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Verity Inc/DE – ‘DEF 14A’ for 10/10/01

On: Friday, 8/31/01 · For: 10/10/01 · Accession #: 1095811-1-504688 · File #: 0-26880

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/31/01  Verity Inc/DE                     DEF 14A    10/10/01    1:61K                                    Bowne of Los Ang… Inc/FA

Definitive Proxy Solicitation Material — Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Definitive Proxy Statement                            22     92K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Certain Relationships and Related Transactions Steven M. Krausz
1	1st Page - Filing Submission
12	Steven M. Krausz
16	Certain Relationships and Related Transactions

DEF 14A 1st Page of 22 TOC ↑Top Previous Next ↓Bottom Just 1st
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

Verity, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box)

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1. Title of each class of securities to which transaction applies:

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

2. Aggregate number of securities to which transaction applies:

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

3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):

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

4. Proposed maximum aggregate value of transaction:

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

5. Total fee paid:

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

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

6. Amount Previously Paid:

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7. Form, Schedule or Registration Statement No.:

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8. Filing Party:

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9. Date Filed:

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DEF 14A 2nd Page of 22 TOC 1st Previous Next ↓Bottom Just 2nd

VERITY, INC.
894 ROSS DRIVE
SUNNYVALE, CA 94089
------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 10, 2001

To the Stockholders of Verity, Inc.:

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Verity,
Inc., a Delaware corporation, will be held on Wednesday, October 10, 2001 at
11:00 a.m. local time at the Sunnyvale Sheraton, 1100 N. Mathilda Avenue,
Sunnyvale, California for the following purpose:

1. To elect two directors to hold office until the 2004 Annual Meeting of
Stockholders.

2. To ratify the selection of PricewaterhouseCoopers LLP as our independent
auditors for our fiscal year ending May 31, 2002.

3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.

The foregoing items of business are more fully described in the proxy
statement accompanying this notice.

The board of directors has fixed the close of business on August 15, 2001
as the record date for the determination of stockholders entitled to notice of
and to vote at this annual meeting and at any adjournment or postponement
thereof.

By Order of the Board of Directors

/s/ TIMOTHY J. MOORE
Timothy J. Moore
Secretary

Sunnyvale, California
August 31, 2001

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.

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VERITY, INC.
894 ROSS DRIVE
SUNNYVALE, CA 94089
------------------------

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 10, 2001
------------------------

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed proxy is solicited on behalf of the board of directors of
Verity, Inc., a Delaware corporation, for use at the annual meeting of
stockholders to be held on October 10, 2001, at 11:00 a.m. local time, or at any
adjournment or postponement thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting. The annual meeting will be held at
the Sunnyvale Sheraton, 1100 N. Mathilda Avenue, Sunnyvale, California. We
intend to mail this proxy statement and accompanying proxy card on or about
September 4, 2001, to all stockholders entitled to vote at the annual meeting.

SOLICITATION

We will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of common stock beneficially owned by
others to forward to such beneficial owners. We may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by our directors, officers or other regular employees. No
additional compensation will be paid to directors, officers or other regular
employees for such services.

VOTING RIGHTS AND OUTSTANDING SHARES

Only holders of record of our common stock at the close of business on
August 15, 2001 will be entitled to notice of and to vote at the annual meeting.
At the close of business on August 15, 2001, we had outstanding and entitled to
vote 35,561,815 shares of common stock.

Each holder of record of common stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the annual meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a proposal
has been approved

REVOCABILITY OF PROXIES

Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing a written
notice of revocation or a duly executed proxy bearing a later date with our
secretary at our principal executive office, 894 Ross Drive, Sunnyvale, CA
94089, or it may be revoked by attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy.

STOCKHOLDER PROPOSALS

The deadline for submitting a stockholder proposal for inclusion in our
proxy statement and form of proxy for our 2002 annual meeting of stockholders
pursuant to Rule 14a-8 of the Securities and Exchange

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Commission is May 3, 2002. The deadline for submitting a stockholder proposal or
a nomination for director that is not to be included in such proxy statement and
proxy is also May 3, 2002. Stockholders are also advised to review our bylaws,
which contain additional requirements with respect to advance notice of
stockholder proposals and director nominations, including different deadlines if
our 2002 annual meeting of stockholders is held before September 10, 2002 or
after November 9, 2002.

PROPOSAL 1

ELECTION OF DIRECTORS

Our certificate of incorporation and bylaws provide that our board of
directors shall be divided into three classes, each class consisting, as nearly
as possible, of one-third of the total number of directors, with each class
having a three-year term. Vacancies on our board of directors may be filled only
by persons elected by a majority of the remaining directors. A director elected
by the board of directors to fill a vacancy (including a vacancy created by an
increase in the board of directors) shall serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.

Our board of directors is presently composed of six members. There are two
directors in the class whose term of office expires in 2001. The nominees for
election to this class, Gary J. Sbona and Karl C. Powell, are both currently
members of our board of directors. Mr. Sbona was previously elected by the
stockholders and Mr. Powell was appointed by our board in August 2000. If
elected at the annual meeting, the nominees would serve until the 2004 annual
meeting and until their successors are elected and have qualified, or until such
directors' earlier death, resignation or removal.

Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the nominee named below. In the event that such nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each nominee has agreed to serve if elected, and management has no
reason to believe that such nominee will be unable to serve.

Set forth below is biographical information for each nominee and each
person whose term of office as a director will continue after the annual
meeting.

NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2004 ANNUAL MEETING

GARY J. SBONA, age 58, has served as our Chief Executive Officer since July
1997, as a member of our board of directors since May 1998 and as the Chairman
of our board of directors since March 1999. Mr. Sbona also served as our
President from July 1997 to September 1999. Mr. Sbona currently serves as
Chairman and Chief Executive Officer of Auspex Systems Inc., a provider of
network attached storage solutions, and Accelerated Networks, Inc., a developer
of multi-service broadband access solutions for telecommunications service
providers. In addition, Mr. Sbona serves as a director of 3D Systems
Corporation, a solid imaging and mass customization company, and as a director
of Calico Commerce Inc., a provider of interactive selling software for
organizations selling complex products or services over the Internet. Since
1974, Mr. Sbona also serves as Chairman and Chief Executive Officer of Regent
Pacific Management Corporation, a professional services firm that is currently
providing us with management services.

KARL C. POWELL, age 58, has served as a member of our board of directors
since August 2000. Mr. Powell also serves as President and Chief Executive
Officer of N H M & P, Inc., a corporation engaged in the development of software
management tools. Mr. Powell was a co-founder of Sequent Computer Systems, Inc.
and served as a director from 1983 until 1999, when it was acquired by IBM. He
also served as Chairman of the Board of Sequent Computer Systems and as Chief
Executive Officer from its inception. Mr. Powell holds a B.S. in Mechanical
Engineering from the U.S. Merchant Marine Academy.

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.

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DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING

STEVEN M. KRAUSZ, age 46, has served as a member of our board of directors
since May 1988. Mr. Krausz has been a General Partner of the venture capital
firms U.S. Venture Partners III, IV,V, VI and VII, U.S.V. Entrepreneur Partners
and BHMS Partners III since 1985. Mr. Krausz holds a B.S. in Electrical
Engineering and an M.B.A. from Stanford University.

CHARLES P. WAITE, JR., age 46, has served as a member of our board of
directors since May 1988. Mr. Waite has been a General Partner of Olympic
Venture Partners II and a Vice President of Northwest Venture Services Corp.
since 1987, a general partner of Olympic Venture Partners III since 1994 and a
General Partner of Olympic Venture Partners IV since 1997, all of which are
venture capital firms. Mr. Waite is also a director of Loudeye Technologies,
Inc., Seattle Genetics, Inc., SignalSoft Corp., WatchGuard Technologies, Inc.
and several privately held companies. Mr. Waite holds an A.B. in History from
Kenyon College and an M.B.A. from Harvard University.

DIRECTORS CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING

STEPHEN A. MACDONALD, age 55, has served as a member of our board of
directors since December 1988. From May 1983 until May 1996, Mr. MacDonald was
employed by Adobe Systems Incorporated, a software company, where he served as
Senior Vice President and Chief Operating Officer. From May 1996 to April 1998,
he served as President and Chief Executive Officer of Active Software, Inc., a
software company. Mr. MacDonald was an independent consultant from May 1998
through September 2000. Since October 2000, Mr. MacDonald has been President and
Chief Executive Officer of Miro, Inc., a startup software company. Mr. MacDonald
holds a B.Sc. from Dalhousie University.

ANTHONY J. BETTENCOURT, age 40, has served as a member of our board of
directors since September 1999. Mr. Bettencourt joined us in July 1995 as Vice
President of North American Sales. He was subsequently promoted to Vice
President of Worldwide Sales and Marketing and served in this position until his
departure in December 1996. From December 1996 to September 1997, Mr.
Bettencourt served as an officer of OnLive! Technologies, a private technology
company. Mr. Bettencourt rejoined us in September 1997 as Senior Vice President,
Worldwide Sales and Product Marketing and was appointed to the position of
President in September 1997. Prior to initially joining us, Mr. Bettencourt
served as vice president of sales for Versant Object Technology from 1992 to
June 1995 and as director of U.S. sales for Versant Object Technology from July
1990 to 1992. From December 1988 to July 1990, Mr. Bettencourt served as Vice
President of Sales for Rockwell CMC. Mr. Bettencourt holds a B.A. from Santa
Clara University.

BOARD COMMITTEES AND MEETINGS

During the fiscal year ended May 31, 2001, our board of directors held
seven meetings and acted by written consent six times. Our board has an audit
committee and a compensation committee, and since August 2001 has a nominating
committee.

The audit committee meets with our independent auditors at least annually
to review the results of the annual audit and discuss the financial statements,
recommends to our board the independent auditors to be retained, and receives
and considers the auditors' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. The audit committee is currently composed of three non-employee
directors: Messrs. Krausz, MacDonald and Waite. The audit committee met once
during fiscal year 2001. All members of our audit committee are independent (as
independence is defined in Rule 4200(a)(14) of the NASD listing standard). The
audit committee has adopted a written audit committee charter that is attached
as Appendix A.

The compensation committee makes recommendations to our board concerning
salaries and incentive compensation, awards stock options to employees and
consultants under our stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the board may
delegate. The compensation committee is composed of two non-employee directors:
Messrs. Krausz and Waite. The compensation committee acted by unanimous written
consent 17 times during fiscal year 2001.

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Our board formed a nominating committee in August 2001. The function of the
nominating committee is to interview, evaluate, nominate and recommend
individuals for membership on our board of directors. No procedure has been
established for the consideration of nominees recommended by stockholders. The
nominating committee is composed of three non-employee directors: Messrs.
Powell, MacDonald and Waite. In August 2001, the nominating committee met and
recommended to our board the nomination of Messrs. Sbona and Powell as
directors. We did not have a nominating committee during the fiscal year ended
May 31, 2001.

