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                                                                    EXHIBIT 10.2

                               SABA SOFTWARE, INC.

                 AMENDED AND RESTATED 1997 STOCK INCENTIVE PLAN

        1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business.

        2. Definitions. As used herein, the following definitions shall apply:

                (a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.

                (b) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, California corporate and securities laws, the Code,
the rules of any applicable stock exchange or national market system, and the
rules of any foreign jurisdiction applicable to Awards granted to residents
therein.

                (c) "Award" means the grant of an Option, Restricted Stock, or
other right or benefit under the Plan.

                (d) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.

                (e) "Board" means the Board of Directors of the Company.

                (f) "Code" means the Internal Revenue Code of 1986, as amended.

                (g) "Committee" means any committee appointed by the Board to
administer the Plan.

                (h) "Common Stock" means the common stock of the Company.

                (i) "Company" means Saba Software, Inc., a Delaware corporation.

                (j) "Consultant" means any person who is engaged by the Company
or Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.

                (k) "Continuous Status as an Employee, Director or Consultant"
means that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change

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in status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director or Consultant (except as
otherwise provided in the Award Agreement). For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.

                (l) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:

                        (i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;

                        (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or

                        (iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.

                (m) "Director" means a member of the Board.

                (n) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.

                (o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                (p) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                        (i) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or

                        (ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith and in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.

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                (q) "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.

                (r) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code

                (s) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

                (t) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

                (u) "Option" means a stock option granted pursuant to the Plan.

                (v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                (w) "Plan" means this Amended and Restated 1997 Stock Incentive
Plan.

                (x) "Registration Date" means the closing of the first sale of
Common Stock to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.

                (y) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds an ownership interest,
directly or indirectly.

                (z) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.

                (aa) "Share" means a share of the Common Stock.

                (bb) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.

        3. Stock Subject to the Plan.

                (a) Subject to the provisions of Section 11(a) below, the
maximum aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is 6,000,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.

                (b) If an Award expires or becomes unexercisable without having
been exercised in full, or if any unissued Shares are retained by the Company
upon exercise of an

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Award in order to satisfy the exercise price for such Award or any withholding
taxes due with respect to such Award, such unissued or retained Shares shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to an
Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.

        4. Administration of the Plan.

                (a) Plan Administrator. With respect to grants of Awards to
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board.

                (b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:

                        (i) to select the Employees, Directors and Consultants
to whom Awards may be granted from time to time hereunder;

                        (ii) to determine whether and to what extent Awards are
granted hereunder;

                        (iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;

                        (iv) to approve forms of Award Agreement for use under
the Plan;

                        (v) to determine the terms and conditions of any Award
granted hereunder;

                        (vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;

                        (vii) to amend the terms of any outstanding Award
granted under the Plan, including a reduction in the exercise price of any Award
to reflect a reduction in the Fair Market Value of the Common Stock since the
grant date of the Award, provided that any amendment that would adversely affect
the Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;

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                        (viii) to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan; and

                        (ix) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.

                (c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.

        5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.

        6. Terms and Conditions of Awards.

                (a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, or similar
right with an exercise or conversion privilege at a fixed or variable price
related to the Common Stock and/or the passage of time, the occurrence of one or
more events, or the satisfaction of performance criteria or other conditions, or
(iii) any other security with the value derived from the value of the Common
Stock or securities issued by a Related Entity. Such awards include, without
limitation, Options, and sales or bonuses of Restricted Stock. An Award may
consist of one such security or benefit, or two or more of them in any
combination or alternative.

                (b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the grant date of the relevant Option.

                (c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price,

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earnings per share, total stockholder return, return on equity, return on
assets, return on investment, net operating income, cash flow, revenue, economic
value added, personal management objectives, or other measure of performance
selected by the Administrator. Partial achievement of the specified criteria may
result in a payment or vesting corresponding to the degree of achievement as
specified in the Award Agreement.

                (d) Early Exercise. The Award may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or to any other restriction the
Administrator determines to be appropriate.

                (e) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term shall be no more
than ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Award Agreement.

                (f) Non-Transferability of Awards. Awards may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Grantee, only by the Grantee.

                (g) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.

        7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.

                (a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:

                        (i) In the case of an Incentive Stock Option:

                                (A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.

                                (B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.

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                        (ii) In the case of a Non-Qualified Stock Option:

                                (A) granted to a person who, at the time of the
grant of such Option, Iowns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.

                                (B) granted to any person other than a person
described in the preceding paragraph, the per Share exercise price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.

                        (iii) In the case of the sale of Shares:

                                (A) granted to a person who, at the time of the
grant of such Award, or at the time the purchase is consummated, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share purchase price
shall be not less than one hundred percent (100%) of the Fair Market Value per
share on the date of grant.

                                (B) granted to any person other than a person
described in the preceding paragraph, the per Share purchase price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.

                (b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:

                        (i) cash;

                        (ii) check;

                        (iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;

                        (iv) if the exercise occurs on or after the Registration
Date, surrender of Shares or delivery of a properly executed form of attestation
of ownership of Shares as the Administrator may require (including withholding
of Shares otherwise deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
exercise price of the Shares as to which said Award shall be exercised (but only
to the extent that such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);

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                        (v) if the exercise occurs on or after the Registration
Date, delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or

                        (vi) any combination of the foregoing methods of
payment.

                (c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.

                (d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.

        8. Exercise of Award.

                (a) Procedure for Exercise; Rights as a Stockholder.

                        (i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted, subject to reasonable conditions such as
continued employment. However, in the case of an Option granted to an Officer,
Director or Consultant, the Award Agreement may provide that the Option may
become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established in the Award Agreement.

                        (ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to Shares subject to an Award, notwithstanding the exercise of an Option or
other Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 11(a), below.

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

                (c) Disability of Grantee. In the event of termination of an
Grantee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Grantee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date of
the term of such Award as set forth in the Award Agreement), exercise the Award
to the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a
Non-Qualified Stock Option on the day three (3) months and one day following
such termination. To the extent that the Grantee is not entitled to exercise the
Award at the date of termination, or if Grantee does not exercise such Award to
the extent so entitled within the time specified herein, the Award shall
terminate.

                (d) Death of Grantee. In the event of the death of an Grantee,
the Award may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Award as set forth in the Award Agreement), by the Grantee's estate or by a
person who acquired the right to exercise the Award by bequest or inheritance,
but only to the extent that the Grantee was entitled to exercise the Award at
the date of death. If, at the time of death, the Grantee was not entitled to
exercise his or her entire Award, the Shares covered by the unexercisable
portion of the Award shall immediately revert to the Plan. If, after death, the
Grantee's estate or a person who acquired the right to exercise the Award by
bequest or inheritance does not exercise the Award within the time specified
herein, the Award shall terminate.

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                (e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Award previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Grantee at the time that such offer is made.

        9. Conditions Upon Issuance of Shares.

                (a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

                (b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.

        10. Repurchase Rights. If the provisions of an Award Agreement grant to
the Company the right to repurchase Shares upon termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:

                (a) Not less than the Fair Market Value of the Shares to be
repurchased on the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise), and the right terminates when the Company's securities become
publicly traded; or

                (b) The original purchase price, provided that the right to
repurchase at the original purchase price lapses at the rate of at least twenty
percent (20%) of the Shares subject to the Award per year over five (5) years
from the date the Award is granted (without respect to the date the Award was
exercised or became exercisable), and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise).

                (c) In addition to the restrictions set forth in (a) and (b)
above, the Shares held by an Officer, Director or Consultant may be subject to
additional or greater restrictions.

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        11. Adjustments Upon Changes in Capitalization or Corporate Transaction.

                (a) Adjustments upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of Shares covered
by each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Award, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.

