PURE ATRIA CORP, S-8, 1997-02-03

PURE ATRIA CORP
S-8, 1997-02-03
PREPACKAGED SOFTWARE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997.
REGISTRATION NO. 333-______

================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.. 20549

FORM S-8
REGISTRATION STATEMENT

Under

The Securities Act of 1933

PURE ATRIA CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware 94-3141575
- ------------------------ -----------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)

1309 South Mary Avenue
Sunnyvale, CA 94087
(Address, including zip code, of Registrant's principal executive offices)

PURE SOFTWARE INC. 1995 STOCK OPTION PLAN
INTEGRITY QA SOFTWARE, INC. 1995 STOCK OPTION PLAN
(Full title of the Plans)

W. Geoffrey Stein, Esq.
Vice President, General Counsel,
and Assistant Secretary
Pure Atria Corporation
1309 S. Mary Avenue
Sunnyvale, CA 94087
(408) 720-1600
(Name, address, and telephone number, including area code, of agent for service)

Copies to:
MARK A. BERTELSEN, ESQ.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
(415) 493-9300

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share(1) Offering Price Fee(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value.......................

- Newly Reserved under Pure Software Inc. 1995
Stock Option Plan................................ 2,900,287 $23.875 $69,244,352.12 $20,983.14

- Outstanding under Integrity QA Software, Inc. 112,272 0.39 43,786(5) 13.27
1995 Stock Option Plan(4)........................

Total................................................ 3,012,559 69,288,138 20,996.41
=============================================================================================================================
</TABLE>
(1) Estimated in accordance with Rule 457(h) solely for the purpose of
calculating the registration fee.
(2) Amount of the Registration Fee was calculated pursuant to Section 6(b) of
the Securities Act of 1933, as amended, which states that the fee shall be
"one thirty-third of one percentum of the maximum aggregate price at which
the securities are issued."
(3) Estimated in accordance with Rule 457(h) solely for the purpose of
calculating the filing fee on the basis of $23.875 per share, which
represents the average of the high and the low prices reported on the Nasdaq
National Market on January 30, 1997.
(4) Pursuant to the Agreement and Plan of Reorganization, dated as of November
17, 1996, by and among Pure Atria Corporation, Integrity QA Software, Inc.
("Integrity") and Delaware PAI Corp., the Registrant assumed all of the
outstanding options to purchase Common Stock of Integrity under the
Integrity 1995 Stock Option Plan, and such options became exercisable to
purchase shares of Registrant Common Stock, subject to appropriate
adjustments to the number of shares and exercise price of each such assumed
option.
(5) Estimated in accordance with Rule 457(h) solely for the purpose of
calculating the filing fee on the basis of the weighted average exercise
price of $0.39 per share for outstanding options to purchase a total of
112,272 shares of Registrant Common Stock.
<PAGE>

PURE ATRIA CORPORATION
REGISTRATION STATEMENT ON FORM S-8

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
---------------------------------------

There are hereby incorporated by reference in this Registration Statement
the following documents and information heretofore filed with the Securities and
Exchange Commission (the "Commission"):

(a) The Registrant's Registration Statement on Form S-4 filed with
the Commission on January 6, 1997.

(b) The Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, filed pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act");

(c) The description of the Registrant's Common Stock contained in the
Registrant's Registration Statement on Form 8-A dated June 8, 1995 pursuant
to Section 12(g) of the 1934 Act.

All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14
and 15(d) of the 1934 Act on or after the date of this Registration Statement
and prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold shall be deemed to be incorporated by reference in this
Registration Statement and to be part hereof from the date of filing of such
documents.

ITEM 4. DESCRIPTION OF SECURITIES.
-------------------------

Not Applicable.

ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
--------------------------------------

Larry W. Sonsini, a director of the Registrant, is a member of Wilson
Sonsini Goodrich & Rosati, which has given an opinion upon the validity of the
securities being registered by this Registration Statement.

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
------------------------------------------

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Registrant's Bylaws provide for mandatory indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. The
Registrant's Certificate of Incorporation provides that, pursuant to Delaware
law, its directors shall not be personally liable for monetary damages for
breach of the directors' fiduciary duties as directors to the Registrant and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain under Delaware law. In addition, each director will continue to
be subject to liability

II-1
<PAGE>

for breach of the director's duty of loyalty to the Registrant for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has also
entered into indemnification agreements with each of its directors and officers
which provide further indemnification to the maximum extent permitted by the
Delaware General Corporation Law.

ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
-----------------------------------

Not applicable.

ITEM 8. EXHIBITS.
--------

Exhibit
Number Description
------- --------------------------------------------------------
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C. with
respect to the securities being registered.
10.1(1) Atria Software, Inc. 1990 Stock Option Plan.
10.2(3) Performix, Inc. 1991 Incentive Stock Option Plan.
10.3(2) Pure Software Inc. 1992 Stock Option/Stock Issuance Plan.
10.4(1) Atria Software, Inc. 1994 Stock Plan.
10.5(1) Atria Software, Inc. 1994 Non-Employee Director Stock
Option Plan.
10.6(1) Atria Software, Inc. 1994 Employee Stock Purchase Plan.
10.7(2) Pure Software Inc. 1995 Employee Stock Purchase Plan.
10.8 Pure Software Inc. 1995 Stock Option Plan, as amended.
10.9 Integrity QA Software, Inc. 1995 Stock Option Plan.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors
23.3 Consent of Counsel (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).

- -----------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 filed August 26, 1996.
(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 filed June 8, 1995.
(3) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 filed December 1, 1995.