During the fiscal year ended May 31, 2001, each director attended 75% or
more of the aggregate of the meetings of the board and of the committees on
which he served, held during the period for which he was a director or committee
member, respectively.

PROPOSAL 2

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

Our board of directors has selected PricewaterhouseCoopers LLP as our
independent auditors for our fiscal year ending May 31, 2002 and has further
directed that management submits the selection of independent auditors for
ratification by the stockholders at the annual meeting. PricewaterhouseCoopers
LLP, together with Coopers & Lybrand LLP, the predecessor entity of
PricewaterhouseCoopers LLP, has audited our financial statements since our
inception. Representatives of PricewaterhouseCoopers LLP are expected to be
present at the annual meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.

Stockholder ratification of the selection of PricewaterhouseCoopers LLP as
our independent auditors is not required by our bylaws or otherwise. Our board
of directors is submitting the selection of PricewaterhouseCoopers LLP to the
stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, our audit committee and board of
directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, our audit committee and board of directors in their
discretion may direct the appointment of different independent auditors at any
time during the year if they determine that such a change would be in the best
interests of us and our stockholders.

The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the annual meeting will
be required to ratify the selection of PricewaterhouseCoopers LLP. Abstentions
will be counted toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.

Audit Fees. During the fiscal year ended May 31, 2001, the aggregate fees
billed by PricewaterhouseCoopers LLP for the audit of our financial statements
for the year and for the quarterly review of our financial statements was
$95,000.

All Other Fees. During fiscal year ended May 31, 2001, the aggregate fees
billed by PricewaterhouseCoopers LLP for professional services other than audit
was $96,000. That amount includes $48,000 billed for preparations of quarterly
filings, $35,000 billed for acquisition expenses, $3,000 billed for registration
statements and $10,000 billed for our 401(k) plan.

Our audit committee has determined the rendering of the non-audit services
by PricewaterhouseCoopers LLP is compatible with maintaining the auditor's
independence.

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of June 30, 2001 by:

- each director and nominee for director;

- each of the executive officers named in the Summary Compensation Table;

- all directors and executive officers as a group; and

- each other person, or group of affiliated persons, known by us to be
beneficial owners of 5% or more of our common stock.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of June 30, 2001 are deemed to be
beneficially owned. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person. Information
with respect to 5% stockholders has been derived from such stockholders or
filings by these stockholders with the Securities and Exchange Commission prior
to June 30, 2001, and consequently may not reflect their stock ownership at June
30, 2001.

Except as indicated in this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name. Percentage of ownership is based on 35,231,996 shares of our
common stock outstanding on June 30, 2001. Unless otherwise indicated, the
address of each of the individuals named below is 894 Ross Drive, Sunnyvale,
California 94089.

[Enlarge/Download Table]

BENEFICIAL OWNERSHIP
-----------------------------------------------------
SHARES ISSUABLE
PURSUANT TO OPTIONS
AND WARRANTS NUMBER OF
EXERCISABLE WITHIN SHARES (INCLUDING
60 DAYS OF NUMBER SHOWN IN PERCENTAGE
BENEFICIAL OWNER JUNE 30, 2001 FIRST COLUMN) OF TOTAL(%)
---------------- ------------------- ----------------- -----------

DIRECTORS AND EXECUTIVE OFFICERS
Gary J. Sbona...................................... 2,531,700 2,531,700 6.7
Anthony J. Bettencourt............................. 863,251 863,690 2.4
Steven M. Krausz................................... 287,600 287,600 *
Stephen A. MacDonald............................... 347,000 360,000 1.0
Karl C. Powell..................................... 120,000 120,000 *
Charles P. Waite, Jr. ............................. 293,959 304,404 *
Dr. Ashok K. Chandra............................... 651,000 652,341 1.8
Michael T. Zuckerman............................... 300,000 300,000 *
Todd K. Yamami..................................... 447,293 447,728 1.3
All directors and executive officers as a group (10
persons)......................................... 5,841,803 5,867,463 14.3
5% STOCKHOLDERS
Citigroup, Inc.(1)................................. 0 4,496,347 12.8
Wellington Management Company LLP(2)............... 0 3,742,367 10.6
Franklin Resources, Inc.(3)........................ 0 2,066,652 5.9
T. Rowe Price Associates, Inc. .................... 0 1,808,600 5.1

---------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
our common stock.

(1) Citigroup Inc. is the sole shareholder of Salomon Smith Barney Holdings Inc.
and has shared voting and investment power with respect to 4,496,347 shares,
and consequently may be deemed to beneficially own

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these shares. Salomon Smith Barney Holdings Inc. is the sole shareholder of
Salomon Brothers Holding Company Inc. and has shared voting and investment
power with respect to 4,491,352 shares, and consequently may be deemed to
beneficially own these shares. Salomon Brothers Holding Company Inc. is the
sole shareholder of Salomon Smith Barney, Inc. and has shared voting and
investment power with respect to 3,608,804 shares, and consequently may be
deemed to beneficially own these shares. Citigroup Inc. is located at 399
Park Avenue, New York, New York 10043 and Salomon Smith Barney Holdings
Inc., Salomon Brothers Holding Company Inc. and Salomon Smith Barney, Inc.
are located at 388 Greenwich Street, New York, New York 10013.

(2) Wellington Management Company LLP, an investment advisor, has shared voting
power with respect to 2,804,277 of these shares and has shared investment
power with respect to 3,742,367 of these shares with investment advisory
clients of Welling Management Company, and consequently may be deemed to
beneficially own these shares. Wellington Management Company LLP is located
at 75 State Street, Boston, Massachusetts 02109.

