds a Bachelor of Science degree
in Business Administration from the University of California at Berkeley and a
Master of Business Administration with distinction from Harvard Business School.

PAUL L. MELCHIORRE has served as Ariba's Vice President of North American
Operations since May 1998. From December 1992 to May 1998, Mr. Melchiorre served
as Senior Vice President of Global Accounts for SAP America, Inc., an enterprise
software company. Prior to joining SAP, he held various sales and management
positions with MAI Systems, an accounting software company, and Automatic Data
Processing, a developer of business software. Mr. Melchiorre holds a Bachelor of
Science degree in Marketing from Villanova University and a Master of Business
Administration from Drexel University.

DAVID L. ROME has served as Ariba's Vice President of Marketing since July
1997. From March 1997 to July 1997, Mr. Rome served as Vice President of
Marketing at Calico Technology, an Internet company focused on enabling
electronic commerce for companies selling complex products and services. From
July 1990 to September 1995, Mr. Rome held several general manager positions at
Lotus Development Corporation. Prior to joining Lotus, Mr. Rome held various
senior sales and marketing management positions with Alliant Computer Systems, a
specialized computer manufacturer, and Data General Corporation, a data storage
products company. Mr. Rome holds a Bachelor of Science degree in Mechanical
Engineering from Purdue University and a Master of Business Administration from
Harvard Business School.

PAUL C. M. TOUW, a co-founder of Ariba, has served as Vice President of
Corporate Strategy since March 1997 and managed marketing and business
development for Ariba from our inception in September 1996 to March 1997. From
September 1995 to July 1996, Mr. Touw managed western area sales and business
development for Open Market, Inc., an Internet commerce software company. From
1991 to September 1995, Mr. Touw held various senior technical and sales
management positions at Rasna Corporation. Prior to joining Rasna, Mr. Touw held
analyst and senior analyst positions at Westinghouse Electric Company, AEC Able
Engineering, and BP Advanced Materials serving primarily in aerospace
engineering and analysis roles. Mr. Touw holds a Bachelor of Science degree in
Mechanical and Physics Engineering from University of the Pacific, School of
Engineering.

50
<PAGE>
PAUL HEGARTY, a co-founder of Ariba, has served as Vice President of
Engineering from our inception in September 1996 to August 1997, as Chief
Technical Officer from our inception to October 1998 and as a director since
October 1998. From June 1996 to September 1996, Mr. Hegarty served as an
Entrepreneur in Residence at Benchmark Capital. From February 1988 to May 1996,
Mr. Hegarty served in various engineering capacities at NeXT Software, Inc.,
including Vice President of Engineering. Mr. Hegarty holds Bachelor of Science
and Master of Science degrees in Electrical Engineering from Stanford
University.

ROBERT C. KAGLE has served as a director of Ariba since our inception in
September 1996. Mr. Kagle has been a Managing Member of Benchmark Capital
Management Co., L.L.C., the General Partner of Benchmark Capital Partners, L.P.
and Benchmark Founders' Fund, L.P., since its founding in May 1995. Mr. Kagle
also has been a General Partner of Technology Venture Investors since January
1984. Mr. Kagle currently serves as a director of publicly held companies eBay
Inc. and E-Loan, and is currently a Director of the National Association of
Venture Capitalists and a Trustee of Kettering University, formerly known as the
General Motors Institute. Mr. Kagle holds a Bachelor of Science degree in
Electrical and Mechanical Engineering from the General Motors Institute and a
Master of Business Administration from the Stanford Graduate School of Business.

JOHN B. MUMFORD has served as a director of Ariba since our inception in
September 1996. Mr. Mumford has served as Managing Partner of Crosspoint Venture
Partners since 1970. Mr. Mumford currently serves as a director of a number of
private companies primarily in the information technology area. Mr. Mumford is a
co-founder and director of Hello Direct, Inc., a public company, and served as a
director of Office Depot, a public company, from its formation in 1986 to April
1997. Mr. Mumford was also a founding director of Inmac Corp., a public company,
and served in this capacity until its merger with Micro Warehouse in 1996. Mr.
Mumford holds a Bachelor of Science degree in Accounting from Arizona State
University and a Master of Business Administration from the Stanford Graduate
School of Business.

HATIM A. TYABJI has served as a director of Ariba since January 1998. Mr.
Tyabji served as President and Chief Executive Officer from 1986 to 1998 and as
Chairman of the Board from 1992 to 1998 of VeriFone, Inc., a wholly-owned
subsidiary of Hewlett-Packard. Prior to joining VeriFone, Mr. Tyabji served as
President of the Information Systems Products and Technologies Group of Unisys
Corporation, formerly known as Sperry Corporation. Mr. Tyabji holds a Bachelor
of Science degree in Electrical Engineering from the College of Engineering in
Poona, India and a Master of Science degree in Electrical Engineering from the
State University of New York, Buffalo. He also has a Master of Business
Administration in International Business from Syracuse University and is a
graduate of the Stanford University Executive Program.

Ariba currently has authorized five directors. Each director holds office
until the next annual meeting of stockholders or until his successor is elected.
Our officers serve at the discretion of the board of directors. There are no
family relationships among our directors and officers.

BOARD COMMITTEES

The board of directors has an audit committee and a compensation committee.

AUDIT COMMITTEE. The audit committee makes recommendations to the board of
directors regarding the selection of independent accountants, reviews the
results and scope of audit and other services provided by our independent
accountants and reviews and evaluates the our audit and control functions. The
audit committee currently consists of Robert C. Kagle and John B. Mumford.

COMPENSATION COMMITTEE. The compensation committee reviews and makes
recommendations regarding our stock plans and makes decisions concerning
salaries and incentive compensation for our

51
<PAGE>
employees and consultants. The compensation committee currently consists of
Robert C. Kagle and Hatim A. Tyabji.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from Ariba for
their services as members of the board of directors, although members are
reimbursed for expenses in connection with attendance at board of directors and
committee meetings. Directors are eligible to participate in Ariba's stock
plans, and beginning in 1999, employee directors will also be able to
participate in Ariba's 1999 Equity Incentive Plan and non-employee directors
will receive periodic option grants under Ariba's 1999 Directors' Stock Option
Plan. On January 21, 1998, in connection with his appointment to the board of
directors, Mr. Tyabji was granted an option to purchase 200,000 shares of our
common stock at an exercise price of $.375 per share, subject to a four-year
vesting schedule. See "Management--1999 Equity Incentive Plan."

EXECUTIVE COMPENSATION

The following table sets forth compensation information for fiscal 1998 paid
by Ariba for services by our Chief Executive Officer and our four other
highest-paid executive officers whose total salary and bonus for such fiscal
year exceeded $100,000, whom we collectively refer to as the Named Officers:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
--------------------- NUMBER OF SECURITIES OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS(#) COMPENSATION($)
- -------------------------------------------------- ---------- --------- --------------------- ----------------
<S> <C> <C> <C> <C>
Keith J. Krach ................................... $ 106,667 $ 33,000 -- --
President, Chief Executive Officer and Director
Edward P. Kinsey ................................. 106,667 36,333 -- --
Chief Financial Officer, Vice President--
Finance & Administration and Secretary
Robert J. DeSantis ............................... 106,667 76,605 200,000 $ 6,250
Vice President--International Sales
Rune C. Eliasen .................................. 106,667 33,000 -- --
Vice President--Customer Service
David L. Rome .................................... 90,000 60,000 -- --
Vice President--Marketing
</TABLE>

<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options during fiscal
1998 to each of the Named Officers. No stock appreciation rights were granted
during the fiscal year. Each of the options listed in the table below is
immediately exercisable. The shares purchasable thereunder are subject to
repurchase by us at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in those shares. The repurchase
right lapses and the optionee vests as to 25% of the option shares upon
completion of one year of service from the date of grant and the balance in a
series of equal monthly installments over the next 36 months of service. The
option shares will vest upon a change in control, unless our repurchase right
with respect to the unvested option shares is transferred to the acquiring
entity. The option shares will also vest in certain circumstances should the
optionee's employment or service be involuntarily terminated following a change
in control. Each of the options has a ten-year term, subject to earlier
termination in the event the holder ceases providing services to us.

The percentage numbers are based on an aggregate of 3,978,000 options
granted to our employees under our 1996 Stock Plan during fiscal 1998. The
exercise price was equal to the fair market value of our common stock as valued
by the board of directors on the date of grant. The exercise price may be paid
in cash, in shares of our common stock valued at fair market value on the
exercise date or through a cashless exercise procedure as long as this procedure
would not cause us to recognize compensation expense for financial reporting
purposes. We may also finance the option exercise by accepting a full recourse
note from the optionee equal to the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.

The potential realizable value is calculated based on a ten-year term of the
option at the time of grant. Stock price appreciation of 5% and 10% is assumed
because of SEC rules and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by assuming that the exercise price on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL 1998 ($/SH) DATE 5% 10%
- -------------------------------- ----------- ------------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Keith J. Krach.................. -- -- -- -- -- --
Edward P. Kinsey................ -- -- -- -- -- --
Robert J. DeSantis.............. 200,000 5.0% $ 1.00 5/31/08 $ 125,779 $ 318,748
Rune C. Eliasen................. -- -- -- -- -- --
David L. Rome................... -- -- -- -- -- --
</TABLE>

In addition to the options listed in the table, stock options were granted
in fiscal 1999 to some of the Named Officers and to other executive officers
under our 1996 Stock Plan for the following number of shares and at the exercise
price of $2.375 per share: Mr. Krach, 400,000; Mr. DeSantis, 80,000; Mr.
Eliasen, 40,000; and Mr. Kinsey, 160,000. Each of the options is immediately
exercisable subject to deferral to satisfy the $100,000 limitation applicable to
incentive options. The shares purchasable under the options are subject to
repurchase by us at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The repurchase
right lapses as to 10% of the shares upon completion of one year of service, 20%
upon completion of two years of service, 30% upon completion of three years of
service and the balance upon completion of four years of service from the grant
date.

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<PAGE>
FISCAL YEAR END OPTION VALUES

The following table sets forth for each of the Named Officers options
exercised and the number and value of securities underlying unexercised options
that are held by the Named Officers as of September 30, 1998. The heading
"Vested" refers to shares no longer subject to repurchase by us, and the heading
"Unvested" refers to shares subject to repurchase by us, in each case as of
September 30, 1998. The value of unexercised in-the-money options at 1998 fiscal
year end is based on the fair market value of our common stock at September 30,
1998, or $1.3325 per share, less the exercise price payable for these shares.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
END (#) AT FISCAL YEAR END ($)
---------------------- ----------------------
NAME VESTED UNVESTED VESTED UNVESTED
- -------------------------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Keith J. Krach............................................................ -- -- -- --
Edward P. Kinsey.......................................................... -- -- -- --
Robert J. DeSantis........................................................ -- 200,000 -- $ 66,500
Rune C. Eliasen........................................................... -- -- -- --
David L. Rome............................................................. -- -- -- --
</TABLE>

CHANGE OF CONTROL ARRANGEMENTS

The compensation committee of the board of directors, as administrator of
the 1999 Equity Incentive Plan, can provide for accelerated vesting of the
shares of common stock subject to outstanding options held by any executive
officer or director of Ariba in connection with certain changes in control of
Ariba. The accelerated vesting may be conditioned on the termination of the
individual's employment following the change in control event.

None of the Named Officers have employment agreements with us, and they may
resign and we may terminate their employment at any time.

1999 EXECUTIVE BONUS PROGRAM

We have a bonus program pursuant to which selected officers and other
full-time employees are eligible for annual cash bonuses based on our
achievement of specified objectives. For 1999, an officer's target bonus will be
awarded based on our achievement of revenue targets, customer bookings targets,
income targets and customer satisfaction targets and other individual objectives
to be determined by the compensation committee of the board of directors.

1999 EQUITY INCENTIVE PLAN

Ariba's 1999 Equity Incentive Plan was adopted by our board of directors on
April 20, 1999 and our stockholders will also be asked to approve the adoption
of the plan. We have reserved 2,400,000 shares of common stock for issuance
under the 1999 Equity Incentive Plan. Any shares not yet issued under our 1996
Stock Plan as of the date of this offering will also be available for grant
under the 1999 Equity Incentive Plan. As of January 1 of each year, commencing
with the year 2000, the number of shares we reserve for issuance under the 1999
Equity Incentive Plan will be increased automatically by 5% of the total number
of shares of common stock then outstanding or, if less, by 2,000,000 shares. As
of March 31, 1999, we had not granted any options under the 1999 Equity
Incentive Plan.

Under the 1999 Equity Incentive Plan, the eligible individuals are
employees, non-employee members of the board of directors and consultants. The
types of awards that may be made under the 1999 Equity Incentive Plan are
options to purchase shares of common stock, stock appreciation rights,
restricted shares

54
<PAGE>
and stock units. Options may be incentive stock options that qualify for
favorable tax treatment for the optionee under Section 422 of the Internal
Revenue Code of 1986 or nonstatutory stock options not designed to qualify for
such favorable tax treatment. With limited restrictions, if shares awarded under
the 1999 Equity Incentive Plan or the 1996 Stock Plan are forfeited, then those
shares will again become available for new awards under the 1999 Equity
Incentive Plan.

The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan, including the discretion to determine which eligible individuals
are to receive any award, and to determine the type, number, vesting
requirements and other features and conditions of each award.

The exercise price for incentive stock options granted under the 1999 Equity
Incentive Plan may not be less than 100% of the fair market value of the common
stock on the option grant date. The exercise price for non-qualified options
granted under the 1999 Equity Incentive Plan may not be less than 85% of the
fair market value of the common stock on the option grant date. The exercise
price may be paid in cash or in outstanding shares of common stock. The exercise
price may also be paid by using a cashless exercise method, a pledge of shares
to a broker or promissory note. The purchase price for newly issued restricted
shares awarded under the 1999 Equity Incentive Plan may be paid in cash, by
promissory note or by the rendering of past or future services.

The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.

Upon certain defined events causing a change in control of Ariba, an option
or other award under the 1999 Equity Incentive Plan will become fully
exercisable or fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another award on substantially the same terms.

If a change in control occurs within 12 months after the optionee's vesting
start date, then the option or award vests as to an additional number of shares
as if the optionee had been in service 12 additional months. In addition, if a
change in control occurs more than 12 months after the optionee's vesting start
date, then the option or award vests as to the lesser of:

- 50% of the then remaining unvested portion of the option or award; or

- the excess of (1) 75% of the total number of shares originally subject to
the option or award over (2) the number of shares that had already vested.

Each option or award fully vests after a change in control if the optionee's
employment or service is terminated without his or her consent and without cause
or the optionee resigns after he or she is subject to a reduction in authority
or responsibility or a reduction in compensation or benefits.

Change in control includes:

- a merger or consolidation of Ariba after which our then current
stockholders own less than 50% of the surviving corporation;

- sale of all or substantially all of the assets of Ariba;

- a proxy contest that results in replacement of more than one-third of our
directors over a 24-month period; or

- an acquisition of 50% or more of our outstanding stock by a person other
than a person related to Ariba, such as a corporation owned by the
stockholders of Ariba.

55
<PAGE>
In the event of a merger or other reorganization, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if Ariba is the surviving corporation, shall
have accelerated vesting and then expire early, or shall be canceled for a cash
payment.

Our board of directors may amend or terminate the 1999 Equity Incentive Plan
at any time. If our board amends the plan, stockholder approval of the amendment
will be sought only if required by an applicable law. The 1999 Equity Incentive
Plan will continue in effect indefinitely unless our board decides to terminate
the plan earlier.

EMPLOYEE STOCK PURCHASE PLAN

Our board of directors adopted our Employee Stock Purchase Plan on April 20,
1999, and our stockholders will also be asked to approve the adoption of the
plan. We have reserved 4,000,000 shares of common stock for issuance under the
Employee Stock Purchase Plan. As of January 31 each year, we will increase the
number of shares we reserve for issuance under the Employee Stock Purchase Plan
automatically by 2% of the total number of shares of our common stock
outstanding or, if less, 750,000 shares.

The Employee Stock Purchase Plan is intended to qualify under Section 423 of
the Internal Revenue Code. Two overlapping offering periods each with a duration
of 24 months will commence on February 1 and August 1 each calendar year.
However, the first offering period will commence on the effective date of the
offering and end on July 31, 2001. Purchases of common stock will occur on
January 31 and July 31 each calendar year during an offering period. The
Employee Stock Purchase Plan will be administered by the compensation committee
of our board of directors. Each of our employees is eligible to participate if
he or she is employed by us for at least 20 hours per week and for more than
five months per year.

The Employee Stock Purchase Plan permits each eligible employee to purchase
our common stock through payroll deductions. Each employee's payroll deductions
may not exceed 15% of the employee's cash compensation. The initial period
during which payroll deductions will be accumulated will begin on the effective
date of this offering and end on January 31, 2000. No more than 2,000 shares may
be purchased on any purchase date. The price of each share of common stock
purchased under the Employee Stock Purchase Plan will be 85% of the lower of (1)
the fair market value per share of common stock on the date immediately before
the first date of the applicable offering period or (2) the fair market value
per share of common stock on the purchase date. In the case of the first
offering period, the price per share under the plan will be 85% of the price
offered to the public in the offering. Employees may end their participation in
the Employee Stock Purchase Plan at any time. Participation ends automatically
upon termination of employment with Ariba.

In the event of a change in control of Ariba, the Employee Stock Purchase
Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees. The board may amend or terminate
the Employee Stock Purchase Plan at any time. If our board of directors
increases the number of shares of common stock reserved for issuance under the
Employee Stock Purchase Plan, we must seek the approval of our stockholders.

1999 DIRECTORS' STOCK OPTION PLAN

The 1999 Directors' Stock Option Plan was adopted by our board of directors
on April 20, 1999, and our stockholders will also be asked to approve the
adoption of the plan. Under the 1999 Directors' Stock Option Plan, non-employee
members of our board of directors will be eligible for automatic option grants.

We have reserved 500,000 shares of our common stock for issuance under the
1999 Directors' Stock Option Plan. We have not yet granted any options under the
1999 Directors' Stock Option Plan. The

56
<PAGE>
compensation committee of the board of directors will make any administrative
determinations under the 1999 Directors' Stock Option Plan.

The exercise price for options granted under the 1999 Directors' Stock
Option Plan may be paid in cash or in outstanding shares of common stock.
Options may also be exercised on a cashless basis through the same-day sale of
the purchased shares.

Each individual who first joins the board as a non-employee director on or
after the effective date of this offering will receive at that time an option
grant for 10,000 shares of our common stock. In addition, at each annual meeting
of our stockholders, beginning in 2000, each non-employee director will
automatically be granted at that meeting, whether or not he or she is standing
for re-election at that particular meeting, a stock option to purchase 2,500
shares of our common stock. The initial option will become exercisable for 50%
of the shares at the grant date and the balance after 12 months of board
service. Each option will have an exercise price equal to the fair market value
of our common stock on the automatic grant date. Each option will have a maximum
term of ten years, but will terminate earlier if the optionee ceases to be a
member of our board of directors. Each option will fully vest automatically upon
a change in control. Change in control has the same meaning under this plan as
it does in the 1999 Equity Incentive Plan.

Our board of directors may amend or modify the 1999 Directors' Stock Option
Plan at any time. The 1999 Directors' Stock Option Plan will terminate on April
19, 2009, unless the board of directors decides to terminate the plan sooner.

57
<PAGE>
CERTAIN TRANSACTIONS

Since our inception on September 17, 1996, we have issued and sold preferred
stock to the following persons who are our principal stockholders, executive
officers or directors.

<TABLE>
<CAPTION>
SHARES OF SHARES OF
SERIES A SERIES B
PREFERRED PREFERRED
INVESTOR STOCK STOCK
- --------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Entities affiliated with Benchmark Capital Management Co., L.L.C................. 6,000,000 480,000
Crosspoint Venture Partners 1996................................................. 5,000,000 320,000
Keith J. Krach................................................................... 340,000 34,000
Hatim A. Tyabji.................................................................. -- 96,000
</TABLE>

Shares held by all affiliated persons and entities have been aggregated.
Share numbers and purchase price information are reflected on an as if converted
into shares of common stock basis. See "Principal Stockholders" for more detail
on shares held by these purchasers. Robert C. Kagle, one of our directors, is an
affiliate of each of the entities affiliated with Benchmark Capital Management
Co., L.L.C. John B. Mumford, one of our directors, is an affiliate of Crosspoint
Venture Partners 1996.

The shares of our preferred stock were sold as we were raising capital to
finance our development activies and operations. The shares of Series A
preferred stock were issued and sold on September 27, 1996 in a private
transaction to a limited number of individuals and institutional investors at a
per share purchase price of $.50 resulting in aggregate proceeds to us of $6.0
million. The shares of Series B preferred stock were issued and sold in a series
of transactions between August 15, 1997 and December 19, 1997 in private
transactions to a limited number of individuals and institutional investors at a
per share purchase price of $3.125 resulting in aggregate proceeds to us of
$14.0 million. None of the institutional investors who negotiated the terms of
these transactions were affiliated with Ariba prior to purchasing these shares.

In addition, we have granted options to some of our directors and executive
officers. See "Management--Director Compensation," "--Option Grants in Last
Fiscal Year" and "Principal Stockholders."

We intend to enter into an indemnification agreement with each of our
executive officers and directors.

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of
our common stock as of March 31, 1999, and as adjusted to reflect the sale of
shares offered and the conversion of all outstanding shares of preferred stock
into shares of common stock held by the following persons:

- each person who we know to own beneficially more than five percent of our
common stock;

- each of the Named Officers;

- each of our directors; and

- all directors and executive officers as a group.

The number of shares of common stock outstanding after this offering
includes 4,000,000 shares of common stock being offered for sale by us in this
offering. The percentage of beneficial ownership for the following table is
based on 37,741,396 shares of common stock outstanding as of March 31, 1999
assuming conversion of all outstanding shares of preferred stock into common
stock, the exercise of a warrant to purchase 524,400 shares of common stock
prior to the closing of this offering and 41,741,396 shares of common stock
outstanding after the completion of this offering assuming no exercise of the
underwriters' over-allotment option.

Under the rules of the Securities and Exchange Commission, beneficial
ownership includes voting or investment power with respect to securities and
includes the shares issuable under stock options that are exercisable within 60
days of March 31, 1999. Shares issuable under stock options are deemed
outstanding for computing the percentage of the person holding options but are
not outstanding for computing the percentage of any other person. Accordingly,
the following table includes information regarding shares issuable under stock
options exercisable with 60 days for the following persons and in the following
share amounts: Robert J. DeSantis, options exercisable for 200,000 shares;
Edward P. Kinsey, options exercisable for 42,104 shares; Rune C. Eliasen,
options exercisable for 40,000 shares; and all directors and executive officers
as a group, options exercisable for 921,580 shares.

Unless otherwise indicated, the address for each listed stockholder is: c/o
Ariba, Inc., 1314 Chesapeake Terrace, Sunnyvale, California 94089. To our
knowledge, except as indicated in the footnotes to this table and under
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock.

