Document:

exv10w1

 

Exhibit 10.1

WEBMETHODS, INC.

2006 OMNIBUS STOCK INCENTIVE PLAN

RESTRICTED STOCK AWARD AGREEMENT

     This Restricted Stock Award Agreement (this “Agreement”) is between                     (the
“Employee”) and webMethods, Inc., a Delaware corporation (the “Corporation”). This Agreement
governs an award made to Employee pursuant to the Corporation’s 2006 Omnibus Stock Incentive Plan
(the “Plan”). The Corporation and Employee agree as follows:

     1. Grant. Effective as of                      (the “Grant Date”), the Compensation
Committee of the Board of Directors of the Corporation awarded the
Employee                      shares of
the Corporation’s Common Stock subject to the vesting and other restrictions provided in this
Agreement (the “Restricted Stock”). Except as may otherwise be required by law, no payment by the
Employee is required for the Restricted Stock. Shares of Restricted Stock may not be sold,
pledged, assigned, transferred, or otherwise encumbered or disposed of for any reason until vesting
restrictions on such shares are removed in accordance with this Agreement. Any attempt to dispose
of unvested shares of Restricted Stock or any interest in such shares in a manner contrary to the
restrictions set forth in this Agreement shall be void and of no effect.

     2. Vesting Generally. The award will vest in four (4) equal annual installments of
twenty-five percent (25%) of the shares covered by the award beginning on the first annual
anniversary of the Grant Date and subsequently on the second, third and fourth annual anniversary
of the Grant Date. Each installment shall vest and thereby all vesting restrictions shall be
removed on the installment so long as the Employee has remained employed by the Corporation or a
Subsidiary (as defined in the Plan) through the day on which the installment is scheduled to vest.
Except as provided in Section 3 below, shares of Restricted Stock which have not vested as of such
date of termination shall be forfeited and returned to the Corporation upon such termination.

     3. Vesting Following Change of Control. For purposes of this Agreement, a “Change of
Control” shall be deemed to have occurred if (A) any person (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is or becomes
the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing fifty percent (50%) or more of the combined voting
power of the Corporation’s then outstanding securities, (B) during any period of two (2)
consecutive years during the term of this Agreement, individuals who at the beginning of such
period constitute the Board of Directors of the Corporation cease for any reason to constitute at
least a majority thereof, unless the election of each director who was not a director at the
beginning of such period has been approved in advance by directors representing at least two-thirds
of the directors then in office who were directors at the beginning of the period, (C) the
shareholders of the Corporation approve a merger or consolidation involving the Corporation that
would result in a change of ownership of a majority of the outstanding shares of capital stock of
the Corporation or its successor, or (D) the shareholders 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 the Corporation’s assets. Notwithstanding any other provision of this
Agreement to the contrary, any unvested portion of the Restricted Stock shall thereupon vest if,
within one (1) year after a Change of Control of the Corporation, there is (i) a termination of
Employee’s employment by the Corporation or a Subsidiary or Parent other than for Cause (as defined
below) or (ii) a voluntary termination by Employee of Employee’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) Employee’s conviction of a felony, or any other
crime involving moral turpitude, or (iii) a violation of a written agreement between Employee and
the Corporation or a Subsidiary or Parent, including but not limited to Sections 6, 7, 8, 9, or 10
of Employee’s stock option agreement with the Corporation, 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 Employee’s base salary, (ii) a material reduction in
Employee’s duties without Employee’s consent, or (iii) a relocation of Employee’s regular place of
work to any location outside a thirty (30) mile radius of the location from which Employee served
the Corporation or a Subsidiary or Parent thirty (30) days prior to the date of such Change of
Control of the Corporation without Employee’s consent.

