<PAGE>

     As filed with the Securities and Exchange Commission on June 22, 1999
                                                      Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ---------------
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                                ---------------

                            VITRIA TECHNOLOGY, INC.
             (Exact name of Registrant as specified in its charter)
                                ---------------

<TABLE>
 <S>                              <C>                            <C>
            Delaware                           7372                        77-0386311
  (State or other jurisdiction
               of                  (Primary Standard Industrial         (I.R.S. Employer
 incorporation or organization)     Classification Code Number)      Identification Number)
</TABLE>

                                500 Ellis Street
                            Mountain View, CA 94043
                                 (650) 237-6900
  (Address, including zip code, and telephone number, including area code, of
                    Registrant's principal executive office)
                                ---------------

                               JOMEI CHANG, Ph.D.
                            Vitria Technology, Inc.
                     President and Chief Executive Officer
                                500 Ellis Street
                            Mountain View, CA 94043
                                 (650) 237-6900
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                                ---------------

                                   Copies to:
        Eric C. Jensen, Esq.                    Jose F. Macias, Esq.
         Cooley Godward LLP               Wilson Sonsini Goodrich & Rosati
        Five Palo Alto Square                 Professional Corporation
         3000 El Camino Real                     650 Page Mill Road
         Palo Alto, CA 94306                    Palo Alto, CA 94304
           (650) 843-5000       ---------------    (650) 493-9300

   Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.

   If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 145 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
                                ---------------

                        CALCULATION OF REGISTRATION FEE
<TABLE>
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
<CAPTION>
                                                 Proposed Maximum
    Title Of Each Class Of Securities To Be          Aggregate         Amount Of
                   Registered                    Offering Price(1)  Registration Fee
------------------------------------------------------------------------------------
<S>                                              <C>                <C>
Common Stock, $.001 par value par share........     $75,000,000         $20,850
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee, in
    accordance with Rule 457(o) under the Securities Act of 1933.
                                ---------------

   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED JUNE 22, 1999

                                        Shares

                       [LOGO OF VITRIA TECHNOLOGY, INC.]

                                  Common Stock

                                   ---------

  Prior to this offering, there has been no public market for the common stock.
The initial public offering price of the common stock is expected to be between
$         and $         per share. We have applied to list the common stock on
The Nasdaq Stock Market's National Market under the symbol "VITR."

  The underwriters have an option to purchase a maximum of    additional shares
to cover over-allotments of shares.

  Investing in our common stock involves risks. See "Risk Factors" on page 5.

<TABLE>
<CAPTION>
                                                          Underwriting
                                               Price to   Discounts and Proceeds to Vitria
                                                Public     Commissions      Technology
                                             ------------ ------------- ------------------
<S>                                          <C>          <C>           <C>
Per Share..................................        $            $                $
Total......................................  $            $                $
</TABLE>

  Delivery of the shares of common stock will be made on or about         ,
1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston                                   Merrill Lynch & Co.

               BancBoston Robertson Stephens

                                                      SoundView Technology Group

                  The date of this prospectus is      , 1999.
<PAGE>




[DESCRIPTION OF GRAPHICS:

Inside cover gatefold

 .  Vitria logo

 .  Graphic: Combines a graphic of the Vitria solution coupled with a graphical
   representation of an order fulfillment business process. Each step in the
   process is shown as an IT system that is named according to its business
   function (e.g. Billing). The Vitria solution is shown as a graphic that
   illustrates the four elements of our solution: (1) process automation, (2)
   real-time analysis, (3) Internet-based communications, and (4) application
   integration. There is a call-out for each of the elements to describe and/or
   illustrate its function.]


<PAGE>

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

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   3

Risk Factors.............................................................   5

Special Note Regarding Forward-Looking Statements........................  16

Use of Proceeds..........................................................  17

Dividend Policy..........................................................  17

Capitalization...........................................................  18

Dilution.................................................................  19

Selected Financial Data..................................................  20

Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  21

Business.................................................................  30
</TABLE>

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Management.................................................................  42

Certain Transactions.......................................................  52

Principal Stockholders.....................................................  53

Description of Capital Stock...............................................  55

Shares Eligible for Future Sale............................................  58

Underwriting...............................................................  60

Notice to Canadian Residents...............................................  62

Legal Matters..............................................................  63

Experts....................................................................  63

Where You Can Find More Information........................................  63

Index to Financial Statements.............................................. F-1
</TABLE>

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

   You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.

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

   Except as otherwise indicated, information in this prospectus is based on
the following assumptions:

  . the conversion of all our outstanding shares of preferred stock into
    shares of common stock upon the closing of this offering;

  . no exercise of the underwriters' over-allotment option;

  . our reincorporation from California to Delaware; and

  . the filing of our amended and restated certificate of incorporation prior
    to the closing of this offering.

   "Vitria" and the Vitria logo are registered trademarks of Vitria, and we
have filed for federal trademark registration for "BusinessWare." This
prospectus also includes trademarks owned by other parties.

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

                     Dealer Prospectus Delivery Obligation

   Until      , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>


                               PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.

                            Vitria Technology, Inc.

   Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite, BusinessWare, combines business process
automation and analysis, application integration and Internet-based
communications in one comprehensive platform. BusinessWare is designed to
provide business managers with an infrastructure that gives them end-to-end
visibility and control of their business operations, enabling them to reduce
time to market, rapidly respond to change, and manage the growing complexity of
business interactions across the extended enterprise.

   Rapid advances in new technology, deregulation and global competition are
transforming today's business environment. In particular, the use of the
Internet to conduct business, often referred to as "eBusiness," is radically
changing business-to-business, business-to-consumer and business-to-employee
interactions. To compete in this new environment, companies must find ways to
streamline and manage mission-critical business processes across their
"extended enterprises" which include their partners and customers. From order
fulfillment to customer service, there are significant benefits to automating
business processes across the extended enterprise. For example, companies that
allow their customers to place and track orders using self-service Web
applications can increase revenue opportunities while reducing order management
and customer service costs. Deploying eBusiness solutions that deliver these
business benefits, however, is a significant challenge.

   To address this challenge, BusinessWare combines in a single solution the
four elements that we believe are essential for an eBusiness platform:

  (1) Process automation--Empowers business users to define, manage and
      automate business processes through a graphical modeling environment;

  (2) Application integration--Integrates the internal and external IT
      systems that implement business process steps across the extended
      enterprise;

  (3) Internet-based communications--Exchanges business information between a
      company and its partners and customers in a secure and reliable fashion
      using Internet standards; and

  (4) Real-time analysis--Gathers key business and process information in
      real time, analyzes the data in real time, and selectively uses the
      results to automatically change business processes.

   We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. To date, we have licensed
BusinessWare to over 30 companies, including CableVision, Covad, Deutsche Bank,
Duke Energy, FedEx, Fujitsu PC, Inacom, Level 3, PageMart Wireless, Qwest, SBC,
Sprint and Verio. We intend to expand our position in our current markets and
leverage this position to penetrate other markets.

   As part of our strategy to establish BusinessWare as the eBusiness platform
of choice, we have developed strong working relationships with leading system
integrators, including Andersen Consulting and EDS. In addition, Vitria is
developing vertical eBusiness solutions built on the BusinessWare platform.

   We were incorporated in California in October 1994. We intend to
reincorporate in Delaware prior to the closing of this offering. Our principal
executive offices are located at 500 Ellis Street, Mountain View, California
94043, and our telephone number is (650) 237-6900. Our Internet address is
www.vitria.com. The information on our website is not incorporated by reference
into this prospectus.

                                       3
<PAGE>

                                  The Offering

<TABLE>
<S>                                          <C>
Common stock offered by Vitria..............            shares
Common stock to be outstanding after this
 offering...................................            shares
Use of proceeds ............................ General corporate purposes, including
                                             relocation of our principal offices,
                                             expansion of our sales and marketing
                                             capabilities, product development, and
                                             other working capital requirements. See
                                             "Use of Proceeds."
Proposed Nasdaq National Market symbol ..... VITR
</TABLE>

   The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and
excludes:

  .  2,061,740 shares subject to options outstanding as of March 31, 1999, at a
     weighted average exercise price of $0.41 per share;

  .  4,488,792 additional shares that we could issue under our stock option
     plans; and

  .  1,500,000 shares that we could issue under our employee stock purchase
     plan.

                         Summary Financial Information
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                            Year Ended          Three Months
                                           December 31,        Ended March 31,
                                       ----------------------  ----------------
                                        1996   1997    1998     1998     1999
                                       ------ ------  -------  -------  -------
<S>                                    <C>    <C>     <C>      <C>      <C>
Statement of Operations Data:
Revenues:
  License............................  $   -- $  955  $ 5,198  $   139  $ 3,487
  Service............................   1,042  1,425    1,633      151    1,472
  Government grant...................     984  1,255      796      371      250
                                       ------ ------  -------  -------  -------
   Total revenues....................   2,026  3,635    7,627      661    5,209
Cost of revenues.....................   1,167  1,611    2,905      493    1,606
                                       ------ ------  -------  -------  -------
Gross profit.........................     859  2,024    4,722      168    3,603
Income (loss) from operations........     235   (655)  (9,875)  (1,607)  (2,840)
Net income (loss)....................     243   (580)  (9,569)  (1,516)  (2,711)
                                       ====== ======  =======  =======  =======
Net income (loss) per share:
  Basic..............................  $ 0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
  Diluted............................  $ 0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
Weighted average shares:
  Basic..............................   7,044  9,915   12,003   10,490   12,699
  Diluted............................  13,835  9,915   12,003   10,490   12,699

Pro forma basic and diluted net loss
 per share...........................                 $ (0.48)          $ (0.12)
Pro forma basic and diluted weighted
 average shares......................                  20,111            23,250
</TABLE>

<TABLE>
<CAPTION>
                                                               March 31, 1999
                                                             -------------------
                                                             Actual  As Adjusted
                                                             ------- -----------
<S>                                                          <C>     <C>
Balance Sheet Data:
Cash and cash equivalents................................... $11,444  $
Working capital.............................................  10,771
Total assets................................................  18,240
Deferred revenue............................................   3,277
Stockholders' equity........................................  12,023
</TABLE>
--------
   See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.

   The as adjusted balance sheet data gives effect to the receipt of net
proceeds of $4.5 million from the sale of 1,003,980 shares of Series D
preferred stock in May 1999 and the net proceeds from the sale of the
       shares of common stock offered hereby at an assumed public offering
price of $     per share after deducting the estimated underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."

                                       4
<PAGE>

                                  RISK FACTORS

   You should carefully consider the risks described below before purchasing
our shares. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties not presently known to us or that
we currently see as immaterial may also impair our business operations. If any
of the following risks actually occur, our business could be harmed. In such
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.

Risks Related to Vitria

Our short operating history makes it difficult to evaluate our prospects.

   We were incorporated in October 1994. Until November 1997, we were engaged
primarily in research and development of our initial products. We licensed our
first product in November 1997 and have only recently established sales and
service organizations. We will experience heightened risks and unexpected
expenses and difficulties frequently encountered by small companies in an early
stage of development. Such risks include:

  . fluctuations in operating results and uncertain growth rates;

  . market acceptance of our products;

  . dependence on system integrators;

  . long and variable sales and product implementation cycles;

  . concentration of revenues in a relatively small number of customers;

  . concentration of our revenues in a single product line;

  . need to manage rapidly expanding operations;

  . need to expand our sales and marketing organization; and

  . need to attract, train and recruit qualified personnel.

If we do not manage these risks, our business will be significantly harmed.

We have a large accumulated deficit and expect future losses.

   We have incurred substantial losses since inception as we funded the
development of our products and technologies, and through our efforts to expand
our sales and marketing organization. Our net losses for 1998 were $9.6
million, and our net losses for the three months ended March 31, 1999 were $2.7
million. As of March 31, 1999, we had an accumulated deficit of $12.9 million.
We intend to continue to invest heavily in sales, marketing and research and
development. As a result, we will need to significantly increase our quarterly
revenues to achieve profitability. We cannot predict when we will operate
profitably, if at all.

Our operating results fluctuate significantly and we may not be able to
   maintain our existing growth rates.

   Although we have had significant revenue growth in recent quarters, our
growth rates may not be sustainable and prospective investors should not use
these past results to predict future operating margins or results. Our
quarterly operating results have fluctuated significantly in the past and may
vary significantly in the future. Our future operating results will depend on
many factors, including the following:

  . size and timing of customer orders and product and service delivery;

  . level of demand for our professional services;

  . changes in the mix of our products and services;

                                       5
<PAGE>

  . actions taken by our competitors, including new product introductions and
    pricing changes;

  . costs of maintaining and expanding our operations;

  . timing of our development and release of new and enhanced products;

  . costs and timing of hiring qualified personnel;

  . success in maintaining and enhancing existing relationships and
    developing new relationships with system integrators;

  . technological changes in our markets, including changes in standards for
    computer and networking software and hardware;

  . deferrals of customer orders in anticipation of product enhancements or
    new products;

  . delays in our ability to recognize revenue as a result of the decision by
    our customers to postpone software delivery;

  . customer budget cycles and changes in these budget cycles;

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

  . costs related to acquisition of technologies or businesses.

   Our revenues and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. Historically, a
substantial portion of revenues in a given quarter have been recorded in the
third month of that quarter, with a concentration of such revenues in the last
two weeks of the third month. We expect this trend to continue and, therefore,
any failure or delay in the closing of orders would have a material adverse
effect on our quarterly operating results. Since our operating expenses are
based on anticipated revenues and because a high percentage of these expenses
are relatively fixed, a delay in the recognition of revenue from one or more
license transactions could cause significant variations in operating results
from quarter to quarter and cause unexpected results.

   We record as deferred revenues payments from customers that do not meet our
revenue recognition policy requirements. Since only a small portion of our
revenues each quarter is recognized from deferred revenues, our quarterly
results will depend primarily upon entering into new contracts to generate
revenues for that quarter. New contracts may not result in revenue in the
quarter in which the contract was signed, and we may not be able to predict
accurately when revenues from these contracts will be recognized.

   As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not a good predictor of
our future performance. If our operating results are below the expectations of
stock market analysts or investors, our stock price is likely to decline.

Market acceptance of our products is uncertain.

   The limited sales and deployment of our products, and limited acceptance of
process automation technology, makes our prospects difficult to predict. In
addition, we have only licensed our products to a small number of customers,
and only a portion of these customers have commenced commercial deployment.
Successful deployment will require our products to interoperate with a variety
of software applications and systems and, in some cases, to process a high
number of transactions per second. If our products fail to satisfy these
demanding technological objectives, our customers will be dissatisfied and our
business will be harmed. Failure to establish a significant base of customer
references will significantly reduce our ability to license our products to
additional customers.

                                       6
<PAGE>

Our growth is dependent upon the successful development of relationships with
system integrators.

   We believe that our future growth will depend significantly on our ability
to develop and maintain successful strategic relationships with system
integrators. These entities design and develop custom systems and perform
custom integration of systems and applications. Some system integrators engage
in joint marketing and sales efforts with us. These system integrators include
Andersen Consulting and EDS Corporation. In many cases, these parties have
extensive relationships with our existing and potential customers and influence
the decisions of these customers. We rely upon these firms for recommendations
of our products during the evaluation stage of the purchasing process, as well
as for implementation and customer support services. Our strategy is to
continue to increase the number of licenses to customers introduced to us by
these entities and to rely on them to implement our products at customer sites.
A number of our competitors have stronger relationships with these system
integrators and, as a result, these system integrators may be more likely to
recommend competitors' products and services. In addition, a number of our
competitors have relationships with a greater number of these system
integrators and, therefore, have access to a broader base of enterprise
customers. Our failure to establish or maintain such relationships would
significantly harm our ability to license and successfully implement our
software products. In addition, we rely on the vertical market expertise and
reach of these firms. Therefore, this failure would also harm our ability to
develop new products for new vertical markets. We are currently investing, and
plan to continue to invest, significant resources to develop these
relationships. Our operating results could be adversely affected if these
efforts do not generate license and service revenues necessary to offset such
investment. In addition, if these relationships fail, we will have to devote
substantially more resources to the distribution, sales and marketing,
implementation and support of our products than we would otherwise, and our
efforts may not be as effective as those of the system integrators.

We depend on third party implementation providers.

   We rely on system integrators and other third party implementation
providers. If the number of implementations of our products increases, we must
maintain our existing relationships with these parties and build alliances with
additional implementation partners. These parties are not contractually
required to continue to help implement our products. As a result of the
competition for the resources of these service providers, we may be unable to
obtain sufficient resources to provide the necessary implementation services to
support our needs. If these resources are unavailable, we will be required to
provide these services internally, which would significantly limit our ability
to meet our customers' implementation needs and adversely affect operating
results. In addition, we cannot control the level and quality of service
provided by our current and future implementation partners.

Our dependence upon a limited number of customers could cause fluctuations in
our results.

   A relatively small number of customers account for a significant portion of
our total revenues. In 1998, sales to our ten largest customers accounted for
86% of total revenues. In 1998, sales to Level 3 accounted for 30% of total
revenues, and sales to KPMG accounted for 12% of total revenues. In addition,
research grants awarded to us by the National Institute of Standards and
Technology, or NIST, accounted for 10% of revenues in 1998.

   Our license agreements do not generally provide for ongoing license
payments. Therefore, we expect that revenues from a limited number of new
customers will continue to account for a large percentage of total revenues in
future quarters. Our ability to attract new customers will depend on a variety
of factors, including the performance, quality, breadth and depth of our
products. The loss or delay of individual orders could have a significant
impact on revenues and operating results. Our failure to add new customers that
make significant purchases of our products and services would harm our
business.

Our markets are highly competitive and our customers may choose to purchase our
   competitors' products.

   The market for our products is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is expected to
increase in the future. Increased competition is likely to result in

                                       7
<PAGE>

price reductions, reduced gross margins and loss of market share, any one of
which could seriously harm our business. Our current competitors include:

   EAI vendors. We face competition from vendors offering Enterprise
Application Integration, or EAI, software products. EAI products have generally
been designed only to address the application integration needs of customers.
These vendors include Active Software, Inc., CrossWorlds Software, Inc., and
New Era of Networks, Inc., also known as NEON. A number of other companies are
offering products that address specific aspects of EAI including BEA Systems,
Inc., Forte Software, Inc., Hewlett-Packard Company, IBM Corporation and Tibco
Software Inc. In the future, some of these companies may expand their products
to also provide the process automation and real-time analysis functionality of
our BusinessWare product suite.

   Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that provide for some
or all of the functionality of our BusinessWare product suite. We expect that
internally developed application integration and process automation efforts
will continue to be a principal source of competition for the foreseeable
future. In particular, it can be difficult to sell our products to a potential
customer whose internal development group has already made large investments in
and progress towards completion of systems that our products are intended to
replace.

   Other software vendors. We may in the future also encounter competition from
major enterprise software developers such as Oracle Corporation, PeopleSoft,
Inc., and SAP AG. In addition, Microsoft Corporation has announced its
intention to introduce products which could compete with certain aspects of our
products. These companies have significantly greater resources than Vitria.

   Many of our competitors have more resources and broader customer
relationships than we do. In addition, many of these competitors have extensive
knowledge of our industry. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to offer a single solution and increase the ability of their products
to address customer needs.

   Although we believe that our solutions generally compete favorably with
respect to these factors, our market is relatively new and is evolving rapidly.
In the past, we have lost potential customers to competitors for various
reasons, including lower prices for less complex implementations. We may not be
able to maintain our competitive position against current and potential
competitors, especially those with significantly greater resources.

We experience long and variable sales cycles.

   Our products are often used by our customers to deploy mission-critical
solutions used throughout their organization. Customers generally consider a
wide range of issues before committing to purchase our products, including
product benefits, ability to operate with existing and future computer systems,
ability to accommodate increased transaction volume and product reliability.
Many customers will be addressing these issues for the first time. As a result,
we or other parties, such as system integrators, must educate potential
customers on the use and benefits of our products and services. In addition,
the purchase of our products generally involves a significant commitment of
capital and other resources by a customer. This commitment often requires
significant technical review, assessment of competitive products, and approval
at a number of management levels within the customer's organization. Because of
these issues, our sales cycle has ranged from two to nine months and is
difficult to predict for any particular license transaction.

The cost and difficulties of our product implementation may harm our ability to
   license additional products to our customers.

   Our products are often purchased as part of large projects undertaken by our
customers. Such projects are complex, time consuming and expensive. In many
cases, our customers must interact with, modify, or replace significant
elements of their existing computer systems. The costs of our products and
services represent only a portion of the related hardware, software,
development, training and consulting costs. The significant

                                       8
<PAGE>

involvement of third parties, such as system integrators, reduces the control
we have over the implementation of our products or the quality of customer
service provided to organizations which license our software. Failure by the
customer to successfully deploy our products, or the failure by us or third
party consultants to ensure customer satisfaction, could damage our reputation
with existing and future customers. Any adverse impact on our ability to
license additional software for new projects to our current customers and enter
into software licenses with new customers would significantly harm our
business.

Our sales are concentrated in certain vertical markets.

   A key element of our strategy is to target certain vertical markets. Sales
to customers in the telecommunications and financial services industries
accounted for 57% of total revenues in 1998 and 73% of total revenues in the
first quarter of 1999. Our future success will depend on our ability to
continue to penetrate these vertical markets. Given our limited market
penetration, the high degree of competition and the rapidly changing
environment in these industries, there is no assurance that we will be able to
continue sales in these industries at current levels. In addition, we intend to
address new vertical markets. Customers in these new vertical markets are
likely to have different requirements and may require us to change our product
design or features, sales methods, support capabilities or pricing policies. A
failure to successfully address these new vertical markets could adversely
affect our business.

   In particular, our strategy is to develop packaged versions of our product
which incorporate business processes of our target vertical markets. This
presents technical challenges and will require collaboration with system
integrators and the commitment of significant resources. If we are not
successful in developing these targeted products or these products do not
achieve market acceptance, our business could be harmed.

Our operating results are substantially dependent on license revenues from one
   product family.

   Since 1998 a majority of our total revenues has been, and is expected to be,
derived from the license of our BusinessWare product suite. Accordingly, our
future operating results will depend on the demand for BusinessWare by future
customers, including new and enhanced releases that are subsequently
introduced. If our competitors release new products that are superior to
BusinessWare in performance or price, or we fail to enhance BusinessWare and
introduce new products in a timely manner, demand for our products may decline.
A decline in demand for BusinessWare as a result of competition, technological
change or other factors would seriously harm our business.

If our products do not operate with the many hardware and software platforms
   and applications used by our customers, we will not be successful.

   We currently serve a customer base with a wide variety of constantly
changing hardware, packaged software applications and networking platforms. To
gain broad market acceptance, we believe that we will have to support our
products on a variety of these platforms. Our success will depend, among
others, on the following factors:

  . our ability to integrate our product with multiple platforms and
    existing, or legacy, systems and to modify our products as new versions
    of packaged applications are introduced;

  . access to the application programming interface, or API, of the packaged
    applications with which our products need to integrate;

  . the portability of our products, particularly the number of hardware
    platforms, operating systems and databases that our products can source
    or target;

  . our ability to anticipate and support new standards, especially Internet
    standards;

  . the integration of additional software modules under development with
    existing products; and

  . our management of software being developed by third parties for our
    customers or use with our product.

                                       9
<PAGE>

   Our access to APIs of third-party applications are controlled by the
provider of such applications. If the application provider denies or delays our
access to APIs, our business may be harmed. Some application providers may
become competitors or establish alliances with our competitors, increasing the
likelihood that we would not be granted access to their APIs.

We depend on the timely release of our products.

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

Our products rely on third party programming tools and applications.

   Our programs utilize Java programming technology provided by Sun
Microsystems. In addition, we license technology related to the connectivity of
our products to third-party database and other applications. Loss of the
ability to use such technology, delays in upgrades, or failure of these third
parties to support these technologies or offer technology compatible with
emerging industry standards, could harm our business.

New versions and releases of our products may contain errors or defects.

   Our products and their interactions with customers' software applications
and IT systems are complex and, accordingly, there may be undetected errors or
failures when products are introduced or as new versions are released. We have
in the past discovered software errors in our new releases and new products
after their introduction. For example, we discovered problems with respect to
the ability of software written in Java to run sufficiently fast to meet the
needs of users in certain high performance applications. These errors have
resulted in product release delays, delayed revenues and customer
dissatisfaction. We may in the future discover errors, including Year 2000
compliance errors and additional performance limitations, in new releases or
new products after the commencement of commercial shipments. Since many
customers are using our products for mission-critical business operations, any
such occurrence could seriously harm our business.

If we fail to manage the growth of operations, our business may be adversely
affected.

   We must plan and manage our growth effectively in order to successfully
offer products and services and implement our business plan in a rapidly
evolving market. We continue to increase domestically, and to a lesser extent
internationally, the scope of our operations, and have added a number of
employees. For example, the number of our employees grew from 34 at December
31, 1997 to 157 at May 31, 1999. In particular, our sales force grew from four
people at December 31, 1997 to 46 people at May 31, 1999. This growth has and
will continue to place a significant strain on our management systems and
resources. Many of our executive officers have not held positions of comparable
responsibility at a public company. For us to effectively manage our growth, we
must continue to do the following:

  . improve our operational, financial and management controls;

  . improve our reporting systems and procedures;

  . install new management and information control systems; and

  . expand, train and motivate our workforce.

   In particular, we are currently migrating to a new accounting software
package designed to allow greater flexibility in reporting and tracking
results. In addition, we are implementing new management information systems,
including sales and marketing management and human resources management
software. If we fail to

                                       10
<PAGE>

install this software in an efficient and timely manner, or if the new systems
fail to adequately support our level of operations, then we could incur
substantial additional expenses to remedy such failures. In addition, by
October 1999 we expect to move our primary offices to a larger facility in
Sunnyvale, California. This move may disrupt our sales and marketing and
research and development activities and adversely impact our business if it is
not done efficiently.

If we do not keep pace with technological change, our customers may purchase
   our competitors' products.

   Our industry is characterized by very rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. Our existing products will be rendered obsolete if
we fail to introduce new products or product enhancements that meet new
customer demands, support new standards or integrate with new or upgraded
versions of packaged applications. We have also found that the technological
life cycles of our products are difficult to estimate. We believe that our
future success will depend upon our ability to continue to enhance our current
product line while we concurrently develop and introduce new products that
anticipate emerging technology standards and keep pace with competitive and
technological developments. Failure to do so will harm our ability to compete.
As a result, we are required to continue to make substantial product
development investments.

If we fail to attract and retain qualified personnel, our business may be
   adversely affected.

   Our success greatly depends on the continued service of our key technical,
sales and senior management personnel. None of these persons are bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel could have a material
adverse effect on our future operating results. In particular Dr. JoMei Chang,
our President and Chief Executive Officer, and Dr. Dale Skeen, our Chief
Technology Officer, would be difficult to replace.

   In addition, our future success will depend in large part upon our ability
to attract, retain and motivate highly skilled employees. In particular, we are
actively seeking a vice president of engineering. We face significant
competition for individuals with the skills required to develop, market and
support our products and services. We cannot assure that we will be able to
recruit and retain sufficient numbers of these highly skilled employees.

Our business and reputation could be harmed if we have improperly reported
   wages or made withholdings for our employees and independent contractors.

   On May 25, 1999 we were subject to an onsite audit by the California
Employment Development Department. The purpose of the audit was to ensure that
we have properly reported wages and made all required withholdings and other
payments under California law for our employees and independent contractors. We
provided the documentary information requested in connection with the audit,
and we are awaiting the results of the audit. To the extent that we are
required to make significant additional payments on behalf of our employees or
independent contractors, or pay penalties, our business and operating results
could be harmed.

Risks Related to Our Industry

We depend on the increasing use of the Internet and on the growth of electronic
   commerce. If the use of the Internet and electronic commerce does not grow
   as anticipated, our business will be seriously harmed.

   We depend on the increased acceptance and use of the Internet as a medium
for electronic commerce and the adoption by businesses of eBusiness solutions.
Rapid growth in the use of the Internet is a recent occurrence. As a result,
acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of business customers may not adopt or continue to use
the Internet as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty, and there exist few proven services and products.

                                       11
<PAGE>

If we fail to adequately protect our proprietary rights, we may lose such
   rights and our business may be adversely affected.

   Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual property rights. We rely on a
combination of copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect
our proprietary rights. We have no issued patents. Despite our efforts to
protect our proprietary rights, existing laws afford only limited protection.
Attempts may be made to copy or reverse engineer aspects of our products or to
obtain and use information that we regard as proprietary. Accordingly, there
can be no assurance that we will be able to protect our proprietary rights
against unauthorized third-party copying or use. Use by others of our
proprietary rights could materially harm our business. Furthermore, policing
the unauthorized use of our products is difficult and expensive litigation may
be necessary in the future to enforce our intellectual property rights.

   Certain of our license agreements require us to place the source code for
our products in escrow. These agreements generally provide these customers with
a limited, non-exclusive license to use this code if:

   . we fail to provide products or maintenance and support;

   . we cease to do business without a successor; or

   . there is a bankruptcy proceeding by or against Vitria.

   Our business would be harmed if customers were granted this access.

Our products could infringe the intellectual property rights of others causing
   costly litigation and the loss of significant rights.

   We expect that third parties may claim that we have infringed their current
or future intellectual property rights. We expect that software developers in
our market will increasingly be subject to infringement claims as the number of
products in different software industry segments overlap. Any claims, with or
without merit, could be time-consuming, result in costly litigation, prevent
product shipment or cause delays, or require us to enter into royalty or
licensing agreements, any of which could harm our business. Patent litigation
in particular has complex technical issues and inherent uncertainties. In the
event an infringement claim against us is successful and we cannot obtain a
license on acceptable terms or license a substitute technology or redesign our
products to avoid infringement, our business would be harmed. Furthermore,
former employers of our current and future employees may assert that our
employees have improperly disclosed to us or are using confidential or
proprietary information.

There are many risks associated with international operations which may
   adversely affect our business.

   To date, we have not generated any revenue from sales outside of the United
States. We have recently opened an office in the United Kingdom and intend to
establish additional offices in Europe. We anticipate devoting significant
resources and management attention to expanding international opportunities.
There are a number of challenges to establishing operations outside of the
United States and we may be unable to successfully establish international
operations. If we fail to sell our products in international markets, our
business would be adversely affected.

Potential year 2000 problems with our software, third party equipment or our
   internal operating systems could adversely affect our business.

   Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates, known as "Year 2000 compliant." As
a result, in a few months, computer systems and/or software products used by
many companies may need to be upgraded to be Year 2000 compliant. While we have
assessed our products, services and internal systems, certain internal

                                       12
<PAGE>

financial packages have not yet been implemented and may require further
assessment by us. We believe we are currently expending sufficient resources to
review our products and services, as well as our internal management
information systems in order to remedy those products, services and systems
that are not Year 2000 compliant. We expect such modifications will be made on
a timely basis and we do not believe that the cost of such modifications will
have a material effect on our operating results. There can be no assurance,
however, that we will be able to modify such products, services and systems in
a timely and successful manner to be Year 2000 compliant, which could have a
material adverse effect on our operating results. Conversely, concerns
regarding Year 2000 compliance could cause a significant number of companies,
including our current customers, to reevaluate their current system needs and,
as a result, consider switching to other systems and suppliers. Although we
have not experienced the effects of such a trend to date, if customers defer
purchases of our products because of such a reallocation, it could adversely
affect our operating results.

Risks Related to Our Offering

The substantial number of shares that will be eligible for sale in the near
future may adversely affect the market price for our common stock.

   Sales of substantial number of shares of our common stock in the public
market following this offering could materially adversely affect the market
price for our common stock. The number of shares of common stock available for
sale in the public market is limited by restrictions under federal securities
law and under certain agreements that our stockholders have entered into with
the underwriters and with us. Those lockup agreements restrict our stockholders
from selling, pledging our otherwise disposing of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
Credit Suisse First Boston Corporation. However, Credit Suisse First Boston
Corporation may, in its sole discretion, release all or any portion of the
common stock from the restrictions of the lockup agreements. The following
table indicates approximately when the 26,836,895 shares of our common stock
that are not being sold in the offering but which were outstanding as of June
1, 1999 will be eligible for sale into the public market:

<TABLE>
<CAPTION>
                                                       Eligibility of Restricted
                                                       Shares for Sale in Public
                                                                Market
                                                       -------------------------
     <S>                                               <C>
     At effective date................................                 0
     180 days after effective date....................        24,693,040
     At various times after the effective date........         2,143,855
</TABLE>

   Additionally, of the 2,303,900 shares issuable upon exercise of options to
purchase our common stock outstanding as of June 1, 1999, approximately 324,076
shares will be vested and eligible for sale 180 days after the completion of
this offering. For a further description of the eligibility of shares for sale
into the public market following the offering. See "Shares Eligible for Future
Sale."

We may need to raise additional capital that may not be available.

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

  . develop or enhance our products and services;

  . acquire technologies, products or businesses;

  . expand operations, in the United States or internationally;

  . hire, train and retain employees; or

  . respond to competitive pressures or unanticipated capital requirements.

   Our failure to do any of these things could seriously harm our business.

                                       13
<PAGE>

Our stock price may be volatile because our shares have not been publicly
traded before.

   Prior to this offering, you could not buy or sell our common stock publicly.

   An active public market for our common stock may not develop or be sustained
after the offering and therefore we cannot predict the extent to how liquid
this market will become. We will negotiate and determine the initial public
offering price with the representatives of the underwriters and this price may
not be indicative of prices that will prevail in the trading market.

   As a result you may be unable to sell your shares of common stock at or
above the offering price. The market price of the common stock may fluctuate
significantly in response to the following factors, most of which are beyond
our control:

  . variations in our quarterly operating results;

  . changes in securities analysts' estimates of our financial performance;

  . changes in market valuations of similar companies;

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

  . loss of a major customer or failure to complete significant license
    transactions;

  . additions or departures of key personnel; and

  . fluctuations in stock market price and volume, which are particularly
    common among securities of software and Internet-oriented companies.

We are at risk of securities class action litigation due to our expected stock
price volatility.

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

We have implemented certain anti-takeover provisions.

   Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:

  . establishment of a classified board of directors such that not all
    members of the board may be elected at one time;

  . authorizing the issuance of "blank check" preferred stock that could be
    issued by our board of directors to increase the number of outstanding
    shares and thwart a takeover attempt;

  . prohibiting cumulative voting in the election of directors, which would
    otherwise allow less than a majority of stockholders to elect director
    candidates;

  . limitations on who may call special meetings of stockholders;

  . prohibiting stockholder action by written consent, thereby requiring all
    stockholder actions to be taken at a meeting of our stockholders; and

  . establishing advance notice requirements for nominations for election to
    the board of directors or for proposing matters that can be acted upon by
    stockholders at stockholder meetings.

   In addition, Section 203 of the Delaware General Corporations Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Vitria.


                                       14
<PAGE>

Concentration of ownership among our existing executive officers, directors and
   principal stockholders may prevent new investors from influencing
   significant corporate decisions.

   Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
   % of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change of
control of Vitria and will make some transactions difficult or impossible
without the support of these stockholders. See "Principal Stockholders."

                                       15
<PAGE>

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

   This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of such
terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, including
the risks outlined under "Risk Factors," that may cause our or our industry's
actual results, levels of activity, performance or achievements to be
materially different from any future results, levels or activity, performance
or achievements expressed or implied by such forward-looking statements.

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

                                       16
<PAGE>

                                USE OF PROCEEDS

   We estimate that the net proceeds to us from the sale of the          shares
of our common stock to be approximately       million, approximately $
million if the underwriters' over-allotment option is exercised in full, at an
assumed initial public offering price of $      per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.

   We expect to use approximately $1.4 million of the net proceeds of the
offering for capital expenditures in connection with leasing a new facility for
our primary offices, which we expect to occupy by October 1999. The remaining
net proceeds will be used for general corporate purposes, including expansion
of sales and marketing capabilities, product development, and other working
capital requirements. We will retain broad discretion over the use of the net
proceeds of this offering. The amounts and timing of the expenditures for these
purposes may vary significantly depending on numerous factors, such as the
progress of our research and development efforts, technological advances and
the competitive environment for our products. We may also use a portion of the
net proceeds to acquire or invest in other businesses, products and
technologies. We have no agreements or understandings regarding any such
acquisition or investments.

   We believe that our available cash, together with the net proceeds of this
offering, will be sufficient to meet our capital requirements for at least the
next twelve months. Pending use of the net proceeds, we intend to invest the
net proceeds in short-term, interest bearing, investment grade securities.

                                DIVIDEND POLICY

   We have never paid or declared any cash dividends. We currently expect to
retain earnings for use in the operation and expansion of our business, and
therefore do not anticipate paying any cash dividends. See "Description of
Capital Stock."

                                       17
<PAGE>

                                 CAPITALIZATION

   The following table sets forth the following information:

  . Our actual capitalization as of March 31, 1999;

  . Our pro forma capitalization after giving effect to (1) the receipt of
    net proceeds of approximately $4.5 million from the sale of 1,003,980
    shares of Series D preferred stock in May 1999 and (2) the conversion of
    all outstanding shares of preferred stock upon the closing of this
    offering; and

  . Our pro forma as adjusted capitalization to give effect to the sale of
    the       shares of common stock at an assumed initial public offering
    price of $   per share in this offering, less the estimated underwriting
    discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                       March 31, 1999
                                                -------------------------------
                                                            Pro      Pro Forma
                                                 Actual    Forma    As Adjusted
                                                --------  --------  -----------
                                                 (in thousands, except share
                                                            data)
<S>                                             <C>       <C>       <C>
Stockholders' equity:
  Convertible Preferred Stock: issuable in
   series, $0.001 par value; 13,469,745 shares
   authorized, 10,551,635 actual shares issued
   and outstanding; no shares issued and
   outstanding, pro forma; 5,000,000 shares
   authorized; no shares issued and
   outstanding, pro forma as adjusted.......... $     11  $     --    $
  Common Stock: $0.001 par value; 51,000,000
   shares authorized, 15,541,180 actual shares
   issued and outstanding; 27,096,795 shares
   issued and outstanding, pro forma;
   250,000,000 shares authorized;     shares
   issued and outstanding, pro forma as
   adjusted....................................       16        27
  Additional paid-in capital...................   31,391    35,890
  Unearned stock-based compensation............   (6,456)   (6,456)
  Accumulated deficit..........................  (12,939)  (12,939)
                                                --------  --------    -------
    Total stockholders' equity.................   12,023    16,522
                                                --------  --------    -------
      Total capitalization..................... $ 12,023  $ 16,522    $
                                                ========  ========    =======
</TABLE>

   This table excludes the following shares:

  . 2,061,740 shares of common stock issuable upon the exercise of stock
    options outstanding under our stock option plans, and 4,488,792
    additional shares of common stock available for issuance under these
    stock option plans; and

  . 1,500,000 shares of common stock available for issuance under our
    employee stock purchase plan.

                                       18
<PAGE>

                                    DILUTION

   The pro forma net tangible book value of our common stock, on March 31,
1999, after giving effect to the receipt of the net proceeds of approximately
$4.5 million from the sale of 1,003,980 shares of Series D preferred stock in
May 1999 and the conversion of all outstanding shares of preferred stock upon
the closing of the offering was approximately $16,522,000, or approximately
$0.61 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the
number of shares of common stock outstanding. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the net
tangible book value per share of our common stock immediately afterwards.
Assuming our sale of         shares of common stock offered by this prospectus
at an assumed initial public offering price of $      per share, and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, our net tangible book value at March 31, 1999 would have
been approximately $    million or $    per share. This represents an immediate
decrease in net tangible book value of $     per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this dilution:

<TABLE>
<S>                                                                <C>   <C>
Assumed initial public offering price per share...................       $
  Pro forma net tangible book value per share at March 31, 1999... $0.61
  Decrease per share attributable to new investors................
                                                                   -----
Pro forma net tangible book value per share after this offering...
                                                                         ------
Dilution per share to new investors...............................       $
                                                                         ======
</TABLE>

   The following table summarizes, on a pro forma basis, as of March 31, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $     per share, and we have
not deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.

<TABLE>
<CAPTION>
                                 Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent   Amount    Percent Per Share
                                ---------- ------- ----------- ------- ---------
<S>                             <C>        <C>     <C>         <C>     <C>
Existing stockholders.......... 27,096,795       % $32,554,000       %   $1.20
New investors..................
                                ----------  -----  -----------  -----
  Total........................                  % $                 %
                                ==========  =====  ===========  =====
</TABLE>

   The foregoing discussion and tables assume no exercise of any outstanding
stock options. The exercise of options outstanding under our stock option plans
having an exercise price less than the offering price would increase the
dilutive effect to new investors. See "Capitalization" and "Management--
Employee Stock Plans."

   If the underwriters exercise their over-allotment in full, the following
will occur:

  . the number of shares of common stock held by existing stockholders will
    decrease to               or approximately     % of the total number of
    shares of our common stock outstanding; and

  . the number of shares held by new investors will increase to         , or
    approximately    % of the total number of our common stock outstanding
    after this offering.

                                       19
<PAGE>

                            SELECTED FINANCIAL DATA

   The following selected financial data should be read in conjunction with
Vitria's financial statements and related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998, and the balance
sheet data as of December 31, 1997 and 1998, are derived from the audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the period from inception (October 17, 1994) to December
31, 1994 and for the year ended December 31, 1995, and the balance sheet data
as of December 31, 1994, 1995 and 1996, are derived from the audited financial
statements not included elsewhere in this prospectus. The statement of
operations data for the three months ended March 31, 1998 and 1999 and the
balance sheet data as of March 31, 1999 are derived from the unaudited
financial statements included elsewhere in this prospectus. The historical
results are not necessarily indicative of results to be expected for future
periods.

<TABLE>
<CAPTION>
                                                                                Three Months Ended
                          Period from Inception   Year Ended December 31,            March 31,
                          (October 17, 1994) to ------------------------------  --------------------
                            December 31, 1994    1995    1996   1997    1998      1998       1999
                          --------------------- ------  ------ ------  -------  ---------  ---------
                                                      (in thousands, except per share data)
<S>                       <C>                   <C>     <C>    <C>     <C>      <C>        <C>
Statement of Operations
 Data:
Revenues:
 License................          $ --          $   --  $   -- $  955  $ 5,198  $     139  $   3,487
 Service................            67             376   1,042  1,425    1,633        151      1,472
 Government grant.......            --              --     984  1,255      796        371        250
                                  ----          ------  ------ ------  -------  ---------  ---------
   Total revenues.......            67             376   2,026  3,635    7,627        661      5,209
                                  ----          ------  ------ ------  -------  ---------  ---------
Cost of revenues:
 License................            --              --      --     18       --         --         62
 Service................            --              15     183    338    2,109        122      1,294
 Government grant.......            --              --     984  1,255      796        371        250
                                  ----          ------  ------ ------  -------  ---------  ---------
   Total cost of
    revenues............            --              15   1,167  1,611    2,905        493      1,606
                                  ----          ------  ------ ------  -------  ---------  ---------
Gross profit............            67             361     859  2,024    4,722        168      3,603
                                  ----          ------  ------ ------  -------  ---------  ---------
Operating expenses:
 Sales and marketing....            --              --      80  1,143    6,572        701      2,889
 Research and
  development...........           124             575     397    841    4,794        717      1,961
 General and
  administrative........            28              37     147    695    1,807        234        726
 Amortization of stock-
  based compensation....            --              --      --     --    1,424        123        867
                                  ----          ------  ------ ------  -------  ---------  ---------
   Total operating
    expenses............           152             612     624  2,679   14,597      1,775      6,443
                                  ----          ------  ------ ------  -------  ---------  ---------
Income (loss) from
 operations.............           (85)           (251)    235   (655)  (9,875)    (1,607)    (2,840)
Interest income.........            --              14       8     75      306         91        129
                                  ----          ------  ------ ------  -------  ---------  ---------
Net income (loss).......          $(85)         $ (237) $  243 $ (580) $(9,569) $  (1,516) $  (2,711)
                                  ====          ======  ====== ======  =======  =========  =========
Net income (loss) per
 share:
 Basic..................          $ --          $(0.05) $ 0.03 $(0.06) $ (0.80) $   (0.14) $   (0.21)
 Diluted................          $ --          $(0.05) $ 0.02 $(0.06) $ (0.80) $   (0.14) $   (0.21)
Weighted average shares:
 Basic..................            --           4,843   7,044  9,915   12,003     10,490     12,699
 Diluted................            --           4,843  13,835  9,915   12,003     10,490     12,699
Pro forma basic and
 diluted net loss per
 share..................                                               $ (0.48)              $ (0.12)
Pro forma basic and
 diluted weighted
 average shares.........                                                20,111                23,250
</TABLE>

<TABLE>
<CAPTION>
                                               December 31,
                                      ------------------------------- March 31,
                                      1994  1995 1996  1997    1998     1999
                                      ----  ---- ---- ------- ------- ---------
                                                   (in thousands)
<S>                                   <C>   <C>  <C>  <C>     <C>     <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 33  $128 $399 $ 9,138 $12,792  $11,444
Working capital......................  (92)  179  585   9,762  12,336   10,771
Total assets.........................  136   252  961  11,141  20,000   18,240
Deferred revenue.....................   --    --   --     223   2,874    3,277
Stockholders' equity (deficit).......  (85)  241  636  10,099  13,391   12,023
</TABLE>

                                       20
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "could" "estimate,"
"expect" "intend" and "plan" and other similar expressions constitute forward-
looking statements. These forward-looking statements are subject to business
and economic risks and uncertainties, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" as well as other risks and
uncertainties referenced in this prospectus.

Overview

   Vitria was incorporated in October 1994. We initially generated revenues
exclusively through consulting contracts with third parties and government
grants from NIST. In June 1997, we commercially released our first products.
With the initial release of these products, we accelerated the development of
our sales and marketing organizations. We have incurred significant losses
since inception, and as of March 31, 1999, we had an accumulated deficit of
$12.9 million.

   We derive revenues from three sources: licenses, services, and government
grants. Since the introduction of our products in 1997, licenses have become
our primary source of revenue. Products are typically licensed to customers for
a perpetual term, with pricing based on the number of systems or applications
managed. We record license revenues when a license agreement has been signed by
both parties, the fee is fixed and determinable, collection of the fee is
probable, and delivery of our product has occurred. For electronic
transmissions, we consider our products to have been delivered when the access
code to download the software from the Internet has been provided to the
customer. Payments received in advance of revenue recognition are recorded as
deferred revenue.

   Service revenues include product maintenance, consulting and training.
Customers who license BusinessWare products normally purchase maintenance
contracts. These contracts provide unspecified software upgrades and technical
support over a specified term, which is typically twelve months. Maintenance
contracts are usually paid in advance, and revenues from these contracts are
recognized ratably over the term of the contract. Customers typically purchase
consulting services from us to enlist our support in implementation activities
related to their purchase of BusinessWare licenses. These consulting services
are generally sold on a time and materials basis and recognized as the services
are performed. We also offer training services which are sold on a per student
basis and recognized as the classes are attended.

   We have received government grants to conduct research and development on
emerging technologies. These grants permit us to be reimbursed for costs
related to these activities. We recognize revenues from these grants as the
research is performed and qualifying costs are incurred.

   We market our products through our direct sales force, and augment our sales
efforts through relationships with system integrators and other strategic
partners. While our revenues to date have been derived exclusively from
accounts in the United States, we opened an office in the United Kingdom in
June 1999. We believe international revenues will represent a more meaningful
component of our total revenues as we grow. To date, we have not experienced
significant seasonality of revenues. We expect that future results may be
affected by the fiscal or quarterly budget cycles of our customers.

   A relatively small number of customers account for a significant portion of
our total revenues. As a result, the loss or delay of individual orders can
have a significant impact on our revenues. In 1998, sales to our ten largest
customers accounted for 86% of total revenues. In 1998, revenues from Level 3,
KPMG and NIST accounted for 30%, 12% and 10% of total revenues. We expect that
revenues from a limited number of

                                       21
<PAGE>

customers will continue to account for a large percentage of total revenues in
future quarters. Our ability to attract new customers will depend on a variety
of factors, including the reliability, security, scalability and cost-
effectiveness of our products.

   We have a limited operating history which makes it difficult to predict
future operating results. We believe our success requires expanding our
customer base and continuing to enhance our BusinessWare products. We intend to
continue to invest significantly in sales, marketing and research and
development and expect to incur operating losses for at least the next eighteen
months. Our operating expenses are relatively fixed and are based on
anticipated revenue trends; a delay in the recognition of revenue from one or
more license transactions could cause significant variations in operating
results from quarter to quarter and could result in unforeseen losses. Fees
from contracts that do not meet our revenue recognition policy requirements are
recorded as deferred revenues. While a small portion of our revenues each
quarter is recognized from deferred revenue, our quarterly performance will
depend primarily upon entering into new contracts to generate revenues for that
quarter. New contracts may not result in revenue during the quarter in which
the contract was signed, and we may not be able to predict accurately when
revenues from these contracts will be recognized. As a result of these factors,
we believe that period-to-period comparisons of our results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance. It is likely that in some future quarter our operating
results will be below the expectations of public market analysts and investors.
In such event, the price of our common stock would likely decline.