                (b) Corporate Transaction. Except as provided otherwise in an
individual Award Agreement, in the event of any Corporate Transaction, each
outstanding Award will terminate immediately prior to the specified effective
date of such Corporate Transaction, unless the Award is assumed or an equivalent
Award is substituted by the successor corporation or a Parent or Subsidiary of
such successor corporation. For the purposes of this subsection, the Award shall
be considered assumed or substituted for an equivalent Award if, following the
Corporate Transaction, the Award confers, for each Share subject to the Award
immediately prior to the Corporate Transaction, (i) the consideration (whether
stock, cash, or other securities or property) received in the Corporate
Transaction by holders of Common Stock for each Share subject to the Award held
on the effective date of the Corporate Transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares), or (ii) the right to purchase such
consideration in the case of an Option or similar Award; provided, however, that
if such consideration received in the Corporate Transaction was not solely
common stock of the successor corporation or its Parent or a Subsidiary, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise or exchange of the Award for
each Share subject to the Award to be solely common stock of the successor
corporation or its Parent or a Subsidiary equal in fair market value to the per
share consideration received by holders of Common Stock in the Corporate
Transaction.

        12. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.

        13. Amendment, Suspension or Termination of the Plan.

                (a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.

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                (b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.

                (c) Any amendment, suspension or termination of the Plan shall
not affect Awards already granted, and such Awards shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.

        14. Reservation of Shares.

                (a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

                (b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.

        15. No Effect on Terms of Employment/Consulting. The Plan shall not
confer upon any Grantee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
his or her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.

        16. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Award exercised
before stockholder approval is obtained shall be rescinded if stockholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Award shall not be counted in determining whether
stockholder approval is obtained.

        17. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually.

                                       12

<PAGE>   13

                  SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN

                          NOTICE OF STOCK OPTION GRANT

Optionee's Name and Address:                NAME
                                            ADDRESS
                                            ADDRESS

        You have been granted an option to purchase shares of Common Stock of
the Company, subject to the terms and conditions of the Plan and the Option
Agreement, as follows:

<TABLE>
<S>                                          <C>
         Grant Number                        000XXX

         Date of Grant                       DATE

         Vesting Commencement Date           DATE OF HIRE

         Exercise Price per Share            $0.XX

         Total Number of Shares Granted      XX,XXX

         Total Exercise Price                $X,XXX

         Type of Option:                     X________Incentive Stock Option

                                             _________Non-Qualified Stock Option

         Term/Expiration Date:               DATE (10 YEARS)
</TABLE>

Vesting Schedule:

        Subject to other limitations set forth in the Option Agreement, the
Option may be exercised, in whole or in part, in accordance with the following
schedule:

        25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 3/48 of the Shares subject to the Option
shall vest on each quarterly anniversary of the Vesting Commencement Date
thereafter.

        During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Optionee's termination of the leave of absence and return to service with the
Company.

        In the event of the Optionee's change in status from Employee to
Consultant, vesting of the Option shall continue only to the extent determined
by the Administrator as of such change in status.

                                       1
<PAGE>   14

Termination Period:

        Except in the event of termination of the Optionee's Continuous Status
as an Employee, Director or Consultant for "Cause" (as defined below), the
Option may be exercised within three (3) months from termination of the
Optionee's Continuous Status as an Employee, Director or Consultant or such
longer period as may be applicable upon death or disability of the Optionee as
provided in the Option Agreement. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, the Option shall
remain in effect; provided, however, that in the event of a change in status
from Employee to Consultant, the Optionee's Incentive Stock Option shall cease
to be treated as an Incentive Stock Option and shall be treated as a
Non-Qualified Stock Option on the day three (3) months and one day following
such change in status. In no event shall the Option be exercised later than the
Term/Expiration Date as provided above.

        In the event of termination of the Optionee's Continuous Status as an
Employee, Director or Consultant for "Cause," the Optionee's right to exercise
the Option shall terminate concurrently with the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant.

Definition of "Cause":

        For purposes of the Option, termination of the Optionee's Continuous
Status as an Employee, Director or Consultant shall be for "Cause" as such term
is defined in the Optionee's employment agreement, or in the absence of such
definition, then as in the opinion of the Company, the Optionee: (i) acts in bad
faith and to the detriment of the Company; (ii) refuses or fails to act in
accordance with any specific direction or order of the Company; (iii) exhibits
in regard to his employment unfitness or unavailability for service,
unsatisfactory performance, misconduct, but not disability; (iv) exhibits
dishonesty, habitual neglect, or incompetence, but not disability; or (v) is
convicted of a crime involving dishonesty, breach of trust, or physical or
emotional harm to any person. At least 30 days prior to terminating the
Optionee's Continuous Status as an Employee, Director or Consultant pursuant to
(ii) or (iii) above, the Company shall provide the Optionee with notice of the
Company's intent to terminate, the Company's reason therefor, and an opportunity
for the Optionee to cure such defects in his service to the Company's
satisfaction. During this 30 day (or longer) period, the Optionee shall not be
entitled to exercise the Option, but the Option shall continue to vest in
accordance with the Vesting Schedule.

        IN WITNESS WHEREOF, the Company and the Optionee have executed this
Notice of Stock Option Grant and agree that the Option is to be governed by the
terms and conditions of this Notice of Stock Option Grant, the Plan, and the
Option Agreement.

                                              Saba Software, Inc.,
                                              a Delaware corporation

                                              By:
                                                 -------------------------------

                                              Its: President & CEO
                                                 -------------------------------

                                       2
<PAGE>   15

THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS NOTICE OF STOCK OPTION GRANT, THE OPTION AGREEMENT, NOR IN THE
COMPANY'S 1997 STOCK INCENTIVE PLAN, SHALL CONFER UPON THE OPTIONEE ANY RIGHT
WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR
SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE THE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR
WITHOUT CAUSE.

        The Optionee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee has reviewed this Notice of Stock Option Grant,
the Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing the Notice of Stock Option Grant
and fully understands all provisions of this Notice of Stock Option Grant, the
Plan, and the Option Agreement. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board or
Administrator upon any questions arising under this Notice of Stock Option
Grant, the Plan, and the Option Agreement. The Optionee further agrees to notify
the Company upon any change in the residence address indicated in this Notice of
Stock Option Grant.

Dated:                                  Signed:
      -----------------------                  ---------------------------------
                                               Optionee

                                       3
<PAGE>   16

                  SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN

                             STOCK OPTION AGREEMENT

        1. Grant of Option. Saba Software, Inc., a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant (the "Optionee"), an option (the "Option") to purchase the total number of
shares of Common Stock (the "Shares") set forth in the Notice of Stock Option
Grant, at the exercise price per share set forth in the Notice of Stock Option
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
the Notice of Stock Option Grant and the Company's 1997 Stock Incentive Plan
(the "Plan") adopted by the Company, which are incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.

        If designated in the Notice of Stock Option Grant as an Incentive Stock
Option, the Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Section 422(d) of the Code, the Option shall be treated as
a Non-Qualified Stock Option.

        2. Exercise of Option.

                (a) Right to Exercise. The Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the applicable provisions of the Plan and this Option
Agreement. The Option shall be subject to the provisions of Section 11(b) of the
Plan relating to the exercisability or termination of the Option in the event of
a Corporate Transaction. No partial exercise of the Option may be for less than
the lessor of five percent (5%) of the total number of Shares subject to the
Option or the remaining number of Shares subject to the Option. In no event
shall the Company issue fractional Shares.

                (b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Administrator. Such Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price.

                No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

                (c) Taxes. No Shares will be issued to the Optionee or other
person pursuant to the exercise of the Option until the Optionee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
foreign, federal, state and local income and employment tax withholding
obligations.

        3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of the Option have not been registered under the
Securities Act of 1933, as amended, at the time the Option is exercised, the
Optionee shall, if required by the Company, concurrently with the exercise of
all

                                       4
<PAGE>   17

or any portion the Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.

        4. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate an Applicable
Law:

                (a) cash;

                (b) check;

                (c) if the exercise occurs on or after the Registration Date,
surrender of Shares or delivery of a properly executed form of attestation of
ownership of Shares as the Administrator may require (including withholding of
Shares otherwise deliverable upon exercise of the Option) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
Exercise Price of the Shares as to which the Option is being exercised (but only
to the extent that such exercise of the Option would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price);
or

                (d) if the exercise occurs on or after the Registration Date,
delivery of a properly executed Exercise Notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the Exercise Price.

        5. Restrictions on Exercise. The Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company. In
addition, the Option may not be exercised if the issuance of the Shares subject
to the Option upon such exercise would constitute a violation of any Applicable
Laws.

