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                                                                    EXHIBIT 10.3

                                  VERITY, INC.

                        1995 EMPLOYEE STOCK PURCHASE PLAN

                     (AS AMENDED THROUGH SEPTEMBER 25, 1997)


        1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

                1.1 ESTABLISHMENT. The Verity, Inc. 1995 Employee Stock Purchase
Plan (the "PLAN") is hereby established effective as of 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 to provide Eligible
Employees of the Participating Company Group with an opportunity to acquire a
proprietary interest in the Company through the purchase of Stock. The Company
intends that the Plan shall qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.

                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.

        2. DEFINITIONS AND CONSTRUCTION.

                2.1 DEFINITIONS. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. 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 a 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.

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

                        (e) "COMPENSATION" means, with respect to an Offering
Period under the Plan, all amounts paid in cash in the forms of base salary,
commissions, overtime, bonuses, annual awards, other incentive payments, shift
premiums, and all other compensation paid in



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cash during such Offering Period before deduction for any contributions to any
plan maintained by a Participating Company and described in Section 401(k) or
Section 125 of the Code. Compensation shall not include reimbursements of
expenses, allowances, long-term disability, workers' compensation or any amount
deemed received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan.

                        (f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.

                        (g) "EMPLOYEE" means any person treated as an employee
of a Participating Company for purposes of Section 423 of the Code (including an
officer or a Director who is also treated as an employee); 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. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while such individual is on
a military leave, sick leave or other bona fide leave of absence approved by the
Company of ninety (90) days or less. In the event an individual's leave of
absence exceeds ninety (90) days, the individual shall be deemed to have ceased
to be an Employee on the ninety-first (91st) day of such leave unless the
individual's right to reemployment with the Participating Company Group is
guaranteed either by statute or by contract. The Company shall determine in good
faith and in the exercise of its discretion whether an individual has become or
has ceased to be an Employee and the effective date of such individual's
employment or termination of employment, as the case may be. All such
determinations by the Company shall be, for purposes of an individual's
participation in or other rights under the Plan as of the time of the Company's
determination, final, binding and conclusive, notwithstanding that the Company
or any governmental agency subsequently makes a contrary determination.

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

                        (i) "FAIR MARKET VALUE" means, as of any date, if there
is then a public market for the Stock, the closing sale price of a share of
Stock (or the mean of the closing bid and asked prices if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
sole discretion. If there is then no public market for the Stock, the Fair
Market Value on any relevant date shall be as determined by the Board without
regard to any restriction other than a restriction which, by its terms, will
never lapse. Notwithstanding the foregoing, the Fair Market Value per share of
Stock on the Effective Date shall be deemed to be the public offering price set



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forth in the final prospectus filed with the Securities and Exchange Commission
in connection with the initial public offering of the Stock.

                        (j) "OFFERING" means an offering of Stock as provided in
Section 6.

                        (k) "OFFERING DATE" means, for any Offering Period, the
first day of such Offering Period.

                        (l) "OFFERING PERIOD" means a period determined in
accordance with Section 6.1.

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

                        (n) "PARTICIPANT" means an Eligible Employee
participating in the Plan.

                        (o) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation which the Board determines should
be included in the Plan. The Board shall have the sole and absolute discretion
to determine from time to time what Parent Corporations or Subsidiary
Corporations shall be Participating Companies.

                        (p) "PARTICIPATING COMPANY GROUP" means, at any point in
time, the Company and all other corporations collectively which are then
Participating Companies.

                        (q) "PURCHASE DATE" means, for any Purchase Period, the
last day of such Purchase Period.

                        (r) "PURCHASE PERIOD" means a period determined in
accordance with Section 6.2.

                        (s) "PURCHASE PRICE" means the price at which a share of
Stock may be purchased pursuant to the Plan, as determined in accordance with
Section 9.