                                       22
<PAGE>

Results Of Operations

   The following tables set forth statement of operations data for each of the
five quarters ended March 31, 1999, as well as the percentage of our total
revenues represented by each item. This information has been derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on the same basis as the audited financial statements contained in
this prospectus and include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
such information. You should read this information in conjunction with our
annual audited financial statements and related notes appearing elsewhere in
this prospectus. Our quarterly operating results are expected to vary
significantly from quarter to quarter and you should not draw any conclusions
about our future results from the results of operations for any quarter.
<TABLE>
<CAPTION>
                             Mar. 31,   June 30,   Sept. 30,  Dec. 31,   Mar. 31,
                               1998       1998       1998       1998       1999
                             --------   --------   ---------  --------   --------
                                            (in thousands)
<S>                          <C>        <C>        <C>        <C>        <C>
Statement of Operations
 Data:
Revenues:
  License..................  $   139    $   888     $ 1,643   $ 2,528    $ 3,487
  Service..................      151        111         279     1,092      1,472
  Government grant.........      371         54         121       250        250
                             -------    -------     -------   -------    -------
   Total revenues..........      661      1,053       2,043     3,870      5,209
                             -------    -------     -------   -------    -------
Cost of revenues:
  License..................       --         --          --        --         62
  Service..................      122        198         540     1,249      1,294
  Government grant.........      371         54         121       250        250
                             -------    -------     -------   -------    -------
   Total cost of revenues..      493        252         661     1,499      1,606
                             -------    -------     -------   -------    -------
Gross profit...............      168        801       1,382     2,371      3,603
                             -------    -------     -------   -------    -------
Operating expenses:
  Sales and marketing......      701      1,653       1,585     2,633      2,889
  Research and
   development.............      717      1,346       1,369     1,362      1,961
  General and
   administrative..........      234        399         617       557        726
  Amortization of stock-
   based compensation......      123        215         412       674        867
                             -------    -------     -------   -------    -------
   Total operating
    expenses...............    1,775      3,613       3,983     5,226      6,443
                             -------    -------     -------   -------    -------
Loss from operations.......   (1,607)    (2,812)     (2,601)   (2,855)    (2,840)
Interest income............       91         69          56        90        129
                             -------    -------     -------   -------    -------
Net loss...................  $(1,516)   $(2,743)    $(2,545)  $(2,765)   $(2,711)
                             =======    =======     =======   =======    =======
As a Percentage of Total Revenues:
Revenues:
  License..................       21%        84%         80%       65%        67%
  Service..................       23         11          14        28         28
  Government grant.........       56          5           6         7          5
                             -------    -------     -------   -------    -------
   Total revenues..........      100        100         100       100        100
                             -------    -------     -------   -------    -------
Cost of revenues:
  License..................       --         --          --        --          1
  Service..................       19         19          26        32         25
  Government grant.........       56          5           6         7          5
                             -------    -------     -------   -------    -------
   Total cost of revenues..       75         24          32        39         31
                             -------    -------     -------   -------    -------
Gross profit...............       25         76          68        61         69
                             -------    -------     -------   -------    -------
Operating expenses:
  Sales and marketing......      106        157          78        68         56
  Research and
   development.............      108        128          67        35         38
  General and
   administrative..........       35         38          30        15         14
  Amortization of stock-
   based compensation......       19         20          20        17         16
                             -------    -------     -------   -------    -------
   Total operating
    expenses...............      268        343         195       135        124
                             -------    -------     -------   -------    -------
Loss from operations.......     (243)      (267)       (128)      (74)       (55)
Interest income............       14          7           3         3          3
                             -------    -------     -------   -------    -------
Net loss...................     (229)%     (260)%      (125)%     (71)%      (52)%
                             =======    =======     =======   =======    =======
</TABLE>

                                       23
<PAGE>

Revenues

   License. We recognized no license revenue in 1996. License revenues
increased from $955,000 in 1997 to $5.2 million in 1998 primarily due to the
growth in the number of licenses to new customers. Comparing the first quarter
of 1998 to the first quarter of 1999, license revenues increased from $139,000
to $3.5 million due to the growth in the number of licenses to new customers
and higher average transaction size.

   Service. Service revenues increased from $1.0 million in 1996, to $1.4
million in 1997, to $1.6 million in 1998. Prior to the introduction of our
products in 1997, we partially funded our operations through the provision of
custom design services. Throughout 1998, resources were redeployed from custom
design services to product support services in support of the newly introduced
products. This redeployment resulted in a volatile revenue stream and slower
overall growth in service revenues in 1998, as illustrated by the drop in
service related revenues in the second quarter of 1998. Comparing the first
quarter of 1998 to the first quarter of 1999, service revenues grew from
$151,000 to $1.5 million. This substantial increase in service revenues began
in the fourth quarter of 1998 due to the growth of maintenance, support and
consulting revenues associated with license agreements signed in earlier
periods. These service revenues continued to increase in the first quarter of
1999 as we supported a number of new deployments of our products.

   Government grant. Government grant revenues were $984,000 in 1996, $1.3
million in 1997 and $796,000 in 1998. Government grant revenues were $371,000
in the first quarter of 1998 and $250,000 in the first quarter of 1999.
Revenues vary from quarter to quarter based upon the extent to which our
internal development resources are deployed to work on activities covered under
the grants. Since each grant is awarded on a competitive basis, we cannot
predict whether these government grant revenues will continue in future
periods. Based on our current awards, we can conduct research activities and
seek reimbursement for up to an additional $1.4 million of associated costs.

Cost of Revenues

   License. Cost of license revenues consists primarily of royalty payments to
third parties for technology incorporated in certain of our products. We began
incurring these costs in the first quarter of 1999 due to the licensing to our
customers of products which incorporated third-party technology.

   Service. Cost of service revenues consists primarily of salaries, facility
costs, and payments to third party consultants incurred in providing customer
support, training, and implementation services. Cost of service revenues was
$183,000 in 1996, $338,000 in 1997 and $2.1 million in 1998. As a percentage of
our service revenues, these costs represented 18% in 1996, 24% in 1997 and 129%
in 1998. In the first quarter of 1998, cost of service revenues was $122,000,
or 81% of service revenues and, in the first quarter of 1999, $1.3 million, or
88% of service revenues. In the last three quarters of 1998 we invested heavily
in service personnel and infrastructure in anticipation of supporting a larger
customer base in future periods. This increased investment, combined with
slower service revenue growth during this period, resulted in a substantial
increase in the cost of services measured as a percentage of service revenues.
Comparing the third quarter of 1998 to the fourth quarter of 1998 and the first
quarter of 1999, our cost of service revenues increased significantly in dollar
amounts primarily due to our engagement of a third-party service provider to
support our significantly increased activity. We expect that cost of service
revenues will continue to increase in dollar amount as we continue to expand
our customer support organization to meet anticipated customer demand.

   Government grant. Under the terms of the government grants, we receive
reimbursements for costs incurred in connection with related research
activities. The employees who work on the grant activities are members of our
research and development team. Our work related to these grants varies from
quarter to quarter depending on the priorities in the research and development
organization. As eligible work is performed by the research and development
team, the allowable costs are charged to cost of government grant revenues.
These charged costs are exactly equal to the grant revenues recognized.

                                       24
<PAGE>

Operating Expenses

   Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, field office expenses, travel and entertainment and
promotional expenses. Sales and marketing expenses increased from $80,000 in
1996, to $1.1 million in 1997, to $6.6 million in 1998, and were $701,000 in
the first quarter of 1998 and $2.9 million in the first quarter of 1999. These
expenses decreased as a percentage of total revenues from approximately 106% in
the first quarter of 1998 to approximately 55% in the first quarter of 1999.
Sales and marketing expense increased in dollar amounts due primarily to the
hiring of additional sales and marketing personnel, increased commissions
associated with higher sales and costs associated with expanded promotional
activities. The decrease in sales and marketing expenses in dollar amount and
as a percentage of total revenues from the second quarter to the third quarter
of 1998 resulted from the departure of several marketing employees and a
decrease in promotional spending. We expect that sales and marketing expenses
will continue to increase in dollar amounts as we continue to expand our sales
and marketing efforts, establish additional U.S. and international sales
offices and increase promotional activities.

   Research and development. Research and development expenses include costs
associated with the development of new products, enhancements to existing
products, and quality assurance activities. These costs consist primarily of
employee salaries, benefits, and the cost of consulting resources that
supplement the internal development team. We have not capitalized any software
development costs and have expensed all such costs as incurred. Research and
development expenses increased from $397,000 in 1996, to $841,000 in 1997, to
$4.8 million in 1998, and were $717,000 in the first quarter of 1998 and $2.0
million in the first quarter of 1999. The increases in the dollar amounts of
research and development expenses during these comparison periods were
primarily attributable to costs related to the hiring of additional personnel.
Research and development expenses consistently increased on a quarterly basis,
with the exception of the third and fourth quarters of 1998. While the dollars
spent on research and development continued to increase during this period, the
portion of these dollars that were spent on activities related to the
government grants and charged to cost of government grant revenues increased
when compared to earlier quarters. We anticipate that we will continue to
devote substantial resources to research and development and that such expenses
will increase in dollar amounts.

   General and administrative. General and administrative expenses consist
primarily of salaries for administrative, executive and finance personnel,
recruiting costs, information systems costs, professional service fees and
allowances for doubtful accounts. These expenses increased from $147,000 in
1996, to $695,000 in 1997, to $1.8 million in 1998 and were $234,000 in the
first quarter of 1998 and $726,000 in the first quarter of 1999. Increases in
dollar amounts were primarily attributable to an increase in the number of
employees, higher professional service fees, and increased allowances for
doubtful accounts. We believe that our general and administrative expenses will
continue to increase in dollar amounts as a result of our growing operations
and the expenses associated with operating as a public company.

   Amortization of stock-based compensation. Amortization of stock-based
compensation includes the amortization of unearned employee stock-based
compensation and expenses for stock granted to consultants in exchange for
services. Employee stock-based compensation expense is amortized over a five-
year vesting period using the multiple option approach. In connection with the
grant of certain employee stock options, we recorded aggregate unearned stock-
based compensation of $8.6 million through March 31, 1999 and expect to record
an additional $2.4 million in the second quarter of 1999. We amortized employee
stock-based compensation expense of $1.3 million in 1998 and $867,000 for the
quarter ended March 31, 1999. We expect to record employee stock-based
compensation expenses of approximately $1.1 million for the quarter ending
June 30, 1999, $1.1 million for the quarter ending September 30, 1999,
$1.0 million for the quarter ending December 31, 1999 and $846,000 for the
quarter ending March 31, 2000. We anticipate such expense to decrease
consistently in future periods. Unearned compensation expense will be reduced
for future periods to the extent that options are terminated prior to full
vesting. We recorded expenses of $147,000 for the year ended December 31, 1998
in connection with stock issued for services.

Interest Income

   Interest income is primarily comprised of income earned on our cash and cash
equivalent balances.

                                       25
<PAGE>

Provision For Income Taxes

   We incurred operating losses for all periods with the exception of 1996,
when we had net income of $243,000. Our 1996 tax liability, however, was
reduced due to the utilization of net operating loss carryforwards. Our
deferred tax assets primarily consist of net operating loss carryforwards,
nondeductible allowances and research and development tax credits. We have
recorded a valuation allowance for the full amount of our net deferred tax
assets, as the future realization of the tax benefit is not currently likely.

   As of December 31, 1998, we had net operating loss carryforwards for federal
tax purposes of approximately $7.2 million and for state tax purposes of
approximately $3.3 million. These federal and state tax loss carryforwards are
available to reduce future taxable income and expire at various dates through
fiscal 2013. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may limit the amount of net operating loss
carryforwards that could be utilized annually in the future to offset taxable
income.

Liquidity and Capital Resources

   Since inception, we have financed our operations through private sales of
common and preferred stock, with net proceeds totaling $22.7 million. As of
March 31, 1999, we had $11.4 million in cash and cash equivalents, and $10.8
million in working capital with no outstanding debt. In May 1999, we completed
an additional round of private funding which resulted in net proceeds of $4.5
million.

   Net cash generated in operating activities was $223,000 in 1996. Net cash
used in operating activities was $873,000 in 1997 and $6.8 million in 1998 and
$1.5 million in the three months ended March 31, 1999. Net cash used to fund
operating activities in each of these periods reflect net losses, offset in
part by increases in deferred revenues. Net cash used in investing activities
was $104,000 in 1996, $431,000 in 1997, $947,000 in 1998 and $300,000 for the
first quarter of 1999. Investing activities consist primarily of purchases of
computer hardware and software, office furniture and equipment and leasehold
improvements. Net cash generated from financing activities was $152,000 in
1996, $10.0 million in 1997, $11.4 million in 1998 and $476,000 for the first
quarter of 1999. Net cash generated from financing activities consists
primarily of net proceeds from the issuance of convertible preferred stock.

   We signed a lease for a new principal facility in April 1999. Lease payments
under the agreement commence in August 1999 and continue for forty-nine months,
resulting in aggregate lease expenses of approximately $500,000 per quarter. We
have commitments for capital expenditures in 1999 of $1.4 million related to
the establishment of this facility, which we expect to occupy by October 1999.

   We expect to experience significant growth in our operating expenses for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in this
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next twelve months. Thereafter, we may require
additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise such additional funds
through public or private debt or equity financings. There can be no assurance
that such additional financing will be available, or if available, will be on
reasonable terms and not dilutive to our stockholders.

Recently Issued Accounting Pronouncements

   Our revenue recognition policies are in accordance with Statement of
Position or SOP 97-2, "Software Revenue Recognition" which we adopted on
January 1, 1998, with the exception of the provision deferred by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2." The adoption of
SOP 97-2 resulted, for certain agreements, in the deferral of software license
revenues that would have been recognized upon delivery of the related software
under prior accounting standards. Prior to January 1, 1998, we recorded

                                       26
<PAGE>

revenue in accordance with the provisions of SOP 91-1, "Software Revenue
Recognition". In December 1998, SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition" was issued. We adopted SOP 98-9 for all transactions
entered into in fiscal 1999. The adoption of this statement did not have a
material impact on our operating results, financial position or cash flow.

   In March 1998, SOP, 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" was issued. SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We adopted SOP 98-1 in
fiscal 1999. The adoption of this did not have a material effect on our
financial position, results of operations or cash flow.

   In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we
do not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flow. We will
be required to adopt SFAS No. 133 in fiscal 2000.

Qualitative and Quantitative Disclosures About Market Risk

   We develop products in the United States and currently market our products
in North America. We anticipate marketing products in Europe in the second half
of 1999. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As all sales are currently made in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the short-term nature of our investments, we
believe that there is no material risk exposure. Therefore, no quantitative
tabular disclosures are required.

Year 2000 Readiness

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

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

   We have defined Year 2000 compliant as the ability to:

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

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

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

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

  . Recognize year 2000 as a leap year.

                                       27
<PAGE>

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

   As a specific example, older versions of Vitria's BusinessWare product were
designed to work with Sun Microsystem's Java Developer Kit version 1.1.5. Sun
Microsystems has announced that this version and earlier versions of the Java
Developer Kit are not Year 2000 compliant. Vitria customers who are still using
these older versions of the BusinessWare products are thus subject to Year 2000
operating risk due to this Java Developer Kit compliance problem. We are
currently working with each of the affected customers to migrate them to newer
versions of the BusinessWare product which use Sun Microsystem's Java Developer
Kit version 1.1.7. Sun Microsystems claims that version 1.1.7 is Year 2000
compliant. We have not made any representations to our customers concerning the
Year 2000 readiness of this development kit. To the extent one or more of these
customers fail to migrate to the newer Vitria BusinessWare products, these
customers could potentially suffer operating difficulties in systems using
Vitria's BusinessWare products. Vitria could be exposed to an indirect
liability in this event.

   Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it. There is a bill
being discussed by Congress which could eliminate liability for certain
failures to achieve Year 2000 compliance. There can be no assurance that this
bill will be signed into law or that it will provide us with any protection.

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

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

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

   We do not have a contingency plan to address situations that may result if
our critical operations are not Year 2000 ready, and we do not anticipate the
need to do so. The cost of developing and implementing such a plan may itself
be material. Finally, we are also subject to external forces that might
generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failure interruptions.

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<PAGE>

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

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

  . our inability to manage our own business.

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<PAGE>

                                    BUSINESS

   This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause
differences include, but are not limited to, those discussed in "Risk Factors."

   Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite, BusinessWare, combines business process
automation and analysis, application integration and Internet-based
communications in one comprehensive platform. BusinessWare is designed to
provide business managers with an infrastructure that gives them end-to-end
visibility and control of their business operations, enabling them to reduce
time to market, rapidly respond to change, and manage the growing complexity of
business interactions across the extended enterprise.

   We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. To date, we have licensed
BusinessWare to over 30 companies, including CableVision, Covad, Deutsche Bank,
Duke Energy, FedEx, Fujitsu PC, Inacom, Level 3, PageMart Wireless, Qwest, SBC,
Sprint and Verio. We intend to expand our position in our current markets and
leverage this position to penetrate other markets. As part of our strategy to
establish BusinessWare as the eBusiness platform of choice, we have developed
strong working relationships with leading system integrators, including
Andersen Consulting and EDS. In addition, Vitria is developing vertical
eBusiness solutions built on the BusinessWare platform.

Industry Background

   Rapid advances in new technology, deregulation and global competition are
transforming the business environment. In particular, the use of the Internet
to conduct business, often referred to as "eBusiness," is radically changing
business-to-business, business-to-consumer and business-to-employee
interactions. Many companies are exploring innovative business models to
capitalize on this eBusiness opportunity. These eBusiness participants include
established companies transitioning to new Internet-enabled business models,
new companies formed specifically to deliver products and services over the
Internet, and providers of the Internet infrastructure, such as networking and
telecommunications companies. These companies operate in an environment
characterized by rapid change and increasingly complex business interactions
with partners and customers. The business processes that define these complex
interactions often span an "extended enterprise" that links companies with an
Internet-enabled network of partners and customers.

   To compete in this new environment, companies must find ways to streamline
and manage mission-critical business processes across their extended
enterprise. From order fulfillment to customer service, the benefits of
automating business processes across the extended enterprise are significant.
For example, telecommunications service providers that automate manual order
hand-offs between themselves and local network providers can reduce service
activation times, resulting in increased customer satisfaction. Similarly,
companies that allow their customers to place and track orders using self-
service Web applications can increase revenue opportunities while reducing
order management and customer service costs.

   Deploying eBusiness solutions that deliver these business benefits is a
significant challenge. Companies need to define and manage the business
processes that implement these solutions. Once defined, these business
processes must be tied into the underlying information technology, or IT,
systems that support them so that information can flow smoothly from the first
step of the process to the last. Business processes must often coordinate the
flow of information across multiple stand-alone IT systems, including both
packaged applications and legacy systems. These stand-alone systems add
additional complexity to the effort because they typically are not designed to
work with each other.

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<PAGE>

   The following diagram illustrates the challenges of deploying an eBusiness
solution. The diagram depicts the order fulfillment process for a company that
allows customers to place orders directly, using a self-service Web
application, and outsources its inventory management and shipping processes to
a distribution partner. The diagram shows how each step in the order
fulfillment process directs the flow of information across internal and
external IT systems, and how these systems must be integrated to smoothly
process the customer order from initial placement to final product delivery to
customer billing.

[Graphic shows the flow of an order from a customer to a Web browser to an
order entry system to an order fulfillment system to an inventory management
system to a billing system.]

   In order to successfully deploy sophisticated eBusiness solutions,
companies need to (1) define, manage and automate their business processes,
(2) integrate the internal and external IT systems that implement business
process steps, (3) exchange business information between a company and its
partners and customers in a secure and reliable fashion using Internet
standards, and (4) gather and analyze, in real time, key business and process
information, and use the results to automatically change business processes.

   Until now, no solution has combined these four elements in a single
platform optimized for the deployment of eBusiness solutions. Current
approaches typically focus on the use of enterprise application integration,
or EAI, software products. These approaches suffer from the following
limitations:

   Weak Process Automation and Real-Time Analysis Functionality. EAI products
   address the application integration aspect of eBusiness solution
   deployment. However, they do not generally provide the functionality to
   manage and automate the business processes that define eBusiness
   solutions. In addition, EAI products typically do not support real-time
   analysis of business and process information.

   Require Extensive IT Involvement. EAI products generally require multiple
   custom software programs to define and implement business processes. As a
   result, the design, implementation and modification of business processes
   require extensive involvement by IT personnel. This makes it is difficult
   for business managers to manage their business processes.

   Limited Scalability. EAI products are typically built on "hub-and-spoke"
   architectures that are designed for single site deployment. Generally,
   solutions based on these architectures can neither be incrementally
   expanded, or scaled, to support high transaction volumes nor distributed
   across multiple locations without incurring significant administrative
   overhead.

   Lack of Support for Internet Standards. Ideally, companies need to
   seamlessly exchange information between their corporate intranets and the
   Internet. EAI products typically use proprietary communication protocols
   and data formats, rather than Internet standards, such as HTTP and XML, to
   exchange information between applications. This makes it difficult for
   companies to deploy eBusiness solutions that link them with their partners
   and customers over the Internet.

   We believe that there is a significant market opportunity for a software
platform that addresses these limitations and enables companies to rapidly
deploy comprehensive eBusiness solutions. The independent research firm,
International Data Corporation, identified this opportunity as the
"Businessware Management System" market in a May 1999 report. IDC estimates
that the market will grow from $313 million in 1998 to more than $5 billion by
2003.

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<PAGE>

Vitria Solution

   Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite BusinessWare, enables customers to deploy
sophisticated eBusiness solutions within and across their extended enterprises.
BusinessWare automates business processes that link partners and customers, and
integrates the underlying IT systems that must work together to support these
processes.

   BusinessWare combines in a single solution the four elements that we believe
are essential for an eBusiness platform:

  (1) Process Automation--Empowers business users to define, manage and
      automate business processes through a graphical modeling environment;

  (2) Application Integration--Integrates the internal and external IT
      systems that implement business process steps across the extended
      enterprise;

  (3) Internet-Based Communications--Exchanges business information between a
      company and its partners and customers in a secure and reliable fashion
      using Internet standards; and

  (4) Real-Time Analysis--Gathers key business and process information in
      real time, analyzes the data in real time, and selectively uses the
      results to automatically change business processes.

   Once customers use BusinessWare to define their business process models and
integrate the underlying IT systems, BusinessWare starts controlling the flow
of information across the IT systems as specified by the process models.
BusinessWare continuously analyzes the customer's business processes and can
automatically change the processes in response to this analysis. This
capability allows companies to transform the information flowing through their
IT systems into "actionable intelligence" that enables business managers to
automate and optimize their business operations.

   BusinessWare allows customers to solve their eBusiness problems using
graphical models rather than developing custom programs. Business managers use
the visual process modeling environment to define their business processes
graphically, and then use our application integration products to map the
graphical models to the underlying IT systems. Our graphical process models are
"directly executable," which means that they can be deployed immediately,
without programming by IT personnel.

   We believe that BusinessWare provides the following benefits to customers:

   Easy for Business Managers to Use. The combination of our graphical process
modeling and automation functionality with our robust application integration
foundation, allows customers to focus on the business objectives of their
eBusiness solutions rather than the mechanics of solution implementation.

   Reduces Time to Market. We enable customers to reduce their time to market
by allowing them to graphically define and automate new business processes to
support the delivery of new products and services.

   Leverages IT Investment. We help companies to preserve and leverage the
substantial IT investment they have made by allowing them to assemble eBusiness
solutions using their existing IT systems.

   Allows Rapid Response to Change. We enable customers to graphically model
their existing business processes, and then continuously refine and optimize
them as business conditions change over time. To change a business process,
managers simply change the associated graphical model.

   Provides a Comprehensive Solution. BusinessWare combines the four elements
of an eBusiness platform in a single comprehensive solution. This eliminates
the need for our customers to purchase and integrate separate solution
components from multiple vendors.

   Scales to Support High Transaction Volumes and Distributed Deployment. Our
platform features an architecture that uses the same distributed processing
principles as those used on the Web. Unlike alternative "hub-and-spoke"
architectures that are optimized for single site deployment, our "federated"
architecture

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<PAGE>

allows customers to incrementally add servers to support increasing loads,
without adding administrative complexity.

   Enables Mission-Critical Deployments. The importance of our customers'
eBusiness initiatives demand that our software platform meets high standards
for performance, security and reliability. BusinessWare has been designed for
superior performance to accommodate the high transaction volumes enabled by the
Internet. In addition, our solution was designed to ensure secure communication
of business information across the extended enterprise using rigorous
authentication and data encryption technologies. BusinessWare provides high
availability through multiple server redundancy and automatic failover to
backup systems.

Strategy

   Our objective is to establish BusinessWare as the leading software platform
for real-time eBusiness. Key elements of our strategy to achieve this objective
include:

   Leverage and Expand Strategic Alliances. We intend to leverage our
relationships with leading system integrators, such as Andersen Consulting and
EDS, to extend our reach and provide comprehensive solutions to our customers.
We have established a group to focus exclusively on strengthening and expanding
these relationships. Our partners' relationships with the most senior levels of
management facilitate access to strategic projects which often generate large
commitments from our customers. We believe that this access also reduces the
length of our sales cycles. In addition, our partners' software deployment
expertise and vertical industry knowledge shortens implementation time and
helps us to secure add-on business.

   Develop Market-Focused Solutions. We are developing packaged eBusiness
solutions built on the BusinessWare platform which capture business processes
used widely in specific vertical markets. We intend to leverage the industry
expertise of our system integrator partners and our customers to rapidly build
these market-focused solutions. We believe customers and partners will derive
significant time-to-market benefits and reduce their implementation and
maintenance costs by deploying these out-of-the-box business solutions. This
strategy also provides us with additional revenue opportunities while reducing
our internal development costs.

   Expand Product and Technology Leadership. We have established a new category
of software platform that combines process automation, application integration,
Internet-based communications, and real-time analysis in a single unified
environment. We intend to continue to introduce innovative products which
enable our customers to rapidly deploy complex business solutions and extend
their enterprise easily and cost-effectively. We also intend to extend our
technological leadership by continuing to invest significantly in research and
development. We have assembled a team of prominent developers and engineers
with expertise in Internet communication protocols, messaging technologies, and
enterprise software and have established a corporate culture which fosters
continuous product innovation. In addition, by promoting and embracing emerging
Internet standards, we intend to facilitate the broad acceptance of our
eBusiness platform.

   Target Fast-Growing Vertical Markets. To date, we have targeted the
telecommunications, business services, manufacturing and financial services
industries. These markets are characterized by high rates of growth, dynamic
business processes and rapid adoption of eBusiness solutions. We intend to
expand our position in these markets and leverage this position to target other
markets.

   Extend Relationships with Customers. The strategic importance of
BusinessWare to our customers allows us to develop relationships with their
senior decision makers. This visibility to senior management and a focused
implementation approach facilitate the rapid adoption and deployment of
BusinessWare throughout the organization. We intend to leverage these
relationships as we introduce new products and services. Additionally, because
BusinessWare is used by companies to automate and manage their interactions
across their extended enterprise, we are introduced to opportunities with our
customers' business partners.

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<PAGE>

Products

   BusinessWare is a software product suite designed to provide customers with
a comprehensive platform for rapidly deploying sophisticated eBusiness
solutions. The BusinessWare platform is illustrated and summarized below:

[Graphic: Depicts the components of the Vitria product suite including the
following:

  . BusinessWare Modeler
  . BusinessWare Administrator
  . BusinessWare Server
  . BusinessWare Automator
  . BusinessWare Analyzer
  . BusinessWare Communicator
  . BusinessWare Connectors and Transformers
  . BusinessWare Common Services
  . Customer's IT systems]

   BusinessWare Modeler. The Modeler is BusinessWare's process modeling
component. Business managers use the Modeler to create graphical models of
their business processes using a point-and-click interface. These process
models provide an intuitive visual representation of interdependent processing
steps. Users can add business rules to each processing step to provide
additional modeling flexibility. Once specified and saved in the BusinessWare
Repository, process models can be directly executed by the BusinessWare
Automator. The Modeler supports advanced modeling constructs that allow users
to define and manage complex, real-world business processes. The Modeler
supports Unified Modeling Language, the industry standard for business process
modeling and automation.

   BusinessWare Server. The BusinessWare Server provides the host environment
for five functional components: Automator, Analyzer, Communicator, Connector
and Transformer. The BusinessWare Server is designed to provide a set of common
services that are shared by each of these components:

  . Security: provides rigorous support for authentication, data encryption
    and access control.

  . Transaction management: ensures the integrity of business processes and
    related updates to underlying IT systems.

  . Persistence: provides automatic recovery in the event of system or
    network failures.

  . Repository: stores and manages all BusinessWare metadata, such as process
    models.

   BusinessWare Automator. Automator is BusinessWare's process automation
component. It executes the business process models defined by users in the
Modeler and stored in the BusinessWare Repository. Automator automates business
processes by coordinating the flow of information among the underlying IT
systems.

   BusinessWare Analyzer. Analyzer selectively gathers and analyzes business
and process information throughout the extended enterprise. Analyzer provides
real-time visibility into key business metrics, that business users need to
manage their business effectively. Analyzer also helps companies to rapidly
identify processing bottlenecks, thus providing them with the information they
need to support their continuous process improvement efforts. Analyzer's
results can be automatically fed back into Automator to change business
processes in real time.

   BusinessWare Communicator. Communicator provides the communications backbone
that ties together all of the BusinessWare components and the IT systems that
they integrate. Communicator provides fast and secure information delivery with
multiple quality of service options. Communicator supports Internet standards,
such as HTTP and XML. Communicator is designed to interoperate with third-party
products, like IBM MQ Series and Microsoft MSMQ.

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<PAGE>

   BusinessWare Connectors and Transformers. Connectors and Transformers
together provide BusinessWare's application integration functionality, enabling
heterogeneous IT systems to exchange information.

  . Connectors translate business information to Internet standards, such as
    XML. We provide off-the-shelf Connectors for a number of popular packaged
    applications, messaging systems and databases. We also provide a toolkit
    that enables customers to rapidly develop Connectors for custom or legacy
    systems.

  . Transformers map data structures from one IT system to another. In
    addition to our own transformation components, customers have the option
    to augment their BusinessWare solution with transformation products from
    third parties.

   BusinessWare Administrator. Administrator is BusinessWare's graphical
systems management and monitoring component. Administrator allows systems
administrators to perform local and remote administration from any BusinessWare
server.

Customers and Case Studies

   We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. As of June 15, 1999, over 30
customers had licensed BusinessWare, including the following customers who have
paid $250,000 or more for licenses and related services:

<TABLE>
       <S>                                  <C>
       A.B. Watley, Inc.                    ICG Communications, Inc.
       Advanced Radio Telecom Corp.         Inacom Corporation
       CableVision Systems Corporation      KPMG LLP
       Covad Communications Company         Level 3 Communications, Inc.
       Deutsche Bank AG                     PageMart Wireless, Inc.
       Duke Energy Corporation              Qwest Communications Corporation
       Federal Express Corporation          SBC Communications, Inc.
                                            Sprint Communications
       Fujitsu PC Corporation               Company, L.P.
       Hewitt Associates LLC                Verio, Inc.
</TABLE>

   The following case studies illustrate how some of our customers have used
BusinessWare:

   Covad Communications Group, Inc.

   Covad is a leading high-speed Internet and network access provider offering
DSL-based high speed Internet access through Internet Service Providers, or
ISPs. Covad sells its service indirectly to small and medium businesses and
consumers through ISPs and sells directly to large enterprise customers.

     Opportunity: As a new player in the fiercely competitive
  telecommunications market, Covad needed to make it simple and inexpensive
  for ISPs, to resell Covad's high-speed Internet access service.
  Specifically, they wanted to create an eBusiness link with ISPs that would
  automate the DSL ordering process, improve service levels and lower
  operating costs.

     Solution: Covad is using BusinessWare to build an eBusiness solution
  which enables ISPs to automate their business interactions with Covad. The
  solution will automate the DSL ordering process and integrate each ISP's
  order entry system with Covad's order management system. Covad expects the
  solution to have significant business benefits for both themselves and
  their ISP partners. Major benefits for ISPs include faster time to market
  with a DSL-based Internet access service, automatic access to order status
  information, and lower administration costs. Major benefits for Covad
  include deeper, stronger links with their ISP partners, lower operating
  costs, and the ability to make it easier for ISPs to do business with Covad
  than with competing DSL providers.

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<PAGE>

   Fujitsu PC Corporation

   Fujitsu PC Corporation, or FPC, is a subsidiary of Fujitsu Limited, a
leading provider of information technology products and solutions for the
global marketplace. FPC delivers high-performance mobile computing solutions
for the North American market.
     Opportunity: Faced with growing competitive pressures, FPC needed to
  automate their order fulfillment process for custom-configured notebook
  computers. This required FPC to integrate disparate IT systems, including a
  Web-based order configuration system, an enterprise resource planning
  system, and a manufacturing execution system. FPC's goal is to reduce the
  time required to ship orders and improve customer satisfaction.

     Solution: FPC is using BusinessWare to link the IT systems that support
  their order fulfillment process. This will eventually automate the entire
  fulfillment process for custom-configured notebook computers. The
  BusinessWare solution is expected to provide end-to-end visibility and
  control of the process, significantly reducing the time required to take
  customer orders, and assemble and ship custom-configured notebook
  computers. FPC also expects to lower costs and increase customer
  satisfaction.

   Inacom Corporation

   Inacom Corp. is a global Fortune 500 technology services leader. The company
designs, implements and manages distributed technology infrastructure solutions
that optimize clients' return on IT investments.

     Opportunity: One of Inacom's services is to provide an outsourced PC
  service and support operation to meet the needs of Fortune 500 companies
  and major PC hardware vendors. This service is designed to reduce PC
  service and support costs. Inacom needed a solution that would allow them
  to automate these processes, tailor them to the unique requirements of each
  client, and proactively manage them to best-in-industry service levels.

     Solution: Inacom used BusinessWare to graphically model and automate
  their PC service and support processes. In parallel with this initiative,
  the company used BusinessWare to integrate its internal IT systems,
  including a legacy system for managing service dispatch requests, with
  their customers' systems. Now, Inacom's clients can send PC service
  dispatch requests over the Internet, using EDI or XML, to Inacom's PC
  repair technicians. The solution also allows clients to receive automatic
  status updates on all open service requests. This initial project
  established BusinessWare as Inacom's standard platform for eBusiness
  solutions. Subsequent projects will leverage this platform to automate
  additional mission-critical business processes. One project will use
  BusinessWare to enable Inacom's PC hardware vendor customers to
  automatically update Inacom's internal systems each time they change a PC
  part.

Technology

   We have assembled a team of software engineers with expertise in distributed
computing, model-driven business process automation, real-time query processing
and publish-and-subscribe communications. Our founders, Dr. JoMei Chang and Dr.
Dale Skeen, have established reputations as technology innovators. Dr. Chang is
the principal patent author for one of the first "reliable multicast"
protocols. Multicast protocols reduce traffic congestion over the Internet. Dr.
Skeen is the principal author of multiple patents for publish-and-subscribe
communication, which is the preferred communication method for enterprise
application integration. In recognition of our significant technology
expertise, the National Institute of Standards and Technology's Advanced
Technology Program awarded us three prestigious, multi-million dollar research
grants to address complex business integration and supply chain management
problems. For a description of these awards, see "Government Grants."

                                       36
<PAGE>

   Model-Driven Business Process Automation. We have pioneered and
commercialized the concept of direct manipulation and execution of business
processes through graphical models. This powerful concept combines visual
process modeling with business rules to express and automate complex business
scenarios using terminology and concepts familiar to business users. Advanced
modeling functions, such as nested and concurrent processes, are designed to
provide users with the sophisticated modeling power they need to express the
real-world complexity of today's business operations. In addition, our process
models are dynamically adaptable through a capability known as parameterized
sub-processing. Specifically, this allows companies to define business
processes that can automatically select alternate processing flows based on
current business conditions.

   Real-Time Analysis. We have pioneered and commercialized the concept of a
general purpose real-time query tool. This tool allows users to define queries
that continuously monitor and analyze, in real time, information flowing across
their business processes and IT systems. Real-time query processing is
fundamentally different from more traditional query processing. Whereas
traditional query processing optimizes the one-time, bulk evaluation of a
single query across a large number of records, Vitria's technology is designed
to optimize the incremental evaluation of a single new message against a large
number of outstanding queries. Since it is possible to have thousands of real-
time queries concurrently active, we have developed patent-pending algorithms
for optimizing the processing of a large number of concurrent queries.

   Vitria has also pioneered technology to perform complex real-time queries
that join two or more real-time information streams together, or that join a
real-time information stream to information stored in a database. This
capability significantly increases the power of real-time querying. We have
developed patent-pending algorithms to execute and optimize such complex, real-
time queries.

   Scalability and Reliability. BusinessWare implements a federated
architecture and a naming scheme modeled after that used by the Web. This kind
of architecture partitions workload among an unlimited number of servers and
supports incremental expansion, as needed. Additional servers can be added in a
manner that is transparent to end users and system administrators, resulting in
scalability to high orders of magnitude without unnecessary administrative
overhead. BusinessWare is also designed to support the caching and replication
of information across multiple servers to provide faster information access and
robust failover and recovery support in the event of system or network
failures. BusinessWare supports the option to use a reliable multicast protocol
that is built on top of the Internet-based IP multicast protocol. Multicast
protocols provide a particularly efficient method for disseminating real-time
information to a large number of users. The combination of our federated
architecture, extensive use of cached and replicated information, and support
for multicast protocols is designed to enable our solutions to communicate
business information across the extended enterprise with little latency, and
high scalability and reliability.

   Security. Security is essential for business-critical applications operating
over extranets and the Internet. BusinessWare provides a security framework
based on the widely accepted Secure Socket Layers, or SSL, standard. Our
security framework supports digital signatures, multiple authentication
services and multiple encryption services, including both public key and
private key encryption. The framework is designed to be easily extended to
support additional authentication and encryption services. All BusinessWare
components provide discretionary authorization of users through the use of
Access Control Lists. In addition, BusinessWare can support multiple security
domains and provide secure communication between domains. Security domains
allow the selective and secure sharing of information among business partners,
while allowing each partner to retain control over their own security policies.

Sales and Marketing

   We license our products and sell services primarily through our direct sales
organization, complemented by the selling and support efforts of our system
integrators and other strategic partners. As of June 1, 1999, our sales force
consisted of 46 sales professionals and technical sales engineers located in
nine domestic locations and an office in the United Kingdom. We have sales
offices in the greater metropolitan areas of Boston,

                                       37
<PAGE>

Chicago, Dallas, Denver, Irvine, New York City (two offices), San Jose,
Washington D.C., and London, England. System engineers who provide pre-sales
support to potential customers on product information and deployment
capabilities complement our direct sales professionals. We plan to
significantly expand the size of our direct sales organization and to establish
additional sales offices domestically and internationally.

   Our sales process requires that we work closely with targeted customers to
identify short-term technical needs and long-term goals. Our sales team, which
includes both sales and technical professionals, then works with the customer
to develop a proposal to address these needs. In many cases, we collaborate
with our customers' senior management team, including the chief executive
officer, chief information officer and chief financial officer, to develop
mission-critical applications. The level of customer analysis and financial
commitment required for many of our product implementations has caused our
sales cycle to range from two to nine months.

   We focus our marketing efforts on educating potential customers, generating
new sales opportunities, and creating awareness of our products and their
applications. We conduct a variety of marketing programs to educate our target
market, including seminars, trade shows, direct mail campaigns, press
relations, and industry analyst programs.

Strategic Partners

   To enhance the productivity of our sales and service organizations, we have
established relationships with system integrators, value-added resellers and
technology partners.

   System Integrators. We have established strategic relationships with a
number of leading system integrators including Andersen Consulting and EDS.
Many of our system integrators have deep relationships across a broad range of
enterprise customers and our relationships with these system integrators often
enable us to reach key decision makers within these enterprises more quickly,
thus reducing sales cycles. The significant financial and technical resources
of many of our system integrators help us secure large, mission-critical
engagements. Working with system integrators enables us to leverage our service
organization and shorten solution implementation time. In addition, by
leveraging our partners' domain expertise, we can more effectively and rapidly
build custom templates which codify business process solutions for vertical
markets.

   Value-Added Resellers. We also deliver BusinessWare through value-added
resellers or "VARs." VARs enable us to seed the market with specific pre-
packaged solutions built on the BusinessWare platform. Many of these VARs
specialize in providing solutions to particular industries such as
telecommunications and financial services. We intend to leverage our VARs'
industry expertise to deliver solutions that accelerate our penetration in key
markets.

   Technology Partners. Our technology partners include application software,
database and hardware providers. We work with these partners to ensure
compatibility of BusinessWare with their software and hardware. We have
relationships with leading companies including Clarify, Inc., Hewlett-Packard
Company, IBM, Informix Corp., Microsoft Corporation, Oracle Corp., Siebel
Systems, Inc., Sun Microsystems Inc., Sybase Inc. and The Vantive Corporation.

Service and Support

   The primary function of our professional services organization is to
facilitate the implementation of our products by system integrators. We advise
our customers and system integrators on BusinessWare project analysis,
implementation and performance training. Our professional services organization
works closely with our strategic partners to train their personnel in the
design and implementation of our products.

   Customer support is available by telephone and over the Internet seven days
a week, 24 hours a day. Our education services group delivers education and
product training to our customers and strategic partners,

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<PAGE>

concerning the design of business solutions using BusinessWare, as well as the
technical aspects of deployment, use and maintenance. Our professional service
and customer support organizations consisted of 26 employees as of June 1,
1999.

Research and Development

   As of June 1, 1999, our engineering group consisted of 56 employees,
divided into the following groups:

   Product Development. Our product development teams are organized around
   components of BusinessWare. Each component is developed independently in
   order to speed design and testing. Development of the customer interface
   is centralized, with the goal of creating a consistent and unified product
   look and feel.

   Advanced Research. Our advanced research group works independently from
   our product development teams to research and develop advanced
   architectures and technologies. This group also closely monitors
   developments in industry standards related to eBusiness, Internet
   technologies, operating systems, networks and software applications.

   Quality Assurance and Platform Support. This group designs and manages a
   process designed to identify and prevent software defects throughout the
   development cycle.

   Documentation. This group is responsible for creating and maintaining
   customer and system integrator documentation for our products.

   Research and development expenses, together with expenditures under NIST
grants, were $1.4 million in 1996, $2.1 million in 1997 and $5.6 million in
1998.

Government Grants

   We have received three governmental research grants that have funded, and
continue to fund, portions of our research and development. We were awarded
our first grant in January 1996 by the National Institute of Standards and
Technology, commonly referred to as NIST, under its advanced technology
program. This NIST program is a partnership between government and private
industry to encourage commercially promising, but highly challenging research.
We used this grant to fund research and development of model-driven
technologies for integrating IT systems. We received an additional grant from
NIST in October 1997 to conduct further research and development into these
technologies. Under the terms of these grants, we retain all intellectual
property rights to all research results except that the federal government has
a non-exclusive, non-transferable, paid-up license to any patents arising from
this research. In addition, the NIST grants require us to commercially license
the research results. We are fulfilling this obligation by incorporating our
results into our BusinessWare software products.

   Our third grant was awarded to us as a member of the Extended Enterprise
Coalition for Integrated Collaborative Manufacturing Systems, also known as
EECOMS. EECOMS is a consortium of vendors, customers and providers of enabling
technologies, whose goal is to develop new frameworks to improve supply chain
logistics, product delivery to customers, product inventories and the
competitive ability of U.S. manufacturers in the global marketplace. We were
awarded this grant in January 1998 and the grant is scheduled to conclude in
December 2000. Funds under this grant have been used to develop supply chain
scenarios for the extended enterprise. Research results from this grant are
jointly owned by EECOMS and the federal government is granted a non-exclusive
license to these research results and related intellectual property rights. We
have not used these funds for technology development.

                                      39
<PAGE>

Competition

   The market for our products is competitive, evolving and subject to rapid
technological change. The intensity of competition is expected to increase in
the future. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any one of which could
seriously harm our business. Our competitors include:

   EAI vendors. We face competition from vendors offering EAI software
products. These vendors include Active Software, Inc., CrossWorlds Software,
Inc., and New Era of Networks, Inc., also known as NEON. A number of other
companies are offering products that address specific aspects of EAI including
BEA Systems, Inc., Forte Software, Inc., Hewlett-Packard Company, IBM and Tibco
Software Inc. EAI products address the application integration needs of
customers. In the future, some of these companies may expand their products to
also provide the advanced process automation and real time analysis
functionality of our BusinessWare product suite.

   Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that substitute for
some or all of the functionality of our BusinessWare product suite. We expect
that internally developed application integration and process automation
efforts will continue to be a principal source of competition for the
foreseeable future. In particular, it can be difficult to sell our products to
a potential customer whose internal development group has already made large
investments in and progress towards completion of systems that our products are
intended to replace.

   Other software vendors. We may in the future also encounter competition from
major enterprise software developers such as Oracle Corporation, PeopleSoft,
Inc., and SAP AG. In addition, Microsoft Corporation has announced its
intention to introduce products which could compete with certain aspects of our
products.

   We believe that the principal competitive factors in our market include:

  . the breadth and depth of solutions;

  . product quality and performance;

  . ability of products to operate with multiple software applications;

  . ability to implement solutions;

  . customer service;

  . relationship with system integrators;

  . establishment of a significant base of reference customers;

  . strength of core technology; and

  . product price.

   Although we believe that our solutions compete favorably with respect to
these factors, our market is relatively new and is evolving rapidly. In the
past, we have lost potential customers to competitors for various reasons,
including lower prices for less complex implementations. We may not be able to
maintain our competitive position against current and potential competitors,
especially those with significantly greater resources.

Intellectual Property and Other Property Rights

   Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily
on a combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws to accomplish these goals.

                                       40
<PAGE>

   We license BusinessWare pursuant to non-exclusive license agreements which
impose restrictions on customers' ability to utilize the software. In addition,
we seek to avoid disclosure of our trade secrets, including but not limited to,
requiring employees, customers and others with access to our proprietary
information to execute confidentiality agreements with us and restricting
access to our source code. We also seek to protect our software, documentation
and other written materials under trade secret and copyright laws.

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

   Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our products or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the unauthorized use of our products is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.

   It is also possible that third parties will claim that we have infringed
their current or future products. We expect that eBusiness developers will
increasingly be subject to infringement claims as the number of products in
different industry segments overlap. Any claims, with or without merit, could
be time-consuming, result in costly litigation, prevent product shipment, cause
delays, or require us to enter into royalty or licensing agreements, any of
which could harm our business. Patent litigation in particular has complex
technical issues and inherent uncertainties. In the event an infringement claim
against us was successful and we could not obtain a license on acceptable terms
or license a substitute technology or redesign to avoid infringement, our
business would be harmed.

Employees

   As of June 1, 1999, we had a total of 157 employees, including 56 in
research and development, 55 in sales and marketing, 26 in customer support,
professional services and training, and 20 in administration and finance. None
of our employees is represented by a collective bargaining agreement, nor have
we experienced any work stoppage. We consider our relations with our employees
to be good.

   Our success greatly depends on the continued service of our key technical,
sales and senior management personnel. None of these persons are bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel could have a material
adverse effect on our future operating results. In particular Dr. JoMei Chang,
our President and Chief Executive Officer, and Dr. Dale Skeen, our Chief
Technology Officer, would be difficult to replace.

   In addition, our future success will depend in large part upon our ability
to attract, retain and motivate highly skilled employees. In particular, we are
actively seeking a vice president of engineering. We face significant
competition for individuals with the skills required to develop, market and
support our products and services. We cannot assure that we will be able to
recruit or retain sufficient numbers of these highly skilled employees.

Facilities

   Our principal sales, marketing, research and development and administrative
offices are currently located in approximately 18,000 square feet in Mountain
View, California, under a lease that expires on May 1, 2003. On April 6, 1999
we entered into a four-year lease relating to approximately 63,000 square feet
in Sunnyvale, California, which we intend to occupy by October 1999.

                                       41
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

   Our executive officers and directors and information about them as of June
22, 1999 are as follows:

<TABLE>
<CAPTION>
 Name                          Age Position
 ----                          --- --------
 <C>                           <C> <S>
 JoMei Chang, Ph.D. .......... 46  President, Chief Executive Officer and
                                   Director

 Dale Skeen, Ph.D. ........... 44  Chief Technology Officer and Director

 Jay W. Shiveley.............. 42  Senior Vice President, Worldwide Sales

 Aleksander Osadzinski........ 40  Vice President, Marketing

 Paul Auvil, III.............. 35  Vice President, Finance, Chief Financial
                                   Officer and Secretary

 Robert M. Halperin (1)(2).... 71  Director

 John L. Walecka (1).......... 39  Director

 William H. Younger, Jr. (2).. 49  Director
</TABLE>
---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

   JoMei Chang, Ph.D., founded Vitria in 1994 and has been our President, Chief
Executive Officer and a Director since Vitria's inception. Prior to founding
Vitria, Dr. Chang was Vice President General Manager, Trader Workstation and
General Manager, Emerging Technologies from 1986 to 1994 at Teknekron Software
Systems, now TIBCO, Inc., a software company. From 1984 to 1986 she served as a
senior engineer in the Network File System group at Sun Microsystems. Dr. Chang
holds a B.S. in Computer Science from National ChiaoTung University, Taiwan and
a Ph.D. in Electrical Engineering on Database Management Systems from Purdue
University.