        6. Termination of Relationship. In the event the Optionee's Continuous
Status as an Employee, Director or Consultant terminates, the Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise the Option during the Termination Period set out
in the Notice of Stock Option Grant. Except as provided in Sections 7 and 8,
below, to the extent that the Optionee was not entitled to exercise the Option
on the Termination Date, or if the Optionee does not exercise the Option within
the Termination Period, the Option shall terminate.

        7. Disability of Optionee. In the event the Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Term/Expiration Date), exercise
the Option to the extent otherwise entitled to exercise it on the Termination
Date; provided, however, that if such disability is not a "disability" as such
term is defined in Section 22(e)(3) of the Code and the Option is an Incentive
Stock Option, such Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the day three (3) months and one day following the Termination Date. To the
extent that the Optionee was not entitled to exercise the Option on the
Termination Date, or if the Optionee does not exercise the Option to the extent
so entitled within the time specified herein, the Option shall terminate.

        8. Death of Optionee. In the event of the Optionee's death, the Option
may be exercised at any time within twelve (12) months following the date of
death (and in no event later than the Term/Expiration Date), by the Optionee's
estate or by a person who acquired the right to exercise the

                                       5
<PAGE>   18

Option by bequest or inheritance, but only to the extent the Optionee could
exercise the Option at the date of death. To the extent that the Optionee was
not entitled to exercise the Option on the date of death, or the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.

        9. Non-Transferability of Option. The Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of the Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.

        10. Term of Option. The Option may be exercised only within the term set
out in the Notice of Stock Option Grant.

        11. Company's Right of First Refusal.

                (a) Transfer Notice. Neither the Optionee nor a transferee
(either being sometimes referred to herein as the "Holder") shall sell,
hypothecate, encumber or otherwise transfer any Shares or any right or interest
therein without first obtaining the prior written consent of the Company. In the
event the Holder desires to accept a bona fide third-party offer for any or all
of the Shares the Holder shall provide the Company with written notice (the
"Transfer Notice") of:

                        (i) The Holder's intention to transfer;

                        (ii) The name of the proposed transferee;

                        (iii) The number of Shares to be transferred; and

                        (iv) The proposed transfer price or value and terms
thereof.

                (b) First Refusal Exercise Notice. Within 45 days after receipt
of the Transfer Notice (the "Option Period") the Company and/or its assigns
shall have the right to purchase (the "Right of First Refusal") all, but not
less than all of the Shares which are described in the Transfer Notice (the
"Offered Shares") at the per share price or value and in accordance with the
terms stated in the Transfer Notice, which Right of First Refusal shall be
exercised by written notice (the "First Refusal Exercise Notice") to the Holder
setting forth the number of Offered Shares the Company and/or its assigns elects
to purchase, provided that the number equals all of the Offered Shares.

                (c) Payment Terms. The Company shall consummate the purchase of
the Offered Shares on the terms set forth in the Transfer Notice within 15 days
after delivery of the First Refusal Exercise Notice; provided, however, that in
the event the Transfer Notice provides for the payment for the Offered Shares
other than in cash, the Company and/or its assigns shall have the right to pay
for the Offered Shares by the discounted cash equivalent of the consideration
described in the Transfer Notice as reasonably determined by the Administrator.
Upon payment for the Offered Shares to the Holder or into escrow for the benefit
of the Holder, the Company or its assigns shall become the legal and beneficial
owner of the Offered Shares and all rights and interest therein or related
thereto, and the Company shall have the right to transfer the Offered Shares to
its own name or its assigns without the further action by the Holder.

                (d) Assignment. Whenever the Company shall have the right to
purchase Shares under this Right of First Refusal, the Company may designate and
assign one or more employees,

                                       6
<PAGE>   19

officers, directors or shareholders of the Company or other persons or
organizations, to exercise all or a part of the Company's Right of First
Refusal.

                (e) Non-Exercise. If the Company and/or its assigns do not
collectively elect to exercise the Right of First Refusal within the specified
45-day period or such earlier time if the Company and/or its assigns notifies
the Holder that it will not exercise the Right of First Refusal, then the Holder
may transfer the Shares upon the terms and conditions stated in the Transfer
Notice, provided that:

                        (i) The transfer is made within 120 days of the date of
the Transfer Notice; and

                        (ii) The transferee agrees in writing that such Shares
shall be held subject to the provisions of this Right of First Refusal.

                (f) Expiration of Transfer Period. Following such 120-day
period, no transfer of the Offered Shares and no change in the terms of the
transfer as stated in the Transfer Notice (including the name of the proposed
transferee) shall be permitted without a new written Transfer Notice prepared
and submitted in accordance with the requirements of this Right of First
Refusal.

                (g) Exception for Certain Family Transfers. Anything to the
contrary contained in this section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's Immediate Family or a trust for the benefit of
the Optionee or the Optionee's Immediate Family shall be exempt from the
provisions of this Right of First Refusal. "Immediate Family" as used herein
shall mean spouse, domestic partner (as determined by the Administrator), child,
lineal descendant or antecedent, father, mother, brother or sister and the
lineal descendants of such individuals. In such case, the transferee or other
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Right of First Refusal, and there shall be no further
transfer of such Shares except in accordance with the terms of this Right of
First Refusal.

                (h) Termination of Right of First Refusal. The provisions of
this Right of First Refusal shall terminate as to all Shares upon the
Registration Date.

                (i) Additional Shares or Substituted Securities. In the event of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class effected without the Company's receipt of consideration, any new,
substituted or additional securities or other property which is by reason of any
such transaction distributed with respect to the Shares shall be immediately
subject to the Right of First Refusal, but only to the extent the Shares are at
the time covered by such right.

                (j) Corporate Transaction. Immediately prior to the consummation
of a Corporate Transaction, the Right of First Refusal shall automatically lapse
in its entirety, except to the extent the Right of First Refusal is to be
assigned to the successor corporation (or its parent company) in connection with
such Corporate Transaction, the right shall apply to the new capital stock or
other property received in exchange for the Shares in consummation of the
Corporate Transaction, but only to the extent the Shares are at the time covered
by such right.

        12. Company's Repurchase Right.

                (a) Grant of Repurchase Right. The Company is hereby granted the
right (the "Repurchase Right"), exercisable at any time (i) during the sixty
(60) day period following the Termination Date, (ii) during the sixty (60) day
period following an exercise of the Option that occurs

                                       7
<PAGE>   20

after the Termination Date, or (iii) during the sixty (60) day period
immediately prior to a Corporate Transaction, or the merger of the Company into
or with a corporation that is a member of a "controlled group" (within the
meaning of Section 267(f) of the Code) of which the Company is a member, to
repurchase all or (at the discretion of the Company and with the consent of the
Optionee) any portion of the Shares.

                (b) Exercise of the Repurchase Right. The Repurchase Right shall
be exercisable by written notice delivered to each Holder of the Shares prior to
the expiration of the applicable sixty (60) day period specified above. The
notice shall indicate the number of Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of notice. On the date on which the repurchase is to be
effected, the Company and/or its assigns shall pay to the Holder in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness) an
amount equal to the Fair Market Value on the Termination Date, if any, and if
none, on the date immediately prior to the day on which the repurchase is to be
effected, of the Shares which are to be repurchased from the Holder. Upon such
payment or into escrow for the benefit of the Holder, the Company and/or its
assigns shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest thereon or related thereto, and the
Company shall have the right to transfer to its own name or its assigns the
number of Shares being repurchased, without further action by the Holder.

                (c) Assignment. Whenever the Company shall have the right to
purchase Shares under this Repurchase Right, the Company may designate and
assign one or more employees, officers, directors or shareholders of the Company
or other persons or organizations, to exercise all or a part of the Company's
Repurchase Right.

                (d) Termination of the Repurchase Right. The Repurchase Right
shall terminate with respect to any Shares for which it is not timely exercised.
In addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to all Shares upon the Registration Date.

                (e) Additional Shares or Substituted Securities. In the event of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class effected without the Company's receipt of consideration, any new,
substituted or additional securities or other property (including money paid
other than as a regular cash dividend) which is by reason of any such
transaction distributed with respect to the Shares shall be immediately subject
to the Repurchase Right, but only to the extent the Shares are at the time
covered by such right. Appropriate adjustments to reflect the distribution of
such securities or property shall be made to the price per share to be paid upon
the exercise of the Repurchase Right in order to reflect the effect of any such
transaction upon the Company's capital structure.

