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                                  VERITY, INC.

                             1995 STOCK OPTION PLAN

                       (AS AMENDED THROUGH JULY 19, 1996)


         1.       ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

                  1.1 ESTABLISHMENT. The Verity, Inc. 1988 Stock Option Plan was
initially established effective as of August 31, 1988 (the "INITIAL PLAN"). The
Initial Plan is hereby amended and restated in its entirety as the Verity, Inc.
1995 Stock Option Plan (the "PLAN") effective immediately prior to the effective
date of the initial registration by the Company of its Stock under Section 12 of
the Exchange Act (the "EFFECTIVE DATE").

                  1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.

                  1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from July 19,
1996. Notwithstanding the foregoing, if the maximum number of shares of Stock
issuable pursuant to the Plan as provided in Section 4.1 has been increased at
any time, all Incentive Stock Options shall be granted, if at all, no later than
the last day preceding the tenth (10th) anniversary of the earlier of (a) the
date on which the latest such increase in the maximum number of shares of Stock
issuable under the Plan was approved by the stockholders of the Company or (b)
the date such amendment was adopted by the Board.

         2.       DEFINITIONS AND CONSTRUCTION.

                  2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:

                           (a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).

                           (b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.

                           (c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without 


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limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.

                           (d) "COMPANY" means Verity, Inc., a Delaware
corporation, or any successor corporation thereto.

                           (e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.

                           (f) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.

                           (g) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.

                           (h) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.

                           (i) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.

                           (j) "INCENTIVE STOCK OPTION" means an Option intended
to be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.

                           (k) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.

                           (l) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.

                           (m) "OPTION" means a right to purchase Stock (subject
to adjustment as provided in Section 4.2) pursuant to the terms and conditions
of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.

                           (n) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired upon
the exercise thereof.

                           (o) "OPTION RESERVE INCREASE" means the increase of
four hundred thousand (400,000) shares of Stock issuable under the Plan which
was approved by the Board on July 19, 1996.

                           (p) "OPTIONEE" means a person who has been granted
one or more Options.


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                           (q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                           (r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.

                           (s) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.

                           (t) "RULE 16b-3" means Rule 16b-3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.

                           (u) "SECTION 162(m)" means Section 162(m) of the
Code, as amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).

                           (v) "STOCK" means the common stock, $0.001 par value,
of the Company, as adjusted from time to time in accordance with Section 4.2.

                           (w) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.

                           (x) "TEN PERCENT OWNER OPTIONEE" means an Optionee
who, at the time an Option is granted to the Optionee, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.

                  2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
the term "or" shall include the conjunctive as well as the disjunctive.

         3.       ADMINISTRATION.

                  3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan or of any Option shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.

                  3.2 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:

                           (a) to determine the persons to whom, and the time or
times at which, 


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Options shall be granted and the number of shares of Stock to be subject to each
Option;

                           (b) to designate Options as Incentive Stock Options
or Nonstatutory Stock Options;

                           (c) to determine the Fair Market Value of shares of
Stock or other property;

                           (d) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of employment or
service with the Participating Company Group on any of the foregoing, and (vii)
all other terms, conditions and restrictions applicable to the Option or such
shares not inconsistent with the terms of the Plan;

                           (e) to approve one or more forms of Option Agreement;

                           (f) to amend, modify, extend, or renew, or grant a
new Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon the exercise
thereof; provided, however, that without the approval of the Company's
stockholders, the Board may not amend an Option granted from the Option Reserve
Increase to decrease the exercise price thereof, or grant a new Option in
substitution therefor;

                           (g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of employment or service with the Participating Company Group;

                           (h) to prescribe, amend or rescind rules, guidelines
and policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and

                           (i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.

                  3.3 DISINTERESTED ADMINISTRATION. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the 


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"disinterested administration" requirements of Rule 16b-3.

                  3.4 COMMITTEE COMPLYING WITH SECTION 162(m). If a
Participating Company is a "publicly held corporation" within the meaning of
Section 162(m), the Board may establish a Committee of "outside directors"
within the meaning of Section 162(m) to approve the grant of any Option which
might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m).

         4.       SHARES SUBJECT TO PLAN.

                  4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be three million three hundred ten thousand
eight hundred thirty-six (3,310,836) and shall consist of authorized but
unissued or reacquired shares of Stock or any combination thereof. If an
outstanding Option for any reason expires or is terminated or canceled or shares
of Stock acquired, subject to repurchase, upon the exercise of an Option are
repurchased by the Company, the shares of Stock allocable to the unexercised
portion of such Option, or such repurchased shares of Stock, shall again be
available for issuance under the Plan.

                  4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan, the Option Reserve Increase and to any outstanding Options,
in the Section 162(m) Grant Limit set forth in Section 5.5, and in the exercise
price per share of any outstanding Options. If a majority of the shares which
are of the same class as the shares that are subject to outstanding Options are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event, as defined in Section 8.1) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding
Options to provide that such Options are exercisable for New Shares. In the
event of any such amendment, the number of shares subject to, and the exercise
price per share of, the outstanding Options shall be adjusted in a fair and
equitable manner as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4.2 shall be rounded up or down to the nearest whole
number, as determined by the Board, and in no event may the exercise price of
any Option be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 4.2 shall be final, binding and conclusive.

         5.       ELIGIBILITY AND OPTION LIMITATIONS.

                  5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only
to Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "Employees" shall include prospective Employees to whom Options are
granted in connection with written offers of employment with the Participating
Company Group, and "Consultants" shall include prospective Consultants to whom
Options are granted in connection with written offers of engagement with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option.


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                  5.2 DIRECTORS SERVING ON COMMITTEE. At any time that any class
of equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, no member of a Committee established to administer the Plan in
compliance with the "disinterested administration" requirements of Rule 16b-3,
while a member, shall be eligible to be granted an Option.

                  5.3 OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.

                  5.4 FAIR MARKET VALUE LIMITATION. To the extent that the
aggregate Fair Market Value of stock with respect to which options designated as
Incentive Stock Options are exercisable by an Optionee for the first time during
any calendar year (under all stock option plans of the Participating Company
Group, including the Plan) exceeds One Hundred Thousand Dollars ($100,000), the
portion of such options which exceeds such amount shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5.4, options designated
as Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of stock shall be determined as of
the time the option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section 5.4, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.4, the Optionee may designate which
portion of such Option the Optionee is exercising and may request that separate
certificates representing each such portion be issued upon the exercise of the
Option. In the absence of such designation, the Optionee shall be deemed to have
exercised the Incentive Stock Option portion of the Option first.

                  5.5 SECTION 162(m) GRANT LIMIT. Subject to adjustment as
provided in Section 4.2, at any such time as a Participating Company is a
"publicly held corporation" within the meaning of Section 162(m), no Employee
shall be granted one or more Options within any fiscal year of the Company which
in the aggregate are for the purchase of more than five hundred thousand
(500,000) shares (the "SECTION 162(m) GRANT LIMIT").

         6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:

                  6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (a)
the exercise price per share for an Option shall be not less than the Fair
Market Value of a share of Stock on the effective date of grant of the Option,
and (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee 


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shall have an exercise price per share less than one hundred ten percent (110%)
of the Fair Market Value of a share of Stock on the effective date of grant of
the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.

                  6.2 EXERCISE PERIOD. Options shall be exercisable at such time
or times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Incentive Stock Option shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option, (c) no Option granted to a prospective Employee or
prospective Consultant may become exercisable prior to the date on which such
person commences service with a Participating Company, and (d) no Option granted
from the Option Reserve Increase shall be exercisable after the expiration of
eight (8) years after the effective date of grant of such Option.

