Document:

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                                                                   Exhibit 10.17

                               FIRST AMENDMENT OF
                               LEGACY RESERVES LP
                            LONG-TERM INCENTIVE PLAN

         THIS AMENDMENT made as of the date set forth below by Legacy Reserves
GP LLC (the "Company").

                                  WITNESSETH :

      WHEREAS, the Legacy Reserves LP Long-Term Incentive Plan (the "Plan") is
maintained for the benefit of certain eligible persons as set forth in the Plan;
and

      WHEREAS, all words with initial capital letters shall have the same
meaning herein as ascribed thereto in the Plan; and

      WHEREAS, the Company desires to amend the Plan, effective as set forth
below, to ensure that the Plan's definition of "Affiliate" meets the
requirements of Section 409A of the Code; and

      WHEREAS, in Section 7(a) of the Plan, the Board and the Committee reserved
the right to amend the Plan from time to time; and

      WHEREAS, the Committee has approved the amendment of the Plan to effect
the changes generally described above and as specifically set forth in the
amendment below;

      NOW, THEREFORE, effective as set forth below, the Plan is hereby amended
by this First Amendment thereto, as follows:

      1.    Effective as of the initial effective date of the Plan, the
            definition of the term "Affiliate" in Section 2 of the Plan is
            hereby amended by the addition of the following sentence that
            provides as follows:

            "Notwithstanding the immediately preceding two sentences, to the
            extent that Section 409A of the Code applies to Options, Unit
            Appreciation Rights or other equity-based Awards granted under the
            Plan, the term "Affiliate" means all persons with whom the Company
            could be considered a single employer under Section 414(b) or
            Section (c) of the Code, substituting (for the purpose of
            determining whether Options, Unit Appreciation Rights or other
            equity-based Awards that may be subject to Section 409A of the Code
            are derived in respect of Units of the service recipient in order to
            comply with any applicable requirements of Section
            1.409A-1(b)(5)(iii) of the proposed regulations issued under Section
            409A of the Code or any successor regulation or other regulatory
            guidance relating thereto) "20 percent" in place of "80 percent" in
            determining a controlled group under Section 414(b) of the Code and
            in determining trades or businesses that are under common control
            for purposes of Section 414(c) of the Code."

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      2.    Except as modified herein, the Plan is specifically ratified and
            affirmed.

      IN WITNESS WHEREOF, this First Amendment of the Plan is executed this
______ day of __________________, 2006, to be effective as herein provided.

                                            LEGACY RESERVES GP LLC

                                            By: /s/ Steven H. Pruett
                                               _________________________________

                                            Printed Name: Steven H. Pruett
                                                         _______________________

                                            Title: President & Chief Financial
                                                   Officer & Secretary
                                                  ______________________________

                                      -2-exv10w1

 

Exhibit
10.1

WEBMETHODS, INC. 2006

OMNIBUS STOCK INCENTIVE PLAN

1. Purpose

          The webMethods, Inc. 2006 Omnibus Stock Incentive Plan is intended to promote the best
interests of webMethods, Inc. and its stockholders by (i) assisting the Corporation and its
Affiliates in the recruitment and retention of persons with ability and initiative, (ii) providing
an incentive to such persons to contribute to the growth and success of the Corporation’s
businesses by affording such persons equity participation in the Corporation and (iii) associating
the interests of such persons with those of the Corporation and its affiliates and stockholders.

2. Definitions

          As used in this Plan the following definitions shall apply:

     A. “Affiliate” means (i) any Subsidiary, (ii) any Parent, (iii) any corporation, or
trade or business (including, without limitation, a partnership, limited liability company or other
entity) which is directly or indirectly controlled fifty percent (50%) or more (whether by
ownership of stock, assets or an equivalent ownership interest or voting interest) by the
Corporation or one of its Affiliates, and (iv) any other entity in which the Corporation or any of
its Affiliates has a material equity interest and which is designated as an “Affiliate” by
resolution of the Committee.

     B. “Award” means any Option or Stock Award granted hereunder.

     C. “Board” means the Board of Directors of the Corporation.

     D. “Code” means the Internal Revenue Code of 1986, and any amendments thereto.

     E. “Committee” means the Board or any Committee of the Board to which the Board has
delegated any responsibility for the implementation, interpretation or administration of this Plan.

     F. “Common Stock” means the common stock, $0.01 par value, of the Corporation.

     G. “Consultant” means (i) any person performing consulting or advisory services for
the Corporation or any Affiliate, or (ii) a director of an Affiliate.

     H. “Corporation” means webMethods, Inc., a Delaware corporation.

     I. “Corporation Law” means the Delaware General Corporation Law.

     J. “Deferral Period” means the period of time during which Deferred Shares are subject
to deferral limitations under Section 7.D of this Plan.

     K. “Deferred Shares” means an award pursuant to Section 7.D of this Plan of the right
to receive shares of Common Stock at the end of a specified Deferral Period.

     L. “Director” means a member of the Board.

     M. “Eligible Person” means an employee of the Corporation or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of this Plan), a Director or a Consultant
to the Corporation or an Affiliate (including a corporation that becomes an Affiliate after the
adoption of this Plan).