<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY OWNED
OWNED ------------------------
------------ BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
Entities affiliated with
Benchmark Capital Management Co., L.L.C.(1) ................................ 6,480,000 17.2% 15.5%
Crosspoint Venture Partners 1996(2) .......................................... 5,320,000 14.1 12.7
Robert C. Kagle(1)............................................................ 6,480,000 17.2 15.5
John B. Mumford(2)............................................................ 5,320,000 14.1 12.7
Keith J. Krach................................................................ 5,261,200 13.9 12.6
Robert J. DeSantis............................................................ 1,921,600 5.1 4.6
Edward P. Kinsey(3)........................................................... 1,228,104 3.3 2.9
Paul Hegarty.................................................................. 1,194,580 3.2 2.9
Rune C. Eliasen............................................................... 680,000 1.8 1.6
David L. Rome................................................................. 640,000 1.7 1.5
Hatim A. Tyabji............................................................... 296,000 * *
All directors and executive officers as a group (13 persons).................. 25,772,960 68.3 61.7
</TABLE>

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

* Less than 1%.

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<PAGE>
(1) Includes 5,689,152 shares held by Benchmark Capital Partners, L.P. and
790,848 shares held by Benchmark Founders' Fund, L.P. Mr. Kagle, a director
of Ariba, is a General Partner of Benchmark Capital Management Co., L.L.C.,
which is the general partner of each of Benchmark Capital Partners, L.P. and
Benchmark Founders' Fund, L.P. Mr. Kagle disclaims beneficial ownership of
the shares held by Benchmark Capital Partners, L.P. and Benchmark Founders'
Fund, L.P. except to the extent of his pecuniary interest therein arising
from his general partnership interest. The address of Benchmark Capital
Management Co., L.L.C., is 2480 Sand Hill Road, Suite 200, Menlo Park, CA
94025.

(2) Mr. Mumford, a director of Ariba, is a Managing Member of Crosspoint
Associates 1996, which is the general partner of Crosspoint Venture Partners
1996. Mr. Mumford disclaims beneficial ownership of the shares held by
Crosspoint Venture Partners 1996 except to the extent of his pecuniary
interest therein arising from his ownership interest. The address of
Crosspoint Venture Partners 1996 is The Pioneer Building, 2925 Woodside
Road, Woodside, CA 94062.

(3) Includes 20,000 shares held by Lisa J. Kinsey as Custodian for Katelind
Irene Kinsey under the Uniform Transfers to Minors Act and 20,000 shares
held by Lisa J. Kinsey as Custodian for Grant Stephen Kinsey under the
Uniform Transfers to Minors Act.

60
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 200,000,000 shares of common stock,
$.002 par value, and 20,000,000 shares of preferred stock, $.002 par value,
after giving effect to the amendment and restatement of our amended and restated
certificate of incorporation to delete references to Series A, Series B and
Series BB preferred stock, which will occur upon conversion of such preferred
stock into common stock upon the closing of this offering, and the subsequent
authorization of shares of undesignated preferred stock, as described below.

COMMON STOCK

As of March 31, 1999, there were 37,216,996 shares of common stock
outstanding after giving effect to the conversion of our Series A, Series B and
Series BB preferred stock into common stock at a one-to-four ratio that were
held of record by approximately 159 stockholders. There will be 41,741,396
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and assuming no exercise after March 31, 1999 of
outstanding options, after giving effect to the sale of the shares of common
stock to the public offered, the conversion of our Series A, Series B and Series
BB preferred stock into common stock at a one-to-four ratio and the exercise of
a warrant to purchase 524,000 shares of common stock prior to the closing of
this offering.

Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available at times and in
amounts as the board may determine from time to time. See "Dividend Policy." The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Upon the liquidation, dissolution or winding up
of Ariba, the holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights and is not subject to redemption. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.

PREFERRED STOCK

On the closing of this offering, our amended and restated certificate of
incorporation will authorize 20,000,000 shares of preferred stock. The board of
directors has the authority to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions of each series,
such as dividend rights, dividend rates, conversion rights, voting rights, terms
of redemption, redemption prices, liquidation preferences and the right to
increase or decrease the number of shares of any series, without further vote or
action by the stockholders. The board of directors may issue preferred stock
with voting or conversion rights that may have the effect of delaying, deferring
or preventing a change in control of Ariba and could adversely affect the market
price of the common stock and the voting and other rights of the holders of
common stock. We currently have no plans to issue any of the preferred stock.

WARRANTS

As of March 31, 1999, there were warrants outstanding to purchase 570,944
shares of common stock with a weighted average exercise price of $3.29. A
warrant to purchase 14,544 shares expires three years from the date of this
offering. A warrant to purchase 32,000 shares expires on October 31, 2003. A
warrant to purchase 524,400 shares expires upon the closing of this offering,
and we anticipate that it will be exercised prior to this offering.

61
<PAGE>

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND DELAWARE LAW

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

The amended and restated certificate of incorporation provides that all
stockholder actions must be effected at a duly called meeting and not by a
consent in writing. As described above, the amended and restated certificate of
incorporation permits the board of directors to issue preferred stock with
voting or other rights without stockholder action. Commencing at our first
annual meeting of stockholders following this offering, our amended and restated
certificate of incorporation provides for the board of directors to be divided
into three classes with staggered three-year terms. These provisions, which
require the vote of stockholders holding at least 66 2/3% of the voting power of
the capital stock to amend, may have the effect of deterring hostile takeovers
or delaying changes in our management. See "Risk Factors--We Have Implemented
Certain Anti-Takeover Provisions That Could Make It More Difficult for a Third
Party to Acquire Us."

DELAWARE TAKEOVER STATUTE

We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to various exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder. This restriction applies unless:

- the transaction is approved by the board of directors prior to the date
the stockholder became an interested stockholder;

- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (1) persons who are
directors and also officers and (2) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

- on or subsequent to the date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 defines business combination to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

- any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder,
subject to various exceptions;

- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

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<PAGE>
In general, Section 203 defines an interested stockholder as any entity or
person who owns 15% or more of the outstanding voting stock of the corporation,
and any entity or person affiliated with or controlling or controlled by the
entity or person.

REGISTRATION RIGHTS

After this offering, the holders of approximately 29,850,556 shares of
outstanding common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. The holders of
registration rights are those investors that purchased shares of our Series A,
Series B and Series BB preferred stock, as well as some of our present and
former officers. Under the terms of the agreements between us and the holders of
these registrable securities, if we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, the holders are entitled to
notice of the registration and are entitled to include these shares in the
registration. Some of the stockholders benefiting from these rights may also
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
reasonable efforts to effect a registration. Further, holders may require us to
file additional registration statements on Form S-3 at our expense. These rights
are subject to conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in that
registration under certain circumstances.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the common stock is BankBoston, N.A.

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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Therefore, future sales of substantial amounts of our common stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after this offering due to existing contractual and legal restrictions
on resale as described below, sales of substantial amounts of our common stock
in the public market after the restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have 41,741,396 shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of March 31, 1999, other than a warrant to purchase 524,400 shares of common
stock that will be exercised prior to the closing of the offering, and the
conversion of all outstanding shares of preferred stock. Of these shares,
4,000,000 shares sold in this offering will be freely transferable without
restriction or registration under the Securities Act, except for any shares
purchased by one of our existing "affiliates," as that term is defined in Rule
144 under the Securities Act. The remaining 37,216,996 shares of common stock
existing are "restricted shares" as defined in Rule 144. Restricted shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 of the Securities Act. As a
result of the contractual restrictions described below and the provisions of
Rules 144 and 701, additional shares will be available for sale in the public
market as follows: (1) none of the restricted shares will be eligible for
immediate sale on the date of this prospectus and (2) all of the restricted
shares will be eligible for sale upon expiration of lock-up agreements 120 days
after the date of this prospectus subject to Rule 144.

LOCK-UP AGREEMENTS

Ariba, our directors and executive officers and certain of our stockholders
and option holders have each agreed not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock, for
a period of 120 days after the date of this prospectus, without the prior
written consent of Morgan Stanley & Co. Incorporated, subject to limited
exceptions. Morgan Stanley & Co. Incorporated, however, may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person, or persons whose shares are aggregated, who owns shares
that were purchased from us, or any affiliate, at least one year previously, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of our then-outstanding shares of common stock, which
will equal approximately 412,000 shares immediately after this offering, or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice of the sale on
Form 144. Sales under Rule 144 are also subject to manner of sale provisions,
notice requirements and the availability of current public information about us.
Any person, or persons whose shares are aggregated who is not deemed to have
been one of our affiliates at any time during the three months preceding a sale,
and who owns shares within the definition of "restricted securities" under Rule
144 that were purchased from us, or any affiliate, at least two years
previously, would be entitled to sell the shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.

64
<PAGE>
RULE 701

Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the date we become subject to the reporting
requirements of the Securities Exchange Act of 1934, or the Exchange Act, under
written compensatory benefit plans or written contracts relating to the
compensation of these persons. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercise of the options,
including exercises after the date of this prospectus. Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
prospectus, may be sold by persons other than affiliates subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its minimum holding period requirements.

REGISTRATION RIGHTS

Upon completion of this offering, the holders of approximately 29,850,556
shares of common stock, or their transferees, will be entitled to various rights
with respect to the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration, except for shares
purchased by affiliates. See "Description of Capital Stock--Registration
Rights."

STOCK OPTIONS

As of March 31, 1999, options to purchase a total of 8,145,260 shares of
common stock under our 1996 Stock Plan were outstanding and exercisable. All of
the shares subject to options are subject to lock-up agreements. As of March 31,
1999, warrants to purchase up to 570,944 shares of common stock were outstanding
and exercisable. An additional 1,340,700 shares of common stock were available
for future option grants under the 1996 Stock Plan. On April 20, 1999, we
adopted, subject to stockholder approval, the 1999 Equity Incentive Plan to
replace the 1996 Stock Plan, with an increase of shares available for issuance
of 2,400,000 shares, plus an additional number of shares equal to 5% of the
shares outstanding on January 1 of each year or, if less, 2,000,000 shares each
year. In addition, on April 20, 1999, we adopted, subject to stockholder
approval, the Employee Stock Purchase Plan, and reserved 4,000,000 shares of
common stock for issuance, and the 1999 Directors' Stock Option Plan, and
reserved 500,000 shares of common stock for issuance. See "Management--1999
Equity Incentive Plan," "--Employee Stock Purchase Plan," "--1999 Directors'
Stock Option Plan" and Note 6 of Notes to Consolidated Financial Statements.

We intend to file registration statements under the Securities Act covering
all shares of common stock subject to outstanding options or issuable pursuant
to our 1999 Equity Incentive Plan and 1999 Directors' Stock Option Plan, and
4,000,000 shares of common stock issuable under our Employee Stock Purchase
Plan. We expect to file the registration statement covering shares issuable
pursuant to the Employee Stock Purchase Plan on the effective date of this
offering and to file the registration statement covering shares offered under
the 1999 Equity Incentive Plan and 1999 Directors' Stock Option Plan
approximately 30 days after the closing of this offering. Subject to Rule 144
volume limitations applicable to affiliates, shares registered under any
registration statements will be available for sale in the open market, beginning
90 days after the date of the prospectus, except to the extent that the shares
are subject to vesting restrictions with us or the contractual restrictions
described above. See "Management--1999 Equity Incentive Plan," "--Employee Stock
Purchase Plan" and "--1999 Directors' Stock Option Plan."

65
<PAGE>
UNDERWRITERS

Under the terms and subject to conditions contained in an underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as representatives, have severally agreed to purchase,
and Ariba has agreed to sell to the underwriters, the respective number of
shares of common stock set forth opposite the names of such underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................................
BT Alex. Brown Incorporated...........................................................
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated.......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................................

----------------
Total............................................................................ 4,000,000
----------------
----------------
</TABLE>

The underwriters are offering the shares of common stock subject to their
acceptance of the shares from Ariba and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by us in this offering
are subject to the approval of legal matters by their counsel and to other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered by us in this offering, other than those covered by the
over-allotment option described below, if any such shares are taken.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.

Ariba has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of 600,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by us in this offering. To the extent such option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as the number set forth next to such underwriter's name
in the preceding table bears to the total number of shares of common stock set
forth next to the names of the underwriters in the preceding table.

The underwriters have informed Ariba that the underwriters do not intend
sales to discretionary accounts to exceed five percent of the total number of
shares of common stock offered by them.

Ariba has applied to list the common stock on the Nasdaq National Market
under the symbol "ARBA."

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 400,000 shares of common stock offered by us in
this offering for employees of Ariba and their friends and family. The number of
shares of common stock available for sale to the general public will be reduced
to

66
<PAGE>
the extent such persons purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered hereby.

Ariba, our directors and executive officers and certain of our stockholders
and option holders have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, he, she or it
will not, during the period ending 120 days after the date of this prospectus:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

- enter into any swap or other agreement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the common
stock.

The restrictions described in the previous paragraph do not apply to:

- the issuance by Ariba of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or

- transactions by any person other than Ariba relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.

Ariba and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price will be determined
by negotiations between us and the representatives of the underwriters. Among
the factors to be considered in determining the initial public offering price
will be:

- the future prospects of Ariba and its industry in general;

- sales, earnings and certain other financial operating information of Ariba
in recent periods; and

- the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of Ariba.

The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.

67
<PAGE>
LEGAL MATTERS

The validity of the issuance of the common stock offered by us in this
offering will be passed upon for us by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California. Members of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, participating in the consideration
of legal matters relating to the common stock offered by us in this offering are
the beneficial owners of 12,800 shares of our common stock. Legal matters in
connection with this offering will be passed upon for the underwriters by
Fenwick & West LLP, Palo Alto, California.

EXPERTS

The consolidated financial statements as of September 30, 1997 and 1998 and
for each of the years in the two-year period ended September 30, 1998 have been
included in this registration statement in reliance upon the report of KPMG LLP,
independent auditors, given and upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
us and our common stock, reference is made to the registration statement and the
exhibits and schedules filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document referred to are not necessarily complete; reference is made in
each instance to the copy of the contract or document filed as an exhibit to the
registration statement. Each such statement is qualified in all respects by
reference to that exhibit. The registration statement, including exhibits and
schedules, may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.

68
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Form of Independent Auditors' Report................................................. F-2

Consolidated Balance Sheets.......................................................... F-3

Consolidated Statements of Operations and Other Comprehensive Income (Loss).......... F-4

Consolidated Statements of Stockholders' Equity...................................... F-5

Consolidated Statements of Cash Flows................................................ F-6

Notes to Consolidated Financial Statements........................................... F-7
</TABLE>

F-1
<PAGE>
When the recapitalization, which includes a stock split, referred to in Note
6 of the Consolidated Financial Statements has been consummated, we will be in a
position to render the following report.

/s/ KPMG LLP

FORM OF INDEPENDENT AUDITORS' REPORT

The Board of Directors

Ariba, Inc.:

We have audited the accompanying consolidated balance sheets of Ariba, Inc.
and subsidiaries (the Company) as of September 30, 1997 and 1998, and the
related consolidated statements of operations and other comprehensive income
(loss), stockholders' equity, and cash flows for each of the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ariba, Inc. and subsidiaries as of September 30, 1997 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

Mountain View, California

April 22, 1999, except as to
Note 6, which is as of
, 1999

F-2
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, 1999
-------------------- ----------------------
1997 1998 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,471 $ 8,305 $ 14,615 $ 16,345
Short-term investments.................................... -- 5,627 6,818 6,818
Restricted cash........................................... -- -- 800 800
Accounts receivable....................................... 222 2,600 6,316 6,316
Prepaid expenses and other current assets................. 135 255 2,053 2,053
--------- --------- --------- -----------
Total current assets.................................... 15,828 16,787 30,602 32,332
Property and equipment, net................................. 861 2,217 4,075 4,075
Other assets................................................ 111 238 378 378
--------- --------- --------- -----------
$ 16,800 $ 19,242 $ 35,055 $ 36,785
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 896 $ 962 $ 1,445 $ 1,445
Accrued compensation and related liabilities.............. 115 1,704 3,759 3,759
Accrued liabilities....................................... 560 1,264 2,396 2,396
Deferred revenue.......................................... 332 4,409 18,759 18,759
Current portion of long-term debt......................... 240 297 400 400
--------- --------- --------- -----------
Total current liabilities............................... 2,143 8,636 26,759 26,759
Long-term debt, net of current portion...................... 140 647 646 646
--------- --------- --------- -----------
Total liabilities....................................... 2,283 9,283 27,405 27,405
--------- --------- --------- -----------
Commitments
Stockholders' equity:
Convertible preferred stock, $.002 par value;
actual--10,000,000 shares authorized; 4,127,900,
4,461,294 and 4,461,294 shares issued and outstanding as
of September 30, 1997 and 1998, and March 31, 1999;
liquidation preferences of $18,914, $23,214 and $23,214
in aggregate as of September 30, 1997 and 1998 and March
31, 1999; pro forma--20,000,000 shares authorized; no
shares issued and outstanding........................... 8 9 9 --
Common stock, $.002 par value; actual--80,000,000 shares
authorized; 18,227,400, 19,092,040 and 19,371,820 shares
issued and outstanding as of September 30, 1997 and 1998
and March 31, 1999, respectively; pro forma--200,000,000
shares authorized; 37,741,396 shares issued and
outstanding............................................. 36 38 39 75
Additional paid-in capital................................ 19,302 28,218 49,339 51,042
Deferred stock-based compensation......................... (150) (2,735) (17,942) (17,942)
Accumulated other comprehensive income (loss)............. -- 61 (35) (35)
Accumulated deficit....................................... (4,679) (15,632) (23,760) (23,760)
--------- --------- --------- -----------
Total stockholders' equity.............................. 14,517 9,959 7,650 9,380
--------- --------- --------- -----------
$ 16,800 $ 19,242 $ 35,055 $ 36,785
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License....................................... $ 630 $ 6,040 $ 807 $ 10,500
Maintenance and service....................... 130 2,323 408 5,838
--------- --------- --------- ---------
Total revenues.............................. 760 8,363 1,215 16,338
--------- --------- --------- ---------
Cost of revenues:
License....................................... 13 165 17 250
Maintenance and service....................... 927 1,373 510 2,509
--------- --------- --------- ---------
Total costs of revenues..................... 940 1,538 527 2,759
--------- --------- --------- ---------
Gross profit (loss)............................. (180) 6,825 688 13,579
--------- --------- --------- ---------
Operating expenses:
Sales and marketing........................... 2,235 10,311 3,333 11,302
Research and development...................... 1,899 4,499 1,963 3,849
General and administrative.................... 588 2,580 880 2,698
Amortization of stock-based compensation...... 50 956 79 4,045
--------- --------- --------- ---------
Total operating expenses.................... 4,772 18,346 6,255 21,894
--------- --------- --------- ---------
Loss from operations............................ (4,952) (11,521) (5,567) (8,315)
Other income, net............................... 273 568 268 187
--------- --------- --------- ---------
Net loss........................................ $ (4,679) $ (10,953) $ (5,299) $ (8,128)
--------- --------- --------- ---------
Other comprehensive income (loss):
Unrealized gain (loss) on short-term
investments................................. -- 61 -- (80)
Foreign currency translation adjustment....... -- -- -- (16)
--------- --------- --------- ---------
Other comprehensive income (loss)............... -- 61 -- (96)
--------- --------- --------- ---------
Comprehensive loss.............................. $ (4,679) $ (10,892) $ (5,299) $ (8,224)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss per share............ $ (7.31) $ (1.90) $ (1.19) $ (0.84)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing basic and diluted net
loss per share................................ 639,587 5,761,912 4,455,761 9,694,493
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DEFERRED OTHER
---------------------- ---------------------- PAID-IN STOCK-BASED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS)
--------- ----------- --------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock......... -- $ -- 14,537,600 $ 28 $ 180 $ (200) $ --
Issuance of Series A convertible
preferred stock, net of
issuance costs of $12.......... 3,112,800 6 -- -- 6,208 -- --
Issuance of Series B convertible
preferred stock, net of
issuance costs of $30.......... 1,015,100 2 -- -- 12,656 -- --
Issuance of common stock--options
exercised...................... -- -- 5,339,000 10 258 -- --
Repurchase of common stock....... -- -- (1,649,200) (2) -- -- --
Amortization of stock-based
compensation................... -- -- -- -- -- 50 --
Net loss......................... -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, September 30, 1997..... 4,127,900 8 18,227,400 36 19,302 (150) --
Issuance of Series B convertible
preferred stock, net of
issuance costs of $3........... 144,000 -- -- -- 1,798 -- --
Issuance of Series BB convertible
preferred stock, net of
issuance costs of $7........... 189,394 1 -- -- 2,493 -- --
Issuance of common stock--options
exercised...................... -- -- 1,109,640 2 499 -- --
Repurchase of common stock....... -- -- (245,000) -- (12) -- --
Deferred stock-based
compensation................... 3,541 (3,541) --
Amortization of stock-based
compensation................... -- -- -- -- -- 956 --
Issuance of warrants for common
stock.......................... -- -- -- -- 504 -- --
Issuance of warrants for
preferred stock................ -- -- -- -- 93 -- --
Other comprehensive income....... -- -- -- -- -- -- 61
Net loss......................... -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, September 30, 1998..... 4,461,294 9 19,092,040 38 28,218 (2,735) 61
Issuance of common stock--options
exercised (unaudited).......... -- -- 1,461,300 3 1,872 -- --
Repurchase of common stock
(unaudited).................... -- -- (1,181,520) (2) (3) -- --
Deferred stock-based compensation
(unaudited).................... -- -- -- 19,252 (19,252)
Amortization of stock-based
compensation (unaudited)....... -- -- -- -- -- 4,045 --
Other comprehensive loss
(unaudited).................... -- -- -- -- -- -- (96)
Net loss (unaudited)............. -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, March 31, 1999
(unaudited).................... 4,461,294 $ 9 19,371,820 $ 39 $ 49,339 $ (17,942) $ (35)
--------- ----- --------- --- ----------- ------------- ---
--------- ----- --------- --- ----------- ------------- ---

TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Issuance of common stock......... $ -- $ 8
Issuance of Series A convertible
preferred stock, net of
issuance costs of $12.......... -- 6,214
Issuance of Series B convertible
preferred stock, net of
issuance costs of $30.......... -- 12,658
Issuance of common stock--options
exercised...................... -- 268
Repurchase of common stock....... -- (2)
Amortization of stock-based
compensation................... -- 50
Net loss......................... (4,679) (4,679)
------------ -------------
Balances, September 30, 1997..... (4,679) 14,517
Issuance of Series B convertible
preferred stock, net of
issuance costs of $3........... -- 1,798
Issuance of Series BB convertible
preferred stock, net of
issuance costs of $7........... -- 2,494
Issuance of common stock--options
exercised...................... -- 501
Repurchase of common stock....... -- (12)
Deferred stock-based
compensation................... -- --
Amortization of stock-based
compensation................... -- 956
Issuance of warrants for common
stock.......................... -- 504
Issuance of warrants for
preferred stock................ -- 93
Other comprehensive income....... -- 61
Net loss......................... (10,953) (10,953)
------------ -------------
Balances, September 30, 1998..... (15,632) 9,959
Issuance of common stock--options
exercised (unaudited).......... -- 1,875
Repurchase of common stock
(unaudited).................... -- (5)
Deferred stock-based compensation
(unaudited).................... -- --
Amortization of stock-based
compensation (unaudited)....... -- 4,045
Other comprehensive loss
(unaudited).................... -- (96)
Net loss (unaudited)............. (8,128) (8,128)
------------ -------------
Balances, March 31, 1999
(unaudited).................... $ (23,760) $ 7,650
------------ -------------
------------ -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................. $ (4,679) $ (10,953) $ (5,299) $ (8,128)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 112 644 196 496
Amortization of stock-based compensation............. 50 956 79 4,045
Non-cash warrant expense............................. -- 521 7 13
Loss on disposition of property and equipment........ 22 4 -- --
Changes in operating assets and liabilities:
Accounts receivable................................ (222) (2,378) 69 (3,716)
Prepaid expenses and other assets.................. (246) (171) (119) (674)
Accounts payable................................... 896 66 (145) 483
Accrued compensation and related liabilities....... 115 1,589 197 2,055
Accrued liabilities................................ 560 704 74 1,116
Deferred revenue................................... 332 4,077 1,177 14,350
--------- --------- --------- ---------
Net cash provided by (used) in operating
activities......................................... (3,060) (4,941) (3,764) 10,040
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment.................. (995) (896) (275) (2,033)
Proceeds from the sales of short term investments.... -- -- -- 1,369
Purchases of short-term investments.................. -- (5,566) -- (2,640)
Allocation to restricted cash........................ -- -- -- (800)
--------- --------- --------- ---------
Net cash used in investing activities................ (995) (6,462) (275) (4,104)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Borrowings under long-term debt...................... 400 -- -- --
Repayments under long-term debt...................... (20) (544) (139) (219)
Proceeds from sale of convertible preferred stock,
net................................................ 18,872 4,292 1,798 --
Proceeds from sale of common stock................... 276 501 156 598
Repurchase of common stock........................... (2) (12) (2) (5)
--------- --------- --------- ---------
Net cash provided by financing activities............ 19,526 4,237 1,813 374
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 15,471 (7,166) (2,226) 6,310
Cash and cash equivalents at beginning of period....... -- 15,471 15,471 8,305
--------- --------- --------- ---------
Cash and cash equivalents at end of period............. $ 15,471 $ 8,305 $ 13,245 $ 14,615
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during period for interest................. $ 14 $ 120 $ 75 $ 52
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-cash investing and financing activities:
Assets recorded under capital leases............... $ -- $ 1,108 $ 1,108 $ 321
--------- --------- --------- ---------
--------- --------- --------- ---------
Warrants issued for financing commitments.......... $ -- $ 93 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Ariba, Inc. (Ariba or the Company) is a provider of intranet- and
Internet-based business-to-business electronic commerce solutions for operating
resources. Ariba's Operating Resources Management System (ORMS) is a robust,
scalable and reliable network application that operates primarily within a
buying organization's intranet. Ariba ORMS enables organizations to automate the
procurement cycle by linking enclosures throughout the organization with
approvers and financial systems and by channeling purchases to preferred
suppliers, enabling reduced operating costs and improved productivity. The
recently launched Ariba.com network is a global business-to-business electronic
commerce network for operating resources, enabling buyers and suppliers to
automate transactions on the Internet.

