Document:

exv10w2

 

Exhibit 10.2

Stock Option Agreement

THIS STOCK OPTION AGREEMENT (this “Agreement”) is made as of the Option Grant Date set forth
on the initial Notice of Grant attached hereto by and between (i) WEBMETHODS, INC., a Delaware
corporation (the “Corporation”), and (ii) Participant, an employee of the Corporation or any
Subsidiary or Parent, named on each Notice of Grant attached hereto.

The Corporation has adopted a 2006 Omnibus Stock Incentive Plan (with all amendments thereto, the
“Plan”), a copy of which has been provided or made available to Participant; and

In consideration of the foregoing, of the mutual promises set forth in this Agreement and of other
good and valuable consideration, the receipt and sufficiency of which are acknowledged, the
parties, intending to be legally bound, agree as follows:

1. Grant of Option. Subject to the terms and conditions set forth in this
Agreement and the respective Notice of Grant, the Corporation hereby grants to Participant the
right to purchase, during the period specified in Section 2, the number of shares of Common Stock
(those shares of Common Stock are referred to as the “Shares”) set forth on the respective Notice
of Grant at an exercise price of per Share set forth on that Notice of Grant, in accordance with
the terms of this Agreement, that Notice of Grant and the Plan (that right is referred to as the
“Option”).

2. Duration of Option. The Option shall be effective during the period
commencing as of the Option Grant Date and ending on the earliest to occur of: (a) failure of
Participant to promptly return a signed copy of the Notice of Grant (and, if the initial Notice of
Grant, a signed copy of this Agreement) to the Corporation; (b) the date all of the Shares are
purchased pursuant to the terms of this Agreement or are surrendered to the Corporation; (c) ninety
(90) days after the date Participant ceases to be employed by the Corporation or any Subsidiary or
Parent (except for termination due to the death of Participant); (d) the expiration of the one
(1)-year period prescribed under Section 3.B; (e) at 5:00 P.M. local time at the headquarters of
the Corporation on the termination date specified on the respective Notice of Grant; and (f) at
5:00 P.M. local time at the headquarters of the Corporation on the day immediately preceding the
seventh (7th) anniversary of the Option Grant Date. Upon the expiration of the Option, the Option
shall have no further force or effect, and Participant shall have no further rights in or under the
Option or to the Shares which shall not have been purchased by that time pursuant to the Option.

3. Exercise of Option.

A. Subject to the provisions of Section 2 regarding the duration of the Option, and
except as provided below, the Option shall vest in periodic increments commencing on the Vesting
Start Date as provided in the respective Notice of Grant. Notwithstanding the foregoing, vesting
of the Option shall terminate immediately upon the Participant ceasing to be employed with the
Corporation or a Subsidiary or Parent. The Option may be exercised only to the extent the Option
is vested.

The Option may be exercised only if Participant is in compliance with all covenants in, and
provisions of, this Agreement and if compliance with all applicable securities laws can be
effected, including without limitation the existence of an effective registration statement under
the Securities Act of 1933 with respect to the exercise of the Option, and only by (i)
Participant’s completion, execution and delivery (by written or electronic means) to the
Corporation of a Notice and Request of Exercise in the form specified by the Corporation, (ii) the
payment to the Corporation, as provided in Section 3.C, of an amount equal to the amount obtained
by multiplying the Exercise Price by the number of Shares being purchased pursuant to such
exercise, as shall be specified by Participant in such notice of exercise and (iii) if tax
withholding applies to such exercise, the payment to the Corporation, as provided in Section 3.C,
of an amount calculated by the Corporation to be sufficient to satisfy applicable Federal, state,
foreign or local tax withholding requirements. Except in the event of the death of a Participant,
in which event Participant’s estate, executors or administrators, or personal or legal
representatives may exercise the Option in accordance with the terms of Section 3.B, the Option or
any of the rights thereunder may be exercised by Participant only, and may not, on an absolute or
contingent basis, be transferred or assigned, in whole or in part, whether voluntarily,
involuntarily or by operation of law (including, without limitation, the laws of bankruptcy,
intestacy, descent and distribution and succession).

B. In the event of the death of Participant at such time that Participant shall possess
an Option pursuant to the terms of this Agreement, Participant’s estate, executors or
administrators, or personal or legal representatives shall be entitled, for a period of one (1)
year following the date of Participant’s death, to exercise the Option, but only to the extent that

 

 

Participant was entitled to exercise the Option on the date of such death. Any person so desiring
to exercise Participant’s Option shall be required, as a condition to the exercise of the Option,
to furnish to the Corporation such documentation as the Corporation shall deem satisfactory to
evidence the exclusive authority of such person to exercise the Option on behalf of Participant.
In the event of the exercise of the Option by Participant’s estate, executors or administrators, or
personal or legal representatives, all references herein to Participant shall, to the extent
applicable, be deemed to refer to and include such estate, executors or administrators, or personal
or legal representatives, as the case may be.