   Dale Skeen, Ph.D., founded Vitria in 1994 and has been our Chief Technology
Officer and a Director since Vitria's inception. Prior to founding Vitria, Dr.
Skeen worked at TIBCO where he served as Chief Scientist from 1986 to 1994. Dr.
Skeen was a researcher at IBM, Almaden Research Center from 1984 to 1986. Dr.
Skeen was on the faculty at Cornell University from 1981 to 1984. Dr. Skeen
holds a B.S. in Computer Science from North Carolina State University and a
Ph.D. in Distributed Database Systems from the University of California,
Berkeley.

   Jay W. Shiveley, has been our Senior Vice President, Worldwide Sales since
1997. He was Senior Vice President of Operations of Forte Software, Inc., a
software company, from 1991 to 1997. From 1984 to 1991, he worked at Oracle
Corporation and was a principal at Lawson Associates, a financial software
company, from 1981 to 1984. Mr. Shiveley holds a B.S. in Finance and Accounting
from Mankato State University.

   Aleksander Osadzinski, has been our Vice President, Marketing since 1998.
From 1996 to 1998 he was Vice President of Sales and Marketing at Be, Inc., a
company specializing in computer operating systems. From 1994 to 1996,
Mr. Osadzinski held a number of management positions at Grass Valley Group, a
producer of digital video production equipment, most recently as General
Manager of the Telecommunications Unit. Mr. Osadzinski has also held a number
of management positions in both the United States and Europe at Sun
Microsystems, including Vice President, Markets and Product Strategy from 1986
to 1994.

   Paul Auvil, III, has been our Vice President, Finance and Chief Financial
Officer since 1998, and Secretary since 1999. From 1997 to 1998, he served as
Vice President and General Manager of the Internet Products Division of VLSI
Technology Inc., a semiconductor company, and as its General Manager, PC
Products Strategic Business Unit from 1996 to 1997. Mr. Auvil also held various
other positions at VLSI, including European Controller in 1992 and Director of
Financial Planning from 1993 to 1995. Mr. Auvil holds a Bachelor of Engineering
from Dartmouth College and an Master of Management from the Kellogg Graduate
School of Management.

                                       42
<PAGE>

   Robert M. Halperin, has been a Director since 1994. Mr. Halperin has been an
advisor to Greylock Management, a venture capital firm, since 1994. Mr.
Halperin was also Vice Chairman of the Board of Raychem Corporation, an
electronic instrument and controls company, from 1990 to 1994. Mr. Halperin is
also a director of Avid Technology Inc., a computer peripheral company,
theGlobe.com, an Internet information service provider, as well as several
privately-held companies. Mr. Halperin holds a Ph.B. in Liberal Arts from the
University of Chicago, a Bachelor of Mechanical Engineering from Cornell
University and an M.B.A. from Harvard Business School.

   John L. Walecka, has been a Director since 1997. He has been a general
partner of venture capital funds associated with Brentwood Associates since
1990. From 1984 to 1990, Mr. Walecka was an associate with Brentwood
Associates. He is also a director of Rhythms Net Connections, a provider of
high-speed Internet access, Xylan Corporation, a company specializing in
telephone and telegraph equipment, Documentum, Inc., a software firm, and
several privately-held companies. Mr. Walecka holds a B.S and M.S. in
Engineering and an M.B.A. from Stanford University.

   William H. Younger, Jr., has been a Director since 1997. Mr. Younger is the
managing director and a general partner of Sutter Hill Ventures, a venture
capital firm, where he has been employed since 1981. Mr. Younger currently
serves as a director of Forte Software, Inc., a software company, and
Information Advantage Inc., a software company specializing in Web-based
intelligence technologies and several privately-held companies. Mr. Younger
holds a B.S.E.E. degree from the University of Michigan and an M.B.A. from
Stanford University.

   There are no family relationships between any of our directors or executive
officers, except that JoMei Chang, Ph.D. our President, Chief Executive Officer
and a Director and Dale Skeen, Ph.D., our Chief Technology Officer and a
Director, are married.

Board Committees

  . Audit committee. Our audit committee currently consists of Messrs.
    Halperin and Walecka. The audit committee reviews our internal accounting
    procedures and consults with and reviews the services provided by our
    independent accountants.

  . Compensation committee. Our compensation committee currently consists of
    Messrs. Younger and Halperin. The compensation committee administers our
    stock option plans, reviews and approves the compensation and benefits of
    all our officers and establishes and reviews general policies relating to
    compensation and benefits of our employees.

Director Compensation

   Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings.

Compensation Committee Interlocks and Insider Participation

   None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Messrs. Younger and Halperin serve as members of the compensation committee.
Mr. Halperin is an investor in Vitria. Mr. Younger is affiliated with funds
that have invested in Vitria. See "Certain Transactions."

Board Composition

   Upon the closing of this offering, we will have authorized five directors.
In accordance with the terms of our certificate of incorporation, the terms of
office of the board of directors will be divided into three classes. As a
result, a portion of our board of directors will be elected each year. The
division of the three classes and their respective election dates are as
follows:

  . the class I directors' term will expire at the annual meeting of
    stockholders to be held in 2000;

                                       43
<PAGE>

  . the class II directors' term will expire at the annual meeting of
    stockholders to be held in 2001; and

  . the class III director's term will expire at the annual meeting of
    stockholders to be held in 2002.

   Our class I directors will be Dr. Skeen and Mr. Younger. Our class II
directors will be Messrs. Halperin and Walecka. Our class III director will be
Dr. Chang. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will
be elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management of Vitria.

Executive Compensation

   The following table sets forth summary information concerning the
compensation paid to our Chief Executive Officer and four most highly
compensated executive officers for services during the year ended December 31,
1998.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                         Annual Compensation
                                     ----------------------------
                                                       Number of
                                                       Securities
                                                       Underlying    Other
Name and Principal Position           Salary   Bonus    Options   Compensation
---------------------------          -------- -------- ---------- ------------
<S>                                  <C>      <C>      <C>        <C>
JoMei Chang, Ph.D.(1)............... $175,000 $ 75,000       --          --
 President and Chief Executive
  Officer

Dale Skeen, Ph.D.(2)................  150,000   60,000       --          --
 Chief Technology Officer

Jay W. Shiveley.....................  140,000  210,000  150,000          --
 Senior Vice President, Worldwide
  Sales

Aleksander Osadzinski(3)............   39,965       --  300,000          --
 Vice President, Marketing

Paul Auvil, III(4)..................  126,215   29,479  250,000      $4,302
 Vice President, Finance, Chief
  Financial
 Officer and Secretary
</TABLE>
---------------------
(1) Dr. Chang's salary figure includes $9,798 in non-qualified deferred
    compensation.
(2) Dr. Skeen's salary figure includes $8,592 in non-qualified deferred
    compensation.
(3) Mr. Osadzinski joined our company in October 1998. His current annual
    salary is $185,000.
(4) Mr. Auvil joined our company in April 1998. His current salary is $160,000.
    Mr. Auvil's other annual compensation consists of reimbursement of
    relocation expenses.

                       Option Grants in Fiscal Year 1998

   The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1998, to each of the individuals listed on the previous
table.

   The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at
fair market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares.


                                       44
<PAGE>

   The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by

  . multiplying the number of shares of common stock subject to a given
    option by the assumed initial public offering price of $    per share;

  . assuming that the aggregate stock value derived from that calculation
    compounds at the annual 5% or 10% rate shown in the table until the
    expiration of the options; and

  . subtracting from that result the aggregate option exercise price.

   The initial public offering price may be higher than the estimated fair
market value on the date of grant, and the potential realizable value of the
option grants could be significantly higher than the numbers shown in the table
if future stock prices were projected to the end of the option term by applying
the same annual rates of stock price appreciation to the initial public
offering price.

   The shares listed in the following table under "Number of Securities
Underlying Options Granted" are subject to vesting. Upon completion of 12
months of service from the vesting start date, 20% of the option shares vest
and the balance vest in a series of equal monthly installments over the next
four years of service. Each of the options has a ten-year term, subject to
earlier termination if the optionee's service with us ceases. See "Employee
Stock Plans" for a description of the material terms of these options.

   Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal Year" are based on an aggregate of 3,257,740 options granted to
employees of Vitria under our stock option plans during the fiscal year ended
December 31, 1998.

<TABLE>
<CAPTION>
                                                                       Potential Realizable Value
                                                                            at Assumed Annual
                         Number of   Percent of                           Rates of Stock Price
                         Securities Total Options                           Appreciation for
                         Underlying  Granted to   Exercise                     Option Term
                          Options   Employees in  Price Per Expiration ---------------------------
Name                      Granted    Fiscal Year    Share      Date         5%            10%
----                     ---------- ------------- --------- ---------- ------------- -------------
<S>                      <C>        <C>           <C>       <C>        <C>           <C>
JoMei Chang, Ph.D. .....     --          --          --         --          --            --
Dale Skeen, Ph.D. ......     --          --          --         --          --            --
Jay W. Shiveley.........  150,000       4.60%       $0.25    10/15/08
Aleksander Osadzinski...  300,000       9.21%       $0.25    10/15/08
Paul Auvil, III.........  250,000       7.67%       $0.25     5/18/08
</TABLE>

                                       45
<PAGE>

                         Fiscal Year-End Option Values

   The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1998.

   Amounts shown under the column "Value Realized" are based on the difference
between the fair market value of the common stock at December 31, 1998 as
determined by the board of directors and the exercise price of the options.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1998" are based on the assumed initial public offering price of
$          , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the exercise price payable for these shares. Vitria's stock
option plans allow for the early exercise of options granted to employees. All
options exercised early are subject to repurchase by Vitria at the original
exercise price, upon the optionee's cessation of service prior to the vesting
of the shares.

<TABLE>
<CAPTION>
                                                    Number of Securities
                                                   Underlying Unexercised     Value of Unexercised
                                                         Options at          In-the-Money Options at
                                                      December 31, 1998         December 31, 1998
                         Shares Acquired  Value   ------------------------- -------------------------
Name                       on Exercise   Realized Exercisable/Unexercisable Exercisable/Unexercisable
----                     --------------- -------- ------------------------- -------------------------
<S>                      <C>             <C>      <C>                       <C>
JoMei Chang, Ph.D. .....       --           --               --                        --
Dale Skeen, Ph.D. ......       --           --               --                        --
Jay W. Shiveley.........     200,000(1)  $90,000          550,000/0
Aleksander Osadzinski...     112,500(2)   50,625                0/0
Paul Auvil, III.........     250,000(3)   90,000          187,500/0
</TABLE>
---------------------
(1) Includes 50,000 shares subject to repurchase as of December 31, 1998.
(2) Includes 112,500 shares subject to repurchase as of December 31, 1998.
(3) Includes 250,000 shares subject to repurchase as of December 31, 1998.

                                       46
<PAGE>

Employee Stock Plans

 1999 Equity Incentive Plan.

   We adopted the 1999 Equity Incentive Plan in June 1999. The incentive plan
is an amendment and restatement of our 1995 Equity Incentive Plan.

   Share Reserve. We have currently reserved 10,000,000 shares for issuance
under the incentive plan, less shares issued or issuable under Vitria's 1998
Executive Incentive Plan. On December 31 of each year for 10 years, starting
with the year 1999, the number of shares in this reserve shared by the
incentive plan and the executive plan will automatically increase by 6.5% of
the outstanding common stock on a fully-diluted basis. However, no more than
8,000,000 shares may be used for incentive stock options under both the
executive plan and the incentive plan. If stock awards granted under the
incentive plan expire or otherwise terminate without being exercised, the
shares not acquired pursuant to the stock awards again become available for
issuance under the incentive plan.

   Administration. The board administers the incentive plan unless it has
delegated administration to a committee. The board has the authority to
construe, interpret and amend the incentive plan as well as to determine:

  . the grant recipients;

  . the grant dates;

  . the number of shares subject to the award;

  . the exercisability of the award;

  . the exercise price;

  . the type of consideration; and

  . the other terms of the award.

   Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code of 1986, as amended, to employees,
including officers, of Vitria or an affiliate of Vitria. The board may grant
nonstatutory stock options, stock bonuses, restricted stock purchase awards and
stock appreciation rights to employees, including officers, or directors of and
consultants to Vitria or an affiliate of Vitria. A restricted stock purchase
award is an offer to purchase our shares at a price either at or near the fair
market value of the shares. A stock bonus, on the other hand, is a grant of our
shares at no cost to the recipient in consideration for past services rendered.
Vitria may reacquire the shares under either type of award at the original
purchase price (which is zero in the case of a stock bonus) if the recipient's
service to Vitria or an affiliate is terminated before the shares vest. A stock
appreciation right is a right that allows a recipient to elect to receive cash
or stock of a value equal to the appreciation of optioned rights.

   The board may not grant an incentive stock option to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of Vitria or any affiliate of Vitria, unless
the exercise price is at least 110% of the fair market value of the stock on
the grant date and the option term is five years or less. In addition, the
aggregate fair market value, determined at the grant date, of incentive stock
option shares that are exercisable for the first time during a calendar year
(under the incentive plan and all other stock plans of Vitria and its
affiliates) may not exceed $100,000.

   Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations to certain compensation paid to
specific employees in a taxable year to the extent that the compensation
exceeds $1,000,000. When we become subject to Section 162(m), the board may not
grant options and stock appreciation rights under the incentive plan to an
employee covering an aggregate of more than 1,200,000 shares in any calendar
year.

                                       47
<PAGE>

   Options and Stock Appreciation Rights. The board may grant incentive stock
options and stock appreciation rights with an exercise price of 100% or more of
the fair market value of a share of our common stock on the grant date. It may
grant nonstatutory stock options with an exercise price as low as 85% of the
fair market value of a share on the grant date.

   Option Terms. The maximum option term is 10 years. The board may provide for
exercise periods of any length in individual option grants, subject to certain
limitations. However, generally an option terminates three months after the
optionholder's service terminates. If the termination is due to the
optionholder's disability, the exercise period generally is extended to 12
months. If the termination is due to the optionholder's death or if the
optionholder dies within three months after his or her service terminates, the
exercise period generally is extended to 18 months following death.

   Other Provisions. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may
be transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.

   The board determines the purchase price of other stock awards, but the
purchase price may not be less than 85% of the fair market value of Vitria's
common stock on the grant date. However, the board may award stock bonuses in
consideration of past services without a purchase payment. Shares sold or
awarded under the incentive plan may, but need not be, restricted and subject
to a repurchase option in favor of Vitria in accordance with a vesting schedule
that the board determines. The board, however, may accelerate the vesting of
the restricted stock.

   Transactions not involving receipt of consideration by Vitria, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive plan, to the incentive stock option limitation and to the Section
162(m) limitation. It also will adjust outstanding awards as to the class,
number of shares and price per share subject to the awards.

   Upon a change in control of Vitria the surviving entity will either assume
or substitute outstanding awards under the incentive plan. Otherwise, the
vesting and exercisability of awards generally will accelerate.

   Options Issued. As of June 1, 1999, Vitria has issued 2,698,032 shares upon
the exercise of options under the incentive plan, 598,000 shares of which have
been repurchased and 1,326,192 shares of which are subject to repurchase;
options to purchase 2,043,900 shares were outstanding; and 4,488,792 shares,
less shares issued or issuable pursuant to the exercise or award of stock
awards under Vitria's 1998 Executive Incentive Plan, remained available for
future grant. As of June 1, 1999, the board has granted 1,005,000 restricted
stock awards under the incentive plan, 30,000 shares of which have been
repurchased. The incentive plan will terminate in 2009 unless the board
terminates it sooner.

1998 Executive Incentive Plan

   We adopted the 1998 Executive Incentive Plan in October 1998 and amended it
in December 1998. We again amended the executive plan in June 1999.

   Share Reserve. We have currently reserved 10,000,000 shares for issuance
under the executive plan less shares issued or issuable under Vitria's 1999
Equity Incentive Plan. On December 31 of each year for 10 years, starting with
the year 1999, the number of shares in this reserve shared by the incentive
plan and the executive plan will automatically increase by 6.5% of the
outstanding common stock on a fully-diluted basis. However, no more than
8,000,000 shares may be used for incentive stock options under both the
executive plan and the incentive plan. If options granted under the executive
plan expire or otherwise terminate without being exercised, the shares not
acquired pursuant to the options again become available for issuance under the
executive plan.

                                       48
<PAGE>

   Administration. The board administers the executive plan unless it has
delegated administration to a committee. The board has the authority to
construe, interpret and amend the executive plan as well as to determine:

  . the grant recipients;

  . the grant dates;

  . the number of shares subject to the option;

  . the exercisability of the option;

  . the exercise price;

  . the type of consideration; and

  . the other terms of the option.

   Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to employees, including officers, of
Vitria or an affiliate of Vitria. The board may grant nonstatutory stock
options to employees, including officers, or directors of and consultants to
Vitria or an affiliate of Vitria.

   The board may not grant an incentive stock option to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of Vitria or an affiliate of Vitria, unless the
exercise price is at least 110% of the fair market value of the stock on the
grant date and the option term is five years or less. In addition, the
aggregate fair market value, determined at the grant date, of incentive stock
option shares that are exercisable for the first time during a calendar year
(under the executive plan and all other stock plans of Vitria and its
affiliates) may not exceed $100,000.

   Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations to compensation paid to specific
employees in a taxable year to the extent that the compensation exceeds
$1,000,000. When we become subject to Section 162(m), the board may not grant
options under the executive plan to an employee covering an aggregate of more
than 1,200,000 shares in any calendar year.

   Options Rights. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date. It may grant nonstatutory stock options with any exercise
price it determines.

   Option Terms. The maximum incentive stock option term is 10 years. The board
may provide for exercise periods of any length in individual option grants.
However, generally an option terminates three months after the optionholder's
service terminates. If the termination is due to the optionholder's disability,
the exercise period generally is extended to 12 months. If the termination is
due to the optionholder's death or if the optionholder dies within three months
after his or her service terminates, the exercise period generally is extended
to 18 months following death.

   Other Provisions. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock option rights
may be transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.

   Transactions not involving receipt of consideration by Vitria, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the executive plan and to
outstanding options. In that event, the board will appropriately adjust the
executive plan as to the class and the maximum number of shares subject to the
executive plan and to the Section 162(m) limitation. It also will adjust
outstanding options as to the class, number of shares and price per share
subject to the options.


                                       49
<PAGE>

   Upon a change in control of Vitria the surviving entity will either assume
or substitute all outstanding options under the executive plan. Otherwise, the
vesting and exercisability of the options generally will accelerate.

   Options Issued. As of June 1, 1999, Vitria has issued 62,500 shares upon the
exercise of options under the executive plan, 25,000 of which have been
repurchased and 31,666 of which are subject to repurchase; options to purchase
260,000 shares were outstanding; and 4,488,792 shares less shares issued or
issuable pursuant to the exercise or award of stock awards under Vitria's 1999
Equity Incentive Plan, remained available for future grant. The executive plan
will terminate in 2008 unless the board terminates it sooner.

1999 Employee Stock Purchase Plan

   We adopted the 1999 Employee Stock Purchase Plan in June 1999.

   Share Reserve. We authorized the issuance of 1,500,000 shares of our common
stock pursuant to purchase rights granted to employees of Vitria and to
employees of designated affiliates of Vitria. On August 14 of each year for
10 years, beginning in 2000, the number of shares in the reserve automatically
will be increased by the greater of:

  . 2% of our outstanding shares on a fully-diluted basis, or

  . that number of shares so that the share reserve is 1,500,000 shares.

The automatic share reserve increase in the aggregate may not exceed 16,500,000
shares over the 10-year period.

   Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offerings
of purchase rights to eligible employees. Generally, all employees of Vitria
and any United States affiliate may participate in the purchase plan, excluding
part-time and seasonal employees. However, no employee may participate in the
purchase plan if immediately after we grant the employee a purchase right, the
employee has voting power over 5% or more of our outstanding capital stock. As
of the date of this prospectus, no shares of common stock have been purchased
under the purchase plan.

   Administration. Under the purchase plan, the board may specify offerings of
up to 27 months. The first offering will begin on the effective date of this
initial public offering. Unless the board otherwise determines, our common
stock is purchased for accounts of participating employees at a price per share
equal to the lower of:

  . 85% of the fair market value of a share on the first day of the offering,
    or

  . 85% of the fair market value of a share on the purchase date.

   The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:

  . 85% of the fair market value of a share on the day they began
    participating in the purchase plan, or

  . 85% of the fair market value of a share on the purchase date.

   Under the current offering, employees may authorize payroll deductions of up
to 10% of their base compensation, not including sales commissions or bonuses,
for the purchase of stock under the purchase plan and may end their
participation in the offering at any time up to 10 days before a purchase date.
Participation ends automatically on termination of employment with Vitria or
its affiliate.

   Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase

                                       50
<PAGE>

plans established by Vitria or its affiliate, if any, do not permit the
employee's rights to purchase our stock to accrue at a rate that exceeds
$25,000 of the fair market value of our stock for each calendar year in which
the purchase rights are outstanding. The board also may limit the number of
shares that an employee may purchase on any purchase date.

   Upon a change of control of Vitria the board may provide that the successor
corporation will assume or substitute outstanding purchase rights.
Alternatively, the board may shorten the offering and provide that shares will
be purchased for participants immediately before the change in control.

 401(k) Plan

   The Company maintains a 401(k) Plan for eligible employees. An employee
participant may contribute up to 20% of his or her total annual compensation to
the 401(k) Plan, up to a legal annual limit. The annual limit for calendar year
1999 is $10,000. Each participant is fully vested in his or her deferred salary
contributions. Participant contributions are held and invested by the 401(k)
Plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have made
no contributions to the 401(k) Plan on behalf of the participants. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code, so
that contributions by employees or by Vitria to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by Vitria, if any,
will be deductible when made.

 1998 Nonqualified Deferred Compensation Plan

   In December 1998, we established a nonqualified, unfunded deferred
compensation plan for executive officers providing for payments upon
retirement, death or disability. Under the plan, these employees receive
payments equal to the employee's entire accrued benefit, the sum of all
deferred amounts and any discretionary corporate contributions credited to the
plan and due and owing to the employee, together with earning adjustments,
minus any distributions. These employees may elect to defer up to 70% of their
salary compensation and 100% of their bonus compensation. As of June 1, 1999,
we have not made any contributions to the plan. Amounts, if any, deferred by
executive officers during 1998 are included in the Summary Compensation Table
above.

Limitation of Liability and Indemnification

   Our amended and restated certificate of incorporation and bylaws contain
provisions permitted under Delaware law relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in circumstances involving
wrongful acts, such as:

  . for any breach of the director's duty of loyalty to Vitria or our
    stockholders;

  . for acts or omissions not in good faith or which involve intentional
    misconduct or a knowing violation of law;

  . for any acts under Section 174 of the Delaware General Corporation Law;
    or

  . for any transaction from which the director derives an improper personal
    benefit.

   These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws. In addition, we intend to
enter into separate indemnification agreements with our directors and executive
officers that provide each of them indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. We believe that these provisions and
agreements will assist us in attracting and retaining qualified individuals to
serve as directors and officers.

                                       51
<PAGE>

                              CERTAIN TRANSACTIONS

   The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
date set forth below.

<TABLE>
<CAPTION>
                                                        Shares of Preferred Stock
                                         ----------------------------------------------------------
                           Common Stock    Series A    Series A1   Series B    Series C    Series D
                          -------------- ------------- ---------   --------- ------------- --------
<S>                       <C>            <C>           <C>         <C>       <C>           <C>
Directors and Executive
 Officers
JoMei Chang, Ph.D.......       4,276,878       421,875       --           --            --      --
Dale Skeen, Ph.D........       5,458,125       421,875       --           --            --      --
Robert M. Halperin (1)..         687,498       675,832  271,475           --            --      --
William H. Younger,
 Jr.....................              --            --       --           --        11,885  21,146
Entities Affiliated with
 Directors
Brentwood Associates
 (2)....................              --            --       --    2,481,327       248,756 444,444
Sutter Hill Ventures
 (3)....................              --            --       --    2,481,327       248,756 444,444
Other 5% Stockholders
Weston Presidio Capital
 II, L.P................              --            --       --           --     1,430,349 105,880
The Chang Family Trust,
 Michael W. Taylor,
 Trustee (4)............       1,691,247            --  678,688           --            --      --
Price Per Share.........    $0.004-$0.25         $0.36    $0.61        $1.81         $4.02   $4.50
Date(s) of Purchase.....  12/94 to 09/98 1/95 and 8/96     5/96(5)     10/97 10/98 to 1/99    5/99
</TABLE>
--------
(1) Includes shares held by Mr. Halperin's children and trusts for his
    grandchildren.
(2) John L. Walecka, one of our directors, is a general partner of venture
    funds associated with Brentwood Associates.
(3) William H. Younger, Jr., one of our directors, is a general partner of
    Sutter Hill Ventures.
(4) The Chang Family Trust is a trust for the benefit of family members of
    JoMei Chang, Ph.D.
(5) Notes convertible into Series A1 preferred stock were issued in May 1996.
    The conversion of these notes occurred in December 1997.

   Investor Rights Agreement. Vitria and the preferred stockholders described
above have entered into an agreement, pursuant to which these and other
preferred stockholders will have registration rights with respect to their
shares of common stock following this offering. Upon the completion of this
offering, all shares of our outstanding preferred stock will be automatically
converted into an equal number of shares of common stock.

   We intend to enter into indemnification agreements with our directors and
officers for the indemnification of and advancement of expenses to these
persons to the full extent permitted by law. We also intend to execute such
agreements with our future directors and officers.

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

                                       52
<PAGE>

                             PRINCIPAL STOCKHOLDERS

   The following table sets forth certain information regarding the beneficial
ownership of our common stock as of June 1, 1999, and as adjusted to reflect
the sale of our common stock offered by this prospectus, by:

  . each of the individuals listed on the "Summary Compensation Table" above;

  . each of our directors;

  . each person (or group of affiliated persons) who is known by us to own
    beneficially 5% or more of our common stock; and

  . all current directors and executive officers as a group.

   Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of June 1, 1999 are deemed
outstanding. These shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of each other person.

   Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares shown as
beneficially owned by them. Percentage of ownership is based on 26,836,895
shares of common stock outstanding on June 1, 1999 and            shares of
common stock outstanding after completion of this offering. This table assumes
no exercise of the underwriters' over-allotment option. Unless otherwise
indicated, the address of each of the individuals named below is: c/o Vitria
Technology, Inc., 500 Ellis Street, Mountain View, California 94043.

<TABLE>
<CAPTION>
                              Beneficial Ownership Prior to
                                         Offering
                             --------------------------------
                                                                   Percent
                                            Shares Issuable     Beneficially
                              Number of       pursuant to           Owned
                                Shares    Options Exercisable -----------------
                             Beneficially  within 60 days of   Before   After
Name of Beneficial Owner        Owned        June 1, 1999     Offering Offering
------------------------     ------------ ------------------- -------- --------
<S>                          <C>          <C>                 <C>      <C>
Directors and Executive
 Officers
JoMei Chang, Ph.D.(1)......    4,612,253             --        17.19%
The Chang Family Trust,
 Michael W. Taylor,
 Trustee(2)................    2,369,935             --        8.83
Dale Skeen, Ph.D.(3).......    5,794,500             --        21.59
William H. Younger,
 Jr.(4)....................    3,174,527             --        11.83
John L. Walecka(5).........    3,174,527             --        11.83
Robert M. Halperin(6)......    1,451,213             --         5.41
Jay W. Shiveley(7).........      400,000        350,000         2.76
Paul Auvil, III(8).........      254,975             --          1.0
Aleksander Osadzinski(9)...      112,500        187,500          1.1
Other 5% Stockholders
Entities affiliated with
 Brentwood Associates(10)..    3,174,527             --        11.83
 3000 Sand Hill Road
 Building 1, Suite 260
 Menlo Park, CA 94025
Entities affiliated with
 Sutter Hill Ventures(11)..    3,174,527             --        11.83
 755 Page Mill Road
 Suite A200
 Palo Alto, CA 94304
Weston Presidio Capital II,
 L.P.......................    1,536,229             --         5.72
 343 Sansome Street
 Suite 1210
 San Francisco, CA 94104
All directors and executive
 officers as a group
 (8 persons)(12)...........   18,974,495        537,500        71.28
</TABLE>

                                       53
<PAGE>

---------------------
(1) Includes 54,199 shares subject to repurchase by Vitria which shall expire
    on July 1, 1999.
(2) The Chang Family Trust is a trust for the benefit of family members of
    JoMei Chang, Ph.D. Dr. Chang does not have voting or dispositive power over
    and disclaims beneficial ownership of the shares held by the trust.
(3) Includes 54,199 shares subject to repurchase by Vitria which shall expire
    on July 1, 1999.
(4) Includes 2,380,896 shares held by Sutter Hill Ventures, a California
    Limited Partnership, 760,600 shares held by parties affiliated with Sutter
    Hill Ventures and 33,031 shares held by William H. Younger, Jr. Trustee,
    The Younger Living Trust. Mr. Younger is a general partner of Sutter Hill
    Ventures and disclaims beneficial ownership of the shares held by these
    entities except to the extent of his proportionate partnership interest
    therein.
(5) Includes 3,047,546 shares held by Brentwood Associates VIII, L.P. and
    126,981 shares held by Brentwood Affiliates Fund, L.P. Mr. Walecka is a
    general partner of Brentwood Associates and disclaims beneficial ownership
    of the shares held by these entities except to the extent of his
    proportionate partnership interest therein.
(6) Includes 550,780 shares held by Mr. Halperin's children for which he has
    power of attorney but as to which he does not have dispositive power over
    and disclaims beneficial ownership of the shares held by his children.
    Excludes 183,592 shares of common stock held in trust for Mr. Halperin's
    grandchildren. Mr. Halperin does not have voting or dispositive power and
    disclaims beneficial ownership of the shares held by his grandchildren's
    trusts.
(7) Includes 170,000 shares subject to repurchase by Vitria within 60 days of
    June 1, 1999.
(8) Includes 187,500 shares subject to repurchase by Vitria within 60 days of
    June 1, 1999.
(9) Includes 112,500 shares subject to repurchase by Vitria within 60 days of
    June 1, 1999.
(10) Includes 3,047,546 shares held by Brentwood Associates VIII, L.P and
     126,981 shares held by Brentwood Affiliates Fund, L.P.
(11) Includes 2,380,896 shares held by and Sutter Hill Ventures, a California
     Limited Partnership and 793,631 shares held by parties affiliated with
     Sutter Hill Ventures. Sutter Hill Ventures disclaims voting power and
     beneficial ownership to the shares held by its affiliated parties.
(12) Includes 130,078 shares subject to repurchase by Vitria which will expire
     on July 1, 1999, 470,000 shares subject to repurchase by Vitria within 60
     days of June 1, 1999. See footnotes (1) and (3) through (9).

                                       54
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

   Upon the closing of this offering, our authorized capital stock will consist
of 250 million shares of common stock, $0.001 par value, and five million
shares of preferred stock, $0.001 par value.

Common Stock

   As of June 1, 1999, there were 26,836,895 shares of common stock outstanding
that were held of record by approximately 145 stockholders after giving effect
to the conversion of our preferred stock into common stock at a one-to-one
ratio. There will be       shares of common stock outstanding (assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options) after giving effect to the sale of the shares of common
stock offered by this prospectus.

   The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that
may be applicable to any preferred stock outstanding at the time, the holders
of outstanding shares of common stock are entitled to receive ratably any
dividends out of assets legally available therefor as our board of directors
may from time to time determine. Upon liquidation, dissolution or winding up of
Vitria, holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.

Preferred Stock

   Pursuant to our amended and restated certificate of incorporation, our board
of directors will have the authority, without further action by the
stockholders, to issue up to five million shares of preferred stock in one or
more series. The board will be able to fix the rights, preferences, privileges
and restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of this series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock, and the likelihood that holders of
preferred stock will receive dividend payments and payments upon liquidation
may have the effect of delaying, deferring or preventing a change in control of
Vitria, which could depress the market price of our common stock. We have no
present plan to issue any shares of preferred stock.

Registration Rights of Stockholders

   Upon completion of this offering, 11,460,839 shares of common stock or their
transferees will be entitled to rights to register these shares under the
Securities Act of 1933. If we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
securityholders, the holders of these shares will be entitled to notice of the
registration and will be entitled to include, at our expense, their shares of
common stock. In addition, the holders of these shares may require us, at our
expense and on not more than two occasions at any time beginning approximately
six months from the date of the closing of this offering, to file a
registration statement under the Securities Act with respect to their shares of
common stock, and we will be required to use our best efforts to effect the
registration. Further, the holders may require us at our expense to register
their shares on Form S-3 when this form becomes available. These rights shall
terminate on the earlier of four years after the effective date of this
offering, or when a holder is able to sell all its shares pursuant to Rule 144
under the Securities Act in any 90-day period.

Anti-Takeover Provisions of Delaware Law and Certain Charter Provisions

   We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any

                                       55
<PAGE>

interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder unless:

  . prior to the date, the board of directors of the corporation approved
    either the business combination or the transaction that resulted in the
    stockholder becoming an interested stockholder;

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

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

Section 203 defines "business combination" to include:

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

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

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

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

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

   Our bylaws provide that candidates for director may be nominated only by the
board of directors or by a stockholder who gives written notice to us no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The board may consist of one or more
members to be determined from time to time by the board. The board currently
consists of five members divided into three different classes. As a result,
only one class of directors will be elected at each annual meeting of
stockholders of Vitria, with the other classes continuing for the remainder of
their respective terms. Between stockholder meetings, the board may appoint new
directors to fill vacancies or newly created directorships.

   Our amended and restated certificate of incorporation requires that upon
completion of the offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Our certificate
of incorporation also provides that the authorized number of directors may be
changed only by resolution of the board of directors. Delaware law and these
charter provisions may have the effect of deterring hostile takeovers or
delaying changes in control or our management, which could depress the market
price of our common stock.

Section 2115

   We are currently subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights,

                                       56
<PAGE>

election and removal of directors and distributions to shareholders will apply
to that company if the company meets the requirements of Section 2115. We will
not be subject to Section 2115 if:

  . we are qualified for trading as a national market security on The Nasdaq
    National Market, and we have at least 800 stockholders of record as of
    the record date of our most recent annual meeting, or

  . during any income year less than 50% of our outstanding voting securities
    are held of record by persons having addresses in California.

   The following table sets forth some of the effects on our corporate
governance of California Corporations Code Section 2115:

<TABLE>
<CAPTION>
                                 Section 2115                     Non-Section 2115
                                 ------------                     ----------------
<S>                   <C>                                <C>
Election of           Cumulative voting is allowed,      No cumulative voting is allowed;
 Directors            which allows each shareholder to   accordingly a holder of 50% or
                      vote the number of votes equal to  more of voting stock controls
                      the number of candidates           election of all directors.
                      multiplied by the number of votes
                      to which the shareholders' shares
                      are normally entitled in favor of
                      one candidate. This potentially
                      allows minority stockholders to
                      elect some members of the board.

Removal of Directors  Removal with or without cause by   If the board is classified,
                      the affirmative vote of the        removal is only allowed for cause
                      holders of a majority of           upon the affirmative vote of a
                      outstanding voting stock is        majority of the outstanding
                      allowed.                           voting stock entitled to vote in
                                                         the election of directors.

Supermajority Vote
 Requirement          In order to institute a            Simple majority may adopt
                      supermajority provision, the       amendment providing for
                      amendment must be approved by at   supermajority.
                      least as large a proportion as
                      would be required under the
                      amendment.

Dividend              Dividends are only payable out of  Dividends are payable out of
 Distribution         the surplus of retained earnings   either the surplus of retained
                      and if, immediately after the      earnings or out of its net
                      distribution, a company's assets   profits for the year the
                      are at least equal to its          distribution takes place, or the
                      liabilities.                       preceding year.

Dissenters' Rights    Generally available in any type    Generally only available in a
                      of reorganization, including a     merger. No rights so long as our
                      merger, sale of assets or          common stock is quoted on The
                      sale/exchange of shares. If the    Nasdaq National Market or traded
                      shares are listed on an exchange,  on an exchange.
                      5% of the shareholders must
                      assert their right for any
                      shareholder to have these rights.
</TABLE>

   In addition to these differences, Section 2115 also provides for information
rights and required filings in the event a company effects a sale of assets or
completes a merger.

Transfer Agent

   The transfer agent and registrar for our common stock is BankBoston, N.A.
Its phone number is (781) 575-3120.

                                       57
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

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

   Upon completion of this offering, we will have outstanding an aggregate of
           shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 27,020,295 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.

   As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:

  . no shares will be eligible for immediate sale on the date the
    registration statement of which this prospectus is a part is declared
    effective;

  . no shares will be eligible for sale prior to 180 days from the date the
    registration statement of which this prospectus is a part is declared
    effective;

  . 24,876,440 shares will be eligible for sale upon the expiration of the
    lock-up agreements, described below, 180 days after the date this
    offering is declared effective; and

  . 324,076 shares will be eligible for sale upon the exercise of vested
    options 180 days after the date this offering is declared effective.

   Lock-Up Agreements. All of our officers, directors, stockholders and option
holders have agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock, for a period of 180 days after the
date the registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner with the prior written
consent of Credit Suisse First Boston Corporation.

   Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated,
who his beneficially owned restricted securities for at least one year,
including the holding period of any prior owner except an affiliate, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:

  . 1% of the number of shares of our common stock then outstanding which
    will equal approximately              shares immediately after this
    offering; or

  . the average weekly trading volume of our common stock on the Nasdaq
    National Market during the four calendar weeks preceding the filing of a
    notice on Form 144 with respect to the sale.

   Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Vitria.

   Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at

                                       58
<PAGE>

least two years, including the holding period of any prior owner except an
affiliate, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
No shares will qualify as "144(k) shares" within 180 days after the date the
registration statement, of which this prospectus is a part, is declared
effective.

   Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory
stock purchase plan or option plan or other written agreement will be eligible
to resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.

   Registration Rights. Upon completion of this offering, the holders of
11,460,839 shares of our common stock, or their transferees, will be entitled
to rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness
of such registration.

   Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our 1999 Equity Incentive Plan and 1998
Executive Incentive Plan and the 1999 Employee Stock Purchase Plan. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statements will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, beginning
180 days after the effective date of the registration statement of which this
prospectus is a part.

                                       59
<PAGE>

                                  UNDERWRITING

   Under the terms and subject to the conditions contained in the underwriting
agreement dated     , we have agreed to sell to the underwriters named below,
for whom Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, BancBoston Robertson Stephens Inc. and SoundView
Technology Group, Inc. are acting as representatives, the following respective
number of shares of common stock:

<TABLE>
<CAPTION>
                                                                         Number
                                                                           of
   Underwriter                                                           Shares
   -----------                                                           -------
   <S>                                                                   <C>
   Credit Suisse First Boston Corporation...............................
   Merrill Lynch, Pierce, Fenner & Smith
             Incorporated...............................................
   BancBoston Robertson Stephens Inc. ..................................
   SoundView Technology Group, Inc. ....................................
                                                                         -------
     Total..............................................................
                                                                         =======
</TABLE>

   The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

   We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to           additional shares from us at the initial public
offering price less the underwriting discounts and commissions. This option may
be exercised only to cover any over-allotments of common stock.

   The underwriters propose to offer the shares of common stock to the public
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $          per
share. The underwriters and selling group members may allow a discount of
$        per share on sales to other broker/dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the representatives.

   The following table summarizes the compensation and estimated expenses we
will pay.

<TABLE>
<CAPTION>
                                             Per Share             Total
                                        ------------------- -------------------
                                         Without    With     Without    With
                                          Over-     Over-     Over-     Over-
                                        allotment allotment allotment allotment
                                        --------- --------- --------- ---------
   <S>                                  <C>       <C>       <C>       <C>
   Underwriting discounts and
    commissions
    paid by us......................... $         $         $         $
   Expenses payable by us.............. $         $         $         $
</TABLE>

   The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

   We, our directors, officers and our stockholders have agreed that we and
they will not offer, sell, contract to sell, announce our intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act of 1933 relating to, any additional shares of our common stock
or securities convertible into or exchangeable or exercisable for any of our
common stock without the prior consent of Credit Suisse First Boston
Corporation for a period of 180 days

                                       60
<PAGE>

after the date of this prospectus, except in connection with our stock option
and employee stock purchase plans.

   The underwriters have reserved for sale, at the initial public offering
price, up to        shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent these
persons purchase these reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.

   We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933 or to contribute to payments which the underwriters may
be required to make in that respect.

   We have applied to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VITR."

   ML IBK Positions, Inc., an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, one of the representatives of the underwriters, holds
shares of preferred stock of Vitria that will convert into 746,269 shares of
common stock upon the closing of the offering.

   Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include: the information set forth in
this prospectus and otherwise available to the underwriters; the history and
the prospects for the industry in which we will compete; the ability of our
management; the prospects for our future earnings; the present state of our
development and our current financial condition; the general condition of the
securities markets at the time of this offering; and the recent market prices
of, and the demand for, publicly traded common stock of generally comparable
companies.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.

  . Over-allotment involves syndicate sales in excess of the offering size,
    which creates a syndicate short position.

  . Stabilizing transactions permit bids to purchase the underlying security
    so long as the stabilizing bids do not exceed a specified maximum.

  . Syndicate covering transactions involve purchases of the common stock in
    the open market after the distribution has been completed in order to
    cover syndicate short positions.

  . Penalty bids permit the representatives to reclaim a selling concession
    from a syndicate member when the common stock originally sold by the
    syndicate member are purchased in a syndicate covering transaction to
    cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.

                                       61
<PAGE>

                          NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

   The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Vitria prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the
common stock in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

   Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Vitria and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (iii) the purchaser has reviewed the text above under "Resale
Restrictions".

Rights of Action (Ontario Purchasers)

   The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

   All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.

Notice to British Columbia Residents

   A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from Vitria. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

   Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

                                       62
<PAGE>

                                 LEGAL MATTERS

   The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, partners and associates of Cooley Godward LLP own an aggregate of
approximately 12,437 shares of common stock through an investment partnership.
Various legal matters in connection with the offering will be passed upon for
the underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.

                                    EXPERTS

   The balance sheet of Vitria Technology, Inc. as of December 31, 1997 and
1998, and the statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998, included in this
prospectus, have been included herein in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

   We have filed with the Securities and Exchange Commission a registration
statement (which term shall include any amendment thereto) on Form S-1 under
the Securities Act of 1933 with respect to the shares of common stock offered
by our company. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
Registration Statement, some items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to Vitria and the common stock
offered, reference is made to the registration statement, including the
exhibits, and the financial statements and notes filed as a part of the
registration statement. Statements made in this prospectus as to the contents
of any document referred to in the registration statement are not necessarily
complete, and, in each instance, please review the copy of the document filed
as an exhibit for a more complete description of the matter involved. A copy of
the registration statement, including the exhibits and the financial statements
and notes filed as a part of it, may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's regional offices
located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048, and copies of all or any part of the registration statement may be
obtained from the Securities and Exchange Commission upon the payment of fees
prescribed by it. The Securities and Exchange Commission maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding companies that file electronically with it.

                                       63
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Equity.......................................... F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders' of Vitria Technology, Inc.

   The reincorporation described in Note 9 to the financial statements has not
been consummated as of June 22, 1999. When the reincorporation has been
consummated, we will be in a position to furnish the following report:

     "In our opinion, the accompanying balance sheet and the related
  statements of operations, of stockholders' equity and of cash flows present
  fairly, in all material respects, the financial position of Vitria
  Technology, Inc. at December 31, 1997 and 1998, and the results of its
  operations and its cash flows for each of the three years ended December
  31, 1998, in conformity with generally accepted accounting principles.
  These financial statements are the responsibility of the Company's
  management; our responsibility is to express an opinion on these financial
  statements based on our audits. We conducted our audits of these statements
  in accordance with generally accepted auditing standards which require that
  we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit
  includes examining, on a test basis, evidence supporting the amounts and
  disclosures in the financial statements, assessing the accounting
  principles used and significant estimates made by management, and
  evaluating the overall financial statement presentation. We believe that
  our audits provide a reasonable basis for the opinion expressed above."