(3) Franklin Advisors, Inc., an investment advisor to Franklin Resources, Inc.,
has sole voting power and investment power with respect to 1,842,800 of
these shares and consequently may be deemed to beneficially own these
shares. Franklin Management, Inc. has sole investment power with respect to
223,852 of these shares and consequently may be deemed to beneficially own
these shares. Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. each own
in excess of 10% of the common stock of Franklin Resources, Inc. and
consequently may be deemed to beneficially own the shares held by Franklin
Resources, Inc. Franklin Advisors, Inc. and Messrs. Charles B. Johnson and
Rupert H. Johnson, Jr. disclaim beneficial ownership of the shares held by
Franklin Resources, Inc. Franklin Resources, Inc. is located at 777 Mariners
Island Boulevard, San Mateo, California 94404.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent of a registered class of our
equity securities, to file with the SEC initial reports of ownership and reports
of changes in ownership of our common stock and other equity securities.
Officers, directors and greater than ten percent stockholders are required by
SEC regulations to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports
furnished to us and written representations that no other reports were required,
during our fiscal year ended May 31, 2001, all Section 16(a) filing requirements
applicable to our officers, directors and greater than ten percent beneficial
owners were complied with.

COMPENSATION

COMPENSATION OF DIRECTORS

Each of our non-employee directors receives an annual retainer of $25,000.
Directors are also reimbursed for their expenses in attending board and
committee meetings. Each person who is first elected or appointed as a
non-employee director (excluding any person who is already a director at the
time of first becoming a non-employee director) is automatically granted an
option to purchase 40,000 shares of our common stock on the date of such
election or appointment pursuant to our 1995 Outside Directors Stock Option
Plan. In addition, all directors who have served on the board for more than six
months and are not members of management will receive stock options to purchase
40,000 shares of our common stock upon the date of each annual stockholders'
meeting. The exercise price of each option is equal to 100% of the fair market
value of our common stock subject to the option on the day it is granted. Each
option will vest over four years and generally must be exercised within eight
years.

During the last fiscal year, we granted options to purchase an aggregate of
465,000 shares to our non-employee directors at a weighted average exercise
price of $24.98 per share. We granted options to purchase 160,000 shares under
our outside directors plan and options to purchase 305,000 shares under our 1995
Stock
6

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Option Plan. The per share exercise price of each option is the fair market
value of such common stock on the date of grant (based on the closing sales
price reported in the Nasdaq National Market for the date of grant).

COMPENSATION OF EXECUTIVE OFFICERS

The following table shows for the fiscal years ended May 31, 1999, 2000 and
2001, compensation awarded or paid to, or earned by, our Chief Executive Officer
and our other four most highly compensated executive officers at May 31, 2001:

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
--------------------------- ---- -------- -------- ------------ ---------------

Gary J. Sbona(2)....................... 2001 $ 52,000 $ 10,400 807,000 $336
Chief Executive Officer and 2000 52,000 10,400 1,000,000 356
Chairman of the Board 1999 52,000 10,400 940,000 585
Anthony J. Bettencourt................. 2001 300,000 305,000(3) 450,000 240
President 2000 270,833 279,167(4) 401,000 230
1999 200,000 200,000(5) 350,000 264
Dr. Ashok K. Chandra(6)................ 2001 310,000 158,500 350,000 552
Senior Vice President Development and 2000 87,500 12,500 301,000 46
New Business Activity 1999 -- -- -- --
Michael T. Zuckerman(7)................ 2001 200,000 50,000 300,000 290
Vice President of Marketing 2000 -- -- -- --
1999 -- -- -- --
Todd K. Yamami......................... 2001 171,385 34,277 325,000 192
Chief Financial Officer 2000 128,333 25,667 151,000 194
1999 104,167 20,833 90,000 176

---------------
(1) Represents premiums paid on behalf of such executive officer for life
insurance coverage in excess of a base amount of $50,000 in coverage.

(2) Mr. Sbona is partially compensated for his services to us by Regent
Management Corporation. See "Certain Relationships and Related Transactions"
below.

(3) $200,000 represents sales commissions earned under a sales plan.

(4) $179,167 represents sales commissions earned under a sales plan.

(5) $150,000 represents sales commissions earned under a sales plan.

(6) Dr. Chandra joined us in February 2000.

(7) Mr. Zuckerman joined us in June 2000.

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STOCK OPTION GRANTS AND EXERCISES

We grant options to purchase shares to our executive officers under our
1995 Stock Option Plan, and in June 2001 we amended our 1996 Non-Statutory Stock
Option Plan to permit grants to directors and officers if we meet certain
requirements imposed by The Nasdaq Stock Market.

The following tables show for the fiscal year ended May 31, 2001, certain
information regarding options granted to, exercised by, and held at year end by,
the individuals listed in the Summary Compensation Table:

OPTION GRANTS IN LAST FISCAL YEAR

[Enlarge/Download Table]

POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTION EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR(2) SHARE DATE 5% 10%
---- ---------- -------------- --------- ---------- ---------- -----------

Gary J. Sbona............... 407,000 5.15% 36.3750 7/5/08 $7,068,549 $16,930,403
400,000 5.06% 13.9375 12/4/08 2,661,814 6,375,508
Anthony J. Bettencourt...... 200,000 2.53% 36.3750 7/5/08 3,473,488 8,319,609
250,000 3.16% 13.9375 12/4/08 1,663,634 3,984,692
Dr. Ashok K. Chandra........ 94,502 1.19% 36.3750 7/5/08 1,641,258 3,931,098
5,498 0.07% 36.3750 7/5/08 95,486 228,706
200,000 2.53% 13.9375 12/4/08 1,330,907 3,187,754
50,000 0.63% 30.1250 2/1/09 719,167 1,722,531
Michael T. Zuckerman........ 200,000 2.53% 36.3750 7/5/08 3,473,488 8,319,609
7,174 0.09% 13.9375 12/4/08 47,740 114,345
92,826 1.17% 13.9375 12/4/08 617,714 1,479,532
Todd K. Yamami.............. 100,000 1.26% 36.3750 7/5/08 1,736,744 4,159,804
125,000 1.58% 13.9375 12/4/08 831,817 1,992,346
5,499 0.07% 18.1875 4/6/09 47,752 114,374
94,501 1.19% 18.1875 4/6/09 820,620 1,965,528

---------------
(1) Options granted in fiscal 2001 vest monthly over a 12-month period.

(2) Based on an aggregate of options to purchase 7,908,950 shares granted to
employees, including the individuals listed in the Summary Compensation
Table, in fiscal year 2001.

(3) The potential realizable value is calculated based on the term of the option
at its time of grant, eight years, compounded annually. It is calculated by
assuming that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND OPTION VALUES AT MAY 31,
2001

[Enlarge/Download Table]

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
SHARES END(1) AT FISCAL YEAR END(1)(3)
ACQUIRED ON VALUE ---------------------- -------------------------
NAME EXERCISE(1) REALIZED(2) VESTED UNVESTED VESTED UNVESTED
---- ----------- ----------- ---------- --------- ------------ ----------

Gary J. Sbona................. 529,300 $16,644,939 2,104,282 427,418 $3,798,029 $352,918
Anthony J. Bettencourt........ 402,749 9,993,646 619,706 243,545 183,867 352,142
Dr. Ashok K. Chandra.......... -- -- 311,413 339,587 126,041 176,459
Michael T. Zuckerman.......... -- -- 83,314 216,686 56,690 94,560
Todd K. Yamami................ 83,663 1,462,248 244,165 203,128 47,851 123,683

---------------
(1) These options are immediately exercisable in full at the date of grant, but
shares purchased upon exercise of unvested options are subject to a
repurchase right in our favor to repurchase unvested shares at the original
issuance price.

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(2) Represents the fair market value of our common stock on the exercise date
minus the aggregate exercise price of such option.

(3) Calculated on the basis of the fair market value of our common stock on May
31, 2001, equal to $15.45 per share, as reported by the Nasdaq National
Market, minus the aggregate exercise price.

EMPLOYMENT AGREEMENTS AND TERMINATION
AND CHANGE IN CONTROL AGREEMENTS

Our 1995 Stock Option Plan provides that, in the event of (a) a sale or
exchange by the stockholders of all or substantially all of our voting stock or
certain mergers or consolidations to which we are a party and in which our
stockholders do not retain beneficial ownership of at least a majority of our or
our successor's voting stock, (b) the sale, exchange or transfer of all or
substantially all of our assets other than to one or more subsidiary
corporations, or (c) our liquidation or dissolution, our board may provide for
the acquiring or successor corporation to assume or substitute new options for
the options outstanding under the 1995 plan. To the extent that the options
outstanding under the 1995 plan are not assumed, substituted for, or exercised
prior to such event, they will terminate; provided, however, that we have
granted options to certain of our officers, including the individuals listed in
the Summary Compensation Table, which provide for acceleration of vesting upon
such a change in control.

Under the 1995 plan, our board retains discretion to modify the terms,
including the price, of outstanding shares. Options granted under that plan are
immediately exercisable, subject to a right of repurchase in favor of us for all
exercised, unvested shares. Generally, 12.5% of the shares subject to options
granted to new employees become vested six months after the date of commencement
of employment and 2.083% of the shares subject to options vest upon completion
of each succeeding full month of continuous employment with us. Shares subject
to options granted to existing employees generally vest at the rate of 2.083%
per month for 48 months following the date of grant. Generally, options have a
term of eight years. All options were granted at fair market value as determined
by our board on the date of grant.

On July 31, 1997, we appointed Gary J. Sbona as our President and Chief
Executive Officer, and we entered into an agreement with Regent Pacific
Management Corporation, a management firm of which Mr. Sbona is the Chairman and
Chief Executive Officer, which agreement was subsequently amended. See "Certain
Relationships and Related Transactions."

On September 29, 2000, we entered into a letter agreement with Anthony J.
Bettencourt to serve as our President at a monthly salary of $25,000. The
agreement is at-will, and further provides that if Mr. Bettencourt is terminated
without cause he will continue to receive monthly payments of $41,667 for the
term of the agreement. The term of the agreement is one year.

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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTOR(1)

The audit committee of our board of directors consisted of Messrs. Krausz,
MacDonald and Waite. Under currently applicable rules, all members are
independent (as independence is defined in Rule 4200(a)(14) of the NASD listing
standard). Our board of directors has adopted a written charter for the audit
committee, which is attached to this notice as Appendix A.

The audit committee oversees our financial reporting process on behalf of
our board of directors. Management has primary responsibility for the financial
statements and the reporting process including the systems of internal controls.
In fulfilling its oversight responsibilities, the audit committee reviewed the
audited financial statements in the annual report with management, including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgements, and the clarity of
disclosures in the financial statements.

The audit committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgements as to the quality, not just the acceptability, of our accounting
principles and such other matters as are required to be discussed with the
committee under generally accepted auditing standards. In addition, the audit
committee has discussed with the independent auditors the auditors' independence
from management and Verity, including the matters in the written disclosures
required by the Independence Standards Board and considered the compatibility of
nonaudit services with the auditors' independence.