The Company was incorporated on September 17, 1996, under the laws of the
state of Delaware and commenced operations on that date. The Company is
headquartered in Sunnyvale, California, and has offices throughout the United
States. Subsequent to year end, the Company established three wholly-owned
subsidiaries, namely Ariba Canada, Inc., Ariba Technologies U.K. Limited and
Ariba Technologies Nederland B.V., which are located in Canada, the United
Kingdom and The Netherlands, respectively.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared using
an inception date of October 1, 1996, as no significant operating activities
occurred between September 17, 1996, the date of incorporation, and September
30, 1996. Such activity consisted of the sale of common and preferred stock for
$6,000,000 and interest earned of $1,000 and has been included in the fiscal
1997 consolidated financial statements. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported results of operations during the reporting period.
Actual results could differ from those estimates.

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements, and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position as of

F-7
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
March 31, 1999, and the results of its operations and its cash flows for the six
months ended March 31, 1998 and 1999.

FOREIGN CURRENCY TRANSLATION

The functional currency for the Company's international subsidiaries is the
local currency of the country in which it operates. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Revenues,
expenses, gains, and losses are translated at the exchange rate on the date
those elements are recognized. Any translation adjustments are included in other
comprehensive income (loss).

CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. As of September 30, 1997 and
1998, cash equivalents consist of money market funds in the amount of
$15,392,000 and $8,288,000 respectively.

The Company classifies its short-term investments as "available-for-sale."
Such investments are recorded at fair value based on quoted market prices, with
unrealized gains and losses, which are considered to be temporary, recorded as
other comprehensive income (loss) until realized.

In March 1999, the Company entered into a new facilities operating lease
agreement (see Note 5). As part of this agreement, the Company is required to
hold a certificate of deposit as a form of security. As of March 31, 1999, the
certificate of deposit amounted to $800,000, and this is classified as
restricted cash.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The carrying value of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable and long-term
debt approximates fair market value. Financial instruments that subject the
Company to concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments and trade accounts receivable. Management
believes the financial risks associated with these financial instruments are
minimal. The Company maintains its cash and cash equivalents and short term
investments with high quality financial institutions. The Company's customer
base consists of businesses throughout North America. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral on accounts receivable, as the Company's customers are large,
well-established companies. To date, the Company has had no write-offs of
accounts receivable.

F-8
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Significant customer information is as follows:

<TABLE>
<CAPTION>
% OF TOTAL REVENUES ACCOUNTS RECEIVABLE
------------------------ ------------------------
1997 1998 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Customer A...................................................... 39% -- -- --
Customer B...................................................... 28% -- -- --
Customer C...................................................... 26% -- 45% --
Customer D...................................................... -- 21% -- --
Customer E...................................................... -- 18% -- 25%
Customer F...................................................... -- 13% -- --
Customer G...................................................... -- 13% -- 43%
Customer H...................................................... -- 11% -- --
</TABLE>

CAPITALIZED SOFTWARE

Costs related to the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility (in the form of a working model) of the product has
been established, at which time such costs are capitalized, subject to expected
recoverability. To date, the Company has not capitalized any development costs
related to software products since the time period between technological
feasibility and general release of a product is not significant and related
costs incurred during that time period have not been material.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the equipment, generally three to five years. Equipment recorded
under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the respective lease term or the
estimated useful life of the asset.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

F-9
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION

On October 1, 1997 the Company adopted Statement of Position (SOP) 97-2,
SOFTWARE REVENUE RECOGNITION, which supersedes SOP 91-1, SOFTWARE REVENUE
RECOGNITION. The adoption of SOP 97-2 did not have a material effect on the
Company's operating results. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements. License revenue
allocated to software products generally is recognized upon delivery of the
products or ratably over a contractual period if unspecified software products
are to be delivered during that period. Revenue allocated to maintenance is
recognized ratably over the maintenance term and revenue allocated to training
and other service elements is recognized as the services are performed.

If the services are considered essential to the functionality of the
software products, both the software product revenue and service revenue are
recognized using the percentage of completion method in accordance with the
provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE AND
CERTAIN PRODUCTION TYPE CONTRACTS. Such contracts are generally on a time and
materials basis with a few fixed fee contracts entered into in fiscal 1997 and
1998. The contracts are not subject to renegotiation and range from 5 to 18
months in duration. Revenues and costs are recognized based on the labor hours
incurred to date compared to total estimated labor hours for the contract.
Contract costs include all direct material, direct labor and indirect costs
related to contract performance. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are recorded in the period in which such losses become probable based
on the current contract estimates. Billings in excess of recognized revenues are
included in deferred revenue and amounted to $332,000 and $898,000 as of
September 30, 1997 and 1998, respectively.

Cost of license revenue primarily includes product, delivery and royalty
costs. Cost of maintenance and service revenue consists primarily of labor costs
for engineers performing implementation services and technical support and
training personnel and facilities and equipment costs.

INCOME TAXES

The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recorded to reduce deferred tax
assets to an amount whose realization is more likely than not. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

F-10
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION

The Company uses the intrinsic value-based method of accounting for all of
its employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No 28.

ACCUMULATED OTHER COMPREHENSIVE INCOME

In June 1997, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes
standards of reporting and display of comprehensive income and its components of
net income and "Other Comprehensive Income" in a full set of general purpose
financial statements. "Other Comprehensive Income" refers to revenues, expenses,
gains and losses that are not included in net income but rather are recorded
directly in stockholders' equity. SFAS 130 was adopted by the Company in 1998.
Tax effects of comprehensive income (loss) are not considered material.

NET LOSS PER SHARE

Basic net loss per share is computed using the weighted-average number of
vested outstanding shares of common stock. Diluted net loss per share is
computed using the weighted-average number of shares of vested common stock
outstanding and, when dilutive, unvested common stock outstanding, potential
common shares from options and warrants to purchase common stock using the
treasury stock method and from convertible securities using the as-if-converted
basis. All potential common shares have been excluded from the computation of
diluted net loss per share for all periods presented because the effect would be
antidilutive. Pursuant to the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock issued
for nominal consideration, prior to the anticipated effective date of the IPO,
are included in the calculation of basic and diluted net loss per share as if
they were outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration. Diluted net loss per
share does not include the effect of the following common equivalent shares:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Shares issuable under stock options.................................. 653,200 3,568,960
Shares of unvested stock subject to repurchase....................... 14,781,800 10,290,760
Shares issuable pursuant to warrants to purchase common and
convertible preferred stock........................................ -- 570,944
Shares of convertible preferred stock on an "as if converted"
basis.............................................................. 16,511,600 17,845,176
</TABLE>

The weighted-average exercise price of stock options outstanding was $.14
and $.77 as of September 30, 1997 and 1998, respectively. The weighted average
purchase price of unvested stock was $.05 and $.06 as of September 30, 1997 and
1998, respectively. The weighted average exercise price of warrants was $3.29 as
of September 30, 1998.

F-11
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation, and major customers. Management is in the process of
evaluating the financial reporting impact of this pronouncement. The Company
will adopt SFAS No. 131 in fiscal 1999.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company expects the adoption of SFAS No. 133 will not
have a material impact on its financial position, results of operations or cash
flows. The Company will be required to adopt SFAS No. 133 in fiscal 2000.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. The Company does not expect SOP 98-1 to have a material
effect on its financial position, results of operations or cash flows. The
Company will adopt SOP 98-1 in fiscal 2000.

In April 1998, the AcSEC issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. Under SOP 98-5, the cost of start-up activities should be expensed
as incurred. The Company expects that the adoption of SOP 98-5 will not have a
material impact on its financial position, results of operations or cash flows.
The Company will be required to adopt SOP 98-5 in fiscal 2000.

2. FINANCIAL STATEMENT COMPONENTS

SHORT-TERM INVESTMENTS

The following is a summary of available for sale securities as of September
30, 1998 (in thousands):

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Government bonds............................................... $ 8,387 $ 61 -- $ 8,448
Money market funds............................................. 5,467 -- -- 5,467
--
----------- --- ---------
13,854 61 -- 13,915
Less amounts classified as cash equivalents.................... 8,288 -- -- 8,288
--
----------- --- ---------
Securities available for sale.................................. $ 5,566 $ 61 -- $ 5,627
--
--
----------- --- ---------
----------- --- ---------
</TABLE>

As of September 1998, the weighted average portfolio duration and
contractual maturity was 15 months. The Company had no short-term investments as
of September 30, 1997.

F-12
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

2. FINANCIAL STATEMENT COMPONENTS (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of September 30, 1997
and 1998 (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and purchased software............................ $ 668 $ 1,648
Office equipment..................................................... 130 300
Furniture and fixtures............................................... 175 609
Leasehold improvements............................................... -- 416
--------- ---------
973 2,973
Less accumulated depreciation and amortization....................... 112 756
--------- ---------
$ 861 $ 2,217
--------- ---------
--------- ---------
</TABLE>

Certain computer and office equipment are recorded under capital leases that
aggregated $1,108,000 as of September 30, 1998. Accumulated amortization on the
assets recorded under capital leases aggregated $277,000 as of September 30,
1998.

OTHER INCOME, NET

Other income, net, consists of the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Interest income, net................................................... $ 289 $ 568
Other expense.......................................................... (16) --
--------- ---------
$ 273 $ 568
--------- ---------
--------- ---------
</TABLE>

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

In September 1996 and May 1997, the Company issued 3,112,800 shares of
Series A convertible preferred stock at $2.00 per share. From August 1997
through December 1997, the Company issued 1,159,100 shares of Series B
convertible preferred stock at $12.50 per share. In April 1998, the Company
issued 189,394 shares of Series BB convertible preferred stock at $13.20 per
share.

F-13
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The rights, preferences, and privileges of the holders of Series A, B and BB
convertible preferred stock are as follows:

- The holders of Series A, B and BB preferred stock are entitled to receive
annual dividends at the rate of $.16, $1.00 and $1.06 per share,
respectively, payable when and if declared by the Company's Board of
Directors, in preference and priority to any payments of dividends to
holders of the Company's common stock. The dividend rights are not
cumulative. No dividends have been declared or paid on preferred stock
since inception of the Company.

- Shares of Series A, B and BB preferred stock have a liquidation preference
of $2.00, $12.50 and $13.20 per share, respectively; plus any declared but
unpaid dividends. Shares of Series A also have pro rata liquidation rights
with the common stock in any remaining assets after distribution to common
stockholders, up to a total of $8.00 per share.

- Each share of preferred stock is convertible into four shares of common
stock, subject to adjustment for certain dilutive issuances, splits, or
combinations. Conversion will occur upon written consent of the holders of
preferred stock and automatically upon an initial public offering at a
price of not less than $3.125 per share, which price increases ratably at
approximately 10% annually beginning with the issuance date of the Series
B preferred stock, and with aggregate proceeds equal to or exceeding
$7,500,000.

- Holders of Series A, B and BB preferred stock vote equally with shares of
common stock on an "as if converted" basis.

- Holders of Series A, B and BB preferred stock possess certain registration
rights and the right to participate in future financings.

- The Company has authorized and designated 3,112,800, 1,167,100 and 200,000
shares as Series A-1, B-1 and BB-1 preferred stock, respectively, and such
shares have rights and preferences similar to the Series A, B and BB
preferred stock, except that they are not entitled to antidilution
protection.

WARRANTS

In November 1997, in connection with a lease line arrangement, the Company
issued warrants to purchase 8,000 shares of the Company's Series B convertible
preferred stock at a price of $12.50 per share, the fair value on the date of
issuance. The warrants are immediately exercisable and expire October 31, 2003.
The fair value of the warrants of $62,000 was calculated using the Black-Scholes
option pricing model and is being amortized to interest expense over the term of
the lease, 42 months.

In June 1998, in connection with a marketing arrangement, the Company issued
warrants to purchase 524,400 shares of the Company's common stock at a price of
$3.30 per share. The warrants are immediately exercisable and expire on the
earliest of (i) January 1, 2002, (ii) the effective date of the Company's
initial public offering, (iii) on a sale or transfer by the Company of all or
substantially all of its assets or (iv) on the acquisition of the Company by
another entity. The fair value of the warrants of

F-14
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
$504,000 was calculated using the Black-Scholes option pricing model and is
included in sales and marketing expense for the year ended September 30, 1998.

In August 1998, in connection with an additional lease line arrangement, the
Company issued warrants to purchase 3,636 shares of the Company's Series BB
convertible preferred stock at a price of $13.20 per share, the fair value on
the date of issuance. The warrants are immediately exercisable and expire on the
earliest of (i) August 26, 2005 or (ii) three years from the effective date of
the Company's initial public offering. The fair value of the warrants of $31,000
was calculated using the Black-Scholes option pricing model and is being
amortized to interest expense over the term of the lease, 42 months.

COMMON STOCK

In September 1996, 14,537,600 shares of common stock were issued to the
Company's founders at $.001 per share. Upon issuance, the Company had the right
to repurchase 100% of these shares at $.001 per share. These shares were issued
subject to vesting based upon continued employment, with the repurchase right
generally expiring ratably through September 2000. As of September 30, 1998,
6,045,200 shares of common stock issued to the Company's founders were subject
to repurchase. Certain shares immediately vest upon a change in control of the
Company, in an amount equal to the lesser of 50% of unvested shares or the
number of unvested shares, that when added to the vested shares, equals 75% of
shares purchased by that stockholder. Based on management's estimate of the fair
value of these shares, the Company recorded $200,000 of deferred stock-based
compensation expense. This amount is being amortized over the four-year vesting
period.

The Company has a right of first refusal to repurchase all vested shares of
common stock at the then current fair market value. All unvested shares of
common stock may be repurchased by the Company at the original issuance price
upon an individual's termination of service with the Company. The right of first
refusal expires upon an initial public offering of the Company's common stock.

1996 STOCK OPTION PLAN

The Company's 1996 Stock Option Plan (the 1996 Stock Plan) authorizes the
granting of incentive and nonstatutory common stock options to employees,
directors, and consultants at exercise prices no less than 85% of the fair
market value of the common stock on the grant date, as determined by the Board
of Directors. Stock options generally vest 25% after one year of service and
thereafter ratably over 36 months of service and generally have a term of 10
years. The 1996 Stock Plan also allows for exercise of unvested options. Shares
of common stock issued to employees upon exercise of unvested options are
subject to repurchase by the Company at the original exercise price. The
Company's ability to repurchase these shares expires at a rate consistent with
the vesting schedule of each option. Any right to repurchase shares upon an
employee's termination of service lapses and all shares vest if the Company is
subject to a change in control unless the Company's repurchase right is assumed
by the acquiring entity. As of September 30, 1998, 4,245,560 shares of common
stock were issued upon the exercise of unvested options subject to repurchase.
Approximately 10,244,000 shares of common stock have been reserved for issuance
under the

F-15
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
1996 Stock Plan as of September 30, 1998. As of September 1997 and 1998, the
Company has 4,268,200 and 495,800 shares available for grant, respectively.

On October 5, 1998 and March 15, 1999, the Board of Directors increased the
number of authorized shares of common stock for issuance under the 1996 Stock
Plan by 4,600,000 and 2,200,000 shares, respectively.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option. With respect to the stock options granted since inception
through March 1999, the Company recorded deferred stock-based compensation of
$22,374,000 for the difference at the grant date between the exercise price and
the fair value of the common stock underlying the options. This amount is being
amortized in accordance with FASB Interpretation No. 28 over the vesting period
of the individual options, generally 4 years.

Had compensation cost been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss and net loss per
share would have been changed to the amounts indicated below (in thousands,
except per share data):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net loss:
As reported......................................................... $ (4,679) $ (10,953)
Pro forma........................................................... (4,685) (11,000)

Basic and diluted net loss per share:
As reported......................................................... (7.31) (1.90)
Pro forma........................................................... $ (7.32) $ (1.91)
</TABLE>

The fair value of each stock option is estimated on the date of grant using
the minimum value method with no expected dividends and the following
weighted-average assumptions:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
2.50 2.60
Expected life......................................................... years years
Risk-free interest rate............................................... 6.00% 5.50%
Volatility (for nonemployees)......................................... 60% 60%
</TABLE>

F-16
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the 1996 Stock Plan is as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------- SIX MONTHS ENDED MARCH
1997 1998 31, 1999
------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period............. -- $ -- 653,200 $ .14 3,568,960 $ .77
Granted...................................... 6,020,200 .06 4,272,400 .76 6,146,800 2.53
Exercised.................................... (5,323,000) .05 (1,101,640) .45 (1,461,300) 1.32
Forfeited.................................... (44,000) .05 (255,000) .44 (109,200) .23
----------- ----------- -----------
Outstanding at end of period................... 653,200 .14 3,568,960 .77 8,145,260 2.01
----------- ----------- -----------
----------- ----------- -----------
Exercisable at end of period................... 653,200 .14 3,568,960 .77
----------- -----------
----------- -----------
Weighted-average fair value of options granted
during the period at market.................. 6,020,200 .01 1,034,000 .07
Weighted-average fair value of options granted
during the period at less than market........ -- -- 3,238,400 1.18
</TABLE>

The following table summarizes information about stock options outstanding
as of September 30, 1998:

<TABLE>
<CAPTION>
OUTSTANDING
-------------------------------------- EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- ------------------------------------------ ---------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$.05...................................... 380,000 8.75 $ .05 380,000 $ .05
.31 - .38................................. 806,960 9.20 .35 806,960 .35
.50 - 1.00................................ 1,629,000 9.63 .88 1,629,000 .88
1.33...................................... 753,000 9.81 1.33 753,000 1.33
---------- ----------
.05 - 1.33................................ 3,568,960 9.47 .77 3,568,960 $ .77
---------- ----------
---------- ----------
</TABLE>

F-17
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about shares subject to
repurchase as of September 30, 1998:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER OF CONTRACTUAL REPURCHASE
PRICES SHARES LIFE (YEARS) PRICE
- ------------------------------------------ ------------ ------------- -------------
<S> <C> <C> <C>
$.001 - $.05.............................. 9,227,720 8.17 $ .02
$.31 - $.38............................... 846,040 9.19 .35
$.50 - $1.00.............................. 217,000 9.58 .83
------------
$.001 - $1.00............................. 10,290,760 8.29 $ .06
------------
------------
</TABLE>

4. INCOME TAXES

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets as of September 30, 1997 and 1998, are as
follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves.................................................... $ 426 $ 1,095
Depreciation and amortization............................................ 20 87
Deferred start-up costs.................................................. 530 310
Net operating loss carryforwards......................................... 1,508 4,386
--------- ---------
Total gross deferred tax assets........................................ 2,484 5,878
Less valuation allowance............................................... 2,484 5,878
--------- ---------
Net deferred taxes..................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>

The Company has provided a valuation allowance due to the uncertainty of
generating future profits that would allow for the realization of such deferred
tax assets.

F-18
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

4. INCOME TAXES (CONTINUED)

The reconciliation between the amount computed by applying the U.S. federal
statutory tax rate of 34% to income taxes and the actual provision for income
taxes as of September 30, 1997 and 1998 follows (in thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Income tax at statutory rate............................................. $ (1,591) $ (3,724)
Nondeductible expenses................................................... 6 416
Net operating loss and temporary differences for which no benefit was
realized............................................................... 1,585 3,308
--------- ---------
Total................................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>

As of September 30, 1998, the Company has net operating loss carryforwards
for federal and state tax purposes of approximately $11,500,000 and $8,300,000,
respectively. These federal and state carryforwards begin to expire in 2012 and
2004, respectively.

The Internal Revenue Code of 1986, and applicable state tax laws, impose
substantial restrictions on the ability of the Company to utilize net operating
losses and tax credit carryforwards in the event of an "ownership change," as
defined in Section 382 of the Internal Revenue Code. The Company's federal and
state tax losses and tax credit carryover incurred through that date of change
are subject to an annual limitation.