                  6.3 PAYMENT OF EXERCISE PRICE.

                           (a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the Company
without regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.

                           (b) TENDER OF STOCK. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.

                           (c) CASHLESS EXERCISE. The Company reserves, at any
and all times, 


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the right, in the Company's sole and absolute discretion, to establish, decline
to approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise.

                           (d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.

                  6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares of Stock or to release shares
of Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.

                  6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its sole discretion at
the time the Option is granted. The Company shall have the right to assign at
any time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Optionee shall execute any agreement evidencing
such transfer restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates representing
shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.

         7.       STANDARD FORMS OF OPTION AGREEMENT.

                  7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Incentive Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.


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                  7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by
the Board at the time the Option is granted, an Option designated as a
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Immediately Exercisable Nonstatutory Stock
Option Agreement adopted by the Board concurrently with its adoption of the Plan
and as amended from time to time.

                  7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, (a) any Incentive Stock
Option granted hereunder (except for Incentive Stock Options granted from the
Option Reserve Increase) shall have a term of ten (10) years from the effective
date of grant of the Option, and (b) any Incentive Stock Option granted from the
Option Reserve Increase shall have a term of eight (8) years from the effective
date of grant of the Option.

                  7.4 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 7 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and conditions
of any such new, revised or amended standard form or forms of Option Agreement
shall be in accordance with the terms of the Plan. Such authority shall include,
but not by way of limitation, the authority to grant Options which are not
immediately exercisable.

         8.       TRANSFER OF CONTROL.

                  8.1 DEFINITIONS.

                           (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:

                                    (i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;

                                    (ii) a merger or consolidation in which the
Company is a party;

                                    (iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or

                                    (iv) a liquidation or dissolution of the
Company.

                           (b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For 


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<PAGE>   10
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting stock of
one or more corporations which, as a result of the Transaction, own the Company
or the Transferee Corporation(s), as the case may be, either directly or through
one or more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.

                  8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. Any Options which are
neither assumed or substituted for by the Acquiring Corporation in connection
with the Transfer of Control nor exercised as of the date of the Transfer of
Control shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Transfer of Control
is the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides in
its sole discretion.

         9. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.

         10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.

         11. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan, or any right granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or 


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<PAGE>   11
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such person is liable for gross negligence,
bad faith or intentional misconduct in duties; provided, however, that within
sixty (60) days after the institution of such action, suit or proceeding, such
person shall offer to the Company, in writing, the opportunity at its own
expense to handle and defend the same.

         12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no expansion in the class of persons
eligible to receive Nonstatutory Stock Options. In any event, no termination or
amendment of the Plan may adversely affect any then outstanding Option or any
unexercised portion thereof, without the consent of the Optionee, unless such
termination or amendment is required to enable an Option designated as an
Incentive Stock Option to qualify as an Incentive Stock Option or is necessary
to comply with any applicable law or government regulation.

         13. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING OPTIONS. Any other
provision of the Plan to the contrary notwithstanding, the terms of the Initial
Plan shall remain in effect and apply to all Options granted pursuant to the
Initial Plan.

         IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing is the Verity, Inc. 1995 Stock Option Plan, as amended
through July 19, 1996.




                                                   Secretary
                                                   -----------------------------


                                       36
<PAGE>   12
                                  PLAN HISTORY


08/31/88              1988 Stock Option Plan adopted by the Board of Directors
                      of Verity, Inc., a California corporation, with a share
                      reserve of 300,000

04/25/89              Date of Unanimous Written Consent of the Board of
                      Directors increasing share reserve by 395,506 to 695,506

04/25/89              1988 Stock Option Plan approved by Written Consent of
                      Shareholders with a share reserve of 695,506

02/27/90              Date Board of Directors increased the share reserve by
                      680,000 to 1,375,506

03/02/90              Date of Written Consent of Shareholders increasing share
                      reserve by 680,000 to 1,375,506

05/31/90              Date Board of Directors increased share reserve by 55,000
                      to 1,430,506

08/07/90              Date of Written Consent of Shareholders increasing share
                      reserve by 55,000 to 1,430,506

06/20/91              Date Board of Directors increased share reserve by
                      1,000,000 to 2,430,506

07/15/91              Date of Written Consent of Shareholders increasing share
                      reserve by 1,000,000 to 2,430,506

05/21/92              Date Board of Directors increased share reserve by
                      1,500,000 to 3,930,506

08/20/92              Date Board of Directors approved amended 1988 Stock Option
                      Plan re: changes requested by Department of Corporations

08/25/92              Date of Written Consent of Shareholders increasing share
                      reserve by 1,500,000 to 3,930,506

12/15/93              Date Board of Directors increased share reserve by
                      2,615,000 to 6,545,506

02/28/94              Date of Written Consent of Shareholders increasing share
                      reserve by 2,615,000 to 6,545,506

06/10/95              Date Board of Directors increased share reserve by 708,674
                      to 7,254,180


                                       37
<PAGE>   13
06/26/95              Date Board of Directors amended and restated 1988 Stock
                      Option Plan, effective immediately prior to the effective
                      date of the Company's initial registration under Section
                      12 of the Exchange Act, as the 1995 Stock Option Plan and
                      increased share reserve by 2,300,000 from 7,254,180 to
                      9,554,180

09/19/95              Date shareholders approved the 1995 Stock Option Plan with
                      the share reserve increase to 9,554,180

09/22/95              Effective date of Delaware reincorporation of Verity,
                      Inc., a California corporation, pursuant to which each 5
                      shares outstanding of Verity California became 1 share of
                      Verity Delaware, resulting in an adjusted share reserve of
                      1,910,836.

02/06/96              Date Board of Directors approved an increase in the share
                      reserve by 1,000,000 to 2,910,836 and approved a limit on
                      the number of shares that can be granted to any one
                      optionee during any fiscal year of 500,000 shares pursuant
                      to Section 162(m) of the Internal Revenue Code by
                      Unanimous Written Consent.

03/28/96              Date of Stockholders Meeting approving an increase in the
                      share reserve by 1,250,000 to 2,910,836 and a limit on the
                      number of shares that can be granted to any one optionee
                      during any fiscal year of 500,000 shares pursuant to
                      Section 162(m) of the Internal Revenue Code.

07/19/96              Date Board of Directors approved an increase in the share
                      reserve by 400,000 to 3,310,836, amendments providing for
                      restrictions on grants from the share reserve increase,
                      and an amendment which requires the per share option
                      exercise price to be no less than the fair market value of
                      a share of stock on the date of grant.

[09/16/96             Date of Annual Stockholders Meeting approving an increase
                      in the share reserve by 400,000 to 3,310,836.]


                                       38
<PAGE>   14
                                  VERITY, INC.

                             IMMEDIATELY EXERCISABLE

                        INCENTIVE STOCK OPTION AGREEMENT

                                 (NEW EMPLOYEE)



         THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the
"OPTION AGREEMENT") is made and entered into as of            , 199 , by and
between Verity, Inc.                and (the "OPTIONEE").

         The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").

         1.       DEFINITIONS AND CONSTRUCTION.

                  1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:

                           (a) "DATE OF OPTION GRANT" means              , 199 .

                           (b) "NUMBER OF OPTION SHARES" means           shares
of Stock, as adjusted from time to time pursuant to Section 9.