 

 

     N. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     O. “Fair Market Value” means, on any given date, the current fair market value of the
shares of Common Stock as determined as follows:

(i) If the Common Stock is traded on The Nasdaq National Market or The Nasdaq SmallCap
Market or is 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 Stock or if no trading occurs on such date, the last day on which
trading occurred, or such other appropriate date as determined by the Committee in its
discretion, as reported in The Wall Street Journal or such other source as the Committee
deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall be the mean between the high and the
low asked prices for the Common Stock for the day of determination; or

(iii) In the absence of an established market for the Common Stock, Fair Market Value shall
be determined by the Committee in good faith.

     P. “Incentive Stock Option” means an Option (or portion thereof) intended to qualify
for special tax treatment under Section 422 of the Code.

     Q. “Nonqualified Stock Option” means an Option (or portion thereof) which is not
intended or does not for any reason qualify as an Incentive Stock Option.

     R. “Option” means any option to purchase shares of Common Stock granted under this
Plan.

     S. “Parent” means any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation if each of the corporations (other than the Corporation)
owns stock possessing at least fifty percent (50%) of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

     T. “Participant” means an Eligible Person who (i) is selected by the Committee or an
authorized officer of the Corporation to receive an Award and (ii) is party to an agreement setting
forth the terms of the Award, as appropriate.

     U. “Performance Agreement” means an agreement described in Section 8 of this Plan.

     V. “Performance Objectives” means the performance objectives established pursuant to
this Plan for Participants who have received grants of Performance Shares or, when so determined by
the Committee, Stock Awards. Performance Objectives may be described in terms of Corporation-wide
objectives or objectives that are related to the performance of the individual Participant or the
Affiliate, subsidiary, division, department or function within the Corporation or Affiliate in
which the Participant is employed or has responsibility. Any Performance Objectives applicable to
Awards to the extent that such an Award is intended to qualify as “performance-based compensation”
under Section 162(m) of the Code shall be limited to specified levels of or increases in the
Corporation’s or a business unit’s return on equity, earnings per share, total earnings, earnings
growth, return on capital, return on assets, economic value added, earnings before interest
and taxes, earnings before interest, taxes, depreciation and amortization, sales growth, gross
margin return on investment, increase in the Fair Market Value of the shares, share price
(including but not limited to growth measures and total stockholder return), net operating profit,
cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return
on investments (which equals net cash flow divided by total capital), internal rate of return,
increase in net present value or expense targets. The Awards intended to qualify as “Performance
Based Compensation” under Section

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162(m) of the Code shall be preestablished in accordance with
applicable regulations under Section 162(m) of the Code and the determination of attainment of such
goals shall be made by the Committee. If the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Corporation (including an event
described in Section 9), or the manner in which it conducts is business, or other events or
circumstances render the Performance Objectives unsuitable, the Committee may modify such
Performance Objectives or the related minimum acceptable level of achievement, in whole or in part,
as the Committee deems appropriate and equitable; provided, however, that no such modification
shall be made to an Award intended to qualify as performance-based compensation under Section
162(m) of the Code unless the Committee determines that such modification will not result in loss
of such qualification or the Committee determines that loss of such qualification is in the best
interests of the Corporation.

     W. “Performance Period” means a period of time established under Section 8 of this
Plan within which the Performance Objectives relating to a Performance Share or Stock Award are to
be achieved.

     X. “Performance Share” means a bookkeeping entry that records the equivalent of one
share of Common Stock awarded pursuant to Section 8 of this Plan.

     Y. “Plan” means this webMethods, Inc. 2006 Omnibus Stock Incentive Plan.

     Z. “Repricing” means, other than in connection with an event described in Section 9 of
this Plan, (i) lowering the exercise price of an Option or Stock Appreciation Right after it has
been granted or (ii) canceling an Option or Stock Appreciation Right at a time when the exercise
price exceeds the then Fair Market Value of the Common Stock in exchange for another Option or
Stock Award.

     AA. “Restricted Stock Award” means an award of Common Stock under Section 7.B.

     BB. “Securities Act” means the Securities Act of 1933, as amended.

     CC. “Stock Award” means a Stock Bonus Award, Restricted Stock Award, Stock
Appreciation Right, Deferred Shares or Performance Shares.

     DD. “Stock Bonus Award” means an award of Common Stock under Section 7.A.

     EE. “Stock Appreciation Right” means an award of a right of the Participant under
Section 7.C to receive a payment in cash or shares of Common Stock (or a combination thereof) based
on the increase in Fair Market Value of the shares of Common Stock covered by the award between the
date of grant of such award and the Fair Market Value of the Common Stock on the date of exercise
of such Stock Appreciation Right.

     FF. “Stock Award Agreement” means an agreement (written or electronic) between the
Corporation and a Participant setting forth the specific terms and conditions of a Stock Award
granted to the Participant under Section 7. Each Stock Award Agreement shall be subject to the
terms and conditions of this Plan and shall include such terms and conditions as the Committee
shall authorize.

     GG. “Stock Option Agreement” means an agreement (written or electronic) between the
Corporation and a Participant setting forth the specific terms and conditions of an Option granted
to the Participant. Each Stock
Option Agreement shall be subject to the terms and conditions of this Plan and shall include
such terms and conditions as the Committee shall authorize.