                (f) Corporate Transaction. Immediately prior to the consummation
of a Corporate Transaction, the Repurchase Right shall automatically lapse in
its entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction, the right shall apply to the new capital stock or other property
(including cash paid other than as a regular cash dividend) received in exchange
for the Shares in consummation of the Corporate Transaction, but only to the
extent the Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Company's
capital structure.

        13. Stop-Transfer Notices. In order to ensure compliance with the
restrictions on transfer referred to in the legends placed upon certificates
evidencing ownership of the Shares, the Company may

                                       8
<PAGE>   21

issue appropriate "stop transfer" instructions to its transfer agent, if any,
and, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

        14. Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Option Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.

        15. Tax Consequences. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.

                (a) Exercise of Incentive Stock Option. If the Option qualifies
as an Incentive Stock Option, there will be no regular federal income tax
liability upon the exercise of the Option, although the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to the alternative minimum tax in the year
of exercise.

                (b) Exercise of Incentive Stock Option Following Disability. If
the Optionee's Continuous Status as an Employee, Director or Consultant
terminates as a result of disability that is not total and permanent disability
as defined in Section 22(e)(3) of the Code, to the extent permitted on the date
of termination, the Optionee must exercise an Incentive Stock Option within
three (3) months of such termination for the Incentive Stock Option to be
qualified as an Incentive Stock Option.

                (c) Exercise of Non-Qualified Stock Option. There may be a
regular federal income tax liability upon the exercise of a Non-Qualified Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from the Optionee's compensation or collect from the Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.

                (d) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 28%. For Shares held
more than 18 months, the maximum rate falls to 20%. If the Non-Qualified Stock
Option is exercised after December 31, 2000 and the Shares acquired upon such
exercise are held for more than five years, the maximum rate falls to 18%. In
the case of an Incentive Stock Option, if Shares transferred pursuant to the
Option are held for at least one year after receipt of the Shares and are
disposed of at least two years after the Date of Grant, any gain realized on
disposition of the Shares also will be treated as long-term capital gain for
federal income tax purposes and subject to the same tax rates and holding
periods that apply to Shares acquired upon exercise of a Non-Qualified Stock
Option. If Shares purchased under an Incentive Stock Option are disposed of
within such one-year or two-year periods, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (i) the
Fair Market Value of the Shares on the date of exercise, or (ii) the sale price
of the Shares.

                                       9
<PAGE>   22

        16. Lock-Up Agreement.

                (a) Agreement. The Optionee, if requested by the Company and the
lead underwriter of any public offering of the Common Stock or other securities
of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after such offering) during the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act of 1933, as amended, or such shorter period of time as the Lead
Underwriter shall specify. The Optionee further agrees to sign such documents as
may be requested by the Lead Underwriter to effect the foregoing and agrees that
the Company may impose stop-transfer instructions with respect to such Common
Stock subject until the end of such period. The Company and the Optionee
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 16.

                (b) Permitted Transfers. Notwithstanding the foregoing, Section
16(a) shall not prohibit the Optionee from transferring any shares of Common
Stock or securities convertible into or exchangeable or exercisable for the
Company's Common Stock to the extent such transfer is not otherwise prohibited
by this Option Agreement, either during the Optionee's lifetime or on death by
will or intestacy to the Optionee's immediate family or to a trust the
beneficiaries of which are exclusively the Optionee and/or a member or members
of the Optionee's immediate family; provided, however, that prior to any such
transfer, each transferee shall execute an agreement pursuant to which each
transferee shall agree to receive and hold such securities subject to the
provisions of Section 16 hereof. For the purposes of this subsection, the term
"immediate family" shall mean spouse, domestic partner (as determined by the
Administrator), child, lineal descendant or antecedent, father, mother, brother
or sister and the lineal descendants of such individuals.

                (c) No Amendment Without Consent of Underwriter. During the
period from identification as a Lead Underwriter in connection with any public
offering of the Company's Common Stock until the earlier of (i) the expiration
of the lock-up period specified in Section 16(a) in connection with such
offering or (ii) the abandonment of such offering by the Company and the Lead
Underwriter, the provisions of this Section 16 may not be amended or waived
except with the consent of the Lead Underwriter.

        17. Entire Agreement: Governing Law. The Notice of Stock Option Grant,
the Plan and this Option Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Optionee
with respect to the subject matter hereof, and may not be modified adversely to
the Optionee's interest except by means of a writing signed by the Company and
Optionee. These agreements are governed by California law except for that body
of law pertaining to conflict of laws.

        18. Headings. The captions used in the Notice of Stock Option Grant and
this Option Agreement are inserted for convenience and shall not be deemed a
part of the Option for construction or interpretation.

        19. Interpretation. Any dispute regarding the interpretation of the
Notice of Stock Option Grant, the Plan, and this Option Agreement shall be
submitted by the Optionee or by the Company forthwith to the Board or the
Administrator that administers the Plan, which shall review such dispute at its
next regular meeting. The resolution of such dispute by the Board or the
Administrator shall be final and binding on all persons.

                                       10
<PAGE>   23

                                    EXHIBIT A

                  SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN

                                 EXERCISE NOTICE

Saba Software, Inc.

2400 Bridge Parkway

Redwood Shores, CA 94065-1166

Attention:  Secretary

        1. Exercise of Option. Effective as of today, ____________________,
________, the undersigned (the "Optionee") hereby elects to exercise the
Optionee's option to purchase ___________ shares of the Common Stock (the
"Shares") of Saba Software, Inc. (the "Company") under and pursuant to the
Company's 1997 Stock Incentive Plan (the "Plan") and the [ ] Incentive [ ]
Non-Qualified Stock Option Agreement and Notice of Stock Option Grant dated
______________, ________ (the "Option Agreement").

        2. Representations of the Optionee. The Optionee acknowledges that the
Optionee has received, read and understood the Notice of Stock Option Grant, the
Plan and the Option Agreement and agrees to abide by and be bound by their terms
and conditions.

        3. Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11(a) of the Plan.

           The Optionee shall enjoy rights as a shareholder until such time as
the Optionee disposes of the Shares or the Company and/or its assignee(s)
exercises the Right of First Refusal or the Repurchase Right. Upon such
exercise, the Optionee shall have no further rights as a holder of the Shares so
purchased except the right to receive payment for the Shares so purchased in
accordance with the provisions of the Option Agreement, and the Optionee shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.

        4. Delivery of Payment. The Optionee herewith delivers to the Company
the full Exercise Price for the Shares.

        5. Tax Consultation. The Optionee understands that the Optionee may
suffer adverse tax consequences as a result of the Optionee's purchase or
disposition of the Shares. The Optionee represents that the Optionee has
consulted with any tax consultants the Optionee deems

                                       1

<PAGE>   24

advisable in connection with the purchase or disposition of the Shares and that
the Optionee is not relying on the Company for any tax advice.

        6. Taxes. The Optionee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Optionee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Grant Date or within one (1) year from the date the Shares were
transferred to the Optionee. If the Company is required to satisfy any federal,
state or local income or employment tax withholding obligations as a result of
such an early disposition, the Optionee agrees to satisfy the amount of such
withholding in a manner that the Administrator prescribes.

        7. Restrictive Legends. The Optionee understands and agrees that the
Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership of
the Shares together with any other legends that may be required by the Company
or by state or federal securities laws:

                THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
                THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
                SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
                AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
                SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE
                OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

                THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
                CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL AND A
                REPURCHASE RIGHT HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET
                FORTH IN THE OPTION AGREEMENT BETWEEN THE ISSUER AND THE
                ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
                AT THE PRINCIPAL OFFICE OF THE ISSUER SUCH TRANSFER
                RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE RIGHT ARE
                BINDING ON TRANSFEREES OF THESE SHARES.

        8. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this agreement
shall inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon the Optionee and his or her heirs, executors, administrators,
successors and assigns.

                                       2

<PAGE>   25

        9. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.

        10. Interpretation. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by the Optionee or by the Company forthwith
to the Company's Board of Directors or the Administrator that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or Administrator shall be final and
binding on all persons.