5. LONG-TERM DEBT AND LEASE COMMITMENTS

The Company leases certain equipment and its facilities under various
noncancelable operating leases. The leases expire from 1999 to 2004. The Company
also leases certain computer equipment under capital leases. Future minimum
lease payments under operating leases as of September 30, 1998, are as follows
(in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ----------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1999............................................................................... $ 361 $ 1,333
2000............................................................................... 361 951
2001............................................................................... 310 851
2002............................................................................... -- 851
2003............................................................................... -- 828
Thereafter......................................................................... -- 729
--------- -----------
Total minimum lease payments....................................................... 1,032 $ 5,543
-----------
-----------
Less amount representing imputed interest.......................................... 88
---------
Present value of minimum lease payments............................................ 944
Less current portion............................................................... 297
---------
Capital lease obligations, less current portion.................................... $ 647
---------
---------
</TABLE>

F-19
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

5. LONG-TERM DEBT AND LEASE COMMITMENTS (CONTINUED)
Rental expense was $371,000 and $865,000 for the years ended September 30,
1997 and 1998, respectively.

On November 22, 1996, the Company entered into an equipment line of credit
for $400,000 with a financial institution and $380,000 was outstanding under the
line of credit as of September 30, 1997. In August 1998, the Company repaid the
entire amount outstanding under the line of credit and the line of credit was
terminated.

In November 1997, the Company entered into a lease line arrangement with a
lending company in which the Company can obtain financing for up to $2,000,000.
The lease term commences on January 1, 1998, and is for 42 months. Warrants to
purchase up to 8,000 shares of Series B preferred stock, at an exercise price of
$12.50 per share, were issued in conjunction with the lease line agreement (see
Note 3).

In August 1998, the Company entered into an additional lease line
arrangement with a lending company in which the Company can obtain financing for
up to $1,000,000. The lease term commences on August 26, 1998, and is for 42
months. Warrants to purchase up to 3,636 shares of Series BB preferred stock, at
an exercise price of $13.20 per share, were issued in conjunction with the lease
line agreement (see Note 3).

In March 1999, the Company entered into a new facilities operating sublease
agreement. The lease term commences on May 1, 1999 and is for 90 months. Lease
payments are made on an escalating basis with the total future minimum lease
payments amounting to approximately $32,319,000 over the lease term. The Company
must also contribute $1,316,000 toward initial improvement costs. In addition,
the Company has also entered into a sub-sublease agreement for the same
facilities. The Company has subleased part of the facilities from May 1, 1999
for a period of 8 months. Minimum sub-sublease receipts total approximately
$269,000.

6. SUBSEQUENT EVENTS

INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

In April 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC), that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO). If the offering is
consummated under the terms presently anticipated, all of the outstanding shares
of the Company's convertible preferred stock will automatically convert into
shares of common stock on a one-for-four basis, upon closing of the proposed
IPO. The conversion of the convertible preferred stock and exercise of the
common stock warrants for 524,400 shares has been reflected in the accompanying
unaudited pro forma consolidated balance sheet.

STOCK SPLIT

On both March 16, 1999 and on April 20, 1999, the Board of Directors
approved a two-for-one stock split of the Company's common stock thus effecting
an overall four-for-one stock split as of April 20, 1999. The accompanying
consolidated financial statements have been restated to give effect to the stock
splits.

F-20
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

6. SUBSEQUENT EVENTS (CONTINUED)
AUTHORIZED SHARES

On April 20, 1999, the Board of Directors increased the number of authorized
shares of common stock to 80,000,000, subject to stockholder approval. The
accompanying consolidated financial statements have been restated to give effect
to the increased authorized shares. If the offering is consummated, the
authorized number of shares of common stock and preferred stock will increase to
200,000,000 and 20,000,000, respectively.

EQUITY INCENTIVE PLAN

The Company's Board of Directors approved the Equity Incentive Plan (the
Incentive Plan) on April 20, 1999 under which 2,400,000 shares have been
reserved for issuance. In addition, any shares not issued under the 1996 Stock
Plan will also be available for grant. The number of shares reserved under the
Incentive Plan will automatically increase annually beginning on January 1, 2000
by the lesser of 2,000,000 shares or 5% of the total amount of common stock
shares outstanding. Under the Incentive Plan, eligible employees may purchase
stock options, stock appreciation rights, restricted shares, and stock units.
The exercise price for incentive stock options and non-qualified options may not
be less than 100% and 85%, respectively, of the fair value of common stock at
the option grant date.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Board of Directors adopted the Employee Stock Purchase Plan
(the Purchase Plan) on April 20, 1999 under which 4,000,000 shares have been
reserved for issuance. The Purchase Plan is pending approval by the
stockholders. The number of shares reserved under the Incentive Plan will
automatically increase beginning on January 1 of each year by the lesser of
750,000 shares or 2% of the total amount of common stock shares outstanding.
Under the Purchase Plan, eligible employees may purchase common stock in an
amount not to exceed 15% of the employees cash compensation. The purchase price
per share will be 85% of the common stock fair value at the lower of certain
plan defined dates.

DIRECTORS STOCK OPTION PLAN

The Company's Board of Directors adopted the Directors' Stock Option Plan
(the Directors Plan) on April 20, 1999 under which 500,000 shares have been
reserved for issuance. The Directors Plan is pending approval by the
stockholders. Each non-employee joining the Board of Directors following the
effective date of the initial public offering will automatically receive options
to purchase 10,000 shares of common stock. In addition, each non-employee
director will automatically receive options to purchase 2,500 shares of common
stock at each annual meeting of the Board of Directors beginning after January
1, 2000. Each option will have an exercise price equal to the fair value of the
common stock on the automatic grant date.

F-21
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.

<TABLE>
<S> <C>
SEC registration fee............................................ $ 23,018
NASD fee........................................................ 8,780
Nasdaq National Market initial listing fee...................... 95,000
Printing and engraving.......................................... *
Legal fees and expenses of the Registrant....................... *
Accounting fees and expenses.................................... *
Directors and officers liability insurance...................... *
Blue sky fees and expenses...................................... *
Transfer agent fees............................................. *
Miscellaneous................................................... *
---------
Total....................................................... $1,150,000
---------
---------
</TABLE>

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

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). Article VII of the Registrant's Bylaws provides for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Registrant and its stockholders. This provision in the Amended
and Restated Certificate of Incorporation does not eliminate the directors'
fiduciary duty, 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 actions leading to improper personal benefit to
the director, 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 law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into Indemnification Agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. The Registrant maintains liability insurance
for its directors and officers. Reference is also made to Section of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities, and Section 1.9 of
the Amended and Restated Investor Rights Agreement contained in Exhibit 4.1
hereto, indemnifying certain of the Company's stockholders, including
controlling stockholders, against certain liabilities.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since our formation, we have issued and sold the following securities:

1. On September 17, 1996, we issued and sold an aggregate of 14,537,600
shares of its common stock to nine founders of the Company for an aggregate
purchase price of $7,268.80.

2. On September 27, 1996, we issued and sold 3,000,000 shares of Series A
Preferred Stock to a group of eight investors for an aggregate purchase price of
$6,000,000.

3. On November 13, 1996, we issued and sold an aggregate of 16,000 shares
of its common stock to five individuals for an aggregate purchase price of $800.

4. On May 9, 1997, we issued and sold an aggregate of 112,800 shares of its
Series A Preferred Stock to one investor for an aggregate purchase price of
$225,600.

5. On August 15, 1997, we issued and sold 1,015,100 shares of Series B
Preferred Stock to a group of 26 investors for an aggregate purchase price of
$12,688,750.

6. On October 15, 1997, we issued and sold an additional 40,000 shares of
Series B Preferred Stock to an additional investor for an aggregate purchase
price of $500,000.

7. On November 11, 1997, we issued and sold a warrant to purchase 8,000
shares of Series B Preferred Stock to Lighthouse Capital Partners II, L.P.

8. On December 19, 1997, we issued and sold an additional 104,000 shares of
Series B Preferred Stock to an additional two investors for an aggregate
purchase price of $1,300,000.

9. On April 17, 1998, we issued and sold 189,394 shares of Series BB
Preferred Stock to an investor for an aggregate purchase price of $2,500,000.80.

10. On June 30, 1998, we issued and sold a warrant to purchase 524,400
shares of common stock to Chevron Corporation.

11. On July 15, 1998, we issued and sold 8,000 shares of common stock to
Blanc & Otus for an aggregate purchase price of $8,000.

12. On August 26, 1998, we issued and sold a warrant to purchase 3,636
shares of Series BB Preferred Stock to Comdisco, Inc.

13. We issued and sold an aggregate of 7,885,940 shares (assuming no
exercise of stock options after March 31, 1999) of common stock to employees,
consultants and other service providers pursuant to stock grants and exercises
of options under our 1996 Stock Plan (Exhibit 10.2).

14. We granted options to purchase 16,439,400 shares of common stock to
employees, consultants and other service providers of the Company under our 1996
Stock Plan, of which 7,885,940 shares have been exercised as of March 31, 1999.

The share amounts for the issuances of common stock referred to above
reflect the two-for-one split of the common stock effected in March 1999 and the
two-for-one split of the common stock effected in April 1999. Outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series BB Preferred
Stock will be converted into shares of common stock at a one-to-four ratio
effective upon the closing of this offering.

The sale of the above securities was deemed to be exempt from registration
under the Act in reliance upon Section 4(2) of the Act or Rule 701 promulgated
under Section 3(b) of the Act as transactions by an issuer not involving any
public offering or transactions pursuant to compensation benefit plans and
contracts relating to compensation as provided under Rule 701. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to

II-2
<PAGE>
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access, through their relationships with us, to
information about us.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement.

3.1** Amended and Restated Certificate of Incorporation of the Registrant, filed with the Delaware Secretary of
State on April 15, 1999.

3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed after the closing
of the offering made pursuant to this Registration Statement.

3.3** Bylaws of the Registrant.

3.4 Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement.

3.5 Amended and Restated Certificate of Incorporation of the Registrant, filed with the Delaware Secretary of
State on April 30, 1999.

4.1** Amended and Restated Investors' Rights Agreement, dated April 17, 1998.

4.2* Specimen Certificate of the Registrant's common stock.

5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.

10.1** Form of Indemnification Agreement entered into between the Registrant and its directors and executive
officers.

10.2** 1996 Stock Plan, as amended.

10.3 1999 Equity Incentive Plan.

10.4 1999 Directors' Stock Option Plan.

10.5 Employee Stock Purchase Plan.

10.6** Industrial Complex Lease, dated August 11, 1997, by and between MP Caribbean, Inc. and the Registrant.

10.7** Lease Agreement, dated June 12, 1996, by and between Charleston Place Associates and U.S. Robotics Access
Corp., as amended.

10.8** Sublease, dated February 1999, by and between 3Com Corporation, successor in interest to U.S. Robotics
Access Corp., and the Registrant.

23.1 Consent of Independent Accountants (see page S-1).

23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
Reference is made to Exhibit 5.1.

24.1** Power of Attorney (see signature page hereto).

27.1** Financial Data Schedule
</TABLE>

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

* To be supplied by amendment.

** Previously filed.

II-3
<PAGE>
(b) Financial Statement Schedule

Financial Statement Schedules are not listed because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to provide to 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 Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Amended and Restated
Certificate of Incorporation or the Bylaws of the Registrant, Indemnification
Agreements entered into between the Registrant and its officers and directors,
the Underwriting Agreement, 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 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 hereunder,
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 of whether such indemnification by it is against public policy as
expressed in the 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 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 Act shall be
deemed to be part of this Registration Statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on this 1st day of June, 1999.

<TABLE>
<S> <C> <C>
ARIBA, INC.

By: /s/ KEITH J. KRACH
-----------------------------------------
Keith J. Krach
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

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

<TABLE>
<C> <S> <C>
President, Chief Executive
/s/ KEITH J. KRACH Officer and Chairman of
- ------------------------------ the Board (Principal June 1, 1999
Keith J. Krach Executive Officer)

Chief Financial Officer,
Vice President--Finance
/s/ EDWARD P. KINSEY and Administration and
- ------------------------------ Secretary (Principal June 1, 1999
Edward P. Kinsey Financial and Accounting
Officer)

*
- ------------------------------ Director June 1, 1999
Robert C. Kagle

*
- ------------------------------ Director June 1, 1999
Paul Hegarty

*
- ------------------------------ Director June 1, 1999
John B. Mumford

*
- ------------------------------ Director June 1, 1999
Hatim A. Tyabji
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ KEITH J. KRACH
-------------------------
(Keith J. Krach,
Attorney-in-fact)
</TABLE>

II-5
<PAGE>
CONSENT OF INDEPENDENT AUDITORS

We consent to the use of our form of report included herein and to the
references to our firm under the headings "Experts" and "Selected Consolidated
Financial Data" in the prospectus.

/s/ KPMG LLP

Mountain View, California
June 1, 1999

S-1
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the Registrant, filed with the Delaware
Secretary of State on April 15, 1999.
3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed after the
closing of the offering made pursuant to this Registration Statement.
3.3** Bylaws of the Registrant.
3.4 Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement.
3.5 Amended and Restated Certificate of Incorporation of the Registrant, filed with the Delaware
Secretary of State on April 30, 1999.
4.1** Amended and Restated Investors' Rights Agreement, dated April 17, 1998.
4.2* Specimen Certificate of the Registrant's common stock.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
10.1** Form of Indemnification Agreement entered into between the Registrant and its directors and executive
officers.
10.2** 1996 Stock Plan, as amended.
10.3 1999 Equity Incentive Plan.
10.4 1999 Directors' Stock Option Plan.
10.5 Employee Stock Purchase Plan.
10.6** Industrial Complex Lease, dated August 11, 1997, by and between MP Caribbean, Inc. and the
Registrant.
10.7** Lease Agreement, dated June 12, 1996, by and between Charleston Place Associates and U.S. Robotics
Access Corp., as amended.
10.8** Sublease, dated February 1999, by and between 3Com Corporation, successor in interest to U.S.
Robotics Access Corp., and the Registrant.
23.1 Consent of Independent Accountants (see page S-1).
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
Reference is made to Exhibit 5.1.
24.1** Power of Attorney (see signature page hereto).
27.1** Financial Data Schedule.
</TABLE>

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

* To be supplied by amendment.

** Previously filed.

<PAGE>

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ARIBA, INC.
(ORIGINALLY INCORPORATED ON SEPTEMBER 17, 1996 UNDER THE NAME PROCURESOFT, INC.)

ARTICLE I

The name of the corporation is Ariba, Inc. (the "Corporation").

ARTICLE II

The address of the registered office of this corporation in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.

ARTICLE 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 the State of Delaware.

ARTICLE IV

The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is Two
Hundred Million (200,000,000), par value $.002 per share, and the number of
shares of Preferred Stock authorized to be issued is Twenty Million
(20,000,000), par value $.002 per share.

The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware (such certificate being hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the terms of
any Preferred Stock Designation.

ARTICLE V

The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:

<PAGE>

A. The business and affairs of the Corporation shall be managed by or
under the direction of the board of directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Amended and
Restated Certificate of Incorporation or the Bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation.

B. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.

C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.

D. Special meetings of stockholders of the Corporation may be called
only by the Chairman of the Board or the President or by the board of directors
acting pursuant to a resolution adopted by a majority of the Whole Board. For
purposes of this Amended and Restated Certificate of Incorporation, the term
"Whole Board" shall mean the total number of authorized directors whether or not
there exist any vacancies in previously authorized directorships.

ARTICLE VI

A. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number of
directors shall be fixed from time to time by the board of directors pursuant to
a resolution adopted by a majority of the Whole Board. The directors, other than
those who may be elected by the holders of any series of Preferred Stock under
specified circumstances, shall be divided into three classes, with the term of
office of the first class to expire at the Corporation's first annual meeting of
stockholders following the effectiveness of this Article, the term of office of
the second class to expire at the Corporation's second annual meeting of
stockholders following the effectiveness of this Article and the term of office
of the third class to expire at the Corporation's third annual meeting of
stockholders following the effectiveness of this Article. At each annual meeting
of stockholders, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election.

B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the board of directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall, unless otherwise provided by law or by resolution
of the board of directors, be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the authorized number of directors shall shorten the term of any incumbent
director.

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<PAGE>

C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.

D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire board of directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.

ARTICLE VII

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.

Any repeal or modification of the foregoing provisions of this Article
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or increase
the liability of any director of this Corporation with respect to any acts or
omissions of such director occurring prior to, such repeal or modification.

ARTICLE XIII

The board of directors is expressly empowered to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the board of directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Amended and Restated Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
adopt, amend or repeal any provision of the Bylaws of the Corporation.

ARTICLE IX

In addition to any vote of the holders of any class or series of the
stock of this Corporation required by law or by this Amended and Restated
Certificate of Incorporation, the

-3-
<PAGE>

affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal the provisions of Article I, Article II, and
Article III of this Amended and Restated Certificate of Incorporation.
Notwithstanding any other provision of this Amended and Restated Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any vote of the holders of any class or series of
the stock of this Corporation required by law or by this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal any provision of this Amended and Restated
Certificate of Incorporation not specified in the preceding sentence.

* * * *

-4-
<PAGE>

IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, which restates and integrates and further amends the provisions
of the Corporation's Amended and Restated Certificate of Incorporation, and
which has been duly adopted in accordance with Sections 242 and 245 of the
Delaware General Corporation Law, has been executed by a duly authorized officer
of the Corporation this _____ day of ____________, 1999.

------------------------------------------------
Keith J. Krach
President and Chief Executive Officer

-5-

<PAGE>

AMENDED AND RESTATED

BYLAWS OF

ARIBA, INC.,

A DELAWARE CORPORATION

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I OFFICE AND RECORDS....................................................1
Section 1.1 Delaware Office............................................1
Section 1.2 Other Offices..............................................1
Section 1.3 Books and Records..........................................1

ARTICLE II STOCKHOLDERS ........................................................1
Section 2.1 Annual Meeting.............................................1
Section 2.2 Special Meeting............................................1
Section 2.3 Place of Meeting...........................................1
Section 2.4 Notice of Meeting..........................................1
Section 2.5 Quorum and Adjournment.....................................2
Section 2.6 Proxies....................................................2
Section 2.7 Notice of Stockholder Business and Nominations.............2
Section 2.8 Procedure for Election of Directors........................4
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.....5
Section 2.10 Consent of Stockholders in Lieu of Meeting................5

ARTICLE III BOARD OF DIRECTORS..................................................5
Section 3.1 General Powers.............................................5
Section 3.2 Number, Tenure and Qualifications..........................5
Section 3.3 Regular Meetings...........................................5
Section 3.4 Special Meetings...........................................6
Section 3.5 Notice.....................................................6
Section 3.6 Conference Telephone Meetings..............................6
Section 3.7 Quorum.....................................................6
Section 3.8 Vacancies..................................................6
Section 3.9 Committee..................................................7
Section 3.10 Removal...................................................7

ARTICLE IV OFFICERS ...........................................................7
Section 4.1 Elected Officers...........................................7
Section 4.2 Election and Term of Office................................7
Section 4.3 Chairman of the Board......................................8
Section 4.4 President and Chief Executive Officer......................8
Section 4.5 Secretary..................................................8
Section 4.6 Treasurer..................................................8
Section 4.7 Removal....................................................8
Section 4.8 Vacancies..................................................9

ARTICLE V STOCK CERTIFICATES AND TRANSFERS......................................9
Section 5.1 Stock Certificates and Transfers...........................9

<PAGE>

ARTICLE VI INDEMNIFICATION......................................................9
Section 6.1 Right to Indemnification...................................9
Section 6.2 Right to Advancement of Expenses..........................10
Section 6.3 Right of Indemnitee to Bring Suit.........................10
Section 6.4 Non-Exclusivity of Rights.................................11
Section 6.5 Insurance.................................................11

ARTICLE VII MISCELLANEOUS PROVISIONS...........................................11
Section 7.1 Fiscal Year...............................................11
Section 7.2 Dividends.................................................11
Section 7.3 Seal......................................................11
Section 7.4 Waiver of Notice..........................................11
Section 7.5 Audits....................................................11
Section 7.6 Resignations..............................................11
Section 7.7 Contracts.................................................12
Section 7.8 Proxies...................................................12

ARTICLE VIII AMENDMENTS .......................................................12
Section 8.1 Amendments................................................12
</TABLE>

<PAGE>

ARTICLE I

OFFICES AND RECORDS

Section 1.1 DELAWARE OFFICE. The registered office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle.

Section 1.2 OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.

Section 1.3 BOOKS AND RECORDS. The books and records of the
Corporation may be kept at the Corporation's headquarters in Sunnyvale,
California or at such other locations outside the State of Delaware as may from
time to time be designated by the Board of Directors.

ARTICLE II

STOCKHOLDERS

Section 2.1 ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.

Section 2.2 SPECIAL MEETING. Special meetings of stockholders of the
Corporation may be called only by the Chairman of the Board or the President or
by the Board of Directors acting pursuant to a resolution adopted by a majority
of the Whole Board. For purposes of these Amended and Restated Bylaws, the term
"Whole Board" shall mean the total number of authorized directors whether or not
there exist any vacancies in previously authorized directorships.

Section 2.3 PLACE OF MEETING. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.

Section 2.4 NOTICE OF MEETING. Except as otherwise required by law,
written or printed notice, stating the place, day and hour of the meeting and
the purposes for which the meeting is called, shall be prepared and delivered by
the Corporation not less than ten days nor more than sixty days before the date
of the meeting, either personally, or by mail, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation. Such further notice shall be given as may be required
by law. Meetings may be held without notice if all stockholders entitled to vote
are present (except as otherwise provided by law), or if notice is waived by
those not present. Any previously scheduled meeting of the stockholders may be
postponed and (unless the Corporations' Amended and Restated Certificate of
Incorporation

<PAGE>

(the "Certificate of Incorporation") otherwise provides) any special meeting of
the stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.

Section 2.5 QUORUM AND ADJOURNMENT. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on by a class or series
voting separately as a class or series, the holders of a majority of the voting
power of the shares of such class or series shall constitute a quorum for the
transaction of such business. The chairman of the meeting or a majority of the
shares of Voting Stock so represented may adjourn the meeting from time to time,
whether or not there is such a quorum (or, in the case of specified business to
be voted on by a class or series, the chairman or a majority of the shares of
such class or series so represented may adjourn the meeting with respect to such
specified business). No notice of the time and place of adjourned meetings need
be given except as required by law. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.

Section 2.6 PROXIES. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing by the stockholder or as may be permitted
by law, or by his duly authorized attorney-in-fact. Such proxy must be filed
with the Secretary of the Corporation or his representative at or before the
time of the meeting.

Section 2.7 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.

A. Nominations of persons for election to the Board of Directors
and the proposal of business to be transacted by the stockholders may be made at
an annual meeting of stockholders (1) pursuant to the Corporation's notice with
respect to such meeting, (2) by or at the direction of the Board of Directors or
(3) by any stockholder of record of the Corporation who was a stockholder of
record at the time of the giving of the notice provided for in the following
paragraph, who is entitled to vote at the meeting and who has complied with the
notice procedures set forth in this Section 2.7.