     HH. “Subsidiary” means any corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation if each of the corporations (other than the
last corporation in the unbroken chain) owns stock possessing at least fifty percent (50%) of the
total combined voting power of all classes of stock in one of the other corporations in such chain.

3

 

     II. “Ten Percent Owner” means any Eligible Person owning at the time an Option is
granted more than ten percent (10%) of the total combined voting power of all classes of stock of
the Corporation or of a Parent or Subsidiary. An individual shall, in accordance with Section
424(d) of the Code, be considered to own any voting stock owned (directly or indirectly) by or for
such Eligible Person’s brothers, sisters, spouse, ancestors and lineal descendants and any voting
stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for its stockholders, partners or beneficiaries.

3. Administration

     A. Delegation to Board Committee. The Board shall be the sole Committee of this Plan
unless the Board delegates all or any portion of its authority to administer this Plan to a
Committee. To the extent not prohibited by the charter or bylaws of the Corporation, the Board may
delegate all or a portion of its authority to administer this Plan to a Committee of the Board
appointed by the Board and constituted in compliance with the applicable Corporation Law. The
Committee shall consist solely of two (2) or more Directors who are (i) Non-Employee Directors
(within the meaning of Rule 16b-3 under the Exchange Act) for purposes of exercising administrative
authority with respect to Awards granted to Eligible Persons who are subject to Section 16 of the
Exchange Act; (ii) to the extent required by the rules of the market on which the Corporation’s
shares are traded or the exchange on which the Corporation’ shares are listed, “independent” within
the meaning of such rules; and (iii) at such times as an Award under this Plan by the Corporation
is subject to Section 162(m) of the Code (to the extent relief from the limitation of Section
162(m) of the Code is sought with respect to Awards and administration of the Awards by a committee
of “outside directors” is required to receive such relief) “outside directors” within the meaning
of Section 162(m) of the Code.

     B. Delegation to Officers. The Committee may delegate to one or more officers of the
Corporation the authority to grant and administer Awards to Eligible Persons who are not Directors
or executive officers of the Corporation; provided that the Committee shall have fixed the total
number of shares of Common Stock that may be subject to such Awards. No officer holding such a
delegation is authorized to grant Awards to himself or herself. In addition to the Committee, the
officer or officers to whom the Committee has delegated the authority to grant and administer
Awards shall have all powers delegated to the Committee with respect to such Awards. Such
delegation shall be subject to the limitations of Section 157(c) (or any successor provision) of
the Corporation Law.

     C. Powers of the Committee. Subject to the provisions of this Plan, and in the case
of a Committee appointed by the Board, the specific duties delegated to such Committee, the
Committee (and the officers to whom the Committee has delegated such authority) shall have the
authority:

(i) To construe and interpret all provisions of this Plan and all Stock Option Agreements,
Stock Award Agreements and Performance Agreements under this Plan.

(ii) To determine the Fair Market Value of Common Stock.

(iii) To select the Eligible Persons to whom Awards, are granted from time to time
hereunder.

(iv) To determine the number of shares of Common Stock covered by an Award; determine
whether an Option shall be an Incentive Stock Option or Nonqualified Stock Option; and
determine such other terms and conditions, not inconsistent with the terms of this Plan, of
each such Award. Such terms and conditions include, but are not limited to, the exercise
price of an Option, purchase price of Common Stock subject to a Stock Award, the time or
times when Options or Stock Awards may be exercised or Common Stock issued thereunder, the
right of the Corporation to repurchase Common Stock issued pursuant to the exercise of an
Option or a Stock Award and other restrictions or limitations (in addition to those
contained in this Plan) on the forfeitability or transferability of Options, Stock Awards or
Common Stock issued upon exercise of an Option or pursuant to an Award. Such terms may
include conditions which shall be determined by the Committee and need not be uniform with
respect to Participants.

4

 

(v) To accelerate the time at which any Option or Stock Award may be exercised, or the time
at which a Stock Award or Common Stock issued under this Plan may become transferable or
nonforfeitable.

(vi) To determine whether and under what circumstances an Option may be settled in cash,
shares of Common Stock or other property under Section 6.H instead of Common Stock.

(vii) To waive, amend, cancel, extend, renew, accept the surrender of, modify or accelerate
the vesting of or lapse of restrictions on all or any portion of an outstanding Award.
Except as otherwise provided by this Plan, the Stock Option Agreement, Stock Award Agreement
or Performance Agreement or as required to comply with applicable law, regulation or rule,
no amendment, cancellation or modification shall, without a Participant’s consent, adversely
affect any rights of the Participant; provided, however, that (x) an amendment or
modification that may cause an Incentive Stock Option to become a Nonqualified Stock Option
shall not be treated as adversely affecting the rights of the Participant and (y) any other
amendment or modification of any Stock Option Agreement, Stock Award Agreement or
Performance Agreement that does not, in the opinion of the Committee, adversely affect any
rights of any Participant, shall not require such Participant’s consent. Notwithstanding
the foregoing, the restrictions on the Repricing of Options and Stock Appreciation Rights,
as set forth in this Plan, may not be waived.

