Document:

<PAGE>   1
                                                                    EXHIBIT 10.5

                                  VERITY, INC.

                      1996 NONSTATUTORY STOCK OPTION PLAN

                     (AS AMENDED THROUGH DECEMBER 4, 2000)

        1.      ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

                1.1     ESTABLISHMENT. The Verity, Inc. 1996 Nonstatutory Stock
Option Plan (the "PLAN") is hereby established effective as of February 6, 1996
(the "EFFECTIVE DATE").

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

                1.3     TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed.

        2.      DEFINITIONS AND CONSTRUCTION.

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

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

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

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

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

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

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

                                       1.

<PAGE>   2
          (g)  "EMPLOYEE" means any person treated as an employee (including an
officer or a Director who is also treated as an employee) in the records of a
Participating Company; provided, however, that neither service as a Director
nor payment of a director's fee shall be sufficient to constitute employment
for purposes of the Plan.

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

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

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

          (k)  "OPTION" means a right to purchase Stock (subject to adjustment
as provided in Section 4.2) pursuant to the terms and conditions of the Plan.
Options are intended to be nonstatutory stock options and shall not be
treated as incentive stock options within the meaning of Section 422(b) of the
Code.

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

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

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

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

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

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

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

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

                                       2.

<PAGE>   3
     3.   ADMINISTRATION.

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

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

               (a)  to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;

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

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

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

               (e)  to amend, modify, extend, or renew, or grant a new Option
in substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;

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

               (g)  to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to

                                       3
<PAGE>   4
accommodate the tax policy or custom of, foreign jurisdictions whose citizens
may be granted Options; and

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

     4.   SHARES SUBJECT TO PLAN.

          4.1  MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be twelve million seven hundred thousand
(12,700,000) (after giving effect to the Company's 2:1 stock split of December
3, 1999) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled or shares of Stock acquired, subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option, or such
repurchased shares of Stock, shall again be available for issuance under the
Plan.

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

     5.   ELIGIBILITY. Options may be granted only to Employees and
Consultants; provided, however, that no Insider may be granted an Option
pursuant to the Plan. For purposes of the foregoing sentence: (A) "Employees"
shall include prospective Employees to whom Options are granted in connection
with written offers of employment with the Participating Company Group; (B)
"Consultants" shall include prospective Consultants to whom Options are granted
in connection with written offers of engagement with the Participating Company
Group; and (C) an Employee or prospective Employee shall not be considered an
"Insider" with respect to an Option granted as an essential inducement for such
person to become an Employee. Eligible persons may, be granted more than one
(1) Option.

                                       4.
<PAGE>   5
        6.      TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:

                6.1     EXERCISE PRICE. The exercise price for each Option
shall be established in the sole discretion of the Board; provided, however,
that the exercise price per share for an Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of a share of Stock on the
effective date of grant of the Option. Notwithstanding the foregoing, an Option
may be granted with an exercise price lower than the minimum exercise price set
forth above if such Option is granted pursuant to an assumption or substitution
for another option in a manner qualifying under the provisions of Section
424(a) of the Code.

                6.2     EXERCISE PERIOD. Options shall be exercisable at such
time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria, and restrictions as shall be determined by the
Board and set forth in the Option Agreement evidencing such Option; provided,
however, that no Option granted to a prospective Employee or prospective
Consultant may become exercisable prior to the date on which such person
commences service with a Participating Company.

                6.3     PAYMENT OF EXERCISE PRICE.

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

                        (b)     TENDER OF STOCK. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised
by tender to the Company of shares of Stock unless such shares either have been

                                       5.
<PAGE>   6
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.

               (c)  CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.

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

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

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

     7.   STANDARD FORM OF OPTION AGREEMENT.

                                       6.
<PAGE>   7
          7.1  GENERAL. Unless otherwise provided by the Board at the time the
Option is granted, an Option shall comply with and be subject to the terms and
conditions set forth in the form of Immediately Exercisable Nonstatutory Stock
Option Agreement adopted by the Board concurrently with its adoption of the
Plan and as amended from time to time.

          7.2  STANDARD TERM OF OPTIONS. Except as otherwise provided by the
Board in the grant of an Option, any Option granted hereunder shall have a term
of ten (10) years from the effective date of grant of the Option.