II-2
<PAGE>

ITEM 9. UNDERTAKINGS.
------------

A. The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

B. The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, State of California, on the 31st day of
January 1997.

PURE ATRIA CORPORATION

/s/ REED HASTINGS
By: ____________________________________
Reed Hastings, President and
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Reed Hastings, Charles J. Bay, III,
jointly and severally his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Registration Statement on Form S-8 and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorneys-
in-fact, or their substitute or substitutes, may do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

Signature Title Date
- -------------------------------- -------------------------------------------- -----------
<S> <C> <C>
/s/ PAUL LEVINE Chairman of the Board of Directors January 31, 1997
- --------------------------------
(Paul Levine)

/s/ REED HASTINGS President and Chief Executive Officer January 31, 1997
- --------------------------------
(Reed Hastings)

/s/ CHARLES J. BAY, III Vice President, Chief Financial Officer and January 31, 1997
- -------------------------------- Secretary (Principal Financial and Accounting
(Charles J. Bay) Officer)

/s/ LARRY W. SONSINI Director January 31, 1997
- --------------------------------
(Larry W. Sonsini)

/s/ DAVID A. LITWACK Director January 31, 1997
- --------------------------------
(David A. Litwack)

/s/ THOMAS A. JERMOLUK Director January 31, 1997
- --------------------------------
(Thomas A. Jermoluk)

/s/ LOUIS J. VOLPE Director January 31, 1997
- --------------------------------
(Louis J. Volpe)

/s/ AKI FUJIMURA Director January 31, 1997
- --------------------------------
(Aki Fujimura)
</TABLE>

II-4
<PAGE>

Index to Exhibits

Number Description
---------- ----------------------------------------------------
<S> <C>
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C. with
respect to the securities being registered.
10.1(1) Atria Software, Inc. 1990 Stock Option Plan.
10.2(3) Performix, Inc. 1991 Incentive Stock Option Plan.
10.3(2) Pure Software Inc. 1992 Stock Option/Stock Issuance Plan.
10.4(1) Atria Software, Inc. 1994 Stock Plan.
10.5(1) Atria Software, Inc. 1994 Non-Employee Director Stock Option Plan.
10.6(1) Atria Software, Inc. 1994 Employee Stock Purchase Plan.
10.7(2) Pure Software Inc. 1995 Employee Stock Purchase Plan.
10.8 Pure Software Inc. 1995 Stock Option Plan, as amended.
10.9 Integrity QA Software, Inc. 1995 Stock Option Plan.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
23.3 Consent of Counsel (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
</TABLE>
- -------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed August 26, 1996.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 filed June 8, 1995.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed December 1, 1995.

II-5

<PAGE>

Exhibit 5.1

February 3, 1997

Pure Atria Corporation
1309 South Mary Avenue
Sunnyvale, California 94087

Re: REGISTRATION STATEMENT ON FORM S-8

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-8 to be filed by
you with the Securities and Exchange Commission on or about February 3, 1997
(the "Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended of 2,900,287 additional shares of your Common
Stock reserved for issuance pursuant to the Pure Software Inc. 1995 Stock Option
Plan and 112,272 shares of Common Stock reserved for issuance pursuant to the
Integrity QA Software, Inc. 1995 Stock Option Plan (which Plans are referred to
herein as the "Plans" and which Shares are collectively referred to herein as
the "Shares"). As your counsel in connection with the transaction, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the sale and issuance of the Shares pursuant
to the Plans.

It is our opinion that, when issued and sold in the manner referred to
in the Plans, the Shares will be legally and validly issued, fully paid and
nonassessable.

We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement and any amendment thereto.

Very truly yours,

WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

/s/ WILSON SONSINI GOODRICH & ROSATI

<PAGE>
EXHIBIT 108

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.

PURE SOFTWARE, INC.
1995 STOCK OPTION PLAN
----------------------

ARTICLE ONE

GENERAL PROVISIONS
------------------

I. PURPOSE OF THE PLAN

This 1995 Stock Option Plan is intended to promote the interests of
Pure Software, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.

Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into two separate equity programs:

(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock, and

(ii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic intervals to
purchase shares of Common Stock.

B. The provisions of Articles One and Four shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

III. ADMINISTRATION OF THE PLAN

A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders. No non-employee Board member shall be eligible to serve on the
Primary Committee if such individual has, during the twelve (12)-month period
immediately preceding the date of his or her appointment to the Committee or (if
shorter) the period commencing with the Section 12(g) Registration Date and
ending with the date of his or her appointment to the Primary Committee,
received an option grant or direct stock issuance under the Plan or any other
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary), other than pursuant to the Automatic
Option Grant Program.
<PAGE>

B. Administration of the Discretionary Option Grant Program with
respect to all other persons eligible to participate in that program may, at the
Board's discretion, be vested in the Primary Committee or a Secondary Committee,
or the Board may retain the power to administer that program with respect to all
such persons. The members of the Secondary Committee may be individuals who are
Employees eligible to receive discretionary option grants or direct stock
issuances under the Plan or any stock option, stock appreciation, stock bonus or
other stock plan of the Corporation (or any Parent or Subsidiary).

C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.

D. The Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant
Program and to make such determinations under, and issue such interpretations
of, the provisions of such program and any outstanding options thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant Program
under its jurisdiction or any option thereunder.

E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants made under the Plan.

F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary Option
Grant Program are as follows:

(i) Employees,

(ii) non-employee members of the Board (other than those serving
as members of the Primary Committee) or the board of directors of any Parent or
Subsidiary, and

-2-
<PAGE>

(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).

B. The Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
with respect to the option grants under the Discretionary Option Grant Program,
which eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times at which each option is to become
exercisable and the vesting schedule (if any) applicable to the option shares
and the maximum term for which the option is to remain outstanding.