(viii) To prescribe the form of Stock Option Agreements, and Stock Award Agreements and
Performance Agreements; to adopt policies and procedures for the exercise of Options or
Stock Awards, including the satisfaction of withholding obligations; to adopt, amend, and
rescind policies and procedures pertaining to the administration of this Plan; and to make
all other determinations necessary or advisable for the administration of this Plan.

The express grant in this Plan of any specific power to the Committee shall not be construed as
limiting any power or authority of the Committee; provided that a Committee of the Board may not
exercise any right or power reserved to the Board. Any decision made, or action taken, by the
Committee or in connection with the administration of this Plan shall be final, conclusive and
binding on all persons having an interest in this Plan.

4. Eligibility

     A. Eligibility for Awards. Awards, other than Incentive Stock Options, may be granted
to any Eligible Person selected by the Committee. Incentive Stock Options may be granted only to
employees of the Corporation or a Parent or Subsidiary.

     B. Eligibility of Consultants. A Consultant shall be an Eligible Person only if the
offer or sale of the Corporation’s securities would be eligible for registration on Form S-8
Registration Statement because of the identity and nature of the service provided by such person,
unless the Corporation determines that an offer or sale of the Corporation’s securities to such
person will satisfy another exemption from the registration under the Securities Act and complies
with the securities laws of all other jurisdictions applicable to such offer or sale.

     C. Substitution Awards. The Committee may make Awards and may grant Options under
this Plan by assumption, in substitution or replacement of performance shares, phantom shares,
stock awards, stock options, stock appreciation rights or similar awards granted by another entity
(including an Affiliate) in connection with a merger, consolidation, acquisition of property or
stock or similar transaction. Notwithstanding any provision of this Plan (other than the maximum
number of shares of Common Stock that may be issued under this Plan), the terms of such assumed,
substituted, or replaced Awards shall be as the Committee, in its discretion, determines is
appropriate.

5

 

5. Common Stock Subject to Plan

     A. Share Reserve and Limitations on Grants. Subject to adjustment as provided in
Section 9, the maximum aggregate number of shares of Common Stock that may be (i) issued under this
Plan pursuant to the exercise of Options, (ii) issued pursuant to Stock Awards, (iii) covered by
Stock Appreciation Rights (without regard to whether payment on exercise of the Stock Appreciation
Right is made in cash or shares of Common Stock) and (iv) covered by Performance Shares is
8,500,000, plus the number of shares of Common Stock, if any, which (x) are subject to outstanding
stock options under the Corporation’s Amended and Restated Stock Option Plan as of the date of the
approval of this Plan by stockholders of the Corporation and (y) are not issued and will not be
issued under such Amended and Restated Stock Option Plan because such stock options expire, become
unexercisable or terminate unexercised for any reason whatsoever, in whole or in part, after the
date of approval of this Plan by the stockholders of the Corporation; provided that, such increase
shall not exceed 18,000,000 additional shares of Common Stock. The number of such additional shares
of Common Stock and the maximum number of additional shares of Common Stock shall be subject to
adjustment as provided in Section 9. Such additional shares of Common Stock shall become available
for future grant under the Plan as of the dates on which such stock options under the Amended and
Restated Stock Option Plan expire, become unexercisable or terminate unexercised. Subject to
adjustment as provided in Section 9, and notwithstanding any provision hereto to the contrary, the
maximum aggregate number of shares of Common Stock that may be issued pursuant to Stock Bonus
Awards, Deferred Shares, Performance Shares and Restricted Stock Awards is 4,000,000. No
Participant may be granted Awards representing more than 850,000 shares in any one calendar year.
This limitation shall be applied as of any date by taking into account the number of shares
available to be made the subject of new Awards as of such date, plus the number of shares
previously issued under this Plan and the number of share subject to outstanding Awards as of such
date. For purposes of determining the number of shares of Common Stock available under this Plan,
shares of Common Stock withheld by the Corporation to satisfy applicable tax withholding
obligations pursuant to Section 10 of this Plan shall be deemed issued under this Plan.

     B. Reversion of Shares. If an Option or Stock Award is terminated, expires or becomes
unexercisable, in whole or in part, for any reason, the unissued or unpurchased shares of Common
Stock (or shares subject to an unexercised Stock Appreciation Right) which were subject thereto
shall become available for future grant under this Plan. Shares of Common Stock that have been
actually issued under this Plan shall not be returned to the share reserve for future grants under
this Plan; except that shares of Common Stock issued pursuant to a Stock Award which are forfeited
to the Corporation or repurchased by the Corporation at the original purchase price of such shares,
shall be returned to the share reserve for future grant under this Plan. For avoidance of doubt,
this Section 5.B shall not apply to any per Participant limit set forth in Section 5.A.

     C. Source of Shares. Common Stock issued under this Plan may be shares of authorized
and unissued Common Stock or shares of previously issued Common Stock that have been reacquired by
the Corporation.

6. Options

     A. Award. In accordance with the provisions of Section 4, the Committee will
designate each Eligible Person to whom an Option is to be granted and will specify the number of
shares of Common Stock covered by such Option. The Stock Option Agreement shall specify whether
the Option is an Incentive Stock Option or
Nonqualified Stock Option, the vesting schedule applicable to such Option and any other terms
of such Option. No Option that is intended to be an Incentive Stock Option shall be invalid for
failure to qualify as an Incentive Stock Option.

     B. Option Price. The exercise price per share for Common Stock subject to an Option
shall be determined by the Committee, but shall comply with the following:

(i) The exercise price per share for Common Stock subject to an Option shall not be less
than one hundred percent (100%) of the Fair Market Value on the date of grant.

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(ii) The exercise price per share for Common Stock subject to an Incentive Stock Option
granted to a Participant who is deemed to be a Ten Percent Owner on the date such option is
granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on
the date of grant.

     C. Maximum Option Period. The maximum period during which an Option may be exercised
shall be seven (7) years from the date such Option was granted. In the case of an Incentive Stock
Option that is granted to a Participant who is or is deemed to be a Ten Percent Owner on the date
of grant, such Option shall not be exercisable after the expiration of five (5) years from the date
of grant.

     D. Maximum Value of Options which are Incentive Stock Options. To the extent that the
aggregate Fair Market Value of the Common Stock with respect to which Incentive Stock Options
granted to any person are exercisable for the first time during any calendar year (under all stock
option plans of the Corporation or any Parent or Subsidiary) exceeds $100,000 (or such other amount
provided in Section 422 of the Code), the Options are not Incentive Stock Options. For purposes of
this section, the Fair Market Value of the Common Stock will be determined as of the time the
Incentive Stock Option with respect to the Common Stock is granted. This section will be applied
by taking Incentive Stock Options into account in the order in which they are granted.

     E. Nontransferability. Options granted under this Plan which are intended to be
Incentive Stock Options shall be nontransferable except by will or by the laws of descent and
distribution and during the lifetime of the Participant shall be exercisable by only the
Participant to whom the Incentive Stock Option is granted. Except to the extent transferability of
a Nonqualified Stock Option is provided for in the Stock Option Agreement or is approved by the
Committee, during the lifetime of the Participant to whom the Nonqualified Stock Option is granted,
such Option may be exercised only by the Participant. If the Stock Option Agreement so provides or
the Committee so approves, a Nonqualified Stock Option may be transferred by a Participant through
a gift or domestic relations order to the Participant’s family members to the extent in compliance
with applicable securities laws and regulations and provided that such transfer is not a transfer
for value (within the meaning of applicable securities laws and regulations). The holder of a
Nonqualified Stock Option transferred pursuant to this section shall be bound by the same terms and
conditions that governed the Option during the period that it was held by the Participant. No
right or interest of a Participant in any Option shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.

     F. Vesting. Options will vest as provided in the Stock Option Agreement.

     G. Exercise. Subject to the provisions of this Plan and the applicable Stock Option
Agreement, an Option may be exercised to the extent vested in whole at any time or in part from
time to time at such times and in compliance with such requirements as the Committee shall
determine. A partial exercise of an Option shall not affect the right to exercise the Option from
time to time in accordance with this Plan and the applicable Stock Option Agreement with respect to
the remaining shares subject to the Option. An Option may not be exercised with respect to
fractional shares of Common Stock.

     H. Payment. Unless otherwise provided by the Stock Option Agreement, payment of the
exercise price for an Option shall be made in cash or a cash equivalent acceptable to the Committee
or if the Common Stock is traded on an established securities market, by payment of the exercise
price by a broker-dealer or by the Option holder with cash advanced by the broker-dealer if the
exercise notice is accompanied by the Option holder’s written irrevocable instructions to deliver
the Common Stock acquired upon exercise of the Option to the broker-dealer or by delivery of the
Common Stock to the broker-dealer with an irrevocable commitment by the broker-dealer to forward
the exercise price to the Corporation. With the consent of the Committee, payment of all or a part
of the exercise price of an Option may also be made (i) by surrender to the Corporation (or
delivery to the Corporation of a properly executed form of attestation of ownership) of shares of
Common Stock that have been held for such period prior to the date of exercise as is necessary to
avoid adverse accounting treatment to the Corporation, or (ii) any other method acceptable to the
Committee. If Common Stock is used to pay all or part of the exercise price, the sum of the cash
or cash equivalent and the Fair Market Value (determined as of the date of exercise) of the shares
surrendered must not be less than the Option price of the shares for which the Option is being
exercised.

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     I. Stockholder Rights. No Participant shall have any rights as a stockholder with
respect to shares subject to an Option until the date of exercise of such Option and the
certificate for shares of Common Stock to be received on exercise of such Option has been issued by
the Corporation.

     J. Disposition and Stock Certificate Legends for Incentive Stock Option Shares. A
Participant shall notify the Corporation of any sale or other disposition of Common Stock acquired
pursuant to an Incentive Stock Option if such sale or disposition occurs (i) within two years of
the grant of an Option or (ii) within one year of the issuance of the Common Stock to the
Participant. Such notice shall be in writing and directed to the Chief Financial Officer of the
Corporation. The Corporation may require that certificates evidencing shares of Common Stock
purchased upon the exercise of Incentive Stock Option issued under this Plan be endorsed with a
legend in substantially the following form:

The shares evidenced by this certificate may not be sold or
transferred prior to ___, 20___, in the absence of a written
statement from the Corporation to the effect that the Corporation is
aware of the facts of such sale or transfer.

          The blank contained in this legend shall be filled in with the date that is the later of (i)
one year and one day after the date of the exercise of such Incentive Stock Option or (ii) two
years and one day after the grant of such Incentive Stock Option.

     K. No Repricing. In no event shall the Committee permit a Repricing of any Option
without the approval of the stockholders of the Corporation.

7. Stock Awards

     A. Stock Bonus Awards. Each Stock Award Agreement for a Stock Bonus Award shall be in
such form and shall contain such terms and conditions (including provisions relating to
consideration, vesting, reacquisition of shares following termination, and transferability of
shares) as the Committee shall deem appropriate. The terms and conditions of Stock Award
Agreements for Stock Bonus Awards may change from time to time, and the terms and conditions of
separate Stock Bonus Awards need not be identical.

     B. Restricted Stock Awards. Each Stock Award Agreement for a Restricted Stock Award
shall be in such form and shall contain such terms and conditions (including provisions relating to
purchase price, consideration, vesting, reacquisition of shares following termination, and
transferability of shares) as the Committee shall deem appropriate. The terms and conditions of
the Stock Award Agreements for Restricted Stock Awards may change from time to time, and the terms
and conditions of separate Restricted Stock Awards need not be identical. Vesting of any grant of
Restricted Stock Awards may be further conditioned upon the attainment of
Performance Objectives established by the Committee in accordance with the applicable
provisions of Section 8 of this Plan regarding Performance Shares.

     C. Stock Appreciation Rights. Each Stock Award Agreement for Stock Appreciation
Rights shall be in such form and shall contain such terms and conditions (including provisions
relating to vesting, reacquisition of shares following termination, and transferability of shares)
as the Committee shall deem appropriate. The terms and conditions of Stock Appreciation Rights may
change from time to time, and the terms and conditions of separate Stock Appreciation Rights need
not be identical. No Stock Appreciation Right shall be exercisable after the expiration of seven
(7) years from the date such Stock Appreciation Right is granted. The base price per share for
each share of Common Stock covered by an Award of Stock Appreciation Rights shall not be less than
one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the date of
grant. In no event shall the Committee permit a Repricing of any Stock Appreciation Right without
the approval of the stockholders of the Corporation.

     D. Deferred Shares. The Committee may authorize grants of Deferred Shares to
Participants upon such terms and conditions as the Committee may determine in accordance with the
following provisions:

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(i) Each grant shall constitute the agreement by the Corporation to issue or transfer shares
of Common Stock to the Participant in the future in consideration of the performance of
services, subject to the fulfillment during the Deferral Period of such conditions as the
Committee may specify.

(ii) Each grant may be made without additional consideration from the Participant or in
consideration of a payment by the Participant that is less than the Fair Market Value on the
date of grant.

(iii) Each grant shall provide that the Deferred Shares covered thereby shall be subject to
a Deferral Period, which shall be fixed by the Committee on the date of grant, and any grant
or sale may provide for the earlier termination of such period in the event of a change in
control of the Corporation or other similar transaction or event.

(iv) During the Deferral Period, the Participant shall not have any right to transfer any
rights under the subject Award, shall not have any rights of ownership in the Deferred
Shares and shall not have any right to vote such shares, but the Committee may on or after
the date of grant, authorize the payment of dividend or other distribution equivalents on
such shares in cash or additional shares on a current, deferred or contingent basis.

(v) Any grant of the vesting thereof may be further conditioned upon the attainment of
Performance Objectives established by the Committee in accordance with the applicable
provisions of Section 8 of this Plan regarding Performance Shares.

(vi) Each grant shall be evidenced by an agreement delivered to and accepted by the
Participant and containing such terms and provisions as the Committee may determine
consistent with this Plan.

8. Performance Shares. 

     A. The Committee may authorize grants of Performance Shares, which shall become payable to the
Participant upon the achievement of specified Performance Objectives, upon such terms and
conditions as the Committee may determine in accordance with the following provisions:

(i) Each grant shall specify the number of Performance Shares to which it pertains, which
may be subject to adjustment to reflect changes in compensation or other factors.

(ii) The Performance Period with respect to each Performance Share shall commence on the
date established by the Committee and may be subject to earlier termination in the event of
a change in control of the Corporation or similar transaction or event.

(iii) Each grant shall specify the Performance Objectives that are to be achieved by the
Participant.

(iv) Each grant may specify in respect of the specified Performance Objectives a minimum
acceptable level of achievement below which no payment will be made and may set forth a
formula for determining the amount of any payment to be made if performance is at or above
such minimum acceptable level but falls short of the maximum achievement of the specified
Performance Objectives.

(v) Each grant shall specify the time and manner of payment of Performance Shares that shall
have been earned, and any grant may specify that any such amount may be paid by the
Corporation in cash, shares of Common Stock or any combination thereof and may either grant
to the Participant or reserve to the Committee the right to elect among those alternatives.

9

 

(vi) Any grant of Performance Shares may specify that the amount payable with respect
thereto may not exceed a maximum specified by the Committee on the date of grant.

(vii) Any grant of Performance Shares may provide for the payment to the Participant of
dividend or other distribution equivalents thereon in cash or additional shares of Common
Stock on a current, deferred or contingent basis.

