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EXHIBIT 10.9




WEBMETHODS, INC.

DEFERRED COMPENSATION PLAN

FOR DIRECTORS




(as amended and restated August 30, 2005)




1. Purpose




     The Company desires and intends to recognize the value to the Company of the past and present
services of its Directors, to encourage their continued service to the Company and to be able to
attract and retain superior Directors by adopting and implementing this Plan to provide such
Directors an opportunity to defer compensation otherwise payable to them from the Company. The
Company desires to allow such Directors an opportunity to invest in the Common Shares of the
Company by providing that amounts deferred under this Plan are on a quarterly basis treated as
invested in Common Shares during the deferral period and distributed in common shares at the end of
the deferral period. The Company intends that for amounts deferred under the Plan after December
31, 2004, the Plan will be administered in conformity with deferred compensation rules of Section
409A of the Internal Revenue Code of 1986, as amended.



2. Certain Definitions




     The following terms will have the meanings provided below.



     A. “Beneficiary” means the person or persons designated in writing as such and filed
with the Company at any time by a Participant. Any such designation may be withdrawn or changed in
writing (without the consent of the Beneficiary), but only the last designation on file with the
Company shall be effective.



     B. “Board” means the Board of Directors of the Company.



     C. “Code” means the Internal Revenue Code of 1986, as amended , or its successor.



     D. “Common Shares” means the shares of Common Stock, par value $.01, of the Company.



     E. “Company” means webMethods, Inc., a Delaware corporation, and any successor entity.



     F. “Deferred Compensation Account” means the separate Deferred Compensation Account
established for each Participant pursuant to Section 4 of the Plan, which Deferred Compensation
Account shall consist of a “Cash Account” and “Stock Account.”



     G. “Director” means any director of the Company who receives compensation from the
Company for his or her services as a director.



     H. “Effective Date” means September 30, 2004.



     I. “Eligible Compensation” means, to the extent applicable to any given Participant,
the annual retainer and meeting fees otherwise payable in cash, and receivable for service as a
Director, but not any other compensation or expense reimbursement.



     J. “Fair Market Value” of the Common Shares means, if the Common Shares are traded on
The Nasdaq National Market or The Nasdaq SmallCap Market or are listed on a national securities
exchange, the closing price for the day of determination as quoted on such market or exchange which
is the primary market or exchange for trading of the Common Shares or if no trading occurs on such
date, the last day on which trading occurred; if the
Common Shares are regularly quoted by a recognized securities dealer but selling prices are not
reported, Fair Market Value shall be the mean between the high and the low asked prices for the
Common Shares for the day of determination; or in the absence of an established market for the
Common Shares, Fair Market Value shall be determined by the Plan Administrator in good faith.



     K. “Participant” has the meaning specified in Section 3 of the Plan.



     L. “Plan” means the webMethods, Inc. Deferred Compensation Plan for Directors, as reflected in
this document, as the same may be amended from time to time after the Effective Date.



     M. “Plan Administrator” means the Chief Financial Officer of the Company.



 









 





     N. “Post-2004 Deferrals” mean amounts deferred under the Plan after December 31, 2004.



     O. “Trading Day” means a day on which the principal exchange or market on which the Common
Stock is traded is open for business.



3. Participants




     Each Director on the Effective Date is eligible for participation in the Plan on the Effective
Date. Each individual who becomes a Director after the Effective Date is eligible for participation
in the Plan as of the date on which he or she becomes a Director. A Participant shall continue to
participate in the Plan until his or her status as a Participant is terminated by a complete
distribution of his or her Deferred Compensation Account pursuant to the terms of the Plan.



4. Deferred Compensation Accounts




     A. Establishment of Deferred Compensation Accounts. The Company will establish a
Deferred Compensation Account for each Participant. Each Deferred Compensation Account shall
include a Cash Account and Stock Account.