        11. Governing Law; Severability. This Exercise Notice shall be governed
by and construed in accordance with the laws of the State of California
excluding that body of law pertaining to conflicts of law. Should any provision
of this Exercise Notice be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.

        12. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.

        13. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

        14. Entire Agreement. The Notice of Stock Option Grant, the Plan and the
Option Agreement are incorporated herein by reference and together with this
Exercise Notice constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Optionee with respect to the subject
matter hereof, and may not be modified adversely to the Optionee's interest
except by means of a writing signed by the Company and the Optionee.

Submitted by:                           Accepted by:
OPTIONEE:                               SABA SOFTWARE, INC.

                                        By:
                                           -------------------------------------

                                        Its:
---------------------------------           ------------------------------------
           (Signature)

Address:                                Address:

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

Tel:
    -----------------------------

                                       3
<PAGE>   26

                                    EXHIBIT B

                  SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN

                       INVESTMENT REPRESENTATION STATEMENT

OPTIONEE:
                                        ----------------------------------------
COMPANY:                                SABA SOFTWARE, INC.

SECURITY:                               COMMON STOCK

NUMBER OF SHARES:
                                        ----------------------------------------

DATE:
                                        ----------------------------------------

In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:

                (a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

                (b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon among other things, the bona fide nature
of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.

                (c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public

                                       1
<PAGE>   27

offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of the grant of the
Option to the Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.

        In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.

                (d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.

                                        Signature of Optionee:

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

                                        Date:                      ,
                                             ----------------------  -----------

                                       2

<PAGE>   28
                                   AMENDMENT

                                       TO

                              AMENDED AND RESTATED

                           1997 STOCK INCENTIVE PLAN

                                       OF

                              SABA SOFTWARE, INC.,

                             A DELAWARE CORPORATION

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

                                January 28, 2000

     The undersigned, Peter E. Williams III, hereby certifies that:

     1.   He is duly elected and acting Secretary of Saba Software, Inc., a
Delaware corporation (the "Corporation").

     2.   Section 3(a) of the Corporation's Amended and Restated 1997 Stock
Incentive Plan (the "Plan") is amended to read in its entirety as follows:

          "(a) Subject to the provisions of Section 11(a), below, the maximum
          aggregate number of Shares which may be issued pursuant to all Awards
          (including Incentive Stock Options) is 9,815,550 Shares. The Shares
          may be authorized, but unissued, or reacquired Common Stock."

     Dated: January 28, 2000

                                       /s/ PETER E. WILLIAMS
                                       --------------------------------
                                       Peter E. Williams III, Secretary<PAGE>   1
                                                                    EXHIBIT 10.3

                               SABA SOFTWARE, INC.

                            2000 STOCK INCENTIVE PLAN

        1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel, to provide additional
incentive to Employees, Directors and Consultants and to promote the success of
the Company's business.

        2. Definitions. As used herein, the following definitions shall apply:

               (a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.

               (b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.

               (c) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.

               (d) "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or
other right or benefit under the Plan.

               (e) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.

               (f) "Board" means the Board of Directors of the Company.

               (g) "Change in Control" means a change in ownership or control of
the Company effected through either of the following transactions:

                    (i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or

                    (ii) a change in the composition of the Board over a period
of thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole

                                       1
<PAGE>   2

number) ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who are Continuing Directors.

               (h) "Code" means the Internal Revenue Code of 1986, as amended.

               (i) "Committee" means any committee appointed by the Board to
administer the Plan.

               (j) "Common Stock" means the common stock of the Company.

               (k) "Company" means Saba Software, Inc., a Delaware corporation.

               (l) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.

               (m) "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.

               (n) "Continuous Service" means that the provision of services to
the Company or a Related Entity in any capacity of Employee, Director or
Consultant, is not interrupted or terminated. Continuous Service shall not be
considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers among the Company, any Related Entity, or any successor, in any
capacity of Employee, Director or Consultant, or (iii) any change in status as
long as the individual remains in the service of the Company or a Related Entity
in any capacity of Employee, Director or Consultant (except as otherwise
provided in the Award Agreement). An approved leave of absence shall include
sick leave, military leave, or any other authorized personal leave. For purposes
of Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.

               (o) "Corporate Transaction" means any of the following
transactions:

                    (i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the state in which the Company is incorporated;

                    (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;

                    (iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting

                                       2
<PAGE>   3

power of the Company's outstanding securities are transferred to a person or
persons different from those who held such securities immediately prior to such
merger; or

                    (iv) acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities (whether or not in a transaction
also constituting a Change in Control), but excluding any such transaction that
the Administrator determines shall not be a Corporate Transaction.

               (p) "Director" means a member of the Board or the board of
directors of any Related Entity.

               (q) "Disability" means that a Grantee is permanently unable to
carry out the responsibilities and functions of the position held by the Grantee
by reason of any medically determinable physical or mental impairment. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.

               (r) "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common Stock.

               (s) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company or a Related Entity shall not be sufficient
to constitute "employment" by the Company.

               (t) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               (u) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                    (i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or

                    (ii) In the absence of an established market for the Common
Stock of the type described in (i), above, the Fair Market Value thereof shall
be determined by the Administrator in good faith.

                                       3
<PAGE>   4

               (v) "Grantee" means an Employee, Director or Consultant who
receives an Award pursuant to an Award Agreement under the Plan.

               (w) "Immediate Family" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent (50%) of the beneficial interest, a
foundation in which these persons (or the Grantee) control the management of
assets, and any other entity in which these persons (or the Grantee) own more
than fifty percent (50%) of the voting interests.

               (x) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.

               (y) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

               (z) "Officer" means a person who is an officer of the Company or
a Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.

               (aa) "Option" means an option to purchase Shares pursuant to an
Award Agreement granted under the Plan.

               (bb) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

               (cc) "Performance Shares" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.

               (dd) "Performance Units" means an Award which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.

               (ee) "Plan" means this 2000 Stock Incentive Plan.

               (ff) "Registration Date" means the first to occur of (i) the
closing of the first sale to the general public of (A) the Common Stock or (B)
the same class of securities of a successor corporation (or its Parent) issued
pursuant to a Corporate Transaction in exchange for or in substitution of the
Common Stock, pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended; and (ii) in the event of a Corporate Transaction, the date of
the consummation of the Corporate Transaction if the same class of securities of
the successor corporation (or its Parent) issuable in such Corporate Transaction
shall have been sold to the general public pursuant to a

                                       4
<PAGE>   5

registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended on or prior to
the date of consummation of such Corporate Transaction.

               (gg) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.

               (hh) "Related Entity Disposition" means the sale, distribution or
other disposition by the Company, a Parent or a Subsidiary of all or
substantially all of the interests of the Company, a Parent or a Subsidiary in
any Related Entity effected by a sale, merger or consolidation or other
transaction involving that Related Entity or the sale of all or substantially
all of the assets of that Related Entity, other than any Related Entity
Disposition to the Company, a Parent or a Subsidiary.

               (ii) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.

               (jj) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.

               (kk) "SAR" means a stock appreciation right entitling the Grantee
to Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.

               (ll) "Share" means a share of the Common Stock.

               (mm) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.

        3. Stock Subject to the Plan.

               (a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is Six Million (6,000,000) Shares, plus an annual
increase to be added on the first day of the Company's fiscal year beginning in
2001 equal to five percent (5%) of the number of Shares outstanding as of such
date or a lesser number of Shares determined by the Administrator.
Notwithstanding the foregoing, subject to the provisions of Section 10, below,
of the number of Shares specified above, the maximum aggregate number of Shares
available for grant of Incentive Stock Options shall be 6,000,000 Shares, plus
an annual increase to be added on the first day of the Company's fiscal year
beginning in 2001 equal to the lesser of (x) 3,000,000 Shares, (y) five percent
(5%) of the number of Shares outstanding as of such date, or (z) a lesser number
of Shares determined by the Administrator. The Shares to be issued pursuant to
Awards may be authorized, but unissued, or reacquired Common Stock.

                                       5
<PAGE>   6

               (b) Any Shares covered by an Award (or portion of an Award) which
is forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. Shares that actually have been issued
under the Plan pursuant to an Award shall not be returned to the Plan and shall
not become available for future issuance under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.

        4. Administration of the Plan.

               (a) Plan Administrator.