C. The individuals eligible to receive option grants under the
Automatic Option Grant Program shall be (i) those individuals who are serving as
non-employee Board members on the Automatic Option Grant Program Effective Date
or who are first elected or appointed as non-employee Board members after such
date, whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members after one or more Annual Stockholders Meetings held after the
Automatic Option Grant Program Effective Date. A non-employee Board member who
has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an option grant under the Automatic
Option Grant Program on the Automatic Option Grant Program Effective Date or at
the time he or she first becomes a non-employee Board member, but such
individual shall be eligible to receive periodic option grants under the
Automatic Option Grant Program upon his or her continued service as a non-
employee Board member following one or more Annual Stockholders Meetings.

V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed
3,449,329 shares. Such authorized share reserve is comprised of (i) 2,675,748
shares outstanding (including options incorporated from the Predecessor Plan) as
of July 27, 1995, plus (ii) 773,581 shares remaining available for future grant.

B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each of the
1996, 1997 and 1998 calendar years during the term of the Plan by an amount
equal to five percent (5%) of the shares of Common Stock outstanding on the last
day of the immediately preceding calendar year.

C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 500,000 shares of
Common Stock in the aggregate over the term of the Plan, exclusive of any option
grants received prior to December 31, 1994.

-3-
<PAGE>

D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised, and not by the net number of
shares of Common Stock issued to the holder of such option.

E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities for which the
share reserve is to increase automatically each year, (iii) the number and/or
class of securities for which any one person may be granted options and
separately exercisable stock appreciation rights over the term of the Plan, (iv)
the number and/or class of securities for which automatic option grants are to
be subsequently made per Eligible Director under the Automatic Option Grant
Program and (v) the number and/or class of securities and the exercise price per
share in effect under each outstanding option (including any option incorporated
from the Predecessor Plan) in order to prevent the dilution or enlargement of
benefits thereunder. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.

-4-
<PAGE>

ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------

I. OPTION TERMS

Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

A. Exercise Price.
--------------

1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.

2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:

(i) cash or check made payable to the Corporation;

(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date;

(iii) promissory note payable to the Corporation in
installments over a period of years; or

(iv) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale.

Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

-5-
<PAGE>

B. Exercise and Term of Options. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.

C. Effect of Termination of Service.
--------------------------------

1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:

(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such period of
time thereafter as shall be determined by the Plan Administrator and set forth
in the documents evidencing the option, but no such option shall be exercisable
after the expiration of the option term.

(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution.

(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the extent it is
not exercisable for vested shares on the date of such cessation of Service.

(iv) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate immediately
and cease to be outstanding.

(v) In the event of a Corporate Transaction, the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's cessation
of Service and shall supersede any provisions to the contrary in this section.

2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:

(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in effect for that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the expiration of
the option term, and/or

-6-
<PAGE>

(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option had the
Optionee continued in Service.

D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.

F. Limited Transferability of Options. During the lifetime of
----------------------------------
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned option (or portion
thereof) shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.

II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
---

A. Eligibility. Incentive Options may only be granted to Employees.
-----------

B. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

C. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to

-7-
<PAGE>

any Employee under the Plan (or any other option plan of the Corporation or any
Parent or Subsidiary) may for the first time become exercisable as Incentive
Options during any one (1) calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the same calendar
year, the foregoing limitation on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such
options are granted.

D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall NOT so accelerate if and to the extent:
(i) such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be final, binding
and conclusive.

B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.

C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction.

-8-
<PAGE>

D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
--------
aggregate exercise price payable for such securities shall remain the same.

F. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within twelve (12) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for fully-
vested shares until the earlier of (i) the expiration of the option term or (ii)
-------
the expiration of the one (1)-year period measured from the effective date of
the Involuntary Termination.

G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.

H. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.

I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

-9-
<PAGE>

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new option grant date.

V. STOCK APPRECIATION RIGHTS

A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.

B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:

(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common Stock and the surrender
of that option in exchange for a distribution from the Corporation in an amount
equal to the excess of (A) the Fair Market Value (on the option surrender date)
of the number of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such shares.

(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares of
Common Stock valued at Fair Market Value on the option surrender date, in cash,
or partly in shares and partly in cash, as the Plan Administrator shall in its
sole discretion deem appropriate.

(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
-----
(A) five (5) business days after the receipt of the rejection notice or (B) the
last day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the option grant date.

C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:

(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.

-10-
<PAGE>

(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock appreciation
right in effect for at least six (6) months shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the option is at
the time exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price of the
shares of Common Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.

(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option surrender
and cash distribution.

(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.

-11-
<PAGE>

ARTICLE THREE

AUTOMATIC OPTION GRANT PROGRAM
------------------------------

I. OPTION TERMS

A. GRANT DATES. Option grants shall be made on the dates specified
-----------
below:

1. Each Eligible Director who is a non-employee Board
member on the Automatic Option Grant Program Effective Date shall automatically
be granted, on the Automatic Option Grant Program Effective Date a Non-Statutory
Option to purchase 15,000 shares of Common Stock. Each Eligible Director who is
first elected or appointed as a non-employee Board member after such date shall
automatically be granted, on the date of such initial election or appointment
(as the case may be), a Non-Statutory Option to purchase 15,000 shares of Common
Stock.

2. On the date of each Annual Stockholders Meeting,
beginning with the 1996 Annual Meeting, each individual who is to continue to
serve as an Eligible Director after such meeting, shall automatically be
granted, whether or not such individual is standing for re-election as a Board
member at that Annual Meeting, a Non-Statutory Option to purchase an additional
5,000 shares of Common Stock, provided such individual has served as a non-
employee Board member for at least six (6) months prior to the date of such
Annual Meeting. There shall be no limit on the number of such 5,000-share option
grants any one Eligible Director may receive over his or her period of Board
service.