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

     8.  TRANSFER OF CONTROL.

          8.1  DEFINITIONS.

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

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

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

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

                    (iv) a liquidation or dissolution of the Company.

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

                                       7.
<PAGE>   8
Company or multiple Ownership Change Events are related, and its determination
shall be final, binding and conclusive.

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

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

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

     11.  INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for
gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or

                                       8.
<PAGE>   9
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.

     12.  TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion
thereof, without the consent of the Optionee, unless such termination or
amendment is necessary to comply with any applicable law or government
regulation.

                                       9.
<PAGE>   10
                                    ADDENDUM
                                  Verity, Inc.

                1996 Nonstatutory Stock Option Plan ("the Plan")

        Additional Terms and Conditions for Employees resident of France

The additional terms and conditions detailed below are to be read in conjunction
with the rules of the Plan. Defined terms are to have the same meaning as that
stated in the rules of the Plan. These additional terms and conditions are
specific to Employees who are resident in the Republic of France only and do not
affect the rights afforded to other Employees who are granted Options under the
Plan.

1.   Notwithstanding any other provision of the Plan, Options may only be
     granted to Employees having a work contract with a Participating Company.

2.   An Option granted to any participant who, at the time of grant, holds
     shares representing 10% or more of the share capital of any Participating
     Company will not be deemed to have been granted pursuant to this Addendum.

3.   Notwithstanding any other provision of the Plan, an Option will generally
     only be exercisable after the expiration of the holding period mentioned
     under article 163 bis C 1 of the tax code of the Republic of France, except
     as otherwise decided at the sole discretion of the Board of Committee.

4.   Notwithstanding any other provision of the Plan, the exercise price shall
     only be adjusted upon the occurrence of the events specified under July 24,
     1966 corporate law (section 208-5) in accordance with the laws of the
     Republic of France.

5.   Notwithstanding any other provision of the Plan, in the event of the
     Optionee's death, the period during which the legal heirs (pursuant to a
     transfer on death permitted under the laws of the Republic of France) are
     entitled to exercise that Optionee's Option (or Options) is the lesser of:
     (i) six months following that Optionee's death, and (ii) the expiration of
     the term of such Option as set forth in the Option Agreement.

6.   The total number of Options granted and remaining unexercised (outstanding
     options) will never cover a number of shares exceeding one-third of the
     share capital of Verity, Inc.

7.   The per share exercise price of an Option granted pursuant to this addendum
     shall be no less than the higher of: (i) ninety-five percent (95%) of the
     average closing sales price for a share of such stock (or the closing bid,
     if no sales were reported) as quoted on such exchange or market (or the
     exchange or market with the greatest volume of trading in the Company's
     common stock) for the twenty (20) market trading days immediately preceding
     the day of determination, as reported in The Wall Street Journal or such
     other source as the Board deems reliable: or (ii) one hundred percent
     (100%) of the Fair Market Value of the stock.
<PAGE>   11

8.   The terms herein shall be interpreted to qualify Options granted pursuant
     to this addendum for the favorable tax and social security treatment
     applicable to stock options granted under sections L 208-1 up to L 208-8-2
     of the Law n(o) 66-537 of July 24, 1966, and in accordance with the
     relevant provisions set forth by the tax and social security laws, as well
     as the tax and social security regulations of the Republic of France.

9.   Except as required by the tax and social security laws and regulations of
     the Republic of France, the Plan (including this addendum and Options
     granted hereunder) shall be governed and construed in accordance with the
     laws of the State of California and the United States of America.

                                      11.

<PAGE>   12
     IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Verity, Inc. 1996 Nonstatutory Stock Option Plan was duly
adopted by the Board on February 6, 1996 and last amended by the Board on
December 4, 2000, to increase the number of shares reserved for issuance
hereunder.

                                                   -----------------------------

                                      12.
<PAGE>   13
                                  PLAN HISTORY

02/06/96       Board adopts Plan, with an initial reserve of 300,000 shares.

04/24/97       Board increases share reserve to 600,000 shares.

10/31/97       Board increases share reserve to 1,060,000 shares.

03/02/98       Board increases share reserve to 1,860,000 shares.

05/25/99       Board increases share reserve to 2,860,000 shares.

10/15/99       Board increases share reserve to 4,210,000 shares.

12/3/99        2:1 stock split increases share reserve to 8,420,000 shares.

6/15/2000      Board increases share reserve to 10,420,000 shares.