C. Payment of the amount determined pursuant to Section 3.A shall be made (i) by cash,
(ii) by good check, (iii) by delivery of shares of Common Stock owned by Participant valued at
their fair market value as determined by the Board of Directors in good faith (which shares of
Common Stock shall have been owned by Participant at least six (6) months prior to such delivery),
(iv) by the assignment of the proceeds of a sale or loan with respect to some or all of the Shares
being acquired upon exercise of the Option (including without limitation, through an exercise
complying with Regulation T or rules promulgated by the Board of Governors of the Federal Reserve
System) in accordance with such rules and procedures as the Corporation shall determine or (v) in
such other manner as shall then be acceptable to, and permitted by, the Board of Directors. In
addition, the Participant may satisfy applicable tax withholding requirements by electing to have
the Corporation withhold from the Shares issuable upon exercise of an Option a number of whole
shares having a fair market value (determined on the date that the amount of tax to be withheld is
fixed) not in excess of the aggregate minimum withholding amount required by statute.

D. Upon the exercise of the Option by Participant, or as soon thereafter as is
practicable, the Corporation shall issue and deliver to Participant a certificate or certificates
evidencing such number of Shares as Participant has so elected to receive. Such certificate or
certificates shall be registered in the name of Participant and, if applicable, shall bear an
appropriate investment warranty legend, any legends required by any applicable securities law, rule
or regulation, any legend referring to the restrictions provided hereunder and under the Plan and
any legend required by the law of the jurisdiction of incorporation of the Corporation. Upon the
exercise of the Option and the issuance and delivery of such certificate or certificates,
Participant shall have all the rights of a stockholder with respect to such Shares and to receive
all dividends or other distributions paid or made with respect thereto; provided, however, that
such Shares shall be subject to the restrictions hereunder and in the Plan (if any).

E. The Board of Directors of the Corporation may, upon such terms and conditions as it
deems appropriate, accept the surrender by Participant of Participant’s right to exercise the
Option, in whole or in part, and authorize a payment in consideration therefor of an amount equal
to the difference obtained by subtracting the sum of (i) the Exercise Price of the Shares which are
the subject of such surrendered Option and (ii) an amount calculated by the Corporation to be
sufficient to satisfy applicable Federal, state, foreign or local tax withholding requirements from
the fair market value of the Shares which are the subject of such surrendered Option on the date of
such surrender (such amount not to be less than zero), such payment to be in cash.

F. Notwithstanding any other provision of this Agreement, any unvested portion of the
Option shall thereupon vest and the entire Option shall thereupon become immediately exercisable
if, within one (1) year after a Change of Control of the Corporation, there is (i) a termination of
Participant’s employment by the Corporation or a Subsidiary or Parent other than for
Cause (as defined below) or (ii) a voluntary termination by Participant of Participant’s employment
with the Corporation or a Subsidiary or Parent within ninety (90) days after Good Reason (as
defined below) shall first exist. For purposes of this Agreement, “Cause” shall mean (i)
embezzlement, theft, fraud, or any other act of dishonesty involving the Corporation or a
Subsidiary or Parent or any of their customers, suppliers or business partners, (ii)
Participant’s conviction of a felony, or any other crime involving moral turpitude, or (iii) a
violation of a written agreement between Participant and the Corporation or a Subsidiary or Parent,
including but not limited to Sections 6, 7, 8, 9, or 10 of this Agreement, that certain Proprietary
Information and Assignment of Inventions Agreement or that certain letter agreement providing for
nondisclosure of “Protected Information” and assignment of inventions. For purposes of this
Agreement, “Good Reason” shall mean (i) a material reduction in Participant’s base salary, (ii) a
material reduction in Participant’s duties without Participant’s consent, or (iii) a relocation of
Participant’s regular place of work to any location outside a thirty (30) mile radius of the
location from which Participant served the Corporation or a Subsidiary or Parent            thirty
(30) days

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prior to the date of such Change of Control of the Corporation without Participant’s consent. For
purposes of this Agreement, a “Change of Control” of the Corporation shall be deemed to have
occurred if (i) any person or group acquires, directly or indirectly (including, without
limitation, by way of a tender offer or an exchange offer or a two-step transaction involving a
tender offer followed with reasonable promptness by a merger involving the Corporation), ownership
of not less than a majority of the then outstanding voting securities of the Corporation, (ii) the
stockholders of the Corporation approve a merger or consolidation involving the Corporation and
resulting in a change of ownership of a majority of the then outstanding shares of voting
securities of the Corporation, or (iii) the stockholders of the Corporation approve a plan of
liquidation or dissolution of the Corporation or the sale or disposition by the Corporation of all
or substantially all of the Corporation’s assets.