B. EXERCISE PRICE.
--------------

1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.

2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

C. OPTION TERM. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.

D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial automatic grant shall vest, and
the Corporation's repurchase right shall lapse, in a series of four (4) equal
and successive annual installments

-12-
<PAGE>

over the Optionee's period of continued service as a Board member, with the
first such installment to vest upon the Optionee's completion of one (1) year of
Board service measured from the option grant date. Each subsequent automatic
grant shall vest, and the Corporation's repurchase right shall lapse, upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date.

E. EFFECT OF TERMINATION OF BOARD SERVICE. The following provisions
--------------------------------------
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:

(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option.

(ii) During the twelve (12)-month exercise period, the option may not
be exercised in the aggregate for more than the number of vested shares of
Common Stock for which the option is exercisable at the time of the Optionee's
cessation of Board service.

(iii) Should the Optionee cease to serve as a Board member by reason
of death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve (12)-
month exercise period following such cessation of Board service, be exercised
for all or any portion of such shares as fully-vested shares of Common Stock.

(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Board service, terminate and cease to be
outstanding to the extent it is not exercisable for vested shares on the date of
such cessation of Board service.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that

-13-
<PAGE>

each such option shall, immediately prior to the effective date of the Change in
Control, become fully exercisable for all of the shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or sooner
termination of the option term or the surrender of the option in connection with
a Hostile Take-Over.

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her for a period of at least six (6) months.
The Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the surrendered option (whether or
not the Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board shall be required in
connection with such option surrender and cash distribution.

D. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM

The provisions of this Automatic Option Grant Program, together with
the option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.

IV. REMAINING TERMS

The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.

-14-
<PAGE>

ARTICLE FOUR

MISCELLANEOUS
-------------

I. FINANCING

A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Discretionary Option Grant Program by delivering a
promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee may not exceed the sum of (i) the
aggregate option exercise price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee in connection with the option exercise.

B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.

II. TAX WITHHOLDING

A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or stock appreciation rights under the Plan shall
be subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.

B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan (other than the options granted
under the Automatic Option Grant Program) with the right to use shares of Common
Stock in satisfaction of all or part of the Taxes incurred by such holders in
connection with the exercise of their options. Such right may be provided to
any such holder in either or both of the following formats:

(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one hundred
percent (100%)) designated by the holder.

-15-
<PAGE>

(ii) Stock Delivery: The election to deliver to the Corporation,
--------------
at the time the Non-Statutory Option is exercised, one or more shares of Common
Stock previously acquired by such holder (other than in connection with the
option exercise triggering the Taxes) with an aggregate Fair Market Value equal
to the percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.

III. BENEFICIARY DESIGNATION

An Optionee may file a written designation of a beneficiary who is to
exercise any outstanding options under the Plan in the event of the Optionee's
death. Such beneficiary designation may be changed by the Optionee at any time
by filing the appropriate form with the Plan Administrator.

IV. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Discretionary Option Grant Program shall become effective on
the Plan Effective Date and options may be granted under the Discretionary
Option Grant Program from and after the Plan Effective Date. The Automatic
Option Grant Program shall become effective on the Automatic Option Grant
Program Effective Date and the initial option grants under the Automatic Option
Grant Program shall be made to the Eligible Directors at that time. However, no
options granted under the Plan may be exercised until the Plan is approved by
the Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the Plan Effective Date, then all options
previously granted under this Plan shall terminate and cease to be outstanding,
and no further options shall be granted and no shares shall be issued under the
Plan.

B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
Plan Effective Date. All options outstanding under the Predecessor Plan as of
such date shall, immediately upon approval of the Plan by the Corporations's
stockholders, be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.

C. The option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise provide for such acceleration.

D. The Plan shall terminate upon the earliest of (i) May 15, 2005,
--------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan or (iii)
the termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options outstanding on such date
shall thereafter

-16-
<PAGE>

continue to have force and effect in accordance with the provisions of the
documents evidencing such options.

V. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, (i) no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or stock appreciation rights at the time outstanding under
the Plan unless the Optionee consents to such amendment or modification, and
(ii) any amendment made to the Automatic Option Grant Program (or any options
outstanding thereunder) shall be in compliance with the limitations of that
program. In addition, the Board shall not, without the approval of the
Corporation's stockholders, (i) materially increase the maximum number of shares
issuable under the Plan, the number of shares for which options may be granted
under the Automatic Option Grant Program or the maximum number of shares for
which any one person may be granted options or separately exercisable stock
appreciation rights in the aggregate over the term of the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.

B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program that are in excess of the number of
shares then available for issuance under the Plan, provided any excess shares
actually issued under those programs are held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees the
exercise price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.

-17-
<PAGE>

VI. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

VII. REGULATORY APPROVALS

A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock upon the exercise of any option or stock appreciation right shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the options and
stock appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.

B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

VIII. NO EMPLOYMENT/SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.

-18-
<PAGE>

APPENDIX
--------

The following definitions shall be in effect under the Plan:

A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
------------------------------
program in effect under the Plan.

B. AUTOMATIC OPTION GRANT PROGRAM EFFECTIVE DATE shall mean the date on
---------------------------------------------
which the Underwriting Agreement is executed and the initial public offering
price of the Common Stock is established.

C. BOARD shall mean the Corporation's Board of Directors.
-----

D. CHANGE IN CONTROL shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:

(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or

(ii) a change in the composition of the Board over a period of thirty-
six (36) consecutive months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time the Board
approved such election or nomination.

E. CODE shall mean the Internal Revenue Code of 1986, as amended.
----

F. COMMON STOCK shall mean the Corporation's common stock.
------------

G. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those immediately prior to such transaction; or

-1-
<PAGE>

(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.