                           (c) "EXERCISE PRICE" means $         per share of
Stock, as adjusted from time to time pursuant to Section 9.

                           (d) "INITIAL EXERCISE DATE" means the Date of Option
Grant.

                           (e) "INITIAL VESTING DATE" means the date occurring
six (6) months after (check one):


                              the Date of Option Grant.

                                    , 199 , the date the Optionee's Service 
                              commenced.


                                       39
<PAGE>   15
                           (f) "VESTED PERCENTAGE" means, on any relevant date,
the percentage determined as follows:

<TABLE>
<CAPTION>
                                                               Vested Percentage
                                                               -----------------
<S>                                                                 <C>
         Prior to Initial Vesting Date                                 0%

         On Initial Vesting Date, provided the Optionee's           12.5%
         Service is continuous from the Date of Option Grant
         until the Initial Vesting Date

         Plus

         For each full month of the Optionee's continuous           2.08%
         Service from the Initial Vesting Date until the
         Vested Percentage equals 100%, an additional
</TABLE>

                           (g) "OPTION EXPIRATION DATE" means the date eight (8)
years after the Date of Option Grant.

                           (h) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).

                           (i) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.

                           (j) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.

                           (k) "COMPANY" means Verity, Inc., a Delaware
corporation, or any successor corporation thereto.

                           (l) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.

                           (m) "DIRECTOR" means a member of the Board or of the
board of 


                                       40
<PAGE>   16
directors of any other Participating Company.

                           (n) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.

                           (o) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.

                           (p) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.

                           (q) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.

                           (r) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.

                           (s) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                           (t) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.

                           (u) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.

                           (v) "PLAN" means the Verity, Inc. 1995 Stock Option
Plan.

                           (w) "SECURITIES ACT" means the Securities Act of
1933, as amended.


                                       41
<PAGE>   17
                           (x) "SERVICE" means the Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination. (NOTE: If the Option
is exercised more than three (3) months after the date on which the Optionee
ceased to be an Employee (other than by reason of death or a permanent and total
disability as defined in Section 22(e)(3) of the Code), the Option will be
treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to
the extent required by Section 422 of the Code.)

                           (y) "STOCK" means the common stock, $0.001 par value,
of the Company, as adjusted from time to time in accordance with Section 4.2.

                           (z) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.

                  1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.

         2.       TAX CONSEQUENCES.

                  2.1 TAX STATUS OF OPTION. This Option is intended to be an
Incentive Stock Option within the meaning of Section 422(b) of the Code, but the
Company does not represent or warrant that this Option qualifies as such. The
Optionee should consult with the Optionee's own tax advisor regarding the tax
effects of this Option and the requirements necessary to obtain favorable income
tax treatment under Section 422 of the Code, including, but not limited to,
holding period requirements. (NOTE: If the aggregate Exercise Price of the
Option (that is, the Exercise Price multiplied by the Number of Option Shares)
plus the aggregate exercise price of any other Incentive Stock Options held by
the Optionee (whether granted pursuant to the Plan or any other stock option
plan of the Participating Company Group) is greater than One Hundred Thousand
Dollars ($100,000), the Optionee should contact the Chief Financial Officer of
the Company to ascertain whether the entire Option qualifies as an Incentive
Stock Option.)

                  2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax 


                                       42
<PAGE>   18
advisor regarding the advisability of filing with the Internal Revenue Service
an election under Section 83(b) of the Code, which must be filed no later than
thirty (30) days after the date on which the Optionee exercises the Option.
Shares acquired upon exercise of the Option are nontransferable and subject to a
substantial risk of forfeiture if, for example, (a) they are unvested and are
subject to a right of the Company to repurchase such shares at the Optionee's
original purchase price if the Optionee's Service terminates, (b) the Optionee
is an Insider and exercises the Option within six (6) months of the Date of
Option Grant (if a class of equity security of the Company is registered under
Section 12 of the Exchange Act), or (c) the Optionee is subject to a restriction
on transfer to comply with "Pooling-of-Interests Accounting" rules. Failure to
file an election under Section 83(b), if appropriate, may result in adverse tax
consequences to the Optionee. The Optionee acknowledges that the Optionee has
been advised to consult with a tax advisor prior to the exercise of the Option
regarding the tax consequences to the Optionee of the exercise of the Option. AN
ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON
WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE
OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE
OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.

         3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.

         4. EXERCISE OF THE OPTION.

                  4.1      RIGHT TO EXERCISE.

                           (a) EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase right set forth
in Section 11. Notwithstanding the foregoing, except as provided in Section
4.1(b), the aggregate Fair Market Value of the shares of Stock with respect to
which the Optionee may exercise the Option for the first time during any
calendar year, when added to the aggregate Fair Market Value of the shares
subject to any other options designated as Incentive Stock Options granted to
the Optionee under all stock option plans of the Participating Company Group
prior to the Date of Option Grant with respect to which such options are
exercisable for the first time during the same calendar year, shall not exceed
One Hundred Thousand Dollars ($100,000). For 


                                       43
<PAGE>   19
purposes of the preceding sentence, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of shares of stock shall be determined as of the time the
option with respect to such shares is granted. Such limitation on exercise shall
be referred to in this Option Agreement as the "ISO EXERCISE LIMITATION." If
Section 422 of the Code is amended to provide for a different limitation from
that set forth in this Section 4.1(a), the ISO Exercise Limitation shall be
deemed amended effective as of the date required or permitted by such amendment
to the Code. The ISO Exercise Limitation shall terminate upon the earlier of (i)
the Optionee's termination of Service, (ii) the day immediately prior to the
effective date of a Transfer of Control in which the Option is not assumed or
substituted for by the Acquiring Corporation as provided in Section 8, or (iii)
the day ten (10) days prior to the Option Expiration Date. Upon such termination
of the ISO Exercise Limitation, the Option shall be deemed a Nonstatutory Stock
Option to the extent of the number of shares subject to the Option which would
otherwise exceed the ISO Exercise Limitation.

                           (b) EXCEPTION TO THE ISO EXERCISE LIMITATION.
Notwithstanding any other provision of this Option Agreement, if compliance with
the ISO Exercise Limitation as set forth in Section 4.1(a) will result in the
exercisability of any Vested Shares (as defined in Section 11.2) being delayed
more than thirty (30) days beyond the date such shares become Vested Shares (the
"VESTING DATE"), the Option shall be deemed to be two (2) options. The first
option shall be for the maximum portion of the Number of Option Shares that can
comply with the ISO Exercise Limitation without causing the Option to be
unexercisable in the aggregate as to Vested Shares on the Vesting Date for such
shares. The second option, which shall not be treated as an Incentive Stock
Option as described in section 422(b) of the Code, shall be for the balance of
the Number of Option Shares; that is, those such shares which, on the respective
Vesting Date for such shares, would be unexercisable if included in the first
option and thereby made subject to the ISO Exercise Limitation. Shares treated
as subject to the second option shall be exercisable on the same terms and at
the same time as set forth in this Option Agreement; provided, however, that (i)
the second sentence of Section 4.1(a) shall not apply to the second option and
(ii) each such share shall become a Vested Share on the Vesting Date on which
such share must first be allocated to the second option pursuant to the
preceding sentence. Unless the Optionee specifically elects to the contrary in
the Optionee's written notice of exercise, the first option shall be deemed to
be exercised first to the maximum possible extent and then the second option
shall be deemed to be exercised.