4. Changes in Capital Structure of the Corporation. Subject to any required
action by the stockholders of the Corporation and the provisions of the applicable law of the
jurisdiction of incorporation of the Corporation, the number of Shares subject to this Agreement as
well as the Exercise Price of any Shares not yet purchased by Participant shall be proportionately
adjusted for (a) a division or combination of the shares of capital stock of the Corporation, (b) a
dividend payable in shares of capital stock of the Corporation or (c) a reclassification of any
shares of capital stock of the Corporation.

5. Rights Prior to Exercise. Participant shall have no equity interest in the
Corporation or any voting, dividend, liquidation or dissolution rights with respect to any capital
stock of the Corporation solely by reason of having an Option or having executed this Agreement or
any Notice of Grant hereto. Furthermore, prior to the exercise of all or a portion of the Option,
as set forth in Section 3.A, and the issuance and delivery of a certificate or certificates
evidencing the Shares purchased pursuant to the exercise of all or a portion of such Option,
Participant shall have no interest in, or any voting, dividend, liquidation or dissolution rights
with respect to, the Shares.

6. Treatment of Information.

A. Participant covenants and agrees that Participant shall not, except with the prior
written consent of the Corporation, or except if Participant is acting as an employee of the
Corporation solely for the benefit of the Corporation in connection with the Corporation’s business
and in accordance with the Corporation’s business practices and employee policies, at any time
during or within ten (10) years following termination of Participant’s employment by the
Corporation, directly or indirectly, disclose, divulge, reveal, report, publish, transfer or use,
for any purpose whatsoever, any Confidential Information in any form or format which has been
obtained by or disclosed to Participant as a result of Participant’s employment with the
Corporation. “Confidential Information” shall include, without limitation: the terms and conditions
of this Agreement; trade secrets; systems; technology; computer programs, related object and source
code or documentation; databases and data residing therein or derived therefrom; procedures;
manuals or confidential reports or analysis; the agreements with or terms of any relationship or
agreement with any distributor, reseller, customer, systems integrator, business partner or
strategic partner; financial, marketing or sales information and strategy; pricing or accounting
data or methods; licenses, business arrangements or related documentation; the identity of and
lists and/or electronic mail addresses relating to customers, prospective customers, systems
integrators, business partners or strategic partners; personal information and electronic mail
addresses or telephone numbers for employees of or contractors to the Corporation or any
subsidiary; information, concepts, discoveries or ideas relating to the Corporation’s past, present
and future technology, software, services and techniques; information concerning competitive
analysis or strategy; inventions, improvements, techniques, designs or other technical data; or
other information, data or materials concerning any of the Corporation’s business methods,
personnel, practices or strategies. Participant acknowledges that Participant’s obligations not to
use or disclose the Corporation’s trade secrets after the term of Participant’s employment by the
Corporation continue indefinitely and are not subject to the ten (10)-year limitation upon use or
disclosure of Confidential Information. Participant further acknowledges that any information and
materials received by the Corporation from third parties in confidence (or subject to nondisclosure
or similar covenants) shall be deemed to be and shall be Confidential Information within the
meaning of this Section 6. The absence of any marking or statement that particular information is
confidential, proprietary or Confidential Information shall not affect its status as Confidential
Information.

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B. Disclosure of any Confidential Information shall not be prohibited if such disclosure
is required by a valid and existing order of a court or other governmental body or agency within
the United States; provided, however, that (i) Participant shall first have given prompt notice to
the Corporation of any possible or prospective order (or proceeding pursuant to which any such
order may result) and (ii) the Corporation shall have been afforded a reasonable opportunity to
prevent or limit any such disclosure. It shall not be a violation of this Agreement for
Participant to disclose to Participant’s legal counsel the provisions of this Agreement, provided
that the purpose of such disclosure is to aid in Participant’s compliance with those provisions,
and that Participant’s legal counsel agrees in writing to maintain the provisions of this Agreement
in strictest confidence. Also, it shall not be a violation of this Agreement for Participant to
disclose the provisions of this Agreement to Participant’s tax advisors, provided that such tax
advisors agree in writing to maintain the provisions of this Agreement in strictest confidence.