 

 

     4. Stock Certificates and Restrictions. Subject to the provisions of this Section 4,
the full number of shares of Restricted Stock have been or shall promptly be deposited in an
account for the Employee at the Corporation’s transfer agent. The Corporation reserves the right
at its sole discretion to change the financial institution or agent in which the shares are
deposited or the certificates for shares are held. These shares are nontransferable and are
otherwise subject to the Plan and this Agreement until the vesting restrictions are removed or the
shares are returned to the Corporation. The Corporation may place such legends on any certificates
for Restricted Stock as it deems appropriate, including a legend (“Restrictive Legend”) in
substantially the following form:

The ownership and transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including forfeiture) of
the webMethods, Inc. 2006 Omnibus Stock Incentive Plan (the “Plan”) and a Restricted
Stock Award Agreement (the “Agreement”) entered into between the registered owner
and webMethods, Inc. Copies of such Plan and Agreement are on file in the executive
offices of webMethods, Inc.

In addition, the stock certificate or certificates for the Restricted Stock shall be subject to
such stop-transfer orders and other restrictions as the Corporation may deem advisable under the
rules, regulations, and other requirements of the Securities and Exchange Commission, any stock
exchange or securities association upon which the Common Stock of the Corporation is then listed,
and any applicable federal or state securities law. The Employee has the right to vote the full
number of shares and to receive any declared dividends or other distributions associated with the
shares. On or before the issuance of the certificate or certificates representing the Restricted
Stock, the Employee shall deliver to the Corporation stock powers endorsed in blank relating to the
Restricted Stock, in a form provided by the Corporation. Employee hereby irrevocably appoints the
Corporation and each of its officers, employees and agents as his true and lawful attorneys with
power (i) to sign in Employee’s name and on Employee’s behalf stock certificates and stock powers
covering the Restricted Stock and such other documents and instruments as the Corporation deems
necessary or desirable to carry out the terms of this Agreement and (ii) to take such other action
as the Corporation deems necessary or desirable to effectuate the terms of this Agreement. This
power, being coupled with an interest, is irrevocable. As soon as administratively practicable
following the applicable vesting date of the Restricted Stock, and upon the satisfaction of all
other applicable conditions as to such vested percentage of Restricted Stock, including, but not
limited to, the payment by the Employee of all applicable withholding taxes, the Corporation shall
deliver or cause to be delivered to the Employee a certificate or certificates for the applicable
shares of Restricted Stock which shall not bear the Restrictive Legend.

     5. Corporate Event. In the event of the declaration of a stock dividend, the
declaration of an extraordinary dividend payable in a form other than stock, a spin-off, a stock
split, a recapitalization, a merger or a similar transaction affecting the Corporation’s
outstanding securities without receipt of consideration, any new, substituted or additional
securities or other property (including money paid other than as an ordinary cash dividend) which
are distributed to the Employee with respect to shares of Restricted Stock which have not already
vested shall immediately be subject to the vesting and other restrictions of this Agreement to the
same extent as the shares of Restricted Stock to which such distributed property relates.

     6. Taxation. Employee acknowledges that Section 83(a) of the Internal Revenue Code of
1986, as amended (the “Code”), taxes as ordinary compensation income the fair market value of
shares of Restricted Stock on the date as of which Employee’s rights to retain each such share of
Restricted Stock vests. Thus, shares of Restricted Stock will vest and be taxable in increments on
the four annual anniversary dates of such transfer. Accelerated vesting of the Restricted Stock
will also accelerate the date of taxation. Employee acknowledges that Employee may elect to be
taxed on the fair market value of some or all of the Restricted Stock at the time such shares are
transferred to Employee, rather than at those times when Employee’s right to retain the Restricted
Stock vest, by filing an election under Section 83(b) of the Code (a “Section 83(b) Election”) with
the Internal Revenue Service within 30 days from the date of the transfer of the Restricted Stock
to Employee. Employee acknowledges that failure to file such an election in a timely manner
results in the inability to file such election. Employee further acknowledges that an additional
copy of such election form should be filed with Employee’s federal income tax return for the
calendar year to which such election applies. Employee acknowledges and agrees that the foregoing
is only a summary of the effects of United States federal income taxation with respect to the
Restricted Stock and does not purport to be complete. Employee further acknowledges and agrees
that the Corporation has directed Employee to seek independent professional advice regarding the
tax consequences of receipt of the Restricted Stock under

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federal, state and local law. Employee acknowledges and agrees that if the Employee decides
to file a Section 83(b) Election it is Employee’s sole responsibility, and not the Corporation’s or
its affiliate’s, to file a timely election, even if Employee requests the Corporation, its
affiliate or its representatives to make the filing on Employee’s behalf.