     B. Election of Participant. A Participant may elect to have all or a portion of his or
her Eligible Compensation which is to be paid to him or her by the Company allocated to his or her
Deferred Compensation Account and paid on a deferred basis pursuant to the terms of the Plan. To
exercise such an election, the Participant must advise the Company of his or her election, in
writing, on a form (a “Deferral Notice”) and within the following time periods:




	 	(i)	 	A nominee for election for Director (who is not at the time
of nomination a sitting Director) may file a Deferral
Notice any time before election to the Board and before
being entitled to receive any compensation for service on
the Board or a committee. The Deferral Notice shall be
effective upon such person’s election to the Board.
Effective as of January 1, 2005, a new Participant’s
election to defer compensation must be made not later than
30 days after the Participant becomes eligible to
participate in the Plan.
	 
	 	(ii)	 	A sitting Director who has never filed a Deferral Notice
may file a Deferral Notice at any time during the year.
Such Deferral Notice shall not be effective until January 1
of the following year; provided, that a Deferral Notice
filed within thirty (30) days of the Effective Date shall
be effective as of the date filed.
	 
	 	(iii)	 	A sitting Director who has revoked his or her Deferral
Notice in accordance with the following paragraph may again
file a Deferral Notice at any time during the year, but the
election will not be effective until January 1 of the
following year.




Such Deferral Notice shall apply only to Eligible Compensation payable to, or earned by, the
Participant after the date on which the Deferral Notice is received by the Company. A Participant
may elect to change a prior election with respect to his or her Deferral Notice by completing a new
Deferral Notice, but such election shall not, however, be effective until January 1 of the
following year. A participant may elect to revoke a Deferral Notice at any time, but such election
shall not be effective until the first day of the next calendar quarter, or if later, with respect
to Post-2004 Deferrals, the earliest date on which such revocation may be effective in accordance
with Section 409A(a) of the Code. Unless changed or revoked, a Deferral Notice shall continue in
effect until the end of the participant’s service as a Director.




     C. Maintenance of Deferred Compensation Account. When a Participant has elected under
Section 4(b) to have Eligible Compensation credited to his or her Deferred Compensation Account, as
of the date any Eligible Compensation would have otherwise been payable absent the filing of a
Deferral Notice, the Company will allocate to the Participant’s Cash Account the amount of Eligible
Compensation specified in the Deferral Notice. As of the first Trading Day of each calendar
quarter, the balance of the amount credited to the Participant’s Cash Account shall be divided by
the then Fair Market Value of the Common Shares. Upon completion of this calculation, each
Participant’s Stock Account shall be credited with the resulting number of Common Shares (carried
to three decimals) and the Participant’s Cash Account reduced to zero. As necessary to properly
administer the Plan the Plan Administrator shall maintain separate Cash Accounts and Stock Accounts
for a Participant’s Post-2004 Deferrals.



     D. Adjustment of Account Balances. The Cash Account of each Participant shall be
credited with cash dividends on the number of Common Shares credited to the Participant’s Stock
Account at the times and equal in amount to the cash dividends actually paid with respect to Common
Shares on and after the date credited to the Stock Account. No interest or earnings shall be
credited to amounts in a Participant’s Cash Account.



 









 





     E. Stock Account Adjustments. The number of Common Shares in the Stock Account of each
Participant shall be adjusted from time to time to reflect stock splits, stock dividends or other
changes in the Common Shares resulting from a change in the Company’s capital structure.



     F. Participant’s Rights in Accounts. A Participant’s only right with respect to his or
her Deferred Compensation Account (and amounts allocated thereto) will be to receive payments in
accordance with the provisions of Section 5 of the Plan.



 









 





5. Payment of Deferred Benefits




     A. Time of Payment. Subject to earlier distribution in accordance with Section 11
hereof, distribution of a Participant’s Deferred Compensation Account shall be made as soon as
practicable following the Participant’s termination of service as a Director. Notwithstanding the
preceding sentence, with respect to Post-2004 Deferrals, distribution shall be made as soon as
practicable following a separation from service as provided in Section 409A(a) of the Code and
distribution to a Participant who is a “key employee” within the meaning of Section 416(i) of the
Code (determined without regard to paragraph 5 thereof) shall not be made prior to six months
following the Participant’s separation from service (or, if earlier the date of the Participant’s
death).



