SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [ ]

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 sec.240.14a-11(c) or sec.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:

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(2) Aggregate number of securities to which transaction applies:

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(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):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] 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.

(1) Amount Previously Paid:

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(4) Date Filed:

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 24, 1998

TO THE STOCKHOLDERS OF VERITY, INC.

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Verity,
Inc., a Delaware corporation (the "Company"), will be held on Thursday,
September 24, 1998 at 11:00 a.m. local time at the Sheraton Four Points Hotel,
1100 N. Mathilda Avenue, Sunnyvale, California for the following purposes:

1. To elect one director to hold office until the 2001 Annual Meeting of
Stockholders;

2. To consider and vote upon a proposal to amend the 1995 Stock Option Plan
(the "Option Plan") of the Company to increase the number of shares of
Common Stock of the Company authorized for issuance thereunder from
3,310,836 shares to 4,060,836 shares.

3. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Company for its fiscal year ending May 31, 1999; and

4. 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 12, 1998
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

LOGO
Timothy J. Moore
Secretary

Sunnyvale, California
August 27, 1998

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

AUGUST 27, 1998
------------------------

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed proxy is solicited on behalf of the Board of Directors of
Verity, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on September 24, 1998, at 11:00 a.m. local
time (the "Annual Meeting"), 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 Sheraton Four Points Hotel, 1100 N.
Mathilda Avenue, Sunnyvale, California. The Company intends to mail this proxy
statement and accompanying proxy card on or about August 27, 1998, to all
stockholders entitled to vote at the Annual Meeting.

SOLICITATION

The Company 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. The Company 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 directors, officers or other regular employees of the Company.
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 Common Stock at the close of business on August
12, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on August 12, 1998, the Company had outstanding and entitled
to vote 11,676,685 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 matter 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 with the
Secretary of the Company at the Company's principal executive office, 894 Ross
Drive, Sunnyvale, CA 94089, a written notice of revocation or a duly executed
proxy bearing a later date, or it may be revoked by attending the meeting and
voting in person. Attendance at the meeting will not, by itself, revoke a proxy.
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STOCKHOLDER PROPOSALS

Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than April 23, 1999 in order to be included in the proxy statement and
proxy relating to that Annual Meeting.

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PROPOSAL 1

ELECTION OF DIRECTORS

The Company's Restated Certificate of Incorporation and Bylaws provide that
the 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 the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board 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.

The Board of Directors is presently composed of four members. There is one
director in the class whose term of office expires in 1998. The nominee for
election to this class is currently a director of the Company who was appointed
by the Board of Directors to fill a vacancy. If elected at the Annual Meeting,
the nominee would serve until the 2001 annual meeting and until his successor is
elected and has qualified, or until such director's 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. The 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 the nominee and each person
whose term of office as a director will continue after the Annual Meeting.

NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING

GARY J. SBONA has served as the Company's President and Chief Executive
Officer since July 1997 and as a director since May 1998. Since 1974, Mr. Sbona
has also served as the Chairman and Chief Executive Officer of Regent Pacific
Management Corporation, a management company which is currently providing
services to the Company. Mr. Sbona received his B.S. in Business and Engineering
from San Jose State University.

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

DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING

STEVEN M. KRAUSZ has served as a director of the Company since May 1988.
Mr. Krausz has been a General Partner of U.S. Venture Partners III, U.S.V.
Entrepreneur Partners and BHMS Partners III since 1985. Mr. Krausz is also a
director of Photon Dynamics, Inc.

CHARLES P. WAITE, JR. has served as a director of the Company since
December 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. Mr. Waite is also a director of
CellPro Incorporated, Cardima, Inc., encoding.com, Inc., Originet, Inc., Seattle
Genetics, SignalSoft Corp., WatchGuard Technologies, and Rosetta Inpharmatics.

