EXHIBIT 10.7

WEBMETHODS, INC.

STOCK OPTION AGREEMENT

     THIS STOCK OPTION AGREEMENT (this “Agreement”) is made as of the     day of
          , 200   by and between (i) WEBMETHODS, INC. (the “Corporation”), a
Delaware corporation, and (ii)                      (“Participant”), a director
of the Corporation.

     WHEREAS, the Corporation has adopted a Stock Option Plan (the “Plan”), a
copy of which has been provided to Participant; and

     WHEREAS, the Corporation desires to grant an Option to Participant to
purchase shares of Incentive Stock (as defined in the Plan) of the Corporation
in consideration of the valuable services to be rendered to the Corporation by
Participant pursuant to Participant’s service on the Corporation’s Board of
Directors.

     NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree as follows:

     1. Grant of Option.

          A. Subject to vesting as set forth in Section 1B hereof, the
Corporation hereby grants to Participant the right to purchase, during the
period specified in Section 2 hereof,                      (          ) shares
of Incentive Stock (such shares of Incentive Stock being hereinafter referred to
as the “Shares”) at a price of                      ($          ) per Share (the
“Exercise Price”), in accordance with the terms of this Agreement and the Plan
(such right being hereinafter referred to as the “Option”).

          B. The Option shall vest and may be exercised by Participant, subject
to the provisions of Section 2 hereof regarding the duration of the Option, as
follows:

(i)                                            (          ) Shares may be
purchased at any time after                     ;   (ii)   an additional
                                         (          ) Shares may be purchased
after the            day of each month following           , commencing on
                    ; and   (iii)   all of the Shares may be purchased at any
time after                     .

Notwithstanding any provision of this Agreement to the contrary, unless the
Board of Directors of the Corporation shall otherwise determine, the Option
shall not vest any further upon Participant ceasing to be a director of the
Corporation for any reason whatsoever.

 

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          C. Subject to the provisions of Section 1B, (i) any unvested portion
of the Option on the date of consummation of a Change of Control of the
Corporation (as defined herein) shall thereupon vest and become immediately
exercisable; and (ii) Participant may exercise the Option (including any
unvested portion subject to accelerated vesting pursuant to this Section 1C) at
any time following the Corporation’s public announcement of the proposed Change
of Control (provided, however, that consummation of the Change of Control shall
be a condition precedent to the effectiveness of any such exercise).

          D. For purposes of this Agreement, a “Change of Control” of the
Corporation shall mean the earliest to occur of (i) a merger or consolidation to
which the Corporation is a party and which results in, or is effected in
connection with, a change in ownership of a majority of the outstanding shares
of voting stock of the Corporation, (ii) any sale or transfer of all or
substantially all of the assets of the Corporation to an unaffiliated third
party, or (iii) the sale by the holders of a majority of the voting stock of the
Corporation to an unaffiliated third party.

     2. Duration of Option. The Option shall be effective during the period
commencing as of the date hereof and ending on the earliest to occur of (a) the
date all of the Shares are purchased pursuant to the terms of this Agreement or
(b) «Expiration_Date» at 5:00 p.m.

     3. Exercise of Option.

          A. The Option may be exercised only if compliance with all applicable
Federal and state securities laws can be effected and only by (i) Participant’s
completion, execution and delivery to the Corporation of a notice of exercise
and investment letter (in substantially the form attached hereto as Exhibit A),
and (ii) the payment to the Corporation, as provided in Section 3D hereof, of an
amount equal to the amount obtained by multiplying the Exercise Price by the
number of Shares being purchased pursuant to such exercise, as shall be
specified by Participant in such notice of exercise.

          B. The Option and any of the rights thereunder may be exercised by
Participant only, and may not be transferred or assigned, in whole or in part,
without the written consent of the Corporation.

          C. Payment of the amount determined pursuant to Section 3A hereof
shall be made by good check or in such other manner as shall then be acceptable
to, and permitted by, the Board of Directors.

