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”), aDelaware corporation, and (ii)                      (“Participant”), a director ofthe Corporation.
     **WHEREAS**, the Corporation has adopted a Stock Option Plan (the “Plan”), acopy of which has been provided to Participant; and
     **WHEREAS**, the Corporation desires to grant an Option to Participant topurchase shares of Incentive Stock (as defined in the Plan) of the Corporationin consideration of the valuable services to be rendered to the Corporation byParticipant pursuant to Participant’s service on the Corporation’s Board ofDirectors.
     **NOW, THEREFORE**, in consideration of the foregoing, of the mutual promiseshereinafter set forth and of other good and valuable consideration, the receiptand sufficiency of which are hereby acknowledged, the parties hereto, intendingto be legally bound, do hereby agree as follows:
     1. **Grant of Option**.
          A. Subject to vesting as set forth in Section 1B hereof, the Corporationhereby grants to Participant the right to purchase, during the period specifiedin Section 2 hereof,                      (          ) shares of Incentive Stock (suchshares of Incentive Stock being hereinafter referred to as the “Shares”) at aprice of                      ($          ) per Share (the “Exercise Price”), inaccordance with the terms of this Agreement and the Plan (such right beinghereinafter referred to as the “Option”).
          B. The Option shall vest and may be exercised by Participant, subject tothe provisions of Section 2 hereof regarding the duration of the Option, asfollows:
(i)                                          (          ) Sharesmay be purchased at any time after                     ; (ii) an additional                                         (          )Shares may be purchased after the           day ofeach month following          , commencing on                    ; and (iii) all of the Shares may be purchasedat any time after                     .
Notwithstanding any provision of this Agreement to the contrary, unless theBoard of Directors of the Corporation shall otherwise determine, the Optionshall not vest any further upon Participant ceasing to be a director of theCorporation for any reason whatsoever.
 

 

          C. Subject to the provisions of Section 1B, (i) any unvested portion ofthe Option on the date of consummation of a Change of Control of theCorporation (as defined herein) shall thereupon vest and become immediatelyexercisable; and (ii) Participant may exercise the Option (including anyunvested portion subject to accelerated vesting pursuant to this Section 1C) atany time following the Corporation’s public announcement of the proposed Changeof Control (provided, however, that consummation of the Change of Control shallbe a condition precedent to the effectiveness of any such exercise).
          D. For purposes of this Agreement, a “Change of Control” of theCorporation shall mean the earliest to occur of (i) a merger or consolidationto which the Corporation is a party and which results in, or is effected inconnection with, a change in ownership of a majority of the outstanding sharesof voting stock of the Corporation, (ii) any sale or transfer of all orsubstantially all of the assets of the Corporation to an unaffiliated thirdparty, or (iii) the sale by the holders of a majority of the voting stock ofthe Corporation to an unaffiliated third party.
     2. **Duration of Option**. The Option shall be effective during the periodcommencing as of the date hereof and ending on the earliest to occur of (a) thedate 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 applicableFederal and state securities laws can be effected and only by (i) Participant’scompletion, execution and delivery to the Corporation of a notice of exerciseand investment letter (in substantially the form attached hereto as Exhibit A),and (ii) the payment to the Corporation, as provided in Section 3D hereof, ofan amount equal to the amount obtained by multiplying the Exercise Price by thenumber of Shares being purchased pursuant to such exercise, as shall bespecified by Participant in such notice of exercise.
          B. The Option and any of the rights thereunder may be exercised byParticipant 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 bemade by good check or in such other manner as shall then be acceptable to, andpermitted by, the Board of Directors.
          D. Upon the exercise of the Option by Participant, or as soon thereafteras is practicable, the Corporation shall issue and deliver to Participant acertificate or certificates evidencing such number of Shares as Participant hasso elected to purchase. Such certificate or certificates shall be registeredin the name of Participant and, if applicable, shall bear an appropriateinvestment warranty legend, any legend required by any Federal or statesecurities law, rule or regulation and, if applicable, a legend referring tothe restrictions provided hereunder and under the Plan and any legend requiredby the General Corporation Law of the State of Delaware. Upon the exercise ofthe Option and the issuance and delivery of such certificate or certificates,Participant shall have all the rights of a stockholder with respect to suchShares and
 

 

to receive all dividends or other distributions paid or made with respectthereto; provided, however, that such Shares shall be subject to therestrictions hereunder.
          E. Upon the request of the Participant, the Board of Directors of theCorporation may, upon such terms and conditions as it deems appropriate, acceptthe surrender by Participant of Participant’s right to exercise the Option, inwhole or in part, and authorize a payment in consideration therefor of anamount equal to the difference obtained by subtracting the Exercise Price ofthe Shares which are the subject of such surrendered Option from the fairmarket value of the Shares which are the subject of such surrendered Option onthe date of such surrender (such amount not to be less than zero), such paymentto be in cash.
     4. **Changes in Capital Structure of the Corporation**. Subject to anyrequired action by the stockholders of the Corporation and the provisions ofthe General Corporation Law of the State of Delaware, the number of shares ofIncentive Stock subject to this Agreement as well as the Exercise Price of anyShares not yet purchased by Participant shall be proportionately adjusted for(a) a division or combination of the shares of capital stock of theCorporation, (b) a dividend payable in shares of capital stock of theCorporation or (c) a reclassification of any shares of capital stock of theCorporation.
     5. **Rights Prior to Exercise**. Participant shall have no equity interest inthe Corporation or any voting, dividend, liquidation or dissolution rights withrespect to any capital stock of the Corporation solely by reason of having anOption or having executed this Agreement. Furthermore, prior to the exercise ofall or a portion of the Option, as set forth in Section 3A hereof, and theissuance and delivery of a certificate or certificates evidencing the Sharespurchased pursuant to the exercise of all or a portion of such Option,Participant shall have no interest in, or any voting, dividend, liquidation ordissolution rights with respect to, the Shares, except to the extent thatParticipant has exercised all or a portion of such Option and has been issuedand received delivery of a certificate or certificates evidencing the Sharespurchased pursuant to such exercise.
     6. **General**.
          A. This Agreement shall be binding upon, and shall inure to the benefitof, the Corporation and Participant, and their respective heirs, personal andlegal representatives, successors and assigns.
          B. This Agreement sets forth all of the promises, agreements, conditions,understandings, warranties and representations between the parties hereto withrespect 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 otherthan as set forth herein. Any and all prior agreements between the partieshereto with respect to any stock purchase rights or stock option rightsregarding the Shares or the Option are hereby revoked.
          C. Any and all notices provided for herein shall be sufficient if inwriting, and sent by hand delivery or by certified or registered mail (returnreceipt requested and first-class
 

 

postage prepaid), in the case of the Corporation, to its principal office, and, inthe case of Participant, to Participant’s mailing address as shown on therecords of the Corporation.
          D. This Agreement shall be construed and enforced in accordance with thesubstantive laws of the State of Delaware, without regard to provisions thereofrelating to conflicts of law or choice of law.
          E. No change or modification of this Agreement shall be valid unless thesame is in writing and signed by the parties hereto.
     **IN WITNESS WHEREOF**, the Corporation and Participant have executed thisAgreement as of the day and year first above written.       **CORPORATION**:       WEBMETHODS, INC.,   a Delaware corporation      By:             **PARTICIPANT**: