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Sample Business Contracts

1995 Stock Option/Stock Issuance Plan - Portal Software Inc.

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                             PORTAL SOFTWARE, INC.

                     1995 STOCK OPTION/STOCK ISSUANCE PLAN
                     -------------------------------------

                (Amended and Restated as of February 24, 1999)


ARTICLE ONE

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

     I.    PURPOSE OF THE PLAN

           This 1995 Stock Option/Stock Issuance Plan is intended to promote the
interests of Portal Software, Inc., a California 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.   STRUCTURE OF THE PLAN

           A.  The Plan shall be divided into two (2) separate equity programs:

                   (i)     the 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 Stock Issuance Program under which eligible
     persons may, at the discretion of the Plan Administrator, be issued shares
     of Common Stock directly, either through the immediate purchase of such
     shares or as a bonus for services rendered the Corporation (or any Parent
     or Subsidiary).

           B.  The provisions of Articles One and Four shall apply to both the
     equity programs under the Plan and shall accordingly govern the interests
     of all persons under the Plan.
   
           C.  Except as otherwise specifically noted, all share numbers in this
     document reflect the 3-for-1 split of the Common Stock, authorized by the
     Board in April, 1999 and approved by the shareholders in April, 1999.



     III.  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.
<PAGE>

           B.  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 or stock issuances thereunder 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 stock issuance
thereunder.

     IV.   ELIGIBILITY

           A.  The persons eligible to participate in 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,
(i) with respect to the option grants under the 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, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding, and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid by the Participant for such shares.

           C.  The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.


     V.    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
24,000,000 shares.


_________________________

/1/  Reflects a 5-for-1 stock split effected on June 24, 1996 and the 3-for-1
stock split adopted by the Board in April, 1999 and approved by the
shareholders in April, 1999. Includes the 6,000,000-share (2,000,000 pre-
split) increase authorized by the Board of Directors on February 24, 1999,
subject to shareholder approval.

                                       2
<PAGE>

     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.

                                       3
<PAGE>

                                  ARTICLE TWO

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

     1.    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 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%
     Shareholder, 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 Four 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 transaction.

                                       4
<PAGE>

           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.

           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.

                                       5
<PAGE>

           D.  Shareholder Rights. The holder of an option shall have no
               ------------------
shareholder 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.  Unvested Shares. 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, 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 director, officer or consultant.

           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 Option Grant Program. 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.

     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 Four shall be applicable to Incentive
Options.  Options which are specifically designated as Non-Statutory Options
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 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

                                       6
<PAGE>

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% Shareholder.  If any Employee to whom an Incentive Option is
               ---------------
granted is a 10% Shareholder, 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.

           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 Option Grant Program
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.

     V.    ADDITIONAL AUTHORITY

           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.

                                       7
<PAGE>

                                 ARTICLE THREE

                            STOCK ISSUANCE PROGRAM
                            ----------------------

     I.    STOCK ISSUANCE TERMS

           Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.

           A.  Purchase Price.
               --------------

               1.  The purchase price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:

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

                   (ii)    If the person to whom the stock issuance is made is a
     10% Shareholder, then the purchase 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 stock issuance date.

           2.  Subject to the provisions of Section I of Article Four, shares of
Common Stock may be issued under the Stock Issuance Program for one or both of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

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

                   (ii)    past services rendered to the Corporation (or any
           Parent or Subsidiary).

           B.  Vesting Provisions.
               ------------------
               1.  Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:

                   (i)     the Service period to be completed by the Participant
           or the performance objectives to be attained,

                   (ii)    the number of installments in which the shares are to
           vest,

                                       8
<PAGE>

                   (iii)   the interval or intervals (if any) which are to lapse
           between installments, and

                   (iv)    the effect which death, Disability or other event
     designated by the Plan Administrator is to have upon the vesting schedule,

shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.  The Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, beginning one (1) year
after the stock issuance date.  However, this minimum vesting requirement shall
not be applicable with respect to any stock issued to a director, officer or
consultant.

           2.  Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
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 shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

           3.  The Participant shall have full shareholder rights with respect
to any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.

           4.  Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further shareholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to such surrendered shares.

           C.  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
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. 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.

                                       9
<PAGE>

     II.   SHARE ESCROW/LEGENDS

           Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

                                       10
<PAGE>

                                 ARTICLE FOUR

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

     I.    FINANCING

           The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price or the purchase price for shares issued to such person
under the Plan 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.  However, any promissory notes delivered by a consultant
must be secured by property other than the purchased shares of Common Stock.  In
all events, the maximum credit available to the Optionee or Participant may not
exceed the sum of (i) the aggregate option exercise price or purchase price
payable for the purchased shares plus (ii) any Federal, state and local income
and employment tax liability incurred by the Optionee or the Participant in
connection with the option exercise or share purchase.

     II.   EFFECTIVE DATE AND TERM OF THE PLAN

           A.  The Plan became effective when adopted by the Board on December
22, 1995 and was approved by the Corporation's shareholders on March 8, 1996.
The Plan was restated and amended on July 18, 1997 to increase the number of
shares issuable thereunder (the "1997 Restatement"). The 1997 Restatement was
adopted by the Board on July 18, 1997 and approved by the Corporation's
shareholders on July 18, 1997. The Plan was amended on April 17, 1998 to
increase the number of shares issuable thereunder by an additional 1,140,000
shares of Common Stock (the "April 1998 Amendment"). The April 1998 Amendment
was approved by the Corporation's shareholders on June 22, 1998. The Plan was
amended on August 25, 1998 to increase the number of shares issuable thereunder
by an additional 1,250,000 shares of Common Stock (the "August 1998 Amendment").
The August 1998 Amendment was approved by the Corporation's shareholders on
August 31, 1998. The foregoing information has been provided on a historical
basis and does not reflect the 3-for-1 split of the Common Stock authorized by
the Board in April, 1999 and approval by the shareholders in April, 1999.

           B.  On February 24, 1999, the Board amended the Plan to increase the
number of shares reserved for issuance under the Plan by an additional 6,000,000
shares of Common Stock (the "February 1999 Amendment"). No options shall be
granted, and no shares shall be issued, on the basis of the February 1999
Amendment, unless and until the such Amendment is approved by the shareholders.
Should such shareholder approval not be obtained by February 23, 2000, then such
share increase shall not be implemented. Subject to the foregoing limitations,
the Plan Administrator may make option grants under the Plan at any time before
the date fixed herein for the termination of the Plan.

           C.  The Plan shall terminate upon the earliest of (i) December 21,
2005, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of options or the issuance of
shares (whether vested or unvested) under the Plan 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 issuance.

                                       11
<PAGE>

     III.  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 adversely affect the rights and obligations with respect
to options or unvested stock issuances at the time outstanding under the Plan,
unless the Optionee or the Participant consents to such amendment or
modification. In addition, the Board shall not, without the approval of the
Corporation's shareholders, (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 to purchase shares of Common Stock may be granted under
the Plan and shares of Common Stock may be issued under the Plan that are in
each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under the Plan are
held in escrow until there is obtained shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such shareholder 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 and the Participants the exercise or purchase 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.

                                       12
<PAGE>

     IV.   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.

     V.    WITHHOLDING

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

     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 (i) upon the exercise of any
option or (ii) under the Stock Issuance Program 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 or the Participant
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 or the Participant, which rights are hereby expressly reserved by each,
to terminate such person'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 and
each Participant in 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.

                                       13
<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 shareholder-
           ---------------------                                              
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 Portal Software, Inc., a California
           -----------
corporation.

     G.    Disability shall mean the inability of the Optionee or the
           ----------
Participant 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.    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.

     I.    Exercise Date shall mean the date on which the Corporation shall have
           -------------                                                       
received written notice of the option exercise.

     J.    Fair Market Value per share of Common Stock on any relevant date
           -----------------           
shall be determined in accordance with the following provisions:

                                      A-1
<PAGE>

           (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)  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.

     K.    Incentive Option shall mean an option which satisfies the
           ----------------
requirements of Code Section 422.

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

     M.    Non-Statutory Option shall mean an option not intended to satisfy the
           --------------------
requirements of Code Section 422.

     N.    Option Grant Program shall mean the option grant program in effect
           --------------------
under the Plan.

     O.    Optionee shall mean any person to whom an option is granted under the
           --------
Option Grant Program.

     P.    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.

     Q.    Participant shall mean any person who is issued shares of Common
           -----------
Stock under the Stock Issuance Program.

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

                                      A-2
<PAGE>

     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.    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 or
stock issuance.

     U.    Stock Exchange shall mean either the American Stock Exchange or the
           --------------
New York Stock Exchange.

     V.    Stock Issuance Agreement shall mean the agreement entered into by the
           ------------------------
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

     W.    Stock Issuance Program shall mean the stock issuance program in
           ----------------------
effect under the Plan.

     X.    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.

     Y.    10% Shareholder 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-3