The audit committee discussed with our independent auditors the overall
scope and plans for their audit. The committee meets with the independent
auditors, with and without management present, to discuss the results of their
examination, their evaluation of our internal controls, and the overall quality
of our financial reporting. The committee held one meeting during fiscal 2001.

In reliance on the reviews and discussions referred to above, the audit
committee recommended to our board and the board has approved that the audited
financial statements be included in the Annual Report on Form 10-K for the year
ended May 31, 2001 for filing with the Securities and Exchange Commission. The
committee and the board have also recommended, subject to stockholder approval,
the selection of PricewaterhouseCoopers LLP as our independent auditors for the
year ending May 31, 2002.

Audit Committee

Steven M. Krausz
Stephen A. MacDonald
Charles P. Waite, Jr.

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

1 The material in this report is not "soliciting materials," is not deemed
"filed" with the SEC, and is not to be incorporated by reference in any of our
filings under the 1933 or 1934 Act.
10

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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(2)

The compensation committee is comprised of two non-employee directors of
our board of directors, Messrs. Krausz and Waite. The committee is responsible
for setting and administering policies governing compensation of executive
officers. For all executive officers, the committee reviews the performance and
compensation levels for executive officers, sets salary and bonus levels and
makes option grants under our 1995 plan.

COMPENSATION POLICIES GENERALLY

The goals of our executive officer compensation policies are to attract,
retain and reward executive officers who contribute to our success, to align
executive officer compensation with our performance and to motivate executive
officers to achieve our business objectives. We use salary, executive officer
bonuses and stock options to achieve these goals.

SALARIES AND BONUSES. Salaries are set for each executive officer with
reference to a range of salaries for comparable positions among high technology
companies of similar size and location. Annual salary adjustments take into
account individual executive officer's achievements during the prior fiscal year
toward key company-wide objectives set annually by our board, in consultation
with our Chief Executive Officer, as well as the executive officer's performance
of his individual responsibilities.

Our variable cash incentive compensation for fiscal 2001 was provided
through our employee bonus plan for all executive officers except for our
President, whose bonus plan for fiscal 2001 was determined based upon
negotiations between the officer and us. In accordance with the committee's
goal, fiscal 2001 variable cash incentive compensation for the bonus plan
participants was targeted for up to 20% of the officer's salary if predetermined
corporate revenue and net income objectives were achieved.

STOCK OPTIONS. The committee strongly believes that equity ownership by
executive officers provides incentives to build stockholder value and align the
interests of executive officers with the stockholders. Initial stock option
grants to executive officers are subject to four year vesting. The size of the
initial grant has been determined with reference to comparable stock option
compensation offered by similarly sized high technology companies for similar
positions and the responsibilities and expected future contributions of the
executive officer, as well as recruitment considerations. In determining the
size of, or whether to grant, refresher grants, the committee has considered
each executive officer's performance during the previous periods and expected
contributions during future periods, as well as the relative position and
responsibilities of each executive officer and previous option grants to such
executive officers. Generally, refresher option grants vest monthly over a one
year period from the date of grant. The committee believes that refresher
options have provided strong incentives for executive officers to remain with
us.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION. We have considered regulations of
the Internal Revenue Service which restrict deductibility of executive
compensation paid to each of the five most highly compensated executive officers
at the end of any fiscal year to the extent such compensation exceeds $1,000,000
for any of such officers in any year and does not qualify for an exception under
the statute or proposed regulations. The committee concluded in March 1996 that
it would be advisable to establish certain restrictions on the granting of
options under the 1995 plan to assist in the qualification of compensation
recognized in connection with the exercise of such options for an exemption; the
stockholders approved these restrictions at the Special Meeting of Stockholders
held on March 28, 1996. The committee does not believe that other components of
our compensation will be likely to exceed $1,000,000 for any executive officer
in the foreseeable future and therefore concluded that no further action with
respect to qualifying such compensation for deductibility was necessary at this
time. In the future, the committee will continue to evaluate the

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

2 The material in this report is not "soliciting materials," is not deemed
"filed" with the SEC, and is not to be incorporated by reference in any of our
filings under the 1933 or 1934 Act.
11

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advisability of qualifying its executive compensation for deductibility of such
compensation. The committee's policy is to qualify its executive compensation
for deductibility under applicable tax laws as practicable.

CHIEF EXECUTIVE OFFICER COMPENSATION

Mr. Sbona became our employee in February 1998 and receives a salary of
$52,000 per year, or $1,000 per week. The board determined Mr. Sbona's salary by
taking into consideration the value of the services rendered to us and Mr.
Sbona's interest in the amounts paid to Regent Pacific. Mr. Sbona also received
a bonus of $10,400 in fiscal 2001 based on these same considerations.

In connection with Mr. Sbona's service as our Chief Executive Officer, in
our fiscal year ending May 31, 2001, our board granted Mr. Sbona an option to
purchase 407,000 shares of our common stock at an exercise price of $36.375 and
an option to purchase 400,000 shares of our common stock at an exercise price of
$13.9375 per share, which in both instances were the fair market value of our
common stock on the date of grant. The shares subject to such options will vest
entirely upon certain change of control transactions or upon the termination of
Mr. Sbona without cause. The options will also remain exercisable for one year
following the termination of Mr. Sbona's services. We issued these options to
Mr. Sbona after a determination by our board that such options were appropriate
and advisable to retain Mr. Sbona's services.

Compensation Committee

Steven M. Krausz
Charles P. Waite, Jr.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Steven M. Krausz and Charles P. Waite, Jr. served as members of the
compensation committee during the fiscal year ended May 31, 2001.