     7. Withholding Taxes. Employee acknowledges that upon occurrence of the taxable event
with respect to the Restricted Stock, Employee will be responsible for payment of taxes due. The
Corporation shall have the power and the right to deduct or withhold, or require the Employee to
remit to the Corporation, an amount sufficient to satisfy federal, state, and local taxes
(including the Employee’s FICA obligation), domestic or foreign, required by law to be withheld
with respect to any exercise of the Employee’s rights under this Agreement as well as upon the
vesting of the Restricted Stock. Unless the Employee has made alternative arrangements acceptable
to the Corporation, the Employee may, in the Corporation’s sole discretion, pay applicable minimum
required withholding taxes due by having the Corporation withhold shares that would otherwise be
released from vesting restrictions, in which case such withheld shares shall be transferred back to
the Corporation. The Corporation shall be authorized, in its sole discretion, to establish such
rules and procedures relating to the use of shares of Common Stock of the Corporation to satisfy
tax withholding obligations as it deems necessary or appropriate to facilitate and promote the
conformity of the Employee’s transactions under the Plan and this Agreement with Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, if such Rule is applicable to a transaction by the
Employee.

     8. Construction of “Employee”. Wherever the word “Employee” is used in any provision
of this Agreement under circumstances where the provision should logically be construed to apply to
the executors, the administrators, or the person or persons to whom the Restricted Stock may be
transferred by will or the laws of descent and distribution, the word “Employee” shall be deemed to
include such person or persons.

     9. Entire Agreement; Amendment. This Agreement represents the full and complete
understanding between Employee and the Corporation with respect to the subject matter hereof. 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 Restricted Stock hereunder
without the consent of Employee. The Corporation may waive, change, or modify any portion of this
Agreement from time to time without the consent of Employee, including, without limitation, as the
Corporation shall deem necessary or advisable in order to comply with Section 409A of the Code;
provided, however, that to the extent that any such waiver, change or modification
adversely affects the rights of Employee, such waiver, change or modification of this Agreement
shall, to such extent, be in writing and executed by the parties hereto.

     10. 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.

     11. Choice of Law. This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the State of Delaware without regard to its conflict of law principles.

     12. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of both parties and their respective successors and assigns, including any entity with
which or into which the Corporation may be merged or which may succeed to its assets or business or
any entity to which the Corporation may assign its rights and obligations under this Agreement.

     13. Employment of Employee. 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 Employee, nor shall this Agreement affect in any way the right
of the Corporation to terminate the employment of Employee, at any time and for any reason. By
Employee’s execution of this Agreement, Employee acknowledges and agrees that Employee’s employment
is “at will.” No change of Employee’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.

     14. 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

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validity and enforceability of the other provisions hereof. Employee agrees that the breach
or alleged breach by the Corporation of (a) any covenant contained in another agreement (if any)
between the Corporation and Employee or (b) any obligation owed to Employee by the Corporation,
shall not affect the validity or enforceability of the covenants and agreements of Employee set
forth herein.

     15. 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) or by reputable overnight courier service, in the case of the
Corporation, to its principal office and to the attention of its General Counsel, and, in the case
of Employee, to Employee’s address as shown on the Corporation’s records.

     16. Further Assurances. Employee agrees, upon demand of the Corporation, to do all
acts and execute, deliver and perform all additional documents, instruments and agreements
(including, without limitation, stock powers with respect to shares of common stock of the
Corporation issued as a dividend or distribution on Restricted Stock) which may be reasonably
required by the Corporation, to implement the provisions and purposes of this Agreement and the
Plan.

     17. 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.

-o0o-

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the
Grant Date.