B. For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to paragraph (A)(3) of this
Section 2.7, (1) the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, (2) such business must be a proper
matter for stockholder action under the Delaware General Corporation Law, (3) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in subclause (c)(iii) of this paragraph, such stockholder
or beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares

2
<PAGE>

reasonably believed by such stockholder or beneficial holder to be sufficient to
elect the nominee or nominees proposed to be nominated by such stockholder, and
must, in either case, have included in such materials the Solicitation Notice
and (4) if no Solicitation Notice relating thereto has been timely provided
pursuant to this section, the stockholder or beneficial owner proposing such
business or nomination must not have solicited a number of proxies sufficient to
have required the delivery of such a Solicitation Notice under this section. To
be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than 45 or more than 75
days prior to the first anniversary (the "Anniversary") of the date on which the
Corporation first mailed its proxy materials for the preceding year's annual
meeting of stockholders; provided, however, that if no proxy materials were
mailed by the Corporation in connection with the preceding year's annual
meeting, or if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 30 days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of (x) the 90th day
prior to such annual meeting or (y) the 10th day following the day on which
public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person as would be required to be disclosed in solicitations of
proxies for the election of such nominees as directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and such person's written consent to serve as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of such business, the reasons for conducting such business at
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of a proposal, at
least the percentage of the Corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the Corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent, a
"Solicitation Notice").

C. Notwithstanding anything in the second sentence of paragraph
(B) of this Section 2.7 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board made by the Corporation at least 55 days prior to
the Anniversary, a stockholder's notice required by this Bylaw shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.

3
<PAGE>

D. Only persons nominated in accordance with the procedures set
forth in this Section 2.7 shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section 2.7. The chair of the meeting shall have the power and the duty to
determine whether a nomination or any business proposed to be brought before the
meeting has been made in accordance with the procedures set forth in these
Bylaws and, if any proposed nomination or business is not in compliance with
these Bylaws, to declare that such defective proposed business or nomination
shall not be presented for stockholder action at the meeting and shall be
disregarded.

E. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (1)
by or at the direction of the Board of Directors or (2) by any stockholder of
record of the Corporation who is a stockholder of record at the time of giving
of notice provided for in this paragraph, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
2.7. Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders if the
stockholder's notice required by paragraph (B) of this Section 2.7 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the later of the 90th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board to be elected at such meeting.

F. For purposes of this Section 2.7, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.

G. Notwithstanding the foregoing provisions of this Section 2.7,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Section 2.7. Nothing in this Section 2.7 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.

Section 2.8 PROCEDURE FOR ELECTION OF DIRECTORS. Election of directors
at all meetings of the stockholders at which directors are to be elected shall
be by written ballot, and, except as otherwise set forth in the Certificate of
Incorporation with respect to the right of the holders of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, a plurality of the votes cast thereat
shall elect directors. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all matters other than the election of directors
submitted to the stockholders at any meeting shall be decided by the affirmative
vote of a majority of the voting power of the outstanding Voting Stock present
in person or represented by proxy at the meeting and entitled to vote thereon.

4
<PAGE>

Section 2.9 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.

A. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the Delaware General Corporation Law

B. The chairman of the meeting shall fix and announce at the
meeting 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.

Section 2.10 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders.

ARTICLE III

BOARD OF DIRECTORS

Section 3.1 GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. In addition to the powers and authority expressly conferred upon them
by statute or by the Certificate of Incorporation or by these Bylaws, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation.

Section 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights
of the holders of any series of Preferred Stock to elect additional directors
under specified circumstances, the number of directors shall be fixed from time
to time exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the Whole Board. The directors, other than those who may be
elected by the holders of any series of Preferred Stock under specified
circumstances, shall be divided into three classes pursuant to the Certificate
of Incorporation. At each annual meeting of stockholders, directors elected to
succeed those directors whose terms expire shall be elected for a term of office
to expire at the third succeeding annual meeting of stockholders after their
election.

Section 3.3 REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as,

5
<PAGE>

each annual meeting of stockholders. The Board of Directors may, by resolution,
provide the time and place for the holding of additional regular meetings
without notice other than such resolution.

Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.

Section 3.5 NOTICE. Notice of any special meeting shall be given to
each director at his business or residence in writing or by telegram, facsimile
transmission or telephone communication. If mailed, such notice shall be deemed
adequately delivered when deposited in the United States mails so addressed,
with postage thereon prepaid, at least five days before such meeting. If by
telegram, such notice shall be deemed adequately delivered when the telegram is
delivered to the telegraph company at least twenty-four hours before such
meeting. If by facsimile transmission, such notice shall be transmitted at least
twenty-four hours before such meeting. If by telephone, the notice shall be
given at least twelve hours prior to the time set for the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice of such meeting,
except for amendments to these Bylaws as provided under Section 8.1 of Article
VIII hereof. A meeting may be held at any time without notice if all the
directors are present (except as otherwise provided by law) or if those not
present waive notice of the meeting in writing, either before or after such
meeting.

Section 3.6 CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.

Section 3.7 QUORUM. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.

Section 3.8 VACANCIES. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall, unless
otherwise provided by law or by resolution of the Board of Directors, be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the

6
<PAGE>

class to which they have been chosen expires. No decrease in the authorized
number of directors shall shorten the term of any incumbent director.

Section 3.9 COMMITTEES.

A. The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of the
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 place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.

B. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to these Bylaws.

Section 3.10 REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, any directors, or the entire Board
of Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the then-outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.

ARTICLE IV

OFFICERS

Section 4.1 ELECTED OFFICERS. The elected officers of the Corporation
shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and
such other officers as the Board of Directors from time to time may deem proper.
The Chairman of the Board shall be chosen from the directors. All officers
chosen by the Board of Directors shall each have such powers and duties as
generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have powers and duties
as from time to time may be conferred by the Board of Directors or by any
committee thereof.

Section 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers

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shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Subject to Section 4.7 of these Bylaws, each officer
shall hold office until his successor shall have been duly elected and shall
have qualified or until his death or until he shall resign.

Section 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Board.

Section 4.4 PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and
Chief Executive Officer shall be the general manager of the Corporation, subject
to the control of the Board of Directors, and as such shall preside at all
meetings of shareholders, shall have general supervision of the affairs of the
Corporation, shall sign or countersign or authorize another officer to sign all
certificates, contracts, and other instruments of the Corporation as authorized
by the Board of Directors, shall make reports to the Board of Directors and
shareholders, and shall perform all such other duties as are incident to such
office or are properly required by the Board of Directors. If the Board of
Directors creates the office of Chief Executive Officer as a separate office
from President, the President shall be the chief operating officer of the
corporation and shall be subject to the general supervision, direction, and
control of the Chief Executive Officer unless the Board of Directors provides
otherwise.

Section 4.5 SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board of Directors,
upon whose request the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose, and shall perform such other duties as may be assigned to him
by the Board of Directors, the Chairman of the Board or the President. He shall
have custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors, the
Chairman of the Board or the President, and attest to the same.

Section 4.6 TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board of Directors shall prescribe.

Section 4.7 REMOVAL. Any officer elected by the Board of Directors may
be removed by the Board of Directors whenever, in their judgment, the best
interests of the

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Corporation would be served thereby. No elected officer shall have any
contractual rights against the Corporation for compensation by virtue of such
election beyond the date of the election of his successor, his death, his
resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.

Section 4.8 VACANCIES. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.

ARTICLE V

STOCK CERTIFICATES AND TRANSFERS

Section 5.1 STOCK CERTIFICATES AND TRANSFERS.

A. The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.

B. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.

ARTICLE VI

INDEMNIFICATION

Section 6.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer 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 an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such 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, shall be
indemnified and held harmless by the

9
<PAGE>

Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than permitted prior thereto), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; PROVIDED, HOWEVER, that,
except as provided in Section 6.3 hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.

Section 6.2 RIGHT TO ADVANCEMENT OF EXPENSES. The right to
indemnification conferred in Section 6.1 shall include the right to be paid by
the Corporation the expenses incurred in defending any proceeding for which such
right to indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); PROVIDED, HOWEVER, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise.

Section 6.3 RIGHT OF INDEMNITEE TO BRING SUIT. The rights to
indemnification and to the advancement of expenses conferred in Section 6.1 and
Section 6.2, respectively, shall be contract rights. If a claim under Section
6.1 or Section 6.2 is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (A) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (B) in any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
any applicable standard for indemnification set forth in the Delaware General
Corporation Law. 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 suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law,

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<PAGE>

nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section or otherwise shall be on the
Corporation.

Section 6.4 NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification
and to the advancement of expenses conferred in this Section shall not be
exclusive of any other right which any person may have or hereafter acquire
under the Certificate of Incorporation, these Amended and Restated Bylaws, or
any statute, agreement, vote of stockholders or disinterested directors or
otherwise.

Section 6.5 INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

ARTICLE VII

MISCELLANEOUS PROVISIONS

Section 7.1 FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of November and end on the thirtieth day of September of
each year.

Section 7.2 DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.

Section 7.3 SEAL. The corporate seal shall have inscribed the name of
the Corporation thereon and shall be in such form as may be approved from time
to time by the Board of Directors.

Section 7.4 WAIVER OF NOTICE. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the Delaware General Corporation Law, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Neither
the business to be transacted at, nor the purpose of, any annual or special
meeting of the stockholders of the Board of Directors need be specified in any
waiver of notice of such meeting.

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Section 7.5 AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.

Section 7.6 RESIGNATIONS. Any director or any officer, whether elected
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary or at such later date as is stated therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.

Section 7.7 CONTRACTS. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors or the Chairman of the
Board, the President or any Vice President of the Corporation may delegate
contractual powers to others under his jurisdiction, it being understood,
however, that any such delegation of power shall not relieve such officer of
responsibility with respect to the exercise of such delegated power.

Section 7.8 PROXIES. Unless otherwise provided by resolution adopted
by the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint any attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock and other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.

ARTICLE VIII

AMENDMENTS

Section 8.1 AMENDMENTS. Subject to the provisions of the Certificate
of Incorporation, these Bylaws may be amended, altered, added to, rescinded or
repealed at any meeting of the Board of Directors or of the stockholders,
provided notice of the proposed change

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<PAGE>

was given in the notice of the meeting and, in the case of a meeting of the
Board of Directors, in a notice given no less than twenty-four hours prior to
the meeting.

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CERTIFICATE OF SECRETARY OF

ARIBA, INC.

The undersigned, Edward P. Kinsey, hereby certifies that he is the
duly elected and acting Secretary of Ariba, Inc., a Delaware corporation (the
"Corporation"), and that the Bylaws attached hereto constitute the Bylaws of
said Corporation as duly adopted by the Directors on ____________, 1999.

IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _____ day of __________, 1999.

---------------------------------------
Edward P. Kinsey
Secretary

<PAGE>

Exhibit 3.5

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARIBA, INC.,
A DELAWARE CORPORATION

The undersigned, Keith J. Krach and Edward P. Kinsey hereby certify
that:

ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.

TWO: The name of the corporation is Ariba, Inc. and that the
corporation was originally incorporated on September 17, 1996, under the name
ProcureSoft, Inc., pursuant to the General Corporation Law.

THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:

ARTICLE I

The name of this corporation is Ariba, Inc.

ARTICLE II

ARTICLE 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.

ARTICLE 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 that this corporation is authorized to issue
is ninety million (90,000,000). Eighty million (80,000,000) shares shall be
Common Stock, par value $.002 per share, and ten million (10,000,000) shares
shall be Preferred Stock, par value $.002 per share.

(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF THE PREFERRED STOCK.
The Preferred Stock authorized by this Amended and Restated 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 three million one

<PAGE>

hundred twelve thousand eight hundred (3,112,800) shares (the "Series A
Preferred Stock"), the Series A-1 Preferred Stock, which series shall consist of
three million one hundred twelve thousand eight hundred (3,112,800) shares (the
"Series A-1 Preferred Stock"), the Series B Preferred Stock, which series shall
consist of one million one hundred sixty-seven thousand one hundred (1,167,100)
shares (the "Series B Preferred Stock"), the Series B-1 Preferred Stock, which
series shall consist of one million one hundred sixty-seven thousand one hundred
(1,167,100) shares (the "Series B-1 Preferred Stock"), the Series BB Preferred
Stock, which series shall consist of two hundred thousand (200,000) shares (the
"Series BB Preferred Stock"), and the Series BB-1 Preferred Stock, which series
shall consist of two hundred thousand (200,000) shares (the "Series BB-1
Preferred Stock") are as set forth below in this Article IV(B). 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 voting rights that have been or may be granted to the Preferred Stock
or series thereof in Certificates of Determination or this corporation's Amended
and Restated Certificate of Incorporation ("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 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 that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

Upon the filing of this Amended and Restated Certificate of
Incorporation, each one (1) share of this corporation's outstanding Common Stock
shall be automatically split into two (2) shares of this corporation's Common
Stock, without any action by the holder thereof.

1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
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 or distribution (payable other than pursuant to a
transaction covered by Section 2 or subsections 4(d)(iii), 4(e) or 4(f) hereof)
on the Common Stock of this corporation, at the rate of (i) in the case of the
Series A and Series A-1 Preferred Stock, $0.16 per share per annum, (ii) in the
case of the Series B and Series B-1 Preferred Stock, $1.00 per share per annum,
and (iii) in the case of the Series BB and Series BB-1 Preferred Stock, $1.06
per share per annum (each amount as adjusted for any stock dividends,
combinations or splits with respect to such shares) or, if greater (as
determined on a per annum basis and an as-converted basis for the Series A,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred Stock), an
amount equal to that paid on any other outstanding shares of this corporation,
payable when, as, and if declared by the Board of Directors. Such dividends
shall not be cumulative.

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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 that may from time to time come into existence, the
holders of Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
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, (i) for the Series A and Series A-1
Preferred Stock, an amount per share equal to the sum of (A) $2.00 for each
outstanding share of Series A and Series A-1 Preferred Stock (the "Original
Series A Issue Price" and the "Original Series A-1 Issue Price", respectively),
as adjusted for any stock dividends, combinations or splits with respect to such
share, and (B) an amount equal to declared but unpaid dividends on such share;
(ii) for the Series B and Series B-1 Preferred Stock, an amount per share equal
to the sum of (A) $12.50 for each outstanding share of Series B and Series B-1
Preferred Stock (the "Original Series B Issue Price" and the "Original
Series B-1 Issue Price", respectively), as adjusted for any stock dividends,
combinations or splits with respect to such share, and (B) an amount equal to
declared but unpaid dividends on such share; and (iii) for the Series BB and
Series BB-1 Preferred Stock, an amount per share equal to the sum of (A) $13.20
for each outstanding share of Series BB and Series BB-1 Preferred Stock (the
"Original Series BB Issue Price" and the "Original Series BB-1 Issue Price",
respectively), as adjusted for any stock dividends, combinations or splits with
respect to such share, and (B) an amount equal to declared but unpaid dividends
on such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A, Series A-1, Series B, Series B-1,
Series BB and Series BB-1 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 that may from time to time
come into existence, the entire assets and funds of this corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock in proportion to the preferential amount each such holder is otherwise
entitled to receive.

(b) Upon the completion of the distribution required by
subsection (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 remaining assets of this corporation available for distribution
to stockholders shall be distributed among the holders of Series A Preferred
Stock, Series A-1 Preferred Stock and Common Stock pro rata based on the number
of shares of Common Stock held by each (assuming full conversion of all such
Series A Preferred Stock and Series A-1 Preferred Stock) until (i) with respect
to the holders of Series A Preferred Stock and Series A-1 Preferred Stock, such
holders shall have received an aggregate of $8.00 per share (including amounts
paid to such holders pursuant to subsection (a) of this Section 2); thereafter,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, if assets remain in this corporation, the holders of the
Common Stock of this corporation shall receive all of the remaining assets of
this corporation pro rata based on the number of shares of Common Stock held by
each.

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<PAGE>

(c) (i) For purposes of this Section 2, the dissolution or
winding up of this corporation shall be deemed to be occasioned by, and to
include, (A) the acquisition of this corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of this
corporation; or (B) a sale of all or substantially all of the assets of this
corporation; UNLESS this 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 this
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving entity (or its parent); provided, however, that shares of
the surviving entity held by holders of the capital stock of this corporation
acquired by means other than the exchange or conversion of the capital stock of
this corporation for shares of the surviving entity shall not be used in
determining if the stockholders of this corporation own more than fifty percent
(50%) of the voting power of the surviving entity (or its parent), but shall be
used for determining the total outstanding voting power of such entity.

(ii) In any of such events, if the consideration
received by this corporation or its stockholders 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 covered by (B) below:

(1) If traded on a securities exchange or
through the National Market tier of Nasdaq, the value shall be deemed to be the
average of the closing prices of the securities on such exchange over the thirty
(30) 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 (30) 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 mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.

(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 mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.

(iii) In the event the requirements of this
subsection 2(c) are not complied with, this corporation shall forthwith either:

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<PAGE>

(A) cause such closing to be postponed until such
time as the requirements of this Section 2 have been complied with; or

(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 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(c)(iv) hereof.

(iv) This corporation shall give each holder of record
of Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, if any, 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 this 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 this corporation has given
the first notice provided for herein or sooner than ten (10) days after this
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened 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 such Preferred Stock.

3. REDEMPTION. The Preferred Stock is not redeemable.

4. CONVERSION. The holders of the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):

(a) RIGHT TO CONVERT. Subject to subsection 4(d), each share
of Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
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 stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Issue Price for such series by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The initial Conversion Price per share for
shares of Series A and Series A-1 Preferred Stock shall be $0.50. The initial
Conversion Price per share for shares of Series B and Series B-1 Preferred Stock
shall be $3.125. The initial Conversion Price per share for shares of Series BB
and Series BB-1 Preferred Stock shall be $3.30. The initial Conversion Price
for each such series has been adjusted as a result of the two-for-one stock
split of this corporation's Common Stock effected on March 19, 1999 and the
two-for-one stock split of this corporation's Common Stock effected by the
filing of this Amended and Restated Certificate of Incorporation. The
Conversion Price

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for the Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock shall be subject to adjustment as set forth in subsection 4(d).

(b) AUTOMATIC CONVERSION. Each share of Series A,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such series immediately upon the earlier of (i)
the consummation of this corporation's sale of its Common Stock in a bona fide,
firm commitment underwritten initial public offering pursuant to a registration
statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended
(the "Act"), at a public offering price not less than (A) on a per share basis,
the sum of $12.50 (appropriately adjusted for the two-for-one stock split of
this corporation's Common Stock effected on March 19, 1999, the two-for-one
stock split of this corporation's Common Stock effected by the filing of this
Amended and Restated Certificate of Incorporation and any other stock split,
dividend, combination or recapitalization) (the "Series B Price") plus an amount
equal to the product of 10% of the Series B Price multiplied by a fraction, the
numerator of which shall be the number of days elapsed from the Purchase Date
(as defined below) and the denominator of which shall be 365, and (B) $7,500,000
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,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred Stock
(voting together as a single class and not as separate series, and on an
as-converted basis).

(c) MECHANICS OF CONVERSION. Before any holder of Series A,
Series A-1, Series B, Series B-1, Series BB or Series BB-1 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 Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 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 Series A, Series A-1, Series B, Series B-1,
Series BB or Series BB-1 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 Series A, Series A-1, Series B, Series B-1,
Series BB or Series BB-1 Preferred Stock to be converted, and the person or
persons 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 offering of securities registered pursuant to the Act, the
conversion may, at the option of any holder tendering Series A, Series A-1,
Series B, Series B-1, Series BB or Series BB-1 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 Series A, Series A-1,
Series B, Series B-1, Series BB or Series BB-1 Preferred Stock shall not be
deemed to have converted such Series A, Series A-1,

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Series B, Series B-1, Series BB or Series BB-1 Preferred Stock until immediately
prior to the closing of such sale of securities.

(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of
the Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock shall be subject to adjustment from time to time as follows:

(i) (A) If this corporation shall issue, after the
date of the filing of this Amended and Restated Certificate of Incorporation
(the "Filing Date"), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for the Series A Preferred Stock, the Series B Preferred Stock or the Series BB
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, immediately after the closing of such issuance, the Conversion Price for
such series (specifically excepting the Series A-1, Series B-1 and Series BB-1
Preferred Stock) in effect immediately prior to the closing of each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares deemed issued
pursuant to Section 4(d)(i)(E) on account of options, rights or convertible or
exchangeable securities) plus the number of shares of Common Stock that the
aggregate consideration received by this corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
(including shares deemed issued pursuant to Section 4(d)(i)(E) on account of
options, rights or convertible or exchangeable securities) 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 or Series BB Preferred Stock
shall be made in an amount less than one cent per share, provided that any
adjustments that 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 three (3) years from the date of the event giving rise
to the adjustment being carried forward, or shall be made at the end of three
(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 4(d)(i)(E)(3)
and (E)(4), no adjustment of such Conversion Price pursuant to this
subsection 4(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.

(D) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be

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<PAGE>

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 applicable Filing 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 4(d)(i) and subsection 4(d)(ii):

(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) 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 4(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.

(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) 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 this corporation for any such
securities and related options or rights, plus the minimum additional
consideration, if any, to be received by this corporation (without taking into
account potential antidilution adjustments) 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 4(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
(unless such options or rights or convertible or exchangeable securities were
merely deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series A Preferred Stock,
Series B Preferred Stock or Series BB 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.

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<PAGE>

(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 or Series BB 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 (unless such options or rights were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
that 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 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(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 4(d)(i)(E))
by this corporation after the Filing Date other than

(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;

(B) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan, restricted stock plan or stock purchase agreement approved by the
Board of Directors of this corporation;

(C) shares of Common Stock issued or issuable (I)
in a firm commitment underwritten public offering before or in connection with
which all outstanding shares of Series A, Series A-1, Series B, Series B-1,
Series BB and Series BB-1 Preferred Stock are converted to Common Stock or (II)
upon exercise of warrants or rights granted to underwriters in connection with
such a public offering;

(D) shares of Common Stock issued or issuable
upon conversion of the Preferred Stock;

(E) shares of Common Stock issued or issuable
upon exercise of warrants issued to banks or equipment lessors; or

(F) shares of Common Stock issued or issuable in
connection with business combinations or corporate partnering transactions not
primarily for equity financing purposes approved by the Board of Directors.

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<PAGE>

(iii) In the event this corporation should at any time or
from time to time after the Filing 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 split,
subdivision, dividend or other distribution, if no record date is fixed), the
Conversion Price of the Series A, Series A-1, Series B, Series B-1, Series BB
and Series BB-1 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 of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time in the manner provided for
deemed issuances in subsection 4(d)(i)(E).

(iv) If the number of shares of Common Stock outstanding
at any time after the Filing Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 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 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 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 this
corporation into which their shares of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of this
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
this Section 4 or in Section 2), provision shall be made so that the holders of
the Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock the number of shares of stock or other securities or property of the
Company to which a holder of Common Stock deliverable upon conversion would have
been entitled to receive on such

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<PAGE>

recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A, Series A-1, Series B, Series B-1, Series BB and
Series BB-1 Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Series A,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 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 this Amended and Restated 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 4 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, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock against impairment.