                        (t) "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided in
Section 8, which the Participant may or may not exercise during the Offering
Period in which such option is outstanding. Such option arises from the right of
a Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan or any Offering at any time during an Offering Period.

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

                        (v) "SUBSCRIPTION AGREEMENT" means a written agreement
in such form as specified by the Company, stating an Employee's election to
participate in the Plan and authorizing payroll deductions under the Plan from
the Employee's Compensation.



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                        (w) "SUBSCRIPTION DATE" means the last business day
prior to the Offering Date of an Offering Period or such earlier date as the
Company shall establish.

                        (x) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) 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 and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

        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 Purchase Right shall be determined by
the Board and shall be final and binding upon all persons having an interest in
the Plan or such Purchase Right. Subject to the provisions of the Plan, the
Board shall determine all of the relevant terms and conditions of Purchase
Rights granted pursuant to the Plan; provided, however, that all Participants
granted Purchase Rights pursuant to the Plan shall have the same rights and
privileges within the meaning of Section 423(b)(5) of the Code. All expenses
incurred in connection with the administration of the Plan shall be paid by the
Company.

                3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall have
the authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election that is the responsibility of or that is
allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.

                3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The
Company may, from time to time, consistent with the Plan and the requirements of
Section 423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required
for participation in an Offering, (b) a limitation on the frequency or number of
changes permitted in the rate of payroll deduction during an Offering, (c) an
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, (d) a payroll deduction greater than or less than the amount
designated by a Participant in order to adjust for the Company's delay or
mistake in processing a Subscription Agreement or in otherwise effecting a
Participant's election under the Plan or as advisable to comply with the
requirements of Section 423 of the Code, and (e) determination of the date and
manner by which the Fair Market Value of a share of Stock is determined for
purposes of administration of the Plan.

        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



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under the Plan shall be one million three hundred thousand (1,300,000) and shall
consist of authorized but unissued or reacquired shares of the Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right 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, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and to each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights 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 outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights 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 down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.

        5. ELIGIBILITY.

                5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Any Employee of a
Participating Company is eligible to participate in the Plan except the
following:

                        (a) Employees who are customarily employed by the
Participating Company Group for twenty (20) hours or less per week; or

                        (b) Employees who are customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.

                5.2 EXCLUSION OF CERTAIN SHAREHOLDERS. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a Purchase
Right under the Plan if, immediately after such grant, such Employee would own
or hold options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of such Employee.

                5.3 EXCLUSION OF LEASED EMPLOYEES. Notwithstanding anything
herein to the contrary, any individual performing services for a Participating
Company solely through a



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leasing agency or employment agency shall not be deemed an "Employee" of such
Participating Company.

        6. OFFERINGS.

                6.1 OFFERING PERIODS. Except as otherwise set forth below, the
Plan shall be implemented by sequential Offerings of approximately twelve (12)
months duration or such other duration as the Board shall determine (an
"OFFERING PERIOD"); provided, however that the first Offering Period shall
commence on the Effective Date and end on September 30, 1997 (the "INITIAL
OFFERING PERIOD". Subsequent Offerings shall commence on the first days of April
and October of each year and end on the last days of the first March and
September, respectively, occurring thereafter. Notwithstanding the foregoing,
the Board may establish a different term for one or more Offerings or different
commencing or ending dates for such Offerings; provided, however, that no
Offering may exceed a term of twenty-seven (27) months. If the first or last day
of an Offering Period is not a day on which the national securities exchanges or
Nasdaq Stock Market are open for trading, the Company shall specify the trading
day that will be deemed the first or last day, as the case may be, of the
Offering Period.