	 	 	 	 	 	 	 
	 	 	WEBMETHODS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	EMPLOYEE	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 

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Exhibit 10.2

EXECUTIVE AGREEMENT

     THIS EXECUTIVE AGREEMENT (this “Agreement”) is made effective as of the 2nd day of January
2007, by and between webMethods, Inc., a Delaware corporation (the “Company”), and Kenneth A.
Sexton (the “Executive”).

     WHEREAS, the Executive is presently employed by the Company;

     WHEREAS, the Board of Directors of the Company (the “Board”) recognizes that the Executive’s
contribution to the growth and success of the Company has been and continues to be substantial;

     WHEREAS, the Board desires to provide for certain arrangements in the event that the
Executive’s employment with the Company is terminated under certain circumstances; and

     WHEREAS, the Company and the Executive desire to enter into this Agreement on the terms and
conditions set forth below.

     NOW, THEREFORE, in consideration of the promises and the respective covenants and agreements
of the parties herein contained, and of the continued employment of the Executive by the Company,
the parties hereto, intending to be legally bound, do hereby agree as follows:

     1. Definitions. For purposes of this Agreement:

          (a) “Cause” shall mean the Executive’s (i) theft, fraud, material dishonesty or gross
negligence in the conduct of the Company’s business, (ii) continuing neglect of the Executive’s
duties and responsibilities that has a material adverse effect on the Company (which neglect is not
cured within fifteen (15) days after receipt of written notice by the Executive specifying the
particulars of such neglect), or (iii) conviction of a felony (not involving an automobile). For
purposes of this Agreement, any purported termination of the Executive’s employment shall be
presumed to be other than for Cause, unless the Notice of Termination includes a copy of a
resolution duly adopted by the Board which finds Cause to exist and specifies the particulars
thereof in detail.

          (b) “Good Reason” shall mean (i) a decrease in the Executive’s base salary, maximum bonus or
incentive compensation amount for which the Executive is eligible to be awarded pursuant to any
bonus or incentive compensation plan, or aggregate allowance for reimbursable commuting costs
submitted in accordance with the Company’s standard travel policies (or other mutually agreeable
arrangement), in each case as established by Employer on the date hereof, or (ii) a material
reduction or material adverse change in the Executive’s authorities, duties or job responsibilities
(which material reduction or material adverse change is not cured within fifteen (15) days after
written notice by the Executive specifying the particulars of such reduction or change in such
authorities, duties or job responsibilities, the notice of which is given to the Company within
fifteen (15) days of such reduction or change).

 

 

          (c) A “Change in Control” shall be deemed to have occurred if (A) any person (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty percent (50%) or more of
the combined voting power of the Company’s then outstanding securities, (B) during any period of
two (2) consecutive years during the term of this Agreement, individuals who at the beginning of
such period constitute the Board cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of such period has
been approved in advance by directors representing at least two-thirds of the directors then in
office who were directors at the beginning of the period, (C) the shareholders of the Company
approve a merger or consolidation involving the Company that would result in a change of ownership
of a majority of the outstanding shares of capital stock of the Company or its successor, or (D)
the shareholders of the Company approve a plan of liquidation or dissolution of the Company or the
sale or disposition by the Company of all or substantially all the Company’s assets.

          (d) The “Date of Termination” with respect to any termination of the Executive’s employment
means the date specified as such in the Notice of Termination. In the case of termination of the
Executive’s employment (i) by the Company for Cause or (ii) by the Executive for any reason, the
Date of Termination shall be a date not less than seven (7) days from the date the Notice of
Termination is given. In the case of termination of the Executive’s employment by the Company
without Cause, the Date of Termination shall be a date not less than thirty (30) days from the date
the Notice of Termination is given.

          (e) “Notice of Termination” means a written notice of termination of employment by the
terminating party, which notice shall specify a Date of Termination and the particular facts and
circumstances of such termination, including the existence of Cause or Good Reason.

     2. Termination of Employment.

          (a) The Executive’s employment may be terminated at any time by the Company, with or without
Cause, by delivery of a Notice of Termination to the Executive. The Executive’s employment may be
terminated at any time by the Executive, without Good Reason, by delivery of a Notice of
Termination to the Company. The Executive’s employment may be terminated by the Executive for Good
Reason, by delivery of a Notice of Termination to the Company within thirty (30) days of the later
of occurrence of the event constituting Good Reason or the termination of the Corporation’s cure
period, if any, with respect to the event constituting Good Reason.