PricewaterhouseCoopers LLP

San Jose, California
June 22, 1999, except for Note 9,
which is as of June   , 1999

                                      F-2
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                                 BALANCE SHEET
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                     Pro Forma
                                                                   Stockholders'
                                       December 31,                  Equity at
                                      ----------------  March 31,    March 31,
                                       1997     1998      1999         1999
                                      -------  -------  ---------  -------------
                                                              (unaudited)
<S>                                   <C>      <C>      <C>        <C>
Assets
Current assets:
  Cash and cash equivalents.......... $ 9,138  $12,792  $ 11,444
  Accounts receivable, net...........   1,600    5,973     5,255
  Other current assets...............      66      180       289
                                      -------  -------  --------
    Total current assets.............  10,804   18,945    16,988
Property and equipment, net..........     275      967     1,108
Other assets.........................      62       88       144
                                      -------  -------  --------
                                      $11,141  $20,000  $ 18,240
                                      =======  =======  ========
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable................... $   211  $   757  $    331
  Accrued liabilities................     608    2,978     2,609
  Deferred revenue...................     223    2,874     3,277
                                      -------  -------  --------
    Total current liabilities........   1,042    6,609     6,217
                                      -------  -------  --------
Commitments and contingencies (Note
 5)
Stockholders' equity:
  Convertible Preferred Stock:
   issuable in series, $0.001 par
   value; 8,470, 13,470 and 13,470
   shares authorized, respectively;
   7,708, 10,445, and 10,552
   (unaudited) actual shares issued
   and outstanding, respectively;
   5,000 shares authorized; no shares
   issued and outstanding,
   pro forma (unaudited) (Liquidation
   value of $21,600).................       8       11        11     $     --
  Common Stock: $0.001 par value;
   40,000, 41,000 and 51,000 shares
   authorized, respectively; 13,249,
   15,268 and 15,541 (unaudited)
   actual shares issued and
   outstanding, respectively; 250,000
   shares authorized; 26,091
   (unaudited) shares issued and
   outstanding,
   pro forma.........................      13       15        16           27
Additional paid-in capital...........  10,737   29,104    31,391       31,391
Unearned stock-based compensation....      --   (5,511)   (6,456)      (6,456)
Accumulated deficit..................    (659) (10,228)  (12,939)     (12,939)
                                      -------  -------  --------     --------
    Total stockholders' equity.......  10,099   13,391    12,023     $ 12,023
                                      -------  -------  --------     ========
                                      $11,141  $20,000  $ 18,240
                                      =======  =======  ========
</TABLE>

    The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                            STATEMENT OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                       Year Ended December     Three Months
                                               31,            Ended March 31,
                                      ----------------------  ----------------
                                       1996   1997    1998     1998     1999
                                      ------ ------  -------  -------  -------
                                                                (unaudited)
<S>                                   <C>    <C>     <C>      <C>      <C>
Revenues:
  License...........................  $   -- $  955  $ 5,198  $   139  $ 3,487
  Service...........................   1,042  1,425    1,633      151    1,472
  Government grant..................     984  1,255      796      371      250
                                      ------ ------  -------  -------  -------
    Total revenues..................   2,026  3,635    7,627      661    5,209
                                      ------ ------  -------  -------  -------
Cost of revenues:
  License...........................      --     18       --       --       62
  Service...........................     183    338    2,109      122    1,294
  Government grant..................     984  1,255      796      371      250
                                      ------ ------  -------  -------  -------
    Total cost of revenues..........   1,167  1,611    2,905      493    1,606
                                      ------ ------  -------  -------  -------
Gross profit........................     859  2,024    4,722      168    3,603
                                      ------ ------  -------  -------  -------
Operating expenses:
  Sales and marketing...............      80  1,143    6,572      701    2,889
  Research and development..........     397    841    4,794      717    1,961
  General and administrative........     147    695    1,807      234      726
  Amortization of stock-based
   compensation.....................      --     --    1,424      123      867
                                      ------ ------  -------  -------  -------
    Total operating expenses........     624  2,679   14,597    1,775    6,443
                                      ------ ------  -------  -------  -------
Income (loss) from operations.......     235   (655)  (9,875)  (1,607)  (2,840)
Interest income.....................       8     75      306       91      129
                                      ------ ------  -------  -------  -------
Net income (loss)...................  $  243 $ (580) $(9,569) $(1,516) $(2,711)
                                      ====== ======  =======  =======  =======
Net income (loss) per share:
  Basic.............................  $ 0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
                                      ====== ======  =======  =======  =======
  Diluted...........................  $ 0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
                                      ====== ======  =======  =======  =======
Weighted average shares:
  Basic.............................   7,044  9,915   12,003   10,490   12,699
                                      ====== ======  =======  =======  =======
  Diluted...........................  13,835  9,915   12,003   10,490   12,699
                                      ====== ======  =======  =======  =======
Pro forma basic and diluted net loss
 per share (unaudited)..............                 $ (0.48)          $ (0.12)
                                                     =======           =======
Pro forma basic and diluted weighted
 average shares (unaudited).........                  20,111            23,250
                                                     =======           =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                          Convertible
                           Preferred
                             Stock     Common Stock  Additional   Unearned                   Total
                         ------------- -------------  Paid-In   Stock-Based  Accumulated Stockholders'
                         Shares Amount Shares Amount  Capital   Compensation   Deficit      Equity
                         ------ ------ ------ ------ ---------- ------------ ----------- -------------
<S>                      <C>    <C>    <C>    <C>    <C>        <C>          <C>         <C>
Balance at December 31,
 1995...................  1,406  $ 1   11,918  $12    $   550     $    --     $   (322)     $   241
 Issuance of Series A
  Convertible Preferred
  Stock, net............    114    1       --   --         39          --           --           40
 Issuance of Common
  Stock, net............     --   --    1,170    1        111          --           --          112
 Net income.............     --   --       --   --         --          --          243          243
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at December 31,
 1996...................  1,520    2   13,088   13        700          --          (79)         636
 Issuance of Common
  Stock, net............     --   --      161   --         15          --           --           15
 Issuance of Series A1
  Convertible Preferred
  Stock for note
  payable...............    950    1       --   --        559          --           --          560
 Issuance of Series B
  Convertible Preferred
  Stock, net............  5,238    5       --   --      9,463          --           --        9,468
 Net loss...............     --   --       --   --         --          --         (580)        (580)
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at December 31,
 1997...................  7,708    8   13,249   13     10,737          --         (659)      10,099
 Issuance of Common
  Stock, net............     --   --    2,019    2        615          --           --          617
 Issuance of Series C
  Convertible Preferred
  Stock, net............  2,737    3       --   --     10,964          --           --       10,967
 Unearned stock-based
  compensation..........     --   --       --   --      6,788      (6,788)          --           --
 Amortization of stock-
  based compensation....     --   --       --   --         --       1,277           --        1,277
 Net loss...............     --   --       --   --         --          --       (9,569)      (9,569)
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at December 31,
 1998................... 10,445   11   15,268   15     29,104      (5,511)     (10,228)      13,391
 Issuance of Common
  Stock, net
  (unaudited)...........     --   --      273    1         55          --           --           56
 Issuance of Series C
  Convertible Preferred
  Stock, net
  (unaudited)...........    107   --       --   --        420          --           --          420
 Unearned stock-based
  compensation
  (unaudited)...........     --   --       --   --      1,812      (1,812)          --           --
 Amortization of stock-
  based compensation
  (unaudited)...........     --   --       --   --         --         867           --          867
 Net loss (unaudited)...     --   --       --   --         --          --       (2,711)      (2,711)
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at March 31,
 1999 (unaudited)....... 10,552  $11   15,541  $16    $31,391     $(6,456)    $(12,939)     $12,023
                         ======  ===   ======  ===    =======     =======     ========      =======
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                            STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                      Year Ended December      Three Months
                                              31,             Ended March 31,
                                     -----------------------  ----------------
                                     1996    1997     1998     1998     1999
                                     -----  -------  -------  -------  -------
                                                                (unaudited)
<S>                                  <C>    <C>      <C>      <C>      <C>
Cash flows from operating
 activities:
  Net income (loss)................. $ 243  $  (580) $(9,569) $(1,516) $(2,711)
  Adjustments to reconcile net
   income (loss) to net cash
   provided by (used in) operating
   activities:
    Depreciation and amortization...   115      207      255       19      159
    Provision for doubtful
     accounts.......................    25       --      350       --      118
    Amortization of stock-based
     compensation...................    --       --    1,424      123      867
    Changes in assets and
     liabilities:
      Accounts receivable...........  (474)  (1,097)  (4,723)  (1,050)     600
      Other current assets..........    --      (58)    (140)      11     (109)
      Other assets..................    --      (62)      --       (7)     (56)
      Accounts payable..............   139       62      546      (19)    (426)
      Accrued liabilities...........   175      432    2,370      (54)    (369)
      Deferred revenue..............    --      223    2,651      932      403
                                     -----  -------  -------  -------  -------
  Net cash provided by (used in)
   operating activities.............   223     (873)  (6,836)  (1,561)  (1,524)
                                     -----  -------  -------  -------  -------
Cash flows from investing
 activities:
  Net cash used in purchasing
   property and equipment ..........  (104)    (431)    (947)    (182)    (300)
                                     -----  -------  -------  -------  -------
Cash flows from financing
 activities:
  Issuance of Convertible note......    --      560       --       --       --
  Issuance of Convertible Preferred
   Stock, net.......................    40    9,468   10,967       --      420
  Issuance of Common Stock, net.....   112       15      470        5       56
                                     -----  -------  -------  -------  -------
  Net cash provided by financing
   activities.......................   152   10,043   11,437        5      476
                                     -----  -------  -------  -------  -------
Net increase (decrease) in cash and
 cash equivalents...................   271    8,739    3,654   (1,738)  (1,348)
Cash and cash equivalents at
 beginning of period................   128      399    9,138    9,138   12,792
                                     -----  -------  -------  -------  -------
Cash and cash equivalents at end of
 period............................. $ 399  $ 9,138  $12,792  $ 7,400  $11,444
                                     =====  =======  =======  =======  =======
Supplemental noncash financing
 activities:
  Issuance of Convertible Preferred
   Stock to founders for convertible
   note payable..................... $  --  $   560  $    --  $    --  $    --
                                     =====  =======  =======  =======  =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                         NOTES TO FINANCIAL STATEMENTS

Note 1--The Company and Summary of Significant Accounting Policies:

The Company

   Vitria Technology, Inc. (the "Company"), develops, markets and supports a
software platform, BusinessWare, which enables customers to deploy
sophisticated eBusiness solutions across the extended enterprise. The Company
was incorporated in California in October 1994.

Unaudited interim results

   The interim financial statements as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are unaudited. In the opinion of
management, interim financial statements have been prepared on the same basis
as the audited financial statements and reflect all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of
the results of interim periods. The financial data and other information
disclosed in these notes to financial statements for the related periods are
unaudited. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future periods.

Use of estimates

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

Cash and cash equivalents

   The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents and investments with
original maturities greater than three months to be short-term investments.

Property and equipment

   Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets of three years. Leasehold improvements are
amortized using the straight-line method over the term of the lease or
estimated useful lives, whichever is shorter.

Revenue recognition

   The Company derives revenues from software licenses to end users for its
BusinessWare products and related services, which include maintenance and
support, consulting and training services. Effective January 1, 1998, the
Company adopted Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" with the exception of the provision deferred by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2." In accordance with
the adopted provisions of SOP 97-2, the Company records revenue from software
licenses when a license agreement is signed by both parties, the fee is fixed
and determinable, collection of the fee is probable and delivery of the product
has occurred. For electronic delivery, the product is considered to have been
delivered when the access code to download the software from the Internet has
been provided to the customer. If an element of the license agreement has not
been delivered, revenue for the element is deferred based on vendor-specific
objective evidence of fair value. If vendor-specific objective evidence of fair
value does not exist, all revenue is deferred until sufficient objective
evidence exists or all elements have been delivered. Payments received in
advance of revenue recognition are recorded as deferred revenue. The adoption

                                      F-7
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

of SOP 97-2 resulted in the deferral of software license revenues in certain
agreements that would have been recognized upon delivery of the related
software under prior accounting standards. Revenues from maintenance and
support are deferred and recognized ratably over the term of the contract.
Revenues from consulting and training are deferred and recognized when the
services are performed and collectibility is deemed probable. Prior to January
1, 1998, the Company recorded revenue in accordance with the provisions of SOP
91-1, "Software Revenue Recognition."

   In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9 "Modification of SOP 97-2, "Software Revenue Recognition" and
the Company adopted the statement for all transactions entered into in fiscal
1999. The adoption of this statement did not have a material impact on the
Company's operating results, financial position or cash flows.

   A portion of the Company's revenues are also derived from government grants.
Government grant revenue is recognized as the research is performed and
allowable costs are incurred. Unbilled grant revenue is composed of allowable
reimbursable costs for the period in which a reimbursement application has yet
to be filed with the government.

Fair value of financial instruments

   The Company's financial instruments, including cash and cash equivalents,
accounts receivables and accounts payable, are carried at cost, which
approximates their fair value because of the short-term maturity of these
financial instruments.

Research and development

   Research and development expenses include costs incurred by the Company to
develop and enhance the Company's software. Research and development costs are
charged to expense as incurred.

Software development costs

   Software development costs incurred prior to the establishment of
technological feasibility are charged to research and development expense as
incurred. Material software development costs incurred subsequent to the time a
product's technological feasibility has been established using the working
model approach, through the time the product is available for general release
to customers, are capitalized. Amortization of capitalized software development
costs begins when the products are available for general release to customers,
and is computed as the greater of (1) the ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues for the
product, or (2) the straight-line method over the estimated economic life of
the product. To date, development costs qualifying for capitalization have been
insignificant and therefore have been expensed as incurred.

Stock-based compensation

   The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB
No. 25, unearned compensation is based on the difference, if any, on the date
of the grant, between the fair value of the Company's stock and the exercise
price. Unearned compensation is amortized and expensed in accordance with
Financial Accounting Standards Board Interpretation No. 28 using the multiple
option approach. The Company accounts for stock-based compensation issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."

                                      F-8
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


Pro forma stockholders' equity (unaudited)

   Effective upon the closing of the Company's initial public offering (the
"Offering"), the outstanding shares of Convertible Preferred Stock will
automatically convert into 10,551,635 shares of Common Stock. Also effective
upon the closing of this offering 250,000,000 shares of Common Stock and
5,000,000 shares of undesignated Convertible Preferred Stock will be
authorized. The pro forma effects of these transactions are unaudited and have
been reflected in the accompanying pro forma Stockholders' Equity as of March
31, 1999.

Income taxes

   Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

Net income and net loss per share

   Basic net income (loss) per share is computed by dividing the net income
(loss) available to common stockholders for the period by the weighted average
number of shares of Common Stock outstanding during the period. Diluted net
income per share is computed by dividing the net income (loss) for the period
by the weighted average number of common and potential common equivalent shares
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are composed of Common Stock subject to repurchase rights and
incremental shares of Common Stock issuable upon the exercise of stock options,
upon conversion of Preferred Stock and conversion of debt.

                                      F-9
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                               Three Months
                                   Year Ended December 31,    Ended March 31,
                                   -------------------------  ----------------
                                    1996     1997     1998     1998     1999
                                   -------  -------  -------  -------  -------
                                                                (unaudited)
   <S>                             <C>      <C>      <C>      <C>      <C>
   Numerator:
     Net income (loss)...........  $   243  $  (580) $(9,569) $(1,516) $(2,711)
                                   =======  =======  =======  =======  =======
   Denominator:
     Weighted average shares.....   12,315   13,116   13,881   13,250   15,268
     Weighted average Common
      Stock subject to repurchase
      agreements.................   (5,271)  (3,201)  (1,878)  (2,760)  (2,569)
                                   -------  -------  -------  -------  -------
     Denominator for basic
      calculation................    7,044    9,915   12,003   10,490   12,699
                                   -------  -------  -------  -------  -------
   Weighted average effect of
    diluted securities:
     Series A Preferred Stock....    1,520       --       --       --       --
     Common Stock subject to
      repurchase agreements......    5,271       --       --       --       --
                                   -------  -------  -------  -------  -------
     Denominator for diluted
      calculation................   13,835    9,915   12,003   10,490   12,699
                                   -------  -------  -------  -------  -------
   Net income (loss) per share:
     Basic.......................  $  0.03  $ (0.06) $ (0.80) $ (0.14) $ (0.21)
                                   =======  =======  =======  =======  =======
     Diluted.....................  $  0.02  $ (0.06) $ (0.80) $ (0.14) $ (0.21)
                                   =======  =======  =======  =======  =======
</TABLE>

   The following table sets forth the weighted average potential shares of
Common Stock that are not included in the diluted net income (loss) per share
calculation above because to do so would be antidilutive for the periods
indicated (in thousands):

<TABLE>
<CAPTION>
                                                                Three Months
                                                 Year Ended      Ended March
                                                December 31,         31,
                                              ----------------- -------------
                                              1996 1997   1998   1998   1999
                                              ---- ----- ------ ------ ------
                                                                 (unaudited)
   <S>                                        <C>  <C>   <C>    <C>    <C>
   Weighted average effect of antidilutive
    securities:
     Series A Preferred Stock................  --  1,520  1,520  1,520  1,520
     Series A-1 Preferred Stock..............  --     --    950    950    950
     Series B Preferred Stock................  --    875  5,238  5,238  5,238
     Series C................................  --     --    400     --  2,843
     Convertible debt........................  --    557     --     --     --
     Employee stock options..................  --    527  1,624  1,450  1,833
     Common Stock subject to repurchase
      agreements.............................  --  3,201  1,878  2,760  2,569
                                              ---- ----- ------ ------ ------
                                               --  6,680 11,610 11,918 14,958
                                              ==== ===== ====== ====== ======
</TABLE>

                                      F-10
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


Pro forma net loss per share (unaudited)

   Pro forma net loss per share for the year ended December 31, 1998 and the
three months ended March 31, 1999 (unaudited) is computed using the weighted
average number of common shares outstanding, including the conversion of the
Company's Convertible Preferred Stock into shares of the Company's Common Stock
effective upon the closing of the Company's initial public offering, as if such
conversion occurred on January 1, 1998 or at date of original issuance, if
later. The resulting unaudited pro forma adjustment includes an increase in the
weighted average shares used to compute basic and diluted net loss per share of
8,108,000 and 10,551,000 for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively. The calculation of pro forma diluted
net loss per share excludes other potential shares of Common Stock as the
effect would be antidilutive. Pro forma potential shares of Common Stock are
composed of Common Stock subject to repurchase rights and incremental Common
Stock issuable upon the exercise of stock options and upon conversion of debt.

Comprehensive income

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. During each of the three years ended
December 31, 1998, and the three months ended March 31, 1998 and 1999
(unaudited) the Company has not had any significant transactions that are
required to be reported in comprehensive income.

Segment information

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of Enterprise and Related Information." During
each of the three years ended December 31, 1998 and the three months ended
March 31, 1998 and 1999 (unaudited) the Company's management considers its
business activities to be focused on the license of its product and related
services to end-user customers. Since management's primary form of internal
reporting is aligned with the offering of products and services the Company
believes it operates in one segment. The Company's customers have all been
located in the United States.

Concentration of credit risks

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. All of the Company's available funds at December 31, 1997 and 1998
and March 31, 1999 (unaudited), were deposited in money market accounts with
financial institutions which management believes are of high credit quality.
The Company's accounts receivable are derived from transactions with clients
located in the United States. The Company performs ongoing credit evaluations
of its client's financial condition and generally requires no collateral from
its clients. The Company maintains an allowance for doubtful accounts
receivable based upon the expected collectibility of accounts receivable.

                                      F-11
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


   The following table summarizes the revenue from customers in excess of 10%
of total customer revenues:

<TABLE>
<CAPTION>
                                                                    Three Month
                                                    Year Ended      Ended March
                                                   December 31,         31,
                                                  ----------------  -------------
                                                  1996  1997  1998  1998    1999
                                                  ----  ----  ----  -----   -----
                                                                    (unaudited)
   <S>                                            <C>   <C>   <C>   <C>     <C>
   Company A.....................................  52%   67%   --%     --%     --%
   Company B.....................................  --%   12%   --%     30%     --%
   Company C.....................................  --%   10%   14%     10%     --%
   Company D.....................................  44%   --%   --%     --%     --%
   Company E.....................................  --%   --%   34%     --%     --%
   Company F.....................................  --%   --%   --%     --%     20%
   Company G.....................................  --%   --%   --%     --%     15%
   Company H.....................................  --%   --%   --%     45%     --%
   Company I.....................................  --%   --%   --%     --%     10%
</TABLE>

   The following table summarizes receivables from customers in excess of 10%
of total accounts receivable:

<TABLE>
<CAPTION>
                                                                    Three Month
                                                    Year Ended         Ended
                                                   December 31,      March 31,
                                                  ----------------  -------------
                                                  1996  1997  1998  1998    1999
                                                  ----  ----  ----  -----   -----
                                                                    (unaudited)
   <S>                                            <C>   <C>   <C>   <C>     <C>
   Company A.....................................  61%   50%   --%     20%     --%
   Company B.....................................  --%   24%   --%     --%     --%
   Company C.....................................  --%   21%   --%     49%     --%
   Company D.....................................  37%   --%   --%     --%     --%
   Company E.....................................  --%   --%   54%     --%     13%
   Company F.....................................  --%   --%   14%     --%     34%
   Company G.....................................  --%   --%   11%     --%     --%
   Company J.....................................  --%   --%   --%     15%     --%
</TABLE>

Stock split

   In 1996, the Board of Directors approved a one and a half-for-one stock
split of the Company's Preferred and Common Stock. All information presented
in these financial statements has been retroactively adjusted to reflect the
stock split.

Recent accounting pronouncements

   In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company has adopted the
provisions of SOP 98-1 in its fiscal year beginning January 1, 1999, and does
not expect such adoption to have a material effect on the Company's financial
statements.

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for all fiscal quarters beginning with the quarter ending June 30,
2000. SFAS 133 establishes accounting and reporting standards of derivative

                                     F-12
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt SFAS 133 in its
quarter ending June 30, 2000 and does not expect such adoption to have an
impact on the Company's results of operations, financial position or cash
flows.

Note 2--Balance Sheet Components:

<TABLE>
<CAPTION>
                                                   December 31,
                                                   --------------   March 31,
                                                    1997    1998      1999
                                                   ------  ------  -----------
                                                                   (unaudited)
   <S>                                             <C>     <C>     <C>
   Accounts receivable, net:
     Accounts receivable.......................... $1,139  $5,884    $4,499
     Unbilled consulting services.................     --     100       703
     Unbilled grant revenue.......................    496     322       504
                                                   ------  ------    ------
                                                    1,635   6,306     5,706
   Less: Allowance for doubtful accounts..........    (35)   (333)     (451)
                                                   ------  ------    ------
                                                   $1,600  $5,973    $5,255
                                                   ======  ======    ======
   Property and equipment, net:
     Computer equipment........................... $   66  $  479    $  706
     Software licenses............................     20     124       194
     Furniture and fixtures.......................    198     404       373
     Leasehold improvements.......................     92     263       297
                                                   ------  ------    ------
                                                      376   1,270     1,570
   Less: Accumulated depreciation and
    amortization..................................   (101)   (303)     (462)
                                                   ------  ------    ------
                                                   $  275  $  967    $1,108
                                                   ======  ======    ======
   Accrued liabilities:
     Payroll and related expense.................. $  232  $1,916    $1,000
     Deferred grant awards........................    258     581       581
     Sales taxes..................................     --      86       214
     Other........................................    118     395       814
                                                   ------  ------    ------
                                                   $  608  $2,978    $2,609
                                                   ======  ======    ======
</TABLE>

Note 3--Income Taxes:

   For the year ended December 31, 1996, the Company's current tax provison was
reduced by the utilization of available net operating loss carryforwards. The
tax provision is reconciled to the amount computed using the federal statutory
rate as follows:

<TABLE>
<CAPTION>
                                                         Year Ended December
                                                                 31,
                                                         ---------------------
                                                         1996   1997    1998
                                                         -----  -----  -------
   <S>                                                   <C>    <C>    <C>
   Federal statutory provision (benefit)................ $  87  $(197) $(3,254)
   State taxes, net of federal benefit..................    15     (8)    (287)
   Future benefits not currently recognized.............    --    205    2,971
   Nondeductible compensation...........................    --     --      570
   Utilization of net loss carryforwards................  (102)    --       --
                                                         -----  -----  -------
                                                         $  --  $  --  $    --
                                                         =====  =====  =======
</TABLE>

   At December 31, 1998, the Company had approximately $7,200,000 of federal
and $3,300,000 of state net operating loss carryforwards available to offset
future taxable income which expire at various dates through

                                      F-13
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

2013. Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three year period.

   Deferred tax assets and liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                 --------------
                                                                 1997    1998
                                                                 -----  -------
   <S>                                                           <C>    <C>
   Deferred tax assets:
     Net operating loss carryforwards........................... $ 197  $ 2,656
     Accruals and allowances....................................    34      492
     Research credits...........................................    74      519
                                                                 -----  -------
   Net deferred tax assets......................................   305    3,667
   Valuation allowance..........................................  (305)  (3,667)
                                                                 -----  -------
                                                                 $  --  $    --
                                                                 =====  =======
</TABLE>

   The Company has incurred losses for the years ended December 31, 1997 and
1998. Management believes that, based on the history of such losses and other
factors, the weight of available evidence indicates that it is more likely than
not that the Company will not be able to realize its deferred tax assets and
thus a full valuation reserve has been recorded at December 31, 1997 and 1998.

Note 4--Government Grants:

   During January 1996, the Company received a grant award from the National
Institute of Standards and Technology ("NIST") totaling $2,000,000 to conduct
research and provide technical and business reports on a project to create a
highly flexible technology to simplify the task of integrating and sharing
real-time data among many different planning, tracking and control systems. The
grant reimburses the Company's allowable expenses over a period of two years
with $1,011,000 and $990,000 budgeted for the grant years ended January 25,
1997 and 1998, respectively. NIST requires the Company to comply with certain
cost accounting and reporting requirements, as applicable. For the period
ending December 31, 1996 and 1997, the Company has been reimbursed for grant-
related expenditures in the amount of $984,000 and $1,016,000, respectively. In
October 1997, the Company received an additional NIST grant totaling $2,000,000
to investigate at least three categories of Model-Driven Components. The grant
reimburses the Company's allowable expenses over a period of two years with
$970,000 and $1,030,000 of amended budget for the grant years ending September
30, 1998 and 1999, respectively. Additionally, NIST requires the Company to
comply with certain cost accounting and reporting requirements, as applicable.
For the period ended December 31, 1997 and 1998, the Company has incurred costs
of $401,000 and $822,000, respectively, in grant-related expenditures. Also in
November 1997, the Company received a joint-venture NIST grant totaling
$1,300,000 to help develop technology to enable the building of integrated
manufacturing applications for multi-company supply chain planning and
execution. The grant reimburses the Company's allowable expenses over a period
of three years with $300,000, $500,000 and $500,000 of the amended budget for
the grant years ending December 31, 1998, 1999 and 2000, respectively.
Additionally, NIST requires the Company to comply with certain cost accounting
and reporting requirements, as applicable. For the periods ended December 31,
1997 and 1998, the Company has incurred costs of $30,000 and $638,000,
respectively, in grant-related expenditures.

   The Company incurs costs in connection with the NIST grants and in some
cases, additional approval by the grant officer is required. Amounts received
subject to NIST grant approval are deferred, which are $258,000 and $323,000,
respectively, at December 31, 1997 and 1998. Such amounts will be recognized as
revenue or refunded, depending upon the outcome of the approval process.

                                      F-14
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


Note 5--Commitments and Contingencies:

Leases

   The Company leases office space under noncancelable operating leases with
various expiration dates through 2003. The leases require payment of property
taxes, insurance, maintenance and utilities. The terms of the facility leases
provide for rental payments on a graduated scale. The Company recognizes rent
expense on a straight-line basis over the lease period, and has recognized
prepaid expense for rent expenditures not incurred but paid. Rent expense under
these leases are $158,000, $146,000, $546,000, $134,000 and $174,000 for the
years ended December 31, 1996, 1997 and 1998, and for the three months ended
March 31, 1998 and 1999 (unaudited), respectively.

   Future net minimum lease payments, under noncancelable operating leases at
December 31, 1998, including the Company's new facility lease entered into in
April 1999, are as follows (in thousands):

<TABLE>
<CAPTION>
   Year ending                                                         Operating
   December 31,                                                         Leases
   ------------                                                        ---------
   <S>                                                                 <C>
    1999..............................................................  $1,144
    2000..............................................................   1,942
    2001..............................................................   2,029
    2002..............................................................   2,072
    2003..............................................................   1,258
                                                                        ------
      Total minimum lease payments....................................  $8,445
                                                                        ======
</TABLE>

Contingencies

   From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations or cash flows of the Company.

Employee benefits

   In December 1998, the Company established a nonqualified, unfunded deferred
compensation plan for certain key executives providing for payments upon
retirement, death or disability. Under the plan, certain employees receive
payments equal to the employee's entire accrued benefit, the sum of all
deferred amounts and any corporate contributions credited to the plan and due
and owing to the employee, together with earning adjustments, minus any
distributions. Through December 31, 1998 and March 31, 1999 (unaudited), the
Company did not make any contributions to the plan.

   The Company has recorded the assets and liabilities for the deferred
compensation at gross amounts in the accompanying balance sheet because such
assets are not protected from the Company's general creditors and, as such,
these assets could be used to meet the obligations of the Company in the event
of bankruptcy. The assets are recorded at fair value. Any changes in fair value
are recognized as a reduction or increase in compensation expense.

                                      F-15
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


Note 6--Convertible Preferred Stock:

   Convertible Preferred Stock ("Convertible Preferred") at December 31, 1998,
consist of the following, except for shares authorized, which reflect the
Articles of Incorporation as amended in May 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                        Proceeds
                                                                         Net of
                                       Shares               Liquidation Issuance
    Series                           Authorized Outstanding   Amount     Costs
    ------                           ---------- ----------- ----------- --------
   <S>                               <C>        <C>         <C>         <C>
   A................................    1,520      1,520      $   540   $   526
   A1...............................      950        950          560       560
   B................................    6,000      5,238        9,500     9,468
   C................................    5,000      2,737       11,000    10,967
   D................................    1,200         --           --        --
   Undesignated.....................    1,330         --           --        --
                                       ------     ------      -------   -------
                                       16,000     10,445      $21,600   $21,521
                                       ======     ======      =======   =======
</TABLE>

   In January 1999, the Company issued 107,213 shares of $0.001 par value
Series C Convertible Preferred Stock and received proceeds net of issuance
costs totaling $420,000. In May 1999, the Company issued 1,003,980 shares of
$0.001 par value Series D Convertible Preferred Stock and received proceeds net
of issuance costs totaling $4,500,000.

   The holders of Convertible Preferred have various rights and preferences as
follows:

Voting

   Each share of Convertible Preferred has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes
together as one class with the Common Stock.

   As long as 150,000 shares of Convertible Preferred remain outstanding, the
Company must obtain approval from the holders of a majority of the shares of
Convertible Preferred in order to alter the Articles of Incorporation as
related to Convertible Preferred, change the authorized number of shares of
Common Stock or Convertible Preferred, create a new class of stock with rights
and preferences above those of Convertible Preferred, repurchase any shares of
Common Stock other than shares subject to the right of repurchase by the
Company, authorize a dividend on Common Stock or Convertible Preferred or
effect a merger, corporate reorganization, sale of control or any other
transaction in which all or substantially all of the assets of the Company are
sold, or increase the maximum authorized number of directors to greater than
seven.

Dividends

   The holders of the Series C Convertible Preferred are entitled to receive
noncumulative dividends, in preference to any dividends on the Company's
outstanding Series A, A1, B and D Convertible Preferred and Common Stock, at
the per annum rate of 8% of the "Original Issue Price," when and as declared by
the Board of Directors. The holders of the Series A, A1, B and D Convertible
Preferred are entitled to receive, in preference to the holders of the Common
Stock, noncumulative dividends at the per annum rate of 8% of the original
issue price, when and as declared by the Board of Directors. The Original Issue
Price of Series A, Series A1, Series B, Series C and Series D is $0.3555,
$0.6101, $1.8135, $4.02 and $4.50 per share, respectively. The holders of
Convertible Preferred will also be entitled to participate in dividends on
Common Stock, when and if declared by the Board of Directors, based on the
number of shares of Common Stock held

                                      F-16
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

on an as-if converted basis. No dividends on Convertible Preferred or Common
Stock have been declared by the Board from inception through March 31, 1999
(unaudited).

Liquidation

   In the event of any liquidation or winding up of the Company, the holders of
Series C Convertible Preferred are entitled to receive, in preference to the
holders of the Common Stock and the other holder of Convertible Preferred, a
per share amount equal to the Original Issue Price, plus any declared but
unpaid dividends. The holders of Series A, A1, B and D Convertible Preferred
then receive their Original Issue Prices plus any declared but unpaid
dividends.

   The holders of Series C Convertible Preferred then receive an additional
amount equal to the difference between two times its Original Issue Price less
the dollar amount received above. Then the remaining assets shall be
distributed ratably to the holders of all Common Stock and Convertible
Preferred on a common equivalent basis until each series has received three
times the Original Issue Price for such series. The additional dollar amount
which Series C receives from its distribution of the remaining assets shall be
reduced by its previously received dollar amount equal to two times its
Original Issue Price. A merger, acquisition, sale of voting control or sale of
substantially all of the assets of the Company in which the shareholders of the
Company do not own a majority (50% or more) of the outstanding shares of the
surviving corporation is deemed to be a liquidation.

Conversion

   Each share of Convertible Preferred is convertible at the option of the
holder into shares of Common Stock by multiplying the appropriate conversion
rate in effect by the number of Convertible Preferred being converted. The
conversion rate is the quotient obtained by dividing the Original Issue Price
by the conversion price (which is initially the respective Original Issue
Price, until it is adjusted). Additionally, each share of Convertible Preferred
shall automatically be converted upon (i) an initial public offering of the
Company equal to or exceeding $8.04 per share with aggregate proceeds not less
than $20,000,000, or (ii) the written consent of a majority of the Convertible
Preferred holders then outstanding.

Note 7--Common Stock:

   At December 31, 1997 and 1998, there were 13,249,498 and 15,268,180 shares
outstanding, respectively, of Common Stock issued to the founders of the
Company, affiliates and other nonrelated parties. At March 31, 1999 (unaudited)
there were 15,541,180 shares outstanding of Common Stock. A portion of the
shares sold are subject to a right of repurchase by the Company subject to
vesting, which is generally over a five year period from the earlier of grant
date or employee hire date, as applicable, until vesting is complete. At
December 31, 1997 and 1998 and March 31, 1999 (unaudited), there were
approximately 3,320,000, 3,056,000 and 2,739,000 shares, respectively, subject
to repurchase.

   The Company issued 52,500 shares of Common Stock to consultants in exchange
for services. In connection with these issuances the Company recorded expenses
of $147,000 based on the fair value of the Common Stock on the date of grant.

                                      F-17
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   The Company had reserved shares of Common Stock for future issuance as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                      March 31,
                                                                        1999
                                                                     -----------
                                                                     (unaudited)
   <S>                                                               <C>
   Conversion of Series A...........................................    1,520
   Conversion of Series A1..........................................      950
   Conversion of Series B...........................................    5,238
   Conversion of Series C...........................................    4,000
   Common Stock issued..............................................   15,541
   Exercise of options under the Equity Incentive Plans.............    7,003
   Undesignated.....................................................   16,748
                                                                       ------
                                                                       51,000
                                                                       ======
</TABLE>

   In May 1999, the Company reserved an additional 1,003,980 shares for the
conversion of Series D Convertible Preferred Stock.

Note 8--Employee Benefit Plans:

Equity Incentive Plans

   In March 1995, the Company adopted the 1995 Equity Incentive Plan, which
provides for the granting of stock options, stock appreciation rights, stock
bonuses and restricted stock to employees, directors and consultants of the
Company. In October 1998, the Company adopted the 1998 Executive Incentive Plan
which provides for the granting of stock options to employees, directors and
consultants. Options granted under the 1995 Equity Incentive Plan and the 1998
Executive Incentive Plan (the "Plans") may be either incentive stock options
("ISO") or nonqualified stock options ("NSO"). ISO may be granted only to
employees (including officers and directors who are also employees) of the
Company. NSO may be granted to employees and consultants of the Company. For
the year ended December 31, 1998 and the three months ended March 31, 1999
(unaudited), the Company has reserved 4,992,000 and 7,003,000 shares,
respectively, of Common Stock for issuance under the Plans.

   Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. Furthermore, under the 1998 Executive Incentive Plan, no employee
shall be eligible to be granted options covering more than 400,000 shares of
the Common Stock during any calendar year. Options are exercisable immediately
subject to repurchase options held by the Company which lapse over a maximum
period of five years at such times and under such conditions as determined by
the Board of Directors. To date, options granted generally vest over five
years.

                                      F-18
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   The following table summarizes information about stock option transactions
under the Plans (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                         Year Ended December 31,                Three Months
                             ------------------------------------------------- Ended March 31,
                                  1996            1997             1998             1999
                             --------------- ---------------- ---------------- ----------------
                                    Weighted         Weighted         Weighted         Weighted
                                    Average          Average          Average          Average
                                    Exercise         Exercise         Exercise         Exercise
                             Shares  Price   Shares   Price   Shares   Price   Shares   Price
                             ------ -------- ------  -------- ------  -------- ------  --------
                                                                                 (unaudited)
   <S>                       <C>    <C>      <C>     <C>      <C>     <C>      <C>     <C>
   Outstanding at beginning
    of period..............    --    $  --     489    $0.10    1,627   $0.22   1,877    $0.36
   Granted below fair
    value..................    --       --      --     0.25    3,258    0.31     463     0.70
   Granted at fair value ..   489     0.10   1,583     0.25       --      --      --       --
   Exercised...............    --       --    (201)    0.11   (2,014)   0.24    (271)    0.53
   Canceled................    --       --    (244)    0.25     (994)   0.22      (7)    0.25
                              ---            -----            ------           -----
   Outstanding at end
    of period..............   489     0.10   1,627     0.22    1,877    0.36   2,062     0.41
                              ===            =====            ======           =====
   Options vested..........    --               --                60              67
                              ===            =====            ======           =====
   Weighted average fair
    value of options
    granted during the
    period.................          $0.03            $0.06            $0.10            $0.15
                                     =====            =====            =====            =====
</TABLE>

   The following table summarizes the information about stock options
outstanding and exercisable as of December 31, 1998 (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                            Options Vested and
                                Options Outstanding            Exercisable
                          -------------------------------- --------------------
                                       Weighted
                                        Average   Weighted             Weighted
                                       Remaining  Average              Average
     Range of               Number    Contractual Exercise   Number    Exercise
   Exercise Price         Outstanding    Life      Price   Outstanding  Price
   --------------         ----------- ----------- -------- ----------- --------
   <S>                    <C>         <C>         <C>      <C>         <C>
    $0.10................       10       7.67      $0.10         5      $0.10
     0.25................    1,431       9.30       0.25        30       0.25
     0.70................      436       9.92       0.70        25       0.70
                             -----                             ---
                             1,877                              60
                             =====                             ===
</TABLE>

   The following table summarizes the information about stock options
outstanding and exercisable as of March 31, 1999 (unaudited) (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                            Options Vested and
                                Options Outstanding            Exercisable
                          -------------------------------- --------------------
                                       Weighted
                                        Average   Weighted             Weighted
                                       Remaining  Average              Average
     Range of               Number    Contractual Exercise   Number    Exercise
   Exercise Price         Outstanding    Life      Price   Outstanding  Price
   --------------         ----------- ----------- -------- ----------- --------
   <S>                    <C>         <C>         <C>      <C>         <C>
    $0.10................       10       7.42      $0.10         5      $0.10
     0.25................    1,324       9.04       0.25        37       0.25
     0.70................      728       9.67       0.70        25       0.70
                             -----                             ---
                             2,062                              67
                             =====                             ===
</TABLE>

                                      F-19
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


Fair value disclosures

   The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. Had compensation expense for options granted for the
years ended December 31, 1996, 1997 and 1998 and the three months ended March
31, 1998 and 1999 (unaudited) been determined based on the fair value at the
grant dates as prescribed by SFAS No. 123, the Company's net income (loss) and
net income (loss) per share would have been increased or decreased to the pro
forma amounts indicated below.

<TABLE>
<CAPTION>
                                   Year Ended December    Three Months Ended
                                           31,                 March 31,
                                   ---------------------  --------------------
                                   1996   1997    1998      1998       1999
                                   ----- ------  -------  ---------  ---------
                                                              (unaudited)
   <S>                             <C>   <C>     <C>      <C>        <C>
   Net income (loss):
     As reported.................. $ 243 $ (580) $(9,569) $  (1,516) $  (2,711)
                                   ----- ------  -------  ---------  ---------
     Pro forma.................... $ 243 $ (636) $(9,572) $  (1,530) $  (2,738)
                                   ----- ------  -------  ---------  ---------
   Net income (loss) per share:
     As reported:
       Basic...................... $0.03 $(0.06) $ (0.80) $   (0.14) $   (0.21)
                                   ----- ------  -------  ---------  ---------
       Diluted.................... $0.02 $(0.06) $ (0.80) $   (0.14) $   (0.21)
                                   ----- ------  -------  ---------  ---------
     Pro forma:
       Basic                       $0.03 $(0.06) $ (0.80) $   (0.15) $   (0.22)
                                   ----- ------  -------  ---------  ---------
       Diluted.................... $0.02 $(0.06) $ (0.80) $   (0.15) $   (0.22)
                                   ----- ------  -------  ---------  ---------
</TABLE>

   The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:

<TABLE>
<CAPTION>
                                                         Three Months Ended
                             Year Ended December 31,          March 31,
                             --------------------------  --------------------
                             1996    1997       1998       1998       1999
                             ----  ---------  ---------  ---------  ---------
                                                             (unaudited)
   <S>                       <C>   <C>        <C>        <C>        <C>
   Risk-free interest
    rates................... 6.51% 5.55-6.20% 4.13-5.46% 5.43-5.46% 4.45-4.99%
   Expected lives (in
    years)..................    5          5          5          5          5
   Dividend yield...........    0%         0%         0%         0%         0%
   Expected volatility......    0%         0%         0%         0%         0%
</TABLE>

   Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding paragraph, the
above results may not be preventative of future periods.

Unearned stock-based compensation

   In connection with certain stock option grants, during the year ended
December 31, 1998 and the three months ended March 31, 1999 (unaudited), the
Company recognized unearned compensation totaling $6,788,000 and $1,812,000,
respectively, which is being amortized over the five year vesting periods of
the related options using the multiple option approach. Amortization expense
recognized for the year ended December 31, 1998 and the three months ended
March 31, 1999 (unaudited) totaled approximately $1,277,000 and $867,000,
respectively. In determining the fair market value on each grant date, the
Company considered, among other things, the relative level of revenues and
other operating results, the absence of a public trading market for the
Company's securities and the competitive nature of the Company's market.

                                      F-20
<PAGE>

                            VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


401(k) Plan

   In May 1996, the Board of Directors adopted an employee savings and
retirement plan (the "401(k) Plan") covering substantially all of the Company's
employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to the statutory prescribed limit and have the
amount of such reduction contributed to the 401(k) Plan. The Company may make
contributions to the 401(k) Plan on behalf of eligible employees. The Company
has not made any contributions to the 401(k) Plan.

Note 9--Subsequent Events:

Reincorporation

   In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the state of Delaware. Following the
reincorporation, the Company will continue to be authorized to issue
250,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares of
$0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof.

Stock option grants

   In May 1999, the Company granted incentive stock options to employees to
purchase 541,500 shares at $1.04 per share. In connection with the stock option
grants, the Company will record $2.4 million in unearned stock-based
compensation during the second quarter of 1999.

1999 Equity Incentive Plan and 1998 Executive Incentive Plan

   In June 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Equity Incentive Plan, which amended the 1995 Equity
Incentive Plan, and amended the 1998 Executive Incentive Plan (the "Amended
Plans"). The Amended Plans provide for the granting of stock options, stock
appreciation rights, stock bonuses, and restricted stock purchase awards to
employees, including officers, directors or consultants. The Company has
reserved 10,000,000 shares of Common Stock for issuance under the Amended Plans
and on December 31 of each year for 10 years, starting with the year 1999, the
number of shares reserved will automatically increases by 6.5% of the
outstanding Common Stock on a fully-diluted basis, with the number of options
granted which qualify as incentive stock options, never to exceed 8,000,000
shares issued and available.

1999 Employee Stock Purchase Plan

   In June 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan ("Purchase Plan") which
provides for the issuance of 1,500,000 shares of Common Stock pursuant to
purchase rights granted to employees. Under the plan, eligible employees can
have up to 10% of their earnings withheld to be used to purchase shares of
Common Stock on specified dates determined by the Board of Directors. The price
of Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock on the commencement date of
each offering period or the specified purchase date. On August 14 of each year
for 10 years, starting with the year 2000, the number of shares in the reserve
automatically increases by the greater of (i) 2% of the outstanding shares on a
fully-diluted basis, or (ii) the number of shares that have been issued under
the Purchase Plan during the prior 12-month period, so that the reserve
automatically is restored to 1,500,000 shares; never to exceed 16,500,000
shares issued and available.

                                      F-21
<PAGE>

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



                       [LOGO OF VITRIA TECHNOLOGY, INC.]



--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses Of Issuance And Distribution

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

<TABLE>
     <S>                                                               <C>
     SEC Registration Fee............................................. $ 20,850
     NASD Filing Fee..................................................    8,000
     NASDAQ National Market Additional Listing Fee....................   53,750
     Printing.........................................................  150,000
     Legal Fees and Expenses..........................................  400,000
     Accounting Fees and Expenses.....................................  250,000
     Blue Sky Fees and Expenses.......................................   15,000
     Transfer Agent and Registrar Fees................................   10,000
     Director's and Officer's Insurance...............................        *
     Miscellaneous....................................................        *
                                                                       --------
       Total..........................................................        *
                                                                       ========
</TABLE>
    --------
    *To be supplied by amendment.

   We intend to pay all expenses of registration, issuance and distribution.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

   As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:

  . for any breach of duty of loyalty to us or to our stockholders;

  . for acts or omissions not in good faith or that involve intentional
    misconduct or a knowing violation of law;

  . under Section 174 of the Delaware General Corporation Law; or

  . for any transaction from which the director derived an improper personal
    benefit.

   Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify its
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.

   We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify
each director and officer for certain expenses including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of Vitria,
arising out of person's services as our director or officer, any subsidiary of
ours or any other company or enterprise to which the person provides services
at our request.

   The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of Vitria, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.

                                      II-1
<PAGE>

ITEM 15. Recent Sales of Unregistered Securities

   Since inception, Vitria has sold and issued the following unregistered
securities:

   (1) From January 1995 through June 1, 1999, Vitria has granted stock options
to purchase 6,330,740 shares of the common stock and 94,776 shares of Series C
preferred stock to employees, consultants and directors pursuant to its 1999
Equity Incentive Plan and 1998 Executive Incentive Plan. Of these stock
options, 1,266,308 shares have been canceled without being exercised, 2,760,532
shares have been exercised, 623,000 shares of which have been repurchased and
2,303,900 shares remain outstanding. From December 13, 1997 through June 1,
1999, Vitria has also granted restricted stock awards to purchase 1,005,000
shares of the common stock pursuant to the stock option plans, 30,000 shares of
which have been repurchased.

   (2) In December 1994, Vitria issued an aggregate of 11,093,748 shares of
common stock to 7 purchasers at $0.004 per share, for an aggregate purchase
price of $49,552.

   (3) In August 1996, Vitria issued an aggregate of 1,020,000 shares of common
stock to 3 purchasers at $0.10 per share, for an aggregate purchase price of
$102,000.

   (4) In January 1995 and August 1996, Vitria issued an aggregate of 1,519,582
shares of Series A preferred stock to 6 purchasers at $0.36 per share, for an
aggregate purchase price of $540,202. Shares of Series A preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series A preferred stock owned.

   (5) In May 1996, Vitria issued notes convertible into an aggregate of
950,163 shares of Series A1 preferred stock to 3 purchasers at a purchase price
of $0.61 per share for an aggregate purchase price of $579,599, which
conversion occurred in December 1997. Shares of Series A1 preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each shares of Series A1 preferred stock owned.

   (6) From December 1997 to September 1998, Vitria issued an aggregate of
47,500 shares of common stock to 7 purchasers at $0.25 per share, for an
aggregate purchase price of $11,875.

   (7) In October 1997, Vitria issued an aggregate of 5,238,357 shares of
Series B preferred stock to 8 purchasers at $1.81 per share, for an aggregate
purchase price of $9,499,970. Shares of Series B preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series B preferred stock owned.

   (8) From October 1998 to January 1999, Vitria issued an aggregate of
2,843,533 shares of Series C preferred stock to 39 purchasers at a purchase
price of $4.02 per share, for an aggregate purchase price of $11,431,003.
Shares of Series C preferred stock are convertible into shares of common stock
at the rate of one share of common stock for each share of Series C preferred
stock owned.

   (9) In January 1999, Vitria issued an aggregate of 7,500 shares of common
stock to 1 purchaser at $0.70 per share, for an aggregate purchase price of
$5,250.

   (10) In May 1999, Vitria issued an aggregate of 1,003,980 shares of Series D
preferred stock to 17 purchasers at a purchase price of $4.50 per share for an
aggregate purchase price of $4,517,910. Shares of Series D preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series D preferred stock owned.

   The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701.

   The sales and issuances of securities described in paragraphs (2) through
(10) above were deemed to be exempt from registration under the Securities Act
by virtue of Rule 4(2), Regulation D or Regulation S promulgated thereunder.
With respect to the grant of stock options and restricted stock awards
described in

                                      II-2
<PAGE>

paragraph (1), an exemption from registration was unnecessary in that none of
the transactions involved a "sale" of securities as such term is used in
Section 2(3) of the Securities Act.

   Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients either received
adequate information about Vitria or had access, through employment or other
relationships, to such information.

                                      II-3
<PAGE>

ITEM 16. Exhibits and Financial Schedules

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
   1.1*  Form of Underwriting Agreement.
   3.1*  Agreement and Plan of Merger, dated June    , 1999.
   3.2   Amended and Restated Certificate of Incorporation of the Registrant to
         be effective following the closing of this offering.
   3.3   Bylaws of the Registrant.
   4.1   Reference is made to Exhibits 3.1 through 3.3.
   4.2*  Specimen Stock Certificate.
   4.3   Second Amended and Restated Investor Rights Agreement, dated May 20,
         1999.
   5.1*  Opinion of Cooley Godward LLP.
  10.1*  Form of Indemnity Agreement.
  10.2   Amended and Restated 1999 Equity Incentive Plan.
  10.3   1998 Executive Incentive Plan.
  10.4   1999 Employee Stock Purchase Plan.
  10.5   1998 Nonqualified Deferred Compensation Plan.
  10.6   Standard Industrial/Commercial Single-Tenant Lease-Net by and between
         Portola Land Company and the Registrant, dated January 28, 1997.
  10.7   Sublease by and between Applied Materials, Inc. and the Registrant,
         dated April 6, 1999.
  23.1   Consent of PricewaterhouseCoopers LLP.
  23.2*  Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
  24.1   Power of Attorney. See Signature Page.
  27.1   Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.

ITEM 17. Undertakings

   The undersigned registrant hereby undertakes:

   (1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of this prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

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

   (3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, and will be
governed by the final adjudication of such issue.

   (4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.


                                      II-4
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Palo Alto, state of
California, on June 22, 1999.

                                      VITRIA TECHNOLOGY, INC.

                                                /s/ JoMei Chang, Ph.D.
                                      By: _____________________________________
                                                  JoMei Chang, Ph.D.
                                         President and Chief Executive Officer

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints JoMei Chang, Ph.D., Paul Auvil, III and
Dale Skeen, Ph.D., and each of them, his or her true and lawful agent, proxy
and attorney-in-fact, with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities,
to (i) act on, sign and file with the Securities and Exchange Commission any
and all amendments (including post-effective amendments) to this registration
statement together with all schedules and exhibits thereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, together with all schedules and exhibits thereto, (ii) act
on, sign and file such certificates, instruments, agreements and other
documents as may be necessary or appropriate in connection therewith, (iii) act
on and file any supplement to any prospectus included in this registration
statement or any such amendment or any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv)
take any and all actions which may be necessary or appropriate to be done, as
fully for all intents and purposes as he or she might or could do in person,
hereby approving, ratifying and confirming all that such agent, proxy and
attorney-in-fact or any of his substitutes may lawfully do or cause to be done
by virtue thereof.

   In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on these dates stated:

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
        /s/ JoMei Chang, Ph.D.         President, Chief Executive    June 22, 1999
______________________________________  Officer and Director
          JoMei Chang, Ph.D.            (Principal Executive
                                        Officer)

         /s/ Paul Auvil, III           Vice President, Finance,      June 22, 1999
______________________________________  Chief Financial Officer
           Paul Auvil, III              and Secretary (Principal
                                        Financial and Accounting
                                        Officer)

        /s/ Dale Skeen, Ph.D.          Chief Technology Officer      June 22, 1999
______________________________________  and Director
          Dale Skeen, Ph.D.

        /s/ Robert M. Halperin         Director                      June 22, 1999
______________________________________
          Robert M. Halperin

     /s/ William H. Younger, Jr.       Director                      June 22, 1999
______________________________________
       William H. Younger, Jr.