C. For purposes of this Agreement, Participant may disclose Confidential Information
which (i) has been provided to Participant by a third party that is not obligated to maintain
confidentiality or to whom the Corporation owes no duty of confidentiality, (ii) is or becomes
publicly available without breach of any other agreement or instrument to which the Corporation is
a party or a beneficiary or (iii) is or becomes publicly available without breach of any duty owed
to the Corporation by Participant or any third party. Participant acknowledges and agrees that, if
Participant shall seek to disclose, divulge, reveal, report, publish, transfer or use, for any
purpose whatsoever, any Confidential Information within the scope of this Section 6.C, Participant
shall bear the burden of proving that any such Confidential Information shall have become publicly
available without a breach of an agreement or instrument to which the Corporation is a party or
beneficiary or the breach of a duty to the Corporation.

7. Covenant Not to Compete. Participant covenants and agrees that during the
Restricted Period (as defined below) and in the Restricted Area (as defined below), Participant
shall not directly, indirectly or in concert with any other person or entity, provide services that
are the same as, or substantially similar to, the services Participant performed for the
Corporation at any time during Participant’s employment by the Corporation (the “Restricted
Services”), to or on behalf of a Competing Entity (as defined below).

A. “Competing Entity” shall mean any person (including Participant acting on his/her own
behalf) or entity engaged in actual competition for customers with the Corporation, in the business
of designing, developing, producing, marketing, distributing, licensing, selling, implementing,
modifying, deploying, servicing or supporting any software or technology being designed, developed,
produced, marketed, demonstrated, distributed, licensed, sold, implemented, modified, deployed,
serviced or supported by the Corporation (the “Competing Products”) (i) during the period the
Restricted Services were performed for the Corporation or (ii) as of the date of termination of
Participant’s employment with the Corporation.

B. The “Restricted Period” shall mean the period commencing with the Option Grant Date
set forth on the initial Notice of Grant and ending on the later of (i) nine (9) months after
Participant’s employment with the Corporation ends for any reason whatsoever, including, but not
limited to, involuntary termination by the Corporation, voluntary termination by Participant, a
mutual decision by the Corporation and Participant, or any other reason; or (ii) nine (9) months
after a court of competent jurisdiction enters an order enforcing the terms of this Section 7.

C. The “Restricted Area” shall mean any state, province or similar political subdivision
where the Corporation has employees and/or has designed, developed, produced, marketed,
demonstrated, distributed, licensed, sold, implemented, modified, deployed, serviced or supported
software, technology or services or has a written proposal pending to do the same. In addition to
the foregoing, given the ability of Participant to work remotely for a Competing Entity via the
internet or other technology, the Restricted Area shall include any other state, province or
similar political subdivision where Participant is physically located while performing Restricted
Services for a Competing Entity that directly or indirectly uses Participant’s services to design,
develop, demonstrate, produce, market, demonstrate, distribute, license, sell, implement, modify,
deploy, service or support any Competing Product within the Restricted Area or has a written
proposal pending to do the same.

D. Notwithstanding the foregoing, Participant shall not be in violation of this Section 7
if Participant is acting as an employee of the Corporation solely for the benefit of the
Corporation in connection with the Corporation’s business and in accordance with the Corporation’s
business practices and employee

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policies. Also, Participant shall not be in violation of this Section 7 if, after the termination
of Participant’s employment with the Corporation, Participant provides services to a Competing
Entity in a line of business which the Corporation has abandoned.

8. Customer Nonsolicitation Covenant. Participant covenants and agrees that for
the Nonsolicitation Period (as defined below), Participant will not, directly, indirectly, or in
concert with any other person or entity, solicit any Customer (as defined below) where the products
or services at issue are the same as, substantially similar to or substantially derived from those
then available from the Corporation.

A. “Customer” shall mean any person or entity that had purchased or utilized products or
services from the Corporation during the twelve (12) month period immediately preceding the earlier
of (i) the prohibited solicitation; or (ii) the date of termination of Participant’s employment
with the Corporation. “Customer” shall also include any person or entity who Participant is, or
reasonably should be, aware that the Corporation was actively soliciting (other than by means of a
general advertising campaign) to purchase the Corporation’s products or services during the twelve
(12) month period immediately preceding the earlier of (i) the prohibited solicitation; or (ii) the
date of termination of Participant’s employment by the Corporation.

B. The “Nonsolicitation Period” shall mean the period commencing with the Option Grant
Date set forth on the initial Notice of Grant and ending on the later of (i) nine (9) months after
Participant’s employment with the Corporation ends for any reason whatsoever, including, but not
limited to, involuntary termination by the Corporation, voluntary termination by Participant, a
mutual decision by the Corporation and Participant, or any other reason; or (ii) nine (9) months
after a court of competent jurisdiction enters an order enforcing the terms of this Section 8.

C. Notwithstanding the foregoing, Participant shall not be in violation of this Section 8
if Participant is acting as an employee of the Corporation solely for the benefit of the
Corporation in connection with the Corporation’s business and in accordance with the Corporation’s
business practices and employee policies.

9. Employee/Consultant Nonsolicitation Covenant. Participant covenants and
agrees that for the period commencing with the Option Grant Date set forth on the initial Notice of
Grant and ending on the later of (a) two (2) years after Participant’s employment with the
Corporation ends for any reason whatsoever, including, but not limited to, involuntary termination
by the Corporation, voluntary termination by Participant, a mutual decision by Corporation and
Participant, or any other reason whatsoever, or (b) two (2) years after a court of competent
jurisdiction enters an order enforcing the terms of this Section 8, Participant shall not,
directly or indirectly, Solicit (as defined below) any person or entity who was an employee,
independent contractor or consultant of the Corporation during the one (1)-year period prior to the
date of termination of Participant’s employment by the Corporation (any such person or entity is a
“Covered Person”), in any manner that causes any Covered Person to terminate or otherwise diminish
any Covered Person’s relationship with the Corporation.

A. “Solicit” shall mean the direct or indirect solicitation for hire or engagement by
Participant of a Covered Person, whether for or on behalf of Participant or for any entity in which
Participant shall have a direct or indirect interest (or any subsidiary or affiliate of any such
entity), whether as a proprietor, partner, co-venturer, financier, investor or stockholder (other
than de minimis stock holdings), director, officer, employer, employee, servant, agent,
representative or otherwise. “Solicit” shall also mean Participant’s direct or indirect hiring or
engagement of a Covered Individual, whether for or on behalf of Participant or for any entity in
which Participant shall have a direct or indirect interest (or any subsidiary or affiliate of any
such entity), whether as a proprietor, partner, co-venturer, financier, investor or stockholder,
director, officer, employer, employee, servant, agent, representative or otherwise.

10. Materials. All notes, data, tapes, reference items, sketches, drawings,
memoranda, records and other materials in any way relating to the Corporation’s business shall
belong exclusively to the Corporation and Participant agrees to turn over to the Corporation all
copies of such materials in Participant’s possession or under Participant’s control at the request
of the Corporation or, in the absence of such a request, upon the termination of Participant’s
employment with the Corporation.

11. Reasonableness of Restrictions. PARTICIPANT HAS CAREFULLY READ AND
CONSIDERED THE PROVISIONS OF SECTIONS 6 THROUGH 10 HEREOF INCLUSIVE AND SECTION 15

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HEREOF AND, HAVING DONE SO, AGREES THAT THE RESTRICTIONS SET FORTH IN SUCH SECTIONS ARE FAIR AND
REASONABLE AND ARE REASONABLY REQUIRED TO PROTECT THE INTERESTS OF THE CORPORATION, AND ITS
OFFICERS, DIRECTORS, STOCKHOLDERS AND EMPLOYEES, INCLUDING BUT NOT LIMITED TO, THE GOODWILL
THE CORPORATION HAS DEVELOPED WITH ITS CUSTOMERS AND THE PROTECTION OF THE CORPORATION’S
CONFIDENTIAL INFORMATION AND TRADE SECRETS.

12. Employment of Participant. Nothing in this Agreement shall be construed as
constituting a commitment, guarantee, agreement or understanding of any kind or nature that the
Corporation shall continue to employ Participant, nor shall this Agreement affect in any way the
right of the Corporation to terminate the employment of Participant, at any time and for any reason
if Participant is employed in the United States. By Participant’s execution of this Agreement,
Participant acknowledges and agrees that Participant’s employment, if that employment is within the
United States, is “at will.” No change of Participant’s duties as an employee of the Corporation
shall result in, or be deemed to be, a modification of any of the terms of this Agreement.

13. No Prior Agreements. Participant represents that Participant’s performance
of all the terms of this Agreement and any services to be rendered as an employee of the
Corporation do not and shall not breach any fiduciary or other duty or any covenant, agreement or
understanding (including, without limitation, any agreement relating to any proprietary
information, knowledge or data acquired by Participant in confidence, trust or otherwise prior to
Participant’s employment by the Corporation) to which Participant is a party or by the terms of
which Participant may be bound.

14. Burden and Benefit; Corporation. This Agreement shall be binding upon, and
shall inure to the benefit of, the Corporation and Participant, and their respective heirs,
personal and legal representatives, successors and assigns. As used in Sections 6 through 13
inclusive, this Section 14 and Sections 15 and 21, the term the “Corporation” shall also include
any corporation or other entity which is the parent or a subsidiary of the Corporation or any
corporation or entity which is an affiliate of the Corporation by virtue of common (although not
identical) ownership, and for which Participant is providing services in any form during
Participant’s employment with the Corporation or any such other corporation or entity. Participant
hereby consents to the enforcement of any and all of the provisions of this Agreement by or for the
benefit of the Corporation and any such other corporation or entity.