DIRECTOR CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING

STEPHEN A. MACDONALD has served as a director of the Company since December
1988. From May 1983 until May 1996, Mr. MacDonald was employed by Adobe Systems
Incorporated, where he served as Senior Vice President and Chief Operating
Officer. From May 1996 to April 1998, he served as President and

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Chief Executive Officer of Active Software. Mr. MacDonald is currently an
independent consultant. Mr. MacDonald is a director of Network Computing
Devices, Inc., and Imaging Technologies Corporation.

BOARD COMMITTEES AND MEETINGS

During the fiscal year ended May 31, 1998, the Board of Directors held
eight meetings. The Board has an Audit Committee and a Compensation Committee.

The Audit Committee meets with the Company's independent accountants at
least annually to review the results of the annual audit and discuss the
financial statements, recommends to the Board the independent auditors to be
retained, and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Messrs. Krausz and Waite. It met one time during fiscal
year 1998.

The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's 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. It took several actions by unanimous written consent,
and also met twice during fiscal year 1998.

During the fiscal year ended May 31, 1998, each Board member 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.

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PROPOSAL 2

APPROVAL OF AMENDMENT TO
VERITY, INC. 1995 STOCK OPTION PLAN

The Company established the Option Plan in August 1988. In June 1995, the
Board of Directors amended and restated the Option Plan, extended its term and
renamed the Option Plan the "Verity, Inc. 1995 Stock Option Plan." In 1996, the
Board amended the Option Plan to (i) increase the number of shares of Common
Stock of the Company authorized for issuance thereunder from 2,910,836 shares to
3,310,836 shares; (ii) provide that the Board may not decrease the exercise
price of certain stock options or grant a new option in substitution therefor,
without stockholder approval; (iii) provide that the maximum term of certain
stock options granted will be eight years; and (iv) provide that the exercise
price per share of any stock option granted under the Option Plan must equal at
least the fair market value of a share of the Company's Common Stock on the date
of grant of the stock option. The purpose of the Option Plan is to provide an
equity interest for employees, directors and consultants of the Company or any
parent or subsidiary corporation of the Company, in order to give them a greater
personal interest in the success of the business and to provide added incentive
to continue and advance in their employment or service to the Company. As of May
31, 1998, options to purchase 1,155,062 shares of Common Stock granted pursuant
to the Option Plan had been exercised, 1,575,399 shares of Common Stock were
reserved for issuance upon the exercise of outstanding options at a weighted
average exercise price of $5.90 per share, with exercise prices ranging from
$0.75 to $19.50 and 580,375 shares of Common Stock remained available for future
option grants (excluding the 750,000 shares now proposed for stockholder
approval), which equaled approximately 5.0% of the total number of shares of
Common Stock outstanding.

PROPOSED AMENDMENTS TO THE OPTION PLAN

The Board of Directors has amended the Option Plan, subject to stockholder
approval, to increase the number of shares of Company Common Stock reserved
under the Option Plan by 750,000 shares (the "Option Reserve Increase") so that
the total number of shares available for future grants as of May 31, 1998 under
the Option Plan would be 1,330,375. The stockholders are now being asked to
approve the Option Reserve Increase at the Annual Meeting in order to make
available sufficient shares for continued operation of the Option Plan.

The Company seeks to attract, motivate and retain talented and enterprising
employees by rewarding performance and encouraging behavior that will improve
the Company's profitability. It believes that the Option Plan plays an important
role in achieving these objectives by enabling the Company to provide broad
employee equity interests in the Company. The Company believes that equity
incentives provided by the Option Plan help align the interests of the employees
with the interests of the Company's stockholders, and enhance the Company's
ability to continue recruiting and retaining qualified officers, employees and
consultants essential to the success of the Company. Management believes that
the continued operation of the Option Plan necessitates an increase in the share
reserve under the Option Plan.

The Company has engaged Regent Pacific Management Corporation ("Regent
Pacific") to provide management services to the Company, with employees of
Regent Pacific currently serving as the Company's President and Chief Executive
Officer, Chief Operating Officer and Vice President, Development and Technical
Services, respectively (See "Employment Agreements and Termination and Change in
Control Agreements" and "Certain Transactions"). The Company's goal for the
longer term is to attract and retain key executive officers to replace the
Regent Pacific personnel. In order to attract and retain such key management
personnel, the Company believes that it must offer attractive equity incentives
and that the number of shares of Common Stock currently authorized for issuance
pursuant to the Option Plan may be inadequate for such purpose.