         /s/ John L. Walecka           Director                      June 22, 1999
______________________________________
           John L. Walecka
</TABLE>

                                      II-5
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Document
 -------                         -----------------------
 <C>     <S>
  1.1*   Form of Underwriting Agreement.
  3.1*   Agreement and Plan of Merger, dated June    , 1999.
  3.2    Amended and Restated Certificate of Incorporation of the Registrant to
         be effective following the closing of this offering.
  3.3    Bylaws of the Registrant.
  4.1    Reference is made to Exhibits 3.1 through 3.3.
  4.2*   Specimen Stock Certificate.
  4.3    Second Amended and Restated Investor Rights Agreement, dated May 20,
         1999.
  5.1*   Opinion of Cooley Godward LLP.
 10.1*   Form of Indemnity Agreement.
 10.2    Amended and Restated 1999 Equity Incentive Plan.
 10.3    1998 Executive Incentive Plan.
 10.4    1999 Employee Stock Purchase Plan.
 10.5    1998 Nonqualified Deferred Compensation Plan.
 10.6    Standard Industrial/Commercial Single-Tenant Lease-Net by and between
         Portola Land Company
         and the Registrant, dated January 28, 1997.
 10.7    Sublease by and between Applied Materials, Inc. and the Registrant,
         dated April 6, 1999.
 23.1    Consent of PricewaterhouseCoopers LLP.
 23.2*   Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
 24.1    Power of Attorney. See Signature Page.
 27.1    Financial Data Schedule.
</TABLE>
--------
  * To be filed by amendment.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 338531}]
{"company-data": {"conformed-name": "VITRIA TECHNOLOGY INC", "cik": "0001050808", "assigned-sic": "", "irs-number": "770386311"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-81297", "film-number": "99650335"}, "business-address": {"street1": "500 ELLIS STREET", "city": "MOUNTAINVIEW", "state": "CA", "zip": "94043", "phone": "6502376900"}, "mail-address": {"street1": "500 ELLIS ST", "city": "MOUNTAIN VIEW", "state": "CA", "zip": "94043"}}
As filed with the Securities and Exchange Commission on June 22, 1999
                                                      Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ---------------
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                                ---------------

                            VITRIA TECHNOLOGY, INC.
             (Exact name of Registrant as specified in its charter)
                                ---------------
Delaware                           7372                        77-0386311
  (State or other jurisdiction
               of                  (Primary Standard Industrial         (I.R.S. Employer
 incorporation or organization)     Classification Code Number)      Identification Number)
500 Ellis Street
                            Mountain View, CA 94043
                                 (650) 237-6900
  (Address, including zip code, and telephone number, including area code, of
                    Registrant's principal executive office)
                                ---------------

                               JOMEI CHANG, Ph.D.
                            Vitria Technology, Inc.
                     President and Chief Executive Officer
                                500 Ellis Street
                            Mountain View, CA 94043
                                 (650) 237-6900
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                                ---------------

                                   Copies to:
        Eric C. Jensen, Esq.                    Jose F. Macias, Esq.
         Cooley Godward LLP               Wilson Sonsini Goodrich & Rosati
        Five Palo Alto Square                 Professional Corporation
         3000 El Camino Real                     650 Page Mill Road
         Palo Alto, CA 94306                    Palo Alto, CA 94304
           (650) 843-5000       ---------------    (650) 493-9300

   Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.

   If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 145 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
                                ---------------

                        CALCULATION OF REGISTRATION FEE

------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Proposed Maximum
    Title Of Each Class Of Securities To Be          Aggregate         Amount Of
                   Registered                    Offering Price(1)  Registration Fee
------------------------------------------------------------------------------------
Common Stock, $.001 par value par share........     $75,000,000         $20,850
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee, in
    accordance with Rule 457(o) under the Securities Act of 1933.
                                ---------------

   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED JUNE 22, 1999

                                        Shares

                       [LOGO OF VITRIA TECHNOLOGY, INC.]

                                  Common Stock

                                   ---------

  Prior to this offering, there has been no public market for the common stock.
The initial public offering price of the common stock is expected to be between
$         and $         per share. We have applied to list the common stock on
The Nasdaq Stock Market's National Market under the symbol "VITR."

  The underwriters have an option to purchase a maximum of    additional shares
to cover over-allotments of shares.

  Investing in our common stock involves risks. See "Risk Factors" on page 5.
Underwriting
                                               Price to   Discounts and Proceeds to Vitria
                                                Public     Commissions      Technology
                                             ------------ ------------- ------------------
Per Share..................................        $            $                $
Total......................................  $            $                $
Delivery of the shares of common stock will be made on or about         ,
1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston                                   Merrill Lynch & Co.

               BancBoston Robertson Stephens

                                                      SoundView Technology Group

                  The date of this prospectus is      , 1999.
[DESCRIPTION OF GRAPHICS:

Inside cover gatefold

 .  Vitria logo

 .  Graphic: Combines a graphic of the Vitria solution coupled with a graphical
   representation of an order fulfillment business process. Each step in the
   process is shown as an IT system that is named according to its business
   function (e.g. Billing). The Vitria solution is shown as a graphic that
   illustrates the four elements of our solution: (1) process automation, (2)
   real-time analysis, (3) Internet-based communications, and (4) application
   integration. There is a call-out for each of the elements to describe and/or
   illustrate its function.]
------------

                               TABLE OF CONTENTS
Page
                                                                          ----
Prospectus Summary.......................................................   3

Risk Factors.............................................................   5

Special Note Regarding Forward-Looking Statements........................  16

Use of Proceeds..........................................................  17

Dividend Policy..........................................................  17

Capitalization...........................................................  18

Dilution.................................................................  19

Selected Financial Data..................................................  20

Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  21

Business.................................................................  30
Page
                                                                            ----
Management.................................................................  42

Certain Transactions.......................................................  52

Principal Stockholders.....................................................  53

Description of Capital Stock...............................................  55

Shares Eligible for Future Sale............................................  58

Underwriting...............................................................  60

Notice to Canadian Residents...............................................  62

Legal Matters..............................................................  63

Experts....................................................................  63

Where You Can Find More Information........................................  63

Index to Financial Statements.............................................. F-1
------------

   You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.

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

   Except as otherwise indicated, information in this prospectus is based on
the following assumptions:

  . the conversion of all our outstanding shares of preferred stock into
    shares of common stock upon the closing of this offering;

  . no exercise of the underwriters' over-allotment option;

  . our reincorporation from California to Delaware; and

  . the filing of our amended and restated certificate of incorporation prior
    to the closing of this offering.

   "Vitria" and the Vitria logo are registered trademarks of Vitria, and we
have filed for federal trademark registration for "BusinessWare." This
prospectus also includes trademarks owned by other parties.

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

                     Dealer Prospectus Delivery Obligation

   Until      , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.

                            Vitria Technology, Inc.

   Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite, BusinessWare, combines business process
automation and analysis, application integration and Internet-based
communications in one comprehensive platform. BusinessWare is designed to
provide business managers with an infrastructure that gives them end-to-end
visibility and control of their business operations, enabling them to reduce
time to market, rapidly respond to change, and manage the growing complexity of
business interactions across the extended enterprise.

   Rapid advances in new technology, deregulation and global competition are
transforming today's business environment. In particular, the use of the
Internet to conduct business, often referred to as "eBusiness," is radically
changing business-to-business, business-to-consumer and business-to-employee
interactions. To compete in this new environment, companies must find ways to
streamline and manage mission-critical business processes across their
"extended enterprises" which include their partners and customers. From order
fulfillment to customer service, there are significant benefits to automating
business processes across the extended enterprise. For example, companies that
allow their customers to place and track orders using self-service Web
applications can increase revenue opportunities while reducing order management
and customer service costs. Deploying eBusiness solutions that deliver these
business benefits, however, is a significant challenge.

   To address this challenge, BusinessWare combines in a single solution the
four elements that we believe are essential for an eBusiness platform:

  (1) Process automation--Empowers business users to define, manage and
      automate business processes through a graphical modeling environment;

  (2) Application integration--Integrates the internal and external IT
      systems that implement business process steps across the extended
      enterprise;

  (3) Internet-based communications--Exchanges business information between a
      company and its partners and customers in a secure and reliable fashion
      using Internet standards; and

  (4) Real-time analysis--Gathers key business and process information in
      real time, analyzes the data in real time, and selectively uses the
      results to automatically change business processes.

   We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. To date, we have licensed
BusinessWare to over 30 companies, including CableVision, Covad, Deutsche Bank,
Duke Energy, FedEx, Fujitsu PC, Inacom, Level 3, PageMart Wireless, Qwest, SBC,
Sprint and Verio. We intend to expand our position in our current markets and
leverage this position to penetrate other markets.

   As part of our strategy to establish BusinessWare as the eBusiness platform
of choice, we have developed strong working relationships with leading system
integrators, including Andersen Consulting and EDS. In addition, Vitria is
developing vertical eBusiness solutions built on the BusinessWare platform.

   We were incorporated in California in October 1994. We intend to
reincorporate in Delaware prior to the closing of this offering. Our principal
executive offices are located at 500 Ellis Street, Mountain View, California
94043, and our telephone number is (650) 237-6900. Our Internet address is
www.vitria.com. The information on our website is not incorporated by reference
into this prospectus.

                                       3
The Offering
Common stock offered by Vitria..............            shares
Common stock to be outstanding after this
 offering...................................            shares
Use of proceeds ............................ General corporate purposes, including
                                             relocation of our principal offices,
                                             expansion of our sales and marketing
                                             capabilities, product development, and
                                             other working capital requirements. See
                                             "Use of Proceeds."
Proposed Nasdaq National Market symbol ..... VITR
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and
excludes:

  .  2,061,740 shares subject to options outstanding as of March 31, 1999, at a
     weighted average exercise price of $0.41 per share;

  .  4,488,792 additional shares that we could issue under our stock option
     plans; and

  .  1,500,000 shares that we could issue under our employee stock purchase
     plan.

                         Summary Financial Information
                     (in thousands, except per share data)
Year Ended          Three Months
                                           December 31,        Ended March 31,
                                       ----------------------  ----------------
                                        1996   1997    1998     1998     1999
                                       ------ ------  -------  -------  -------
Statement of Operations Data:
Revenues:
  License............................  $   -- $  955  $ 5,198  $   139  $ 3,487
  Service............................   1,042  1,425    1,633      151    1,472
  Government grant...................     984  1,255      796      371      250
                                       ------ ------  -------  -------  -------
   Total revenues....................   2,026  3,635    7,627      661    5,209
Cost of revenues.....................   1,167  1,611    2,905      493    1,606
                                       ------ ------  -------  -------  -------
Gross profit.........................     859  2,024    4,722      168    3,603
Income (loss) from operations........     235   (655)  (9,875)  (1,607)  (2,840)
Net income (loss)....................     243   (580)  (9,569)  (1,516)  (2,711)
                                       ====== ======  =======  =======  =======
Net income (loss) per share:
  Basic..............................  $ 0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
  Diluted............................  $ 0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
Weighted average shares:
  Basic..............................   7,044  9,915   12,003   10,490   12,699
  Diluted............................  13,835  9,915   12,003   10,490   12,699

Pro forma basic and diluted net loss
 per share...........................                 $ (0.48)          $ (0.12)
Pro forma basic and diluted weighted
 average shares......................                  20,111            23,250
March 31, 1999
                                                             -------------------
                                                             Actual  As Adjusted
                                                             ------- -----------
Balance Sheet Data:
Cash and cash equivalents................................... $11,444  $
Working capital.............................................  10,771
Total assets................................................  18,240
Deferred revenue............................................   3,277
Stockholders' equity........................................  12,023
--------
   See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.

   The as adjusted balance sheet data gives effect to the receipt of net
proceeds of $4.5 million from the sale of 1,003,980 shares of Series D
preferred stock in May 1999 and the net proceeds from the sale of the
       shares of common stock offered hereby at an assumed public offering
price of $     per share after deducting the estimated underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."

                                       4
RISK FACTORS

   You should carefully consider the risks described below before purchasing
our shares. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties not presently known to us or that
we currently see as immaterial may also impair our business operations. If any
of the following risks actually occur, our business could be harmed. In such
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.

Risks Related to Vitria

Our short operating history makes it difficult to evaluate our prospects.

   We were incorporated in October 1994. Until November 1997, we were engaged
primarily in research and development of our initial products. We licensed our
first product in November 1997 and have only recently established sales and
service organizations. We will experience heightened risks and unexpected
expenses and difficulties frequently encountered by small companies in an early
stage of development. Such risks include:

  . fluctuations in operating results and uncertain growth rates;

  . market acceptance of our products;

  . dependence on system integrators;

  . long and variable sales and product implementation cycles;

  . concentration of revenues in a relatively small number of customers;

  . concentration of our revenues in a single product line;

  . need to manage rapidly expanding operations;

  . need to expand our sales and marketing organization; and

  . need to attract, train and recruit qualified personnel.

If we do not manage these risks, our business will be significantly harmed.

We have a large accumulated deficit and expect future losses.

   We have incurred substantial losses since inception as we funded the
development of our products and technologies, and through our efforts to expand
our sales and marketing organization. Our net losses for 1998 were $9.6
million, and our net losses for the three months ended March 31, 1999 were $2.7
million. As of March 31, 1999, we had an accumulated deficit of $12.9 million.
We intend to continue to invest heavily in sales, marketing and research and
development. As a result, we will need to significantly increase our quarterly
revenues to achieve profitability. We cannot predict when we will operate
profitably, if at all.

Our operating results fluctuate significantly and we may not be able to
   maintain our existing growth rates.

   Although we have had significant revenue growth in recent quarters, our
growth rates may not be sustainable and prospective investors should not use
these past results to predict future operating margins or results. Our
quarterly operating results have fluctuated significantly in the past and may
vary significantly in the future. Our future operating results will depend on
many factors, including the following:

  . size and timing of customer orders and product and service delivery;

  . level of demand for our professional services;

  . changes in the mix of our products and services;

                                       5
. actions taken by our competitors, including new product introductions and
    pricing changes;

  . costs of maintaining and expanding our operations;

  . timing of our development and release of new and enhanced products;

  . costs and timing of hiring qualified personnel;

  . success in maintaining and enhancing existing relationships and
    developing new relationships with system integrators;

  . technological changes in our markets, including changes in standards for
    computer and networking software and hardware;

  . deferrals of customer orders in anticipation of product enhancements or
    new products;

  . delays in our ability to recognize revenue as a result of the decision by
    our customers to postpone software delivery;

  . customer budget cycles and changes in these budget cycles;

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

  . costs related to acquisition of technologies or businesses.

   Our revenues and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. Historically, a
substantial portion of revenues in a given quarter have been recorded in the
third month of that quarter, with a concentration of such revenues in the last
two weeks of the third month. We expect this trend to continue and, therefore,
any failure or delay in the closing of orders would have a material adverse
effect on our quarterly operating results. Since our operating expenses are
based on anticipated revenues and because a high percentage of these expenses
are relatively fixed, a delay in the recognition of revenue from one or more
license transactions could cause significant variations in operating results
from quarter to quarter and cause unexpected results.

   We record as deferred revenues payments from customers that do not meet our
revenue recognition policy requirements. Since only a small portion of our
revenues each quarter is recognized from deferred revenues, our quarterly
results will depend primarily upon entering into new contracts to generate
revenues for that quarter. New contracts may not result in revenue in the
quarter in which the contract was signed, and we may not be able to predict
accurately when revenues from these contracts will be recognized.

   As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not a good predictor of
our future performance. If our operating results are below the expectations of
stock market analysts or investors, our stock price is likely to decline.

Market acceptance of our products is uncertain.

   The limited sales and deployment of our products, and limited acceptance of
process automation technology, makes our prospects difficult to predict. In
addition, we have only licensed our products to a small number of customers,
and only a portion of these customers have commenced commercial deployment.
Successful deployment will require our products to interoperate with a variety
of software applications and systems and, in some cases, to process a high
number of transactions per second. If our products fail to satisfy these
demanding technological objectives, our customers will be dissatisfied and our
business will be harmed. Failure to establish a significant base of customer
references will significantly reduce our ability to license our products to
additional customers.

                                       6
Our growth is dependent upon the successful development of relationships with
system integrators.

   We believe that our future growth will depend significantly on our ability
to develop and maintain successful strategic relationships with system
integrators. These entities design and develop custom systems and perform
custom integration of systems and applications. Some system integrators engage
in joint marketing and sales efforts with us. These system integrators include
Andersen Consulting and EDS Corporation. In many cases, these parties have
extensive relationships with our existing and potential customers and influence
the decisions of these customers. We rely upon these firms for recommendations
of our products during the evaluation stage of the purchasing process, as well
as for implementation and customer support services. Our strategy is to
continue to increase the number of licenses to customers introduced to us by
these entities and to rely on them to implement our products at customer sites.
A number of our competitors have stronger relationships with these system
integrators and, as a result, these system integrators may be more likely to
recommend competitors' products and services. In addition, a number of our
competitors have relationships with a greater number of these system
integrators and, therefore, have access to a broader base of enterprise
customers. Our failure to establish or maintain such relationships would
significantly harm our ability to license and successfully implement our
software products. In addition, we rely on the vertical market expertise and
reach of these firms. Therefore, this failure would also harm our ability to
develop new products for new vertical markets. We are currently investing, and
plan to continue to invest, significant resources to develop these
relationships. Our operating results could be adversely affected if these
efforts do not generate license and service revenues necessary to offset such
investment. In addition, if these relationships fail, we will have to devote
substantially more resources to the distribution, sales and marketing,
implementation and support of our products than we would otherwise, and our
efforts may not be as effective as those of the system integrators.

We depend on third party implementation providers.

   We rely on system integrators and other third party implementation
providers. If the number of implementations of our products increases, we must
maintain our existing relationships with these parties and build alliances with
additional implementation partners. These parties are not contractually
required to continue to help implement our products. As a result of the
competition for the resources of these service providers, we may be unable to
obtain sufficient resources to provide the necessary implementation services to
support our needs. If these resources are unavailable, we will be required to
provide these services internally, which would significantly limit our ability
to meet our customers' implementation needs and adversely affect operating
results. In addition, we cannot control the level and quality of service
provided by our current and future implementation partners.

Our dependence upon a limited number of customers could cause fluctuations in
our results.

   A relatively small number of customers account for a significant portion of
our total revenues. In 1998, sales to our ten largest customers accounted for
86% of total revenues. In 1998, sales to Level 3 accounted for 30% of total
revenues, and sales to KPMG accounted for 12% of total revenues. In addition,
research grants awarded to us by the National Institute of Standards and
Technology, or NIST, accounted for 10% of revenues in 1998.

   Our license agreements do not generally provide for ongoing license
payments. Therefore, we expect that revenues from a limited number of new
customers will continue to account for a large percentage of total revenues in
future quarters. Our ability to attract new customers will depend on a variety
of factors, including the performance, quality, breadth and depth of our
products. The loss or delay of individual orders could have a significant
impact on revenues and operating results. Our failure to add new customers that
make significant purchases of our products and services would harm our
business.

Our markets are highly competitive and our customers may choose to purchase our
   competitors' products.

   The market for our products is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is expected to
increase in the future. Increased competition is likely to result in

                                       7
price reductions, reduced gross margins and loss of market share, any one of
which could seriously harm our business. Our current competitors include:

   EAI vendors. We face competition from vendors offering Enterprise
Application Integration, or EAI, software products. EAI products have generally
been designed only to address the application integration needs of customers.
These vendors include Active Software, Inc., CrossWorlds Software, Inc., and
New Era of Networks, Inc., also known as NEON. A number of other companies are
offering products that address specific aspects of EAI including BEA Systems,
Inc., Forte Software, Inc., Hewlett-Packard Company, IBM Corporation and Tibco
Software Inc. In the future, some of these companies may expand their products
to also provide the process automation and real-time analysis functionality of
our BusinessWare product suite.

   Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that provide for some
or all of the functionality of our BusinessWare product suite. We expect that
internally developed application integration and process automation efforts
will continue to be a principal source of competition for the foreseeable
future. In particular, it can be difficult to sell our products to a potential
customer whose internal development group has already made large investments in
and progress towards completion of systems that our products are intended to
replace.

   Other software vendors. We may in the future also encounter competition from
major enterprise software developers such as Oracle Corporation, PeopleSoft,
Inc., and SAP AG. In addition, Microsoft Corporation has announced its
intention to introduce products which could compete with certain aspects of our
products. These companies have significantly greater resources than Vitria.

   Many of our competitors have more resources and broader customer
relationships than we do. In addition, many of these competitors have extensive
knowledge of our industry. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to offer a single solution and increase the ability of their products
to address customer needs.

   Although we believe that our solutions generally compete favorably with
respect to these factors, our market is relatively new and is evolving rapidly.
In the past, we have lost potential customers to competitors for various
reasons, including lower prices for less complex implementations. We may not be
able to maintain our competitive position against current and potential
competitors, especially those with significantly greater resources.

We experience long and variable sales cycles.

   Our products are often used by our customers to deploy mission-critical
solutions used throughout their organization. Customers generally consider a
wide range of issues before committing to purchase our products, including
product benefits, ability to operate with existing and future computer systems,
ability to accommodate increased transaction volume and product reliability.
Many customers will be addressing these issues for the first time. As a result,
we or other parties, such as system integrators, must educate potential
customers on the use and benefits of our products and services. In addition,
the purchase of our products generally involves a significant commitment of
capital and other resources by a customer. This commitment often requires
significant technical review, assessment of competitive products, and approval
at a number of management levels within the customer's organization. Because of
these issues, our sales cycle has ranged from two to nine months and is
difficult to predict for any particular license transaction.

The cost and difficulties of our product implementation may harm our ability to
   license additional products to our customers.

   Our products are often purchased as part of large projects undertaken by our
customers. Such projects are complex, time consuming and expensive. In many
cases, our customers must interact with, modify, or replace significant
elements of their existing computer systems. The costs of our products and
services represent only a portion of the related hardware, software,
development, training and consulting costs. The significant

                                       8
involvement of third parties, such as system integrators, reduces the control
we have over the implementation of our products or the quality of customer
service provided to organizations which license our software. Failure by the
customer to successfully deploy our products, or the failure by us or third
party consultants to ensure customer satisfaction, could damage our reputation
with existing and future customers. Any adverse impact on our ability to
license additional software for new projects to our current customers and enter
into software licenses with new customers would significantly harm our
business.

Our sales are concentrated in certain vertical markets.

   A key element of our strategy is to target certain vertical markets. Sales
to customers in the telecommunications and financial services industries
accounted for 57% of total revenues in 1998 and 73% of total revenues in the
first quarter of 1999. Our future success will depend on our ability to
continue to penetrate these vertical markets. Given our limited market
penetration, the high degree of competition and the rapidly changing
environment in these industries, there is no assurance that we will be able to
continue sales in these industries at current levels. In addition, we intend to
address new vertical markets. Customers in these new vertical markets are
likely to have different requirements and may require us to change our product
design or features, sales methods, support capabilities or pricing policies. A
failure to successfully address these new vertical markets could adversely
affect our business.

   In particular, our strategy is to develop packaged versions of our product
which incorporate business processes of our target vertical markets. This
presents technical challenges and will require collaboration with system
integrators and the commitment of significant resources. If we are not
successful in developing these targeted products or these products do not
achieve market acceptance, our business could be harmed.

Our operating results are substantially dependent on license revenues from one
   product family.

   Since 1998 a majority of our total revenues has been, and is expected to be,
derived from the license of our BusinessWare product suite. Accordingly, our
future operating results will depend on the demand for BusinessWare by future
customers, including new and enhanced releases that are subsequently
introduced. If our competitors release new products that are superior to
BusinessWare in performance or price, or we fail to enhance BusinessWare and
introduce new products in a timely manner, demand for our products may decline.
A decline in demand for BusinessWare as a result of competition, technological
change or other factors would seriously harm our business.

If our products do not operate with the many hardware and software platforms
   and applications used by our customers, we will not be successful.

   We currently serve a customer base with a wide variety of constantly
changing hardware, packaged software applications and networking platforms. To
gain broad market acceptance, we believe that we will have to support our
products on a variety of these platforms. Our success will depend, among
others, on the following factors:

  . our ability to integrate our product with multiple platforms and
    existing, or legacy, systems and to modify our products as new versions
    of packaged applications are introduced;

  . access to the application programming interface, or API, of the packaged
    applications with which our products need to integrate;

  . the portability of our products, particularly the number of hardware
    platforms, operating systems and databases that our products can source
    or target;

  . our ability to anticipate and support new standards, especially Internet
    standards;

  . the integration of additional software modules under development with
    existing products; and

  . our management of software being developed by third parties for our
    customers or use with our product.

                                       9
Our access to APIs of third-party applications are controlled by the
provider of such applications. If the application provider denies or delays our
access to APIs, our business may be harmed. Some application providers may
become competitors or establish alliances with our competitors, increasing the
likelihood that we would not be granted access to their APIs.

We depend on the timely release of our products.

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

Our products rely on third party programming tools and applications.

   Our programs utilize Java programming technology provided by Sun
Microsystems. In addition, we license technology related to the connectivity of
our products to third-party database and other applications. Loss of the
ability to use such technology, delays in upgrades, or failure of these third
parties to support these technologies or offer technology compatible with
emerging industry standards, could harm our business.

New versions and releases of our products may contain errors or defects.

   Our products and their interactions with customers' software applications
and IT systems are complex and, accordingly, there may be undetected errors or
failures when products are introduced or as new versions are released. We have
in the past discovered software errors in our new releases and new products
after their introduction. For example, we discovered problems with respect to
the ability of software written in Java to run sufficiently fast to meet the
needs of users in certain high performance applications. These errors have
resulted in product release delays, delayed revenues and customer
dissatisfaction. We may in the future discover errors, including Year 2000
compliance errors and additional performance limitations, in new releases or
new products after the commencement of commercial shipments. Since many
customers are using our products for mission-critical business operations, any
such occurrence could seriously harm our business.

If we fail to manage the growth of operations, our business may be adversely
affected.

   We must plan and manage our growth effectively in order to successfully
offer products and services and implement our business plan in a rapidly
evolving market. We continue to increase domestically, and to a lesser extent
internationally, the scope of our operations, and have added a number of
employees. For example, the number of our employees grew from 34 at December
31, 1997 to 157 at May 31, 1999. In particular, our sales force grew from four
people at December 31, 1997 to 46 people at May 31, 1999. This growth has and
will continue to place a significant strain on our management systems and
resources. Many of our executive officers have not held positions of comparable
responsibility at a public company. For us to effectively manage our growth, we
must continue to do the following:

  . improve our operational, financial and management controls;

  . improve our reporting systems and procedures;

  . install new management and information control systems; and

  . expand, train and motivate our workforce.

   In particular, we are currently migrating to a new accounting software
package designed to allow greater flexibility in reporting and tracking
results. In addition, we are implementing new management information systems,
including sales and marketing management and human resources management
software. If we fail to

                                       10
install this software in an efficient and timely manner, or if the new systems
fail to adequately support our level of operations, then we could incur
substantial additional expenses to remedy such failures. In addition, by
October 1999 we expect to move our primary offices to a larger facility in
Sunnyvale, California. This move may disrupt our sales and marketing and
research and development activities and adversely impact our business if it is
not done efficiently.

If we do not keep pace with technological change, our customers may purchase
   our competitors' products.

   Our industry is characterized by very rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. Our existing products will be rendered obsolete if
we fail to introduce new products or product enhancements that meet new
customer demands, support new standards or integrate with new or upgraded
versions of packaged applications. We have also found that the technological
life cycles of our products are difficult to estimate. We believe that our
future success will depend upon our ability to continue to enhance our current
product line while we concurrently develop and introduce new products that
anticipate emerging technology standards and keep pace with competitive and
technological developments. Failure to do so will harm our ability to compete.
As a result, we are required to continue to make substantial product
development investments.

If we fail to attract and retain qualified personnel, our business may be
   adversely affected.

   Our success greatly depends on the continued service of our key technical,
sales and senior management personnel. None of these persons are bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel could have a material
adverse effect on our future operating results. In particular Dr. JoMei Chang,
our President and Chief Executive Officer, and Dr. Dale Skeen, our Chief
Technology Officer, would be difficult to replace.

   In addition, our future success will depend in large part upon our ability
to attract, retain and motivate highly skilled employees. In particular, we are
actively seeking a vice president of engineering. We face significant
competition for individuals with the skills required to develop, market and
support our products and services. We cannot assure that we will be able to
recruit and retain sufficient numbers of these highly skilled employees.

Our business and reputation could be harmed if we have improperly reported
   wages or made withholdings for our employees and independent contractors.

   On May 25, 1999 we were subject to an onsite audit by the California
Employment Development Department. The purpose of the audit was to ensure that
we have properly reported wages and made all required withholdings and other
payments under California law for our employees and independent contractors. We
provided the documentary information requested in connection with the audit,
and we are awaiting the results of the audit. To the extent that we are
required to make significant additional payments on behalf of our employees or
independent contractors, or pay penalties, our business and operating results
could be harmed.

Risks Related to Our Industry

We depend on the increasing use of the Internet and on the growth of electronic
   commerce. If the use of the Internet and electronic commerce does not grow
   as anticipated, our business will be seriously harmed.

   We depend on the increased acceptance and use of the Internet as a medium
for electronic commerce and the adoption by businesses of eBusiness solutions.
Rapid growth in the use of the Internet is a recent occurrence. As a result,
acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of business customers may not adopt or continue to use
the Internet as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty, and there exist few proven services and products.

                                       11
If we fail to adequately protect our proprietary rights, we may lose such
   rights and our business may be adversely affected.

   Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual property rights. We rely on a
combination of copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect
our proprietary rights. We have no issued patents. Despite our efforts to
protect our proprietary rights, existing laws afford only limited protection.
Attempts may be made to copy or reverse engineer aspects of our products or to
obtain and use information that we regard as proprietary. Accordingly, there
can be no assurance that we will be able to protect our proprietary rights
against unauthorized third-party copying or use. Use by others of our
proprietary rights could materially harm our business. Furthermore, policing
the unauthorized use of our products is difficult and expensive litigation may
be necessary in the future to enforce our intellectual property rights.

   Certain of our license agreements require us to place the source code for
our products in escrow. These agreements generally provide these customers with
a limited, non-exclusive license to use this code if:

   . we fail to provide products or maintenance and support;

   . we cease to do business without a successor; or

   . there is a bankruptcy proceeding by or against Vitria.

   Our business would be harmed if customers were granted this access.

Our products could infringe the intellectual property rights of others causing
   costly litigation and the loss of significant rights.

   We expect that third parties may claim that we have infringed their current
or future intellectual property rights. We expect that software developers in
our market will increasingly be subject to infringement claims as the number of
products in different software industry segments overlap. Any claims, with or
without merit, could be time-consuming, result in costly litigation, prevent
product shipment or cause delays, or require us to enter into royalty or
licensing agreements, any of which could harm our business. Patent litigation
in particular has complex technical issues and inherent uncertainties. In the
event an infringement claim against us is successful and we cannot obtain a
license on acceptable terms or license a substitute technology or redesign our
products to avoid infringement, our business would be harmed. Furthermore,
former employers of our current and future employees may assert that our
employees have improperly disclosed to us or are using confidential or
proprietary information.

There are many risks associated with international operations which may
   adversely affect our business.

   To date, we have not generated any revenue from sales outside of the United
States. We have recently opened an office in the United Kingdom and intend to
establish additional offices in Europe. We anticipate devoting significant
resources and management attention to expanding international opportunities.
There are a number of challenges to establishing operations outside of the
United States and we may be unable to successfully establish international
operations. If we fail to sell our products in international markets, our
business would be adversely affected.

Potential year 2000 problems with our software, third party equipment or our
   internal operating systems could adversely affect our business.

   Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates, known as "Year 2000 compliant." As
a result, in a few months, computer systems and/or software products used by
many companies may need to be upgraded to be Year 2000 compliant. While we have
assessed our products, services and internal systems, certain internal

                                       12
financial packages have not yet been implemented and may require further
assessment by us. We believe we are currently expending sufficient resources to
review our products and services, as well as our internal management
information systems in order to remedy those products, services and systems
that are not Year 2000 compliant. We expect such modifications will be made on
a timely basis and we do not believe that the cost of such modifications will
have a material effect on our operating results. There can be no assurance,
however, that we will be able to modify such products, services and systems in
a timely and successful manner to be Year 2000 compliant, which could have a
material adverse effect on our operating results. Conversely, concerns
regarding Year 2000 compliance could cause a significant number of companies,
including our current customers, to reevaluate their current system needs and,
as a result, consider switching to other systems and suppliers. Although we
have not experienced the effects of such a trend to date, if customers defer
purchases of our products because of such a reallocation, it could adversely
affect our operating results.

Risks Related to Our Offering

The substantial number of shares that will be eligible for sale in the near
future may adversely affect the market price for our common stock.

   Sales of substantial number of shares of our common stock in the public
market following this offering could materially adversely affect the market
price for our common stock. The number of shares of common stock available for
sale in the public market is limited by restrictions under federal securities
law and under certain agreements that our stockholders have entered into with
the underwriters and with us. Those lockup agreements restrict our stockholders
from selling, pledging our otherwise disposing of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
Credit Suisse First Boston Corporation. However, Credit Suisse First Boston
Corporation may, in its sole discretion, release all or any portion of the
common stock from the restrictions of the lockup agreements. The following
table indicates approximately when the 26,836,895 shares of our common stock
that are not being sold in the offering but which were outstanding as of June
1, 1999 will be eligible for sale into the public market:
Eligibility of Restricted
                                                       Shares for Sale in Public
                                                                Market
                                                       -------------------------
At effective date................................                 0
     180 days after effective date....................        24,693,040
     At various times after the effective date........         2,143,855
Additionally, of the 2,303,900 shares issuable upon exercise of options to
purchase our common stock outstanding as of June 1, 1999, approximately 324,076
shares will be vested and eligible for sale 180 days after the completion of
this offering. For a further description of the eligibility of shares for sale
into the public market following the offering. See "Shares Eligible for Future
Sale."

We may need to raise additional capital that may not be available.

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

  . develop or enhance our products and services;

  . acquire technologies, products or businesses;

  . expand operations, in the United States or internationally;

  . hire, train and retain employees; or

  . respond to competitive pressures or unanticipated capital requirements.

   Our failure to do any of these things could seriously harm our business.

                                       13
Our stock price may be volatile because our shares have not been publicly
traded before.

   Prior to this offering, you could not buy or sell our common stock publicly.

   An active public market for our common stock may not develop or be sustained
after the offering and therefore we cannot predict the extent to how liquid
this market will become. We will negotiate and determine the initial public
offering price with the representatives of the underwriters and this price may
not be indicative of prices that will prevail in the trading market.

   As a result you may be unable to sell your shares of common stock at or
above the offering price. The market price of the common stock may fluctuate
significantly in response to the following factors, most of which are beyond
our control:

  . variations in our quarterly operating results;

  . changes in securities analysts' estimates of our financial performance;

  . changes in market valuations of similar companies;

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

  . loss of a major customer or failure to complete significant license
    transactions;

  . additions or departures of key personnel; and

  . fluctuations in stock market price and volume, which are particularly
    common among securities of software and Internet-oriented companies.

We are at risk of securities class action litigation due to our expected stock
price volatility.

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

We have implemented certain anti-takeover provisions.

   Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:

  . establishment of a classified board of directors such that not all
    members of the board may be elected at one time;

  . authorizing the issuance of "blank check" preferred stock that could be
    issued by our board of directors to increase the number of outstanding
    shares and thwart a takeover attempt;

  . prohibiting cumulative voting in the election of directors, which would
    otherwise allow less than a majority of stockholders to elect director
    candidates;

  . limitations on who may call special meetings of stockholders;

  . prohibiting stockholder action by written consent, thereby requiring all
    stockholder actions to be taken at a meeting of our stockholders; and

  . establishing advance notice requirements for nominations for election to
    the board of directors or for proposing matters that can be acted upon by
    stockholders at stockholder meetings.

   In addition, Section 203 of the Delaware General Corporations Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Vitria.

                                       14
Concentration of ownership among our existing executive officers, directors and
   principal stockholders may prevent new investors from influencing
   significant corporate decisions.

   Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
   % of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change of
control of Vitria and will make some transactions difficult or impossible
without the support of these stockholders. See "Principal Stockholders."

                                       15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

   This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of such
terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, including
the risks outlined under "Risk Factors," that may cause our or our industry's
actual results, levels of activity, performance or achievements to be
materially different from any future results, levels or activity, performance
or achievements expressed or implied by such forward-looking statements.

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

                                       16
USE OF PROCEEDS

   We estimate that the net proceeds to us from the sale of the          shares
of our common stock to be approximately       million, approximately $
million if the underwriters' over-allotment option is exercised in full, at an
assumed initial public offering price of $      per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.

   We expect to use approximately $1.4 million of the net proceeds of the
offering for capital expenditures in connection with leasing a new facility for
our primary offices, which we expect to occupy by October 1999. The remaining
net proceeds will be used for general corporate purposes, including expansion
of sales and marketing capabilities, product development, and other working
capital requirements. We will retain broad discretion over the use of the net
proceeds of this offering. The amounts and timing of the expenditures for these
purposes may vary significantly depending on numerous factors, such as the
progress of our research and development efforts, technological advances and
the competitive environment for our products. We may also use a portion of the
net proceeds to acquire or invest in other businesses, products and
technologies. We have no agreements or understandings regarding any such
acquisition or investments.

   We believe that our available cash, together with the net proceeds of this
offering, will be sufficient to meet our capital requirements for at least the
next twelve months. Pending use of the net proceeds, we intend to invest the
net proceeds in short-term, interest bearing, investment grade securities.

                                DIVIDEND POLICY

   We have never paid or declared any cash dividends. We currently expect to
retain earnings for use in the operation and expansion of our business, and
therefore do not anticipate paying any cash dividends. See "Description of
Capital Stock."

                                       17
CAPITALIZATION

   The following table sets forth the following information:

  . Our actual capitalization as of March 31, 1999;

  . Our pro forma capitalization after giving effect to (1) the receipt of
    net proceeds of approximately $4.5 million from the sale of 1,003,980
    shares of Series D preferred stock in May 1999 and (2) the conversion of
    all outstanding shares of preferred stock upon the closing of this
    offering; and

  . Our pro forma as adjusted capitalization to give effect to the sale of
    the       shares of common stock at an assumed initial public offering
    price of $   per share in this offering, less the estimated underwriting
    discounts and commissions and estimated offering expenses.
March 31, 1999
                                                -------------------------------
                                                            Pro      Pro Forma
                                                 Actual    Forma    As Adjusted
                                                --------  --------  -----------
                                                 (in thousands, except share
                                                            data)
Stockholders' equity:
  Convertible Preferred Stock: issuable in
   series, $0.001 par value; 13,469,745 shares
   authorized, 10,551,635 actual shares issued
   and outstanding; no shares issued and
   outstanding, pro forma; 5,000,000 shares
   authorized; no shares issued and
   outstanding, pro forma as adjusted.......... $     11  $     --    $
  Common Stock: $0.001 par value; 51,000,000
   shares authorized, 15,541,180 actual shares
   issued and outstanding; 27,096,795 shares
   issued and outstanding, pro forma;
   250,000,000 shares authorized;     shares
   issued and outstanding, pro forma as
   adjusted....................................       16        27
  Additional paid-in capital...................   31,391    35,890
  Unearned stock-based compensation............   (6,456)   (6,456)
  Accumulated deficit..........................  (12,939)  (12,939)
                                                --------  --------    -------
    Total stockholders' equity.................   12,023    16,522
                                                --------  --------    -------
      Total capitalization..................... $ 12,023  $ 16,522    $
                                                ========  ========    =======
This table excludes the following shares:

  . 2,061,740 shares of common stock issuable upon the exercise of stock
    options outstanding under our stock option plans, and 4,488,792
    additional shares of common stock available for issuance under these
    stock option plans; and

  . 1,500,000 shares of common stock available for issuance under our
    employee stock purchase plan.

                                       18
DILUTION

   The pro forma net tangible book value of our common stock, on March 31,
1999, after giving effect to the receipt of the net proceeds of approximately
$4.5 million from the sale of 1,003,980 shares of Series D preferred stock in
May 1999 and the conversion of all outstanding shares of preferred stock upon
the closing of the offering was approximately $16,522,000, or approximately
$0.61 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the
number of shares of common stock outstanding. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the net
tangible book value per share of our common stock immediately afterwards.
Assuming our sale of         shares of common stock offered by this prospectus
at an assumed initial public offering price of $      per share, and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, our net tangible book value at March 31, 1999 would have
been approximately $    million or $    per share. This represents an immediate
decrease in net tangible book value of $     per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this dilution:
Assumed initial public offering price per share...................       $
  Pro forma net tangible book value per share at March 31, 1999... $0.61
  Decrease per share attributable to new investors................
                                                                   -----
Pro forma net tangible book value per share after this offering...
                                                                         ------
Dilution per share to new investors...............................       $
                                                                         ======
The following table summarizes, on a pro forma basis, as of March 31, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $     per share, and we have
not deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.
Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent   Amount    Percent Per Share
                                ---------- ------- ----------- ------- ---------
Existing stockholders.......... 27,096,795       % $32,554,000       %   $1.20
New investors..................
                                ----------  -----  -----------  -----
  Total........................                  % $                 %
                                ==========  =====  ===========  =====
The foregoing discussion and tables assume no exercise of any outstanding
stock options. The exercise of options outstanding under our stock option plans
having an exercise price less than the offering price would increase the
dilutive effect to new investors. See "Capitalization" and "Management--
Employee Stock Plans."

   If the underwriters exercise their over-allotment in full, the following
will occur:

  . the number of shares of common stock held by existing stockholders will
    decrease to               or approximately     % of the total number of
    shares of our common stock outstanding; and

  . the number of shares held by new investors will increase to         , or
    approximately    % of the total number of our common stock outstanding
    after this offering.

                                       19
SELECTED FINANCIAL DATA

   The following selected financial data should be read in conjunction with
Vitria's financial statements and related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998, and the balance
sheet data as of December 31, 1997 and 1998, are derived from the audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the period from inception (October 17, 1994) to December
31, 1994 and for the year ended December 31, 1995, and the balance sheet data
as of December 31, 1994, 1995 and 1996, are derived from the audited financial
statements not included elsewhere in this prospectus. The statement of
operations data for the three months ended March 31, 1998 and 1999 and the
balance sheet data as of March 31, 1999 are derived from the unaudited
financial statements included elsewhere in this prospectus. The historical
results are not necessarily indicative of results to be expected for future
periods.
Three Months Ended
                          Period from Inception   Year Ended December 31,            March 31,
                          (October 17, 1994) to ------------------------------  --------------------
                            December 31, 1994    1995    1996   1997    1998      1998       1999
                          --------------------- ------  ------ ------  -------  ---------  ---------
                                                      (in thousands, except per share data)
Statement of Operations
 Data:
Revenues:
 License................          $ --          $   --  $   -- $  955  $ 5,198  $     139  $   3,487
 Service................            67             376   1,042  1,425    1,633        151      1,472
 Government grant.......            --              --     984  1,255      796        371        250
                                  ----          ------  ------ ------  -------  ---------  ---------
   Total revenues.......            67             376   2,026  3,635    7,627        661      5,209
                                  ----          ------  ------ ------  -------  ---------  ---------
Cost of revenues:
 License................            --              --      --     18       --         --         62
 Service................            --              15     183    338    2,109        122      1,294
 Government grant.......            --              --     984  1,255      796        371        250
                                  ----          ------  ------ ------  -------  ---------  ---------
   Total cost of
    revenues............            --              15   1,167  1,611    2,905        493      1,606
                                  ----          ------  ------ ------  -------  ---------  ---------
Gross profit............            67             361     859  2,024    4,722        168      3,603
                                  ----          ------  ------ ------  -------  ---------  ---------
Operating expenses:
 Sales and marketing....            --              --      80  1,143    6,572        701      2,889
 Research and
  development...........           124             575     397    841    4,794        717      1,961
 General and
  administrative........            28              37     147    695    1,807        234        726
 Amortization of stock-
  based compensation....            --              --      --     --    1,424        123        867
                                  ----          ------  ------ ------  -------  ---------  ---------
   Total operating
    expenses............           152             612     624  2,679   14,597      1,775      6,443
                                  ----          ------  ------ ------  -------  ---------  ---------
Income (loss) from
 operations.............           (85)           (251)    235   (655)  (9,875)    (1,607)    (2,840)
Interest income.........            --              14       8     75      306         91        129
                                  ----          ------  ------ ------  -------  ---------  ---------
Net income (loss).......          $(85)         $ (237) $  243 $ (580) $(9,569) $  (1,516) $  (2,711)
                                  ====          ======  ====== ======  =======  =========  =========
Net income (loss) per
 share:
 Basic..................          $ --          $(0.05) $ 0.03 $(0.06) $ (0.80) $   (0.14) $   (0.21)
 Diluted................          $ --          $(0.05) $ 0.02 $(0.06) $ (0.80) $   (0.14) $   (0.21)
Weighted average shares:
 Basic..................            --           4,843   7,044  9,915   12,003     10,490     12,699
 Diluted................            --           4,843  13,835  9,915   12,003     10,490     12,699
Pro forma basic and
 diluted net loss per
 share..................                                               $ (0.48)              $ (0.12)
Pro forma basic and
 diluted weighted
 average shares.........                                                20,111                23,250
December 31,
                                      ------------------------------- March 31,
                                      1994  1995 1996  1997    1998     1999
                                      ----  ---- ---- ------- ------- ---------
                                                   (in thousands)
Balance Sheet Data:
Cash and cash equivalents............ $ 33  $128 $399 $ 9,138 $12,792  $11,444
Working capital......................  (92)  179  585   9,762  12,336   10,771
Total assets.........................  136   252  961  11,141  20,000   18,240
Deferred revenue.....................   --    --   --     223   2,874    3,277
Stockholders' equity (deficit).......  (85)  241  636  10,099  13,391   12,023
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "could" "estimate,"
"expect" "intend" and "plan" and other similar expressions constitute forward-
looking statements. These forward-looking statements are subject to business
and economic risks and uncertainties, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" as well as other risks and
uncertainties referenced in this prospectus.

Overview

   Vitria was incorporated in October 1994. We initially generated revenues
exclusively through consulting contracts with third parties and government
grants from NIST. In June 1997, we commercially released our first products.
With the initial release of these products, we accelerated the development of
our sales and marketing organizations. We have incurred significant losses
since inception, and as of March 31, 1999, we had an accumulated deficit of
$12.9 million.

   We derive revenues from three sources: licenses, services, and government
grants. Since the introduction of our products in 1997, licenses have become
our primary source of revenue. Products are typically licensed to customers for
a perpetual term, with pricing based on the number of systems or applications
managed. We record license revenues when a license agreement has been signed by
both parties, the fee is fixed and determinable, collection of the fee is
probable, and delivery of our product has occurred. For electronic
transmissions, we consider our products to have been delivered when the access
code to download the software from the Internet has been provided to the
customer. Payments received in advance of revenue recognition are recorded as
deferred revenue.

   Service revenues include product maintenance, consulting and training.
Customers who license BusinessWare products normally purchase maintenance
contracts. These contracts provide unspecified software upgrades and technical
support over a specified term, which is typically twelve months. Maintenance
contracts are usually paid in advance, and revenues from these contracts are
recognized ratably over the term of the contract. Customers typically purchase
consulting services from us to enlist our support in implementation activities
related to their purchase of BusinessWare licenses. These consulting services
are generally sold on a time and materials basis and recognized as the services
are performed. We also offer training services which are sold on a per student
basis and recognized as the classes are attended.

   We have received government grants to conduct research and development on
emerging technologies. These grants permit us to be reimbursed for costs
related to these activities. We recognize revenues from these grants as the
research is performed and qualifying costs are incurred.

   We market our products through our direct sales force, and augment our sales
efforts through relationships with system integrators and other strategic
partners. While our revenues to date have been derived exclusively from
accounts in the United States, we opened an office in the United Kingdom in
June 1999. We believe international revenues will represent a more meaningful
component of our total revenues as we grow. To date, we have not experienced
significant seasonality of revenues. We expect that future results may be
affected by the fiscal or quarterly budget cycles of our customers.

   A relatively small number of customers account for a significant portion of
our total revenues. As a result, the loss or delay of individual orders can
have a significant impact on our revenues. In 1998, sales to our ten largest
customers accounted for 86% of total revenues. In 1998, revenues from Level 3,
KPMG and NIST accounted for 30%, 12% and 10% of total revenues. We expect that
revenues from a limited number of

                                       21
customers will continue to account for a large percentage of total revenues in
future quarters. Our ability to attract new customers will depend on a variety
of factors, including the reliability, security, scalability and cost-
effectiveness of our products.