(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.

(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 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, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 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, Series A-1, Series B,
Series B-1, Series BB or Series BB-1 Preferred Stock pursuant to this Section 4,
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, Series A-1, Series B, Series B-1, Series BB or Series BB-1
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, Series A-1, Series B, Series B-1, Series BB or Series BB-1 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
the Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock.

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(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 class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 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, Series A-1, Series B, Series B-1,
Series BB and Series BB-1 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, Series A-1, Series B, Series B-1, Series BB
and Series BB-1 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, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 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.

(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 Preferred Stock shall be deemed
given if delivered by confirmed facsimile or electronic transmission (with
duplicate original sent by United States mail) or 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.

(l) SPECIAL MANDATORY CONVERSION.

(i) At any time following the Filing Date, if (A) any
holder of shares of Series A Preferred Stock, Series B Preferred Stock or
Series BB Preferred Stock is entitled to exercise the right of first offer (the
"Right of First Offer") set forth in Section 2.4 of the Investors' Rights
Agreement dated on or about April 13, 1998, by and between this corporation and
certain Investors and Founders (as defined therein), as amended from time to
time (the "Rights Agreement"), with respect to an equity financing of this
corporation at a price per share which is less than the applicable Conversion
Price of the Series BB Preferred Stock (the "Equity Financing"), (B) this
corporation has complied with its notice obligations, or such obligations have
been waived, under the Right of First Offer with respect to such Equity
Financing and this corporation thereafter proceeds to consummate the Equity
Financing, and (C) such holder (a "Non-Participating Holder") does not by
exercise of such holder's Right of

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<PAGE>

First Offer acquire his, her or its Pro Rata Share (as defined in Section 2.4 of
the Rights Agreement) offered in such Equity Financing (a "Mandatory Offering"),
then all of such Non-Participating Holder's shares of Series A Preferred Stock,
Series B Preferred Stock and Series BB Preferred Stock shall automatically and
without further action on the part of such holder be converted effective upon,
subject to, and concurrently with, the closing of the Mandatory Offering (the
"Mandatory Offering Date") into, in the case of Series A Preferred Stock, an
equivalent number of shares of Series A-1 Preferred Stock, in the case of
Series B Preferred Stock, an equivalent number of shares of Series B-1 Preferred
Stock, and in the case of Series BB Preferred Stock, an equivalent number of
shares of Series BB-1 Preferred Stock (a "Special Mandatory Conversion");
PROVIDED, HOWEVER, that no such conversion shall occur in connection with a
particular Equity Financing if, pursuant to the written request of this
corporation, such holder agrees in writing to waive his, her or its Right of
First Offer with respect to such Equity Financing. Upon conversion pursuant to
this subsection 4(l)(i), the shares of Series A Preferred Stock, Series B
Preferred Stock and Series BB Preferred Stock so converted shall be canceled and
not subject to reissuance.

(ii) The holder of any shares of Series A Preferred
Stock, Series B Preferred Stock or Series BB Preferred Stock converted pursuant
to this subsection 4(l) shall deliver to this corporation during regular
business hours at the office of any transfer agent of this corporation for the
Series A Preferred Stock, Series B Preferred Stock and Series BB Preferred
Stock, or at such other place as may be designated by this corporation, the
certificate or certificates for the shares so converted, duly endorsed or
assigned in blank or to this corporation. As promptly as practicable
thereafter, this corporation shall issue and deliver to such holder, at the
place designated by such holder, a certificate or certificates for the number of
full shares of the Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series BB-1 Preferred Stock, as the case may be, to be issued and such holder
shall be deemed to have become a stockholder of record of Series A-1 Preferred
Stock, Series B-1 Preferred Stock or Series BB-1 Preferred Stock, as the case
may be, on the Mandatory Offering Date unless the transfer books of this
corporation are closed on that date, in which event he, she or it shall be
deemed to have become a stockholder of record of Series A-1 Preferred Stock,
Series B-1 Preferred Stock or Series BB-1 Preferred Stock, as the case may be,
on the next succeeding date on which the transfer books are open.

(iii) In the event that any shares of Series A-1
Preferred Stock, Series B-1 Preferred Stock or Series BB-1 Preferred Stock are
issued, concurrently with such issuance, this corporation shall use its best
efforts to take all such action as may be required, including amending its
Certificate of Incorporation, (A) to cancel all authorized shares of Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series BB-1 Preferred Stock that
remain unissued after such issuance, (B) to create and reserve for issuance upon
the Special Mandatory Conversion of any Series A Preferred Stock, Series B
Preferred Stock or Series BB Preferred Stock a new series of Preferred Stock
equal in number to the number of shares of Series A-1 Preferred Stock,
Series B-1 Preferred Stock or Series BB-1 Preferred Stock so canceled and
designated Series A-2 Preferred Stock, Series B-2 Preferred Stock and
Series BB-2 Preferred Stock, respectively, with the designations, powers,
preferences and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series BB-1 Preferred Stock, respectively,

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<PAGE>

except that the Conversion Price for such shares of Series A-2 Preferred Stock
once initially issued shall be the Series A Conversion Price in effect
immediately prior to such issuance, the Conversion Price for such shares of
Series B-2 Preferred Stock once initially issued shall be the Series B
Conversion Price in effect immediately prior to such issuance, and the
Conversion Price for such shares of Series BB-2 Preferred Stock once initially
issued shall be the Series BB Conversion Price in effect immediately prior to
such issuance, and (C) to amend the provisions of this subsection 4(l) as
appropriate to provide that any subsequent Special Mandatory Conversion will be
into shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock and
Series BB-2 Preferred Stock rather than Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series BB-1 Preferred Stock, as the case may be. This
corporation shall take the same actions with respect to the Series A-2 Preferred
Stock, Series B-2 Preferred Stock and Series BB-2 Preferred Stock and each
subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized. The right to receive any
dividend declared but unpaid at the time of conversion on any shares of
Preferred Stock converted pursuant to the provisions of this subsection 4(l)
shall accrue to the benefit of the new shares of Preferred Stock issued upon
conversion thereof.

5. VOTING RIGHTS.

(a) GENERAL VOTING RIGHTS. The holder of each share of
Series A, Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such share 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, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock held by each holder could
be converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).

(b) VOTING FOR ELECTION OF DIRECTORS. As long as at least a
majority of the shares of Series A Preferred Stock, Series B Preferred Stock and
Series BB Preferred Stock originally issued, including any such shares
subsequently converted to Series A-1 Preferred Stock, Series B-1 Preferred Stock
or Series BB-1 Preferred Stock pursuant to subparagraph 4(l) hereof, remain
outstanding, the holders of such shares of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock (voting together as a
single class and not as separate series, and on an as-converted basis) shall be
entitled to elect two (2) directors of this corporation at each annual election
of directors. The holders of outstanding Common Stock shall be entitled to
elect three (3) directors of this corporation at each annual election of
directors. The holders of Series A Preferred Stock, Series A-1 Preferred Stock,
Series B Preferred Stock, Series B-1 Preferred Stock, Series BB Preferred Stock,
Series BB-1 Preferred Stock and Common Stock (voting together as a single class
and not as separate series, and on an as-converted basis) shall be entitled to
elect any remaining directors of this corporation.

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In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 5(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of a majority of the shares of the class or
series of stock entitled to elect such director or directors, given either at a
special meeting of such stockholders duly called for that purpose or pursuant to
a written consent of stockholders, and any vacancy thereby created may be filled
by the holders of that class or series of stock represented at the meeting or
pursuant to unanimous written consent.

6. PROTECTIVE PROVISIONS.

(a) Subject to the rights of series of Preferred Stock that
may from time-to-time come into existence, so long as at least a majority of the
shares of Series A Preferred Stock, Series B Preferred Stock and Series BB
Preferred Stock originally issued, including any such shares subsequently
converted to Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series BB-1 Preferred Stock pursuant to subparagraph 4(l) hereof, remain
outstanding, this corporation shall not take any of the following actions
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 the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock, voting together as a single class and not as separate series and on an
as-converted basis, except that no approval pursuant to this Section 6 shall be
required to implement a conversion described in subsection 4(l) hereof:

(i) redeem, purchase or otherwise acquire (or pay into
or set aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction shall
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for this corporation
or any subsidiary pursuant to agreements under which this corporation has the
option to repurchase such shares at cost upon the termination of such service as
an employee, officer, director or consultant, as applicable;

(ii) consummate any transaction specified in subsection
2(c)(i) hereof (collectively, a "Corporate Transaction"), unless the
consideration received per share of Series A, Series A-1, Series B, Series B-1,
Series BB and Series BB-1 Preferred Stock in such Corporate Transaction is at
least (i) $20.00, if such Corporate Transaction occurs on or prior to the first
anniversary of the date on which any shares of Series BB Preferred Stock were
first issued (the "Purchase Date"); (ii) $40.00, if such Corporate Transaction
occurs after the first anniversary of the Purchase Date and on or prior to the
second anniversary of the Purchase Date;

15
<PAGE>

(iii) $80.00, if such Corporate Transaction occurs after the second anniversary
of the Purchase Date and on or prior to the third anniversary of the Purchase
Date; (iv) $100.00, if such Corporate Transaction occurs after the third
anniversary of the Purchase Date and on or prior to the fourth anniversary of
the Purchase Date; and (v) $120.00, if such Corporate Transaction occurs on or
at any time after the fourth anniversary of the Purchase Date. Each such per
share price specified in the preceding sentence shall be appropriately adjusted
for any stock dividends, combinations or splits. The consideration received per
share of Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock in a Corporate Transaction shall include the consideration per
share received directly by a holder of Series A, Series A-1, Series B,
Series B-1, Series BB or Series BB-1 Preferred Stock in such transaction and the
consideration received by this corporation that would be distributed to such
holder assuming such consideration is distributed to the holders of Preferred
Stock and Common Stock in accordance with subsections 2(a) and 2(b) hereof. All
consideration other than cash received in a Corporate Transaction shall be
valued in accordance with subsection 2(c)(ii) hereof;

(iii) increase or decrease (other than by redemption or
conversion or by operation of subsection 4(l) hereof) the authorized number of
shares of Series A, Series A-1, Series B, Series B-1, Series BB or Series BB-1
Preferred Stock;

(iv) amend this corporation's certificate of
incorporation or bylaws, as then in effect, in a manner that has a material
adverse effect on the rights, preferences or privileges of the Series A,
Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred Stock;

(v) authorize, create or issue any new class or series
of capital stock or any other securities convertible into capital stock of this
corporation having a preference over the Series A, Series A-1, Series B,
Series B-1, Series BB or Series BB-1 Preferred Stock with respect to voting,
dividends, conversion rights or rights upon liquidation;

(vi) declare or pay any cash dividends on its Common
Stock; or

(vii) increase the authorized number of directors of
this corporation above seven (7).

(b) (i) Subject to the rights of series of Preferred Stock
that may from time-to-time come into existence, so long as at least a majority
of the shares of Series A Preferred Stock originally issued, including any such
shares subsequently converted to Series A-1 Preferred Stock pursuant to
subparagraph 4(l) hereof, remain 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 the
Series A Preferred Stock and Series A-1 Preferred Stock, voting together as a
single class and not as separate series and on an as-converted basis, (A) amend
this corporation's Amended and Restated Certificate of Incorporation to alter or
change the rights, preferences or privileges of the shares of such Series A
Preferred Stock or Series A-1 Preferred Stock, if such Series A Preferred Stock
or Series A-1 Preferred Stock would be adversely affected by such amendment in a
manner different from other then outstanding series of this corporation's
Preferred Stock (it being

16
<PAGE>

understood that, without limiting the foregoing, different series of Preferred
Stock shall not be affected differently because of proportional differences in
the amounts of their respective issue prices, liquidation preferences and
redemption prices that arise out of differences in the original issue price for
each such series) or (B) increase or decrease the aggregate number of authorized
shares of such Series A Preferred Stock or Series A-1 Preferred Stock.
Notwithstanding the foregoing, no approval pursuant to this Section 6 shall be
required to implement a conversion described in subsection 4(l) hereof.

(ii) Subject to the rights of series of Preferred
Stock that may from time-to-time come into existence, so long as at least a
majority of the shares of Series B Preferred Stock originally issued, including
any such shares subsequently converted to Series B-1 Preferred Stock pursuant to
subparagraph 4(l) hereof, remain 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 the
Series B Preferred Stock and Series B-1 Preferred Stock, voting together as a
single class and not as separate series and on an as-converted basis, (A) amend
this corporation's Amended and Restated Certificate of Incorporation to alter or
change the rights, preferences or privileges of the shares of such Series B
Preferred Stock or Series B-1 Preferred Stock, if such Series B Preferred Stock
or Series B-1 Preferred Stock would be adversely affected by such amendment in a
manner different from other then outstanding series of this corporation's
Preferred Stock (it being understood that, without limiting the foregoing,
different series of Preferred Stock shall not be affected differently because of
proportional differences in the amounts of their respective issue prices,
liquidation preferences and redemption prices that arise out of differences in
the original issue price for each such series) or (B) increase or decrease the
aggregate number of authorized shares of such Series B Preferred Stock or
Series B-1 Preferred Stock. Notwithstanding the foregoing, no approval pursuant
to this Section 6 shall be required to implement a conversion described in
subsection 4(l) hereof.

(iii) Subject to the rights of series of Preferred
Stock that may from time-to-time come into existence, so long as at least a
majority of the shares of Series BB Preferred Stock originally issued, including
any such shares subsequently converted to Series BB-1 Preferred Stock pursuant
to subparagraph 4(l) hereof, remain 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 the
Series BB Preferred Stock and Series BB-1 Preferred Stock, voting together as a
single class and not as separate series and on an as-converted basis, (A) amend
this corporation's Amended and Restated Certificate of Incorporation to alter or
change the rights, preferences or privileges of the shares of such Series BB
Preferred Stock or Series BB-1 Preferred Stock, if such Series BB Preferred
Stock or Series BB-1 Preferred Stock would be adversely affected by such
amendment in a manner different from other then outstanding series of this
corporation's Preferred Stock (it being understood that, without limiting the
foregoing, different series of Preferred Stock shall not be affected differently
because of proportional differences in the amounts of their respective issue
prices, liquidation preferences and redemption prices that arise out of
differences in the original issue price for each such series) or (B) increase or
decrease the aggregate number of authorized shares of such Series BB Preferred
Stock or Series BB-1 Preferred Stock.

17
<PAGE>

Notwithstanding the foregoing, no approval pursuant to this Section 6 shall be
required to implement a conversion described in subsection 4(l) hereof.

7. STATUS OF CONVERTED STOCK. In the event any shares of
Series A, Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by this corporation. The Amended
and Restated Certificate of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in this
corporation's authorized capital stock.

(C) COMMON STOCK. The rights, preferences, privileges and
restrictions granted to and imposed on the Common Stock are as set forth below
in this Article IV(C).

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 this 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 this corporation, the assets of this 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.

ARTICLE V

A director of this corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.

Any amendment, repeal or modification of this Article V, or the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article V, by the

18
<PAGE>

stockholders of this corporation shall not apply to or adversely affect any
right or protection of a director of this corporation existing at the time of
such amendment, repeal, modification or adoption.

ARTICLE VI

To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which Delaware law permits this
corporation to provide indemnification) through bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the Delaware General Corporation Law,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to actions for breach of duty to this corporation,
its stockholders and others.

ARTICLE VII

This corporation reserves the right to adopt, amend, alter,
supplement, rescind or repeal in any respect any provision contained in this
Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute or applicable law, and all rights conferred upon
stockholders herein are granted subject to this reservation.

ARTICLE VIII

The Board of Directors may from time to time adopt, amend, alter,
supplement, rescind or repeal any or all of the bylaws of this corporation
without any action on the part of the stockholders; provided, however, that the
stockholders may adopt, amend or repeal any bylaw adopted by the Board of
Directors, and no amendment or supplement to the bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement adopted by the
stockholders.

ARTICLE IX

Subject to any Protective Provisions, the number of directors of this
corporation shall be set from time to time by resolution of the Board of
Directors or by the stockholders.

ARTICLE X

Elections of directors need not be by written ballot unless the bylaws
of this corporation shall so provide.

ARTICLE XI

Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of this corporation may be kept
(subject to any statutory requirements) 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 this corporation.

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<PAGE>

* * *

FOUR: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.

FIVE: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.

20
<PAGE>

IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the President and the Secretary of this
corporation this 27th day of April, 1999.

/s/ Keith J. Krach
---------------------------------------------
Keith J. Krach
President and Chief Executive Officer

/s/ Edward P. Kinsey
---------------------------------------------
Edward P. Kinsey
Secretary

<PAGE>
Exhibit 5.1

[GUNDERSON DETTMER LETTERHEAD]

June 1, 1999

Ariba, Inc.
1314 Chesapeake Terrace
Sunnyvale, California 94089

RE: REGISTRATION STATEMENT ON FORM S-1

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-1 (File No.
333-76953) originally filed by Ariba, Inc. (the "Company") with the Securities
and Exchange Commission (the "Commission") on April 23, 1999, as thereafter
amended or supplemented (the "Registration Statement"), in connection with
the registration under the Securities Act of 1933, as amended, of up to
4,000,000 shares of the Company's Common Stock (the "Shares"). The Shares,
which include an over-allotment option granted by the Company to the
Underwriters to purchase up to 600,000 additional shares of the Company's
Common Stock, are to be sold to the Underwriters by the Company as described
in the Registration Statement for resale to the public. As your counsel in
connection with this transaction, we have examined the proceedings taken and
are familiar with the proceedings proposed to be taken by you in connection
with the sale and issuance of the Shares.

It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
the Shares and upon completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with the securities
laws of the various states where required, the Shares, when issued and sold
in the manner described in the Registration Statement and in accordance with
the resolutions adopted by the Board of Directors of the Company, will be
legally and validly issued, fully paid and non-assessable.

We consent to the use of this opinion as an exhibit to said Registration
Statement, and further consent to the use of our name wherever appearing in
said Registration Statement, including the prospectus constituting a part
thereof, and in any amendment or supplement thereto.

Very truly yours,

GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP

<PAGE>

Exhibit 10.3

ARIBA, INC.

1999 EQUITY INCENTIVE PLAN

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Committee Composition . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Committee Responsibilities. . . . . . . . . . . . . . . . . . . . . 1
2.3 Committee for Non-Officer Grants. . . . . . . . . . . . . . . . . . 1

ARTICLE 3. SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . . . 2
3.1 Basic Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Annual Increase in Shares . . . . . . . . . . . . . . . . . . . . . 2
3.3 Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.4 Dividend Equivalents. . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE 4. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Incentive Stock Options . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Other Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE 5. OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.1 Stock Option Agreement. . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Number of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Exercise Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . . . . 3
5.6 Modification or Assumption of Options . . . . . . . . . . . . . . . 4
5.7 Buyout Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE 6. PAYMENT FOR OPTION SHARES. . . . . . . . . . . . . . . . . . . . . 4
6.1 General Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 Surrender of Common Stock . . . . . . . . . . . . . . . . . . . . . 4
6.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.4 Exercise/Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.5 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.6 Other Forms of Payment. . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE 7. STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . . . . . . . 5
7.1 SAR Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Number of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3 Exercise Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . . . . 5
7.5 Exercise of SARs. . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.6 Modification or Assumption of SARs. . . . . . . . . . . . . . . . . 6
</TABLE>

i
<PAGE>

<TABLE>
<S> <C>
ARTICLE 8. RESTRICTED SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 6
8.1 Restricted Stock Agreement. . . . . . . . . . . . . . . . . . . . . 6
8.2 Payment for Awards. . . . . . . . . . . . . . . . . . . . . . . . . 6
8.3 Vesting Conditions. . . . . . . . . . . . . . . . . . . . . . . . . 6
8.4 Voting and Dividend Rights. . . . . . . . . . . . . . . . . . . . . 6

ARTICLE 9. STOCK UNITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.1 Stock Unit Agreement. . . . . . . . . . . . . . . . . . . . . . . . 7
9.2 Payment for Awards. . . . . . . . . . . . . . . . . . . . . . . . . 7
9.3 Vesting Conditions. . . . . . . . . . . . . . . . . . . . . . . . . 7
9.4 Voting and Dividend Rights. . . . . . . . . . . . . . . . . . . . . 7
9.5 Form and Time of Settlement of Stock Units. . . . . . . . . . . . . 7
9.6 Death of Recipient. . . . . . . . . . . . . . . . . . . . . . . . . 7
9.7 Creditors' Rights . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE 10. CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . . . . . 8
10.1 Effect of Change in Control. . . . . . . . . . . . . . . . . . . . 8
10.2 Involuntary Termination. . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE 11. PROTECTION AGAINST DILUTION . . . . . . . . . . . . . . . . . . . 8
11.1 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11.2 Dissolution or Liquidation . . . . . . . . . . . . . . . . . . . . 9
11.3 Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE 12. DEFERRAL OF AWARDS. . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE 13. AWARDS UNDER OTHER PLANS. . . . . . . . . . . . . . . . . . . . .10

ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES. . . . . . . . . . . . .10
14.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . .10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units. . . .10
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units . . . .10

ARTICLE 15. LIMITATION ON RIGHTS. . . . . . . . . . . . . . . . . . . . . . .11
15.1 Retention Rights . . . . . . . . . . . . . . . . . . . . . . . . .11
15.2 Stockholders' Rights . . . . . . . . . . . . . . . . . . . . . . .11
15.3 Regulatory Requirements. . . . . . . . . . . . . . . . . . . . . .11

ARTICLE 16. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . . .11
16.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
16.2 Share Withholding. . . . . . . . . . . . . . . . . . . . . . . . .11

ARTICLE 17. FUTURE OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . .11
17.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . .12
17.2 Amendment or Termination . . . . . . . . . . . . . . . . . . . . .12
</TABLE>

ii
<PAGE>

<TABLE>
<S> <C>
ARTICLE 18. LIMITATION ON PAYMENTS. . . . . . . . . . . . . . . . . . . . . .12
18.1 Scope of Limitation. . . . . . . . . . . . . . . . . . . . . . . .12
18.2 Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
18.3 Reduction of Payments. . . . . . . . . . . . . . . . . . . . . . .13
18.4 Overpayments and Underpayments . . . . . . . . . . . . . . . . . .13
18.5 Related Corporations . . . . . . . . . . . . . . . . . . . . . . .13

ARTICLE 19. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .14
</TABLE>

iii
<PAGE>

ARIBA, INC.
1999 EQUITY INCENTIVE PLAN

ARTICLE 1. INTRODUCTION.

The Plan was adopted by the Board to be effective as of the date of
the IPO. The purpose of the Plan is to promote the long-term success of the
Corporation and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.

The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

(a) Such requirements as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and

(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify for
exemption under Section 162(m)(4)(C) of the Code.

2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.