SUMMARY OF THE PROVISIONS OF THE OPTION PLAN

The following summary of the Option Plan, as amended, is qualified in its
entirety by the specific language of the Option Plan, a copy of which is
available to any stockholder upon request.
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General. The Option Plan provides for the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and nonstatutory stock options. As of May 31, 1998,
options to purchase 1,155,062 shares of Common Stock granted pursuant to the
Option Plan had been exercised, 1,575,399 shares of Common Stock were reserved
for issuance upon the exercise of outstanding options, and 580,375 shares of
Common Stock remained available for future grants.

Shares Subject to Plan. Currently, a maximum of 3,310,836 of the authorized
but unissued or reacquired shares of Common Stock of the Company may be issued
upon the exercise of options granted pursuant to the Option Plan. The Board of
Directors has amended the Option Plan, subject to stockholder approval, to
increase by 750,000 the maximum number of shares of Common Stock issuable
thereunder to an aggregate of 4,060,836.

If the stockholders approve the 750,000 share increase in the number of
shares authorized for issuance under the Option Plan, 1,330,375 shares of Common
Stock would be available for future option grants as of May 31, 1998, which
equals approximately 11.5% of the total number of shares of Common Stock
outstanding as of that date. The Option Plan imposes a limit under which no
employee may receive in any fiscal year of the Company options to purchase in
excess of 500,000 shares (the "Grant Limit"). The Grant Limit is intended to
comply with Section 162(m) of the Code and the regulations thereunder in order
to preserve the Company's ability to fully deduct any compensation expense
related to options granted under the Option Plan. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments will be made to the shares subject to the Option Plan,
to the Grant Limit and to outstanding options. To the extent any outstanding
option under the Option Plan expires or terminates prior to exercise in full or
if shares issued upon exercise of an option are repurchased by the Company, the
shares of Common Stock for which such option is not exercised or the repurchased
shares are returned to the Option Plan and become available for future grant.

Administration. The Option Plan is administered by the Board of Directors
or a duly appointed committee of the Board (hereinafter referred to as the
"Board"). The Option Plan provides that with respect to the participation of
individuals whose transactions in the Company's equity securities are subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Option Plan must be administered in compliance with the requirements
of Rule 16b-3 under the Exchange Act. Subject to the provisions of the Option
Plan, the Board determines the persons to whom options are to be granted, the
number of shares to be covered by each option, whether an option is to be an
incentive stock option or a nonstatutory stock option, the timing and terms of
exercisability of each option or the vesting of shares acquired upon the
exercise of an option, including the effect thereon of an optionee's termination
of service, the exercise price of and the type of consideration to be paid to
the Company upon the exercise of each option, the duration of each option, and
all other terms and conditions of the options. The Option Plan authorizes the
Board to amend, modify, extend, renew, or grant a new option in substitution
for, any option, to waive any restrictions or conditions applicable to any
option or any shares acquired upon the exercise thereof, and to accelerate,
continue, extend or defer the exercisability of any option or the vesting of any
shares acquired upon the exercise of an option, including with respect to the
period following an optionee's termination of service with the Company. However,
the Board may not decrease the exercise price of a stock option granted from the
Option Reserve Increase (or from the prior increase to the share reserve), or
grant a new option in substitution therefor having a lower exercise price
without the approval of the stockholders of the Company. Subject to certain
limitations, the Option Plan provides for indemnification by the Company of any
director, officer of employee against all reasonable expenses, including
attorney's fees, incurred in connection with any legal action arising from such
person's action or failure to act in administering the Option Plan. The Board
will interpret the Option Plan and options granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the Option Plan or any option.