                    (i) Administration with Respect to Directors and Officers.
With respect to grants of Awards to Directors or Employees who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.

                    (ii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Awards to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.

                    (iii) Administration Errors. In the event an Award is
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.

               (b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:

                    (i) to select the Employees, Directors and Consultants to
whom Awards may be granted from time to time hereunder;

                    (ii) to determine whether and to what extent Awards are
granted hereunder;

                    (iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;

                    (iv) to approve forms of Award Agreements for use under the
Plan;

                                       6
<PAGE>   7

                    (v) to determine the terms and conditions of any Award
granted hereunder;

                    (vi) to amend the terms of any outstanding Award granted
under the Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;

                    (vii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan, including without limitation, any notice of
Award or Award Agreement, granted pursuant to the Plan;

                    (viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and

                    (ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.

        5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.

        6. Terms and Conditions of Awards.

               (a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or
similar right with a fixed or variable price related to the Fair Market Value of
the Shares and with an exercise or conversion privilege related to the passage
of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iii) any other security with the
value derived from the value of the Shares. Such awards include, without
limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend
Equivalent Rights, Performance Units or Performance Shares, and an Award may
consist of one such security or benefit, or two (2) or more of them in any
combination or alternative.

               (b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year

                                       7
<PAGE>   8

(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.

               (c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.

               (d) Acquisitions and Other Transactions. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.

               (e) Deferral of Award Payment. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the election
would entitle the Grantee to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.

               (f) Award Exchange Programs. The Administrator may establish one
or more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.

               (g) Separate Programs. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Administrator from time to time.

               (h) Early Exercise. The Award Agreement may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant

                                       8
<PAGE>   9

to exercise any part or all of the Award prior to full vesting of the Award. Any
unvested Shares received pursuant to such exercise may be subject to a
repurchase right in favor of the Company or a Related Entity or to any other
restriction the Administrator determines to be appropriate.

               (i) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a Grantee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Award Agreement.

               (j) Transferability of Awards. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards may be transferred by gift or
through a domestic relations order to members of the Grantee's Immediate Family
to the extent provided in the Award Agreement or in the manner and to the extent
determined by the Administrator.

               (k) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.

        7. Award Exercise or Purchase Price, Consideration and Taxes.

               (a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:

                    (i) In the case of an Incentive Stock Option:

                         (A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant; or

                         (B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.

                                       9
<PAGE>   10

                    (ii) In the case of a Non-Qualified Stock Option, the per
Share exercise price shall be not less than eighty-five percent (85%) of the
Fair Market Value per Share on the date of grant unless otherwise determined by
the Administrator.

                    (iii) In the case of other Awards, such price as is
determined by the Administrator.

                    (iv) Notwithstanding the foregoing provisions of this
Section 7(a), in the case of an Award issued pursuant to Section 6(d), above,
the exercise or purchase price for the Award shall be determined in accordance
with the principles of Section 424(a) of the Code.

               (b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following; provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:

                    (i) cash;

                    (ii) check;

                    (iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;

                    (iv) surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised (but only to the extent that such exercise of the Award would not
result in an accounting compensation charge with respect to the Shares used to
pay the exercise price unless otherwise determined by the Administrator);

                    (v) with respect to Options, payment through a broker-dealer
sale and remittance procedure pursuant to which the Grantee (A) shall provide
written instructions to a Company designated brokerage firm to effect the
immediate sale of some or all of the purchased Shares and remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased Shares and (B)
shall provide written directives to the Company to deliver the certificates for
the purchased Shares directly to such brokerage firm in order to complete the
sale transaction; or

                    (vi) any combination of the foregoing methods of payment.

               (c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the

                                       10
<PAGE>   11

Administrator for the satisfaction of any foreign, federal, state, or local
income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option. Upon
exercise of an Award, the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.

        8. Exercise of Award.

               (a) Procedure for Exercise; Rights as a Stockholder.

                    (i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement.

                    (ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
for the Shares with respect to which the Award is exercised, including, to the
extent selected, use of the broker-dealer sale and remittance procedure to pay
the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 10, below.

               (b) Exercise of Award Following Termination of Continuous
Service.

                    (i) An Award may not be exercised after the termination date
of such Award set forth in the Award Agreement and may be exercised following
the termination of a Grantee's Continuous Service only to the extent provided in
the Award Agreement.

                    (ii) Where the Award Agreement permits a Grantee to exercise
an Award following the termination of the Grantee's Continuous Service for a
specified period, the Award shall terminate to the extent not exercised on the
last day of the specified period or the last day of the original term of the
Award, whichever occurs first.

                    (iii) Any Award designated as an Incentive Stock Option to
the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.

                                       11
<PAGE>   12

        9. Conditions Upon Issuance of Shares.

               (a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

               (b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.

        10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Options
and SARs may be granted to any Employee in any fiscal year of the Company, as
well as any other terms that the Administrator determines require adjustment
shall be proportionately adjusted for (i) any increase or decrease in the number
of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, or similar event
affecting the Shares, (ii) any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company, or (iii)
as the Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or any
similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator
and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.

        11. Corporate Transactions/Related Entity Dispositions. Except as may be
provided in an Award Agreement:

               (a) Effective upon the consummation of a Corporate Transaction,
all outstanding Awards under the Plan shall terminate. However, all such Awards
shall not terminate if they are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof.

               (b) Effective upon the consummation of a Related Entity
Disposition, for purposes of the Plan and all Awards, the Continuous Service of
each Grantee who is at the time engaged primarily in service to the Related
Entity involved in such Related Entity Disposition shall be deemed to terminate
and each Award of such Grantee which is at the time outstanding under the Plan
shall be exercisable in accordance with the terms of the Award Agreement

                                       12
<PAGE>   13

evidencing such Award. However, such Continuous Service shall be not to deemed
to terminate if such Award is, in connection with the Related Entity
Disposition, assumed by the successor entity or its parent.

        12. Effective Date and Term of Plan. The Plan shall become effective
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 17, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.

        13. Amendment, Suspension or Termination of the Plan.

               (a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.

               (b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.

               (c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect as
if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.

        14. Reservation of Shares.

               (a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

               (b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.

        15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.

        16. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or

                                       13
<PAGE>   14

amount of benefits is related to level of compensation. The Plan is not a
"Retirement Plan" or "Welfare Plan" under the Employee Retirement Income
Security Act of 1974, as amended.

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

                                       14
<PAGE>   15

                               SABA SOFTWARE, INC.

                    2000 NON-EMPLOYEE DIRECTOR OPTION PROGRAM

                                    ARTICLE I

                    ESTABLISHMENT AND PURPOSE OF THE PROGRAM

1.01 ESTABLISHMENT OF PROGRAM

The Saba Software, Inc. 2000 Non-Employee Director Option Program (the
"Program") is adopted pursuant to the Saba Software, Inc. 2000 Stock Incentive
Plan (the "Plan") and, in addition to the terms and conditions set forth below,
is subject to the provisions of the Plan.

1.02 PURPOSE OF PROGRAM

The purpose of the Program is to enhance the ability of the Company to attract
and retain directors who are not Employees ("Non-Employee Directors") through a
program of automatic Option grants.

1.03 EFFECTIVE DATE OF THE PROGRAM

The Program is effective as of the Registration Date.

                                   ARTICLE II

                                   DEFINITIONS

Capitalized terms in this Program, unless otherwise defined herein, have the
meaning given to them in the Plan.

                                   ARTICLE III

                                  OPTION TERMS

3.01 INITIAL GRANT TO NEW DIRECTORS

A Non-Qualified Stock Option to purchase 20,000 shares of Common Stock shall be
granted ("Initial Grant") to each Non-Employee Director who is first elected to
the Company's Board of Directors after the Registration Date, such Initial Grant
to be made upon the date each such Non-Employee Director first becomes a
Non-Employee Director. Each Initial Grant under the Program shall vest and
become exercisable as to one-half (1/2) of the shares of Common Stock subject to
the Option at the next annual meeting of the Company's stockholders following
the

                                       15
<PAGE>   16

date of grant of such Option, and the remaining one-half (1/2) of the shares of
Common Stock subject to the Option shall vest at the second annual meeting of
the Company's stockholders following the date of grant of such Option, such that
the Option will be fully exercisable at the second annual meeting of the
Company's stockholders.