     B. Method of Distribution. A Participant’s Deferred Compensation Account shall be
distributed to the Participant in a single lump sum transfer of the whole number of Common Shares
(plus cash representing the value of any fractional share) as credited to the Participant’s Stock
Account and cash for amount credited to the Participant’s Cash Account.



     C. Hardship Distributions. Prior to the time a Participant’s Deferred Compensation
Account becomes payable, the Plan Administrator, in his or her sole discretion, may elect to
distribute all or a portion of the whole Common Shares (plus cash representing the value of any
fractional share) credited to such account in the event such Participant requests a distribution
due to severe financial hardship. For purposes of this Plan, severe financial hardship shall be
deemed to exist in the event the Plan Administrator determines that a Participant needs a
distribution to meet immediate and heavy financial needs resulting from a sudden or unexpected
illness or accident of the Participant or a member of the Participant’s family, loss of the
Participant’s property due to casualty or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Participant. No distribution
shall be made due to a severe financial hardship under this Section, to the extent such hardship
may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation
of the Participant’s assets, to the extent liquidation of such assets would not by itself cause
severe hardship, or by cessation of deferrals under the Plan. A distribution based on financial
hardship shall not exceed the smaller of (i) the amount of cash and the number of whole Common
Shares (plus cash representing the value of any fractional share) credited to the Participant’s
Deferred Compensation Account or (ii) the amount of cash and the number of whole Common Shares
credited to the Participant’s Deferred Compensation Account with a Fair Market Value (determined as
of the date of distribution) equal to the amount needed to meet the financial hardship. The amount
necessary to satisfy a hardship distribution shall first be distributed from a Participant’s Cash
Account. For withdrawal requests with respect to Post-2004 Deferrals, this Section shall be applied
in conformity with the “unforeseeable emergency” rules of Section 409A(a)(2) of the Code.



     D. Designation of Beneficiary. Upon the death of a Participant prior to the
distribution of his or her Deferred Compensation Account, such Deferred Compensation Account shall
be paid to the Beneficiary designated by the Participant in a single lump sum transfer of cash and
shares of Common Stock as provided in Section 5.B. hereof, as soon as practicable after the
Participants’ death. If there is no designated Beneficiary or no designated Beneficiary surviving
at a Participant’s death, payment of the Participant’s Deferred Compensation Account shall be made
to the Participant’s estate.



     E. Taxes. In the event any taxes are required by law to be withheld or paid from any
payments made pursuant to the Plan, the Plan Administrator shall deduct such amounts from such
payments and shall transmit the withheld amounts to the appropriate taxing authority.



6. Assignment or Alienation




     The right of a Participant, Beneficiary or any other person to the payment of a benefit under
this Plan may not be assigned, transferred, pledged or encumbered except by will or by the laws of
descent and distribution.



7. Plan Administration




     The Plan Administrator will have the right to interpret and construe the Plan and to determine
all questions of eligibility and of status, rights and benefits of Participants and all other
persons claiming benefits under the Plan. In all such interpretations and constructions, the Plan
Administrator’s determination will be based upon uniform rules and practices applied in a
nondiscriminatory manner and will be binding upon all persons affected thereby. Subject to the
provisions of Section 8 below, any decision by the Plan Administrator with respect to any such
matters will be final and binding on all parties. The Plan Administrator will have absolute
discretion in carrying out his or her responsibilities under this Section 7.



8. Claims Procedure




     A. Filing Claims. Any Participant or Beneficiary entitled to benefits under the Plan
will file a claim request with the Plan Administrator.



 









 





     B. Notification to Claimant. If a claim request is wholly or partially denied, the
Plan Administrator will furnish to the claimant a notice of the decision within ninety (90) days in
writing and in a manner calculated to be understood by the claimant, which notice will contain the
following information:




(i) the specific reason or reasons for the denial;




(ii) specific reference to pertinent Plan provisions upon which the denial is based;




(iii) a description of any additional material or information necessary for the claimant to
perfect the claim and an explanation of why such material or information is necessary; and




(iv) an explanation of the Plan’s claims review procedure describing the steps to be taken by
a claimant who wishes to submit his or her claims for review.