                           (c) FREQUENCY OF EXERCISE. Notwithstanding the
foregoing, the Option may not be exercised more frequently than twice in any
continuous twelve (12) month period; provided, however, that the foregoing
restriction shall not apply so as to prevent an exercise (i) following the
Optionee's termination of Service as set forth in Section 7 or (ii) during the
thirty (30) day periods immediately preceding and following an Ownership Change
Event as defined in Section 8.1.

                  4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as 


                                       44
<PAGE>   20
to the Optionee's investment intent with respect to such shares as may be
required pursuant to the provisions of this Option Agreement. The written notice
must be signed by the Optionee and must be delivered in person, by certified or
registered mail, return receipt requested, by confirmed facsimile transmission,
or by such other means as the Company may permit, to the Chief Financial Officer
of the Company, or other authorized representative of the Participating Company
Group, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the aggregate Exercise Price for the number
of shares of Stock being purchased and (ii) an executed copy, if required
herein, of the then current forms of escrow and security agreement referenced
below. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and, if required by the
Company, such executed agreements.

                  4.3      PAYMENT OF EXERCISE PRICE.

                           (a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.

                           (b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.

                           (c) CASHLESS EXERCISE. A "Cashless Exercise" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.

                           (d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if an exercise of the Option using a promissory note would be
a violation of any law. 


                                       45
<PAGE>   21
Unless otherwise specified by the Board at the time the Option is granted, the
promissory note permitted in clause (iv) of Section 4.3(a) shall be for not more
than ninety percent (90%) of the aggregate Exercise Price of the shares of Stock
being purchased and shall be a full recourse note in a form satisfactory to the
Company, with principal payable four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.

                  4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares or
release such shares from any escrow provided for herein.

                  4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.

                  4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock 


                                       46
<PAGE>   22
may then be listed. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company's legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.

                  4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.

         5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.

         6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.

         7. EFFECT OF TERMINATION OF SERVICE.

                  7.1 OPTION EXERCISABILITY.

                           (a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.


                                       47
<PAGE>   23
                           (b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's legal representative, or other person who acquired the right to
exercise the Option by reason of the Optionee's death) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within one (1) month after the Optionee's termination of Service.

                           (c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within one (1) month (or such other longer period of
time as determined by the Board, in its sole discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the Option
Expiration Date.

                  7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding
the provisions of Section 7.1, the Option may not be exercised after the
Optionee's termination of Service to the extent that the shares to be acquired
upon exercise of the Option would be subject to the Unvested Share Repurchase
Option as provided in Section 11. Except as the Company and the Optionee
otherwise agree, exercise of the Option pursuant to Section 7.1 following
termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).

                  7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date. The Company makes no
representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisor as to the tax
consequences of any such delayed exercise.

                  7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences of any such delayed exercise.


                                       48
<PAGE>   24
                  7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service with the Participating Company Group shall not be deemed to
terminate if the Optionee takes any military leave, sick leave, or other bona
fide leave of absence approved by the Company of ninety (90) days or less. In
the event of a leave of absence in excess of ninety (90) days, the Optionee's
Service shall be deemed to terminate on the ninety-first (91st) day of such
leave unless the Optionee's right to reemployment with the Participating Company
Group remains guaranteed by statute or contract. Notwithstanding the foregoing,
unless otherwise designated by the Company (or required by law), a leave of
absence shall not be treated as Service for purposes of determining the
Optionee's Vested Percentage.

         8. TRANSFER OF CONTROL.

                  8.1 DEFINITIONS.

                           (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:

                                    (i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;

                                    (ii) a merger or consolidation in which the
Company is a party;

                                    (iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or

                                    (iv) a liquidation or dissolution of the
Company.

                           (b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.


                                       49
<PAGE>   25
                  8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the date of the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.

         9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.

         10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating 


                                       50
<PAGE>   26
Company Group to terminate the Optionee's Service as an Employee or Consultant,
as the case may be, at any time.

         11.      UNVESTED SHARE REPURCHASE OPTION.

                  11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event
the Optionee's Service with the Participating Company Group is terminated for
any reason or no reason, with or without cause, or, if the Optionee, the
Optionee's legal representative, or other holder of shares acquired upon
exercise of the Option attempts to sell, exchange, transfer, pledge, or
otherwise dispose of (other than pursuant to an Ownership Change Event) any
shares acquired upon exercise of the Option which exceed the Vested Shares as
defined in Section 11.2 below (the "UNVESTED SHARES"), the Company shall have
the right to repurchase the Unvested Shares under the terms and subject to the
conditions set forth in this Section 11 (the "UNVESTED SHARE REPURCHASE
OPTION").

                  11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested
Shares" shall mean, on any given date, a number of shares of Stock equal to the
Number of Option Shares multiplied by the Vested Percentage determined as of
such date and rounded down to the nearest whole share. On such given date, the
"UNVESTED SHARES" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.

                  11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company
may exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days after (a) termination of the Optionee's Service (or exercise of the Option,
if later) or (b) the Company has received notice of the attempted disposition of
Unvested Shares. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at
all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.

                  11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "REPURCHASE PRICE"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of personal
delivery or mailing of the written notice of the Company's exercise of the
Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of
any indebtedness of the Optionee to any Participating Company shall be treated
as payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled. The shares being repurchased shall be delivered to
the Company by the Optionee at the same time as the delivery of the Repurchase
Price to the Optionee.

                  11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The
Company shall 


                                       51
<PAGE>   27
have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.

                  11.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an
Ownership Change Event, any and all new, substituted or additional securities or
other property to which the Optionee is entitled by reason of the Optionee's
ownership of Unvested Shares shall be immediately subject to the Unvested Share
Repurchase Option and included in the terms "Stock" and "Unvested Shares" for
all purposes of the Unvested Share Repurchase Option with the same force and
effect as the Unvested Shares immediately prior to the Ownership Change Event.
While the aggregate Repurchase Price shall remain the same after such Ownership
Change Event, the Repurchase Price per Unvested Share upon exercise of the
Unvested Share Repurchase Option following such Ownership Change Event shall be
adjusted as appropriate. For purposes of determining the Vested Percentage
following an Ownership Change Event, credited Service shall include all Service
with any corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.

         12.      ESCROW.

                  12.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to
the Unvested Share Repurchase Option or securing any promissory note will be
available for repurchase, the Company may require the Optionee to deposit the
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Unvested Share Repurchase Option or any security
interest held by the Company shall be immediately subject to the escrow to the
same extent as such shares of Stock immediately before such event. The Company
shall bear the expenses of the escrow.

                  12.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Unvested Share Repurchase Option and after full
repayment of any promissory note secured by the shares or other property in
escrow, but not more frequently than twice each calendar year, the escrow agent
shall deliver to the Optionee the shares and any other property no longer
subject to such restrictions and no longer securing any promissory note.

                  12.3 NOTICES AND PAYMENTS. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option, 


                                       52
<PAGE>   28
the notices required to be given to the Optionee shall be given to the escrow
agent, and any payment required to be given to the Optionee shall be given to
the escrow agent. Within thirty (30) days after payment by the Company, the
escrow agent shall deliver the shares and any other property which the Company
has purchased to the Company and shall deliver the payment received from the
Company to the Optionee.

         13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option and any security
interest held by the Company with the same force and effect as the shares
subject to the Unvested Share Repurchase Option and such security interest
immediately before such event.

         14. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of this
Option Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence.