   We have a limited operating history which makes it difficult to predict
future operating results. We believe our success requires expanding our
customer base and continuing to enhance our BusinessWare products. We intend to
continue to invest significantly in sales, marketing and research and
development and expect to incur operating losses for at least the next eighteen
months. Our operating expenses are relatively fixed and are based on
anticipated revenue trends; a delay in the recognition of revenue from one or
more license transactions could cause significant variations in operating
results from quarter to quarter and could result in unforeseen losses. Fees
from contracts that do not meet our revenue recognition policy requirements are
recorded as deferred revenues. While a small portion of our revenues each
quarter is recognized from deferred revenue, our quarterly performance will
depend primarily upon entering into new contracts to generate revenues for that
quarter. New contracts may not result in revenue during the quarter in which
the contract was signed, and we may not be able to predict accurately when
revenues from these contracts will be recognized. As a result of these factors,
we believe that period-to-period comparisons of our results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance. It is likely that in some future quarter our operating
results will be below the expectations of public market analysts and investors.
In such event, the price of our common stock would likely decline.

                                       22
Results Of Operations

   The following tables set forth statement of operations data for each of the
five quarters ended March 31, 1999, as well as the percentage of our total
revenues represented by each item. This information has been derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on the same basis as the audited financial statements contained in
this prospectus and include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
such information. You should read this information in conjunction with our
annual audited financial statements and related notes appearing elsewhere in
this prospectus. Our quarterly operating results are expected to vary
significantly from quarter to quarter and you should not draw any conclusions
about our future results from the results of operations for any quarter.
Mar. 31,   June 30,   Sept. 30,  Dec. 31,   Mar. 31,
                               1998       1998       1998       1998       1999
                             --------   --------   ---------  --------   --------
                                            (in thousands)
Statement of Operations
 Data:
Revenues:
  License..................  $   139    $   888     $ 1,643   $ 2,528    $ 3,487
  Service..................      151        111         279     1,092      1,472
  Government grant.........      371         54         121       250        250
                             -------    -------     -------   -------    -------
   Total revenues..........      661      1,053       2,043     3,870      5,209
                             -------    -------     -------   -------    -------
Cost of revenues:
  License..................       --         --          --        --         62
  Service..................      122        198         540     1,249      1,294
  Government grant.........      371         54         121       250        250
                             -------    -------     -------   -------    -------
   Total cost of revenues..      493        252         661     1,499      1,606
                             -------    -------     -------   -------    -------
Gross profit...............      168        801       1,382     2,371      3,603
                             -------    -------     -------   -------    -------
Operating expenses:
  Sales and marketing......      701      1,653       1,585     2,633      2,889
  Research and
   development.............      717      1,346       1,369     1,362      1,961
  General and
   administrative..........      234        399         617       557        726
  Amortization of stock-
   based compensation......      123        215         412       674        867
                             -------    -------     -------   -------    -------
   Total operating
    expenses...............    1,775      3,613       3,983     5,226      6,443
                             -------    -------     -------   -------    -------
Loss from operations.......   (1,607)    (2,812)     (2,601)   (2,855)    (2,840)
Interest income............       91         69          56        90        129
                             -------    -------     -------   -------    -------
Net loss...................  $(1,516)   $(2,743)    $(2,545)  $(2,765)   $(2,711)
                             =======    =======     =======   =======    =======
As a Percentage of Total Revenues:
Revenues:
  License..................       21%        84%         80%       65%        67%
  Service..................       23         11          14        28         28
  Government grant.........       56          5           6         7          5
                             -------    -------     -------   -------    -------
   Total revenues..........      100        100         100       100        100
                             -------    -------     -------   -------    -------
Cost of revenues:
  License..................       --         --          --        --          1
  Service..................       19         19          26        32         25
  Government grant.........       56          5           6         7          5
                             -------    -------     -------   -------    -------
   Total cost of revenues..       75         24          32        39         31
                             -------    -------     -------   -------    -------
Gross profit...............       25         76          68        61         69
                             -------    -------     -------   -------    -------
Operating expenses:
  Sales and marketing......      106        157          78        68         56
  Research and
   development.............      108        128          67        35         38
  General and
   administrative..........       35         38          30        15         14
  Amortization of stock-
   based compensation......       19         20          20        17         16
                             -------    -------     -------   -------    -------
   Total operating
    expenses...............      268        343         195       135        124
                             -------    -------     -------   -------    -------
Loss from operations.......     (243)      (267)       (128)      (74)       (55)
Interest income............       14          7           3         3          3
                             -------    -------     -------   -------    -------
Net loss...................     (229)%     (260)%      (125)%     (71)%      (52)%
                             =======    =======     =======   =======    =======
23
Revenues

   License. We recognized no license revenue in 1996. License revenues
increased from $955,000 in 1997 to $5.2 million in 1998 primarily due to the
growth in the number of licenses to new customers. Comparing the first quarter
of 1998 to the first quarter of 1999, license revenues increased from $139,000
to $3.5 million due to the growth in the number of licenses to new customers
and higher average transaction size.

   Service. Service revenues increased from $1.0 million in 1996, to $1.4
million in 1997, to $1.6 million in 1998. Prior to the introduction of our
products in 1997, we partially funded our operations through the provision of
custom design services. Throughout 1998, resources were redeployed from custom
design services to product support services in support of the newly introduced
products. This redeployment resulted in a volatile revenue stream and slower
overall growth in service revenues in 1998, as illustrated by the drop in
service related revenues in the second quarter of 1998. Comparing the first
quarter of 1998 to the first quarter of 1999, service revenues grew from
$151,000 to $1.5 million. This substantial increase in service revenues began
in the fourth quarter of 1998 due to the growth of maintenance, support and
consulting revenues associated with license agreements signed in earlier
periods. These service revenues continued to increase in the first quarter of
1999 as we supported a number of new deployments of our products.

   Government grant. Government grant revenues were $984,000 in 1996, $1.3
million in 1997 and $796,000 in 1998. Government grant revenues were $371,000
in the first quarter of 1998 and $250,000 in the first quarter of 1999.
Revenues vary from quarter to quarter based upon the extent to which our
internal development resources are deployed to work on activities covered under
the grants. Since each grant is awarded on a competitive basis, we cannot
predict whether these government grant revenues will continue in future
periods. Based on our current awards, we can conduct research activities and
seek reimbursement for up to an additional $1.4 million of associated costs.

Cost of Revenues

   License. Cost of license revenues consists primarily of royalty payments to
third parties for technology incorporated in certain of our products. We began
incurring these costs in the first quarter of 1999 due to the licensing to our
customers of products which incorporated third-party technology.

   Service. Cost of service revenues consists primarily of salaries, facility
costs, and payments to third party consultants incurred in providing customer
support, training, and implementation services. Cost of service revenues was
$183,000 in 1996, $338,000 in 1997 and $2.1 million in 1998. As a percentage of
our service revenues, these costs represented 18% in 1996, 24% in 1997 and 129%
in 1998. In the first quarter of 1998, cost of service revenues was $122,000,
or 81% of service revenues and, in the first quarter of 1999, $1.3 million, or
88% of service revenues. In the last three quarters of 1998 we invested heavily
in service personnel and infrastructure in anticipation of supporting a larger
customer base in future periods. This increased investment, combined with
slower service revenue growth during this period, resulted in a substantial
increase in the cost of services measured as a percentage of service revenues.
Comparing the third quarter of 1998 to the fourth quarter of 1998 and the first
quarter of 1999, our cost of service revenues increased significantly in dollar
amounts primarily due to our engagement of a third-party service provider to
support our significantly increased activity. We expect that cost of service
revenues will continue to increase in dollar amount as we continue to expand
our customer support organization to meet anticipated customer demand.

   Government grant. Under the terms of the government grants, we receive
reimbursements for costs incurred in connection with related research
activities. The employees who work on the grant activities are members of our
research and development team. Our work related to these grants varies from
quarter to quarter depending on the priorities in the research and development
organization. As eligible work is performed by the research and development
team, the allowable costs are charged to cost of government grant revenues.
These charged costs are exactly equal to the grant revenues recognized.

                                       24
Operating Expenses

   Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, field office expenses, travel and entertainment and
promotional expenses. Sales and marketing expenses increased from $80,000 in
1996, to $1.1 million in 1997, to $6.6 million in 1998, and were $701,000 in
the first quarter of 1998 and $2.9 million in the first quarter of 1999. These
expenses decreased as a percentage of total revenues from approximately 106% in
the first quarter of 1998 to approximately 55% in the first quarter of 1999.
Sales and marketing expense increased in dollar amounts due primarily to the
hiring of additional sales and marketing personnel, increased commissions
associated with higher sales and costs associated with expanded promotional
activities. The decrease in sales and marketing expenses in dollar amount and
as a percentage of total revenues from the second quarter to the third quarter
of 1998 resulted from the departure of several marketing employees and a
decrease in promotional spending. We expect that sales and marketing expenses
will continue to increase in dollar amounts as we continue to expand our sales
and marketing efforts, establish additional U.S. and international sales
offices and increase promotional activities.

   Research and development. Research and development expenses include costs
associated with the development of new products, enhancements to existing
products, and quality assurance activities. These costs consist primarily of
employee salaries, benefits, and the cost of consulting resources that
supplement the internal development team. We have not capitalized any software
development costs and have expensed all such costs as incurred. Research and
development expenses increased from $397,000 in 1996, to $841,000 in 1997, to
$4.8 million in 1998, and were $717,000 in the first quarter of 1998 and $2.0
million in the first quarter of 1999. The increases in the dollar amounts of
research and development expenses during these comparison periods were
primarily attributable to costs related to the hiring of additional personnel.
Research and development expenses consistently increased on a quarterly basis,
with the exception of the third and fourth quarters of 1998. While the dollars
spent on research and development continued to increase during this period, the
portion of these dollars that were spent on activities related to the
government grants and charged to cost of government grant revenues increased
when compared to earlier quarters. We anticipate that we will continue to
devote substantial resources to research and development and that such expenses
will increase in dollar amounts.

   General and administrative. General and administrative expenses consist
primarily of salaries for administrative, executive and finance personnel,
recruiting costs, information systems costs, professional service fees and
allowances for doubtful accounts. These expenses increased from $147,000 in
1996, to $695,000 in 1997, to $1.8 million in 1998 and were $234,000 in the
first quarter of 1998 and $726,000 in the first quarter of 1999. Increases in
dollar amounts were primarily attributable to an increase in the number of
employees, higher professional service fees, and increased allowances for
doubtful accounts. We believe that our general and administrative expenses will
continue to increase in dollar amounts as a result of our growing operations
and the expenses associated with operating as a public company.

   Amortization of stock-based compensation. Amortization of stock-based
compensation includes the amortization of unearned employee stock-based
compensation and expenses for stock granted to consultants in exchange for
services. Employee stock-based compensation expense is amortized over a five-
year vesting period using the multiple option approach. In connection with the
grant of certain employee stock options, we recorded aggregate unearned stock-
based compensation of $8.6 million through March 31, 1999 and expect to record
an additional $2.4 million in the second quarter of 1999. We amortized employee
stock-based compensation expense of $1.3 million in 1998 and $867,000 for the
quarter ended March 31, 1999. We expect to record employee stock-based
compensation expenses of approximately $1.1 million for the quarter ending
June 30, 1999, $1.1 million for the quarter ending September 30, 1999,
$1.0 million for the quarter ending December 31, 1999 and $846,000 for the
quarter ending March 31, 2000. We anticipate such expense to decrease
consistently in future periods. Unearned compensation expense will be reduced
for future periods to the extent that options are terminated prior to full
vesting. We recorded expenses of $147,000 for the year ended December 31, 1998
in connection with stock issued for services.

Interest Income

   Interest income is primarily comprised of income earned on our cash and cash
equivalent balances.

                                       25
Provision For Income Taxes

   We incurred operating losses for all periods with the exception of 1996,
when we had net income of $243,000. Our 1996 tax liability, however, was
reduced due to the utilization of net operating loss carryforwards. Our
deferred tax assets primarily consist of net operating loss carryforwards,
nondeductible allowances and research and development tax credits. We have
recorded a valuation allowance for the full amount of our net deferred tax
assets, as the future realization of the tax benefit is not currently likely.

   As of December 31, 1998, we had net operating loss carryforwards for federal
tax purposes of approximately $7.2 million and for state tax purposes of
approximately $3.3 million. These federal and state tax loss carryforwards are
available to reduce future taxable income and expire at various dates through
fiscal 2013. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may limit the amount of net operating loss
carryforwards that could be utilized annually in the future to offset taxable
income.

Liquidity and Capital Resources

   Since inception, we have financed our operations through private sales of
common and preferred stock, with net proceeds totaling $22.7 million. As of
March 31, 1999, we had $11.4 million in cash and cash equivalents, and $10.8
million in working capital with no outstanding debt. In May 1999, we completed
an additional round of private funding which resulted in net proceeds of $4.5
million.

   Net cash generated in operating activities was $223,000 in 1996. Net cash
used in operating activities was $873,000 in 1997 and $6.8 million in 1998 and
$1.5 million in the three months ended March 31, 1999. Net cash used to fund
operating activities in each of these periods reflect net losses, offset in
part by increases in deferred revenues. Net cash used in investing activities
was $104,000 in 1996, $431,000 in 1997, $947,000 in 1998 and $300,000 for the
first quarter of 1999. Investing activities consist primarily of purchases of
computer hardware and software, office furniture and equipment and leasehold
improvements. Net cash generated from financing activities was $152,000 in
1996, $10.0 million in 1997, $11.4 million in 1998 and $476,000 for the first
quarter of 1999. Net cash generated from financing activities consists
primarily of net proceeds from the issuance of convertible preferred stock.

   We signed a lease for a new principal facility in April 1999. Lease payments
under the agreement commence in August 1999 and continue for forty-nine months,
resulting in aggregate lease expenses of approximately $500,000 per quarter. We
have commitments for capital expenditures in 1999 of $1.4 million related to
the establishment of this facility, which we expect to occupy by October 1999.

   We expect to experience significant growth in our operating expenses for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in this
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next twelve months. Thereafter, we may require
additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise such additional funds
through public or private debt or equity financings. There can be no assurance
that such additional financing will be available, or if available, will be on
reasonable terms and not dilutive to our stockholders.

Recently Issued Accounting Pronouncements

   Our revenue recognition policies are in accordance with Statement of
Position or SOP 97-2, "Software Revenue Recognition" which we adopted on
January 1, 1998, with the exception of the provision deferred by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2." The adoption of
SOP 97-2 resulted, for certain agreements, in the deferral of software license
revenues that would have been recognized upon delivery of the related software
under prior accounting standards. Prior to January 1, 1998, we recorded

                                       26
revenue in accordance with the provisions of SOP 91-1, "Software Revenue
Recognition". In December 1998, SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition" was issued. We adopted SOP 98-9 for all transactions
entered into in fiscal 1999. The adoption of this statement did not have a
material impact on our operating results, financial position or cash flow.

   In March 1998, SOP, 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" was issued. SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We adopted SOP 98-1 in
fiscal 1999. The adoption of this did not have a material effect on our
financial position, results of operations or cash flow.

   In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we
do not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flow. We will
be required to adopt SFAS No. 133 in fiscal 2000.

Qualitative and Quantitative Disclosures About Market Risk

   We develop products in the United States and currently market our products
in North America. We anticipate marketing products in Europe in the second half
of 1999. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As all sales are currently made in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the short-term nature of our investments, we
believe that there is no material risk exposure. Therefore, no quantitative
tabular disclosures are required.

Year 2000 Readiness

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

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

   We have defined Year 2000 compliant as the ability to:

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

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

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

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

  . Recognize year 2000 as a leap year.

                                       27
We are seeking assurances from our vendors that licensed software is Year
2000 compliant. To date, we have received assurances from a subset of the
vendors of our enterprise resource planning software, and technology support
software as to their Year 2000 compliance. Despite testing by us and current
and potential customers, and assurances from developers of products
incorporated into our products, our products may contain undetected errors or
defects associated with Year 2000 date functions. Known or unknown errors or
defects in our products could result in delay or loss of revenues, diversion of
development resources, damage to our reputation, increased service and warranty
costs, or liability from our customers, any of which could seriously harm our
business.

   As a specific example, older versions of Vitria's BusinessWare product were
designed to work with Sun Microsystem's Java Developer Kit version 1.1.5. Sun
Microsystems has announced that this version and earlier versions of the Java
Developer Kit are not Year 2000 compliant. Vitria customers who are still using
these older versions of the BusinessWare products are thus subject to Year 2000
operating risk due to this Java Developer Kit compliance problem. We are
currently working with each of the affected customers to migrate them to newer
versions of the BusinessWare product which use Sun Microsystem's Java Developer
Kit version 1.1.7. Sun Microsystems claims that version 1.1.7 is Year 2000
compliant. We have not made any representations to our customers concerning the
Year 2000 readiness of this development kit. To the extent one or more of these
customers fail to migrate to the newer Vitria BusinessWare products, these
customers could potentially suffer operating difficulties in systems using
Vitria's BusinessWare products. Vitria could be exposed to an indirect
liability in this event.

   Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it. There is a bill
being discussed by Congress which could eliminate liability for certain
failures to achieve Year 2000 compliance. There can be no assurance that this
bill will be signed into law or that it will provide us with any protection.

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

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

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

   We do not have a contingency plan to address situations that may result if
our critical operations are not Year 2000 ready, and we do not anticipate the
need to do so. The cost of developing and implementing such a plan may itself
be material. Finally, we are also subject to external forces that might
generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failure interruptions.

                                       28
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:

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

  . our inability to manage our own business.

                                       29
BUSINESS

   This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause
differences include, but are not limited to, those discussed in "Risk Factors."

   Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite, BusinessWare, combines business process
automation and analysis, application integration and Internet-based
communications in one comprehensive platform. BusinessWare is designed to
provide business managers with an infrastructure that gives them end-to-end
visibility and control of their business operations, enabling them to reduce
time to market, rapidly respond to change, and manage the growing complexity of
business interactions across the extended enterprise.

   We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. To date, we have licensed
BusinessWare to over 30 companies, including CableVision, Covad, Deutsche Bank,
Duke Energy, FedEx, Fujitsu PC, Inacom, Level 3, PageMart Wireless, Qwest, SBC,
Sprint and Verio. We intend to expand our position in our current markets and
leverage this position to penetrate other markets. As part of our strategy to
establish BusinessWare as the eBusiness platform of choice, we have developed
strong working relationships with leading system integrators, including
Andersen Consulting and EDS. In addition, Vitria is developing vertical
eBusiness solutions built on the BusinessWare platform.

Industry Background

   Rapid advances in new technology, deregulation and global competition are
transforming the business environment. In particular, the use of the Internet
to conduct business, often referred to as "eBusiness," is radically changing
business-to-business, business-to-consumer and business-to-employee
interactions. Many companies are exploring innovative business models to
capitalize on this eBusiness opportunity. These eBusiness participants include
established companies transitioning to new Internet-enabled business models,
new companies formed specifically to deliver products and services over the
Internet, and providers of the Internet infrastructure, such as networking and
telecommunications companies. These companies operate in an environment
characterized by rapid change and increasingly complex business interactions
with partners and customers. The business processes that define these complex
interactions often span an "extended enterprise" that links companies with an
Internet-enabled network of partners and customers.

   To compete in this new environment, companies must find ways to streamline
and manage mission-critical business processes across their extended
enterprise. From order fulfillment to customer service, the benefits of
automating business processes across the extended enterprise are significant.
For example, telecommunications service providers that automate manual order
hand-offs between themselves and local network providers can reduce service
activation times, resulting in increased customer satisfaction. Similarly,
companies that allow their customers to place and track orders using self-
service Web applications can increase revenue opportunities while reducing
order management and customer service costs.

   Deploying eBusiness solutions that deliver these business benefits is a
significant challenge. Companies need to define and manage the business
processes that implement these solutions. Once defined, these business
processes must be tied into the underlying information technology, or IT,
systems that support them so that information can flow smoothly from the first
step of the process to the last. Business processes must often coordinate the
flow of information across multiple stand-alone IT systems, including both
packaged applications and legacy systems. These stand-alone systems add
additional complexity to the effort because they typically are not designed to
work with each other.

                                       30
The following diagram illustrates the challenges of deploying an eBusiness
solution. The diagram depicts the order fulfillment process for a company that
allows customers to place orders directly, using a self-service Web
application, and outsources its inventory management and shipping processes to
a distribution partner. The diagram shows how each step in the order
fulfillment process directs the flow of information across internal and
external IT systems, and how these systems must be integrated to smoothly
process the customer order from initial placement to final product delivery to
customer billing.

[Graphic shows the flow of an order from a customer to a Web browser to an
order entry system to an order fulfillment system to an inventory management
system to a billing system.]

   In order to successfully deploy sophisticated eBusiness solutions,
companies need to (1) define, manage and automate their business processes,
(2) integrate the internal and external IT systems that implement business
process steps, (3) exchange business information between a company and its
partners and customers in a secure and reliable fashion using Internet
standards, and (4) gather and analyze, in real time, key business and process
information, and use the results to automatically change business processes.

   Until now, no solution has combined these four elements in a single
platform optimized for the deployment of eBusiness solutions. Current
approaches typically focus on the use of enterprise application integration,
or EAI, software products. These approaches suffer from the following
limitations:

   Weak Process Automation and Real-Time Analysis Functionality. EAI products
   address the application integration aspect of eBusiness solution
   deployment. However, they do not generally provide the functionality to
   manage and automate the business processes that define eBusiness
   solutions. In addition, EAI products typically do not support real-time
   analysis of business and process information.

   Require Extensive IT Involvement. EAI products generally require multiple
   custom software programs to define and implement business processes. As a
   result, the design, implementation and modification of business processes
   require extensive involvement by IT personnel. This makes it is difficult
   for business managers to manage their business processes.

   Limited Scalability. EAI products are typically built on "hub-and-spoke"
   architectures that are designed for single site deployment. Generally,
   solutions based on these architectures can neither be incrementally
   expanded, or scaled, to support high transaction volumes nor distributed
   across multiple locations without incurring significant administrative
   overhead.

   Lack of Support for Internet Standards. Ideally, companies need to
   seamlessly exchange information between their corporate intranets and the
   Internet. EAI products typically use proprietary communication protocols
   and data formats, rather than Internet standards, such as HTTP and XML, to
   exchange information between applications. This makes it difficult for
   companies to deploy eBusiness solutions that link them with their partners
   and customers over the Internet.

   We believe that there is a significant market opportunity for a software
platform that addresses these limitations and enables companies to rapidly
deploy comprehensive eBusiness solutions. The independent research firm,
International Data Corporation, identified this opportunity as the
"Businessware Management System" market in a May 1999 report. IDC estimates
that the market will grow from $313 million in 1998 to more than $5 billion by
2003.

                                      31
Vitria Solution

   Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite BusinessWare, enables customers to deploy
sophisticated eBusiness solutions within and across their extended enterprises.
BusinessWare automates business processes that link partners and customers, and
integrates the underlying IT systems that must work together to support these
processes.

   BusinessWare combines in a single solution the four elements that we believe
are essential for an eBusiness platform:

  (1) Process Automation--Empowers business users to define, manage and
      automate business processes through a graphical modeling environment;

  (2) Application Integration--Integrates the internal and external IT
      systems that implement business process steps across the extended
      enterprise;

  (3) Internet-Based Communications--Exchanges business information between a
      company and its partners and customers in a secure and reliable fashion
      using Internet standards; and

  (4) Real-Time Analysis--Gathers key business and process information in
      real time, analyzes the data in real time, and selectively uses the
      results to automatically change business processes.

   Once customers use BusinessWare to define their business process models and
integrate the underlying IT systems, BusinessWare starts controlling the flow
of information across the IT systems as specified by the process models.
BusinessWare continuously analyzes the customer's business processes and can
automatically change the processes in response to this analysis. This
capability allows companies to transform the information flowing through their
IT systems into "actionable intelligence" that enables business managers to
automate and optimize their business operations.

   BusinessWare allows customers to solve their eBusiness problems using
graphical models rather than developing custom programs. Business managers use
the visual process modeling environment to define their business processes
graphically, and then use our application integration products to map the
graphical models to the underlying IT systems. Our graphical process models are
"directly executable," which means that they can be deployed immediately,
without programming by IT personnel.

   We believe that BusinessWare provides the following benefits to customers:

   Easy for Business Managers to Use. The combination of our graphical process
modeling and automation functionality with our robust application integration
foundation, allows customers to focus on the business objectives of their
eBusiness solutions rather than the mechanics of solution implementation.

   Reduces Time to Market. We enable customers to reduce their time to market
by allowing them to graphically define and automate new business processes to
support the delivery of new products and services.

   Leverages IT Investment. We help companies to preserve and leverage the
substantial IT investment they have made by allowing them to assemble eBusiness
solutions using their existing IT systems.

   Allows Rapid Response to Change. We enable customers to graphically model
their existing business processes, and then continuously refine and optimize
them as business conditions change over time. To change a business process,
managers simply change the associated graphical model.

   Provides a Comprehensive Solution. BusinessWare combines the four elements
of an eBusiness platform in a single comprehensive solution. This eliminates
the need for our customers to purchase and integrate separate solution
components from multiple vendors.

   Scales to Support High Transaction Volumes and Distributed Deployment. Our
platform features an architecture that uses the same distributed processing
principles as those used on the Web. Unlike alternative "hub-and-spoke"
architectures that are optimized for single site deployment, our "federated"
architecture

                                       32
allows customers to incrementally add servers to support increasing loads,
without adding administrative complexity.

   Enables Mission-Critical Deployments. The importance of our customers'
eBusiness initiatives demand that our software platform meets high standards
for performance, security and reliability. BusinessWare has been designed for
superior performance to accommodate the high transaction volumes enabled by the
Internet. In addition, our solution was designed to ensure secure communication
of business information across the extended enterprise using rigorous
authentication and data encryption technologies. BusinessWare provides high
availability through multiple server redundancy and automatic failover to
backup systems.

Strategy

   Our objective is to establish BusinessWare as the leading software platform
for real-time eBusiness. Key elements of our strategy to achieve this objective
include:

   Leverage and Expand Strategic Alliances. We intend to leverage our
relationships with leading system integrators, such as Andersen Consulting and
EDS, to extend our reach and provide comprehensive solutions to our customers.
We have established a group to focus exclusively on strengthening and expanding
these relationships. Our partners' relationships with the most senior levels of
management facilitate access to strategic projects which often generate large
commitments from our customers. We believe that this access also reduces the
length of our sales cycles. In addition, our partners' software deployment
expertise and vertical industry knowledge shortens implementation time and
helps us to secure add-on business.

   Develop Market-Focused Solutions. We are developing packaged eBusiness
solutions built on the BusinessWare platform which capture business processes
used widely in specific vertical markets. We intend to leverage the industry
expertise of our system integrator partners and our customers to rapidly build
these market-focused solutions. We believe customers and partners will derive
significant time-to-market benefits and reduce their implementation and
maintenance costs by deploying these out-of-the-box business solutions. This
strategy also provides us with additional revenue opportunities while reducing
our internal development costs.

   Expand Product and Technology Leadership. We have established a new category
of software platform that combines process automation, application integration,
Internet-based communications, and real-time analysis in a single unified
environment. We intend to continue to introduce innovative products which
enable our customers to rapidly deploy complex business solutions and extend
their enterprise easily and cost-effectively. We also intend to extend our
technological leadership by continuing to invest significantly in research and
development. We have assembled a team of prominent developers and engineers
with expertise in Internet communication protocols, messaging technologies, and
enterprise software and have established a corporate culture which fosters
continuous product innovation. In addition, by promoting and embracing emerging
Internet standards, we intend to facilitate the broad acceptance of our
eBusiness platform.

   Target Fast-Growing Vertical Markets. To date, we have targeted the
telecommunications, business services, manufacturing and financial services
industries. These markets are characterized by high rates of growth, dynamic
business processes and rapid adoption of eBusiness solutions. We intend to
expand our position in these markets and leverage this position to target other
markets.

   Extend Relationships with Customers. The strategic importance of
BusinessWare to our customers allows us to develop relationships with their
senior decision makers. This visibility to senior management and a focused
implementation approach facilitate the rapid adoption and deployment of
BusinessWare throughout the organization. We intend to leverage these
relationships as we introduce new products and services. Additionally, because
BusinessWare is used by companies to automate and manage their interactions
across their extended enterprise, we are introduced to opportunities with our
customers' business partners.

                                       33
Products

   BusinessWare is a software product suite designed to provide customers with
a comprehensive platform for rapidly deploying sophisticated eBusiness
solutions. The BusinessWare platform is illustrated and summarized below:

[Graphic: Depicts the components of the Vitria product suite including the
following:

  . BusinessWare Modeler
  . BusinessWare Administrator
  . BusinessWare Server
  . BusinessWare Automator
  . BusinessWare Analyzer
  . BusinessWare Communicator
  . BusinessWare Connectors and Transformers
  . BusinessWare Common Services
  . Customer's IT systems]

   BusinessWare Modeler. The Modeler is BusinessWare's process modeling
component. Business managers use the Modeler to create graphical models of
their business processes using a point-and-click interface. These process
models provide an intuitive visual representation of interdependent processing
steps. Users can add business rules to each processing step to provide
additional modeling flexibility. Once specified and saved in the BusinessWare
Repository, process models can be directly executed by the BusinessWare
Automator. The Modeler supports advanced modeling constructs that allow users
to define and manage complex, real-world business processes. The Modeler
supports Unified Modeling Language, the industry standard for business process
modeling and automation.

   BusinessWare Server. The BusinessWare Server provides the host environment
for five functional components: Automator, Analyzer, Communicator, Connector
and Transformer. The BusinessWare Server is designed to provide a set of common
services that are shared by each of these components:

  . Security: provides rigorous support for authentication, data encryption
    and access control.

  . Transaction management: ensures the integrity of business processes and
    related updates to underlying IT systems.

  . Persistence: provides automatic recovery in the event of system or
    network failures.

  . Repository: stores and manages all BusinessWare metadata, such as process
    models.

   BusinessWare Automator. Automator is BusinessWare's process automation
component. It executes the business process models defined by users in the
Modeler and stored in the BusinessWare Repository. Automator automates business
processes by coordinating the flow of information among the underlying IT
systems.

   BusinessWare Analyzer. Analyzer selectively gathers and analyzes business
and process information throughout the extended enterprise. Analyzer provides
real-time visibility into key business metrics, that business users need to
manage their business effectively. Analyzer also helps companies to rapidly
identify processing bottlenecks, thus providing them with the information they
need to support their continuous process improvement efforts. Analyzer's
results can be automatically fed back into Automator to change business
processes in real time.

   BusinessWare Communicator. Communicator provides the communications backbone
that ties together all of the BusinessWare components and the IT systems that
they integrate. Communicator provides fast and secure information delivery with
multiple quality of service options. Communicator supports Internet standards,
such as HTTP and XML. Communicator is designed to interoperate with third-party
products, like IBM MQ Series and Microsoft MSMQ.

                                       34
BusinessWare Connectors and Transformers. Connectors and Transformers
together provide BusinessWare's application integration functionality, enabling
heterogeneous IT systems to exchange information.

  . Connectors translate business information to Internet standards, such as
    XML. We provide off-the-shelf Connectors for a number of popular packaged
    applications, messaging systems and databases. We also provide a toolkit
    that enables customers to rapidly develop Connectors for custom or legacy
    systems.

  . Transformers map data structures from one IT system to another. In
    addition to our own transformation components, customers have the option
    to augment their BusinessWare solution with transformation products from
    third parties.

   BusinessWare Administrator. Administrator is BusinessWare's graphical
systems management and monitoring component. Administrator allows systems
administrators to perform local and remote administration from any BusinessWare
server.

Customers and Case Studies

   We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. As of June 15, 1999, over 30
customers had licensed BusinessWare, including the following customers who have
paid $250,000 or more for licenses and related services:
A.B. Watley, Inc.                    ICG Communications, Inc.
       Advanced Radio Telecom Corp.         Inacom Corporation
       CableVision Systems Corporation      KPMG LLP
       Covad Communications Company         Level 3 Communications, Inc.
       Deutsche Bank AG                     PageMart Wireless, Inc.
       Duke Energy Corporation              Qwest Communications Corporation
       Federal Express Corporation          SBC Communications, Inc.
                                            Sprint Communications
       Fujitsu PC Corporation               Company, L.P.
       Hewitt Associates LLC                Verio, Inc.
The following case studies illustrate how some of our customers have used
BusinessWare:

   Covad Communications Group, Inc.

   Covad is a leading high-speed Internet and network access provider offering
DSL-based high speed Internet access through Internet Service Providers, or
ISPs. Covad sells its service indirectly to small and medium businesses and
consumers through ISPs and sells directly to large enterprise customers.

     Opportunity: As a new player in the fiercely competitive
  telecommunications market, Covad needed to make it simple and inexpensive
  for ISPs, to resell Covad's high-speed Internet access service.
  Specifically, they wanted to create an eBusiness link with ISPs that would
  automate the DSL ordering process, improve service levels and lower
  operating costs.

     Solution: Covad is using BusinessWare to build an eBusiness solution
  which enables ISPs to automate their business interactions with Covad. The
  solution will automate the DSL ordering process and integrate each ISP's
  order entry system with Covad's order management system. Covad expects the
  solution to have significant business benefits for both themselves and
  their ISP partners. Major benefits for ISPs include faster time to market
  with a DSL-based Internet access service, automatic access to order status
  information, and lower administration costs. Major benefits for Covad
  include deeper, stronger links with their ISP partners, lower operating
  costs, and the ability to make it easier for ISPs to do business with Covad
  than with competing DSL providers.

                                       35
Fujitsu PC Corporation

   Fujitsu PC Corporation, or FPC, is a subsidiary of Fujitsu Limited, a
leading provider of information technology products and solutions for the
global marketplace. FPC delivers high-performance mobile computing solutions
for the North American market.
     Opportunity: Faced with growing competitive pressures, FPC needed to
  automate their order fulfillment process for custom-configured notebook
  computers. This required FPC to integrate disparate IT systems, including a
  Web-based order configuration system, an enterprise resource planning
  system, and a manufacturing execution system. FPC's goal is to reduce the
  time required to ship orders and improve customer satisfaction.

     Solution: FPC is using BusinessWare to link the IT systems that support
  their order fulfillment process. This will eventually automate the entire
  fulfillment process for custom-configured notebook computers. The
  BusinessWare solution is expected to provide end-to-end visibility and
  control of the process, significantly reducing the time required to take
  customer orders, and assemble and ship custom-configured notebook
  computers. FPC also expects to lower costs and increase customer
  satisfaction.

   Inacom Corporation

   Inacom Corp. is a global Fortune 500 technology services leader. The company
designs, implements and manages distributed technology infrastructure solutions
that optimize clients' return on IT investments.

     Opportunity: One of Inacom's services is to provide an outsourced PC
  service and support operation to meet the needs of Fortune 500 companies
  and major PC hardware vendors. This service is designed to reduce PC
  service and support costs. Inacom needed a solution that would allow them
  to automate these processes, tailor them to the unique requirements of each
  client, and proactively manage them to best-in-industry service levels.

     Solution: Inacom used BusinessWare to graphically model and automate
  their PC service and support processes. In parallel with this initiative,
  the company used BusinessWare to integrate its internal IT systems,
  including a legacy system for managing service dispatch requests, with
  their customers' systems. Now, Inacom's clients can send PC service
  dispatch requests over the Internet, using EDI or XML, to Inacom's PC
  repair technicians. The solution also allows clients to receive automatic
  status updates on all open service requests. This initial project
  established BusinessWare as Inacom's standard platform for eBusiness
  solutions. Subsequent projects will leverage this platform to automate
  additional mission-critical business processes. One project will use
  BusinessWare to enable Inacom's PC hardware vendor customers to
  automatically update Inacom's internal systems each time they change a PC
  part.

Technology

   We have assembled a team of software engineers with expertise in distributed
computing, model-driven business process automation, real-time query processing
and publish-and-subscribe communications. Our founders, Dr. JoMei Chang and Dr.
Dale Skeen, have established reputations as technology innovators. Dr. Chang is
the principal patent author for one of the first "reliable multicast"
protocols. Multicast protocols reduce traffic congestion over the Internet. Dr.
Skeen is the principal author of multiple patents for publish-and-subscribe
communication, which is the preferred communication method for enterprise
application integration. In recognition of our significant technology
expertise, the National Institute of Standards and Technology's Advanced
Technology Program awarded us three prestigious, multi-million dollar research
grants to address complex business integration and supply chain management
problems. For a description of these awards, see "Government Grants."

                                       36
Model-Driven Business Process Automation. We have pioneered and
commercialized the concept of direct manipulation and execution of business
processes through graphical models. This powerful concept combines visual
process modeling with business rules to express and automate complex business
scenarios using terminology and concepts familiar to business users. Advanced
modeling functions, such as nested and concurrent processes, are designed to
provide users with the sophisticated modeling power they need to express the
real-world complexity of today's business operations. In addition, our process
models are dynamically adaptable through a capability known as parameterized
sub-processing. Specifically, this allows companies to define business
processes that can automatically select alternate processing flows based on
current business conditions.

   Real-Time Analysis. We have pioneered and commercialized the concept of a
general purpose real-time query tool. This tool allows users to define queries
that continuously monitor and analyze, in real time, information flowing across
their business processes and IT systems. Real-time query processing is
fundamentally different from more traditional query processing. Whereas
traditional query processing optimizes the one-time, bulk evaluation of a
single query across a large number of records, Vitria's technology is designed
to optimize the incremental evaluation of a single new message against a large
number of outstanding queries. Since it is possible to have thousands of real-
time queries concurrently active, we have developed patent-pending algorithms
for optimizing the processing of a large number of concurrent queries.

   Vitria has also pioneered technology to perform complex real-time queries
that join two or more real-time information streams together, or that join a
real-time information stream to information stored in a database. This
capability significantly increases the power of real-time querying. We have
developed patent-pending algorithms to execute and optimize such complex, real-
time queries.

   Scalability and Reliability. BusinessWare implements a federated
architecture and a naming scheme modeled after that used by the Web. This kind
of architecture partitions workload among an unlimited number of servers and
supports incremental expansion, as needed. Additional servers can be added in a
manner that is transparent to end users and system administrators, resulting in
scalability to high orders of magnitude without unnecessary administrative
overhead. BusinessWare is also designed to support the caching and replication
of information across multiple servers to provide faster information access and
robust failover and recovery support in the event of system or network
failures. BusinessWare supports the option to use a reliable multicast protocol
that is built on top of the Internet-based IP multicast protocol. Multicast
protocols provide a particularly efficient method for disseminating real-time
information to a large number of users. The combination of our federated
architecture, extensive use of cached and replicated information, and support
for multicast protocols is designed to enable our solutions to communicate
business information across the extended enterprise with little latency, and
high scalability and reliability.

   Security. Security is essential for business-critical applications operating
over extranets and the Internet. BusinessWare provides a security framework
based on the widely accepted Secure Socket Layers, or SSL, standard. Our
security framework supports digital signatures, multiple authentication
services and multiple encryption services, including both public key and
private key encryption. The framework is designed to be easily extended to
support additional authentication and encryption services. All BusinessWare
components provide discretionary authorization of users through the use of
Access Control Lists. In addition, BusinessWare can support multiple security
domains and provide secure communication between domains. Security domains
allow the selective and secure sharing of information among business partners,
while allowing each partner to retain control over their own security policies.

Sales and Marketing

   We license our products and sell services primarily through our direct sales
organization, complemented by the selling and support efforts of our system
integrators and other strategic partners. As of June 1, 1999, our sales force
consisted of 46 sales professionals and technical sales engineers located in
nine domestic locations and an office in the United Kingdom. We have sales
offices in the greater metropolitan areas of Boston,

                                       37
Chicago, Dallas, Denver, Irvine, New York City (two offices), San Jose,
Washington D.C., and London, England. System engineers who provide pre-sales
support to potential customers on product information and deployment
capabilities complement our direct sales professionals. We plan to
significantly expand the size of our direct sales organization and to establish
additional sales offices domestically and internationally.

   Our sales process requires that we work closely with targeted customers to
identify short-term technical needs and long-term goals. Our sales team, which
includes both sales and technical professionals, then works with the customer
to develop a proposal to address these needs. In many cases, we collaborate
with our customers' senior management team, including the chief executive
officer, chief information officer and chief financial officer, to develop
mission-critical applications. The level of customer analysis and financial
commitment required for many of our product implementations has caused our
sales cycle to range from two to nine months.

   We focus our marketing efforts on educating potential customers, generating
new sales opportunities, and creating awareness of our products and their
applications. We conduct a variety of marketing programs to educate our target
market, including seminars, trade shows, direct mail campaigns, press
relations, and industry analyst programs.

Strategic Partners

   To enhance the productivity of our sales and service organizations, we have
established relationships with system integrators, value-added resellers and
technology partners.

   System Integrators. We have established strategic relationships with a
number of leading system integrators including Andersen Consulting and EDS.
Many of our system integrators have deep relationships across a broad range of
enterprise customers and our relationships with these system integrators often
enable us to reach key decision makers within these enterprises more quickly,
thus reducing sales cycles. The significant financial and technical resources
of many of our system integrators help us secure large, mission-critical
engagements. Working with system integrators enables us to leverage our service
organization and shorten solution implementation time. In addition, by
leveraging our partners' domain expertise, we can more effectively and rapidly
build custom templates which codify business process solutions for vertical
markets.

   Value-Added Resellers. We also deliver BusinessWare through value-added
resellers or "VARs." VARs enable us to seed the market with specific pre-
packaged solutions built on the BusinessWare platform. Many of these VARs
specialize in providing solutions to particular industries such as
telecommunications and financial services. We intend to leverage our VARs'
industry expertise to deliver solutions that accelerate our penetration in key
markets.

   Technology Partners. Our technology partners include application software,
database and hardware providers. We work with these partners to ensure
compatibility of BusinessWare with their software and hardware. We have
relationships with leading companies including Clarify, Inc., Hewlett-Packard
Company, IBM, Informix Corp., Microsoft Corporation, Oracle Corp., Siebel
Systems, Inc., Sun Microsystems Inc., Sybase Inc. and The Vantive Corporation.

Service and Support

   The primary function of our professional services organization is to
facilitate the implementation of our products by system integrators. We advise
our customers and system integrators on BusinessWare project analysis,
implementation and performance training. Our professional services organization
works closely with our strategic partners to train their personnel in the
design and implementation of our products.

   Customer support is available by telephone and over the Internet seven days
a week, 24 hours a day. Our education services group delivers education and
product training to our customers and strategic partners,

                                       38
concerning the design of business solutions using BusinessWare, as well as the
technical aspects of deployment, use and maintenance. Our professional service
and customer support organizations consisted of 26 employees as of June 1,
1999.

Research and Development

   As of June 1, 1999, our engineering group consisted of 56 employees,
divided into the following groups:

   Product Development. Our product development teams are organized around
   components of BusinessWare. Each component is developed independently in
   order to speed design and testing. Development of the customer interface
   is centralized, with the goal of creating a consistent and unified product
   look and feel.

   Advanced Research. Our advanced research group works independently from
   our product development teams to research and develop advanced
   architectures and technologies. This group also closely monitors
   developments in industry standards related to eBusiness, Internet
   technologies, operating systems, networks and software applications.

   Quality Assurance and Platform Support. This group designs and manages a
   process designed to identify and prevent software defects throughout the
   development cycle.

   Documentation. This group is responsible for creating and maintaining
   customer and system integrator documentation for our products.

   Research and development expenses, together with expenditures under NIST
grants, were $1.4 million in 1996, $2.1 million in 1997 and $5.6 million in
1998.

Government Grants

   We have received three governmental research grants that have funded, and
continue to fund, portions of our research and development. We were awarded
our first grant in January 1996 by the National Institute of Standards and
Technology, commonly referred to as NIST, under its advanced technology
program. This NIST program is a partnership between government and private
industry to encourage commercially promising, but highly challenging research.
We used this grant to fund research and development of model-driven
technologies for integrating IT systems. We received an additional grant from
NIST in October 1997 to conduct further research and development into these
technologies. Under the terms of these grants, we retain all intellectual
property rights to all research results except that the federal government has
a non-exclusive, non-transferable, paid-up license to any patents arising from
this research. In addition, the NIST grants require us to commercially license
the research results. We are fulfilling this obligation by incorporating our
results into our BusinessWare software products.

   Our third grant was awarded to us as a member of the Extended Enterprise
Coalition for Integrated Collaborative Manufacturing Systems, also known as
EECOMS. EECOMS is a consortium of vendors, customers and providers of enabling
technologies, whose goal is to develop new frameworks to improve supply chain
logistics, product delivery to customers, product inventories and the
competitive ability of U.S. manufacturers in the global marketplace. We were
awarded this grant in January 1998 and the grant is scheduled to conclude in
December 2000. Funds under this grant have been used to develop supply chain
scenarios for the extended enterprise. Research results from this grant are
jointly owned by EECOMS and the federal government is granted a non-exclusive
license to these research results and related intellectual property rights. We
have not used these funds for technology development.

                                      39
Competition

   The market for our products is competitive, evolving and subject to rapid
technological change. The intensity of competition is expected to increase in
the future. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any one of which could
seriously harm our business. Our competitors include:

   EAI vendors. We face competition from vendors offering EAI software
products. These vendors include Active Software, Inc., CrossWorlds Software,
Inc., and New Era of Networks, Inc., also known as NEON. A number of other
companies are offering products that address specific aspects of EAI including
BEA Systems, Inc., Forte Software, Inc., Hewlett-Packard Company, IBM and Tibco
Software Inc. EAI products address the application integration needs of
customers. In the future, some of these companies may expand their products to
also provide the advanced process automation and real time analysis
functionality of our BusinessWare product suite.

   Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that substitute for
some or all of the functionality of our BusinessWare product suite. We expect
that internally developed application integration and process automation
efforts will continue to be a principal source of competition for the
foreseeable future. In particular, it can be difficult to sell our products to
a potential customer whose internal development group has already made large
investments in and progress towards completion of systems that our products are
intended to replace.

   Other software vendors. We may in the future also encounter competition from
major enterprise software developers such as Oracle Corporation, PeopleSoft,
Inc., and SAP AG. In addition, Microsoft Corporation has announced its
intention to introduce products which could compete with certain aspects of our
products.

   We believe that the principal competitive factors in our market include:

  . the breadth and depth of solutions;

  . product quality and performance;

  . ability of products to operate with multiple software applications;

  . ability to implement solutions;

  . customer service;

  . relationship with system integrators;

  . establishment of a significant base of reference customers;

  . strength of core technology; and

  . product price.

   Although we believe that our solutions compete favorably with respect to
these factors, our market is relatively new and is evolving rapidly. In the
past, we have lost potential customers to competitors for various reasons,
including lower prices for less complex implementations. We may not be able to
maintain our competitive position against current and potential competitors,
especially those with significantly greater resources.

Intellectual Property and Other Property Rights

   Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily
on a combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws to accomplish these goals.

                                       40
We license BusinessWare pursuant to non-exclusive license agreements which
impose restrictions on customers' ability to utilize the software. In addition,
we seek to avoid disclosure of our trade secrets, including but not limited to,
requiring employees, customers and others with access to our proprietary
information to execute confidentiality agreements with us and restricting
access to our source code. We also seek to protect our software, documentation
and other written materials under trade secret and copyright laws.

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

   Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our products or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the unauthorized use of our products is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.

   It is also possible that third parties will claim that we have infringed
their current or future products. We expect that eBusiness developers will
increasingly be subject to infringement claims as the number of products in
different industry segments overlap. Any claims, with or without merit, could
be time-consuming, result in costly litigation, prevent product shipment, cause
delays, or require us to enter into royalty or licensing agreements, any of
which could harm our business. Patent litigation in particular has complex
technical issues and inherent uncertainties. In the event an infringement claim
against us was successful and we could not obtain a license on acceptable terms
or license a substitute technology or redesign to avoid infringement, our
business would be harmed.

Employees

   As of June 1, 1999, we had a total of 157 employees, including 56 in
research and development, 55 in sales and marketing, 26 in customer support,
professional services and training, and 20 in administration and finance. None
of our employees is represented by a collective bargaining agreement, nor have
we experienced any work stoppage. We consider our relations with our employees
to be good.

   Our success greatly depends on the continued service of our key technical,
sales and senior management personnel. None of these persons are bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel could have a material
adverse effect on our future operating results. In particular Dr. JoMei Chang,
our President and Chief Executive Officer, and Dr. Dale Skeen, our Chief
Technology Officer, would be difficult to replace.

   In addition, our future success will depend in large part upon our ability
to attract, retain and motivate highly skilled employees. In particular, we are
actively seeking a vice president of engineering. We face significant
competition for individuals with the skills required to develop, market and
support our products and services. We cannot assure that we will be able to
recruit or retain sufficient numbers of these highly skilled employees.

Facilities

   Our principal sales, marketing, research and development and administrative
offices are currently located in approximately 18,000 square feet in Mountain
View, California, under a lease that expires on May 1, 2003. On April 6, 1999
we entered into a four-year lease relating to approximately 63,000 square feet
in Sunnyvale, California, which we intend to occupy by October 1999.