3.02 RENEWAL GRANTS TO INCUMBENT DIRECTORS

Immediately following each annual meeting of the Company's stockholders, each
Non-Employee Director who continues as a Non-Employee Director following such
annual meeting shall be granted a Non-Qualified Stock Option to purchase 10,000
shares of Common Stock ("Subsequent Grant"); provided that no Subsequent Grant
shall be made to any Non-Employee Director that is serving as a director on the
date of the adoption of the Plan until all options and shares of Common Stock
held by the director have fully vested (not taking into account options and
shares that vest on the day of the annual meeting of the Company's stockholders
at which such Subsequent Grant is to occur). Each such Subsequent Grant shall be
made on the date of the annual stockholders' meeting in question. Each
Subsequent Grant under the Program shall vest and become exercisable as to the
full amount at the subsequent annual meeting of the Company's stockholders.

3.03 EXERCISE PRICE

The exercise price per share of Common Stock of each Initial Grant and
Subsequent Grant shall be one hundred percent (100%) of the Fair Market Value
per Share on the date of grant.

3.04 CORPORATE TRANSACTION

(a) In the event of a Corporate Transaction, each Option which is at the time
outstanding under the Program automatically shall become fully vested and
exercisable immediately prior to the effective date of such Corporate
Transaction. Effective upon the consummation of the Corporate Transaction, all
outstanding Options under the Program shall terminate. However, all such Options
shall not terminate if the Options are, in connection with the Corporate
Transaction, assumed by the successor corporation or Parent thereof.

(b) In the event of a Change in Control (other than a Change in Control which
also is a Corporate Transaction), each Option which is at the time outstanding
under the Program automatically shall become fully vested and exercisable,
immediately prior to the specified effective date of such Change in Control.
Each such Option shall remain so exercisable until the expiration or sooner
termination of the applicable Option term.

3.05 OTHER TERMS

The Administrator shall determine the remaining terms and conditions of the
Options awarded under the Program.

                                       16
<PAGE>   17

                  SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN

                          NOTICE OF STOCK OPTION AWARD

        Grantee's Name and Address:   _________________________________________

                                      _________________________________________

                                      _________________________________________

        You have been granted an option to purchase shares of Common Stock,
subject to the terms and conditions of this Notice of Stock Option Award (the
"Notice"), the Saba Software, Inc. 2000 Stock Incentive Plan, as amended from
time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

        Award Number                        ____________________________________

        Date of Award                       ____________________________________

        Vesting Commencement Date           ____________________________________

        Exercise Price per Share            $___________________________________

        Total Number of Shares subject
        to the Option                       ____________________________________

        Total Exercise Price                $___________________________________

        Type of Option:                     _______   Incentive Stock Option

                                            _______   Non-Qualified Stock Option

        Expiration Date:                    ____________________________________

        Post-Termination Exercise Period:   Three (3) Months

Vesting Schedule:

        Subject to Grantee's Continuous Service and other limitations set forth
in this Notice, the Plan and the Option Agreement, the Option may be exercised,
in whole or in part, in accordance with the following schedule:

        [25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date. 3/48 of the Shares subject to the Option shall
vest on each quarterly anniversary of the Vesting Commencement Date, beginning
at the 15-month anniversary of the Vesting Commencement Date.]

        During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.

                                       17
<PAGE>   18

        In the event of the Grantee's change in status from Employee to
Consultant or from an Employee whose customary employment is 20 hours or more
per week to an Employee whose customary employment is fewer than 20 hours per
week, vesting of the Option shall continue only to the extent determined by the
Administrator as of such change in status.

        In the event of termination of the Grantee's Continuous Service for
Cause, the Grantee's right to exercise the Option shall terminate concurrently
with the termination of the Grantee's Continuous Service.

        IN WITNESS WHEREOF, the Company and the Grantee have executed this
Notice and agree that the Option is to be governed by the terms and conditions
of this Notice, the Plan, and the Option Agreement.

                                       Saba Software, Inc.,
                                       a Delaware corporation

                                       By:______________________________________

                                       Title: __________________________________

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.

        The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof. The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all disputes arising out of or relating to this
Notice, the Plan and the Option Agreement shall be resolved in accordance with
Section 13 of the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.

Dated: ______________________        Signed: ___________________________________
                                                           Grantee

                                       18
<PAGE>   19

                                                       AWARD NUMBER: ___________

                  SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN

                          STOCK OPTION AWARD AGREEMENT

        1. Grant of Option. Saba Software, Inc., a Delaware corporation (the
"Company"), hereby grants to the Grantee (the "Grantee") named in the Notice of
Stock Option Award (the "Notice"), an option (the "Option") to purchase the
Total Number of Shares of Common Stock subject to the Option (the "Shares") set
forth in the Notice, at the Exercise Price per Share set forth in the Notice
(the "Exercise Price") subject to the terms and provisions of the Notice, this
Stock Option Award Agreement (the "Option Agreement") and the Company's 2000
Stock Incentive Plan, as amended from time to time (the "Plan"), which are
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option
Agreement.

        If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

        2. Exercise of Option.

(a).     Right to Exercise. The Option shall be exercisable during its term in
        accordance with the Vesting Schedule set out in the Notice and with the
        applicable provisions of the Plan and this Option Agreement. The Option
        shall be subject to the provisions of Section 11 of the Plan relating to
        the exercisability or termination of the Option in the event of a
        Corporate Transaction, Change in Control or Related Entity Disposition.
        No partial exercise of the Option may be for less than the lesser of
        five percent (5%) of the total number of Shares subject to the Option or
        the remaining number of Shares subject to the Option. In no event shall
        the Company issue fractional Shares.

(b).    Method of Exercise. The Option shall be exercisable only by delivery of
        an Exercise Notice (attached as Exhibit A) which shall state the
        election to exercise the Option, the whole number of Shares in respect
        of which the Option is being exercised, such other representations and
        agreements as to the holder's investment intent with respect to such
        Shares and such other provisions as may be required by the
        Administrator. The Exercise Notice shall be signed by the Grantee and
        shall be delivered in person, by certified mail, or by such other method
        as determined from time to time by the Administrator to the

                                        1
<PAGE>   20

        Company accompanied by payment of the Exercise Price. The Option shall
        be deemed to be exercised upon receipt by the Company of such written
        notice accompanied by the Exercise Price, which, to the extent selected,
        shall be deemed to be satisfied by use of the broker-dealer sale and
        remittance procedure to pay the Exercise Price provided in Section 3(d),
        below.

(c).    Taxes. No Shares will be delivered to the Grantee or other person
        pursuant to the exercise of the Option until the Grantee or other person
        has made arrangements acceptable to the Administrator for the
        satisfaction of applicable income tax, employment tax, and social
        security tax withholding obligations, including, without limitation,
        obligations incident to the receipt of Shares or the disqualifying
        disposition of Shares received on exercise of an Incentive Stock Option.
        Upon exercise of the Option, the Company or the Grantee's employer may
        offset or withhold (from any amount owed by the Company or the Grantee's
        employer to the Grantee) or collect from the Grantee or other person an
        amount sufficient to satisfy such tax obligations and/or the employer's
        withholding obligations.

        3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

(a).    cash;

(b).    check;

(c).    surrender of Shares or delivery of a properly executed form of
        attestation of ownership of Shares as the Administrator may require
        (including withholding of Shares otherwise deliverable upon exercise of
        the Option) which have a Fair Market Value on the date of surrender or
        attestation equal to the aggregate Exercise Price of the Shares as to
        which the Option is being exercised (but only to the extent that such
        exercise of the Option would not result in an accounting compensation
        charge with respect to the Shares used to pay the exercise price); or

(d).    payment through a broker-dealer sale and remittance procedure pursuant
        to which the Grantee (i) shall provide written instructions to a Company
        designated brokerage firm to effect the immediate sale of some or all of
        the purchased Shares and remit to the Company, out of the sale proceeds
        available on the settlement date, sufficient funds to cover the
        aggregate exercise price payable for the purchased Shares and (ii) shall
        provide written directives to the Company to deliver the certificates
        for the purchased Shares directly to such brokerage firm in order to
        complete the sale transaction.