H. CORPORATION shall mean Pure Software, Inc., a Delaware corporation.
-----------

I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
----------------------------------
grant program in effect under the Plan.

J. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.

K. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
-----------------
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

L. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

M. EXERCISE DATE shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.

N. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.

(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

(iii) For purposes of option grants made on the date the
Underwriting Agreement is executed and the initial public offering price of the
Common Stock is established, the Fair Market Value

-2-
<PAGE>

shall be deemed to be equal to the established initial offering price per share.
For purposes of option grants made prior to such date, the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.

O. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
-----------------
effected through the following transaction:

(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, and
---

(ii) more than fifty percent (50%) of the securities so acquired are
accepted from persons other than Section 16 Insiders.

P. INCENTIVE OPTION shall mean an option which satisfies the requirements
----------------
of Code Section 422.

Q. INVOLUNTARY TERMINATION shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:

(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any non-discretionary
and objective-standard incentive payment or bonus award) by more than fifteen
percent (15%) or (C) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's consent.

R. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).

-3-
<PAGE>

S. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------

T. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.

U. OPTIONEE shall mean any person to whom an option is granted under the
--------
Discretionary Option Grant or Automatic Option Grant Program.

V. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, 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 such chain.

W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
--------------------------------------------
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.

X. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set forth
----
in this document.

Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.

Z. PLAN EFFECTIVE DATE shall mean the Section 12(g) Registration Date.
-------------------

AA. PREDECESSOR PLAN shall mean the Corporation's existing 1992 Stock
----------------
Option/Stock Issuance Plan.

BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
-----------------
employee Board members appointed by the Board to administer the Discretionary
Option Grant Program with respect to Section 16 Insiders.

CC. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.

DD. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.

-4-
<PAGE>

EE. SECTION 16 INSIDER shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

FF. SECTION 12(G) REGISTRATION DATE shall mean the first date on which the
-------------------------------
Common Stock is registered under Section 12(g) of the 1934 Act.

GG. SERVICE shall mean the provision of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.

HH. STOCK EXCHANGE shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.

II. SUBSIDIARY shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, 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 such chain.

JJ. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
--------------- -------
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.

KK. TAXES shall mean the Federal, state and local income and employment
-----
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of such holder's options
or the vesting of his or her shares.

LL. 10% STOCKHOLDER shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).

MM. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

-5-

<PAGE>

EXHIBIT 10.9

INTEGRITY QA SOFTWARE, INC.
1995 STOCK OPTION PLAN
----------------------

ARTICLE ONE

GENERAL PROVISIONS
------------------

I. PURPOSE OF THE PLAN

This 1995 Stock Option Plan is intended to promote the interests of
Integrity QA Software, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.

Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.

II. ADMINISTRATION OF THE PLAN

A. The Plan shall be administered by the Board. However, any
or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time. The Board may also at any time terminate the functions of the
Committee and reassume all powers and authority previously delegated to the
Committee.

B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any option or shares issued thereunder.

III. ELIGIBILITY

A. The persons eligible to receive option grants under the Plan
are as follows:

(i) Employees,

(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and

(iii) consultants who provide services to the
Corporation (or any Parent or Subsidiary).

B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option

1
<PAGE>

grants are to be made, the number of shares to be covered by each such grant,
the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding.

IV. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 700,000 shares.

B. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.

C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive. In
no event shall any such adjustments be made in connection with the conversion of
one or more outstanding shares of the Corporation's preferred stock into shares
of Common Stock.

2
<PAGE>

ARTICLE TWO

OPTION GRANT PROGRAM
--------------------

I. OPTION TERMS

A. EXERCISE PRICE.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:

(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common Stock
on the option grant date.

(ii) If the person to whom the option is granted is a 10%
Stockholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date.

2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:

(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date, or

(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written instructions (a)
to a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) to the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in
order to complete the sale.

Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

3
<PAGE>

B. EXERCISE AND TERM OF OPTIONS. Each option shall be
----------------------------
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.

C. EFFECT OF TERMINATION OF SERVICE. The following provisions
--------------------------------
shall govern the exercise of any options held by the Optionee at the time of
cessation of Service or death:

(i) Should the Optionee cease to remain in Service for any
reason other than Disability or death, then the Optionee shall have a period
of three (3) months following the date of such cessation of Service during
which to exercise each outstanding option held by such Optionee.

(ii) Should such Service terminate by reason of Disability,
then the Optionee shall have a period of six (6) months following the date
of such cessation of Service during which to exercise each outstanding
option held by such Optionee. However, should such Disability be deemed to
constitute Permanent Disability, then the period during which each
outstanding option held by the Optionee is to remain exercisable shall be
extended by an additional six (6) months so that the exercise period shall
be the twelve (12)-month period following the date of the Optionee's
cessation of Service by reason of such Permanent Disability.

(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution shall have a period of twelve (12) months following the date of
the Optionee's death during which to exercise each such option.

(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.

(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease to
be outstanding to the extent it is not exercisable for vested shares on the
date of such cessation of Service.

D. STOCKHOLDER RIGHTS. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

4
<PAGE>

E. UNVESTED SHARES. The Plan Administrator shall have the
---------------
discretion to grant options which are exercisable for unvested shares of Common
Stock under the Plan. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, all or (at the discretion of the Corporation and
with the consent of the Optionee) any of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. The Plan Administrator may not
impose a vesting schedule upon any option grant or any shares of Common Stock
subject to the option which is more restrictive than twenty percent (20%) per
year vesting, with the initial vesting to occur one (1) year after the option
grant date. However, this minimum vesting requirement shall not be applicable
with respect to any option granted to a Highly-Compensated Person.

F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock
--------------------
is first registered under Section 12(g) of the 1934 Act, the Corporation shall
have the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.