10/30/2000     Board amends Plan to add French Addendum, also (1) amends all
               forms of option agreement to permit exercise more frequently
               than twice a year, (2) adopts standard form of option agreement
               for use with French Addendum, and (3) adopts standard form of
               option agreement not permitting immediate exercise for use with
               stock option grants to non-exempt employees.

12/04/2000     Board increases share reserve to 12,700,000 shares.

                                      13.<PAGE>   1
                                                                    EXHIBIT 10.6

                                  VERITY, INC.

             1997 NONSTATUTORY STOCK OPTION PLAN FOR VERITY CANADA

                     (AS AMENDED THROUGH DECEMBER 4, 2000)

     1.  ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

         1.1  ESTABLISHMENT. The Verity, Inc. 1997 Nonstatutory Stock Option
Plan for Verity Canada (the "Plan") is hereby established effective as of
May 23, 1997.

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

         1.3  TERM OF PLAN. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed.

     2.  DEFINITIONS AND CONSTRUCTION.

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

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

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

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

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

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

                                       1.

<PAGE>   2
          (f) "DIRECTOR" means a member of the Board.

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

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

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

              (i) If, on such date, there is a public market for the Stock, the
Fair Market Value of a share of Stock shall be the closing sale price of a share
of Stock (or the mean of the closing bid and asked prices of a share of stock if
the Stock is so quoted instead) as quoted on the Nasdaq National Market, the
Nasdaq Small-Cap Market or such other national or regional securities exchange
or market system constituting the primary market for the Stock, as reported in
the Wall Street Journal or such other source as the Company deems reliable. If
the relevant date does not fall on a day on which the Stock has traded on such
securities exchange or market system, the date on which the Fair Market Value
shall be established shall be the last day on which the Stock was so traded
prior to the relevant date, or such other appropriate day as shall be determined
by the Board, in its sole discretion.

              (ii) If, on such date, there is no public market for the Stock,
the Fair Market Value of a share of Stock shall be as determined by the Board
without regard to any restriction other than a restriction which, by its terms,
will never lapse.

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

          (k) "OPTION" means a right to purchase Stock (subject to adjustment as
provided in Section 4.2) pursuant to the terms and conditions of the Plan.
Options are intended to be nonstatutory stock options and shall not be treated
as incentive stock options within the meanings of Section 422(b) of the Code.

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

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

          (n) "PARTICIPATING COMPANY" means Verity Canada or any other
Subsidiary Corporation that the Board may designate from time to time as a
Participating Company and any successor corporation thereto.

                                       2.
<PAGE>   3
               (o)  "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all corporations collectively which are then Participating
Companies.

               (p)  "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.

               (q)  "SUBSIDIARY CORPORATION" means any corporation, other than
the Company, in an unbroken chain of corporations beginning with the Company if
each of the corporations, other than the last corporation in the unbroken
chain, owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.

               (r)  "VERITY CANADA" means 14943 Yukon Inc., a Yukon
corporation, or any successor corporation thereto.

          2.2  CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context
clearly requires otherwise.

     3.   ADMINISTRATION.

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

          3.2  ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if
any, of Rule 16b-3 under the Exchange Act, as amended from time to time, or any
successor rule or regulation.

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

               (a)  to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;

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

                                       3.
<PAGE>   4
               (c)  to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Participating Company Group on any of the foregoing, and (vii) all
other terms, conditions and restrictions applicable to the Option or such shares
not inconsistent with the terms of the Plan;

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

               (e)  to amend, modify, extend, or renew, or grant a new Option
in substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;

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

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

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

     4.   SHARES SUBJECT TO PLAN.

          4.1  MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one million nine hundred eighty thousand
(1,980,000) and shall consist of authorized but unissued or reacquired shares
of Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled or shares of Stock acquired, subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option, or such
repurchased shares of Stock, shall again be available for issuance under the
Plan.

          4.2  ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the

                                       4.
<PAGE>   5
number and class of shares subject to the Plan and to any outstanding Options,
and in the exercise price per share of any outstanding Options. If a majority of
the shares which are of the same class as the shares that are subject to
outstanding Options are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event, as defined in Section
8.1) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price pre share of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.