     C. Review Procedure. A claimant or his or her authorized representative may, with
respect to any denied claim:




(i) request a review upon a written application filed within sixty (60) days after receipt by
the claimant of written notice of the denial of his or her claim;




(ii) review pertinent documents; and




(iii) submit issues and comments in writing. Any request or submission will be in writing and
will be directed to the Plan Administrator (or his or her designee). The Plan Administrator
(or his or her designee) will have the sole responsibility for the review of any denied claim
and will take all steps appropriate in the light of the Plan Administrator’s findings.



     D. Decision on Review. The Plan Administrator (or his or her designee) will render a
decision upon review. If special circumstances (such as the need to hold a hearing on any matter
pertaining to the denied claim) warrant additional time, the decision will be rendered as soon as
possible, but not later than one hundred twenty (120) days after receipt of the request for review.
Written notice of any such extension will be furnished to the claimant prior to the commencement of
the extension. The decision on review will be in writing and will include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, as well as specific
references to
the pertinent provisions of the Plan on which the decision is based. If the decision on review is
not furnished to the claimant within the time limits prescribed above, the claim will be deemed
denied on review.



9. Unsecured And Unfunded Obligation




     Notwithstanding any provision herein to the contrary, the benefits offered under the Plan
shall constitute an unfunded, unsecured promise by the Company to pay benefits determined hereunder
which are accrued by Participants while such Participants are Directors. No Participant,
Beneficiary or any other person shall have any interest in any particular assets of the Company or
shares of common stock by reason of the right to receive a benefit under the Plan and any such
Participant, Beneficiary or other person shall have only the rights of a general unsecured creditor
of the Company with respect to any rights under the Plan. Nothing contained in the Plan shall
constitute a guaranty by the Company or any other entity or person that the assets of the Company
will be sufficient to pay any benefit hereunder. All expenses and fees incurred in the
administration of the Plan shall be paid by the Company.



10. Amendment And Termination Of The Plan




     The Company reserves the right, by a resolution of the Board, to amend the Plan at any time,
and from time to time, in any manner which it deems desirable. The Company also reserves the right,
by a resolution of the Board, to terminate this Plan at any time without providing any advance
notice to any Participant. However, other than an amendment to comply with Section 409A of the
Code, no amendment to or termination of the Plan will adversely affect the benefit that any
Participant has accrued under the Plan until the later of (i) the effective date of that amendment
or, if applicable, the effective date of Plan termination or (ii) the date that the amendment is
adopted or, if applicable, the date that the Plan is terminated.



11. Binding Upon Successors




     The Plan shall be binding upon and inure to the benefit of the Company, its successors and
assigns and the Participants and their heirs, executors, administrators and legal representatives.
In the event of (a) a merger or consolidation of the Company with or into any other corporation
that qualifies as a “change in control event” under the provisions of Section 409A(a)(2)(A)(v) of
the Code, or (b) the sale or transfer of substantially all of the assets of the Company that
qualifies as a “change in control event” under the provisions of



 









 




Section 409A(a)(2)(A)(v) of the
Code, then, subject to Section 17 of the Plan, either (i) the Plan shall be terminated and amounts
allocated to Participant’s Deferred Compensation Accounts distributed to Participants or (ii) the
successor corporation resulting from the merger or consolidation, or the transferee of such assets,
as the case may be, shall, as a condition to the consummation of the merger, consolidation or
transfer, assume the obligations of the Company hereunder and shall be substituted for the Company
hereunder.




12. No Guarantee Of Plan Permanency




     This Plan does not contain any guarantee of provisions for continued service on the Board to
any Director or Participant nor is it guaranteed by the Company to be a permanent plan.



13. Gender




     Any reference in the Plan made in the masculine pronoun shall apply to both men and women.