(viii) If provided in the terms of the grant and subject to the requirements of Section
162(m) of the Code (in the case of Awards intended to qualify for exception therefrom), the
Committee may adjust Performance Objectives and the related minimum acceptable level of
achievement if, in the sole judgment of the Committee, events or transactions have occurred
after the date of grant that are unrelated to the performance of the Participant and result
in distortion of the Performance Objectives or the related minimum acceptable level of
achievement.

(ix) Each grant shall be evidenced by an agreement that shall be delivered to and accepted
by the Participant, which shall state that the Performance Shares are subject to all of the
terms and conditions of this Plan and such other terms and provisions as the Committee may
determine consistent with this Plan.

9. Changes in Capital Structure

     A. No Limitations of Rights. The existence of outstanding Awards shall not affect in
any way the right or power of the Corporation or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the Corporation’s capital
structure or its business, or any merger or consolidation of the Corporation, or any issuance of
bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or
the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer
of all or any part of its assets or business, or any other corporate act or proceeding, whether of
a similar character or otherwise.

     B. Changes in Capitalization. If the Corporation shall effect a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Common Stock outstanding, without receiving
consideration therefore in money, services or property, then (i) the number, class, and per share
price of shares of Common Stock subject to outstanding Options and other Awards hereunder and (ii)
the number and class of shares then reserved for issuance under this Plan (including the increase
in shares attributable to the Corporation’s Amended and Restated Stock Option Plan as provided in
Section 5.A) and the maximum number of shares for which Awards may be granted to a Participant
during a
specified time period shall be appropriately and proportionately adjusted. The conversion of
convertible securities of the Corporation shall not be treated as effected “without receiving
consideration.” The Committee shall make such adjustments, and its determinations shall be final,
binding and conclusive.

     C. Merger, Consolidation or Asset Sale. If the Corporation is merged or consolidated
with another entity or sells or otherwise disposes of substantially all of its assets to another
company while Options or Stock Awards remain outstanding under this Plan, unless provisions are
made in connection with such transaction for the continuance of this Plan and/or the assumption or
substitution of such Options or Stock Awards with new options or stock awards covering the stock of
the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices, then all outstanding Options and Stock Awards which have not
been continued, assumed or for which a substituted award has not been granted shall, whether or not
vested or then exercisable, unless otherwise specified in the Stock Option Agreement or Stock Award
Agreement, terminate immediately as of the effective date of any such merger, consolidation or
sale.

     D. Limitation on Adjustment. Except as previously expressly provided, neither the
issuance by the Corporation of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Corporation convertible into such shares or other

10

 

securities, nor the increase
or decrease of the number of authorized shares of stock, nor the addition or deletion of classes of
stock, shall affect, and no adjustment by reason thereof shall be made with respect to, the number,
class or price of shares of Common Stock then subject to outstanding Options or Stock Awards.

10. Withholding of Taxes

          The Corporation or an Affiliate shall have the right, before any certificate for any Common
Stock is delivered, to deduct or withhold from any payment owed to a Participant any amount that is
necessary in order to satisfy any withholding requirement that the Corporation or Affiliate in good
faith believes is imposed upon it in connection with Federal, state, or local taxes, including
transfer taxes, as a result of the issuance of, or lapse of restrictions on, such Common Stock, or
otherwise require such Participant to make provision for payment of any such withholding amount.
Subject to such conditions as may be established by the Committee, the Committee may permit a
Participant to (i) have Common Stock otherwise issuable under an Option or Stock Award withheld to
the extent necessary to comply with minimum statutory withholding rate requirements, (ii) tender
back to the Corporation shares of Common Stock received pursuant to an Option or Stock Award to the
extent necessary to comply with minimum statutory withholding rate requirements for supplemental
income, (iii) deliver to the Corporation previously acquired Common Stock, (iv) have funds withheld
from payments of wages, salary or other cash compensation due the Participant, or (v) pay the
Corporation or its Affiliate in cash, in order to satisfy part or all of the obligations for any
taxes required to be withheld or otherwise deducted and paid by the Corporation or its Affiliate
with respect to the Option or Stock Award.

11. Compliance with Law and Approval of Regulatory Bodies

     A. General Requirements. No Option or Stock Award shall be exercisable, no Common
Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no
payment shall be made under this Plan except in compliance with all applicable federal and state
laws and regulations (including, without limitation, withholding tax requirements), any listing
agreement to which the Corporation is a party, and the rules of all domestic stock exchanges or
quotation systems on which the Corporation’s shares may be listed. The Corporation shall have the
right to rely on an opinion of its counsel as to such compliance. Any share certificate issued to
evidence Common Stock when a Stock Award is granted or for which an Option or Stock Award is
exercised may bear such legends and statements as the Committee may deem advisable to assure
compliance with federal and state laws and regulations. No Option or Stock Award shall be
exercisable, no Stock Award shall be granted, no Common Stock shall be issued, no certificate for
shares shall be delivered, and no payment shall be made under this Plan until the Corporation has
obtained such consent or approval as the Committee may deem advisable from regulatory bodies having
jurisdiction over such matters.