                                       2
<PAGE>   21

        4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. In addition, the Option, if an Incentive
Stock Option, may not be exercised until such time as the Plan has been approved
by the stockholders of the Company.

        5. Termination or Change of Continuous Service. In the event the
Grantee's Continuous Service terminates, the Grantee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise the Option during the Post-Termination Exercise Period. In the event of
termination of the Grantee's Continuous Service for Cause, the Grantee's right
to exercise the Option shall, except, as otherwise determined by the
Administrator, terminate concurrently with he termination of the Grantee's
Continuous Service. In no event shall the Option be exercised later than the
Expiration Date set forth in the Notice. In the event of the Grantee's change in
status from Employee, Director or Consultant to any other status of Employee,
Director or Consultant, the Option shall remain in effect and, except to the
extent otherwise determined by the Administrator, continue to vest; provided,
however, that with respect to any Incentive Stock Option that shall remain in
effect after a change in status from Employee to Director or Consultant, such
Incentive Stock Option shall cease to be treated as an Incentive Stock Option
and shall be treated as a Non-Qualified Stock Option on the day three (3) months
and one (1) day following such change in status. Except as provided in Sections
6 and 7 below, to the extent that the Grantee is not entitled to exercise the
Option on the Termination Date, or if the Grantee does not exercise the Option
within the Post-Termination Exercise Period, the Option shall terminate.

        6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

        7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.

        8. Transferability of Option. The Option, if an Incentive Stock Option,
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the

                                       3
<PAGE>   22

Grantee may designate a beneficiary of the Grantee's Incentive Stock Option in
the event of the Grantee's death on a beneficiary designation form provided by
the Administrator. The Option, if a Non-Qualified Stock Option may be
transferred to any person by will and by the laws of descent and distribution.
Non-Qualified Stock Options also may be transferred during the lifetime of the
Grantee by gift and pursuant to a domestic relations order to members of the
Grantee's Immediate Family to the extent and in the manner determined by the
Administrator. The terms of the Option shall be binding upon the executors,
administrators, heirs, successors and transferees of the Grantee.

        9. Term of Option. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

        10. Tax Consequences. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.

(a).    Exercise of Incentive Stock Option. If the Option qualifies as an
        Incentive Stock Option, there will be no regular federal income tax
        liability upon the exercise of the Option, although the excess, if any,
        of the Fair Market Value of the Shares on the date of exercise over the
        Exercise Price will be treated as income for purposes of the alternative
        minimum tax for federal tax purposes and may subject the Grantee to the
        alternative minimum tax in the year of exercise.

(b).    Exercise of Incentive Stock Option Following Disability. If the
        Grantee's Continuous Service terminates as a result of Disability that
        is not total and permanent disability as defined in Section 22(e)(3) of
        the Code, to the extent permitted on the date of termination, the
        Grantee must exercise an Incentive Stock Option within three (3) months
        of such termination for the Incentive Stock Option to be qualified as an
        Incentive Stock Option.

(c).    Exercise of Non-Qualified Stock Option. On exercise of a Non-Qualified
        Stock Option, the Grantee will be treated as having received
        compensation income (taxable at ordinary income tax rates) equal to the
        excess, if any, of the Fair Market Value of the Shares on the date of
        exercise over the Exercise Price. If the Grantee is an Employee or a
        former Employee, the Company will be required to withhold from the
        Grantee's compensation or collect from the Grantee and pay to the
        applicable taxing authorities an amount in cash equal to a percentage of
        this compensation income at the time of exercise, and may refuse to
        honor the exercise and refuse to deliver Shares if such withholding
        amounts are not delivered at the time of exercise.

(d).    Disposition of Shares. In the case of a Non-Qualified Stock Option, if
        Shares are held for more than one year, any gain realized on disposition
        of the Shares will be treated as long-term capital gain for federal
        income tax purposes and subject to tax at a maximum

                                       4
<PAGE>   23

        rate of 20%. In the case of an Incentive Stock Option, if Shares
        transferred pursuant to the Option are held for more than one year after
        receipt of the Shares and are disposed more than two years after the
        Date of Award, any gain realized on disposition of the Shares also will
        be treated as capital gain for federal income tax purposes and subject
        to the same tax rates and holding periods that apply to Shares acquired
        upon exercise of a Non-Qualified Stock Option. If Shares purchased under
        an Incentive Stock Option are disposed of prior to the expiration of
        such one-year or two-year periods, any gain realized on such disposition
        will be treated as compensation income (taxable at ordinary income
        rates) to the extent of the difference between the Exercise Price and
        the lesser of (i) the Fair Market Value of the Shares on the date of
        exercise, or (ii) the sale price of the Shares.

        11. Entire Agreement; Governing Law. The Notice, the Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

        12. Headings. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

        13. Dispute Resolution. The provisions of this Section 13 shall be the
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees pursuant to Section 8 (the "parties") shall attempt in good faith to
resolve any disputes arising out of or relating to the Notice, the Plan and this
Option Agreement by negotiation between individuals who have authority to settle
the controversy. Negotiations shall be commenced by either party by notice of a
written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Notice,
the Plan or this Option Agreement shall be brought in the United States District
Court, Northern District of California (or should such court lack jurisdiction
to hear such action, suit or proceeding, in a California state court in the
County of San Mateo) and that the parties shall submit to the jurisdiction of

                                       5
<PAGE>   24

such court. The parties irrevocably waive, to the fullest extent permitted by
law, any objection the party may have to the laying of venue for any such suit,
action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY
RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR
PROCEEDING. If any one or more provisions of this Section 13 shall for any
reason be held invalid or unenforceable, it is the specific intent of the
parties that such provisions shall be modified to the minimum extent necessary
to make it or its application valid and enforceable.

        14. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.

                                       6
<PAGE>   25

                                    EXHIBIT A

                  SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN

                                 EXERCISE NOTICE

Saba Software, Inc.
2400 Bridge Parkway
Redwood Shores, CA 94065

Attention: Secretary

        1. Exercise of Option. Effective as of today, ______________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of Saba Software,
Inc. (the "Company") under and pursuant to the Company's 2000 Stock Incentive
Plan, as amended from time to time (the "Plan") and the [ ] Incentive [ ]
Non-Qualified Stock Option Award Agreement (the "Option Agreement") and Notice
of Stock Option Award (the "Notice") dated ______________, ________. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Exercise Notice.

        2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.

        3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.

        4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.

        5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
advisors the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice

                                       7
<PAGE>   26
        6. Taxes. The Grantee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Grantee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Date of Award or within one (1) year from the date the Shares
were transferred to the Grantee. If the Company is required to satisfy any
federal, state or local income or employment tax withholding obligations as a
result of such an early disposition, the Grantee agrees to satisfy the amount of
such withholding in a manner that the Administrator prescribes.

        7. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this agreement
shall inure to the benefit of the successors and assigns of the Company. This
Exercise Notice shall be binding upon the Grantee and his or her heirs,
executors, administrators, successors and assigns.

        8. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.

        9. Dispute Resolution. The provisions of Section 13 of the Option
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.

        10. Governing Law; Severability. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be
illegal or unenforceable, such provision shall be enforced to the fullest extent
allowed by law and the other provisions shall nevertheless remain effective and
shall remain enforceable.

        11. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice) with postage
and fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.

        12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

        13. Entire Agreement. The Notice, the Plan, and the Option Agreement are
incorporated herein by reference, and together with this Exercise Notice
constitute the entire

                                       8
<PAGE>   27

agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and the
Grantee with respect to the subject matter hereof, and may not be modified
adversely to the Grantee's interest except by means of a writing signed by the
Company and the Grantee. Nothing in the Notice, the Plan, the Option Agreement
and this Exercise Notice (except as expressly provided therein) is intended to
confer any rights or remedies on any persons other than the parties.

Submitted by:                              Accepted by:

GRANTEE:                                   SABA SOFTWARE, INC.

                                           By:
                                              ----------------------------------
                                           Title:
---------------------------------                -------------------------------
           (Signature)
Address:                                   Address:
-------                                    -------
                                           2400 Bridge Parkway
---------------------------------
                                           Redwood Shores, CA 94065
---------------------------------

                                       9

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