                                       41
MANAGEMENT

Executive Officers and Directors

   Our executive officers and directors and information about them as of June
22, 1999 are as follows:
Name                          Age Position
 ----                          --- --------
JoMei Chang, Ph.D. .......... 46  President, Chief Executive Officer and
                                   Director

 Dale Skeen, Ph.D. ........... 44  Chief Technology Officer and Director

 Jay W. Shiveley.............. 42  Senior Vice President, Worldwide Sales

 Aleksander Osadzinski........ 40  Vice President, Marketing

 Paul Auvil, III.............. 35  Vice President, Finance, Chief Financial
                                   Officer and Secretary

 Robert M. Halperin (1)(2).... 71  Director

 John L. Walecka (1).......... 39  Director

 William H. Younger, Jr. (2).. 49  Director
---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

   JoMei Chang, Ph.D., founded Vitria in 1994 and has been our President, Chief
Executive Officer and a Director since Vitria's inception. Prior to founding
Vitria, Dr. Chang was Vice President General Manager, Trader Workstation and
General Manager, Emerging Technologies from 1986 to 1994 at Teknekron Software
Systems, now TIBCO, Inc., a software company. From 1984 to 1986 she served as a
senior engineer in the Network File System group at Sun Microsystems. Dr. Chang
holds a B.S. in Computer Science from National ChiaoTung University, Taiwan and
a Ph.D. in Electrical Engineering on Database Management Systems from Purdue
University.

   Dale Skeen, Ph.D., founded Vitria in 1994 and has been our Chief Technology
Officer and a Director since Vitria's inception. Prior to founding Vitria, Dr.
Skeen worked at TIBCO where he served as Chief Scientist from 1986 to 1994. Dr.
Skeen was a researcher at IBM, Almaden Research Center from 1984 to 1986. Dr.
Skeen was on the faculty at Cornell University from 1981 to 1984. Dr. Skeen
holds a B.S. in Computer Science from North Carolina State University and a
Ph.D. in Distributed Database Systems from the University of California,
Berkeley.

   Jay W. Shiveley, has been our Senior Vice President, Worldwide Sales since
1997. He was Senior Vice President of Operations of Forte Software, Inc., a
software company, from 1991 to 1997. From 1984 to 1991, he worked at Oracle
Corporation and was a principal at Lawson Associates, a financial software
company, from 1981 to 1984. Mr. Shiveley holds a B.S. in Finance and Accounting
from Mankato State University.

   Aleksander Osadzinski, has been our Vice President, Marketing since 1998.
From 1996 to 1998 he was Vice President of Sales and Marketing at Be, Inc., a
company specializing in computer operating systems. From 1994 to 1996,
Mr. Osadzinski held a number of management positions at Grass Valley Group, a
producer of digital video production equipment, most recently as General
Manager of the Telecommunications Unit. Mr. Osadzinski has also held a number
of management positions in both the United States and Europe at Sun
Microsystems, including Vice President, Markets and Product Strategy from 1986
to 1994.

   Paul Auvil, III, has been our Vice President, Finance and Chief Financial
Officer since 1998, and Secretary since 1999. From 1997 to 1998, he served as
Vice President and General Manager of the Internet Products Division of VLSI
Technology Inc., a semiconductor company, and as its General Manager, PC
Products Strategic Business Unit from 1996 to 1997. Mr. Auvil also held various
other positions at VLSI, including European Controller in 1992 and Director of
Financial Planning from 1993 to 1995. Mr. Auvil holds a Bachelor of Engineering
from Dartmouth College and an Master of Management from the Kellogg Graduate
School of Management.

                                       42
Robert M. Halperin, has been a Director since 1994. Mr. Halperin has been an
advisor to Greylock Management, a venture capital firm, since 1994. Mr.
Halperin was also Vice Chairman of the Board of Raychem Corporation, an
electronic instrument and controls company, from 1990 to 1994. Mr. Halperin is
also a director of Avid Technology Inc., a computer peripheral company,
theGlobe.com, an Internet information service provider, as well as several
privately-held companies. Mr. Halperin holds a Ph.B. in Liberal Arts from the
University of Chicago, a Bachelor of Mechanical Engineering from Cornell
University and an M.B.A. from Harvard Business School.

   John L. Walecka, has been a Director since 1997. He has been a general
partner of venture capital funds associated with Brentwood Associates since
1990. From 1984 to 1990, Mr. Walecka was an associate with Brentwood
Associates. He is also a director of Rhythms Net Connections, a provider of
high-speed Internet access, Xylan Corporation, a company specializing in
telephone and telegraph equipment, Documentum, Inc., a software firm, and
several privately-held companies. Mr. Walecka holds a B.S and M.S. in
Engineering and an M.B.A. from Stanford University.

   William H. Younger, Jr., has been a Director since 1997. Mr. Younger is the
managing director and a general partner of Sutter Hill Ventures, a venture
capital firm, where he has been employed since 1981. Mr. Younger currently
serves as a director of Forte Software, Inc., a software company, and
Information Advantage Inc., a software company specializing in Web-based
intelligence technologies and several privately-held companies. Mr. Younger
holds a B.S.E.E. degree from the University of Michigan and an M.B.A. from
Stanford University.

   There are no family relationships between any of our directors or executive
officers, except that JoMei Chang, Ph.D. our President, Chief Executive Officer
and a Director and Dale Skeen, Ph.D., our Chief Technology Officer and a
Director, are married.

Board Committees

  . Audit committee. Our audit committee currently consists of Messrs.
    Halperin and Walecka. The audit committee reviews our internal accounting
    procedures and consults with and reviews the services provided by our
    independent accountants.

  . Compensation committee. Our compensation committee currently consists of
    Messrs. Younger and Halperin. The compensation committee administers our
    stock option plans, reviews and approves the compensation and benefits of
    all our officers and establishes and reviews general policies relating to
    compensation and benefits of our employees.

Director Compensation

   Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings.

Compensation Committee Interlocks and Insider Participation

   None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Messrs. Younger and Halperin serve as members of the compensation committee.
Mr. Halperin is an investor in Vitria. Mr. Younger is affiliated with funds
that have invested in Vitria. See "Certain Transactions."

Board Composition

   Upon the closing of this offering, we will have authorized five directors.
In accordance with the terms of our certificate of incorporation, the terms of
office of the board of directors will be divided into three classes. As a
result, a portion of our board of directors will be elected each year. The
division of the three classes and their respective election dates are as
follows:

  . the class I directors' term will expire at the annual meeting of
    stockholders to be held in 2000;

                                       43
. the class II directors' term will expire at the annual meeting of
    stockholders to be held in 2001; and

  . the class III director's term will expire at the annual meeting of
    stockholders to be held in 2002.

   Our class I directors will be Dr. Skeen and Mr. Younger. Our class II
directors will be Messrs. Halperin and Walecka. Our class III director will be
Dr. Chang. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will
be elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management of Vitria.

Executive Compensation

   The following table sets forth summary information concerning the
compensation paid to our Chief Executive Officer and four most highly
compensated executive officers for services during the year ended December 31,
1998.

                           Summary Compensation Table
Annual Compensation
                                     ----------------------------
                                                       Number of
                                                       Securities
                                                       Underlying    Other
Name and Principal Position           Salary   Bonus    Options   Compensation
---------------------------          -------- -------- ---------- ------------
JoMei Chang, Ph.D.(1)............... $175,000 $ 75,000       --          --
 President and Chief Executive
  Officer

Dale Skeen, Ph.D.(2)................  150,000   60,000       --          --
 Chief Technology Officer

Jay W. Shiveley.....................  140,000  210,000  150,000          --
 Senior Vice President, Worldwide
  Sales

Aleksander Osadzinski(3)............   39,965       --  300,000          --
 Vice President, Marketing

Paul Auvil, III(4)..................  126,215   29,479  250,000      $4,302
 Vice President, Finance, Chief
  Financial
 Officer and Secretary
---------------------
(1) Dr. Chang's salary figure includes $9,798 in non-qualified deferred
    compensation.
(2) Dr. Skeen's salary figure includes $8,592 in non-qualified deferred
    compensation.
(3) Mr. Osadzinski joined our company in October 1998. His current annual
    salary is $185,000.
(4) Mr. Auvil joined our company in April 1998. His current salary is $160,000.
    Mr. Auvil's other annual compensation consists of reimbursement of
    relocation expenses.

                       Option Grants in Fiscal Year 1998

   The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1998, to each of the individuals listed on the previous
table.

   The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at
fair market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares.

                                       44
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by

  . multiplying the number of shares of common stock subject to a given
    option by the assumed initial public offering price of $    per share;

  . assuming that the aggregate stock value derived from that calculation
    compounds at the annual 5% or 10% rate shown in the table until the
    expiration of the options; and

  . subtracting from that result the aggregate option exercise price.

   The initial public offering price may be higher than the estimated fair
market value on the date of grant, and the potential realizable value of the
option grants could be significantly higher than the numbers shown in the table
if future stock prices were projected to the end of the option term by applying
the same annual rates of stock price appreciation to the initial public
offering price.

   The shares listed in the following table under "Number of Securities
Underlying Options Granted" are subject to vesting. Upon completion of 12
months of service from the vesting start date, 20% of the option shares vest
and the balance vest in a series of equal monthly installments over the next
four years of service. Each of the options has a ten-year term, subject to
earlier termination if the optionee's service with us ceases. See "Employee
Stock Plans" for a description of the material terms of these options.

   Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal Year" are based on an aggregate of 3,257,740 options granted to
employees of Vitria under our stock option plans during the fiscal year ended
December 31, 1998.
Potential Realizable Value
                                                                            at Assumed Annual
                         Number of   Percent of                           Rates of Stock Price
                         Securities Total Options                           Appreciation for
                         Underlying  Granted to   Exercise                     Option Term
                          Options   Employees in  Price Per Expiration ---------------------------
Name                      Granted    Fiscal Year    Share      Date         5%            10%
----                     ---------- ------------- --------- ---------- ------------- -------------
JoMei Chang, Ph.D. .....     --          --          --         --          --            --
Dale Skeen, Ph.D. ......     --          --          --         --          --            --
Jay W. Shiveley.........  150,000       4.60%       $0.25    10/15/08
Aleksander Osadzinski...  300,000       9.21%       $0.25    10/15/08
Paul Auvil, III.........  250,000       7.67%       $0.25     5/18/08
45
Fiscal Year-End Option Values

   The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1998.

   Amounts shown under the column "Value Realized" are based on the difference
between the fair market value of the common stock at December 31, 1998 as
determined by the board of directors and the exercise price of the options.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1998" are based on the assumed initial public offering price of
$          , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the exercise price payable for these shares. Vitria's stock
option plans allow for the early exercise of options granted to employees. All
options exercised early are subject to repurchase by Vitria at the original
exercise price, upon the optionee's cessation of service prior to the vesting
of the shares.
Number of Securities
                                                   Underlying Unexercised     Value of Unexercised
                                                         Options at          In-the-Money Options at
                                                      December 31, 1998         December 31, 1998
                         Shares Acquired  Value   ------------------------- -------------------------
Name                       on Exercise   Realized Exercisable/Unexercisable Exercisable/Unexercisable
----                     --------------- -------- ------------------------- -------------------------
JoMei Chang, Ph.D. .....       --           --               --                        --
Dale Skeen, Ph.D. ......       --           --               --                        --
Jay W. Shiveley.........     200,000(1)  $90,000          550,000/0
Aleksander Osadzinski...     112,500(2)   50,625                0/0
Paul Auvil, III.........     250,000(3)   90,000          187,500/0
---------------------
(1) Includes 50,000 shares subject to repurchase as of December 31, 1998.
(2) Includes 112,500 shares subject to repurchase as of December 31, 1998.
(3) Includes 250,000 shares subject to repurchase as of December 31, 1998.

                                       46
Employee Stock Plans

 1999 Equity Incentive Plan.

   We adopted the 1999 Equity Incentive Plan in June 1999. The incentive plan
is an amendment and restatement of our 1995 Equity Incentive Plan.

   Share Reserve. We have currently reserved 10,000,000 shares for issuance
under the incentive plan, less shares issued or issuable under Vitria's 1998
Executive Incentive Plan. On December 31 of each year for 10 years, starting
with the year 1999, the number of shares in this reserve shared by the
incentive plan and the executive plan will automatically increase by 6.5% of
the outstanding common stock on a fully-diluted basis. However, no more than
8,000,000 shares may be used for incentive stock options under both the
executive plan and the incentive plan. If stock awards granted under the
incentive plan expire or otherwise terminate without being exercised, the
shares not acquired pursuant to the stock awards again become available for
issuance under the incentive plan.

   Administration. The board administers the incentive plan unless it has
delegated administration to a committee. The board has the authority to
construe, interpret and amend the incentive plan as well as to determine:

  . the grant recipients;

  . the grant dates;

  . the number of shares subject to the award;

  . the exercisability of the award;

  . the exercise price;

  . the type of consideration; and

  . the other terms of the award.

   Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code of 1986, as amended, to employees,
including officers, of Vitria or an affiliate of Vitria. The board may grant
nonstatutory stock options, stock bonuses, restricted stock purchase awards and
stock appreciation rights to employees, including officers, or directors of and
consultants to Vitria or an affiliate of Vitria. A restricted stock purchase
award is an offer to purchase our shares at a price either at or near the fair
market value of the shares. A stock bonus, on the other hand, is a grant of our
shares at no cost to the recipient in consideration for past services rendered.
Vitria may reacquire the shares under either type of award at the original
purchase price (which is zero in the case of a stock bonus) if the recipient's
service to Vitria or an affiliate is terminated before the shares vest. A stock
appreciation right is a right that allows a recipient to elect to receive cash
or stock of a value equal to the appreciation of optioned rights.

   The board may not grant an incentive stock option to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of Vitria or any affiliate of Vitria, unless
the exercise price is at least 110% of the fair market value of the stock on
the grant date and the option term is five years or less. In addition, the
aggregate fair market value, determined at the grant date, of incentive stock
option shares that are exercisable for the first time during a calendar year
(under the incentive plan and all other stock plans of Vitria and its
affiliates) may not exceed $100,000.

   Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations to certain compensation paid to
specific employees in a taxable year to the extent that the compensation
exceeds $1,000,000. When we become subject to Section 162(m), the board may not
grant options and stock appreciation rights under the incentive plan to an
employee covering an aggregate of more than 1,200,000 shares in any calendar
year.

                                       47
Options and Stock Appreciation Rights. The board may grant incentive stock
options and stock appreciation rights with an exercise price of 100% or more of
the fair market value of a share of our common stock on the grant date. It may
grant nonstatutory stock options with an exercise price as low as 85% of the
fair market value of a share on the grant date.

   Option Terms. The maximum option term is 10 years. The board may provide for
exercise periods of any length in individual option grants, subject to certain
limitations. However, generally an option terminates three months after the
optionholder's service terminates. If the termination is due to the
optionholder's disability, the exercise period generally is extended to 12
months. If the termination is due to the optionholder's death or if the
optionholder dies within three months after his or her service terminates, the
exercise period generally is extended to 18 months following death.

   Other Provisions. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may
be transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.

   The board determines the purchase price of other stock awards, but the
purchase price may not be less than 85% of the fair market value of Vitria's
common stock on the grant date. However, the board may award stock bonuses in
consideration of past services without a purchase payment. Shares sold or
awarded under the incentive plan may, but need not be, restricted and subject
to a repurchase option in favor of Vitria in accordance with a vesting schedule
that the board determines. The board, however, may accelerate the vesting of
the restricted stock.

   Transactions not involving receipt of consideration by Vitria, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive plan, to the incentive stock option limitation and to the Section
162(m) limitation. It also will adjust outstanding awards as to the class,
number of shares and price per share subject to the awards.

   Upon a change in control of Vitria the surviving entity will either assume
or substitute outstanding awards under the incentive plan. Otherwise, the
vesting and exercisability of awards generally will accelerate.

   Options Issued. As of June 1, 1999, Vitria has issued 2,698,032 shares upon
the exercise of options under the incentive plan, 598,000 shares of which have
been repurchased and 1,326,192 shares of which are subject to repurchase;
options to purchase 2,043,900 shares were outstanding; and 4,488,792 shares,
less shares issued or issuable pursuant to the exercise or award of stock
awards under Vitria's 1998 Executive Incentive Plan, remained available for
future grant. As of June 1, 1999, the board has granted 1,005,000 restricted
stock awards under the incentive plan, 30,000 shares of which have been
repurchased. The incentive plan will terminate in 2009 unless the board
terminates it sooner.

1998 Executive Incentive Plan

   We adopted the 1998 Executive Incentive Plan in October 1998 and amended it
in December 1998. We again amended the executive plan in June 1999.

   Share Reserve. We have currently reserved 10,000,000 shares for issuance
under the executive plan less shares issued or issuable under Vitria's 1999
Equity Incentive Plan. On December 31 of each year for 10 years, starting with
the year 1999, the number of shares in this reserve shared by the incentive
plan and the executive plan will automatically increase by 6.5% of the
outstanding common stock on a fully-diluted basis. However, no more than
8,000,000 shares may be used for incentive stock options under both the
executive plan and the incentive plan. If options granted under the executive
plan expire or otherwise terminate without being exercised, the shares not
acquired pursuant to the options again become available for issuance under the
executive plan.

                                       48
Administration. The board administers the executive plan unless it has
delegated administration to a committee. The board has the authority to
construe, interpret and amend the executive plan as well as to determine:

  . the grant recipients;

  . the grant dates;

  . the number of shares subject to the option;

  . the exercisability of the option;

  . the exercise price;

  . the type of consideration; and

  . the other terms of the option.

   Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to employees, including officers, of
Vitria or an affiliate of Vitria. The board may grant nonstatutory stock
options to employees, including officers, or directors of and consultants to
Vitria or an affiliate of Vitria.

   The board may not grant an incentive stock option to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of Vitria or an affiliate of Vitria, unless the
exercise price is at least 110% of the fair market value of the stock on the
grant date and the option term is five years or less. In addition, the
aggregate fair market value, determined at the grant date, of incentive stock
option shares that are exercisable for the first time during a calendar year
(under the executive plan and all other stock plans of Vitria and its
affiliates) may not exceed $100,000.

   Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations to compensation paid to specific
employees in a taxable year to the extent that the compensation exceeds
$1,000,000. When we become subject to Section 162(m), the board may not grant
options under the executive plan to an employee covering an aggregate of more
than 1,200,000 shares in any calendar year.

   Options Rights. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date. It may grant nonstatutory stock options with any exercise
price it determines.

   Option Terms. The maximum incentive stock option term is 10 years. The board
may provide for exercise periods of any length in individual option grants.
However, generally an option terminates three months after the optionholder's
service terminates. If the termination is due to the optionholder's disability,
the exercise period generally is extended to 12 months. If the termination is
due to the optionholder's death or if the optionholder dies within three months
after his or her service terminates, the exercise period generally is extended
to 18 months following death.

   Other Provisions. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock option rights
may be transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.

   Transactions not involving receipt of consideration by Vitria, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the executive plan and to
outstanding options. In that event, the board will appropriately adjust the
executive plan as to the class and the maximum number of shares subject to the
executive plan and to the Section 162(m) limitation. It also will adjust
outstanding options as to the class, number of shares and price per share
subject to the options.

                                       49
Upon a change in control of Vitria the surviving entity will either assume
or substitute all outstanding options under the executive plan. Otherwise, the
vesting and exercisability of the options generally will accelerate.

   Options Issued. As of June 1, 1999, Vitria has issued 62,500 shares upon the
exercise of options under the executive plan, 25,000 of which have been
repurchased and 31,666 of which are subject to repurchase; options to purchase
260,000 shares were outstanding; and 4,488,792 shares less shares issued or
issuable pursuant to the exercise or award of stock awards under Vitria's 1999
Equity Incentive Plan, remained available for future grant. The executive plan
will terminate in 2008 unless the board terminates it sooner.

1999 Employee Stock Purchase Plan

   We adopted the 1999 Employee Stock Purchase Plan in June 1999.

   Share Reserve. We authorized the issuance of 1,500,000 shares of our common
stock pursuant to purchase rights granted to employees of Vitria and to
employees of designated affiliates of Vitria. On August 14 of each year for
10 years, beginning in 2000, the number of shares in the reserve automatically
will be increased by the greater of:

  . 2% of our outstanding shares on a fully-diluted basis, or

  . that number of shares so that the share reserve is 1,500,000 shares.

The automatic share reserve increase in the aggregate may not exceed 16,500,000
shares over the 10-year period.

   Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offerings
of purchase rights to eligible employees. Generally, all employees of Vitria
and any United States affiliate may participate in the purchase plan, excluding
part-time and seasonal employees. However, no employee may participate in the
purchase plan if immediately after we grant the employee a purchase right, the
employee has voting power over 5% or more of our outstanding capital stock. As
of the date of this prospectus, no shares of common stock have been purchased
under the purchase plan.

   Administration. Under the purchase plan, the board may specify offerings of
up to 27 months. The first offering will begin on the effective date of this
initial public offering. Unless the board otherwise determines, our common
stock is purchased for accounts of participating employees at a price per share
equal to the lower of:

  . 85% of the fair market value of a share on the first day of the offering,
    or

  . 85% of the fair market value of a share on the purchase date.

   The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:

  . 85% of the fair market value of a share on the day they began
    participating in the purchase plan, or

  . 85% of the fair market value of a share on the purchase date.

   Under the current offering, employees may authorize payroll deductions of up
to 10% of their base compensation, not including sales commissions or bonuses,
for the purchase of stock under the purchase plan and may end their
participation in the offering at any time up to 10 days before a purchase date.
Participation ends automatically on termination of employment with Vitria or
its affiliate.

   Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase

                                       50
plans established by Vitria or its affiliate, if any, do not permit the
employee's rights to purchase our stock to accrue at a rate that exceeds
$25,000 of the fair market value of our stock for each calendar year in which
the purchase rights are outstanding. The board also may limit the number of
shares that an employee may purchase on any purchase date.

   Upon a change of control of Vitria the board may provide that the successor
corporation will assume or substitute outstanding purchase rights.
Alternatively, the board may shorten the offering and provide that shares will
be purchased for participants immediately before the change in control.

 401(k) Plan

   The Company maintains a 401(k) Plan for eligible employees. An employee
participant may contribute up to 20% of his or her total annual compensation to
the 401(k) Plan, up to a legal annual limit. The annual limit for calendar year
1999 is $10,000. Each participant is fully vested in his or her deferred salary
contributions. Participant contributions are held and invested by the 401(k)
Plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have made
no contributions to the 401(k) Plan on behalf of the participants. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code, so
that contributions by employees or by Vitria to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by Vitria, if any,
will be deductible when made.

 1998 Nonqualified Deferred Compensation Plan

   In December 1998, we established a nonqualified, unfunded deferred
compensation plan for executive officers providing for payments upon
retirement, death or disability. Under the plan, these employees receive
payments equal to the employee's entire accrued benefit, the sum of all
deferred amounts and any discretionary corporate contributions credited to the
plan and due and owing to the employee, together with earning adjustments,
minus any distributions. These employees may elect to defer up to 70% of their
salary compensation and 100% of their bonus compensation. As of June 1, 1999,
we have not made any contributions to the plan. Amounts, if any, deferred by
executive officers during 1998 are included in the Summary Compensation Table
above.

Limitation of Liability and Indemnification

   Our amended and restated certificate of incorporation and bylaws contain
provisions permitted under Delaware law relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in circumstances involving
wrongful acts, such as:

  . for any breach of the director's duty of loyalty to Vitria or our
    stockholders;

  . for acts or omissions not in good faith or which involve intentional
    misconduct or a knowing violation of law;

  . for any acts under Section 174 of the Delaware General Corporation Law;
    or

  . for any transaction from which the director derives an improper personal
    benefit.

   These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws. In addition, we intend to
enter into separate indemnification agreements with our directors and executive
officers that provide each of them indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. We believe that these provisions and
agreements will assist us in attracting and retaining qualified individuals to
serve as directors and officers.

                                       51
CERTAIN TRANSACTIONS

   The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
date set forth below.
Shares of Preferred Stock
                                         ----------------------------------------------------------
                           Common Stock    Series A    Series A1   Series B    Series C    Series D
                          -------------- ------------- ---------   --------- ------------- --------
Directors and Executive
 Officers
JoMei Chang, Ph.D.......       4,276,878       421,875       --           --            --      --
Dale Skeen, Ph.D........       5,458,125       421,875       --           --            --      --
Robert M. Halperin (1)..         687,498       675,832  271,475           --            --      --
William H. Younger,
 Jr.....................              --            --       --           --        11,885  21,146
Entities Affiliated with
 Directors
Brentwood Associates
 (2)....................              --            --       --    2,481,327       248,756 444,444
Sutter Hill Ventures
 (3)....................              --            --       --    2,481,327       248,756 444,444
Other 5% Stockholders
Weston Presidio Capital
 II, L.P................              --            --       --           --     1,430,349 105,880
The Chang Family Trust,
 Michael W. Taylor,
 Trustee (4)............       1,691,247            --  678,688           --            --      --
Price Per Share.........    $0.004-$0.25         $0.36    $0.61        $1.81         $4.02   $4.50
Date(s) of Purchase.....  12/94 to 09/98 1/95 and 8/96     5/96(5)     10/97 10/98 to 1/99    5/99
--------
(1) Includes shares held by Mr. Halperin's children and trusts for his
    grandchildren.
(2) John L. Walecka, one of our directors, is a general partner of venture
    funds associated with Brentwood Associates.
(3) William H. Younger, Jr., one of our directors, is a general partner of
    Sutter Hill Ventures.
(4) The Chang Family Trust is a trust for the benefit of family members of
    JoMei Chang, Ph.D.
(5) Notes convertible into Series A1 preferred stock were issued in May 1996.
    The conversion of these notes occurred in December 1997.

   Investor Rights Agreement. Vitria and the preferred stockholders described
above have entered into an agreement, pursuant to which these and other
preferred stockholders will have registration rights with respect to their
shares of common stock following this offering. Upon the completion of this
offering, all shares of our outstanding preferred stock will be automatically
converted into an equal number of shares of common stock.

   We intend to enter into indemnification agreements with our directors and
officers for the indemnification of and advancement of expenses to these
persons to the full extent permitted by law. We also intend to execute such
agreements with our future directors and officers.

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

                                       52
PRINCIPAL STOCKHOLDERS

   The following table sets forth certain information regarding the beneficial
ownership of our common stock as of June 1, 1999, and as adjusted to reflect
the sale of our common stock offered by this prospectus, by:

  . each of the individuals listed on the "Summary Compensation Table" above;

  . each of our directors;

  . each person (or group of affiliated persons) who is known by us to own
    beneficially 5% or more of our common stock; and

  . all current directors and executive officers as a group.

   Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of June 1, 1999 are deemed
outstanding. These shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of each other person.

   Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares shown as
beneficially owned by them. Percentage of ownership is based on 26,836,895
shares of common stock outstanding on June 1, 1999 and            shares of
common stock outstanding after completion of this offering. This table assumes
no exercise of the underwriters' over-allotment option. Unless otherwise
indicated, the address of each of the individuals named below is: c/o Vitria
Technology, Inc., 500 Ellis Street, Mountain View, California 94043.
Beneficial Ownership Prior to
                                         Offering
                             --------------------------------
                                                                   Percent
                                            Shares Issuable     Beneficially
                              Number of       pursuant to           Owned
                                Shares    Options Exercisable -----------------
                             Beneficially  within 60 days of   Before   After
Name of Beneficial Owner        Owned        June 1, 1999     Offering Offering
------------------------     ------------ ------------------- -------- --------
Directors and Executive
 Officers
JoMei Chang, Ph.D.(1)......    4,612,253             --        17.19%
The Chang Family Trust,
 Michael W. Taylor,
 Trustee(2)................    2,369,935             --        8.83
Dale Skeen, Ph.D.(3).......    5,794,500             --        21.59
William H. Younger,
 Jr.(4)....................    3,174,527             --        11.83
John L. Walecka(5).........    3,174,527             --        11.83
Robert M. Halperin(6)......    1,451,213             --         5.41
Jay W. Shiveley(7).........      400,000        350,000         2.76
Paul Auvil, III(8).........      254,975             --          1.0
Aleksander Osadzinski(9)...      112,500        187,500          1.1
Other 5% Stockholders
Entities affiliated with
 Brentwood Associates(10)..    3,174,527             --        11.83
 3000 Sand Hill Road
 Building 1, Suite 260
 Menlo Park, CA 94025
Entities affiliated with
 Sutter Hill Ventures(11)..    3,174,527             --        11.83
 755 Page Mill Road
 Suite A200
 Palo Alto, CA 94304
Weston Presidio Capital II,
 L.P.......................    1,536,229             --         5.72
 343 Sansome Street
 Suite 1210
 San Francisco, CA 94104
All directors and executive
 officers as a group
 (8 persons)(12)...........   18,974,495        537,500        71.28
53
---------------------
(1) Includes 54,199 shares subject to repurchase by Vitria which shall expire
    on July 1, 1999.
(2) The Chang Family Trust is a trust for the benefit of family members of
    JoMei Chang, Ph.D. Dr. Chang does not have voting or dispositive power over
    and disclaims beneficial ownership of the shares held by the trust.
(3) Includes 54,199 shares subject to repurchase by Vitria which shall expire
    on July 1, 1999.
(4) Includes 2,380,896 shares held by Sutter Hill Ventures, a California
    Limited Partnership, 760,600 shares held by parties affiliated with Sutter
    Hill Ventures and 33,031 shares held by William H. Younger, Jr. Trustee,
    The Younger Living Trust. Mr. Younger is a general partner of Sutter Hill
    Ventures and disclaims beneficial ownership of the shares held by these
    entities except to the extent of his proportionate partnership interest
    therein.
(5) Includes 3,047,546 shares held by Brentwood Associates VIII, L.P. and
    126,981 shares held by Brentwood Affiliates Fund, L.P. Mr. Walecka is a
    general partner of Brentwood Associates and disclaims beneficial ownership
    of the shares held by these entities except to the extent of his
    proportionate partnership interest therein.
(6) Includes 550,780 shares held by Mr. Halperin's children for which he has
    power of attorney but as to which he does not have dispositive power over
    and disclaims beneficial ownership of the shares held by his children.
    Excludes 183,592 shares of common stock held in trust for Mr. Halperin's
    grandchildren. Mr. Halperin does not have voting or dispositive power and
    disclaims beneficial ownership of the shares held by his grandchildren's
    trusts.
(7) Includes 170,000 shares subject to repurchase by Vitria within 60 days of
    June 1, 1999.
(8) Includes 187,500 shares subject to repurchase by Vitria within 60 days of
    June 1, 1999.
(9) Includes 112,500 shares subject to repurchase by Vitria within 60 days of
    June 1, 1999.
(10) Includes 3,047,546 shares held by Brentwood Associates VIII, L.P and
     126,981 shares held by Brentwood Affiliates Fund, L.P.
(11) Includes 2,380,896 shares held by and Sutter Hill Ventures, a California
     Limited Partnership and 793,631 shares held by parties affiliated with
     Sutter Hill Ventures. Sutter Hill Ventures disclaims voting power and
     beneficial ownership to the shares held by its affiliated parties.
(12) Includes 130,078 shares subject to repurchase by Vitria which will expire
     on July 1, 1999, 470,000 shares subject to repurchase by Vitria within 60
     days of June 1, 1999. See footnotes (1) and (3) through (9).

                                       54
DESCRIPTION OF CAPITAL STOCK

   Upon the closing of this offering, our authorized capital stock will consist
of 250 million shares of common stock, $0.001 par value, and five million
shares of preferred stock, $0.001 par value.

Common Stock

   As of June 1, 1999, there were 26,836,895 shares of common stock outstanding
that were held of record by approximately 145 stockholders after giving effect
to the conversion of our preferred stock into common stock at a one-to-one
ratio. There will be       shares of common stock outstanding (assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options) after giving effect to the sale of the shares of common
stock offered by this prospectus.

   The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that
may be applicable to any preferred stock outstanding at the time, the holders
of outstanding shares of common stock are entitled to receive ratably any
dividends out of assets legally available therefor as our board of directors
may from time to time determine. Upon liquidation, dissolution or winding up of
Vitria, holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.

Preferred Stock

   Pursuant to our amended and restated certificate of incorporation, our board
of directors will have the authority, without further action by the
stockholders, to issue up to five million shares of preferred stock in one or
more series. The board will be able to fix the rights, preferences, privileges
and restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of this series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock, and the likelihood that holders of
preferred stock will receive dividend payments and payments upon liquidation
may have the effect of delaying, deferring or preventing a change in control of
Vitria, which could depress the market price of our common stock. We have no
present plan to issue any shares of preferred stock.

Registration Rights of Stockholders

   Upon completion of this offering, 11,460,839 shares of common stock or their
transferees will be entitled to rights to register these shares under the
Securities Act of 1933. If we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
securityholders, the holders of these shares will be entitled to notice of the
registration and will be entitled to include, at our expense, their shares of
common stock. In addition, the holders of these shares may require us, at our
expense and on not more than two occasions at any time beginning approximately
six months from the date of the closing of this offering, to file a
registration statement under the Securities Act with respect to their shares of
common stock, and we will be required to use our best efforts to effect the
registration. Further, the holders may require us at our expense to register
their shares on Form S-3 when this form becomes available. These rights shall
terminate on the earlier of four years after the effective date of this
offering, or when a holder is able to sell all its shares pursuant to Rule 144
under the Securities Act in any 90-day period.

Anti-Takeover Provisions of Delaware Law and Certain Charter Provisions

   We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any

                                       55
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder unless:

  . prior to the date, the board of directors of the corporation approved
    either the business combination or the transaction that resulted in the
    stockholder becoming an interested stockholder;

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

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

Section 203 defines "business combination" to include:

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

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

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

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

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

   Our bylaws provide that candidates for director may be nominated only by the
board of directors or by a stockholder who gives written notice to us no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The board may consist of one or more
members to be determined from time to time by the board. The board currently
consists of five members divided into three different classes. As a result,
only one class of directors will be elected at each annual meeting of
stockholders of Vitria, with the other classes continuing for the remainder of
their respective terms. Between stockholder meetings, the board may appoint new
directors to fill vacancies or newly created directorships.

   Our amended and restated certificate of incorporation requires that upon
completion of the offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Our certificate
of incorporation also provides that the authorized number of directors may be
changed only by resolution of the board of directors. Delaware law and these
charter provisions may have the effect of deterring hostile takeovers or
delaying changes in control or our management, which could depress the market
price of our common stock.

Section 2115

   We are currently subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights,

                                       56
election and removal of directors and distributions to shareholders will apply
to that company if the company meets the requirements of Section 2115. We will
not be subject to Section 2115 if:

  . we are qualified for trading as a national market security on The Nasdaq
    National Market, and we have at least 800 stockholders of record as of
    the record date of our most recent annual meeting, or

  . during any income year less than 50% of our outstanding voting securities
    are held of record by persons having addresses in California.

   The following table sets forth some of the effects on our corporate
governance of California Corporations Code Section 2115:
Section 2115                     Non-Section 2115
                                 ------------                     ----------------
Election of           Cumulative voting is allowed,      No cumulative voting is allowed;
 Directors            which allows each shareholder to   accordingly a holder of 50% or
                      vote the number of votes equal to  more of voting stock controls
                      the number of candidates           election of all directors.
                      multiplied by the number of votes
                      to which the shareholders' shares
                      are normally entitled in favor of
                      one candidate. This potentially
                      allows minority stockholders to
                      elect some members of the board.

Removal of Directors  Removal with or without cause by   If the board is classified,
                      the affirmative vote of the        removal is only allowed for cause
                      holders of a majority of           upon the affirmative vote of a
                      outstanding voting stock is        majority of the outstanding
                      allowed.                           voting stock entitled to vote in
                                                         the election of directors.

Supermajority Vote
 Requirement          In order to institute a            Simple majority may adopt
                      supermajority provision, the       amendment providing for
                      amendment must be approved by at   supermajority.
                      least as large a proportion as
                      would be required under the
                      amendment.

Dividend              Dividends are only payable out of  Dividends are payable out of
 Distribution         the surplus of retained earnings   either the surplus of retained
                      and if, immediately after the      earnings or out of its net
                      distribution, a company's assets   profits for the year the
                      are at least equal to its          distribution takes place, or the
                      liabilities.                       preceding year.

Dissenters' Rights    Generally available in any type    Generally only available in a
                      of reorganization, including a     merger. No rights so long as our
                      merger, sale of assets or          common stock is quoted on The
                      sale/exchange of shares. If the    Nasdaq National Market or traded
                      shares are listed on an exchange,  on an exchange.
                      5% of the shareholders must
                      assert their right for any
                      shareholder to have these rights.
In addition to these differences, Section 2115 also provides for information
rights and required filings in the event a company effects a sale of assets or
completes a merger.

Transfer Agent

   The transfer agent and registrar for our common stock is BankBoston, N.A.
Its phone number is (781) 575-3120.

                                       57
SHARES ELIGIBLE FOR FUTURE SALE

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

   Upon completion of this offering, we will have outstanding an aggregate of
           shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 27,020,295 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.

   As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:

  . no shares will be eligible for immediate sale on the date the
    registration statement of which this prospectus is a part is declared
    effective;

  . no shares will be eligible for sale prior to 180 days from the date the
    registration statement of which this prospectus is a part is declared
    effective;

  . 24,876,440 shares will be eligible for sale upon the expiration of the
    lock-up agreements, described below, 180 days after the date this
    offering is declared effective; and

  . 324,076 shares will be eligible for sale upon the exercise of vested
    options 180 days after the date this offering is declared effective.

   Lock-Up Agreements. All of our officers, directors, stockholders and option
holders have agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock, for a period of 180 days after the
date the registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner with the prior written
consent of Credit Suisse First Boston Corporation.

   Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated,
who his beneficially owned restricted securities for at least one year,
including the holding period of any prior owner except an affiliate, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:

  . 1% of the number of shares of our common stock then outstanding which
    will equal approximately              shares immediately after this
    offering; or

  . the average weekly trading volume of our common stock on the Nasdaq
    National Market during the four calendar weeks preceding the filing of a
    notice on Form 144 with respect to the sale.

   Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Vitria.

   Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at

                                       58
least two years, including the holding period of any prior owner except an
affiliate, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
No shares will qualify as "144(k) shares" within 180 days after the date the
registration statement, of which this prospectus is a part, is declared
effective.

   Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory
stock purchase plan or option plan or other written agreement will be eligible
to resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.

   Registration Rights. Upon completion of this offering, the holders of
11,460,839 shares of our common stock, or their transferees, will be entitled
to rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness
of such registration.

   Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our 1999 Equity Incentive Plan and 1998
Executive Incentive Plan and the 1999 Employee Stock Purchase Plan. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statements will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, beginning
180 days after the effective date of the registration statement of which this
prospectus is a part.

                                       59
UNDERWRITING

   Under the terms and subject to the conditions contained in the underwriting
agreement dated     , we have agreed to sell to the underwriters named below,
for whom Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, BancBoston Robertson Stephens Inc. and SoundView
Technology Group, Inc. are acting as representatives, the following respective
number of shares of common stock:
Number
                                                                           of
   Underwriter                                                           Shares
   -----------                                                           -------
Credit Suisse First Boston Corporation...............................
   Merrill Lynch, Pierce, Fenner & Smith
             Incorporated...............................................
   BancBoston Robertson Stephens Inc. ..................................
   SoundView Technology Group, Inc. ....................................
                                                                         -------
     Total..............................................................
                                                                         =======
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

   We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to           additional shares from us at the initial public
offering price less the underwriting discounts and commissions. This option may
be exercised only to cover any over-allotments of common stock.

   The underwriters propose to offer the shares of common stock to the public
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $          per
share. The underwriters and selling group members may allow a discount of
$        per share on sales to other broker/dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the representatives.

   The following table summarizes the compensation and estimated expenses we
will pay.
Per Share             Total
                                        ------------------- -------------------
                                         Without    With     Without    With
                                          Over-     Over-     Over-     Over-
                                        allotment allotment allotment allotment
                                        --------- --------- --------- ---------
Underwriting discounts and
    commissions
    paid by us......................... $         $         $         $
   Expenses payable by us.............. $         $         $         $
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

   We, our directors, officers and our stockholders have agreed that we and
they will not offer, sell, contract to sell, announce our intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act of 1933 relating to, any additional shares of our common stock
or securities convertible into or exchangeable or exercisable for any of our
common stock without the prior consent of Credit Suisse First Boston
Corporation for a period of 180 days

                                       60
after the date of this prospectus, except in connection with our stock option
and employee stock purchase plans.

   The underwriters have reserved for sale, at the initial public offering
price, up to        shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent these
persons purchase these reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.

   We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933 or to contribute to payments which the underwriters may
be required to make in that respect.

   We have applied to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VITR."

   ML IBK Positions, Inc., an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, one of the representatives of the underwriters, holds
shares of preferred stock of Vitria that will convert into 746,269 shares of
common stock upon the closing of the offering.

   Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include: the information set forth in
this prospectus and otherwise available to the underwriters; the history and
the prospects for the industry in which we will compete; the ability of our
management; the prospects for our future earnings; the present state of our
development and our current financial condition; the general condition of the
securities markets at the time of this offering; and the recent market prices
of, and the demand for, publicly traded common stock of generally comparable
companies.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.

  . Over-allotment involves syndicate sales in excess of the offering size,
    which creates a syndicate short position.

  . Stabilizing transactions permit bids to purchase the underlying security
    so long as the stabilizing bids do not exceed a specified maximum.

  . Syndicate covering transactions involve purchases of the common stock in
    the open market after the distribution has been completed in order to
    cover syndicate short positions.

  . Penalty bids permit the representatives to reclaim a selling concession
    from a syndicate member when the common stock originally sold by the
    syndicate member are purchased in a syndicate covering transaction to
    cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.

                                       61
NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

   The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Vitria prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the
common stock in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

   Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Vitria and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (iii) the purchaser has reviewed the text above under "Resale
Restrictions".

Rights of Action (Ontario Purchasers)

   The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

   All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.

Notice to British Columbia Residents

   A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from Vitria. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

   Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

                                       62
LEGAL MATTERS

   The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, partners and associates of Cooley Godward LLP own an aggregate of
approximately 12,437 shares of common stock through an investment partnership.
Various legal matters in connection with the offering will be passed upon for
the underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.

                                    EXPERTS

   The balance sheet of Vitria Technology, Inc. as of December 31, 1997 and
1998, and the statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998, included in this
prospectus, have been included herein in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

   We have filed with the Securities and Exchange Commission a registration
statement (which term shall include any amendment thereto) on Form S-1 under
the Securities Act of 1933 with respect to the shares of common stock offered
by our company. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
Registration Statement, some items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to Vitria and the common stock
offered, reference is made to the registration statement, including the
exhibits, and the financial statements and notes filed as a part of the
registration statement. Statements made in this prospectus as to the contents
of any document referred to in the registration statement are not necessarily
complete, and, in each instance, please review the copy of the document filed
as an exhibit for a more complete description of the matter involved. A copy of
the registration statement, including the exhibits and the financial statements
and notes filed as a part of it, may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's regional offices
located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048, and copies of all or any part of the registration statement may be
obtained from the Securities and Exchange Commission upon the payment of fees
prescribed by it. The Securities and Exchange Commission maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding companies that file electronically with it.

                                       63
VITRIA TECHNOLOGY, INC.

                         INDEX TO FINANCIAL STATEMENTS
Page
                                                                            ----
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Equity.......................................... F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders' of Vitria Technology, Inc.

   The reincorporation described in Note 9 to the financial statements has not
been consummated as of June 22, 1999. When the reincorporation has been
consummated, we will be in a position to furnish the following report:

     "In our opinion, the accompanying balance sheet and the related
  statements of operations, of stockholders' equity and of cash flows present
  fairly, in all material respects, the financial position of Vitria
  Technology, Inc. at December 31, 1997 and 1998, and the results of its
  operations and its cash flows for each of the three years ended December
  31, 1998, in conformity with generally accepted accounting principles.
  These financial statements are the responsibility of the Company's
  management; our responsibility is to express an opinion on these financial
  statements based on our audits. We conducted our audits of these statements
  in accordance with generally accepted auditing standards which require that
  we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit
  includes examining, on a test basis, evidence supporting the amounts and
  disclosures in the financial statements, assessing the accounting
  principles used and significant estimates made by management, and
  evaluating the overall financial statement presentation. We believe that
  our audits provide a reasonable basis for the opinion expressed above."

PricewaterhouseCoopers LLP

San Jose, California
June 22, 1999, except for Note 9,
which is as of June   , 1999

                                      F-2
VITRIA TECHNOLOGY, INC.

                                 BALANCE SHEET
                    (in thousands, except per share amounts)
Pro Forma
                                                                   Stockholders'
                                       December 31,                  Equity at
                                      ----------------  March 31,    March 31,
                                       1997     1998      1999         1999
                                      -------  -------  ---------  -------------
                                                              (unaudited)
Assets
Current assets:
  Cash and cash equivalents.......... $ 9,138  $12,792  $ 11,444
  Accounts receivable, net...........   1,600    5,973     5,255
  Other current assets...............      66      180       289
                                      -------  -------  --------
    Total current assets.............  10,804   18,945    16,988
Property and equipment, net..........     275      967     1,108
Other assets.........................      62       88       144
                                      -------  -------  --------
                                      $11,141  $20,000  $ 18,240
                                      =======  =======  ========
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable................... $   211  $   757  $    331
  Accrued liabilities................     608    2,978     2,609
  Deferred revenue...................     223    2,874     3,277
                                      -------  -------  --------
    Total current liabilities........   1,042    6,609     6,217
                                      -------  -------  --------
Commitments and contingencies (Note
 5)
Stockholders' equity:
  Convertible Preferred Stock:
   issuable in series, $0.001 par
   value; 8,470, 13,470 and 13,470
   shares authorized, respectively;
   7,708, 10,445, and 10,552
   (unaudited) actual shares issued
   and outstanding, respectively;
   5,000 shares authorized; no shares
   issued and outstanding,
   pro forma (unaudited) (Liquidation
   value of $21,600).................       8       11        11     $     --
  Common Stock: $0.001 par value;
   40,000, 41,000 and 51,000 shares
   authorized, respectively; 13,249,
   15,268 and 15,541 (unaudited)
   actual shares issued and
   outstanding, respectively; 250,000
   shares authorized; 26,091
   (unaudited) shares issued and
   outstanding,
   pro forma.........................      13       15        16           27
Additional paid-in capital...........  10,737   29,104    31,391       31,391
Unearned stock-based compensation....      --   (5,511)   (6,456)      (6,456)
Accumulated deficit..................    (659) (10,228)  (12,939)     (12,939)
                                      -------  -------  --------     --------
    Total stockholders' equity.......  10,099   13,391    12,023     $ 12,023
                                      -------  -------  --------     ========
                                      $11,141  $20,000  $ 18,240
                                      =======  =======  ========
The accompanying notes are an integral part of these financial statements.

                                      F-3
VITRIA TECHNOLOGY, INC.

                            STATEMENT OF OPERATIONS
                    (in thousands, except per share amounts)
Year Ended December     Three Months
                                               31,            Ended March 31,
                                      ----------------------  ----------------
                                       1996   1997    1998     1998     1999
                                      ------ ------  -------  -------  -------
                                                                (unaudited)
Revenues:
  License...........................  $   -- $  955  $ 5,198  $   139  $ 3,487
  Service...........................   1,042  1,425    1,633      151    1,472
  Government grant..................     984  1,255      796      371      250
                                      ------ ------  -------  -------  -------
    Total revenues..................   2,026  3,635    7,627      661    5,209
                                      ------ ------  -------  -------  -------
Cost of revenues:
  License...........................      --     18       --       --       62
  Service...........................     183    338    2,109      122    1,294
  Government grant..................     984  1,255      796      371      250
                                      ------ ------  -------  -------  -------
    Total cost of revenues..........   1,167  1,611    2,905      493    1,606
                                      ------ ------  -------  -------  -------
Gross profit........................     859  2,024    4,722      168    3,603
                                      ------ ------  -------  -------  -------
Operating expenses:
  Sales and marketing...............      80  1,143    6,572      701    2,889
  Research and development..........     397    841    4,794      717    1,961
  General and administrative........     147    695    1,807      234      726
  Amortization of stock-based
   compensation.....................      --     --    1,424      123      867
                                      ------ ------  -------  -------  -------
    Total operating expenses........     624  2,679   14,597    1,775    6,443
                                      ------ ------  -------  -------  -------
Income (loss) from operations.......     235   (655)  (9,875)  (1,607)  (2,840)
Interest income.....................       8     75      306       91      129
                                      ------ ------  -------  -------  -------
Net income (loss)...................  $  243 $ (580) $(9,569) $(1,516) $(2,711)
                                      ====== ======  =======  =======  =======
Net income (loss) per share:
  Basic.............................  $ 0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
                                      ====== ======  =======  =======  =======
  Diluted...........................  $ 0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
                                      ====== ======  =======  =======  =======
Weighted average shares:
  Basic.............................   7,044  9,915   12,003   10,490   12,699
                                      ====== ======  =======  =======  =======
  Diluted...........................  13,835  9,915   12,003   10,490   12,699
                                      ====== ======  =======  =======  =======
Pro forma basic and diluted net loss
 per share (unaudited)..............                 $ (0.48)          $ (0.12)
                                                     =======           =======
Pro forma basic and diluted weighted
 average shares (unaudited).........                  20,111            23,250
                                                     =======           =======
The accompanying notes are an integral part of these financial statements.