                6.2 PURCHASE PERIODS. Each Offering Period shall consist of two
(2) consecutive purchase periods of approximately six (6) months duration
(except the Initial Offering Period which consisted of four (4) purchase periods
(Effective Date to March 31, 1996; April 1, 1996 to September 30, 1996; October
1, 1996 to March 31, 1997; and April 1, 1997 to September 30, 1997)) or such
other number or duration as the Board shall determine (individually, a "PURCHASE
PERIOD"). A Purchase Period commencing on the first day of April shall end on
the last day of the next following September. A Purchase Period commencing on
the first day of October shall end on the last day of the next following March.
Notwithstanding the foregoing, the Board may establish a different term for one
or more Purchase Periods or different commencing or ending dates for such
Purchase Periods. If the first or last day of a Purchase Period is not a day on
which the national securities exchanges or Nasdaq Stock Market are open for
trading, the Company shall specify the trading day that will be deemed the first
or last day, as the case may be, of the Purchase Period.

                6.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding
any other provision of the Plan to the contrary, any Purchase Right granted
pursuant to the Plan shall be subject to (a) obtaining all necessary
governmental approvals or qualifications of the sale or issuance of the Purchase
Rights or the shares of Stock and (b) obtaining stockholder approval of the
Plan. Notwithstanding the foregoing, stockholder approval shall not be necessary
in order to grant any Purchase Right granted in the Plan's Initial Offering
Period; provided, however, that the exercise of any such Purchase Right shall be
subject to obtaining stockholder approval of the Plan.

        7. PARTICIPATION IN THE PLAN.

                7.1 INITIAL PARTICIPATION. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for such Offering Period. An Eligible Employee who does not deliver
a properly completed Subscription Agreement to the Company's designated



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office on or before the Subscription Date for an Offering Period shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such Eligible Employee subsequently delivers a properly completed
Subscription Agreement to the appropriate office of the Company on or before the
Subscription Date for such subsequent Offering Period. An Employee who becomes
an Eligible Employee after the Offering Date of an Offering Period shall not be
eligible to participate in such Offering Period but may participate in any
subsequent Offering Period provided such Employee is still an Eligible Employee
as of the Offering Date of such subsequent Offering Period.

                7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the next Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
provided that such Participant remains an Eligible Employee on the Offering Date
of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section 7.2, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new Subscription
Agreement for a subsequent Offering Period in accordance with the procedures set
forth in Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement. Eligible
Employees may not participate simultaneously in more than one Offering.

        8. RIGHT TO PURCHASE SHARES.

                8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on the
Offering Date of each Offering Period, each Participant in such Offering Period
shall be granted automatically a Purchase Right consisting of an option to
purchase that number of whole shares of Stock determined by dividing Fifty
Thousand Dollars ($50,000) by the Fair Market Value of a share of Stock on such
Offering Date; provided, however, that such number shall not exceed five
thousand (5,000) shares. No Purchase Right shall be granted on an Offering Date
to any person who is not, on such Offering Date, an Eligible Employee. Shares of
Stock may only be purchased through a Participant's payroll deductions pursuant
to Section 10.

                8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
provisions of Section 8.1, if the Board establishes an Offering Period of less
than twenty-three and one-half (23 1/2) months in duration or more than
twenty-four and one-half (24 1/2) months in duration, then (a) the dollar amount
in Section 8.1 shall be determined by multiplying $2,083.33 by the number of
months in the Offering Period and rounding to the nearest whole dollar, and (b)
the share amount in Section 8.1 shall be determined by multiplying 208.33 shares
by the number of months in the Offering Period and rounding to the nearest whole
share. For purposes of the preceding sentence, fractional months shall be
rounded to the nearest whole month.

                8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, no Purchase Right shall entitle a
Participant to purchase shares of Stock under the Plan at a rate which, when
aggregated with such Participant's rights to purchase shares under all other
employee stock purchase plans of a Participating Company intended to meet the
requirements of Section 423 of the Code, exceeds Twenty-Five Thousand Dollars
($25,000) in Fair Market Value (or such other limit, if any, as may be imposed
by the Code) for each calendar



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year in which such Purchase Right has been outstanding at any time. For purposes
of the preceding sentence, the Fair Market Value of shares purchased during a
given Offering Period shall be determined as of the Offering Date for such
Offering Period. The limitation described in this Section 8.3 shall be applied
in conformance with applicable regulations under Section 423(b)(8) of the Code.