14. Incapacity Of Recipient




     In the event that a Participant or Beneficiary is declared incompetent and a guardian,
conservator or other person legally charged with the care of his or her person or of his or her
estate is appointed, any benefits under the Plan to which such Participant or Beneficiary is
entitled shall be paid to such guardian, conservator or other person legally charged with the care
of his person or his estate. Except as provided hereinabove, when the Plan Administrator, in his or
her sole discretion, determines that a Participant or Beneficiary is unable to manage his or her
financial affairs, the Plan Administrator may, but shall not be required to, direct the Company to
make distribution(s) to any one or more of the spouse, lineal ascendants or descendants or other
closest living relatives of such Participant or Beneficiary who demonstrates to the satisfaction of
the Plan Administrator the propriety of making such distribution(s). Any payment made under this
Section 14 shall be in complete discharge of any liability under the Plan for such payment. The
Plan Administrator shall not be required to see to the application of any such distribution made to
any person.



15. Governing Law




     This Plan shall be construed in accordance with and governed by the laws of the State of
Delaware.



16. Inability To Locate Participant Or Beneficiary




     Each Participant is obliged to keep the Plan Administrator apprised of his or her current
mailing address and that of his or her Beneficiary. The Plan Administrator’s obligation to search
for any Participant or Beneficiary is limited to sending a registered or certified letter to the
Participant’s or Beneficiary’s last known address. Any amounts credited to the Deferred
Compensation Account of any Participant or Beneficiary that does not present himself or herself to
the Plan Administrator will be forfeited no later than 12 months after that benefit otherwise would
have been payable. However, this forfeited benefit will be restored and paid if the Plan
Administrator subsequently receives a claim for benefits which is approved under the procedures
described in Section 8.



17. Special Rules for Post-2004 Deferrals




     With respect to Post-2004 Deferrals, the Plan shall be administered in conformity with Section
409A of the Code. Furthermore, it is intended that notwithstanding any provision of the Plan to the
contrary, with respect to Post-2004 Deferrals, no acceleration of benefits shall be made in
violation of Section 409A(a)(3) of the Code unless otherwise permitted by Section 409A or
applicable regulatory authority.



     IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized
officer as of the Effective Date.



	 	 	 	 	 	 	 
	 	 	WEBMETHODS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ DAVID MITCHELL
	 	 
	 

	 	 	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	Its:
	 	President and Chief Executive Officer	 	 
	 

	 	 	 	 
	 	 






 









 






EXHIBIT 10.9




EXHIBIT A




WEBMETHODS, INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS

DEFERRAL NOTICE




     1. Election To Defer



     In accordance with the provisions of the webMethods, Inc. Deferred Compensation Plan for
Directors (the “Plan”), I hereby elect to defer ___percent (i.e., 25%, 50%, 75% or 100%) of the
annual retainer and meeting fees payable to me for services as a Director of webMethods, Inc. This
election shall be effective as provided in Section 4.B of the Plan. This election supersedes any
prior deferral election made by me and shall remain in effect until terminated or otherwise
amended.



     2. Acknowledgment of Payment Terms



     I hereby acknowledge that all amounts credited to my Deferred Compensation Account in the Plan
will be distributed to me as soon as practicable after my termination of service as a Director;
provided that my deferral after December 31, 2004 will be distributed as soon as practical after I
have had a “separation from service” and if I am a “key employee” within in the meaning of Section
416(i) of the Internal Revenue Code of 1986 (determined without regard to paragraph 5 thereof) that
my distribution will be made six months after my separation from service (or, if earlier, the date
of my death). I understand that all amounts credited to my Deferred Compensation Account will be
paid out in a single lump sum in the event of my death.



     3. Designation of Beneficiary



     I hereby designate ___as my primary Beneficiary and ___as my contingent Beneficiary(ies) to
receive any amounts payable under the Plan in the event of my death.



     4. Acknowledgment



     I hereby acknowledge that (i) my election to defer my annual retainer and meeting fees under
the Plan is irrevocable with respect to amounts which are deferred under the Plan and shall remain
in effect until terminated or modified, (ii) the Plan is unfunded and unsecured, and is maintained
primarily for the purpose of providing deferred compensation to Directors and that I have no rights
or claims to receive amounts credited to my Deferred Compensation Account other than those
specifically granted by the terms of the Plan, and (iii) I am solely responsible for ensuring that
the Plan Administrator’s files contain my current mailing address and that of my Beneficiary.



	 	 	 	 	 	 	 
	 

	 	Signed:
	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	 
	 	 






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