                                      F-4
VITRIA TECHNOLOGY, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in thousands)
Convertible
                           Preferred
                             Stock     Common Stock  Additional   Unearned                   Total
                         ------------- -------------  Paid-In   Stock-Based  Accumulated Stockholders'
                         Shares Amount Shares Amount  Capital   Compensation   Deficit      Equity
                         ------ ------ ------ ------ ---------- ------------ ----------- -------------
Balance at December 31,
 1995...................  1,406  $ 1   11,918  $12    $   550     $    --     $   (322)     $   241
 Issuance of Series A
  Convertible Preferred
  Stock, net............    114    1       --   --         39          --           --           40
 Issuance of Common
  Stock, net............     --   --    1,170    1        111          --           --          112
 Net income.............     --   --       --   --         --          --          243          243
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at December 31,
 1996...................  1,520    2   13,088   13        700          --          (79)         636
 Issuance of Common
  Stock, net............     --   --      161   --         15          --           --           15
 Issuance of Series A1
  Convertible Preferred
  Stock for note
  payable...............    950    1       --   --        559          --           --          560
 Issuance of Series B
  Convertible Preferred
  Stock, net............  5,238    5       --   --      9,463          --           --        9,468
 Net loss...............     --   --       --   --         --          --         (580)        (580)
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at December 31,
 1997...................  7,708    8   13,249   13     10,737          --         (659)      10,099
 Issuance of Common
  Stock, net............     --   --    2,019    2        615          --           --          617
 Issuance of Series C
  Convertible Preferred
  Stock, net............  2,737    3       --   --     10,964          --           --       10,967
 Unearned stock-based
  compensation..........     --   --       --   --      6,788      (6,788)          --           --
 Amortization of stock-
  based compensation....     --   --       --   --         --       1,277           --        1,277
 Net loss...............     --   --       --   --         --          --       (9,569)      (9,569)
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at December 31,
 1998................... 10,445   11   15,268   15     29,104      (5,511)     (10,228)      13,391
 Issuance of Common
  Stock, net
  (unaudited)...........     --   --      273    1         55          --           --           56
 Issuance of Series C
  Convertible Preferred
  Stock, net
  (unaudited)...........    107   --       --   --        420          --           --          420
 Unearned stock-based
  compensation
  (unaudited)...........     --   --       --   --      1,812      (1,812)          --           --
 Amortization of stock-
  based compensation
  (unaudited)...........     --   --       --   --         --         867           --          867
 Net loss (unaudited)...     --   --       --   --         --          --       (2,711)      (2,711)
                         ------  ---   ------  ---    -------     -------     --------      -------
Balance at March 31,
 1999 (unaudited)....... 10,552  $11   15,541  $16    $31,391     $(6,456)    $(12,939)     $12,023
                         ======  ===   ======  ===    =======     =======     ========      =======
The accompanying notes are an integral part of these financial statements.

                                      F-5
VITRIA TECHNOLOGY, INC.

                            STATEMENT OF CASH FLOWS
                                 (in thousands)
Year Ended December      Three Months
                                              31,             Ended March 31,
                                     -----------------------  ----------------
                                     1996    1997     1998     1998     1999
                                     -----  -------  -------  -------  -------
                                                                (unaudited)
Cash flows from operating
 activities:
  Net income (loss)................. $ 243  $  (580) $(9,569) $(1,516) $(2,711)
  Adjustments to reconcile net
   income (loss) to net cash
   provided by (used in) operating
   activities:
    Depreciation and amortization...   115      207      255       19      159
    Provision for doubtful
     accounts.......................    25       --      350       --      118
    Amortization of stock-based
     compensation...................    --       --    1,424      123      867
    Changes in assets and
     liabilities:
      Accounts receivable...........  (474)  (1,097)  (4,723)  (1,050)     600
      Other current assets..........    --      (58)    (140)      11     (109)
      Other assets..................    --      (62)      --       (7)     (56)
      Accounts payable..............   139       62      546      (19)    (426)
      Accrued liabilities...........   175      432    2,370      (54)    (369)
      Deferred revenue..............    --      223    2,651      932      403
                                     -----  -------  -------  -------  -------
  Net cash provided by (used in)
   operating activities.............   223     (873)  (6,836)  (1,561)  (1,524)
                                     -----  -------  -------  -------  -------
Cash flows from investing
 activities:
  Net cash used in purchasing
   property and equipment ..........  (104)    (431)    (947)    (182)    (300)
                                     -----  -------  -------  -------  -------
Cash flows from financing
 activities:
  Issuance of Convertible note......    --      560       --       --       --
  Issuance of Convertible Preferred
   Stock, net.......................    40    9,468   10,967       --      420
  Issuance of Common Stock, net.....   112       15      470        5       56
                                     -----  -------  -------  -------  -------
  Net cash provided by financing
   activities.......................   152   10,043   11,437        5      476
                                     -----  -------  -------  -------  -------
Net increase (decrease) in cash and
 cash equivalents...................   271    8,739    3,654   (1,738)  (1,348)
Cash and cash equivalents at
 beginning of period................   128      399    9,138    9,138   12,792
                                     -----  -------  -------  -------  -------
Cash and cash equivalents at end of
 period............................. $ 399  $ 9,138  $12,792  $ 7,400  $11,444
                                     =====  =======  =======  =======  =======
Supplemental noncash financing
 activities:
  Issuance of Convertible Preferred
   Stock to founders for convertible
   note payable..................... $  --  $   560  $    --  $    --  $    --
                                     =====  =======  =======  =======  =======
The accompanying notes are an integral part of these financial statements.

                                      F-6
VITRIA TECHNOLOGY, INC.

                         NOTES TO FINANCIAL STATEMENTS

Note 1--The Company and Summary of Significant Accounting Policies:

The Company

   Vitria Technology, Inc. (the "Company"), develops, markets and supports a
software platform, BusinessWare, which enables customers to deploy
sophisticated eBusiness solutions across the extended enterprise. The Company
was incorporated in California in October 1994.

Unaudited interim results

   The interim financial statements as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are unaudited. In the opinion of
management, interim financial statements have been prepared on the same basis
as the audited financial statements and reflect all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of
the results of interim periods. The financial data and other information
disclosed in these notes to financial statements for the related periods are
unaudited. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future periods.

Use of estimates

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

Cash and cash equivalents

   The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents and investments with
original maturities greater than three months to be short-term investments.

Property and equipment

   Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets of three years. Leasehold improvements are
amortized using the straight-line method over the term of the lease or
estimated useful lives, whichever is shorter.

Revenue recognition

   The Company derives revenues from software licenses to end users for its
BusinessWare products and related services, which include maintenance and
support, consulting and training services. Effective January 1, 1998, the
Company adopted Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" with the exception of the provision deferred by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2." In accordance with
the adopted provisions of SOP 97-2, the Company records revenue from software
licenses when a license agreement is signed by both parties, the fee is fixed
and determinable, collection of the fee is probable and delivery of the product
has occurred. For electronic delivery, the product is considered to have been
delivered when the access code to download the software from the Internet has
been provided to the customer. If an element of the license agreement has not
been delivered, revenue for the element is deferred based on vendor-specific
objective evidence of fair value. If vendor-specific objective evidence of fair
value does not exist, all revenue is deferred until sufficient objective
evidence exists or all elements have been delivered. Payments received in
advance of revenue recognition are recorded as deferred revenue. The adoption

                                      F-7
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

of SOP 97-2 resulted in the deferral of software license revenues in certain
agreements that would have been recognized upon delivery of the related
software under prior accounting standards. Revenues from maintenance and
support are deferred and recognized ratably over the term of the contract.
Revenues from consulting and training are deferred and recognized when the
services are performed and collectibility is deemed probable. Prior to January
1, 1998, the Company recorded revenue in accordance with the provisions of SOP
91-1, "Software Revenue Recognition."

   In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9 "Modification of SOP 97-2, "Software Revenue Recognition" and
the Company adopted the statement for all transactions entered into in fiscal
1999. The adoption of this statement did not have a material impact on the
Company's operating results, financial position or cash flows.

   A portion of the Company's revenues are also derived from government grants.
Government grant revenue is recognized as the research is performed and
allowable costs are incurred. Unbilled grant revenue is composed of allowable
reimbursable costs for the period in which a reimbursement application has yet
to be filed with the government.

Fair value of financial instruments

   The Company's financial instruments, including cash and cash equivalents,
accounts receivables and accounts payable, are carried at cost, which
approximates their fair value because of the short-term maturity of these
financial instruments.

Research and development

   Research and development expenses include costs incurred by the Company to
develop and enhance the Company's software. Research and development costs are
charged to expense as incurred.

Software development costs

   Software development costs incurred prior to the establishment of
technological feasibility are charged to research and development expense as
incurred. Material software development costs incurred subsequent to the time a
product's technological feasibility has been established using the working
model approach, through the time the product is available for general release
to customers, are capitalized. Amortization of capitalized software development
costs begins when the products are available for general release to customers,
and is computed as the greater of (1) the ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues for the
product, or (2) the straight-line method over the estimated economic life of
the product. To date, development costs qualifying for capitalization have been
insignificant and therefore have been expensed as incurred.

Stock-based compensation

   The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB
No. 25, unearned compensation is based on the difference, if any, on the date
of the grant, between the fair value of the Company's stock and the exercise
price. Unearned compensation is amortized and expensed in accordance with
Financial Accounting Standards Board Interpretation No. 28 using the multiple
option approach. The Company accounts for stock-based compensation issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."

                                      F-8
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Pro forma stockholders' equity (unaudited)

   Effective upon the closing of the Company's initial public offering (the
"Offering"), the outstanding shares of Convertible Preferred Stock will
automatically convert into 10,551,635 shares of Common Stock. Also effective
upon the closing of this offering 250,000,000 shares of Common Stock and
5,000,000 shares of undesignated Convertible Preferred Stock will be
authorized. The pro forma effects of these transactions are unaudited and have
been reflected in the accompanying pro forma Stockholders' Equity as of March
31, 1999.

Income taxes

   Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

Net income and net loss per share

   Basic net income (loss) per share is computed by dividing the net income
(loss) available to common stockholders for the period by the weighted average
number of shares of Common Stock outstanding during the period. Diluted net
income per share is computed by dividing the net income (loss) for the period
by the weighted average number of common and potential common equivalent shares
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are composed of Common Stock subject to repurchase rights and
incremental shares of Common Stock issuable upon the exercise of stock options,
upon conversion of Preferred Stock and conversion of debt.

                                      F-9
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
Three Months
                                   Year Ended December 31,    Ended March 31,
                                   -------------------------  ----------------
                                    1996     1997     1998     1998     1999
                                   -------  -------  -------  -------  -------
                                                                (unaudited)
Numerator:
     Net income (loss)...........  $   243  $  (580) $(9,569) $(1,516) $(2,711)
                                   =======  =======  =======  =======  =======
   Denominator:
     Weighted average shares.....   12,315   13,116   13,881   13,250   15,268
     Weighted average Common
      Stock subject to repurchase
      agreements.................   (5,271)  (3,201)  (1,878)  (2,760)  (2,569)
                                   -------  -------  -------  -------  -------
     Denominator for basic
      calculation................    7,044    9,915   12,003   10,490   12,699
                                   -------  -------  -------  -------  -------
   Weighted average effect of
    diluted securities:
     Series A Preferred Stock....    1,520       --       --       --       --
     Common Stock subject to
      repurchase agreements......    5,271       --       --       --       --
                                   -------  -------  -------  -------  -------
     Denominator for diluted
      calculation................   13,835    9,915   12,003   10,490   12,699
                                   -------  -------  -------  -------  -------
   Net income (loss) per share:
     Basic.......................  $  0.03  $ (0.06) $ (0.80) $ (0.14) $ (0.21)
                                   =======  =======  =======  =======  =======
     Diluted.....................  $  0.02  $ (0.06) $ (0.80) $ (0.14) $ (0.21)
                                   =======  =======  =======  =======  =======
The following table sets forth the weighted average potential shares of
Common Stock that are not included in the diluted net income (loss) per share
calculation above because to do so would be antidilutive for the periods
indicated (in thousands):
Three Months
                                                 Year Ended      Ended March
                                                December 31,         31,
                                              ----------------- -------------
                                              1996 1997   1998   1998   1999
                                              ---- ----- ------ ------ ------
                                                                 (unaudited)
Weighted average effect of antidilutive
    securities:
     Series A Preferred Stock................  --  1,520  1,520  1,520  1,520
     Series A-1 Preferred Stock..............  --     --    950    950    950
     Series B Preferred Stock................  --    875  5,238  5,238  5,238
     Series C................................  --     --    400     --  2,843
     Convertible debt........................  --    557     --     --     --
     Employee stock options..................  --    527  1,624  1,450  1,833
     Common Stock subject to repurchase
      agreements.............................  --  3,201  1,878  2,760  2,569
                                              ---- ----- ------ ------ ------
                                               --  6,680 11,610 11,918 14,958
                                              ==== ===== ====== ====== ======
F-10
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Pro forma net loss per share (unaudited)

   Pro forma net loss per share for the year ended December 31, 1998 and the
three months ended March 31, 1999 (unaudited) is computed using the weighted
average number of common shares outstanding, including the conversion of the
Company's Convertible Preferred Stock into shares of the Company's Common Stock
effective upon the closing of the Company's initial public offering, as if such
conversion occurred on January 1, 1998 or at date of original issuance, if
later. The resulting unaudited pro forma adjustment includes an increase in the
weighted average shares used to compute basic and diluted net loss per share of
8,108,000 and 10,551,000 for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively. The calculation of pro forma diluted
net loss per share excludes other potential shares of Common Stock as the
effect would be antidilutive. Pro forma potential shares of Common Stock are
composed of Common Stock subject to repurchase rights and incremental Common
Stock issuable upon the exercise of stock options and upon conversion of debt.

Comprehensive income

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. During each of the three years ended
December 31, 1998, and the three months ended March 31, 1998 and 1999
(unaudited) the Company has not had any significant transactions that are
required to be reported in comprehensive income.

Segment information

   Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of Enterprise and Related Information." During
each of the three years ended December 31, 1998 and the three months ended
March 31, 1998 and 1999 (unaudited) the Company's management considers its
business activities to be focused on the license of its product and related
services to end-user customers. Since management's primary form of internal
reporting is aligned with the offering of products and services the Company
believes it operates in one segment. The Company's customers have all been
located in the United States.

Concentration of credit risks

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. All of the Company's available funds at December 31, 1997 and 1998
and March 31, 1999 (unaudited), were deposited in money market accounts with
financial institutions which management believes are of high credit quality.
The Company's accounts receivable are derived from transactions with clients
located in the United States. The Company performs ongoing credit evaluations
of its client's financial condition and generally requires no collateral from
its clients. The Company maintains an allowance for doubtful accounts
receivable based upon the expected collectibility of accounts receivable.

                                      F-11
VITRIA TECHNOLOGY, INC.

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

   The following table summarizes the revenue from customers in excess of 10%
of total customer revenues:
Three Month
                                                    Year Ended      Ended March
                                                   December 31,         31,
                                                  ----------------  -------------
                                                  1996  1997  1998  1998    1999
                                                  ----  ----  ----  -----   -----
                                                                    (unaudited)
Company A.....................................  52%   67%   --%     --%     --%
   Company B.....................................  --%   12%   --%     30%     --%
   Company C.....................................  --%   10%   14%     10%     --%
   Company D.....................................  44%   --%   --%     --%     --%
   Company E.....................................  --%   --%   34%     --%     --%
   Company F.....................................  --%   --%   --%     --%     20%
   Company G.....................................  --%   --%   --%     --%     15%
   Company H.....................................  --%   --%   --%     45%     --%
   Company I.....................................  --%   --%   --%     --%     10%
The following table summarizes receivables from customers in excess of 10%
of total accounts receivable:
Three Month
                                                    Year Ended         Ended
                                                   December 31,      March 31,
                                                  ----------------  -------------
                                                  1996  1997  1998  1998    1999
                                                  ----  ----  ----  -----   -----
                                                                    (unaudited)
Company A.....................................  61%   50%   --%     20%     --%
   Company B.....................................  --%   24%   --%     --%     --%
   Company C.....................................  --%   21%   --%     49%     --%
   Company D.....................................  37%   --%   --%     --%     --%
   Company E.....................................  --%   --%   54%     --%     13%
   Company F.....................................  --%   --%   14%     --%     34%
   Company G.....................................  --%   --%   11%     --%     --%
   Company J.....................................  --%   --%   --%     15%     --%
Stock split

   In 1996, the Board of Directors approved a one and a half-for-one stock
split of the Company's Preferred and Common Stock. All information presented
in these financial statements has been retroactively adjusted to reflect the
stock split.

Recent accounting pronouncements

   In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company has adopted the
provisions of SOP 98-1 in its fiscal year beginning January 1, 1999, and does
not expect such adoption to have a material effect on the Company's financial
statements.

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for all fiscal quarters beginning with the quarter ending June 30,
2000. SFAS 133 establishes accounting and reporting standards of derivative

                                     F-12
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt SFAS 133 in its
quarter ending June 30, 2000 and does not expect such adoption to have an
impact on the Company's results of operations, financial position or cash
flows.

Note 2--Balance Sheet Components:
December 31,
                                                   --------------   March 31,
                                                    1997    1998      1999
                                                   ------  ------  -----------
                                                                   (unaudited)
Accounts receivable, net:
     Accounts receivable.......................... $1,139  $5,884    $4,499
     Unbilled consulting services.................     --     100       703
     Unbilled grant revenue.......................    496     322       504
                                                   ------  ------    ------
                                                    1,635   6,306     5,706
   Less: Allowance for doubtful accounts..........    (35)   (333)     (451)
                                                   ------  ------    ------
                                                   $1,600  $5,973    $5,255
                                                   ======  ======    ======
   Property and equipment, net:
     Computer equipment........................... $   66  $  479    $  706
     Software licenses............................     20     124       194
     Furniture and fixtures.......................    198     404       373
     Leasehold improvements.......................     92     263       297
                                                   ------  ------    ------
                                                      376   1,270     1,570
   Less: Accumulated depreciation and
    amortization..................................   (101)   (303)     (462)
                                                   ------  ------    ------
                                                   $  275  $  967    $1,108
                                                   ======  ======    ======
   Accrued liabilities:
     Payroll and related expense.................. $  232  $1,916    $1,000
     Deferred grant awards........................    258     581       581
     Sales taxes..................................     --      86       214
     Other........................................    118     395       814
                                                   ------  ------    ------
                                                   $  608  $2,978    $2,609
                                                   ======  ======    ======
Note 3--Income Taxes:

   For the year ended December 31, 1996, the Company's current tax provison was
reduced by the utilization of available net operating loss carryforwards. The
tax provision is reconciled to the amount computed using the federal statutory
rate as follows:
Year Ended December
                                                                 31,
                                                         ---------------------
                                                         1996   1997    1998
                                                         -----  -----  -------
Federal statutory provision (benefit)................ $  87  $(197) $(3,254)
   State taxes, net of federal benefit..................    15     (8)    (287)
   Future benefits not currently recognized.............    --    205    2,971
   Nondeductible compensation...........................    --     --      570
   Utilization of net loss carryforwards................  (102)    --       --
                                                         -----  -----  -------
                                                         $  --  $  --  $    --
                                                         =====  =====  =======
At December 31, 1998, the Company had approximately $7,200,000 of federal
and $3,300,000 of state net operating loss carryforwards available to offset
future taxable income which expire at various dates through

                                      F-13
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

2013. Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three year period.

   Deferred tax assets and liabilities consist of the following (in thousands):
December 31,
                                                                 --------------
                                                                 1997    1998
                                                                 -----  -------
Deferred tax assets:
     Net operating loss carryforwards........................... $ 197  $ 2,656
     Accruals and allowances....................................    34      492
     Research credits...........................................    74      519
                                                                 -----  -------
   Net deferred tax assets......................................   305    3,667
   Valuation allowance..........................................  (305)  (3,667)
                                                                 -----  -------
                                                                 $  --  $    --
                                                                 =====  =======
The Company has incurred losses for the years ended December 31, 1997 and
1998. Management believes that, based on the history of such losses and other
factors, the weight of available evidence indicates that it is more likely than
not that the Company will not be able to realize its deferred tax assets and
thus a full valuation reserve has been recorded at December 31, 1997 and 1998.

Note 4--Government Grants:

   During January 1996, the Company received a grant award from the National
Institute of Standards and Technology ("NIST") totaling $2,000,000 to conduct
research and provide technical and business reports on a project to create a
highly flexible technology to simplify the task of integrating and sharing
real-time data among many different planning, tracking and control systems. The
grant reimburses the Company's allowable expenses over a period of two years
with $1,011,000 and $990,000 budgeted for the grant years ended January 25,
1997 and 1998, respectively. NIST requires the Company to comply with certain
cost accounting and reporting requirements, as applicable. For the period
ending December 31, 1996 and 1997, the Company has been reimbursed for grant-
related expenditures in the amount of $984,000 and $1,016,000, respectively. In
October 1997, the Company received an additional NIST grant totaling $2,000,000
to investigate at least three categories of Model-Driven Components. The grant
reimburses the Company's allowable expenses over a period of two years with
$970,000 and $1,030,000 of amended budget for the grant years ending September
30, 1998 and 1999, respectively. Additionally, NIST requires the Company to
comply with certain cost accounting and reporting requirements, as applicable.
For the period ended December 31, 1997 and 1998, the Company has incurred costs
of $401,000 and $822,000, respectively, in grant-related expenditures. Also in
November 1997, the Company received a joint-venture NIST grant totaling
$1,300,000 to help develop technology to enable the building of integrated
manufacturing applications for multi-company supply chain planning and
execution. The grant reimburses the Company's allowable expenses over a period
of three years with $300,000, $500,000 and $500,000 of the amended budget for
the grant years ending December 31, 1998, 1999 and 2000, respectively.
Additionally, NIST requires the Company to comply with certain cost accounting
and reporting requirements, as applicable. For the periods ended December 31,
1997 and 1998, the Company has incurred costs of $30,000 and $638,000,
respectively, in grant-related expenditures.

   The Company incurs costs in connection with the NIST grants and in some
cases, additional approval by the grant officer is required. Amounts received
subject to NIST grant approval are deferred, which are $258,000 and $323,000,
respectively, at December 31, 1997 and 1998. Such amounts will be recognized as
revenue or refunded, depending upon the outcome of the approval process.

                                      F-14
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Note 5--Commitments and Contingencies:

Leases

   The Company leases office space under noncancelable operating leases with
various expiration dates through 2003. The leases require payment of property
taxes, insurance, maintenance and utilities. The terms of the facility leases
provide for rental payments on a graduated scale. The Company recognizes rent
expense on a straight-line basis over the lease period, and has recognized
prepaid expense for rent expenditures not incurred but paid. Rent expense under
these leases are $158,000, $146,000, $546,000, $134,000 and $174,000 for the
years ended December 31, 1996, 1997 and 1998, and for the three months ended
March 31, 1998 and 1999 (unaudited), respectively.

   Future net minimum lease payments, under noncancelable operating leases at
December 31, 1998, including the Company's new facility lease entered into in
April 1999, are as follows (in thousands):
Year ending                                                         Operating
   December 31,                                                         Leases
   ------------                                                        ---------
1999..............................................................  $1,144
    2000..............................................................   1,942
    2001..............................................................   2,029
    2002..............................................................   2,072
    2003..............................................................   1,258
                                                                        ------
      Total minimum lease payments....................................  $8,445
                                                                        ======
Contingencies

   From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations or cash flows of the Company.

Employee benefits

   In December 1998, the Company established a nonqualified, unfunded deferred
compensation plan for certain key executives providing for payments upon
retirement, death or disability. Under the plan, certain employees receive
payments equal to the employee's entire accrued benefit, the sum of all
deferred amounts and any corporate contributions credited to the plan and due
and owing to the employee, together with earning adjustments, minus any
distributions. Through December 31, 1998 and March 31, 1999 (unaudited), the
Company did not make any contributions to the plan.

   The Company has recorded the assets and liabilities for the deferred
compensation at gross amounts in the accompanying balance sheet because such
assets are not protected from the Company's general creditors and, as such,
these assets could be used to meet the obligations of the Company in the event
of bankruptcy. The assets are recorded at fair value. Any changes in fair value
are recognized as a reduction or increase in compensation expense.

                                      F-15
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Note 6--Convertible Preferred Stock:

   Convertible Preferred Stock ("Convertible Preferred") at December 31, 1998,
consist of the following, except for shares authorized, which reflect the
Articles of Incorporation as amended in May 1999 (in thousands):
Proceeds
                                                                         Net of
                                       Shares               Liquidation Issuance
    Series                           Authorized Outstanding   Amount     Costs
    ------                           ---------- ----------- ----------- --------
A................................    1,520      1,520      $   540   $   526
   A1...............................      950        950          560       560
   B................................    6,000      5,238        9,500     9,468
   C................................    5,000      2,737       11,000    10,967
   D................................    1,200         --           --        --
   Undesignated.....................    1,330         --           --        --
                                       ------     ------      -------   -------
                                       16,000     10,445      $21,600   $21,521
                                       ======     ======      =======   =======
In January 1999, the Company issued 107,213 shares of $0.001 par value
Series C Convertible Preferred Stock and received proceeds net of issuance
costs totaling $420,000. In May 1999, the Company issued 1,003,980 shares of
$0.001 par value Series D Convertible Preferred Stock and received proceeds net
of issuance costs totaling $4,500,000.

   The holders of Convertible Preferred have various rights and preferences as
follows:

Voting

   Each share of Convertible Preferred has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes
together as one class with the Common Stock.

   As long as 150,000 shares of Convertible Preferred remain outstanding, the
Company must obtain approval from the holders of a majority of the shares of
Convertible Preferred in order to alter the Articles of Incorporation as
related to Convertible Preferred, change the authorized number of shares of
Common Stock or Convertible Preferred, create a new class of stock with rights
and preferences above those of Convertible Preferred, repurchase any shares of
Common Stock other than shares subject to the right of repurchase by the
Company, authorize a dividend on Common Stock or Convertible Preferred or
effect a merger, corporate reorganization, sale of control or any other
transaction in which all or substantially all of the assets of the Company are
sold, or increase the maximum authorized number of directors to greater than
seven.

Dividends

   The holders of the Series C Convertible Preferred are entitled to receive
noncumulative dividends, in preference to any dividends on the Company's
outstanding Series A, A1, B and D Convertible Preferred and Common Stock, at
the per annum rate of 8% of the "Original Issue Price," when and as declared by
the Board of Directors. The holders of the Series A, A1, B and D Convertible
Preferred are entitled to receive, in preference to the holders of the Common
Stock, noncumulative dividends at the per annum rate of 8% of the original
issue price, when and as declared by the Board of Directors. The Original Issue
Price of Series A, Series A1, Series B, Series C and Series D is $0.3555,
$0.6101, $1.8135, $4.02 and $4.50 per share, respectively. The holders of
Convertible Preferred will also be entitled to participate in dividends on
Common Stock, when and if declared by the Board of Directors, based on the
number of shares of Common Stock held

                                      F-16
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

on an as-if converted basis. No dividends on Convertible Preferred or Common
Stock have been declared by the Board from inception through March 31, 1999
(unaudited).

Liquidation

   In the event of any liquidation or winding up of the Company, the holders of
Series C Convertible Preferred are entitled to receive, in preference to the
holders of the Common Stock and the other holder of Convertible Preferred, a
per share amount equal to the Original Issue Price, plus any declared but
unpaid dividends. The holders of Series A, A1, B and D Convertible Preferred
then receive their Original Issue Prices plus any declared but unpaid
dividends.

   The holders of Series C Convertible Preferred then receive an additional
amount equal to the difference between two times its Original Issue Price less
the dollar amount received above. Then the remaining assets shall be
distributed ratably to the holders of all Common Stock and Convertible
Preferred on a common equivalent basis until each series has received three
times the Original Issue Price for such series. The additional dollar amount
which Series C receives from its distribution of the remaining assets shall be
reduced by its previously received dollar amount equal to two times its
Original Issue Price. A merger, acquisition, sale of voting control or sale of
substantially all of the assets of the Company in which the shareholders of the
Company do not own a majority (50% or more) of the outstanding shares of the
surviving corporation is deemed to be a liquidation.

Conversion

   Each share of Convertible Preferred is convertible at the option of the
holder into shares of Common Stock by multiplying the appropriate conversion
rate in effect by the number of Convertible Preferred being converted. The
conversion rate is the quotient obtained by dividing the Original Issue Price
by the conversion price (which is initially the respective Original Issue
Price, until it is adjusted). Additionally, each share of Convertible Preferred
shall automatically be converted upon (i) an initial public offering of the
Company equal to or exceeding $8.04 per share with aggregate proceeds not less
than $20,000,000, or (ii) the written consent of a majority of the Convertible
Preferred holders then outstanding.

Note 7--Common Stock:

   At December 31, 1997 and 1998, there were 13,249,498 and 15,268,180 shares
outstanding, respectively, of Common Stock issued to the founders of the
Company, affiliates and other nonrelated parties. At March 31, 1999 (unaudited)
there were 15,541,180 shares outstanding of Common Stock. A portion of the
shares sold are subject to a right of repurchase by the Company subject to
vesting, which is generally over a five year period from the earlier of grant
date or employee hire date, as applicable, until vesting is complete. At
December 31, 1997 and 1998 and March 31, 1999 (unaudited), there were
approximately 3,320,000, 3,056,000 and 2,739,000 shares, respectively, subject
to repurchase.

   The Company issued 52,500 shares of Common Stock to consultants in exchange
for services. In connection with these issuances the Company recorded expenses
of $147,000 based on the fair value of the Common Stock on the date of grant.

                                      F-17
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The Company had reserved shares of Common Stock for future issuance as
follows (in thousands):
March 31,
                                                                        1999
                                                                     -----------
                                                                     (unaudited)
Conversion of Series A...........................................    1,520
   Conversion of Series A1..........................................      950
   Conversion of Series B...........................................    5,238
   Conversion of Series C...........................................    4,000
   Common Stock issued..............................................   15,541
   Exercise of options under the Equity Incentive Plans.............    7,003
   Undesignated.....................................................   16,748
                                                                       ------
                                                                       51,000
                                                                       ======
In May 1999, the Company reserved an additional 1,003,980 shares for the
conversion of Series D Convertible Preferred Stock.

Note 8--Employee Benefit Plans:

Equity Incentive Plans

   In March 1995, the Company adopted the 1995 Equity Incentive Plan, which
provides for the granting of stock options, stock appreciation rights, stock
bonuses and restricted stock to employees, directors and consultants of the
Company. In October 1998, the Company adopted the 1998 Executive Incentive Plan
which provides for the granting of stock options to employees, directors and
consultants. Options granted under the 1995 Equity Incentive Plan and the 1998
Executive Incentive Plan (the "Plans") may be either incentive stock options
("ISO") or nonqualified stock options ("NSO"). ISO may be granted only to
employees (including officers and directors who are also employees) of the
Company. NSO may be granted to employees and consultants of the Company. For
the year ended December 31, 1998 and the three months ended March 31, 1999
(unaudited), the Company has reserved 4,992,000 and 7,003,000 shares,
respectively, of Common Stock for issuance under the Plans.

   Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. Furthermore, under the 1998 Executive Incentive Plan, no employee
shall be eligible to be granted options covering more than 400,000 shares of
the Common Stock during any calendar year. Options are exercisable immediately
subject to repurchase options held by the Company which lapse over a maximum
period of five years at such times and under such conditions as determined by
the Board of Directors. To date, options granted generally vest over five
years.

                                      F-18
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The following table summarizes information about stock option transactions
under the Plans (in thousands, except per share amounts):
Year Ended December 31,                Three Months
                             ------------------------------------------------- Ended March 31,
                                  1996            1997             1998             1999
                             --------------- ---------------- ---------------- ----------------
                                    Weighted         Weighted         Weighted         Weighted
                                    Average          Average          Average          Average
                                    Exercise         Exercise         Exercise         Exercise
                             Shares  Price   Shares   Price   Shares   Price   Shares   Price
                             ------ -------- ------  -------- ------  -------- ------  --------
                                                                                 (unaudited)
Outstanding at beginning
    of period..............    --    $  --     489    $0.10    1,627   $0.22   1,877    $0.36
   Granted below fair
    value..................    --       --      --     0.25    3,258    0.31     463     0.70
   Granted at fair value ..   489     0.10   1,583     0.25       --      --      --       --
   Exercised...............    --       --    (201)    0.11   (2,014)   0.24    (271)    0.53
   Canceled................    --       --    (244)    0.25     (994)   0.22      (7)    0.25
                              ---            -----            ------           -----
   Outstanding at end
    of period..............   489     0.10   1,627     0.22    1,877    0.36   2,062     0.41
                              ===            =====            ======           =====
   Options vested..........    --               --                60              67
                              ===            =====            ======           =====
   Weighted average fair
    value of options
    granted during the
    period.................          $0.03            $0.06            $0.10            $0.15
                                     =====            =====            =====            =====
The following table summarizes the information about stock options
outstanding and exercisable as of December 31, 1998 (in thousands, except per
share amounts):
Options Vested and
                                Options Outstanding            Exercisable
                          -------------------------------- --------------------
                                       Weighted
                                        Average   Weighted             Weighted
                                       Remaining  Average              Average
     Range of               Number    Contractual Exercise   Number    Exercise
   Exercise Price         Outstanding    Life      Price   Outstanding  Price
   --------------         ----------- ----------- -------- ----------- --------
$0.10................       10       7.67      $0.10         5      $0.10
     0.25................    1,431       9.30       0.25        30       0.25
     0.70................      436       9.92       0.70        25       0.70
                             -----                             ---
                             1,877                              60
                             =====                             ===
The following table summarizes the information about stock options
outstanding and exercisable as of March 31, 1999 (unaudited) (in thousands,
except per share amounts):
Options Vested and
                                Options Outstanding            Exercisable
                          -------------------------------- --------------------
                                       Weighted
                                        Average   Weighted             Weighted
                                       Remaining  Average              Average
     Range of               Number    Contractual Exercise   Number    Exercise
   Exercise Price         Outstanding    Life      Price   Outstanding  Price
   --------------         ----------- ----------- -------- ----------- --------
$0.10................       10       7.42      $0.10         5      $0.10
     0.25................    1,324       9.04       0.25        37       0.25
     0.70................      728       9.67       0.70        25       0.70
                             -----                             ---
                             2,062                              67
                             =====                             ===
F-19
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Fair value disclosures

   The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. Had compensation expense for options granted for the
years ended December 31, 1996, 1997 and 1998 and the three months ended March
31, 1998 and 1999 (unaudited) been determined based on the fair value at the
grant dates as prescribed by SFAS No. 123, the Company's net income (loss) and
net income (loss) per share would have been increased or decreased to the pro
forma amounts indicated below.
Year Ended December    Three Months Ended
                                           31,                 March 31,
                                   ---------------------  --------------------
                                   1996   1997    1998      1998       1999
                                   ----- ------  -------  ---------  ---------
                                                              (unaudited)
Net income (loss):
     As reported.................. $ 243 $ (580) $(9,569) $  (1,516) $  (2,711)
                                   ----- ------  -------  ---------  ---------
     Pro forma.................... $ 243 $ (636) $(9,572) $  (1,530) $  (2,738)
                                   ----- ------  -------  ---------  ---------
   Net income (loss) per share:
     As reported:
       Basic...................... $0.03 $(0.06) $ (0.80) $   (0.14) $   (0.21)
                                   ----- ------  -------  ---------  ---------
       Diluted.................... $0.02 $(0.06) $ (0.80) $   (0.14) $   (0.21)
                                   ----- ------  -------  ---------  ---------
     Pro forma:
       Basic                       $0.03 $(0.06) $ (0.80) $   (0.15) $   (0.22)
                                   ----- ------  -------  ---------  ---------
       Diluted.................... $0.02 $(0.06) $ (0.80) $   (0.15) $   (0.22)
                                   ----- ------  -------  ---------  ---------
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
Three Months Ended
                             Year Ended December 31,          March 31,
                             --------------------------  --------------------
                             1996    1997       1998       1998       1999
                             ----  ---------  ---------  ---------  ---------
                                                             (unaudited)
Risk-free interest
    rates................... 6.51% 5.55-6.20% 4.13-5.46% 5.43-5.46% 4.45-4.99%
   Expected lives (in
    years)..................    5          5          5          5          5
   Dividend yield...........    0%         0%         0%         0%         0%
   Expected volatility......    0%         0%         0%         0%         0%
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding paragraph, the
above results may not be preventative of future periods.

Unearned stock-based compensation

   In connection with certain stock option grants, during the year ended
December 31, 1998 and the three months ended March 31, 1999 (unaudited), the
Company recognized unearned compensation totaling $6,788,000 and $1,812,000,
respectively, which is being amortized over the five year vesting periods of
the related options using the multiple option approach. Amortization expense
recognized for the year ended December 31, 1998 and the three months ended
March 31, 1999 (unaudited) totaled approximately $1,277,000 and $867,000,
respectively. In determining the fair market value on each grant date, the
Company considered, among other things, the relative level of revenues and
other operating results, the absence of a public trading market for the
Company's securities and the competitive nature of the Company's market.

                                      F-20
VITRIA TECHNOLOGY, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

401(k) Plan

   In May 1996, the Board of Directors adopted an employee savings and
retirement plan (the "401(k) Plan") covering substantially all of the Company's
employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to the statutory prescribed limit and have the
amount of such reduction contributed to the 401(k) Plan. The Company may make
contributions to the 401(k) Plan on behalf of eligible employees. The Company
has not made any contributions to the 401(k) Plan.

Note 9--Subsequent Events:

Reincorporation

   In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the state of Delaware. Following the
reincorporation, the Company will continue to be authorized to issue
250,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares of
$0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof.

Stock option grants

   In May 1999, the Company granted incentive stock options to employees to
purchase 541,500 shares at $1.04 per share. In connection with the stock option
grants, the Company will record $2.4 million in unearned stock-based
compensation during the second quarter of 1999.

1999 Equity Incentive Plan and 1998 Executive Incentive Plan

   In June 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Equity Incentive Plan, which amended the 1995 Equity
Incentive Plan, and amended the 1998 Executive Incentive Plan (the "Amended
Plans"). The Amended Plans provide for the granting of stock options, stock
appreciation rights, stock bonuses, and restricted stock purchase awards to
employees, including officers, directors or consultants. The Company has
reserved 10,000,000 shares of Common Stock for issuance under the Amended Plans
and on December 31 of each year for 10 years, starting with the year 1999, the
number of shares reserved will automatically increases by 6.5% of the
outstanding Common Stock on a fully-diluted basis, with the number of options
granted which qualify as incentive stock options, never to exceed 8,000,000
shares issued and available.

1999 Employee Stock Purchase Plan

   In June 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan ("Purchase Plan") which
provides for the issuance of 1,500,000 shares of Common Stock pursuant to
purchase rights granted to employees. Under the plan, eligible employees can
have up to 10% of their earnings withheld to be used to purchase shares of
Common Stock on specified dates determined by the Board of Directors. The price
of Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock on the commencement date of
each offering period or the specified purchase date. On August 14 of each year
for 10 years, starting with the year 2000, the number of shares in the reserve
automatically increases by the greater of (i) 2% of the outstanding shares on a
fully-diluted basis, or (ii) the number of shares that have been issued under
the Purchase Plan during the prior 12-month period, so that the reserve
automatically is restored to 1,500,000 shares; never to exceed 16,500,000
shares issued and available.

                                      F-21
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       [LOGO OF VITRIA TECHNOLOGY, INC.]

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses Of Issuance And Distribution

   The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereby. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
SEC Registration Fee............................................. $ 20,850
     NASD Filing Fee..................................................    8,000
     NASDAQ National Market Additional Listing Fee....................   53,750
     Printing.........................................................  150,000
     Legal Fees and Expenses..........................................  400,000
     Accounting Fees and Expenses.....................................  250,000
     Blue Sky Fees and Expenses.......................................   15,000
     Transfer Agent and Registrar Fees................................   10,000
     Director's and Officer's Insurance...............................        *
     Miscellaneous....................................................        *
                                                                       --------
       Total..........................................................        *
                                                                       ========
--------
    *To be supplied by amendment.

   We intend to pay all expenses of registration, issuance and distribution.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

   As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:

  . for any breach of duty of loyalty to us or to our stockholders;

  . for acts or omissions not in good faith or that involve intentional
    misconduct or a knowing violation of law;

  . under Section 174 of the Delaware General Corporation Law; or

  . for any transaction from which the director derived an improper personal
    benefit.

   Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify its
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.

   We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify
each director and officer for certain expenses including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of Vitria,
arising out of person's services as our director or officer, any subsidiary of
ours or any other company or enterprise to which the person provides services
at our request.

   The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of Vitria, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.

                                      II-1
ITEM 15. Recent Sales of Unregistered Securities

   Since inception, Vitria has sold and issued the following unregistered
securities:

   (1) From January 1995 through June 1, 1999, Vitria has granted stock options
to purchase 6,330,740 shares of the common stock and 94,776 shares of Series C
preferred stock to employees, consultants and directors pursuant to its 1999
Equity Incentive Plan and 1998 Executive Incentive Plan. Of these stock
options, 1,266,308 shares have been canceled without being exercised, 2,760,532
shares have been exercised, 623,000 shares of which have been repurchased and
2,303,900 shares remain outstanding. From December 13, 1997 through June 1,
1999, Vitria has also granted restricted stock awards to purchase 1,005,000
shares of the common stock pursuant to the stock option plans, 30,000 shares of
which have been repurchased.

   (2) In December 1994, Vitria issued an aggregate of 11,093,748 shares of
common stock to 7 purchasers at $0.004 per share, for an aggregate purchase
price of $49,552.

   (3) In August 1996, Vitria issued an aggregate of 1,020,000 shares of common
stock to 3 purchasers at $0.10 per share, for an aggregate purchase price of
$102,000.

   (4) In January 1995 and August 1996, Vitria issued an aggregate of 1,519,582
shares of Series A preferred stock to 6 purchasers at $0.36 per share, for an
aggregate purchase price of $540,202. Shares of Series A preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series A preferred stock owned.

   (5) In May 1996, Vitria issued notes convertible into an aggregate of
950,163 shares of Series A1 preferred stock to 3 purchasers at a purchase price
of $0.61 per share for an aggregate purchase price of $579,599, which
conversion occurred in December 1997. Shares of Series A1 preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each shares of Series A1 preferred stock owned.

   (6) From December 1997 to September 1998, Vitria issued an aggregate of
47,500 shares of common stock to 7 purchasers at $0.25 per share, for an
aggregate purchase price of $11,875.

   (7) In October 1997, Vitria issued an aggregate of 5,238,357 shares of
Series B preferred stock to 8 purchasers at $1.81 per share, for an aggregate
purchase price of $9,499,970. Shares of Series B preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series B preferred stock owned.

   (8) From October 1998 to January 1999, Vitria issued an aggregate of
2,843,533 shares of Series C preferred stock to 39 purchasers at a purchase
price of $4.02 per share, for an aggregate purchase price of $11,431,003.
Shares of Series C preferred stock are convertible into shares of common stock
at the rate of one share of common stock for each share of Series C preferred
stock owned.

   (9) In January 1999, Vitria issued an aggregate of 7,500 shares of common
stock to 1 purchaser at $0.70 per share, for an aggregate purchase price of
$5,250.

   (10) In May 1999, Vitria issued an aggregate of 1,003,980 shares of Series D
preferred stock to 17 purchasers at a purchase price of $4.50 per share for an
aggregate purchase price of $4,517,910. Shares of Series D preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series D preferred stock owned.

   The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701.

   The sales and issuances of securities described in paragraphs (2) through
(10) above were deemed to be exempt from registration under the Securities Act
by virtue of Rule 4(2), Regulation D or Regulation S promulgated thereunder.
With respect to the grant of stock options and restricted stock awards
described in

                                      II-2
paragraph (1), an exemption from registration was unnecessary in that none of
the transactions involved a "sale" of securities as such term is used in
Section 2(3) of the Securities Act.

   Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients either received
adequate information about Vitria or had access, through employment or other
relationships, to such information.

                                      II-3
ITEM 16. Exhibits and Financial Schedules
Exhibit
 Number                          Description of Document
 -------                         -----------------------
1.1*  Form of Underwriting Agreement.
   3.1*  Agreement and Plan of Merger, dated June    , 1999.
   3.2   Amended and Restated Certificate of Incorporation of the Registrant to
         be effective following the closing of this offering.
   3.3   Bylaws of the Registrant.
   4.1   Reference is made to Exhibits 3.1 through 3.3.
   4.2*  Specimen Stock Certificate.
   4.3   Second Amended and Restated Investor Rights Agreement, dated May 20,
         1999.
   5.1*  Opinion of Cooley Godward LLP.
  10.1*  Form of Indemnity Agreement.
  10.2   Amended and Restated 1999 Equity Incentive Plan.
  10.3   1998 Executive Incentive Plan.
  10.4   1999 Employee Stock Purchase Plan.
  10.5   1998 Nonqualified Deferred Compensation Plan.
  10.6   Standard Industrial/Commercial Single-Tenant Lease-Net by and between
         Portola Land Company and the Registrant, dated January 28, 1997.
  10.7   Sublease by and between Applied Materials, Inc. and the Registrant,
         dated April 6, 1999.
  23.1   Consent of PricewaterhouseCoopers LLP.
  23.2*  Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
  24.1   Power of Attorney. See Signature Page.
  27.1   Financial Data Schedule.
--------
* To be filed by amendment.

ITEM 17. Undertakings

   The undersigned registrant hereby undertakes:

   (1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of this prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

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

   (3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, and will be
governed by the final adjudication of such issue.

   (4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.

                                      II-4
SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Palo Alto, state of
California, on June 22, 1999.

                                      VITRIA TECHNOLOGY, INC.

                                                /s/ JoMei Chang, Ph.D.
                                      By: _____________________________________
                                                  JoMei Chang, Ph.D.
                                         President and Chief Executive Officer

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints JoMei Chang, Ph.D., Paul Auvil, III and
Dale Skeen, Ph.D., and each of them, his or her true and lawful agent, proxy
and attorney-in-fact, with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities,
to (i) act on, sign and file with the Securities and Exchange Commission any
and all amendments (including post-effective amendments) to this registration
statement together with all schedules and exhibits thereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, together with all schedules and exhibits thereto, (ii) act
on, sign and file such certificates, instruments, agreements and other
documents as may be necessary or appropriate in connection therewith, (iii) act
on and file any supplement to any prospectus included in this registration
statement or any such amendment or any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv)
take any and all actions which may be necessary or appropriate to be done, as
fully for all intents and purposes as he or she might or could do in person,
hereby approving, ratifying and confirming all that such agent, proxy and
attorney-in-fact or any of his substitutes may lawfully do or cause to be done
by virtue thereof.

   In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on these dates stated:
Signature                          Title                   Date
              ---------                          -----                   ----
/s/ JoMei Chang, Ph.D.         President, Chief Executive    June 22, 1999
______________________________________  Officer and Director
          JoMei Chang, Ph.D.            (Principal Executive
                                        Officer)

         /s/ Paul Auvil, III           Vice President, Finance,      June 22, 1999
______________________________________  Chief Financial Officer
           Paul Auvil, III              and Secretary (Principal
                                        Financial and Accounting
                                        Officer)

        /s/ Dale Skeen, Ph.D.          Chief Technology Officer      June 22, 1999
______________________________________  and Director
          Dale Skeen, Ph.D.

        /s/ Robert M. Halperin         Director                      June 22, 1999
______________________________________
          Robert M. Halperin

     /s/ William H. Younger, Jr.       Director                      June 22, 1999
______________________________________
       William H. Younger, Jr.

         /s/ John L. Walecka           Director                      June 22, 1999
______________________________________
           John L. Walecka
II-5
EXHIBIT INDEX
Exhibit
 Number                          Description of Document
 -------                         -----------------------
1.1*   Form of Underwriting Agreement.
  3.1*   Agreement and Plan of Merger, dated June    , 1999.
  3.2    Amended and Restated Certificate of Incorporation of the Registrant to
         be effective following the closing of this offering.
  3.3    Bylaws of the Registrant.
  4.1    Reference is made to Exhibits 3.1 through 3.3.
  4.2*   Specimen Stock Certificate.
  4.3    Second Amended and Restated Investor Rights Agreement, dated May 20,
         1999.
  5.1*   Opinion of Cooley Godward LLP.
 10.1*   Form of Indemnity Agreement.
 10.2    Amended and Restated 1999 Equity Incentive Plan.
 10.3    1998 Executive Incentive Plan.
 10.4    1999 Employee Stock Purchase Plan.
 10.5    1998 Nonqualified Deferred Compensation Plan.
 10.6    Standard Industrial/Commercial Single-Tenant Lease-Net by and between
         Portola Land Company
         and the Registrant, dated January 28, 1997.
 10.7    Sublease by and between Applied Materials, Inc. and the Registrant,
         dated April 6, 1999.
 23.1    Consent of PricewaterhouseCoopers LLP.
 23.2*   Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
 24.1    Power of Attorney. See Signature Page.
 27.1    Financial Data Schedule.
--------
  * To be filed by amendment.