         15. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option and any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to carry out the provisions of this Section. Unless otherwise
specified by the Company, legends placed on such certificates may include, but
shall not be limited to, the following:

                  15.1 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE 


                                       53
<PAGE>   29
CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."

                  15.2 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY
THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK
OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO
ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO     . SHOULD THE REGISTERED
HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX
TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."

         16. PUBLIC OFFERING. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such initial public offering; provided, however, that such
period of time shall not exceed one hundred eighty (180) days from the effective
date of the registration statement to be filed in connection with such public
offering. The foregoing limitation shall not apply to shares registered in the
public offering under the Securities Act.

         17. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

         18. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that (a) except as provided in
Section 8.2 in connection with a Transfer of Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option to qualify as an Incentive Stock Option, and (b)
the Board may not adopt an amendment to decrease the Exercise Price without the
approval of the Company's stockholders. No amendment or addition to this Option
Agreement shall be effective unless in writing.

         19. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire



                                       54
<PAGE>   30
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.

         20. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.


                                            VERITY, INC.



                                            By:
                                               ---------------------------------
                                            Title:
                                                  ------------------------------


         The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, and hereby accepts the Option subject to all of
the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.


                                            OPTIONEE



Date:
     ---------------------------------      ------------------------------------


                                       55
<PAGE>   31
                                  VERITY, INC.

                             IMMEDIATELY EXERCISABLE

                        INCENTIVE STOCK OPTION AGREEMENT

                               (EXISTING EMPLOYEE)



         THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the
                 "OPTION AGREEMENT") is made and entered into as of            ,
199 , by and between Verity, Inc. and                (the "OPTIONEE").

         The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").

         1.       DEFINITIONS AND CONSTRUCTION.

                  1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:

                           (a) "DATE OF OPTION GRANT" means        , 199 .

                           (b) "NUMBER OF OPTION SHARES" means           shares
of Stock, as adjusted from time to time pursuant to Section 9.

                           (c) "EXERCISE PRICE" means $   per share of Stock, as
adjusted from time to time pursuant to Section 9.

                           (d) "INITIAL EXERCISE DATE" means the Date of Option
Grant.

                           (e) "INITIAL VESTING DATE" means the date occurring
one (1) month after the Date of Option Grant.


                                       56
<PAGE>   32
                           (f) "VESTED PERCENTAGE" means, on any relevant date,
the percentage determined as follows:

<TABLE>
<CAPTION>
                                                              Vested Percentage
                                                              -----------------
<S>                                                                 <C>
         Prior to Initial Vesting Date                                 0%

         On Initial Vesting Date, provided the Optionee's           2.08%
         Service is continuous from the Date of Option Grant
         until the Initial Vesting Date

         Plus

         For each full month of the Optionee's continuous           2.08%
         Service from the Initial Vesting Date until the
         Vested Percentage equals 100%, an additional
</TABLE>

                           (g) "OPTION EXPIRATION DATE" means the date eight (8)
years after the Date of Option Grant.

                           (h) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).

                           (i) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.

                           (j) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.

                           (k) "COMPANY" means Verity, Inc., a Delaware
corporation, or any successor corporation thereto.

                           (l) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.

                           (m) "DIRECTOR" means a member of the Board or of the
board of 


                                       57
<PAGE>   33
directors of any other Participating Company.

                           (n) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.

                           (o) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.

                           (p) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.

                           (q) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.

                           (r) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.

                           (s) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                           (t) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.

                           (u) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.

                           (v) "PLAN" means the Verity, Inc. 1995 Stock Option
Plan.

                           (w) "SECURITIES ACT" means the Securities Act of
1933, as amended.


                                       58
<PAGE>   34
                           (x) "SERVICE" means the Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination. (NOTE: If the Option
is exercised more than three (3) months after the date on which the Optionee
ceased to be an Employee (other than by reason of death or a permanent and total
disability as defined in Section 22(e)(3) of the Code), the Option will be
treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to
the extent required by Section 422 of the Code.)

                           (y) "STOCK" means the common stock, $0.001 par value,
of the Company, as adjusted from time to time in accordance with Section 4.2.

                           (z) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.

                  1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.

         2.       TAX CONSEQUENCES.

                  2.1 TAX STATUS OF OPTION. This Option is intended to be an
Incentive Stock Option within the meaning of Section 422(b) of the Code, but the
Company does not represent or warrant that this Option qualifies as such. The
Optionee should consult with the Optionee's own tax advisor regarding the tax
effects of this Option and the requirements necessary to obtain favorable income
tax treatment under Section 422 of the Code, including, but not limited to,
holding period requirements. (NOTE: If the aggregate Exercise Price of the
Option (that is, the Exercise Price multiplied by the Number of Option Shares)
plus the aggregate exercise price of any other Incentive Stock Options held by
the Optionee (whether granted pursuant to the Plan or any other stock option
plan of the Participating Company Group) is greater than One Hundred Thousand
Dollars ($100,000), the Optionee should contact the Chief Financial Officer of
the Company to ascertain whether the entire Option qualifies as an Incentive
Stock Option.)

                  2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax 


                                       59
<PAGE>   35
advisor regarding the advisability of filing with the Internal Revenue Service
an election under Section 83(b) of the Code, which must be filed no later than
thirty (30) days after the date on which the Optionee exercises the Option.
Shares acquired upon exercise of the Option are nontransferable and subject to a
substantial risk of forfeiture if, for example, (a) they are unvested and are
subject to a right of the Company to repurchase such shares at the Optionee's
original purchase price if the Optionee's Service terminates, (b) the Optionee
is an Insider and exercises the Option within six (6) months of the Date of
Option Grant (if a class of equity security of the Company is registered under
Section 12 of the Exchange Act), or (c) the Optionee is subject to a restriction
on transfer to comply with "Pooling-of-Interests Accounting" rules. Failure to
file an election under Section 83(b), if appropriate, may result in adverse tax
consequences to the Optionee. The Optionee acknowledges that the Optionee has
been advised to consult with a tax advisor prior to the exercise of the Option
regarding the tax consequences to the Optionee of the exercise of the Option. AN
ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON
WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE
OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE
OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.

         3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.

         4. EXERCISE OF THE OPTION.

                  4.1 RIGHT TO EXERCISE.

                           (a) EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase right set forth
in Section 11. Notwithstanding the foregoing, except as provided in Section
4.1(b), the aggregate Fair Market Value of the shares of Stock with respect to
which the Optionee may exercise the Option for the first time during any
calendar year, when added to the aggregate Fair Market Value of the shares
subject to any other options designated as Incentive Stock Options granted to
the Optionee under all stock option plans of the Participating Company Group
prior to the Date of Option Grant with respect to which such options are
exercisable for the first time during the same calendar year, shall not exceed
One Hundred Thousand Dollars ($100,000). For 


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<PAGE>   36
purposes of the preceding sentence, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of shares of stock shall be determined as of the time the
option with respect to such shares is granted. Such limitation on exercise shall
be referred to in this Option Agreement as the "ISO EXERCISE LIMITATION." If
Section 422 of the Code is amended to provide for a different limitation from
that set forth in this Section 4.1(a), the ISO Exercise Limitation shall be
deemed amended effective as of the date required or permitted by such amendment
to the Code. The ISO Exercise Limitation shall terminate upon the earlier of (i)
the Optionee's termination of Service, (ii) the day immediately prior to the
effective date of a Transfer of Control in which the Option is not assumed or
substituted for by the Acquiring Corporation as provided in Section 8, or (iii)
the day ten (10) days prior to the Option Expiration Date. Upon such termination
of the ISO Exercise Limitation, the Option shall be deemed a Nonstatutory Stock
Option to the extent of the number of shares subject to the Option which would
otherwise exceed the ISO Exercise Limitation.