        9. PURCHASE PRICE. The Purchase Price at which each share of Stock may
be acquired in an Offering Period upon the exercise of all or any portion of a
Purchase Right granted with respect to such Offering Period shall be established
by the Board; provided, however, that the Purchase Price shall not be less than
eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share
of Stock on the Offering Date of the Offering Period or (b) the Fair Market
Value of a share of Stock on the Purchase Date. Unless otherwise provided by the
Board prior to the commencement of an Offering Period, the Purchase Price for
that Offering Period shall be eighty-five percent (85%) of the lesser of (a) the
Fair Market Value of a share of Stock on the Offering Date of the Offering
Period, or (b) the Fair Market Value of a share of Stock on the Purchase Date.

        10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of
Stock which are acquired pursuant to the exercise of all or any portion of a
Purchase Right for an Offering Period may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period.

                10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise provided
herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period shall be determined by the
Participant's Subscription Agreement. The Subscription Agreement shall set forth
the percentage or dollar amount of the Participant's Compensation to be deducted
on each payday during an Offering Period, which, except as a result of an
election pursuant to Section 10.3 to stop payroll deductions made effective
following the first payday during an Offering, shall be not less than one dollar
($1.00) or more than twenty percent (20%) of the Participant's Compensation
otherwise payable on such payday. Notwithstanding the foregoing, the Board may
change the limits on payroll deductions effective as of any future Offering
Date.

                10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided in the Plan.

                10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the amount
deducted or to stop deductions from his or her Compensation by delivering to the
Company's designated office an amended Subscription Agreement authorizing such
change on or before the "Change Notice Date." The "CHANGE NOTICE DATE" shall
initially be the seventh (7th) day prior to the end of the first pay period for
which such election is to be effective; however, the Company may change such
Change Notice Date from time to time. A Participant who elects to decrease the
rate of his or her payroll deductions to zero percent (0%) shall nevertheless
remain a Participant in the current Offering Period unless such Participant
subsequently withdraws from the Offering or the Plan as provided in Sections
12.1 and 12.2, respectively, or is automatically withdrawn from the Offering as
provided in Section 12.3.



                                       8.
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                10.4 PARTICIPANT ACCOUNTS. Individual Plan bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such account and shall be
deposited with the general funds of the Company. All payroll deductions received
or held by the Company may be used by the Company for any corporate purpose.

                10.5 NO INTEREST PAID. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.

        11. PURCHASE OF SHARES.

                11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or the
Plan or whose participation in the Offering has not terminated on or before such
Purchase Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole shares of Stock determined by
dividing (a) the total amount of the Participant's payroll deductions
accumulated in the Participant's Plan account during the Offering Period and not
previously applied toward the purchase of Stock by (b) the Purchase Price.
However, in no event shall the number of shares purchased by the Participant
during an Offering Period exceed the number of shares subject to the
Participant's Purchase Right. No shares of Stock shall be purchased on a
Purchase Date by a Participant whose participation in the Offering or the Plan
has terminated on or before such Purchase Date.

                11.2 PRO RATA ALLOCATION OF SHARES. In the event the number of
shares of Stock which might be purchased by all Participants in the Plan on a
Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.

                11.3 DELIVERY OF CERTIFICATES. As soon as practicable after each
Purchase Date, the Company shall arrange the delivery to each Participant, as
appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.

                11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.

                11.5 TAX WITHHOLDING. At the time a Participant's Purchase Right
is exercised, in whole or in part, or at the time a Participant disposes of some
or all of the shares of Stock he



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or she acquires under the Plan, the Participant shall make adequate provision
for the foreign, federal, state and local tax withholding obligations of the
Participating Company Group, if any, which arise upon exercise of the Purchase
Right or upon such disposition of shares, respectively. The Participating
Company Group may, but shall not be obligated to, withhold from the
Participant's compensation the amount necessary to meet such withholding
obligations.