Eligibility. Generally, all employees, directors and consultants of the
Company or of any present or future parent or subsidiary corporations of the
Company are eligible to participate in the Option Plan. As of May 31, 1998, the
Company had approximately 253 employees, including five executive officers and
four directors. In addition, the Option Plan permits options to be granted to
prospective employees and consultants in connection with written offers of
employment or engagement. Any such options may not become
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exercisable prior to such individual's commencement of service. Any person
eligible under the Option Plan may be granted a nonstatutory option. However,
only employees may be granted incentive stock options.

Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the Option Plan.
The exercise price per share of each option must equal at least the fair market
value of a share of the Company's Common Stock on the date of grant. The
exercise price of any incentive stock option granted to a person who at the time
of grant owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary corporation
of the Company (a "Ten Percent Stockholder") must be at least 110% of the fair
market value of a share of the Company's Common Stock on the date of grant. The
Board determines the fair market value of the Company's Common Stock in its sole
discretion.

The option exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares of Common Stock being acquired upon the exercise of the option, by means
of a promissory note, by any other lawful consideration approved by the Board,
or by any combination of these. The Board may nevertheless restrict the forms of
payment permitted in connection with any option grant.

Options granted under the Option Plan become exercisable and vested at such
times and subject to such conditions as specified by the Board. Generally,
options granted under the Option Plan are exercisable on and after the date of
grant, subject to the right of the Company to reacquire at the optionee's
exercise price any unvested shares held by the optionee upon termination of
employment or service with the Company or if the optionee attempts to transfer
any unvested shares. Shares subject to options generally vest in installments
subject to the optionee's continued employment or service. The maximum term of
an incentive stock option or nonstatutory stock option that draws upon shares
from the Option Reserve Increase (and also the prior increase to the share
reserve) under the Option Plan is eight years unless the incentive stock option
is granted to a Ten Percent Stockholder, in which case the maximum term is five
years. The maximum term of any other incentive stock option granted under the
Option Plan is ten years unless granted to a Ten Percent Stockholder, in which
case the maximum term is five years. Consistent with the Code, the Option Plan
does not limit the term of any nonstatutory stock option not drawing upon shares
from the Option Reserve Increase (and the prior increase to the share reserve).
Options are nontransferable by the optionee other than by will or by the laws of
descent and distribution, and are exercisable during the optionee's lifetime
only by the optionee.

Transfer of Control. The Option Plan provides that, in the event of (i) a
sale or exchange by the stockholders of more than 50% of the Company's voting
stock, (ii) a merger or consolidation in which the Company is a party, (iii) the
sale, exchange or transfer of all or substantially all of the assets of the
Company, or (iv) a liquidation or dissolution of the Company wherein, upon any
such event, the stockholders of the Company immediately before such event do not
retain direct or indirect beneficial ownership of more than 50% of the total
combined voting power of the voting stock of the Company, its successor, or the
corporation to which the assets of the Company were transferred in substantially
the same proportions as prior to such event (a "Transfer of Control"), the
acquiring or successor corporation may assume the Company's rights and
obligations under outstanding options or substitute substantially equivalent
options for such corporation's stock. To the extent that the options outstanding
under the Option Plan are not assumed, substituted for, or exercised prior to
the Transfer of Control, they will terminate; provided, however, that the terms
of certain options provide for acceleration of vesting upon such a change in
control (see "Employment Agreements and Termination and Change in Control
Agreements").

Termination and Amendment. The Option Plan will continue in effect until
the earlier of its termination by the Board or the date on which all shares
available for issuance under the Option Plan have been issued and all
restrictions on such shares under the terms of the Plan and the option
agreements have lapsed, provided that all incentive stock options must be
granted prior to July 19, 2006, the date on which the Board approved the
amendment of the Option Plan. The Board may terminate or amend the Option Plan
at any time, but, without stockholder approval, the Board may not amend the
Option Plan to increase the total number of

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shares of Common Stock issuable thereunder, change the class of persons eligible
to receive incentive stock options, or expand the class of persons eligible to
receive nonstatutory stock options. No amendment may adversely affect an
outstanding option without the consent of the optionee, unless the amendment is
required to preserve the option's status as an incentive stock option or is
necessary to comply with any applicable law.

SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN

The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Option Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.

Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under Section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the disqualifying disposition of
the shares generally should be deductible by the Company for federal income tax
purposes, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.

The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a disqualifying disposition, certain basic adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.

Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If the
optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the date
on which the option is exercised unless the shares are subject to a substantial
risk of forfeiture and are not transferable, in which case the determination
date is the earlier of (i) the date on which the shares are transferable or (ii)
the date on which the shares are not subject to as substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to Section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
not later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonstatutory stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
determination date, will be taxed as capital gain or loss. A capital gain or
loss will be long-term if the optionee's holding period is more than 12 months.
No tax deduction is available to the Company with respect to the grant of a
nonstatutory option or the sale of the stock acquired pursuant to such grant.
The Company generally should be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of a
nonstatutory option,
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except to the extent such deduction is limited by applicable provisions of the
Code or the regulations thereunder.

Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1933, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to a covered employee in a taxable year to the extent that
non-performance-based compensation paid to such a covered employee exceeds $1
million. It is possible that compensation attributable to stock options granted
under the Option Plan, when combined with all other types of compensation
received by a covered employee from the Company, may cause this limitation to be
exceeded in any particular year.

Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation.
Treasury regulations issued under Section 162(m) of the Code provide that
compensation attributable to stock options will qualify as performance-based
compensation if: (i) the stock option plan contains a per-employee limitation on
the number of shares for which stock options may be granted during a specified
period; (ii) the per-employee limitation is approved by the stockholders; (iii)
the stock option is granted by a compensation committee comprised solely of
"outside directors"; and (iv) the exercise price of the stock option is no less
than the fair market value of the stock on the date of grant.

ADDITIONAL INFORMATION.

1996 Nonstatutory Stock Option Plan: In February 1996, the Company's Board
of Directors approved the 1996 Nonstatutory Stock Option Plan. Pursuant to the
1996 Nonstatutory Stock Option Plan, the Board of Directors has the power to
grant nonstatutory stock options to employees, prospective employees,
consultants and prospective consultants; provided, however, that no such grant
may be made to a person who is (i) a holder of 10% or more of the Company's
stock or (ii) an executive officer or director of the Company. In April 1997,
the Company increased the number of shares reserved under the 1996 Nonstatutory
Stock Option Plan from 300,000 to 600,000 shares of Common Stock for issuance to
certain employees and consultants of the Company. In March 1998, the Company
raised the number of shares to 1,860,000 shares of Common Stock for issuance to
certain employees and consultants of the Company. At May 31, 1998, 780,000
shares of Common Stock were available for grant under the 1996 Nonstatutory
Stock Option Plan.

Outside Directors Plan: In July 1995, the Company's Board of Directors
approved the 1995 Outside Directors Plan and reserved 200,000 shares of Common
Stock for issuance to directors of the Company who are not employees of the
Company. The Outside Directors Plan provides for the automatic granting of
nonqualified stock options to directors of the Company who are not employees of
the Company.

At the initiation of the Plan, each current outside director was
automatically granted an option to purchase 20,000 shares of Common Stock at the
following annual meeting of stockholders. Each new outside director is
automatically granted an option to purchase 20,000 shares of the Company's
Common Stock at the annual meeting following their appointment. Thereafter at
each annual meeting of the stockholders, outside directors who have previously
received options will receive a new option to purchase 5,000 shares of the
Company's Common Stock. The exercise price of the options in all cases will be
equal to the fair market value of the Company's Common Stock at the date of
grant. Options granted under the Director's Plan are immediately exercisable but
vest over four years and generally must be exercised within ten years. As of May
31, 1998, 30,000 options have been granted to outside directors and 170,000
shares of Common Stock were available for grant under this plan.