2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Corporation who need not satisfy the requirements of Section
2.1. Such secondary committee may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors

<PAGE>

of the Corporation under Section 16 of the Exchange Act, may grant Awards under
the Plan to such Employees and Consultants and may determine all features and
conditions of such Awards. Within the limitations of this Section 2.3, any
reference in the Plan to the Committee shall include such secondary committee.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 BASIC LIMITATION. Shares of Common Stock issued pursuant to the
Plan may be authorized but unissued shares or treasury shares. The aggregate
number of Options, SARs, Stock Units and Restricted Shares awarded under the
Plan shall not exceed (a) 2,400,000, plus the shares remaining available for
issuance under the Predecessor Plan, plus (b) the additional shares of Common
Stock described in Sections 3.2 and 3.3. The limitation of this Section 3.1
shall be subject to adjustment pursuant to Article 11.

3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing
with the year 2000 and ending with the year 2005, the aggregate number of
Options, SARs, Stock Units and Restricted Shares that may be awarded under the
Plan shall automatically increase by a number equal to the lesser of (a) 5% of
the total number of shares of Common Stock then outstanding or (b) 2,000,000
shares.

3.3 ADDITIONAL SHARES. If Restricted Shares or shares of Common Stock
issued upon the exercise of Options are forfeited (including any options
incorporated from the Predecessor Plan), then such shares of Common Stock shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding shares of Common Stock shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
shares of Common Stock (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of shares of Common Stock (if any) actually issued in settlement
of such SARs shall reduce the number available under Section 3.1 and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of shares of Common Stock that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other shares of Common Stock are forfeited.

3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.

ARTICLE 4. ELIGIBILITY.

4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law
employees of the Corporation, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Corporation or
any of its Parents or Subsidiaries shall not be eligible for

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the grant of an ISO unless the requirements set forth in Section 422(c)(6) of
the Code are satisfied.

4.2 OTHER GRANTS. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.

ARTICLE 5. OPTIONS.

5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Corporation. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The Stock Option Agreement shall specify whether the Option is an ISO or an NSO.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. Options may be granted in consideration of a
reduction in the Optionee's other compensation. A Stock Option Agreement may
provide that a new Option will be granted automatically to the Optionee when he
or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.

5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of shares of Common Stock subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Corporation shall not cover more than
2,000,000 shares of Common Stock, except that Options granted to a new Employee
in the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not cover more than 2,500,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.

5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a share of Common Stock on the
date of grant and the Exercise Price under an NSO shall in no event be less than
85% of the Fair Market Value of a share of Common Stock on the date of grant.
In the case of an NSO, a Stock Option Agreement may specify an Exercise Price
that varies in accordance with a predetermined formula while the NSO is
outstanding.

5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.

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5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the
Corporation or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.

5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.

ARTICLE 6. PAYMENT FOR OPTION SHARES.

6.1 GENERAL RULE. The entire Exercise Price of shares of Common Stock
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such shares of Common Stock are purchased, except as follows:

(a) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment may
be made in any form(s) described in this Article 6.

(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.

6.2 SURRENDER OF COMMON STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, shares of Common Stock that are already owned
by the Optionee. Such shares of Common Stock shall be valued at their Fair
Market Value on the date when the new shares of Common Stock are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
shares of Common Stock in payment of the Exercise Price if such action would
cause the Corporation to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.

6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
a securities broker approved by the Corporation to sell all or part of the
shares of Common Stock being purchased under the Plan and to deliver all or part
of the sales proceeds to the Corporation.

6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
pledge all or part of the shares of Common Stock

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being purchased under the Plan to a securities broker or lender approved by the
Corporation, as security for a loan, and to deliver all or part of the loan
proceeds to the Corporation.

6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) a full-recourse promissory
note. However, the par value of the shares of Common Stock being purchased
under the Plan, if newly issued, shall be paid in cash or cash equivalents.

6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.

ARTICLE 7. STOCK APPRECIATION RIGHTS.

7.1 SAR AGREEMENT. Each grant of a SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Corporation. Such
SAR shall be subject to all applicable terms of the Plan and may be subject to
any other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.

7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
shares of Common Stock to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
2,000,000 shares of Common Stock, except that SARs granted to a new Employee in
the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not pertain to more than 2,500,000 shares of Common Stock.
The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 11.

7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. A SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.

7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.

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<PAGE>

7.5 EXERCISE OF SARS. Upon exercise of a SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Corporation (a) shares of Common Stock, (b) cash or (c) a
combination of shares of Common Stock and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of shares of Common
Stock received upon exercise of SARs shall, in the aggregate, be equal to the
amount by which the Fair Market Value (on the date of surrender) of the shares
of Common Stock subject to the SARs exceeds the Exercise Price. If, on the date
when an SAR expires, the Exercise Price under such SAR is less than the Fair
Market Value on such date but any portion of such SAR has not been exercised or
surrendered, then such SAR shall automatically be deemed to be exercised as of
such date with respect to such portion.

7.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Corporation or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.

ARTICLE 8. RESTRICTED SHARES.

8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Corporation. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.

8.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the
extent that an Award consists of newly issued Restricted Shares, the Award
recipient shall furnish consideration with a value not less than the par value
of such Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Corporation (or a Parent or Subsidiary), as the Committee may
determine.

8.3 VESTING CONDITIONS. Each award of Restricted Shares may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.

8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Corporation's other stockholders. A Restricted Stock Agreement, however,
may require that the holders of Restricted Shares invest any cash dividends
received in additional Restricted Shares. Such additional Restricted Shares
shall be subject to the same conditions and restrictions as the Award with
respect to which the dividends were paid.

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ARTICLE 9. STOCK UNITS.

9.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan
shall be evidenced by a Stock Unit Agreement between the recipient and the
Corporation. Such Stock Units shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various Stock Unit Agreements entered into under
the Plan need not be identical. Stock Units may be granted in consideration of
a reduction in the recipient's other compensation.

9.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.

9.3 VESTING CONDITIONS. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.

9.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have
no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one share of Common Stock while the
Stock Unit is outstanding. Dividend equivalents may be converted into
additional Stock Units. Settlement of dividend equivalents may be made in the
form of cash, in the form of shares of Common Stock, or in a combination of
both. Prior to distribution, any dividend equivalents which are not paid shall
be subject to the same conditions and restrictions as the Stock Units to which
they attach.

9.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) shares of Common Stock or
(c) any combination of both, as determined by the Committee. The actual number
of Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of shares of Common Stock over a
series of trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may
be increased by an interest factor or by dividend equivalents. Until an Award
of Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.

9.6 DEATH OF RECIPIENT. Any Stock Unit Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Unit Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Corporation. A beneficiary designation may be changed by filing
the prescribed form with the Corporation at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the

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Award recipient, then any Stock Unit Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.

9.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Corporation. Stock Units
represent an unfunded and unsecured obligation of the Corporation, subject to
the terms and conditions of the applicable Stock Unit Agreement.

ARTICLE 10. CHANGE IN CONTROL

10.1 EFFECT OF CHANGE IN CONTROL. In the event of any Change in Control,
each outstanding Award shall automatically accelerate so that each such Award
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Common Stock at the time subject to
such Award and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding Award shall NOT so accelerate
if and to the extent such Award is, in connection with the Change in Control,
either to be assumed by the successor corporation (or parent thereof) or to be
replaced with a comparable Award for shares of the capital stock of the
successor corporation (or parent thereof). The determination of Award
comparability shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive. In addition, if the Company is subject
to a Change in Control, the vesting of an Award shall accelerate in accordance
with the following rules: If the Change in Control occurs within 12 months
after the date a Participant commences Service, then the Award shall vest as to
an additional number of shares as if the Participant had been in Service 12
additional months as of the date of the Change in Control. If the Change in
Control occurs more than 12 months after the date a Participant commences
Service, then the Award shall vest in the lesser of 50% of the remaining
unvested portion or the excess of (I) 75% of the total number of Shares
originally subject to the Award over (II) the number of shares as to which the
Award had vested as of the date of the Change in Control. Any unvested shares
remaining after application of the foregoing acceleration provisions shall vest
monthly from the date of the Change in Control for as long as the Participant
remains in Service.

10.2 INVOLUNTARY TERMINATION.In addition, in the event that the Award is
assumed by the successor corporation (or parent thereof) and the Participant
experiences an Involuntary Termination within twelve (12) months following a
Change in Control, each outstanding Award shall automatically accelerate so that
each such Award shall, immediately prior to the effective date of the
Involuntary Termination, become fully exercisable for all of the shares of
Common Stock at the time subject to such Award and may be exercised for any or
all of those shares as fully-vested shares of Common Stock.

ARTICLE 11. PROTECTION AGAINST DILUTION.

11.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
shares of Common Stock, a declaration of a dividend payable in shares of Common
Stock, a declaration of a dividend payable in a form other than shares of Common
Stock in an amount that has a material effect on the price of shares of Common
Stock, a combination or consolidation of the

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outstanding shares of Common Stock (by reclassification or otherwise) into a
lesser number of shares of Common Stock, a recapitalization, a spin-off or a
similar occurrence, the Committee shall make such adjustments as it, in its sole
discretion, deems appropriate in one or more of:

(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;

(b) The limitations set forth in Sections 5.2 and 8.2;

(d) The Exercise Price under each outstanding Option and SAR; or

(e) The number of Stock Units included in any prior Award which
has not yet been settled.

Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.

11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Corporation.

11.3 REORGANIZATIONS. In the event that the Corporation is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Corporation, if the Corporation is
a surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.

ARTICLE 12. DEFERRAL OF AWARDS.

The Committee (in its sole discretion) may permit or require a
Participant to:

(a) Have cash that otherwise would be paid to such Participant as
a result of the exercise of an SAR or the settlement of Stock Units
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Corporation's books;

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(b) Have shares of Common Stock that otherwise would be delivered
to such Participant as a result of the exercise of an Option or SAR
converted into an equal number of Stock Units; or

(c) Have shares of Common Stock that otherwise would be delivered
to such Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as
an entry on the Corporation's books. Such amounts shall be determined by
reference to the Fair Market Value of such shares of Common Stock as of the
date when they otherwise would have been delivered to such Participant.

A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Corporation. Such an
account shall represent an unfunded and unsecured obligation of the Corporation
and shall be subject to the terms and conditions of the applicable agreement
between such Participant and the Corporation. If the deferral or conversion of
Awards is permitted or required, the Committee (in its sole discretion) may
establish rules, procedures and forms pertaining to such Awards, including
(without limitation) the settlement of deferred compensation accounts
established under this Article 12.

ARTICLE 13. AWARDS UNDER OTHER PLANS.

The Corporation may grant awards under other plans or programs.
Such awards may be settled in the form of shares of Common Stock issued under
this Plan. Such shares of Common Stock shall be treated for all purposes under
the Plan like shares of Common Stock issued in settlement of Stock Units and
shall, when issued, reduce the number of shares of Common Stock available under
Article 3.

ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

14.1 EFFECTIVE DATE. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.

14.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK UNITS. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Corporation in the form of cash, NSOs, Restricted Shares
or Stock Units, or a combination thereof, as determined by the Board. Such
NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Article 14 shall be filed with the Corporation on the
prescribed form.

14.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner

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determined by the Board. The terms of such NSOs, Restricted Shares or Stock
Units shall also be determined by the Board.

ARTICLE 15. LIMITATION ON RIGHTS.

15.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Corporation and its Parents, Subsidiaries
and Affiliates reserve the right to terminate the service of any Employee,
Outside Director or Consultant at any time, with or without cause, subject to
applicable laws, the Corporation's certificate of incorporation and by-laws and
a written employment agreement (if any).

15.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any shares of
Common Stock covered by his or her Award prior to the time when a stock
certificate for such shares of Common Stock is issued or, if applicable, the
time when he or she becomes entitled to receive such shares of Common Stock by
filing any required notice of exercise and paying any required Exercise Price.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to such time, except as expressly provided in the Plan.

15.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue shares of Common
Stock under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The
Corporation reserves the right to restrict, in whole or in part, the delivery of
shares of Common Stock pursuant to any Award prior to the satisfaction of all
legal requirements relating to the issuance of such shares of Common Stock, to
their registration, qualification or listing or to an exemption from
registration, qualification or listing.

ARTICLE 16. WITHHOLDING TAXES.

16.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Corporation for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Corporation shall not
be required to issue any shares of Common Stock or make any cash payment under
the Plan until such obligations are satisfied.

16.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Corporation withhold all or a portion of any shares of Common Stock
that otherwise would be issued to him or her or by surrendering all or a portion
of any shares of Common Stock that he or she previously acquired. Such shares
of Common Stock shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash.

ARTICLE 17. FUTURE OF THE PLAN.

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17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective as of the date of the IPO. The Plan shall remain in effect until it
is terminated under Section 17.2, except that no ISOs shall be granted on or
after the 10th anniversary of the later of (a) the date when the Board adopted
the Plan or (b) the date when the Board adopted the most recent increase in the
number of shares of Common Stock available under Article 3 which was approved by
the Corporation's stockholders. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants or stock awards shall be made
under the Predecessor Plan after the Plan effective date. All options
outstanding under the Predecessor Plan as of such date shall, immediately upon
approval of the Plan by the Corporation's stockholders, be incorporated into the
Plan and treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of shares
of Common Stock, except that the vesting acceleration provisions of Article 10
relating to Change in Control may be extended to the options incorporated from
the Predecessor Plan in the discretion of the Board.

17.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Corporation's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.

ARTICLE 18. LIMITATION ON PAYMENTS.

18.1 SCOPE OF LIMITATION. This Article 18 shall apply to an Award only
if:

(a) The independent auditors most recently selected by the Board
(the "Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under Section 4999 of the Code), will
be greater after the application of this Article 18 than it was before the
application of this Article 18; or

(b) The Committee, at the time of making an Award under the Plan
or at any time thereafter, specifies in writing that such Award shall be
subject to this Article 18 (regardless of the after-tax value of such Award
to the Participant).

If this Article 18 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.

18.2 BASIC RULE. In the event that the Auditors determine that any
payment or transfer by the Corporation under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Corporation for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in Section 280G of the Code, then the aggregate present

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value of all Payments shall be reduced (but not below zero) to the Reduced
Amount. For purposes of this Article 18, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Corporation because of Section 280G of the Code.

18.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Corporation because of Section 280G of the Code,
then the Corporation shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Corporation in writing of his or her election within
10 days of receipt of notice. If no such election is made by the Participant
within such 10-day period, then the Corporation may elect which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this
Article 18, present value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the Auditors under
this Article 18 shall be binding upon the Corporation and the Participant and
shall be made within 60 days of the date when a Payment becomes payable or
transferable. As promptly as practicable following such determination and the
elections hereunder, the Corporation shall pay or transfer to or for the benefit
of the Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.

18.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Corporation which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Corporation could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the
Corporation or the Participant which the Auditors believe has a high probability
of success, determine that an Overpayment has been made, such Overpayment shall
be treated for all purposes as a loan to the Participant which he or she shall
repay to the Corporation, together with interest at the applicable federal rate
provided in Section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Corporation if and to the extent that
such payment would not reduce the amount which is subject to taxation under
Section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Corporation to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code.

18.5 RELATED CORPORATIONS. For purposes of this Article 18, the term
"Corporation" shall include affiliated corporations to the extent determined by
the Auditors in accordance with Section 280G(d)(5) of the Code.

13
<PAGE>

ARTICLE 19. DEFINITIONS.

19.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Corporation and/or one or more Subsidiaries own not less than 50% of such
entity.

19.2 "AWARD" means any award of an Option, an SAR, a Restricted Share or
a Stock Unit under the Plan.

19.3 "BOARD" means the Corporation's Board of Directors, as constituted
from time to time.

19.4 "CHANGE IN CONTROL" shall mean:

(a) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately after
such merger, consolidation or other reorganization is owned by persons who
were not stockholders of the Corporation immediately prior to such merger,
consolidation or other reorganization;

(b) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets;

(c) A change in the composition of the Board, as a result of
which fewer than two-thirds of the incumbent directors are directors who
either (i) had been directors of the Corporation on the date 24 months
prior to the date of the event that may constitute a Change in Control (the
"original directors") or (ii) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the
aggregate of the original directors who were still in office at the time of
the election or nomination and the directors whose election or nomination
was previously so approved; or

(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's then
outstanding voting securities. For purposes of this Paragraph (d), the
term "person" shall have the same meaning as when used in Sections 13(d)
and 14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Corporation in
substantially the same proportions as their ownership of the common stock
of the Corporation.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Corporation's incorporation or to create a holding
company that will be owned in

14
<PAGE>

substantially the same proportions by the persons who held the Corporation's
securities immediately before such transaction.

19.5 "CODE" means the Internal Revenue Code of 1986, as amended.

19.6 "COMMITTEE" means a committee of the Board, as described in
Article 2.

19.7 "COMMON STOCK" means the common stock of the Corporation.

19.8 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Corporation, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.

19.9 "CORPORATION" means Ariba, Inc., a Delaware corporation.

19.10 "EMPLOYEE" means a common-law employee of the Corporation, a
Parent, a Subsidiary or an Affiliate.

19.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

19.12 "EXERCISE PRICE," in the case of an Option, means the amount for
which one share of Common Stock may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.

19.13 "FAIR MARKET VALUE" means the market price of shares of Common
Stock, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in THE WALL STREET JOURNAL.
Such determination shall be conclusive and binding on all persons.

19.14 "INVOLUNTARY TERMINATION" means the termination of the Service of
any individual which occurs by reason of:

(a) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

(b) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
bonus or incentive programs) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent.

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<PAGE>

19.15 "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.

19.16 "ISO" means an incentive stock option described in Section 422(b)
of the Code.

19.17 "MISCONDUCT" means the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).

19.18 "NSO" means a stock option not described in Sections 422 or 423 of
the Code.

19.19 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase shares of Common Stock.

19.20 "OPTIONEE" means an individual or estate who holds an Option or
SAR.

19.21 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.

19.22 "PARENT" means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, if each of the
corporations other than the Corporation owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.

19.23 "PARTICIPANT" means an individual or estate who holds an Award.

19.24 "PLAN" means this Ariba, Inc. 1999 Equity Incentive Plan, as
amended from time to time.

19.25 "PREDECESSOR PLAN" means the Corporation's existing 1996 Stock
Plan.

19.26 "RESTRICTED SHARE" means a Common Share awarded under the Plan.

19.27 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Corporation and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.

19.28 "SAR" means a stock appreciation right granted under the Plan.

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<PAGE>

19.29 "SAR AGREEMENT" means the agreement between the Corporation and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.

19.30 "STOCK OPTION AGREEMENT" means the agreement between the
Corporation and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.

19.31 "STOCK UNIT" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.

19.32 "STOCK UNIT AGREEMENT" means the agreement between the Corporation
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.

19.33 "SUBSIDIARY" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.

<PAGE>

Exhibit 10.4

ARIBA, INC.

1999 DIRECTORS' STOCK OPTION PLAN

(AS ADOPTED EFFECTIVE APRIL 20, 1999)

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Committee Composition . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Committee Responsibilities. . . . . . . . . . . . . . . . . . . . . 1

ARTICLE 3. SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . . . 1
3.1 Basic Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.2 Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. . . . . . . . . 2
4.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Initial Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.3 Annual Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.4 Accelerated Exercisability. . . . . . . . . . . . . . . . . . . . . 2
4.5 Exercise Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.6 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.7 Affiliates of Non-Employee Directors. . . . . . . . . . . . . . . . 2
4.8 Stock Option Agreement. . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE 5. PAYMENT FOR OPTION SHARES. . . . . . . . . . . . . . . . . . . . . 3
5.1 Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Surrender of Stock. . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.4 Other Forms of Payment. . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE 6. PROTECTION AGAINST DILUTION. . . . . . . . . . . . . . . . . . . . 3
6.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.2 Dissolution or Liquidation. . . . . . . . . . . . . . . . . . . . . 3
6.3 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE 7. LIMITATION ON RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 4
7.1 Stockholders' Rights. . . . . . . . . . . . . . . . . . . . . . . . 4
7.2 Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . 4
7.3 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE 8. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . 4
8.1 Term of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 4
8.2 Amendment or Termination. . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE 9. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>

i
<PAGE>

ARIBA, INC.

1999 DIRECTORS' STOCK OPTION PLAN

ARTICLE 1. INTRODUCTION.

The Plan was adopted by the Board effective at the initial public
offering. The purpose of the Plan is to promote the long-term success of the
Corporation and the creation of stockholder value by (a) encouraging
Non-Employee Directors to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Non-Employee Directors with
exceptional qualifications and (c) linking Non-Employee Directors directly to
stockholder interests through increased stock ownership. The Plan seeks to
achieve this purpose by providing for automatic and non-discretionary grants of
Options to Non-Employee Directors.

The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Corporation, who shall be appointed by the Board. In addition, the
composition of the Committee shall satisfy such requirements as the Securities
and Exchange Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its successor) under the
Exchange Act.

2.2 COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all decisions relating to the operation of the Plan. The Committee may
adopt such rules or guidelines as it deems appropriate to implement the Plan.
The Committee's determinations under the Plan shall be final and binding on all
persons.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 BASIC LIMITATION. Shares of Common Stock issued pursuant to the
Plan may be authorized but unissued shares or treasury shares. The aggregate
number of shares subject to Options granted under the Plan shall not exceed
(a) 500,000 plus (b) the additional shares of Common Stock described in Section
3.2. The limitations of this Section 3.1 shall be subject to adjustment
pursuant to Article 6.

3.2 ADDITIONAL SHARES. If Options are forfeited or terminate for any
other reason before being exercised, then the shares of Common Stock subject to
such Options shall again become available for the grant of Options under the
Plan.

<PAGE>

ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.

4.1 ELIGIBILITY. Only Non-Employee Directors shall be eligible for the
grant of Options under the Plan.

4.2 INITIAL GRANTS. Each Non-Employee Director who first becomes a
member of the Board after the date of the Corporation's IPO shall receive a
one-time grant of an Option covering 10,000 shares of Common Stock (subject to
adjustment under Article 6). Such Option shall be granted on the date when such
Non-Employee Director first joins the Board and shall become exercisable with
respect to 50% of the shares on the grant date and for the balance of the shares
upon the optionee's completion of 1 year of Board service measured from the date
of grant. A Non-Employee Director who previously was an Employee shall not
receive a grant under this Section 4.2.

4.3 ANNUAL GRANTS. Upon the conclusion of each regular annual meeting
of the Corporation's stockholders held in the year 2000 or thereafter, each
Non-Employee Director who will continue serving as a member of the Board
thereafter shall receive an Option covering 2,500 shares of Common Stock
(subject to adjustment under Article 6), except that such Option shall not be
granted in the calendar year in which the same Non-Employee Director received
the Option described in Section 4.2. Options granted under this Section 4.3
shall become exercisable in full on the date of grant. A Non-Employee Director
who previously was an Employee shall be eligible to receive grants under this
Section 4.3 at the first annual meeting of the stockholders following the
director's cessation of employment.

4.4 ACCELERATED EXERCISABILITY. All Options granted to a Non-Employee
Director under this Article 4 shall also become exercisable in full in the event
of a Change in Control with respect to the Corporation.