                           (b) EXCEPTION TO THE ISO EXERCISE LIMITATION.
Notwithstanding any other provision of this Option Agreement, if compliance with
the ISO Exercise Limitation as set forth in Section 4.1(a) will result in the
exercisability of any Vested Shares (as defined in Section 11.2) being delayed
more than thirty (30) days beyond the date such shares become Vested Shares (the
"VESTING DATE"), the Option shall be deemed to be two (2) options. The first
option shall be for the maximum portion of the Number of Option Shares that can
comply with the ISO Exercise Limitation without causing the Option to be
unexercisable in the aggregate as to Vested Shares on the Vesting Date for such
shares. The second option, which shall not be treated as an Incentive Stock
Option as described in section 422(b) of the Code, shall be for the balance of
the Number of Option Shares; that is, those such shares which, on the respective
Vesting Date for such shares, would be unexercisable if included in the first
option and thereby made subject to the ISO Exercise Limitation. Shares treated
as subject to the second option shall be exercisable on the same terms and at
the same time as set forth in this Option Agreement; provided, however, that (i)
the second sentence of Section 4.1(a) shall not apply to the second option and
(ii) each such share shall become a Vested Share on the Vesting Date on which
such share must first be allocated to the second option pursuant to the
preceding sentence. Unless the Optionee specifically elects to the contrary in
the Optionee's written notice of exercise, the first option shall be deemed to
be exercised first to the maximum possible extent and then the second option
shall be deemed to be exercised.

                           (c) FREQUENCY OF EXERCISE. Notwithstanding the
foregoing, the Option may not be exercised more frequently than twice in any
continuous twelve (12) month period; provided, however, that the foregoing
restriction shall not apply so as to prevent an exercise (i) following the
Optionee's termination of Service as set forth in Section 7 or (ii) during the
thirty (30) day periods immediately preceding and following an Ownership Change
Event as defined in Section 8.1.

                  4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as 


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<PAGE>   37
to the Optionee's investment intent with respect to such shares as may be
required pursuant to the provisions of this Option Agreement. The written notice
must be signed by the Optionee and must be delivered in person, by certified or
registered mail, return receipt requested, by confirmed facsimile transmission,
or by such other means as the Company may permit, to the Chief Financial Officer
of the Company, or other authorized representative of the Participating Company
Group, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the aggregate Exercise Price for the number
of shares of Stock being purchased and (ii) an executed copy, if required
herein, of the then current forms of escrow and security agreement referenced
below. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and, if required by the
Company, such executed agreements.

                  4.3 PAYMENT OF EXERCISE PRICE.

                           (a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.

                           (b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.

                           (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.

                           (d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if an exercise of the Option using a promissory note would be
a violation of any law. 


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<PAGE>   38
Unless otherwise specified by the Board at the time the Option is granted, the
promissory note permitted in clause (iv) of Section 4.3(a) shall be for not more
than ninety percent (90%) of the aggregate Exercise Price of the shares of Stock
being purchased and shall be a full recourse note in a form satisfactory to the
Company, with principal payable four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.

                  4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares or
release such shares from any escrow provided for herein.

                  4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.

                  4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock 


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<PAGE>   39
may then be listed. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company's legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.

                  4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.

         5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.

         6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.

         7. EFFECT OF TERMINATION OF SERVICE.

                  7.1 OPTION EXERCISABILITY.

                           (a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.


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<PAGE>   40
                           (b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's legal representative, or other person who acquired the right to
exercise the Option by reason of the Optionee's death) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within one (1) month after the Optionee's termination of Service.

                           (c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within one (1) month (or such other longer period of
time as determined by the Board, in its sole discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the Option
Expiration Date.

                  7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding
the provisions of Section 7.1, the Option may not be exercised after the
Optionee's termination of Service to the extent that the shares to be acquired
upon exercise of the Option would be subject to the Unvested Share Repurchase
Option as provided in Section 11. Except as the Company and the Optionee
otherwise agree, exercise of the Option pursuant to Section 7.1 following
termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).

                  7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date. The Company makes no
representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisor as to the tax
consequences of any such delayed exercise.

                  7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences of any such delayed exercise.


                                       65
<PAGE>   41
                  7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service with the Participating Company Group shall not be deemed to
terminate if the Optionee takes any military leave, sick leave, or other bona
fide leave of absence approved by the Company of ninety (90) days or less. In
the event of a leave of absence in excess of ninety (90) days, the Optionee's
Service shall be deemed to terminate on the ninety-first (91st) day of such
leave unless the Optionee's right to reemployment with the Participating Company
Group remains guaranteed by statute or contract. Notwithstanding the foregoing,
unless otherwise designated by the Company (or required by law), a leave of
absence shall not be treated as Service for purposes of determining the
Optionee's Vested Percentage.

         8. TRANSFER OF CONTROL.

                  8.1 DEFINITIONS.

                           (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:

                                    (i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;

                                    (ii) a merger or consolidation in which the
Company is a party;

                                    (iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or

                                    (iv) a liquidation or dissolution of the
Company.

                           (b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.


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<PAGE>   42
                  8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the date of the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.

         9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.

         10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating 


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<PAGE>   43
Company Group to terminate the Optionee's Service as an Employee or Consultant,
as the case may be, at any time.

         11. UNVESTED SHARE REPURCHASE OPTION.

                  11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event
the Optionee's Service with the Participating Company Group is terminated for
any reason or no reason, with or without cause, or, if the Optionee, the
Optionee's legal representative, or other holder of shares acquired upon
exercise of the Option attempts to sell, exchange, transfer, pledge, or
otherwise dispose of (other than pursuant to an Ownership Change Event) any
shares acquired upon exercise of the Option which exceed the Vested Shares as
defined in Section 11.2 below (the "UNVESTED SHARES"), the Company shall have
the right to repurchase the Unvested Shares under the terms and subject to the
conditions set forth in this Section 11 (the "UNVESTED SHARE REPURCHASE
OPTION").

                  11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested
Shares" shall mean, on any given date, a number of shares of Stock equal to the
Number of Option Shares multiplied by the Vested Percentage determined as of
such date and rounded down to the nearest whole share. On such given date, the
"UNVESTED SHARES" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.

                  11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company
may exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days after (a) termination of the Optionee's Service (or exercise of the Option,
if later) or (b) the Company has received notice of the attempted disposition of
Unvested Shares. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at
all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.

                  11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "REPURCHASE PRICE"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of personal
delivery or mailing of the written notice of the Company's exercise of the
Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of
any indebtedness of the Optionee to any Participating Company shall be treated
as payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled. The shares being repurchased shall be delivered to
the Company by the Optionee at the same time as the delivery of the Repurchase
Price to the Optionee.

                  11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The
Company shall 


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<PAGE>   44
have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.

                  11.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an
Ownership Change Event, any and all new, substituted or additional securities or
other property to which the Optionee is entitled by reason of the Optionee's
ownership of Unvested Shares shall be immediately subject to the Unvested Share
Repurchase Option and included in the terms "Stock" and "Unvested Shares" for
all purposes of the Unvested Share Repurchase Option with the same force and
effect as the Unvested Shares immediately prior to the Ownership Change Event.
While the aggregate Repurchase Price shall remain the same after such Ownership
Change Event, the Repurchase Price per Unvested Share upon exercise of the
Unvested Share Repurchase Option following such Ownership Change Event shall be
adjusted as appropriate. For purposes of determining the Vested Percentage
following an Ownership Change Event, credited Service shall include all Service
with any corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.