                11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which such Purchase Right relates shall expire immediately upon the
end of such Offering Period.

                11.7 REPORTS TO PARTICIPANTS. Each Participant who has exercised
all or part of his or her Purchase Right shall receive, as soon as practicable
after the Purchase Date, a report of such Participant's Plan account setting
forth the total payroll deductions accumulated prior to such exercise, the
number of shares of Stock purchased, the Purchase Price for such shares, the
Fair Market Value of such shares, the date of purchase and cash balance, if any,
remaining immediately after such purchase that is to be refunded or retained in
the Participant's Plan account pursuant to Section 11.4. The report required by
this Section may be delivered in such form and by such means, including by
electronic transmission, as the Company may determine. Each Participant shall be
provided information concerning the Company equivalent to that information
generally made available to the Company's common stockholders.

        12. WITHDRAWAL FROM OFFERING OR PLAN.

                12.1 WITHDRAWAL FROM AN OFFERING. A Participant may withdraw
from an Offering by signing and delivering to the Company's designated office a
written notice of withdrawal on a form provided by the Company for such purpose.
Such withdrawal may be elected at any time prior to the end of an Offering
Period; provided, however, if a Participant withdraws after the Purchase Date of
a Purchase Period during the Offering, the withdrawal shall not affect shares of
Stock acquired by the Participant on such Purchase Date. Unless otherwise
elected by the Participant, withdrawal from an Offering shall not result in the
Participant's withdrawal from the Plan or any succeeding Offering therein. By
withdrawing from an Offering effective as of the close of a given Purchase Date,
a Participant may have shares of Stock purchased on such Purchase Date and
immediately commence participation in the new Offering commencing immediately
after such Purchase Date. A Participant is prohibited from again participating
in an Offering at any time following withdrawal from such Offering. The Company
may impose, from time to time, a requirement that the notice of withdrawal from
the Offering be on file with the Company's designated office for a reasonable
period prior to the effectiveness of the Participant's withdrawal from an
Offering.

                12.2 WITHDRAWAL FROM THE PLAN. A Participant may withdraw from
the Plan by signing and delivering to the Company's designated office a written
notice of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period;
provided, however, if a Participant withdraws from the Plan after the Purchase
Date of a Purchase Period, the withdrawal shall not affect shares of Stock
acquired by the Participant on such Purchase Date. A Participant who voluntarily
elects to withdraw from the Plan is prohibited from resuming participation in
the Plan in the same Offering from which he or she withdrew, but may participate
in any subsequent Offering under the Plan by again satisfying the requirements
of Sections 5 and 7.1. The Company may impose,



                                      10.
<PAGE>   11

from time to time, a requirement that the notice of withdrawal from the Plan be
on file with the Company's designated office for a reasonable period prior to
the effectiveness of the Participant's withdrawal from the Plan.

                12.3 AUTOMATIC WITHDRAWAL FROM AN OFFERING. If the Fair Market
Value of a share of Stock on a Purchase Date other than the final Purchase Date
of an Offering is less than the Fair Market Value of a share of Stock on the
Offering Date of the Offering, then every Participant automatically shall be (a)
withdrawn from such Offering at the close of such Purchase Date and after the
acquisition of shares of Stock for the Purchase Period and (b) enrolled in the
Offering commencing on the first business day subsequent to such Purchase Date.
A Participant may elect not to be automatically withdrawn from an Offering
pursuant to this Section 12.3 by delivering to the Company's designated office
not later than the close of business on the Purchase Date a written notice
indicating such election.