     B. Participant Representations. The Committee may require that a Participant, as a
condition to receipt or exercise of a particular award, execute and deliver to the Corporation a
written statement, in form satisfactory to the Committee, in which the Participant represents and
warrants that the shares are being acquired for such person’s own account, for investment only and
not with a view to the resale or distribution thereof. The Participant shall, at the request of
the Committee, be required to represent and warrant in writing that any subsequent resale or
distribution of shares of Common Stock by the Participant shall be made only pursuant to either (i)
a registration statement on an appropriate form under the Securities Act of 1933, which
registration statement has become effective and is current with regard to the shares being sold, or
(ii) a specific exemption from the registration requirements of the Securities Act of 1933, but in
claiming such exemption the Participant shall, prior to any offer of sale or sale of such shares,
obtain a prior favorable written opinion of counsel, in form and substance satisfactory to counsel
for the Corporation, as to the application of such exemption thereto.

12. General Provisions

     A. Effect on Employment and Service. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part thereof) shall (i)
confer upon any individual any right to continue in the employ or service of the Corporation or an
Affiliate, (ii) in any way affect any right and power of the Corporation or an Affiliate to change
an individual’s duties or terminate the employment or service of any individual at any time with or
without assigning a reason therefor or (iii) except to the extent the Committee grants

11

 

an Option or
Stock Award to such individual, confer on any individual the right to participate in the benefits
of this Plan.

     B. Use of Proceeds. The proceeds received by the Corporation from the sale of Common
Stock pursuant to this Plan shall be used for general corporate purposes.

     C. Unfunded Plan. This Plan, insofar as it provides for grants, shall be unfunded,
and the Corporation shall not be required to segregate any assets that may at any time be
represented by grants under this Plan. Any liability of the Corporation to any person with respect
to any grant under this Plan shall be based solely upon any contractual obligations that may be
created pursuant to this Plan. No such obligation of the Corporation shall be deemed to be secured
by any pledge of, or other encumbrance on, any property of the Corporation.

     D. Rules of Construction. Headings are given to the Sections of this Plan solely as a
convenience to facilitate reference. The reference to any statute, regulation, or other provision
of law shall be construed to refer to any amendment to or successor of such provision of law.

     E. Choice of Law. This Plan and all Stock Option Agreements and Stock Award
Agreements entered into under this Plan shall be interpreted under the Corporation Law excluding
(to the greatest extent permissible by law) any rule of law that would cause the application of the
laws of any jurisdiction other than the Corporation Law.

     F. Fractional Shares. The Corporation shall not be required to issue fractional
shares pursuant to this Plan. The Committee may provide for elimination of fractional shares or
the settlement of such fraction shares in cash.

     G. Foreign Employees. In order to facilitate the making of any grant or combination of
grants under this Plan, the Committee may provide for such special terms for Awards to Participants
who are foreign nationals, or who are employed by the Corporation or any Affiliate outside of the
United States, as the Committee may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or
amendments, restatements or alternative versions of, this Plan as it may consider necessary or
appropriate for such purposes without thereby affecting the terms of this Plan, as then in effect,
unless this Plan could have been amended to eliminate such inconsistency without further approval
by the stockholders of the Corporation.

13. Amendment and Termination

          The Board may amend or terminate this Plan from time to time; provided, however, stockholder
approval shall be required for any amendment that (i) increases the aggregate number of shares of
Common Stock that may be issued under this Plan, except as contemplated by Section 5.A or Section
9.B; (ii) changes the class of employees eligible to receive Incentive Stock Options; (iii)
modifies the restrictions on Repricings set forth in this Plan; or (iv) is required by the terms of
any applicable law, regulation or rule, including the rules of any market on which the Corporation
shares are traded or exchange on which the Corporation shares are listed. Except as specifically
permitted by this Plan, Stock Option Agreement or Stock Award Agreement or as required to comply
with applicable law, regulation or rule, no amendment shall, without a Participant’s consent,
adversely affect any rights of such Participant under any Option or Stock Award outstanding at the
time such amendment is made; provided, however, that an amendment that may cause an Incentive Stock
Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights
of the Participant. Any amendment requiring stockholder approval shall be approved by the
stockholders of the Corporation within twelve (12) months of the date such amendment is adopted by
the Board.

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14. Effective Date of Plan; Duration of Plan

     A. This Plan shall be effective upon adoption by the Board, subject to approval within twelve
(12) months by the stockholders of the Corporation. In the event that the stockholders of the
Corporation shall not approve this Plan within such twelve (12) month period, this Plan shall
terminate. Unless and until the Plan has been approved by the stockholders of the Corporation, no
Option or Stock Award may be exercised, and no shares of Common Stock may be issued under the Plan.
In the event that the stockholders of the Corporation shall not approve the Plan within such
twelve (12) month period, the Plan and any previously granted Options or Stock Awards shall
terminate.

     B. Unless previously terminated, this Plan will terminate ten (10) years after the earlier of
(i) the date this Plan is adopted by the Board, or (ii) the date this Plan is approved by the
stockholders, except that Awards that are granted under this Plan prior to its termination will
continue to be administered under the terms of this Plan until the Awards terminate or are
exercised.

          IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed by a duly authorized
officer as of the date of adoption of this Plan by the Board of Directors.

WEBMETHODS, INC.

By: /s/ David Mitchell

David Mitchell, President and CEO

Date: July 6, 2006

As amended August 29, 2006

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