          (b) In the event the Company terminates the Executive’s employment without Cause, or in the
event the Executive terminates the Executive’s employment for Good Reason, then the Company shall,
subject to Section 7 hereof, pay the Executive’s base salary through the date of such termination
and shall continue to pay to the Executive the Executive’s monthly base salary, and shall
administer and pay for the Executive’s life, disability, accident and health insurance benefits
substantially similar to those which Executive is receiving immediately prior to the Notice of
Termination, until the first anniversary of the Date of Termination; provided,

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however, that the Company’s obligations under this Section 2(b) shall cease upon the
Executive’s commencement of full-time employment with another employer. In addition, in the event
the Company terminates the Executive’s employment without Cause, then the Company shall, subject to
Section 7 hereof, pay the Executive an amount equal to the maximum bonus or incentive compensation
amount for which the Executive is eligible to be awarded pursuant to any bonus or incentive
compensation plan, calculated based upon the bonus period in which the Date of Termination occurs
and pro rated to the extent that such bonus period does not reflect a twelve (12) month period.
Notwithstanding the foregoing, (i) the Company’s obligations under this Section 2(b), if any, shall
be contingent upon the Executive executing a general release of all claims in favor of the Company,
and its officers, directors and affiliates, in a form provided by the Company, and (ii) in the
event Executive’s termination of employment falls within one (1) year after the consummation of a
Change in Control, the Company shall have no obligation under this Section 2(b).

          (c) If there is a Change in Control of the Company or there has been a public announcement of
a Change in Control of the Company (provided, however, that consummation of the
Change in Control of the Company shall be a condition precedent to the effectiveness of this
provision) and at any time within one (1) year after the consummation of a Change in Control (i)
the Company terminates the Executive’s employment without Cause, or (ii) the Executive terminates
the Executive’s employment for Good Reason, then the Company (x) shall pay the Executive’s base
salary through the Date of Termination, (y) shall pay to the Executive, in a lump sum in cash
within ten (10) business days after the Date of Termination, an amount equal to one and one half (1
1/2) times the sum of (A) the Executive’s base salary in effect immediately prior to the occurrence
of the circumstance giving rise to the Notice of Termination given in respect thereof and (B) the
maximum bonus or incentive compensation amount for which the Executive is eligible to be awarded
pursuant to any bonus or incentive compensation plan, calculated based upon the bonus period in
which the Date of Termination occurs and annualized to the extent that such bonus period does not
reflect a twelve (12) month period and (C) for an eighteen (18) month period after the Date of
Termination, the Company shall administer and pay for the Executive’s life, disability, accident
and health insurance benefits substantially similar to those which Executive is receiving
immediately prior to the Notice of Termination. The Company’s obligations under this Section 2(c),
if any, shall be contingent upon the Executive executing a general release of all claims in favor
of the Company, and its officers, directors and affiliates, in a form provided by the Company

          (d) In the event of the death of the Executive, this Agreement shall terminate, and shall be
of no further force or effect; provided, however, that notwithstanding the
foregoing, the death of the Executive shall not in any way affect any payment obligations of the
Company pursuant to Section 2(b) or Section 2(c) hereof which exist at the time of such death.

     3. Successors; Binding Agreement. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
If the Executive should die while any amounts would still be payable to the Executive hereunder if
the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other
designee or, if there be no such designee, to the Executive’s estate.

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     4. Notice. For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be deemed to have been
duly given when delivered by hand delivery or via reputable overnight delivery service, or (unless
otherwise specified) mailed by United States registered mail, return receipt requested, postage
prepaid, addressed, if to the Executive, to the Executive’s home address as it appears on the
records of the Company, and if to the Company, to the Company’s executive headquarters, or to such
other address as either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.