4.5 EXERCISE PRICE. The Exercise Price under all Options granted to a
Non-Employee Director under this Article 4 shall be equal to 100% of the Fair
Market Value of a Share of Common Stock on the date of grant, payable in one of
the forms described in Article 5.

4.6 TERM. All Options granted to a Non-Employee Director under this
Article 4 shall terminate on the earliest of (a) the 10th anniversary of the
date of grant, (b) the date 12 months after the termination of such Non-Employee
Director's service for any reason.

4.7 AFFILIATES OF NON-EMPLOYEE DIRECTORS. The Committee may provide
that the Options that otherwise would be granted to a Non-Employee Director
under this Article 4 shall instead be granted to an affiliate of such
Non-Employee Director. Such affiliate shall then be deemed to be a Non-Employee
Director for purposes of the Plan, provided that the service-related vesting and
termination provisions pertaining to the Options shall be applied with regard to
the service of the Non-Employee Director.

4.8 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Corporation. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.

2
<PAGE>

ARTICLE 5. PAYMENT FOR OPTION SHARES.

5.1 CASH. All or any part of the Exercise Price may be paid in cash or
cash equivalents.

5.2 SURRENDER OF STOCK. All or any part of the Exercise Price may be
paid by surrendering, or attesting to the ownership of, shares of Common Stock
that are already owned by the Optionee. Such shares of Common Stock shall be
valued at their Fair Market Value on the date when the new shares of Common
Stock are purchased under the Plan. The Optionee shall not surrender, or attest
to the ownership of, shares of Common Stock in payment of the Exercise Price if
such action would cause the Corporation to recognize compensation expense (or
additional compensation expense) with respect to the Option for financial
reporting purposes.

5.3 EXERCISE/SALE. All or any part of the Exercise Price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to a securities broker approved by the
Corporation to sell all or part of the shares of Common Stock being purchased
under the Plan and to deliver all or part of the sales proceeds to the
Corporation.

5.4 OTHER FORMS OF PAYMENT. At the sole discretion of the Committee,
all or any part of the Exercise Price and any withholding taxes may be paid in
any other form that is consistent with applicable laws, regulations and rules.

ARTICLE 6. PROTECTION AGAINST DILUTION.

6.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
shares of Common Stock, a declaration of a dividend payable in shares of Common
Stock, a declaration of a dividend payable in a form other than shares of Common
Stock in an amount that has a material effect on the price of shares of Common
Stock, a combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise) into a lesser number of shares of Common
Stock, a recapitalization, a spin-off or a similar occurrence, the Committee
shall make such adjustments as it, in its sole discretion, deems appropriate in
one or more of (a) the number of shares of Common Stock available for future
grants under Article 3, (b) the number of Options to be granted to Non-Employee
Directors under Article 4, (c) the number of shares of Common Stock covered by
each outstanding Option or (d) the Exercise Price under each outstanding Option.
Except as provided in this Article 6, an Optionee shall have no rights by reason
of any issue by the Corporation of stock of any class or securities convertible
into stock of any class, any subdivision or consolidation of shares of stock of
any class, the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class.

6.2 DISSOLUTION OR LIQUIDATION. To the extent not previously
exercised, Options shall terminate immediately prior to the dissolution or
liquidation of the Corporation.

6.3 REORGANIZATIONS. In the event that the Corporation is a party to a
merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Options by the Corporation, if the Corporation
is a surviving corporation, (b) the assumption of the

3
<PAGE>

outstanding Options by the surviving corporation or its parent or subsidiary,
(c) the substitution by the surviving corporation or its parent or subsidiary of
its own options for the outstanding Options, (d) full exercisability and
accelerated expiration of the outstanding Options or (e) settlement of the full
value of the outstanding Options in cash or cash equivalents followed by
cancellation of such Options.

ARTICLE 7. LIMITATION ON RIGHTS.

7.1 STOCKHOLDERS' RIGHTS. An Optionee shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any shares of
Common Stock covered by his or her Option prior to the time when he or she
becomes entitled to receive such shares of Common Stock by filing a notice of
exercise and paying the Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.

7.2 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue shares of Common
Stock under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The
Corporation reserves the right to restrict, in whole or in part, the delivery of
shares of Common Stock pursuant to any Option prior to the satisfaction of all
legal requirements relating to the issuance of such shares of Common Stock, to
their registration, qualification or listing or to an exemption from
registration, qualification or listing.

7.3 WITHHOLDING TAXES. To the extent required by applicable federal,
state, local or foreign law, an Optionee or his or her successor shall make
arrangements satisfactory to the Corporation for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Corporation shall not be required to issue any shares of Common Stock or make
any cash payment under the Plan until such obligations are satisfied.

ARTICLE 8. FUTURE OF THE PLAN.

8.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the effective date of the Corporation's IPO. The Plan shall remain
in effect until it is terminated under Section 8.2.

8.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Corporation's stockholders only to the extent required by
applicable laws, regulations or rules. No Options shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.

ARTICLE 9. DEFINITIONS.

9.1 "BOARD" means the Corporation's Board of Directors, as constituted
from time to time.

4
<PAGE>

9.2 "CHANGE IN CONTROL" means:

(b) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets;

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation's securities immediately before such transaction.

9.3 "CODE" means the Internal Revenue Code of 1986, as amended.

9.4 "COMMITTEE" means a committee of the Board, as described in
Article 2.

9.5 "COMMON STOCK" means the common stock of the Corporation.

9.6 "CORPORATION" means Ariba, Inc., a Delaware corporation.

5
<PAGE>

9.7 "EMPLOYEE" means a common-law employee of the Corporation, a Parent
or a Subsidiary.

9.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

9.9 "EXERCISE PRICE" means the amount for which one share of Common
Stock may be purchased upon exercise of such Option, as specified in the
applicable Stock Option Agreement.

9.10 "FAIR MARKET VALUE" means the market price of shares of Common
Stock, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in THE WALL STREET JOURNAL.
Such determination shall be conclusive and binding on all persons.

9.11 "IPO" means the Corporation's first underwritten public offering.

9.12 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
Employee.

9.13 "OPTION" means an option granted under the Plan and entitling the
holder to purchase shares of Common Stock. Options do not qualify as incentive
stock options described in section 422(b) of the Code.

9.14 "OPTIONEE" means an individual or estate who holds an Option.

9.15 "PARENT" means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, if each of the
corporations other than the Corporation owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.

9.16 "PLAN" means this Ariba, Inc. 1999 Directors' Stock Option Plan, as
amended from time to time.

9.17 "STOCK OPTION AGREEMENT" means the agreement between the
Corporation and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.

9.18 "SUBSIDIARY" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.

<PAGE>

Exhibit 10.5

ARIBA, INC.

EMPLOYEE STOCK PURCHASE PLAN

(As Adopted Effective April 20, 1999)

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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SECTION 1. PURPOSE OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 2. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . 1
(a) Committee Composition. . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . 1

SECTION 3. ENROLLMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . 1
(a) Offering Periods . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Contribution Periods . . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(d) Duration of Participation. . . . . . . . . . . . . . . . . . . . . . 1
(e) Applicable Offering Period . . . . . . . . . . . . . . . . . . . . . 2

SECTION 4. EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 2
(a) Frequency of Payroll Deductions. . . . . . . . . . . . . . . . . . . 2
(b) Amount of Payroll Deductions . . . . . . . . . . . . . . . . . . . . 2
(c) Changing Withholding Rate. . . . . . . . . . . . . . . . . . . . . . 3
(d) Discontinuing Payroll Deductions . . . . . . . . . . . . . . . . . . 3
(e) Limit on Number of Elections . . . . . . . . . . . . . . . . . . . . 3

SECTION 5. WITHDRAWAL FROM THE PLAN . . . . . . . . . . . . . . . . . . . . . 3
(a) Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Re-Enrollment After Withdrawal . . . . . . . . . . . . . . . . . . . 3

SECTION 6. CHANGE IN EMPLOYMENT STATUS. . . . . . . . . . . . . . . . . . . . 3
(a) Termination of Employment. . . . . . . . . . . . . . . . . . . . . . 3
(b) Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Death. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES . . . . . . . . . . . . . . . 4
(a) Plan Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Number of Shares Purchased . . . . . . . . . . . . . . . . . . . . . 4
(d) Available Shares Insufficient. . . . . . . . . . . . . . . . . . . . 4
(e) Issuance of Common Stock . . . . . . . . . . . . . . . . . . . . . . 4
(f) Unused Cash Balances . . . . . . . . . . . . . . . . . . . . . . . . 5
(g) Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 8. LIMITATIONS ON STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . 5
(a) Five Percent Limit . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Dollar Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>

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<PAGE>

<TABLE>
<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE. . . . . . . . . . . . . . . . . . . . . . 6

SECTION 10. NO RIGHTS AS AN EMPLOYEE. . . . . . . . . . . . . . . . . . . . . 6

SECTION 11. NO RIGHTS AS A STOCKHOLDER. . . . . . . . . . . . . . . . . . . . 6

SECTION 12. SECURITIES LAW REQUIREMENTS.. . . . . . . . . . . . . . . . . . . 7

SECTION 13. STOCK OFFERED UNDER THE PLAN. . . . . . . . . . . . . . . . . . . 7
(a) Authorized Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Anti-Dilution Adjustments. . . . . . . . . . . . . . . . . . . . . . 7
(c) Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SECTION 14. AMENDMENT OR DISCONTINUANCE . . . . . . . . . . . . . . . . . . . 7

SECTION 15. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Contribution Period. . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(g) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(h) Corporate Reorganization . . . . . . . . . . . . . . . . . . . . . . 8
(i) Eligible Employee. . . . . . . . . . . . . . . . . . . . . . . . . . 8
(j) Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(k) Fair Market Value. . . . . . . . . . . . . . . . . . . . . . . . . . 8
(l) IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(m) Offering Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(n) Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(o) Participating Corporation. . . . . . . . . . . . . . . . . . . . . . 9
(p) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(q) Plan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(r) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(s) Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>

ii
<PAGE>

ARIBA, INC.
EMPLOYEE STOCK PURCHASE PLAN

SECTION 1. PURPOSE OF THE PLAN.

The Plan was adopted by the Board on April 20, 1999, to be effective as
of the date of the IPO. The purpose of the Plan is to provide Eligible
Employees with an opportunity to increase their proprietary interest in the
success of the Corporation by purchasing Common Stock from the Corporation on
favorable terms and to pay for such purchases through payroll deductions. The
Plan is intended to qualify under Section 423 of the Code.

SECTION 2. ADMINISTRATION OF THE PLAN.

(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Corporation, who shall be appointed by the Board.

(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.

SECTION 3. ENROLLMENT AND PARTICIPATION.

(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each February 1 and
August 1, except that the first Offering Period shall commence on the date of
the IPO and end on July 31, 2001.

(b) CONTRIBUTION PERIODS. While the Plan is in effect, two
Contribution Periods shall commence in each calendar year. The Contribution
Periods shall consist of the six-month periods commencing on each February 1 and
August 1, except that the first Contribution Period shall commence on the date
of the IPO and end on January 31, 2000.

(c) ENROLLMENT. Any individual who, on the day prior to the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Corporation at the prescribed location not later than one
business day prior to the commencement of such Offering Period.

(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a
Participant shall continue to participate in the Plan until he or she ceases to
be an Eligible Employee, withdraws from the Plan under Section 5(a) or reaches
the end of the Contribution Period in which his or

<PAGE>

her employee contributions were discontinued under Section 4(d) or 8(b). A
Participant who discontinued employee contributions under Section 4(d) or
withdrew from the Plan under Section 5(a) may again become a Participant, if he
or she then is an Eligible Employee, by following the procedure described in
Subsection (c) above. A Participant whose employee contributions were
discontinued automatically under Section 8(b) shall automatically resume
participation at the beginning of the earliest Contribution Period ending in the
next calendar year, if he or she then is an Eligible Employee.

(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:

(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his or
her participation under Subsection (d) above or (C) re-enrollment for a
subsequent Offering Period under Paragraph (ii) or (iii) below.

(ii) In the event that the Fair Market Value of the Common Stock
on the last trading day before the commencement of the Offering Period for
which the Participant is enrolled is higher than on the last trading day
before the commencement of any subsequent Offering Period, the Participant
shall automatically be re-enrolled for such subsequent Offering Period.

(iii) Any other provision of the Plan notwithstanding, the
Corporation (at its sole discretion) may determine prior to the
commencement of any new Offering Period that all Participants shall be
re-enrolled for such new Offering Period.

(iv) When a Participant reaches the end of an Offering Period but
his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.

SECTION 4. EMPLOYEE CONTRIBUTIONS.

(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Common Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.

(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Common Stock. Such portion shall be
a whole percentage of the Eligible Employee's Compensation, but not less than 1%
nor more than 15% or such lesser percentage established by the Committee from
time to time.

2
<PAGE>

(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Corporation at the prescribed location at any time. The new
withholding rate shall be effective as soon as reasonably practicable after such
form has been received by the Corporation. The new withholding rate shall be a
whole percentage of the Eligible Employee's Compensation, but not less than 1%
nor more than 15%.

(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Corporation at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Corporation. (In addition, employee contributions
may be discontinued automatically pursuant to Section 8(b).) A Participant who
has discontinued employee contributions may resume such contributions by filing
a new enrollment form with the Corporation at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Corporation.

(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than
one election under Subsection (c) or (d) above during any Contribution Period.

SECTION 5. WITHDRAWAL FROM THE PLAN.

(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Corporation at the prescribed location at
any time before the last day of a Contribution Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.

(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.

SECTION 6. CHANGE IN EMPLOYMENT STATUS.

(a) TERMINATION OF EMPLOYMENT. Termination of employment as an
Eligible Employee for any reason, including death, shall be treated as an
automatic withdrawal from the Plan under Section 5(a). (A transfer from one
Participating Corporation to another shall not be treated as a termination of
employment.)

(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not
be deemed to terminate when the Participant goes on a military leave, a sick
leave or another BONA FIDE leave of absence, if the leave was approved by the
Corporation in writing. Employment, however, shall be deemed to terminate 90
days after the Participant goes on a leave, unless a contract or statute
guarantees his or her right to return to work. Employment shall be deemed to
terminate in any event when the approved leave ends, unless the Participant
immediately returns to work.

3
<PAGE>

(c) DEATH. In the event of the Participant's death, the amount
credited to his or her Plan Account shall be paid to a beneficiary designated by
him or her for this purpose on the prescribed form or, if none, to the
Participant's estate. Such form shall be valid only if it was filed with the
Corporation at the prescribed location before the Participant's death.

SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.

(a) PLAN ACCOUNTS. The Corporation shall maintain a Plan Account on
its books in the name of each Participant. Whenever an amount is deducted from
the Participant's Compensation under the Plan, such amount shall be credited to
the Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Corporation's general assets and
applied to general corporate purposes. No interest shall be credited to Plan
Accounts.

(b) PURCHASE PRICE. The Purchase Price for each share of Common Stock
purchased at the close of a Contribution Period shall be the lower of:

(i) 85% of the Fair Market Value of such share on the last
trading day in such Contribution Period; or

(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period (as
determined under Section 3(e)) or, in the case of the first Offering Period
under the Plan, 85% of the price at which one share of Common Stock is
offered to the public in the IPO.

(c) NUMBER OF SHARES PURCHASED. As of the last day of each
Contribution Period, each Participant shall be deemed to have elected to
purchase the number of shares of Common Stock calculated in accordance with this
Subsection (c), unless the Participant has previously elected to withdraw from
the Plan in accordance with Section 5(a). The amount then in the Participant's
Plan Account shall be divided by the Purchase Price, and the number of shares
that results shall be purchased from the Corporation with the funds in the
Participant's Plan Account. The foregoing notwithstanding, no Participant shall
purchase more than 2,000 [post-split] shares of Common Stock with respect to any
Contribution Period nor more than the amounts of Common Stock set forth in
Sections 8(b) and 13(a). The Committee may determine with respect to all
Participants that any fractional share, as calculated under this Subsection (c),
shall be (i) rounded down to the next lower whole share or (ii) credited as a
fractional share.

(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during a Contribution
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.

(e) ISSUANCE OF COMMON STOCK. Certificates representing the shares of
Common Stock purchased by a Participant under the Plan shall be issued to him or
her as soon as

4
<PAGE>

reasonably practicable after the close of the applicable Contribution Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property. The Committee may impose such restrictions on the
transfer or resale of issued shares as it may deem advisable.

(f) UNUSED CASH BALANCES. An amount remaining in the Participant's
Plan Account that represents the Purchase Price for any fractional share shall
be carried over in the Participant's Plan Account to the next Contribution
Period. Any amount remaining in the Participant's Plan Account that represents
the Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.

(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Common Stock shall be purchased under the Plan
unless and until the Corporation's stockholders have approved the adoption of
the Plan.

SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.

(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Common
Stock under the Plan if such Participant, immediately after his or her election
to purchase such Common Stock, would own stock possessing more than 5% of the
total combined voting power or value of all classes of stock of the Corporation
or any parent or Subsidiary of the Corporation. For purposes of this Subsection
(a), the following rules shall apply:

(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;

(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and

(iii) Each Participant shall be deemed to have the right to
purchase 2,000 [post-split] shares of Common Stock under this Plan with
respect to each Contribution Period.

(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Common Stock with a Fair Market Value in excess of
the following limit:

(i) In the case of Common Stock purchased during an Offering
Period that commenced in the current calendar year, the limit shall be
equal to (A) $25,000 minus (B) the Fair Market Value of the Common Stock
that the Participant previously purchased in the current calendar year
(under this Plan and all other employee stock purchase plans of the
Corporation or any parent or Subsidiary of the Corporation).

5
<PAGE>
(ii) In the case of Common Stock purchased during an Offering
Period that commenced in the immediately preceding calendar year, the limit
shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Common
Stock that the Participant previously purchased (under this Plan and all
other employee stock purchase plans of the Corporation or any parent or
Subsidiary of the Corporation) in the current calendar year and in the
immediately preceding calendar year.

(iii) In the case of Common Stock purchased during an Offering
Period that commenced in the second preceding calendar year, the limit
shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Common
Stock that the Participant previously purchased (under this Plan and all
other employee stock purchase plans of the Corporation or any parent or
Subsidiary of the Corporation) in the current calendar year and in the two
preceding calendar years.

For purposes of this Subsection (b), the Fair Market Value of Common Stock shall
be determined in each case as of the beginning of the Offering Period in which
such Common Stock is purchased. Employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Common Stock under the Plan, then
his or her employee contributions shall automatically be discontinued and shall
resume at the beginning of the earliest Contribution Period ending in the next
calendar year (if he or she then is an Eligible Employee).

SECTION 9. RIGHTS NOT TRANSFERABLE.

The rights of any Participant under the Plan, or any Participant's interest
in any Common Stock or moneys to which he or she may be entitled under the Plan,
shall not be transferable by voluntary or involuntary assignment or by operation
of law, or in any other manner other than by beneficiary designation or the laws
of descent and distribution. If a Participant in any manner attempts to
transfer, assign or otherwise encumber his or her rights or interest under the
Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).

SECTION 10. NO RIGHTS AS AN EMPLOYEE.

Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Corporations or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.

SECTION 11. NO RIGHTS AS A STOCKHOLDER.

A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock that he or she may have a right to purchase under the
Plan until such shares have been purchased on the last day of the applicable
Contribution Period.

6
<PAGE>

SECTION 12. SECURITIES LAW REQUIREMENTS.

Shares of Common Stock shall not be issued under the Plan unless the
issuance and delivery of such shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Corporation's securities may then be
traded.

SECTION 13. STOCK OFFERED UNDER THE PLAN.

(a) AUTHORIZED SHARES. The aggregate number of shares of Common Stock
available for purchase under the Plan shall be 2,000,000 [post-split], subject
to adjustment pursuant to this Section 13. In addition, the number of shares of
Common Stock available for purchase under the Plan shall automatically increase
by the lesser of (i) 2% of the total number of shares of Common Stock then
outstanding or (ii) 750,000 [post-split] shares on January 31 each year from
2000 through 2005.

(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of
Common Stock offered under the Plan, the number of shares by which the share
reserve is to increase each calendar year, the 2,000-share limitation described
in Section 7(c) and the price of shares that any Participant has elected to
purchase shall be adjusted proportionately by the Committee for any increase or
decrease in the number of outstanding shares of Common Stock resulting from a
subdivision or consolidation of shares or the payment of a stock dividend, any
other increase or decrease in such shares effected without receipt or payment of
consideration by the Corporation, the distribution of the shares of a Subsidiary
to the Corporation's stockholders or a similar event.

(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Contribution Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7. The Plan shall in no event be
construed to restrict in any way the Corporation's right to undertake a
dissolution, liquidation, merger, consolidation or other reorganization.

SECTION 14. AMENDMENT OR DISCONTINUANCE.

The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Common Stock to be issued under the Plan shall
be subject to approval by a vote of the stockholders of the Corporation. In
addition, any other amendment of the Plan shall be subject to approval by a vote
of the stockholders of the Corporation to the extent required by an applicable
law or regulation.

SECTION 15. DEFINITIONS.

(a) "BOARD" means the Board of Directors of the Corporation, as
constituted from time to time.

7
<PAGE>

(b) "CODE" means the Internal Revenue Code of 1986, as amended.

(d) "COMMON STOCK" means the common stock of the Corporation.

(e) "CONTRIBUTION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Common Stock under the Plan, as
determined pursuant to Section 3(b).

(f) "CORPORATION" means Ariba, Inc., a Delaware corporation.

(g) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Corporation, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.

(h) "CORPORATE REORGANIZATION" means:

(i) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization; or

(ii) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets or the complete liquidation
or dissolution of the Corporation.

(i) "ELIGIBLE EMPLOYEE" means any employee of a Participating
Corporation if his or her customary employment is for more than five months per
calendar year and for more than 20 hours per week. The foregoing
notwithstanding, an individual shall not be considered an Eligible Employee if
his or her participation in the Plan is prohibited by the law of any country
which has jurisdiction over him or her or if he or she is subject to a
collective bargaining agreement that does not provide for participation in the
Plan.

(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(k) "FAIR MARKET VALUE" means the market price of Common Stock,
determined by the Committee as follows:

(i) If the Common Stock was traded on the Nasdaq National Market
on the date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by the Nasdaq National Market;

8
<PAGE>

(ii) If the Common Stock was traded on a stock exchange on the
date in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for such
date; or

(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in THE WALL STREET JOURNAL or as reported
directly to the Corporation by Nasdaq or a stock exchange. Such determination
shall be conclusive and binding on all persons.

(l) "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.

(m) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Common Stock may be granted under the Plan, as determined
pursuant to Section 3(a).

(n) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).

(o) "PARTICIPATING CORPORATION" means (i) the Corporation and (ii) each
present or future Subsidiary designated by the Committee as a Participating
Corporation.

(p) "PLAN" means this Ariba, Inc. Employee Stock Purchase Plan, as it
may be amended from time to time.

(q) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).

(r) "PURCHASE PRICE" means the price at which Participants may purchase
Common Stock under the Plan, as determined pursuant to Section 7(b).

(s) "SUBSIDIARY" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.