                12.4 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from an Offering or the Plan pursuant to Sections 12.1 or
12.2, respectively, or automatic withdrawal from an Offering pursuant to Section
12.3, the Participant's accumulated payroll deductions which have not been
applied toward the purchase of shares of Stock (except, in the case of an
automatic withdrawal pursuant to Section 12.3, for an amount necessary to
purchase an additional whole share as provided in Section 11.4) shall be
returned as soon as practicable after the withdrawal, without the payment of any
interest, to the Participant, and the Participant's interest in the Offering or
the Plan, as applicable, shall terminate. Such accumulated payroll deductions
may not be applied to any other Offering under the Plan.

        13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Termination of a
Participant's employment with the Company for any reason, including retirement,
disability or death or the failure of a Participant to remain an Eligible
Employee, shall terminate the Participant's participation in the Plan
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned to a
Participant pursuant to this Section 13. A Participant whose participation has
been so terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 7.1.

        14. Transfer of Control.

                14.1 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 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



                                      11.
<PAGE>   12

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.

                        (c) EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. 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 assume the Company's rights and obligations under
the Plan or substitute substantially equivalent Purchase Rights for stock of the
Acquiring Corporation. If the Acquiring Corporation elects not to assume or
substitute for the outstanding Purchase Rights, the Board may, in its sole
discretion and notwithstanding any other provision herein to the contrary,
adjust the Purchase Date of the then current Purchase Period to a date on or
before the date of the Transfer of Control, but shall not adjust the number of
shares of Stock subject to any Purchase Right. All Purchase Rights 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, if the corporation the
stock of which is subject to the outstanding Purchase Rights immediately prior
to an Ownership Change Event described in Section 15.1(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 Purchase Rights shall not terminate unless the
Board otherwise provides in its sole discretion.

        15. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be
transferred in any manner otherwise than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. The Company, in its absolute discretion, may impose
such restrictions on the transferability of the shares purchasable upon the
exercise of a Purchase Right as it deems appropriate and any such restriction
shall be set forth in the respective Subscription Agreement and may be referred
to on the certificates evidencing such shares.

        16. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the
Plan shall be subject to compliance with all applicable requirements of foreign,
federal or state law with respect to such securities. A Purchase Right may not
be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable foreign, federal or state



                                      12.
<PAGE>   13

securities laws or other law or regulations. In addition, no Purchase Right may
be exercised unless (a) a registration statement under the Securities Act of
1933, as amended, shall at the time of exercise of the Purchase Right be in
effect with respect to the shares issuable upon exercise of the Purchase Right,
or (b) in the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Purchase Right may be issued in accordance with the terms of an
applicable exemption from the registration requirements of said Act. 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 under the Plan 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 a Purchase Right, the Company may require the
Participant 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.

        17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have no
rights as a stockholder by virtue of the Participant's participation in the Plan
until the date of the issuance of a stock certificate for the shares of Stock
being purchased pursuant to the exercise of the Participant's Purchase Right. No
adjustment shall be made for cash dividends or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
Nothing herein shall confer upon a Participant any right to continue in the
employ of the Participating Company Group or interfere in any way with any right
of the Participating Company Group to terminate the Participant's employment at
any time.

        18. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration of
the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to a Purchase Right in the possession of the Participant 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 EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION
TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK
PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE
CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER
HEREOF MADE ON OR BEFORE , 19 . THE REGISTERED HOLDER SHALL HOLD ALL SHARES
PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO THIS DATE."

        19. NOTIFICATION OF SALE OF SHARES. The Company may require the
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a



                                      13.
<PAGE>   14

Participant disposes of shares acquired upon exercise of a Purchase Right, the
Participant shall hold all such shares in the Participant's name (and not in the
name of any nominee) until the lapse of the time periods with respect to such
Purchase Right referred to in the preceding sentence. The Company may direct
that the certificates evidencing shares acquired by exercise of a Purchase Right
refer to such requirement to give prompt notice of disposition.

        20. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

        21. 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 or the
Company 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 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.