          D. Upon the exercise of the Option by Participant, or as soon
thereafter as is practicable, the Corporation shall issue and deliver to
Participant a certificate or certificates evidencing such number of Shares as
Participant has so elected to purchase. Such certificate or certificates shall
be registered in the name of Participant and, if applicable, shall bear an
appropriate investment warranty legend, any legend required by any Federal or
state securities law, rule or regulation and, if applicable, a legend referring
to the restrictions provided hereunder and under the Plan and any legend
required by the General Corporation Law of the State of Delaware. Upon the
exercise of the Option and the issuance and delivery of such certificate or
certificates, Participant shall have all the rights of a stockholder with
respect to such Shares and

 

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to receive all dividends or other distributions paid or made with respect
thereto; provided, however, that such Shares shall be subject to the
restrictions hereunder.

          E. Upon the request of the Participant, the Board of Directors of the
Corporation may, upon such terms and conditions as it deems appropriate, accept
the surrender by Participant of Participant’s right to exercise the Option, in
whole or in part, and authorize a payment in consideration therefor of an amount
equal to the difference obtained by subtracting the Exercise Price of the Shares
which are the subject of such surrendered Option from the fair market value of
the Shares which are the subject of such surrendered Option on the date of such
surrender (such amount not to be less than zero), such payment to be in cash.

     4. Changes in Capital Structure of the Corporation. Subject to any required
action by the stockholders of the Corporation and the provisions of the General
Corporation Law of the State of Delaware, the number of shares of Incentive
Stock subject to this Agreement as well as the Exercise Price of any Shares not
yet purchased by Participant shall be proportionately adjusted for (a) a
division or combination of the shares of capital stock of the Corporation, (b) a
dividend payable in shares of capital stock of the Corporation or (c) a
reclassification of any shares of capital stock of the Corporation.

     5. Rights Prior to Exercise. Participant shall have no equity interest in
the Corporation or any voting, dividend, liquidation or dissolution rights with
respect to any capital stock of the Corporation solely by reason of having an
Option or having executed this Agreement. Furthermore, prior to the exercise of
all or a portion of the Option, as set forth in Section 3A hereof, and the
issuance and delivery of a certificate or certificates evidencing the Shares
purchased pursuant to the exercise of all or a portion of such Option,
Participant shall have no interest in, or any voting, dividend, liquidation or
dissolution rights with respect to, the Shares, except to the extent that
Participant has exercised all or a portion of such Option and has been issued
and received delivery of a certificate or certificates evidencing the Shares
purchased pursuant to such exercise.

     6. General.

          A. This Agreement shall be binding upon, and shall inure to the
benefit of, the Corporation and Participant, and their respective heirs,
personal and legal representatives, successors and assigns.

          B. This Agreement sets forth all of the promises, agreements,
conditions, understandings, warranties and representations between the parties
hereto with respect to the Option and the Shares, and there are no promises,
agreements, conditions, understandings, warranties or representations, oral or
written, express or implied, between them with respect to the Option or the
Shares other than as set forth herein. Any and all prior agreements between the
parties hereto with respect to any stock purchase rights or stock option rights
regarding the Shares or the Option are hereby revoked.

          C. Any and all notices provided for herein shall be sufficient if in
writing, and sent by hand delivery or by certified or registered mail (return
receipt requested and first-class

 

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postage prepaid), in the case of the Corporation, to its principal office, and,
in the case of Participant, to Participant’s mailing address as shown on the
records of the Corporation.

          D. This Agreement shall be construed and enforced in accordance with
the substantive laws of the State of Delaware, without regard to provisions
thereof relating to conflicts of law or choice of law.

          E. No change or modification of this Agreement shall be valid unless
the same is in writing and signed by the parties hereto.

     IN WITNESS WHEREOF, the Corporation and Participant have executed this
Agreement as of the day and year first above written.

              CORPORATION:
 
            WEBMETHODS, INC.,

      a Delaware corporation
 
       

  By:    

     

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            PARTICIPANT:
 
           

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