None of our executive officers serves as a member of the board or
compensation committee of any entity that has one or more executive officers
serving as a member of our board or compensation committee.

We have entered into indemnification agreements with our directors and
officers. Such agreements require us to indemnify such individuals to the
fullest extent permitted by law.

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PERFORMANCE MEASUREMENT COMPARISON(3)

The following graph shows the total stockholder return of an investment of
$100 in cash on May 31, 1996 for (i) our common stock, (ii) the Nasdaq Stock
Market and (iii) Nasdaq Computer and Data Processing Index. All values assume
reinvestment of the full amount of all dividends and are calculated as of May 31
of each year:

Comparison of Cumulative Total Return on Investment from May 31, 1996
through May 31, 2001:

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG VERITY, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER AND DATA PROCESSING INDEX
[PERFORMANCE GRAPH]

[Download Table]

NASDAQ STOCK NASDAQ COMPUTER &
VERITY, INC. MARKET (U.S.) DATA PROCESSING
------------ ------------- -----------------

5/96 100.00 100.00 100.00
11/96 42.36 103.86 103.49
5/97 16.56 112.66 118.99
11/97 12.50 129.37 133.58
5/98 19.75 142.87 155.60
11/98 43.95 158.60 193.89
5/99 84.55 201.70 250.24
11/99 263.62 272.98 365.50
5/00 171.97 276.49 327.37
11/00 74.21 211.52 243.94
5/01 78.73 171.61 204.04

* $100 invested on 5/31/96 in Stock or Index, including reinvestment of
dividends. Fiscal year ending May 31.

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

3 This Section is not "soliciting material", is not deemed "filed" with the SEC
and is not to be incorporated by reference in any of our filings under the 1933
Act or the 1934 Act whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
13

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On July 31, 1997, we appointed Mr. Sbona as our President and Chief
Executive Officer, and we entered into an agreement with Regent Pacific
Management Corporation, a management firm at which Mr. Sbona is the Chairman and
Chief Executive Officer. The terms of the agreement were reached in arms-length
negotiations with Regent Pacific. As a result of a series of amendments, the
latest of which occurred on March 12, 2001, the agreement has been extended
through August 2002. Pursuant to the amended agreement, Regent Pacific provides
us management services at a fee of $50,000 per week, including the services of
Mr. Sbona as Chairman and Chief Executive Officer and other Regent Pacific
personnel as part of our management team. Mr. Sbona has been our Chief Executive
Officer since July 1997 and has been a member of our board of directors since
1998. Mr. Sbona was our President from July 1997 until September 1999 when we
promoted Mr. Bettencourt to that position. We may cancel the amended agreement
without payment to Regent Pacific only after February 28, 2002. The amended
agreement also provides us with an option to extend the term of the agreement
through February 2003. In addition, the amended agreement requires that we
indemnify Regent Pacific and Mr. Sbona for certain liabilities arising out of
the performance of services under the amended agreement.

In connection with Mr. Sbona's service as our Chief Executive Officer, in
July 2000 and December 2000 our board granted Mr. Sbona options to purchase
407,000 and 400,000 shares of our common stock at an exercise price of $36.375
and $13.9375, respectively. Any unvested shares subject to such options will
vest entirely upon certain change of control transactions or upon a termination
of Mr. Sbona without cause. The options will also remain exercisable for one
year following the termination of Mr. Sbona's services.

We had loans outstanding in the principal amount of $2,057,631.72 to Mr.
Bettencourt, our President, and $353,468.50 to Mr. Yamami, our Chief Financial
Officer. The loans were entered into on January 2, 2001 with an annual interest
rate of 5.94%. Since the commencement of fiscal 2001, the largest aggregate
indebtedness of Mr. Bettencourt and Mr. Yamami was $2,060,308.58 and
$358,569.37, respectively. As of June 30, 2001, the loans were repaid in full
with interest.

NOTICE TO HOLDER OF RECORD OF ANY RIGHT CERTIFICATE

We adopted a stockholder rights plan on September 18, 1996, and amended the
plan on September 23, 1999. The rights plan, as amended, provides that each
outstanding share of common stock has one preferred purchase right. Each right
entitles the registered holder, under certain circumstances, to purchase from us
0.01 share of Series A Junior Participating Preferred Stock at a price of $300
per 0.01 share. On December 6, 1999, our common stock underwent a 2-for-1 split.
As a result of the split, each right now entitles the registered holder, under
certain circumstances, to purchase from us 0.005 share of Series A Junior
Participating Preferred Stock.

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OTHER MATTERS

Our board of directors knows of no other matters that will be presented for
consideration at the annual meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.

By Order of the Board of Directors

/s/ TIMOTHY J. MOORE
Timothy J. Moore
Secretary

August 31, 2001

A COPY OF OUR ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON
FORM 10-K FOR THE FISCAL YEAR ENDED MAY 31, 2001 IS AVAILABLE WITHOUT CHARGE
UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, VERITY, INC., 894 ROSS DRIVE,
SUNNYVALE, CALIFORNIA 94089.

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APPENDIX A

VERITY, INC.

CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

ORGANIZATION

The Audit Committee of the Board of Directors of Verity, Inc. (the
"Company") shall consist of at least three members of the Board of Directors
(the "Board"). The members of the Audit Committee shall meet the independence
and experience requirements of The Nasdaq Stock Market.