15. Accounting for Profits; Indemnification. Participant covenants and agrees
that, if Participant shall violate any of Participant’s covenants or agreements contained in this
Agreement, the Corporation shall be entitled to an accounting and repayment of all profits, gains,
compensation, royalties, commissions, remunerations or benefits which Participant directly or
indirectly shall have realized or may realize relating to, growing out of or in connection with (i)
any such violation; and (ii) any grant of Options under this Agreement; such remedy shall be in
addition to and not in limitation of any injunctive relief or other rights or remedies to which the
Corporation is or may be entitled at law or in equity or otherwise under this Agreement.
Participant agrees that the Corporation may obtain injunctive or equitable relief without posting a
bond. Participant hereby agrees to defend, indemnify and hold harmless the Corporation against and
in respect of: (i) any and all losses and damages resulting from, relating or incident to, or
arising out of any misrepresentation or breach by Participant of any warranty, covenant or
agreement made or contained in this Agreement; and (ii) any and all actions, suits, proceedings,
claims, demands, judgments, costs and expenses (including reasonable attorneys’ fees) incident to
the foregoing.

16. Forum Choice. Participant consents to the personal and subject matter
jurisdiction and venue of the Circuit Court for Fairfax County, Virginia, USA and the U.S. District
Court for the Eastern District of Virginia, USA, with respect to any and all causes of action
pertaining to this Agreement, and agrees to accept service of process made in accordance with the
statutes of Virginia and the United States. Participant and the Corporation agree that the
exclusive forum for any and all causes of action pertaining to this Agreement shall be the Circuit
Court for Fairfax County, Virginia, USA and the U.S. District Court for the Eastern District of
Virginia, USA.

17. Genders. The use of any gender herein shall be deemed to be or include the
other genders and the use of the singular herein shall be deemed to be or

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include the plural (and vice versa), wherever appropriate.

18. Headings. The headings and other captions contained in this Agreement are
for convenience of reference only and shall not be used in interpreting, construing or enforcing
any of the provisions of this Agreement.

19. Entire Agreement. This Agreement, the Notice(s) of Grant, and the Plan set
forth all of the promises, agreements, conditions, understandings, warranties and representations
between the parties hereto with respect to the subject matter of this Agreement, and there are no
promises, agreements, conditions, understandings, warranties or representations, oral or written,
express or implied, between them with respect to the Option or the Shares other than as set forth
herein. This Agreement, the Notice of Grant, and the Plan are, and are intended by the parties to
be, an integration of any and all prior agreements or understandings, oral or written, with respect
to the Option and the Shares. The terms and conditions of this Agreement shall apply to any future
grants of Common Stock to Participant pursuant to the Plan and the term “Option Grant Date” shall
refer to such subsequent grant date as appropriate. Any such future grants and acceptance thereof
shall be evidenced by the completion, execution and attachment to this Agreement of an additional
Notice of Grant, in substantially the form of the initial Notice of Grant, or as otherwise provided
by the Corporation, which shall be incorporated herein by reference.

20. Notices. Any and all notices provided for herein shall be sufficient if in
writing, and sent by hand delivery or by certified or registered mail (return receipt requested and
first- class postage prepaid), in the case of the Corporation, to its principal office and to the
attention of its General Counsel, and, in the case of Participant, to Participant’s address as
shown on the Corporation’s records.

21. Invalid or Unenforceable Provisions. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any one or more of the provisions
hereof shall not affect the validity and enforceability of the other provisions hereof.
Participant agrees that the breach or alleged breach by the Corporation of (a) any covenant
contained in another agreement (if any) between the Corporation and Participant or (b) any
obligation owed to Participant by the Corporation, shall not affect the validity or enforceability
of the covenants and agreements of Participant set forth herein.

22. Governing Law. This Agreement shall be construed and enforced in accordance
with the substantive laws of the jurisdiction of incorporation of the Corporation excluding
conflicts-of-law principles.

23. Modifications. The Corporation may 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 the Option hereunder without the consent of Participant. The Corporation may waive,
change, or modify any portion of this Agreement from time to time without the consent of
Participant, except to the extent that such waiver, change or modification adversely affects the
rights of Participant, in which case such waiver, change or modification of this Agreement shall,
to such extent, be in writing and signed by the parties hereto. In furtherance and not in
limitation of the foregoing, Participant and the Corporation agree that any waiver, change 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. Participant hereby covenants
and agrees to execute any amendment to this Agreement which shall be required or desirable (in the
opinion of the Corporation or its counsel) in order to comply with any applicable securities law or
rule or any rule or regulation promulgated or proposed under the Code by the Internal Revenue
Service.

24. Terms and Conditions of Plan. The terms and conditions included in the Plan
are incorporated by reference herein, and to the extent that any conflict may exist between any
term or provision of this Agreement and any term or provision of the Plan, such term or provision
of the Plan shall control.

[Signatures Next Page]

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IN WITNESS WHEREOF, the Corporation and Participant have executed this Agreement as of the
Option Grant Date.

	 	 	 	 	 
	CORPORATION:	 	 
	 
	 	 	 	 
	WEBMETHODS, INC., a Delaware corporation	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Authorized Person
	 	 

	 	 	 	 	 
	PARTICIPANT:	 	 
	 
	 	 	 	 
	 	 	 
	Print name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Address:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

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Exhibit 10.3

WEBMETHODS, INC.

DIRECTOR STOCK OPTION AGREEMENT

     THIS DIRECTOR STOCK OPTION AGREEMENT (this “Agreement”) is made as of the «Date_of_Grant» day
of «Month_of_Grant», «Year_of_Grant» by and between (i) WEBMETHODS, INC. (the “Corporation”), a
Delaware corporation, and (ii) «FirstName» «MI» «LastName» (“Participant”), a director of the
Corporation.

     WHEREAS, the Corporation has adopted a 2006 Omnibus Stock Incentive Plan (as amended from time
to time, the “Plan”), a copy of which has been made available to Participant; and

     WHEREAS, the Corporation desires to grant a Nonqualified Stock Option (as defined in the Plan)
to Participant to purchase shares of Common Stock of the Corporation in consideration of the
valuable services to be rendered to the Corporation by Participant pursuant to Participant’s
service on the Corporation’s Board of Directors.

     NOW, THEREFORE, in consideration of the foregoing, of the mutual promises hereinafter set
forth and of other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

     1. Grant of Option.

          A. Subject to vesting as set forth in Section 1B hereof, the Corporation hereby grants to
Participant the right to purchase, during the period specified in Section 2 hereof, «Shares»
(«Number») shares of Incentive Stock (such shares of Incentive Stock being hereinafter referred to
as the “Shares”) at a price of «Exercise_Price» ($«PriceNumber») per Share (the “Exercise Price”),
in accordance with the terms of this Agreement and the Plan (such right being hereinafter referred
to as the “Option”).

          B. The Option shall vest and may be exercised by Participant, subject to the provisions of
Section 2 hereof regarding the duration of the Option, as follows:

	 	(i)	 	one-twelfth (1/12) of the Shares subject to the
Option evidenced by this Agreement may be purchased on and after the
day which is one month after the date of this Agreement, and an
additional one-twelfth (1/12) of the Shares may be purchased on and
after such day of each month subsequent thereto; and
	 
	 	(ii)	 	all of the Shares may be purchased at any time
after the first anniversary of the date of this Agreement.

Notwithstanding any provision of this Agreement to the contrary, unless the Board of Directors of
the Corporation shall otherwise determine, the Option shall not vest any further upon Participant
ceasing to be a director of the Corporation for any reason whatsoever.

 

 

          C. Subject to the provisions of Section 1B, (i) any unvested portion of the Option on the date
of consummation of a Change of Control of the Corporation (as defined herein) shall thereupon vest
and become immediately exercisable; and (ii) Participant may exercise the Option (including any
unvested portion subject to accelerated vesting pursuant to this Section 1C) at any time following
the Corporation’s public announcement of the proposed Change of Control (provided, however, that
consummation of the Change of Control shall be a condition precedent to the effectiveness of any
such exercise).

          D. For purposes of this Agreement, a “Change of Control” of the Corporation shall mean the
earliest to occur of (i) a merger or consolidation to which the Corporation is a party and which
results in, or is effected in connection with, a change in ownership of a majority of the
outstanding shares of voting stock of the Corporation, (ii) any sale or transfer of all or
substantially all of the assets of the Corporation to an unaffiliated third party, or (iii) the
sale by the holders of a majority of the voting stock of the Corporation to an unaffiliated third
party.

     2. Duration of Option. The Option shall be effective during the period commencing as
of the date hereof and ending on the earliest to occur of (a) the date all of the Shares are
purchased pursuant to the terms of this Agreement or (b) the seventh anniversary of the date of
this Agreement at 5:00 p.m.

     3. Exercise of Option.

          A. The Option may be exercised only if compliance with all applicable Federal and state
securities laws can be effected and only by (i) Participant’s completion, execution and delivery to
the Corporation of a notice of exercise and investment letter (in the form prescribed by the
Corporation), and (ii) the payment to the Corporation, as provided in Section 3D hereof, of an
amount equal to the amount obtained by multiplying the Exercise Price by the number of Shares being
purchased pursuant to such exercise, as shall be specified by Participant in such notice of
exercise.

          B. The Option and any of the rights thereunder may be exercised by Participant only, and may
not be transferred or assigned, in whole or in part, without the written consent of the
Corporation.

          C. Payment of the amount determined pursuant to Section 3A hereof shall be made by good check
or in such other manner as shall then be acceptable to, and permitted by, the Board of Directors.

          D. Upon the exercise of the Option by Participant, or as soon thereafter as is practicable,
the Corporation shall issue and deliver to Participant a certificate or certificates evidencing
such number of Shares as Participant has so elected to purchase. Such certificate or certificates
shall be registered in the name of Participant and, if applicable, shall bear an appropriate
investment warranty legend, any legend required by any Federal or state securities law, rule or
regulation and, if applicable, a legend referring to the restrictions provided hereunder and under
the Plan and any legend required by the General Corporation Law of the State of Delaware. Upon the
exercise of the Option and the issuance and delivery of such certificate or

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certificates, Participant shall have all the rights of a stockholder with respect to such
Shares and to receive all dividends or other distributions paid or made with respect thereto;
provided, however, that such Shares shall be subject to the restrictions hereunder.

          E. Upon the request of the Participant, the Board of Directors of the Corporation may, upon
such terms and conditions as it deems appropriate, accept the surrender by Participant of
Participant’s right to exercise the Option, in whole or in part, and authorize a payment in
consideration therefor of an amount equal to the difference obtained by subtracting the Exercise
Price of the Shares which are the subject of such surrendered Option from the fair market value of
the Shares which are the subject of such surrendered Option on the date of such surrender (such
amount not to be less than zero), such payment to be in cash.

     4. Changes in Capital Structure of the Corporation. Subject to any required action by
the stockholders of the Corporation and the provisions of the General Corporation Law of the State
of Delaware, the number of shares of Incentive Stock subject to this Agreement as well as the
Exercise Price of any Shares not yet purchased by Participant shall be proportionately adjusted for
(a) a division or combination of the shares of capital stock of the Corporation, (b) a dividend
payable in shares of capital stock of the Corporation or (c) a reclassification of any shares of
capital stock of the Corporation.

     5. Rights Prior to Exercise. Participant shall have no equity interest in the
Corporation or any voting, dividend, liquidation or dissolution rights with respect to any capital
stock of the Corporation solely by reason of having an Option or having executed this Agreement.
Furthermore, prior to the exercise of all or a portion of the Option, as set forth in Section 3A
hereof, and the issuance and delivery of a certificate or certificates evidencing the Shares
purchased pursuant to the exercise of all or a portion of such Option, Participant shall have no
interest in, or any voting, dividend, liquidation or dissolution rights with respect to, the
Shares, except to the extent that Participant has exercised all or a portion of such Option and has
been issued and received delivery of a certificate or certificates evidencing the Shares purchased
pursuant to such exercise.

     6. General.

          A. This Agreement shall be binding upon, and shall inure to the benefit of, the Corporation
and Participant, and their respective heirs, personal and legal representatives, successors and
assigns.

          B. This Agreement sets forth all of the promises, agreements, conditions, understandings,
warranties and representations between the parties hereto with respect to the Option and the
Shares, and there are no promises, agreements, conditions, understandings, warranties or
representations, oral or written, express or implied, between them with respect to the Option or
the Shares other than as set forth herein. Any and all prior agreements between the parties hereto
with respect to any stock purchase rights or stock option rights regarding the Shares or the Option
are hereby revoked.

          C. Any and all notices provided for herein shall be sufficient if in writing, and sent by hand
delivery or by certified or registered mail (return receipt requested and first-class postage

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prepaid), in the case of the Corporation, to its principal office, and, in the case of
Participant, to Participant’s mailing address as shown on the records of the Corporation.

          D. This Agreement shall be construed and enforced in accordance with the substantive laws of
the State of Delaware, without regard to provisions thereof relating to conflicts of law or choice
of law.

          E. No change or modification of this Agreement shall be valid unless the same is in writing
and signed by the parties hereto.

     IN WITNESS WHEREOF, the Corporation and Participant have executed this Agreement as of the day
and year first above written.

	 	 	 	 	 	 	 
	 	 	CORPORATION:	 	 
	 
	 	 	 	 	 	 
	 	 	WEBMETHODS, INC.,	 	 
	 

	 	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	David Mitchell, Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	PARTICIPANT:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	«FirstName» «MI» «LastName»	 	 

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