         12. ESCROW.

                  12.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to
the Unvested Share Repurchase Option or securing any promissory note will be
available for repurchase, the Company may require the Optionee to deposit the
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Unvested Share Repurchase Option or any security
interest held by the Company shall be immediately subject to the escrow to the
same extent as such shares of Stock immediately before such event. The Company
shall bear the expenses of the escrow.

                  12.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Unvested Share Repurchase Option and after full
repayment of any promissory note secured by the shares or other property in
escrow, but not more frequently than twice each calendar year, the escrow agent
shall deliver to the Optionee the shares and any other property no longer
subject to such restrictions and no longer securing any promissory note.

                  12.3 NOTICES AND PAYMENTS. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option, 


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<PAGE>   45
the notices required to be given to the Optionee shall be given to the escrow
agent, and any payment required to be given to the Optionee shall be given to
the escrow agent. Within thirty (30) days after payment by the Company, the
escrow agent shall deliver the shares and any other property which the Company
has purchased to the Company and shall deliver the payment received from the
Company to the Optionee.

         13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option and any security
interest held by the Company with the same force and effect as the shares
subject to the Unvested Share Repurchase Option and such security interest
immediately before such event.

         14. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of this
Option Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence.

         15. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option and any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to carry out the provisions of this Section. Unless otherwise
specified by the Company, legends placed on such certificates may include, but
shall not be limited to, the following:

                  15.1 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE 


                                       70
<PAGE>   46
CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."

                  15.2 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY
THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK
OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO
ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO                  . SHOULD
THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED
ABOVE."

         16. PUBLIC OFFERING. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such initial public offering; provided, however, that such
period of time shall not exceed one hundred eighty (180) days from the effective
date of the registration statement to be filed in connection with such public
offering. The foregoing limitation shall not apply to shares registered in the
public offering under the Securities Act.

         17. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

         18. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that (a) except as provided in
Section 8.2 in connection with a Transfer of Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option to qualify as an Incentive Stock Option, and (b)
the Board may not adopt an amendment to decrease the Exercise Price without the
approval of the Company's stockholders. No amendment or addition to this Option
Agreement shall be effective unless in writing.

         19. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire


                                       71
<PAGE>   47
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.

         20. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.


                                               VERITY, INC.



                                               By:
                                                  ------------------------------
                                               Title:
                                                     ---------------------------


         The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, and hereby accepts the Option subject to all of
the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.


                                               OPTIONEE



Date:
     ------------------------------            ---------------------------------


                                       72
<PAGE>   48
                                  VERITY, INC.

                             IMMEDIATELY EXERCISABLE

                       NONSTATUTORY STOCK OPTION AGREEMENT



         THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"OPTION AGREEMENT") is made and entered into as of            , 199 , by and
between Verity, Inc. and                 (the "OPTIONEE").

         The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").

         1. DEFINITIONS AND CONSTRUCTION.

                  1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:

                           (a) "DATE OF OPTION GRANT" means         , 199 .


                           (b) "NUMBER OF OPTION SHARES" means           shares
of Stock, as adjusted from time to time pursuant to Section 9.

                           (c) "EXERCISE PRICE" means $   per share of Stock, as
adjusted from time to time pursuant to Section 9.

                           (d) "INITIAL EXERCISE DATE" means the later of the
Date of Option Grant or the date the Optionee's Service commences.

                           (e) "INITIAL VESTING DATE" means the date occurring
six (6) months after (check one):

                                   the Date of Option Grant.

                                         , 199 , the date the Optionee's Service
                                   commenced.


                                       73
<PAGE>   49
                           (f) "VESTED PERCENTAGE" means, on any relevant date,
the percentage determined as follows:

<TABLE>
<CAPTION>
                                                               Vested Percentage
                                                               -----------------
<S>                                                                  <C>
         Prior to Initial Vesting Date                                  0%

         On Initial Vesting Date, provided the Optionee's            12.5%
         Service is continuous from the later of the Date of
         Option Grant or the Optionee's Service commencement
         date until the Initial Vesting Date

         Plus

         For each full month of the Optionee's continuous            2.08%
         Service from the Initial Vesting Date until the
         Vested Percentage equals 100%, an additional
</TABLE>

                           (g) "OPTION EXPIRATION DATE" means the date eight (8)
years after the Date of Option Grant.

                           (h) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).

                           (i) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.

                           (j) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.

                           (k) "COMPANY" means Verity, Inc., a Delaware
corporation, or any successor corporation thereto.

                           (l) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.


                                       74
<PAGE>   50
                           (m) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.

                           (n) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.

                           (o) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.

                           (p) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.

                           (q) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.

                           (r) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.

                           (s) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                           (t) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.

                           (u) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.

                           (v) "PLAN" means the Verity, Inc. 1995 Stock Option
Plan.

                           (w) "SECURITIES ACT" means the Securities Act of
1933, as amended.


                                       75
<PAGE>   51
                           (x) "SERVICE" means the Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination.

                           (y) "STOCK" means the common stock, $0.001 par value,
of the Company, as adjusted from time to time in accordance with Section 4.2.

                           (z) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.

                  1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.

         2. TAX CONSEQUENCES.

                  2.1 TAX STATUS OF OPTION. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.

                  2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and
exercises the Option within six (6) months of the Date of Option Grant (if a
class of equity security of the Company is registered under Section 12 of the
Exchange Act), or (c) the Optionee is subject to a restriction on transfer to
comply with "Pooling-of-Interests Accounting" rules. Failure to file an election
under Section 83(b), if appropriate, may result in adverse tax consequences to
the Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the tax
consequences to 


                                       76
<PAGE>   52
the Optionee of the exercise of the Option. AN ELECTION UNDER SECTION 83(b) MUST
BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE PURCHASES SHARES.
THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY
FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN
IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION
ON HIS OR HER BEHALF.

         3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.

         4. EXERCISE OF THE OPTION.

                  4.1 RIGHT TO EXERCISE.

                           (a) EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase right set forth
in Section 11.

                           (b) FREQUENCY OF EXERCISE. Notwithstanding the
foregoing, the Option may not be exercised more frequently than twice in any
continuous twelve (12) month period; provided, however, that the foregoing
restriction shall not apply so as to prevent an exercise (i) following the
Optionee's termination of Service as set forth in Section 7 or (ii) during the
thirty (30) day periods immediately preceding and following an Ownership Change
Event as defined in Section 8.1.

                  4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section 6, accompanied by (i) full
payment of the aggregate Exercise Price for the number of shares of Stock being


                                       77
<PAGE>   53
purchased and (ii) an executed copy, if required herein, of the then current
forms of escrow and security agreement referenced below. The Option shall be
deemed to be exercised upon receipt by the Company of such written notice, the
aggregate Exercise Price, and, if required by the Company, such executed
agreements.

                  4.3 PAYMENT OF EXERCISE PRICE.

                           (a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.

                           (b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.

                           (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.