G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
----------------------------------
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may be assigned in whole or in part during Optionee's lifetime in accordance
with the terms of a Qualified Domestic Relations Order. The assigned portion
may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to such Qualified Domestic Relations Order. The
terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.

H. WITHHOLDING. The Corporation's obligation to deliver shares
-----------
of Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.

II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
---
terms of Section II.

A. ELIGIBILITY. Incentive Options may only be granted to Employees.
-----------

B. EXERCISE PRICE. The exercise price per share shall not be
--------------
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.

5
<PAGE>

C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
-----------------
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To
the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.

D. 10% STOCKHOLDER. If any Employee to whom an Incentive
---------------
Option is granted is a 10% Stockholder, then the option term shall not exceed
five (5) years measured from the option grant date.

III. CORPORATE TRANSACTION

A. In the event of any Corporate Transaction, each outstanding
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with such
Corporate Transaction. In addition, all outstanding repurchase rights shall be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction. All outstanding repurchase rights shall lapse,
however, to the extent the successor corporation (or parent thereof) declines to
accept an assignment in connection with such Corporate Transaction.

B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same.

C. The grant of options under the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.

6
<PAGE>

ARTICLE THREE

MISCELLANEOUS
-------------

I. FINANCING

The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. Promissory notes may be authorized with or without
security or collateral. In all events, the maximum credit available to the
Optionee may not exceed the sum of (i) the aggregate option exercise price
---
payable for the purchased shares (less the par value of such shares) plus (ii)
any Federal, state and local income and employment tax liability incurred by the
Optionee in connection with the option exercise.

II. ADDITIONAL AUTHORITY

A. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service or death
from the limited period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term.

III. EFFECTIVE DATE AND TERM OF THE PLAN

B. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan may be exercised until the Plan is approved
by the Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall terminate and cease to
be outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.

B. The Plan shall terminate upon the earliest of (i) the
--------
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all options and unvested stock issuances outstanding under the Plan
shall continue to have full force and effect in accordance with the provisions
of the documents evidencing such options or issuances.

IV. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall, without the consent of the Optionees, adversely
affect their rights and obligations under

7
<PAGE>

their outstanding options. In addition, the Board shall not, without the
approval of the Corporation's stockholders, (i) increase the maximum number of
shares issuable under the Plan, except for permissible adjustments in the event
of certain changes in the Corporation's capitalization, (ii) materially modify
the eligibility requirements for Plan participation or (iii) materially increase
the benefits accruing to Plan participants.

B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.

V. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

VI. REGULATORY APPROVALS

The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the shares of Common Stock issued pursuant to
it.

VII. NO EMPLOYMENT OR SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.

VIII. FINANCIAL REPORTS

The Corporation shall deliver a balance sheet and an income statement
at least annually to each individual holding an outstanding option under the
Plan, unless such individual is a key Employee whose duties in connection with
the Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.

8
<PAGE>

APPENDIX
--------

The following definitions shall be in effect under the Plan:

A. BOARD shall mean the Corporation's Board of Directors.
-----

B. CODE shall mean the Internal Revenue Code of 1986, as amended.
----

C. COMMITTEE shall mean a committee of two (2) or more Board members
---------
appointed by the Board to exercise one or more administrative functions under
the Plan.

D. COMMON STOCK shall mean the Corporation's common stock.
------------

E. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:

(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.

F. CORPORATION shall mean Integrity QA Software, Inc., a Delaware
-----------
corporation.

G. DISABILITY shall mean the inability of the Optionee to engage in any
----------
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.

H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.

A-i
<PAGE>

I. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

J. EXERCISE DATE shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.

K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing price per share of
Common Stock on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing price on the last
preceding date for which such quotation exists.

(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market
Value shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate.

L. HIGHLY-COMPENSATED EMPLOYEE shall mean an Optionee (i) whose
---------------------------
compensation per calendar year from the Corporation (or any Parent or
Subsidiary) equals or exceeds Sixty Thousand Dollars ($60,000) in the aggregate
and (ii) who has previously received one or more option grants under the Plan.

M. INCENTIVE OPTION shall mean an option which satisfies the requirements
----------------
of Code Section 422.

N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------

O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.

P. OPTIONEE shall mean any person to whom an option is granted under the
--------
Plan.

A-ii
<PAGE>

Q. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, 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 such chain.

R. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set forth
----
in this document.

S. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
------------------
the extent the Committee is at the time responsible for the administration of
the Plan.

T. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.

U. SERVICE shall mean the provision of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant, except to the extent
otherwise specifically provided in the documents evidencing the option grant.

V. STOCK EXCHANGE shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.

W. SUBSIDIARY shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, 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 such chain.

X. 10% STOCKHOLDER shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

A-iii
<PAGE>

INTEGRITY QA SOFTWARE, INC.
STOCK OPTION AGREEMENT
----------------------

RECITALS
- --------

A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants who provide services to
the Corporation (or any Parent or Subsidiary).

B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.

C. All capitalized terms in this Agreement shall have the meanings
assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1. GRANT OF OPTION. The Corporation hereby grants to Optionee,
---------------
as of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.

2. OPTION TERM. This option shall have a term of ten (10)
-----------
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 17.

3. LIMITED TRANSFERABILITY. This option shall be neither
-----------------------
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may also be assigned
in whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the option
pursuant to such Qualified Domestic Relations Order. The terms applicable to
the assigned portion shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.