     5. Prior Agreement. All prior agreements between the Company and the Executive with
respect to the subject matter hereof (except for stock option agreements), are hereby superseded
and terminated effective as of the date hereof and shall be without further force or effect. This
Agreement is intended to be, and shall be, a complete integration of all prior agreements and
discussions between the Company and the Executive with respect to the subject matter hereof (except
as set forth in stock option agreements between the Company and the Executive).

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

     7. Gross-Up for Excess Parachute Payments. In the event of a Change in Control, or
other event constituting a change in the ownership or effective control of the Company or ownership
of a substantial portion of the assets of the Company described in Section 280G(b)(2)(A)(i) of the
United States Internal Revenue Code of 1986, as amended (the “Code”), the Company, at its sole
expense, shall cause its independent auditors promptly to review all payments, accelerations,
distributions and benefits that have been made to or provided to, and are to be made, or may be
made, to or provided to, the Executive under this Agreement, and any other agreement or plan
benefiting the Executive (collectively the “Original Payments”), to determine the applicability of
Section 4999 of the Code to the Executive in connection with such event (other than under this
Section 7). If the Company’s independent auditors determine that the Original Payments are subject
to excise taxes under Section 4999 of the Code (the “Excise Tax”), then an additional amount shall
be paid to the Executive (the “Gross-Up Amount”) such that the net proceeds of the Gross-Up Amount
to the Executive, after deduction of the Excise Tax (including interest and penalties) and any
federal, state and local income taxes and employment taxes (including interest and penalties) but
before deduction of any interest or additional tax under Sections 409A(a)(1)(B) or 409A(b)(5) of
the Code (and any penalties related to such interest or additional taxes) (the “409A Taxes”) upon
the Gross-Up Amount, shall be equal to the Excise Tax on the Original Payments. The Company’s
independent auditors will perform the calculations in conformity with the foregoing provisions and
will provide the Executive with a copy of their calculations. The intent of the parties is that
the Company shall be solely responsible for, and shall pay, any Excise Tax on the Original
Payment(s) and Gross-Up Amount and any income and employment taxes other than the 409A Taxes (but
including,

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without limitation, other penalties and interest on such income and employment taxes) imposed
on any Gross-Up Amount payable hereunder. If no determination by the Company’s independent
auditors is made prior to the time the Executive is required to file a tax return reflecting Excise
Taxes on any portion of the Original Payment(s), the Executive will be entitled to receive a
Gross-Up Amount calculated on the basis of the Excise Tax that the Executive reports in such tax
return, within thirty (30) days after the filing of such tax return. The Executive agrees that,
for the purposes of the foregoing sentence, the Executive is not required to file a tax return
until the Executive has obtained the maximum number and length of filing extensions available, and
Executive shall have provided a copy of the relevant portions of such tax return to the Company not
less than ten (10) days prior to filing such tax return. If any tax authority finally determines
that a greater Excise Tax should be imposed upon the Original Payments or the Gross-Up Amount than
is determined by the Company’s independent auditors or reflected in the Executive’s tax returns,
the Executive shall be entitled to receive an additional Gross-Up Amount calculated on the basis of
the additional amount of Excise Tax determined to be payable by such tax authority (including
related penalties and interest) from the Company within thirty (30) days after such determination.
The Executive shall cooperate with the Company as it may reasonably request to permit the Company
(at its sole expense) to contest the determination of such taxing authority to minimize the amount
payable under this Section 7. If any tax authority finally determines the Excise Tax payable by
the Executive to be less than the amount taken into account hereunder in calculating the Gross-Up
Amount, the Executive shall repay the Company, within thirty (30) days after the Executive’s
receipt of a tax refund resulting from that determination, to the extent of such refund, the
portion of the Gross-Up Amount attributable to such reduction (including the refunded portion of
Gross-Up Amount attributable to the Excise Tax and federal, state and local income and employment
taxes imposed on the Gross-Up Amount being repaid, less any additional income tax resulting from
receipt of such refund).