                           (d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if an exercise of the Option using a promissory note would be
a violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be for not more than ninety percent (90%) of the aggregate Exercise
Price of the shares of Stock being purchased and shall be a full recourse note
in a form satisfactory to the Company, with principal payable four (4) years
after the date the Option is exercised. Interest on the principal balance of the
promissory note shall be payable in annual installments at the minimum interest
rate necessary to avoid imputed interest pursuant to all applicable sections of
the Code. Such recourse promissory note shall be secured by the shares 


                                       78
<PAGE>   54
of Stock acquired pursuant to the then current form of security agreement as
approved by the Company. At any time the Company is subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations. Except as the Company in its sole discretion shall determine, the
Optionee shall pay the unpaid principal balance of the promissory note and any
accrued interest thereon upon termination of the Optionee's Service with the
Participating Company Group for any reason, with or without cause.

                  4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares or
release such shares from any escrow provided for herein.

                  4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.

                  4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE 


                                       79
<PAGE>   55
OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE
OPTION IS VESTED. The inability of the Company to obtain from any regulatory
body having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance and sale of any shares subject to
the Option shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which such requisite authority shall not have
been obtained. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.

                  4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.

         5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.

         6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.

         7. EFFECT OF TERMINATION OF SERVICE.

                  7.1 OPTION EXERCISABILITY.

                           (a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.

                           (b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's legal representative, or other person who acquired the right to
exercise the Option by reason of the Optionee's death) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on 


                                       80
<PAGE>   56
account of death if the Optionee dies within one (1) month after the Optionee's
termination of Service.

                           (c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within one (1) month (or such other longer period of
time as determined by the Board, in its sole discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the Option
Expiration Date.

                  7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding
the provisions of Section 7.1, the Option may not be exercised after the
Optionee's termination of Service to the extent that the shares to be acquired
upon exercise of the Option would be subject to the Unvested Share Repurchase
Option as provided in Section 11. Except as the Company and the Optionee
otherwise agree, exercise of the Option pursuant to Section 7.1 following
termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).

                  7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.

                  7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.

                  7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service with the Participating Company Group shall not be deemed to
terminate if the Optionee takes any military leave, sick leave, or other bona
fide leave of absence approved by the Company of ninety (90) days or less. In
the event of a leave of absence in excess of ninety (90) days, the Optionee's
Service shall be deemed to terminate on the ninety-first (91st) day of such
leave unless the Optionee's right to reemployment with the Participating Company
Group remains guaranteed by statute or contract. Notwithstanding the foregoing,
unless otherwise designated by the Company (or required by law), a leave of
absence shall not be treated as Service for purposes of determining the
Optionee's Vested Percentage.


                                       81
<PAGE>   57
         8. TRANSFER OF CONTROL.

                  8.1 DEFINITIONS.

                           (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:

                                    (i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;

                                    (ii) a merger or consolidation in which the
Company is a party;

                                    (iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or

                                    (iv) a liquidation or dissolution of the
Company.

                           (b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.

                  8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the date of the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such


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shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.

         9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.

         10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.


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         11.      UNVESTED SHARE REPURCHASE OPTION.

                  11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event
the Optionee's Service with the Participating Company Group is terminated for
any reason or no reason, with or without cause, or, if the Optionee, the
Optionee's legal representative, or other holder of shares acquired upon
exercise of the Option attempts to sell, exchange, transfer, pledge, or
otherwise dispose of (other than pursuant to an Ownership Change Event) any
shares acquired upon exercise of the Option which exceed the Vested Shares as
defined in Section 11.2 below (the "UNVESTED SHARES"), the Company shall have
the right to repurchase the Unvested Shares under the terms and subject to the
conditions set forth in this Section 11 (the "UNVESTED SHARE REPURCHASE
OPTION").

                  11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested
Shares" shall mean, on any given date, a number of shares of Stock equal to the
Number of Option Shares multiplied by the Vested Percentage determined as of
such date and rounded down to the nearest whole share. On such given date, the
"UNVESTED SHARES" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.

                  11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company
may exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days after (a) termination of the Optionee's Service (or exercise of the Option,
if later) or (b) the Company has received notice of the attempted disposition of
Unvested Shares. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at
all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.

                  11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "REPURCHASE PRICE"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of personal
delivery or mailing of the written notice of the Company's exercise of the
Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of
any indebtedness of the Optionee to any Participating Company shall be treated
as payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled. The shares being repurchased shall be delivered to
the Company by the Optionee at the same time as the delivery of the Repurchase
Price to the Optionee.

                  11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The
Company shall have the right to assign the Unvested Share Repurchase Option at
any time, whether or not such option is then exercisable, to one or more persons
as may be selected by the Company.


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                  11.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an
Ownership Change Event, any and all new, substituted or additional securities or
other property to which the Optionee is entitled by reason of the Optionee's
ownership of Unvested Shares shall be immediately subject to the Unvested Share
Repurchase Option and included in the terms "Stock" and "Unvested Shares" for
all purposes of the Unvested Share Repurchase Option with the same force and
effect as the Unvested Shares immediately prior to the Ownership Change Event.
While the aggregate Repurchase Price shall remain the same after such Ownership
Change Event, the Repurchase Price per Unvested Share upon exercise of the
Unvested Share Repurchase Option following such Ownership Change Event shall be
adjusted as appropriate. For purposes of determining the Vested Percentage
following an Ownership Change Event, credited Service shall include all Service
with any corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.

         12. ESCROW.

                  12.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to
the Unvested Share Repurchase Option or securing any promissory note will be
available for repurchase, the Company may require the Optionee to deposit the
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Unvested Share Repurchase Option or any security
interest held by the Company shall be immediately subject to the escrow to the
same extent as such shares of Stock immediately before such event. The Company
shall bear the expenses of the escrow.

                  12.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Unvested Share Repurchase Option and after full
repayment of any promissory note secured by the shares or other property in
escrow, but not more frequently than twice each calendar year, the escrow agent
shall deliver to the Optionee the shares and any other property no longer
subject to such restrictions and no longer securing any promissory note.

                  12.3 NOTICES AND PAYMENTS. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option, the notices required to be given to the
Optionee shall be given to the escrow agent, and any payment required to be
given to the Optionee shall be given to the escrow agent. Within thirty (30)
days after payment by the Company, the escrow agent shall deliver the shares and
any other 


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property which the Company has purchased to the Company and shall deliver the
payment received from the Company to the Optionee.

         13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option and any security
interest held by the Company with the same force and effect as the shares
subject to the Unvested Share Repurchase Option and such security interest
immediately before such event.

         14. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option and any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to carry out the provisions of this Section. Unless otherwise
specified by the Company, legends placed on such certificates may include, but
shall not be limited to, the following:

             "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."

         15. PUBLIC OFFERING. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such initial public offering; provided, however, that such
period of time shall not exceed one hundred eighty (180) days from the effective
date of the registration statement to be filed in connection with such public
offering. The foregoing limitation shall not apply to shares registered in the
public offering under the Securities Act.

         16. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

         17. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or 


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the Option at any time; provided, however, that (a) except as provided in
Section 8.2 in connection with a Transfer of Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation, and (b)
the Board may not adopt an amendment to decrease the Exercise Price without the
approval of the Company's stockholders. No amendment or addition to this Option
Agreement shall be effective unless in writing.

         18. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.

         19. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.

                                                VERITY, INC.



                                                By:
                                                   -----------------------------
                                                Title:
                                                      --------------------------


         The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, and hereby accepts the Option subject to all of
the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.


                                                OPTIONEE



Date:
     ---------------------------------          --------------------------------


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