     5.   ELIGIBILITY. Options may be granted only to Employees and
Consultants; provided, however, that no Option may be granted to any person
whose eligibility to participate in the Plan would require approval of the Plan
by the stockholders of the Company under any law or regulation or the
requirements of any stock exchange or market system upon which the Stock may
then be listed. For purposes of the foregoing sentence, "Employees" and
"Consultants" shall include prospective Employees and prospective Consultants
to whom Options are granted in connection with written offers of employment or
other service relationship with a Participating Company. Eligible persons may
be granted more than one (1) Option.

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

          6.1  EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that the
exercise price per share for an Option shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option.

          6.2  EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that no Option granted to a prospective Employee or prospective Consultant may
become exercisable prior to the date on which such person commences service
with a Participating Company.

          6.3  PAYMENT OF EXERCISE PRICE.

               (a)  FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased

                                       5.
<PAGE>   6
pursuant to any Option shall be made (i) in cash, by check, or cash equivalent,
(ii) by tender to the Company of shares of Stock owned by the Optionee having a
Fair Market Value (as determined by the Company without regard to any
restrictions on transferability applicable to such stock by reason of United
States federal or state securities laws, laws of other jurisdictions, or
agreements with an underwriter for the Company) not less than the exercise
price, (iii) by the assignment of the proceeds of a sale or loan with respect to
some or all of the shares being acquired upon the exercise of the Option
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the United States Federal Reserve System) (a "CASHLESS EXERCISE"),
(iv) by the Optionee's promissory note in a form approved by the Company, (v) by
such other consideration as may be approved by the Board from time to time to
the extent permitted by applicable law, or (vi) by any combination thereof. The
Board may at any time or from time to time, by adoption of or by amendment to
the standard form of Option Agreement described in Section 7, or by other means,
grant Options which do not permit all of the foregoing forms of consideration to
be used in payment of the exercise price or which otherwise restrict one or more
forms of consideration. The Company may establish, from time to time, an
exchange ratio applicable to amounts paid in a currency other than United States
dollars.

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

               (c)  CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.

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

          6.4  TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market

                                       6.
<PAGE>   7
Value, as determined by the Company, equal to all or any part of the United
States federal, state and local taxes, if any, and taxes of other jurisdictions,
if any, required by law to be withheld by the Participating Company Group with
respect to such Option or the shares acquired upon the exercise thereof.
Alternatively or in addition, in its sole discretion, the Company shall have the
right to require the Optionee, through payroll withholding, cash payment or
otherwise, including by means of a Cashless Exercise, to make adequate provision
for any such tax withholding obligations of the Participating Company Group
arising in connection with the Option or the shares acquired upon the exercise
thereof. The Company shall have no obligation to deliver shares of Stock or to
release shares of Stock from an escrow established pursuant to the Option
Agreement until the Participating Company Group's tax withholding obligations
have been satisfied by the Optionee.

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

        7.      STANDARD FORM OF OPTION AGREEMENT.

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

                7.2     STANDARD TERM OF OPTIONS. Except as otherwise provided
by the Board in the grant of an Option, any Option granted hereunder shall have
a term of ten (10) years from the effective date of grant of the Option.

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

        8.      TRANSFER OF CONTROL.

                8.8     DEFINITIONS.

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

                                       7.

<PAGE>   8
               (i)   the direct or indirect sale or exchange in a single or
series of relate transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;

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

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

               (iv)   a liquidation or dissolution of the Company.

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

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

                                       8.

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

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

     11. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for
gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.

     12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the
Plan at any time. However, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion
thereof, without the consent of the Optionee, unless such termination or
amendment is necessary to comply with any applicable law or government
regulation.

     IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Verity, Inc. 1997 Nonstatutory Stock Option Plan for Verity
Canada was duly adopted by the Board on May 23, 1997 and last amended on
December 4, 2000.

                                                 ------------------------------

                                       9.

<PAGE>   10

                                  PLAN HISTORY

<TABLE>
<S>                 <C>
05/23/1997          Plan established with a share reserve of 190,000

__/__/____          Date of increase of share reserve by 200,000 to _______

__/__/____          Date of increase of share reserve by 350,000 to _______

12/03/1999          Date of 2:1 stock split increasing reserve to 1,480,000

06/15/2000          Date of increase of share reserve by 500,000 to 1,980,000

12/04/2000          Date of increase of share reserve by 270,000 to 2,250,000

</TABLE>

                                      10.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00023-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00023-of-00352.parquet"}]]