4. DATES OF EXERCISE. This option shall become exercisable for
-----------------
the Option Shares in one or more installments as specified in the Grant Notice.
As the option becomes exercisable for such installments, those installments
shall accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5, 6 or 17.
<PAGE>

5. CESSATION OF SERVICE. The option term specified in
--------------------
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date should any of the following provisions become
applicable:

(i) Should Optionee cease to remain in Service for any
reason (other than death or Disability) while this option is outstanding,
then Optionee shall have a period of three (3) months (commencing with the
date of such cessation of Service) during which to exercise this option, but
in no event shall this option be exercisable at any time after the
Expiration Date.

(ii) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right to
exercise this option. Such right shall lapse and this option shall cease to
be outstanding upon the earlier of (i) the expiration of the twelve (12)-
-------
month period measured from the date of Optionee's death or (ii) the
Expiration Date.

(iii) Should Optionee cease Service by reason of Disability
while this option is outstanding, then Optionee shall have a period of six
(6) months (commencing with the date of such cessation of Service) during
which to exercise this option. However, should such Disability be deemed to
constitute Permanent Disability, then the period during which this option is
to remain exercisable shall be extended by an additional six (6) months so
that the exercise period shall be the twelve (12)-month period following the
date of Optionee's cessation of Service by reason of such Permanent
Disability. In no event shall this option be exercisable at any time after
the Expiration Date.

Note: Exercise of this option on a date later than three (3) months
----
following cessation of Service due to Disability will result in loss
of favorable Incentive Option treatment, unless such Disability
constitutes Permanent Disability. In the event that Incentive Option
treatment is not available, this option will be taxed as a Non-
Statutory Option upon exercise.

(iv) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any vested Option Shares for which
the option has not been exercised. To the extent Optionee is not vested in
the Option Shares at the time of Optionee's cessation of Service, this
option shall immediately terminate and cease to be outstanding with respect
to those shares.

2
<PAGE>

6. SPECIAL TERMINATION OF OPTION.
-----------------------------

(a) In the event of a Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or parent thereof in connection with such Corporate
Transaction.

(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------

(c) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
---------------------------
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.

8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.

9. MANNER OF EXERCISING OPTION.
---------------------------

(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:

(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.

(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:

(A) cash or check made payable to the Corporation; or

3
<PAGE>

(B) a promissory note payable to the Corporation, but only to the
extent authorized by the Plan Administrator in accordance with Paragraph
14.

Should the Common Stock be registered under Section 12(g) of the
1934 Act at the time the option is exercised, then the Exercise Price may
also be paid as follows:

(C) in shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date; or

(D) to the extent the option is exercised for vested Option
Shares, through a special sale and remittance procedure pursuant to which
Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable written instructions (a) to a Corporation-
designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Exercise Price
payable for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.

Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the Exercise
Price must accompany the Purchase Agreement delivered to the Corporation in
connection with the option exercise.

(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.

(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to comply
with the applicable requirements of Federal and state securities laws.

(v) Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining Optionee) for the satisfaction
of all Federal, state and local income and employment tax

4
<PAGE>

withholding requirements applicable to the option exercise.

(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.

10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
-----------------
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.

11. COMPLIANCE WITH LAWS AND REGULATIONS.
------------------------------------

(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.

(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.

12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
----------------------
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.

13. NOTICES. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.

14. FINANCING. The Plan Administrator may, in its absolute
---------
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a promissory note.
The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be

5
<PAGE>

established by the Plan Administrator in its sole discretion./1/

15. CONSTRUCTION. This Agreement and the option evidenced hereby are
------------
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.

16. GOVERNING LAW. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.

17. STOCKHOLDER APPROVAL.
--------------------

(a) The grant of this option is subject to approval of the Plan
by the Corporation's stockholders within twelve (12) months after the adoption
of the Plan by the Board. Notwithstanding any provision of this Agreement to the
------------------------------------------------------
contrary, this option may not be exercised in whole or in part until such
- -------------------------------------------------------------------------
stockholder approval is obtained. In the event that such stockholder approval is
- --------------------------------
not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.

(b) If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.

18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
--------------------------------------------------
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:

(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.

- ------------------------
/1/ Authorization of payment of the Exercise Price by a promissory note
may, under currently proposed Treasury Regulations, result in the loss of
incentive stock option treatment under the Federal tax laws.

6
<PAGE>

such calendar year would, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock and any other
securities for which one or more other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option plan of the
Corporation or any Parent or Subsidiary) first become exercisable during the
same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. To the extent the exercisability of this option is deferred by reason
of the foregoing limitation, the deferred portion shall become exercisable in
the first calendar year or years thereafter in which the One Hundred Thousand
Dollar ($100,000) limitation of this Paragraph 18(b) would not be contravened,
but such deferral shall in all events end immediately prior to the effective
date of a Corporate Transaction in which this option is not to be assumed,
whereupon the option shall become immediately exercisable as a Non-Statutory
Option for the deferred portion of the Option Shares.

(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
<PAGE>

APPENDIX
--------

The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Stock Option Agreement.
---------

B. BOARD shall mean the Corporation's Board of Directors.
-----

C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----

D. COMMON STOCK shall mean the Corporation's common stock.
------------

E. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or

(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.

F. CORPORATION shall mean Integrity QA Software, Inc., a Delaware
-----------
corporation.

G. DISABILITY shall mean the inability of Optionee to engage in any
----------
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.

J. EXERCISE DATE shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.

A-i
<PAGE>

K. EXERCISE PRICE shall mean the exercise price per share as specified in
--------------
the Grant Notice.

L. EXPIRATION DATE shall mean the date on which the option expires as
---------------
specified in the Grant Notice.

M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing price per share of
Common Stock on the date in question, as the price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing price on the last
preceding date for which such quotation exists.

(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.

N. GRANT DATE shall mean the date of grant of the option as specified in
----------
the Grant Notice.

O. GRANT NOTICE shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

P. INCENTIVE OPTION shall mean an option which satisfies the requirements
----------------
of Code Section 422.

Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------

A-ii
<PAGE>

R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.