        22. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time
amend or terminate the Plan, except that (a) such termination shall not affect
Purchase Rights previously granted under the Plan, except as permitted under the
Plan, and (b) no amendment may adversely affect a Purchase Right previously
granted under the Plan (except to the extent permitted by the Plan or as may be
necessary to qualify the Plan as an employee stock purchase plan pursuant to
Section 423 of the Code or to obtain qualification or registration of the shares
of Stock under applicable foreign, federal or state securities laws). In
addition, an amendment to the Plan must be approved by the stockholders of the
Company within twelve (12) months of the adoption of such amendment if such
amendment would authorize the sale of more shares than are authorized for
issuance under the Plan or would change the definition of the corporations that
may be designated by the Board as Participating Companies.

        23. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING PURCHASE RIGHTS. Any
other provision of the Plan to the contrary notwithstanding, the terms of the
Plan as in effect prior to its amendment on September 25,1997 shall remain in
effect and apply to all Purchase Rights granted pursuant to the Plan prior to
such amendment.

        IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing sets forth the Verity, Inc. 1995 Employee Stock Purchase Plan
as duly adopted by the Board on June 15, 1995 and amended through September 25,
1997.



                                      14.
<PAGE>   15

                                  PLAN HISTORY

June 15, 1995           15, 1995 Board adopts Plan, with an initial reserve of
                        250,000 shares (number is intended to be post the 1:5
                        reverse stock split).

September 19, 1995      Stockholders approve Plan, with an initial reserve of
                        250,000 shares (number is intended to be post the 1:5
                        reverse stock split).

July 19, 1996           Board approves increase in the Plan's share reserve of
                        250,000 shares (from 250,000 shares to 500,000 shares).

September 16, 1996      Stockholders approve share reserve increase to 500,000
                        shares.

June 19, 1997           Board amends Plan to permit increases in the rate of
                        payroll deduction and to effect other clarifications and
                        revisions not requiring stockholder approval.

August 20, 1997         Board approves increase in the Plan's share reserve of
                        800,000 shares (from 500,000 shares to 1,300,000
                        shares).

September 25, 1997      Stockholders approve share reserve increase to 1,300,000
                        shares.

September 25, 1997      Compensation Committee amends Plan to shorten Offering
                        Period to 12 months from 24 months



                                      15.
<PAGE>   16

                                  VERITY, INC.

                        1995 EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT

[ ]     1 Original Application for participation in Offering Period beginning
          ______________, 199__.

[ ]     2 Change in Payroll Deduction rate effective with the pay period ending
          _____________, 199__.

        I hereby elect to participate in the 1995 Employee Stock Purchase Plan
(the "PLAN") of Verity, Inc. (the "COMPANY") and subscribe to purchase shares of
the Company's common stock as determined in accordance with the terms of the
Plan.

        I hereby authorize payroll deductions under the Plan from my
"COMPENSATION" (as defined in the Plan) in the amount of [complete EITHER (a) OR
(b)]:

        (a)     percent (not more than 20% of Compensation)

        (b)    $       (not less than $1.00 or more than 20% of Compensation)
                ------

from each paycheck throughout the "OFFERING PERIOD" (as defined in the Plan). I
understand that these payroll deductions will be accumulated for the purchase of
shares of common stock of the Company at the applicable purchase price
determined in accordance with the Plan. I further understand that, except as
otherwise set forth in the Plan, shares will be purchased for me automatically
on the last day of each Purchase Period unless I withdraw from the Plan or from
the Offering by giving written notice to the Company or unless I terminate
employment.

        I understand that I will automatically participate in each Offering
commencing immediately after the last day of an Offering in which I am
participating until I file with the Company a notice of withdrawal from the Plan
on a form provided by the Company or my employment terminates.

        Shares I purchase under the Plan should be issued in the name set forth
below. (Shares may be issued either in the participant's name alone or together
with the participant's spouse as community property or in joint tenancy.)