STATEMENT OF POLICY

The Audit Committee shall provide assistance to the Board in fulfilling its
responsibility to the stockholders, potential stockholders, and investment
community relating to corporate accounting and reporting practices of the
Company, and the quality and integrity of the financial reports of the Company.
In so doing, it is the responsibility of the Audit Committee to maintain free
and open means of communication between the directors, the independent auditors
and the financial management of the Company.

RESPONSIBILITIES

In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible in order to best react to
changing conditions and to ensure to the directors and stockholders that the
corporate accounting and reporting practices of the Company are in accordance
with all requirements and are of the highest quality.

In carrying out these responsibilities, the Audit Committee shall:

- Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the Company and its
divisions and subsidiaries, which firm is ultimately accountable to the
Audit Committee and the Board, as representatives of the Company's
stockholders.

- Receive written statements from the independent auditors delineating all
relationships between the independent auditors and the Company consistent
with Independence Standards Board Standard No. 1, and consider and
discuss with the auditors any disclosed relationships or services that
could affect the auditors' objectivity and independence, and if so
determined by the Audit Committee, recommend that the Board take
appropriate action to oversee the independence of the auditors.

- Evaluate, together with the Board, the performance of the independent
auditors and, if determined by the Audit Committee, recommend that the
Board replace the independent auditors.

- Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.

- Review with the independent auditors and the Company's financial and
accounting personnel the adequacy and effectiveness of the accounting and
financial controls of the Company, and elicit any recommendations for the
improvement of such internal control procedures or particular areas where
new or more detailed controls or procedures are desirable. Particular
emphasis should be given to the adequacy of such internal controls to
expose any payments, transactions, or procedures that might be deemed
illegal or otherwise improper. Further, the Audit Committee periodically
should review Company policy statements to determine their adherence to
the code of conduct.

- Evaluate the cooperation received by the independent auditors during
their audit examination, including their access to all requested records,
data and information, and to elicit the comments of management regarding
the responsiveness of the independent auditors to the Company's needs.

A-1

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- Review the financial statements contained in the annual report to
stockholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the stockholders.
Any changes in accounting principles should be reviewed.

- Meet with the independent auditors and senior management in separate
executive sessions to discuss any matters that the Audit Committee, the
independent auditors or senior management believe should be discussed
privately with the Audit Committee.

- Review accounting and financial human resources planning within the
Company.

- Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel and separate accountants
for this purpose if, in its judgment, such retention or investigation is
appropriate.

- Review and assess the adequacy of this charter annually and recommend any
proposed changes to the Board for approval.

- Submit the minutes of all meetings of the Audit Committee to, or discuss
the matters discussed at each Audit Committee meeting with, the Board.

- Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.

- Perform such other functions and to have such power as it may deem
necessary or advisable in the efficient and lawful discharge of the
foregoing.

The operation of the Audit Committee shall be subject to the By-laws as in
effect from time to time and Section 141 of the Delaware General Corporation
Law.

A-2

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VERITY, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 10, 2001

The undersigned hereby appoints Gary J. Sbona and Timothy J. Moore and each
of them, as attorneys-in-fact and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Verity, Inc., which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
Verity, Inc. to be held at the Sunnyvale Sheraton, 1100 N. Mathilda Avenue,
Sunnyvale, California, on Wednesday, October 10, 2001 at 11:00 a.m., local time,
(and at any and all postponements, continuations and adjournments thereof), with
all powers that the undersigned would possess if personally present, upon and in
respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.

UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED IN FAVOR OF
ALL NOMINEES LISTED IN PROPOSAL 1 AND IN FAVOR OF PROPOSAL 2 , AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.

(Continued and to be signed on other side)

FOLD AND DETACH HERE

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Please mark [X]
your vote
as indicated

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 1.

PROPOSAL 1: To elect two directors to hold office until the 2004 Annual Meeting
of Stockholders.

[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees listed below.
contrary below)

NOMINEES: Gary J. Sbona and Karl C. Powell

TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEES WRITE SUCH NOMINEE'S NAME BELOW:

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.

PROPOSAL 2: To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of Verity, Inc. for its fiscal year ending May 31, 2002.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

(Continued and to be signed on other side)

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DATED ______________, 2001 ____________________________________

____________________________________

SIGNATURE(S)

Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If signer
is a corporation, please give full
corporate name and have a duly
authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.

PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE, WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘DEF 14A’ Filing	Date	First	Last	Other Filings

	11/9/02	4
	9/10/02	4
	5/31/02	2	21	10-K, 10-K/A
	5/3/02	4
	2/28/02	16		10-Q
For Period End:	10/10/01	2	20
	9/4/01	3
Filed on:	8/31/01	2	17	10-Q
	8/15/01	2	3
	6/30/01	7	16
	5/31/01	5	17	10-K405
	3/12/01	16
	1/2/01	16
	9/29/00	11
	5/31/00	9		10-K405
	12/6/99	16
	9/23/99	16
	5/31/99	9		10-K405
	7/31/97	11	16
	9/18/96	16		8-K
	5/31/96	15		10-K
	3/28/96	13
				List all Filings

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Filing Submission 0001095811-01-504688 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Verity Inc/DE – ‘DEF 14A’ for 10/10/01

On: Friday, 8/31/01 · For: 10/10/01 · Accession #: 1095811-1-504688 · File #: 0-26880

Previous ‘DEF 14A’: ‘DEF 14A’ on 8/21/00 for 9/26/00 · Next: ‘DEF 14A’ on 9/4/02 for 10/10/02 · Latest: ‘DEF 14A’ on 9/9/05 for 10/13/05

Definitive Proxy Solicitation Material — Schedule 14AFiling Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Definitive Proxy Solicitation Material — Schedule 14A
Filing Table of Contents