1997 Stock Option Plan for Verity Canada: In May 1997, the Company's Board
of Directors authorized the adoption of the 1997 Stock Option Plan for Verity
Canada. Under this plan, the Company has reserved 150,000 shares of Common Stock
for issuance to certain employees and consultants of Verity Canada. The terms of
the 1997 Stock Option Plan for Verity Canada are substantially the same as those
of the 1995 Stock Option Plan. In March 1998, the Company increased the number
of shares reserved under the Plan from 150,000 to 390,000 shares of Common Stock
for issuance to certain employers and consultants of the Company. At May 31,
1998, 200,000 shares of Common Stock were available for grant under the 1997
Stock Option Plan for Verity Canada.
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12

VOTE REQUIRED AND BOARD OF DIRECTOR'S RECOMMENDATION.

The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the meeting and entitled to vote is
required for approval of this proposal. Abstentions and broker non-votes will
each be counted as present for purposes of determining the presence of a quorum
at the Annual Meeting of Stockholders. Abstentions will have the same effect as
a negative vote on this proposal. Broker non-votes will have no effect on the
outcome of this vote.

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

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13

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending May 31, 1999 and
has further directed that management submit the selection of independent
accountants for ratification by the stockholders at the Annual Meeting. Coopers
& Lybrand LLP, the predecessor entity of PricewaterhouseCoopers LLP, has audited
the Company's financial statements since its 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
the Company's independent accountants is not required by the Company's Bylaws or
otherwise. However, the Board 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, the
Audit Committee and the Board will reconsider whether or not to retain that
firm. Even if the selection is ratified, the Audit Committee and the Board in
their discretion may direct the appointment of different independent accountants
at any time during the year if they determine that such a change would be in the
best interests of the Company and its 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.

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.

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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of July 31, 1998 by: (i) each director, (ii)
each of the executive officers named in the Summary Compensation Table; (iii)
all executive officers and directors of the Company as a group; and (iv) all
those known by the Company to be beneficial owners of more than five percent of
its Common Stock.

SHARES BENEFICIALLY OWNED
-------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER(1) SHARES TOTAL
------------------- ---------- -----------

The Clark Estates, Inc...................................... 966,000 8.3%
One Rockefeller Plaza
New York, NY 10020
Goldsmith & Harris Incorporated............................. 644,400 5.5%
80 Pine Street
New York, NY 10005
Dimensional Fund Advisors Inc.(2)........................... 631,300 5.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Gary J. Sbona(3)............................................ 350,000 2.9%
Anthony J. Bettencourt(4)................................... 125,000 1.1%
John Navas.................................................. 0 *
Hugh S. Njemanze(5)......................................... 170,542 1.4%
James E. Ticehurst(6)....................................... 29,600 *
Ronald F.E. Weissman(7)..................................... 112,500 1.0%
Stephen W. Young............................................ 0 *
Philippe F. Courtot(8)...................................... 0 *
Steven M. Krausz(9)......................................... 25,000 *
Stephen A. MacDonald(10).................................... 38,010 *
Charles P. Waite, Jr.(11)................................... 25,000 *
All executive officers and directors as a group (10
persons)(12).............................................. 875,652 7.2%

- ---------------
* Represents less than one percent.

(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
11,673,753 shares outstanding on July 31, 1998, adjusted as required by
rules promulgated by the SEC.

(2) As set forth in the Schedule 13G filed by Dimensional Fund Advisors Inc.
with the SEC on February 10, 1998, Dimensional Fund Advisors Inc. disclaims
beneficial ownership of all such securities.

(3) Includes 215,384 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998. See "Certain Transactions."

(4) Includes 40,812 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998.

(5) Includes 100,325 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998.

(6) Includes 7,109 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998.

(7) Includes 41,124 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998.

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15

(8) Mr. Courtot served as President and Chief Executive Officer of the Company
until July 31, 1997 and as a director of the Company until August 21, 1997.
He is no longer an employee or a director of the Company.

(9) Includes 11,250 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998.

(10) Includes 18,250 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998.