     8. Counsel Fees. The Company also shall pay to the Executive reimbursement for all
legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder
relating to the termination of the Executive’s employment, in seeking in good faith to obtain or
enforce any benefit or right provided by this Agreement or in connection with review of
determinations made under Section 7, and any tax audit or proceeding to the extent attributable to
the potential application of section 4999 of the Code to any payment or benefit provided by the
Company to the Executive. Subject to Section 12, such reimbursement payments shall be made within
five (5) days after delivery of the Executive’s written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.

     9. No Mitigation. The Company agrees that, if the Executive’s employment is
terminated during the term of this agreement, the Executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the Executive by the Company.
Further, the amount of any payment provided hereunder shall not be reduced by any compensation
earned by the Executive.

     10. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing signed by the
Executive and a duly authorized officer of the Company. No waiver by either party hereto at any

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time of any breach by the other hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements
or representations, oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall be governed by the
laws of the Commonwealth of Virginia, without regard to provisions thereof relating to choice of
law or conflicts of law. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile signatures.

     11. Validity. The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.

     12. Section 409A Compliance. Notwithstanding anything in this Agreement or any other
agreements between the Company and the Executive (“Other Agreements”) to the contrary, if, based on
Internal Revenue Service guidance available as of the date the payment or provision of any amount
or other benefit is required to be made under this Agreement (including, but not limited to, any
payment, accelerated vesting or benefit continuation right, Gross-Up Amount under Section 7 hereof
or Counsel Fees under Section 8 hereof) or under any Other Agreements, (a) the Company reasonably
determines that the payment or provision of such amount or other benefit at the time specified in
such agreements may subject the Executive to 409A Taxes “additional tax” and “interest” under
Section 409A(a)(1)(B) of the Code (together with any interest or penalties imposed with respect to,
or in connection with, such tax, the “409A Taxes”), because the Executive is a “specified employee”
within the meaning of Section 409A(a)(2)(B)(i) of the Code or otherwise, and (b) payment of such
amount (or portion of such amount) or provision of such benefit (or portion of such benefit) at a
later date would likely avoid any such 409A Taxes, then the payment or provision thereof shall be
postponed to the earliest business day on which the Company reasonably determines such amount or
benefit can be paid or provided without incurring any such 409A Taxes, but in no event later than
the first business day after the six-month anniversary of the Executive’s severance from service
within the meaning of Section 409A(a)(2) of the Code (the “Delayed Payment Date”). In the event a
benefit is to be provided during the period commencing on the Executive’s separation from service
and ending on the Delayed Payment Date and the provision of such benefit during that period would
be treated as a payment of nonqualified deferred compensation in violation of Section
409A(a)(2)(B)(i) of the Code, then continuation of such benefit during that period shall be
conditioned on payment by the Executive of the full premium or other cost of coverage and as of the
Delayed Payment Date the Company shall reimburse the Executive for the premiums or other cost of
coverage paid by the Executive, which but for this paragraph would have been paid by the Company.
On the Delayed Payment Date the Executive shall receive in a lump sum all payments which were
delayed and all remaining payments shall commence to be paid in accordance with the terms of this
Agreement or the Other Agreement. The Company and the Executive may agree to take other actions to
avoid the imposition of 409A Taxes at such time and in such manner as permitted under Section 409A
of the Code. In addition, in the event that any amount or other benefit which is required to be
made under this Agreement is treated as a payment under a nonqualified deferred compensation plan
within the meaning of Section 409A

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of the Code, no acceleration of payment shall be made if such acceleration of payment would
result in imposition of 409A Taxes. The Company shall have no liability to the Executive for 409A
Taxes (or any loss incident to the imposition of such taxes) in the event that Executive is
determined to be liable for 409A Taxes in connection with any payment or provision of any amount or
other benefit under this Agreement or Other Agreements.

[Signatures appear on following page.]

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     IN WITNESS WHEREOF, the parties have executed this Executive Agreement on the date and year
first above written.

	 	 	 	 	 	 	 
	 	 	WEBMETHODS, INC., a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ David Mitchell
 

David Mitchell
	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 President & CEO	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Kenneth A. Sexton	 	 
	 	 	 	 	 
	 	 	Kenneth A. Sexton

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