        NAME:

        ADDRESS:

        MY SOCIAL SECURITY NUMBER:

        I hereby authorize withholding from my compensation in order to satisfy
the foreign, federal, state and local tax withholding obligations, if any, which
may arise upon my purchase of shares under the Plan and/or upon my disposition
of shares I acquired under the Plan. I hereby agree that until I dispose of the
shares, unless otherwise permitted by the Company, I will hold all shares I
acquire under the Plan in the name entered above (and not in the name of any
nominee) for at least two (2) years from the first day of the Offering Period in
which, and at least one (1) year from the Purchase Date on which, I acquired
such shares. I FURTHER AGREE THAT I



                                       1.
<PAGE>   17

WILL PROMPTLY  NOTIFY THE CHIEF  FINANCIAL  OFFICER OF THE COMPANY IN WRITING OF
ANY TRANSFER OF SUCH SHARES  PRIOR TO THE END OF THE PERIODS  REFERRED TO IN THE
PRECEDING SENTENCE.

        I am familiar with the provisions of the Plan and agree to participate
in the Plan subject to all of its provisions. I understand that the Board of
Directors of the Company reserves the right to terminate the Plan or to amend
the Plan and my right to purchase stock under the Plan to the extent provided by
the Plan. I understand that the effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Plan.

Date:_____________________________          Signature:__________________________

                                            Name Printed:_______________________



                                       2.
<PAGE>   18

                                  VERITY, INC.

                        1995 EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL

        I hereby elect to withdraw from the offering of the common stock of
Verity, Inc. (the "COMPANY") under the Company's 1995 Employee Stock Purchase
Plan (the "PLAN") which began on _________________________, 199__ and in which I
am currently participating (the "CURRENT OFFERING").

        MAKE ONE ELECTION UNDER SECTION A AND ONE ELECTION UNDER SECTION B:

A.      Current Offering. As to my participation in the current purchase period
        (the "Current Purchase Period") of the Current Offering under the Plan,
        I elect as follows (check one):

[ ]  1. I elect to terminate my participation in the Current Purchase Period
        immediately.

        I hereby request that all payroll deductions credited to my account
        under the Plan (if any) not previously used to purchase shares under the
        Plan shall not be used to purchase shares on the last day of the Current
        Purchase Period. Instead, I request that all such amounts be paid to me
        as soon as practicable. I understand that this election immediately
        terminates my interest in the Current Offering.

[ ]  2. I elect to terminate my participation in the Current Offering following
        my purchase of shares on the last day of the Current Purchase Period.

        I hereby request that all payroll deductions credited to my account
        under the Plan (if any) not previously used to purchase shares under the
        Plan shall be used to purchase shares on the last day of the Current
        Purchase Period. I understand that this election will terminate my
        interest in the Current Offering immediately following such purchase. I
        request that any cash balance remaining in my account under the Plan
        after my purchase of shares be returned to me as soon as practicable.

        I understand that if no election is made as to participation in the
        Current Offering under the Plan, I will be deemed to have elected to
        participate in the Current Offering.

B.      Future Offerings. As to my participation in future offerings of common
        stock under the Plan, I elect as follows (check one):

[ ]  1. I elect to participate in future offerings under the Plan.

        I understand that by making this election I will participate in the next
        offering under the Plan commencing subsequent to the Current Offering,
        and in each subsequent offering commencing immediately after the last
        day of an offering in which I participate, until such time as I elect to
        withdraw from the Plan or from any such subsequent offering.

[ ]  2. I elect not to participate in future offerings under the Plan.



                                       1.
<PAGE>   19

        I understand that by making this election I terminate my interest in the
        Plan and that no further payroll deductions will be made unless I elect
        in accordance with the Plan to become a participant in another offering
        under the Plan.

        I understand that if no election is made as to participation in future
        offerings under the Plan, I will be deemed to have elected to
        participate in such future offerings.

Date:_____________________________          Signature:__________________________

                                            Name Printed:_______________________



                                       2.