S. OPTION SHARES shall mean the number of shares of Common Stock subject
-------------
to the option.

T. OPTIONEE shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.

U. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, 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 such chain.

V. PLAN shall mean the Corporation's 1995 Stock Option Plan.
----

W. PLAN ADMINISTRATOR shall mean either the Board or a committee of Board
------------------
members, to the extent the committee is at the time responsible for the
administration of the Plan.

X. PURCHASE AGREEMENT shall mean the stock purchase agreement in
------------------
substantially the form of Exhibit B to the Grant Notice.

Y. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.

Z. SERVICE shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant.

AA. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.

BB. SUBSIDIARY shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, 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 such chain.

A-iii
<PAGE>

INTEGRITY QA SOFTWARE, INC.
STOCK OPTION AGREEMENT
----------------------

RECITALS
- --------

C. All capitalized terms in this Agreement shall have the meanings
assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

(i) Should Optionee cease to remain in Service for any
reason (other than death or Disability) while this option is outstanding, then
Optionee shall have a period of three (3) months (commencing with the date of
such cessation of Service) during which to exercise this option, but in no
event shall this option be exercisable at any time after the Expiration Date.

(ii) Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to Optionee's
will or in accordance with the laws of descent and distribution shall have the
right to exercise this option. Such right shall lapse and this option shall
cease to be outstanding upon the earlier of (i) the expiration of the twelve
-------
(12)-month period measured from the date of Optionee's death or (ii) the
Expiration Date.

(iii) Should Optionee cease Service by reason of
Disability while this option is outstanding, then Optionee shall have a period
of six (6) months (commencing with the date of such cessation of Service)
during which to exercise this option. However, should such Disability be
deemed to constitute Permanent Disability, then the period during which this
option is to remain exercisable shall be extended by an additional six (6)
months so that the exercise period shall be the twelve (12)-month period
following the date of Optionee's cessation of Service by reason of such
Permanent Disability. In no event shall this option be exercisable at any time
after the Expiration Date.

Note: Exercise of this option on a date later than three (3) months
----
following cessation of Service due to Disability will result in loss
of favorable Incentive Option treatment, unless such Disability
------
constitutes Permanent Disability. In the event that Incentive Option
treatment is not available, this option will be taxed as a Non-
Statutory Option upon exercise.

(iv) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for more
than the number of vested Option Shares for which the option is exercisable at
the time of Optionee's cessation of Service. Upon the expiration of such
limited exercise period or (if earlier) upon the Expiration Date, this option
shall terminate and cease to be outstanding for any vested Option Shares for
which the option has not been exercised. To the extent Optionee is not vested
in the Option Shares at the time of Optionee's cessation of Service, this
option shall immediately terminate

2
<PAGE>

and cease to be outstanding with respect to those shares.

6. SPECIAL TERMINATION OF OPTION.
-----------------------------

9. MANNER OF EXERCISING OPTION.
---------------------------

(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.

(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:

(A) cash or check made payable to the Corporation; or

3
<PAGE>

(B) a promissory note payable to the Corporation,
but only to the extent authorized by the Plan Administrator in accordance
with Paragraph 14.

Should the Common Stock be registered under Section 12(g) of the
1934 Act at the time the option is exercised, then the Exercise Price may
also be paid as follows:

(C) in shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or

(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure pursuant
to which Optionee (or any other person or persons exercising the option)
shall concurrently provide irrevocable written instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.

(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.

(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order for it
to comply with the applicable requirements of Federal and state securities
laws.

(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee) for the

4
<PAGE>

satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.

11. COMPLIANCE WITH LAWS AND REGULATIONS.
------------------------------------

(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation
and Optionee with all applicable requirements of law relating thereto and with
all applicable regulations of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock may be listed for trading at
the time of such exercise and issuance.

14. FINANCING. The Plan Administrator may, in its absolute
---------
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased

5
<PAGE>

Option Shares by delivering a promissory note. The terms of any such
promissory note (including the interest rate, the requirements for collateral
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion./1/

17. STOCKHOLDER APPROVAL.
--------------------

(a) The grant of this option is subject to approval of the Plan
by the Corporation's stockholders within twelve (12) months after the adoption
of the Plan by the Board. Notwithstanding any provision of this Agreement to
--------------------------------------------------
the contrary, this option may not be exercised in whole or in part until such
- -----------------------------------------------------------------------------
stockholder approval is obtained. In the event that such stockholder approval
- --------------------------------
is not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.

(b) If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock
issuable under the Plan is obtained in accordance with the provisions of the
Plan.

(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is
exercised for one or more Option Shares: (i) more than three (3) months after
the date Optionee ceases to be an Employee for any reason other than death or
Permanent Disability or (ii) more than twelve (12) months after the date
Optionee ceases to be an Employee by reason of Permanent Disability.

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

/1/ Authorization of payment of the Exercise Price by a promissory note
-
may, under currently proposed Treasury Regulations, result in the loss of
incentive stock option treatment under the Federal tax laws.

6
<PAGE>

(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant)
of the Common Stock and any other securities for which one or more other
Incentive Options granted to Optionee prior to the Grant Date (whether under
the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate. To the extent the
exercisability of this option is deferred by reason of the foregoing
limitation, the deferred portion shall become exercisable in the first
calendar year or years thereafter in which the One Hundred Thousand Dollar
($100,000) limitation of this Paragraph 18(b) would not be contravened, but
such deferral shall in all events end immediately prior to the effective date
of a Corporate Transaction in which this option is not to be assumed,
whereupon the option shall become immediately exercisable as a Non-Statutory
Option for the deferred portion of the Option Shares.

(c) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations on
the exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.