(11) Includes 11,250 shares subject to stock options vested and exercisable
within 60 days of July 31, 1998.

(12) Includes 445,504 shares which certain executive officers and directors of
the Company have the right to acquire within 60 days of July 31, 1998
pursuant to outstanding options.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended May 31, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.

EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Directors do not receive any cash compensation for their services as
members of the Board of Directors, although they are reimbursed for their
expenses in attending Board and committee meetings. 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 5,000 shares of Common Stock
pursuant to the 1995 Outside Directors Stock Option Plan upon the date of each
annual stockholders' meeting.

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COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY OF COMPENSATION

The following table shows for the fiscal years ended May 31, 1998, 1997 and
1996, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at May 31, 1998 (the "Named Executive Officers"):

ANNUAL COMPENSATION
--------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION
--------------------------- ----------- -------- -------- ------------

Gary J. Sbona.......................... 1998 $ 15,167 -- $ 73(1)
President and 1997 -- -- --
Chief Executive Officer(2) 1996 -- -- --
Anthony J. Bettencourt................. 1998 $147,051 $292,500(6) $ 198(1)
Senior Vice President, 1997 $ 60,633 $ 92,015 $ 124(1)
Worldwide Sales and Marketing(3) 1996 $ 98,538 $120,363 $ 204(1)
John Navas............................. 1998 $ 0 $ 0 $ 0
Vice President, Development and 1997 -- -- --
Technical Services(4) 1996 -- -- --
Hugh S. Njemanze....................... 1998 $171,250 $ 35,000 $ 408(1)
Chief Technology Officer 1997 $133,333 $ 0 $ 324(1)
1996 $120,833 $ 0 $ 275(1)
James E. Ticehurst..................... 1998 $106,711 $ 21,342 $ 994(1)
Vice President, Administration, 1997 $ 79,333 -- $ 684(1)
Controller and Assistant Secretary 1996 $ 72,000 -- $ 599(1)
Ronald F.E. Weissman................... 1998 $183,333 $ 40,000 $ 696(1)
Vice President, Strategy and 1997 $ 4,327 $ 15,000 $ 29(1)
Corporate Development 1996 -- -- --
Stephen W. Young....................... 1998 $ 0 $ 0 $ 0
Chief Operating Officer(5) 1997 -- -- --
1996 -- -- --
Former Officer:
Philippe F. Courtot.................... 1998 $ 37,500 $ 0 $256,239(8)
Former President and 1997 $225,000 $ 0 $ 1,152(1)
Chief Executive Officer(7) 1996 $225,000 $ 0 $ 1,152(1)

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

(2) Mr. Sbona replaced Mr. Courtot as President and Chief Executive Officer of
the Company on July 31, 1997 and is partially compensated for his services
to the Company by Regent Pacific Management Corporation. See "Employment
Agreements and Termination and Change in Control Agreements" and "Certain
Transactions" below.

(3) Mr. Bettencourt served as Vice President, Worldwide Sales and Marketing, of
the Company until December 1996. He rejoined the Company in September 1997,
and currently serves as Senior Vice President, Worldwide Sales and
Marketing.

(4) Mr. Navas is compensated for his services to the Company by Regent Pacific
Management Corporation. See "Employment Agreements and Termination and
Change in Control Agreements" and "Certain Transactions."

(5) Mr. Young is compensated for his services to the Company by Regent Pacific
Management Corporation. See "Employment Agreements and Termination and
Change in Control Agreements" and "Certain Transactions."

(6) Of such amount, $180,000 represents a signing bonus paid in connection with
Mr. Bettencourt rejoining the Company in September 1997, and $112,500
represents sales commissions earned under a sales commission plan.

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17

(7) Mr. Courtot served as President and Chief Executive Officer of the Company
until July 31, 1997 and as a director of the Company until August 21, 1997.
He is no longer an employee or a director of the Company.

(8) Of such amount, $31,047 represents payment for vacation and paid time off
accrued at the time of Mr. Courtot's departure from the Company, $225,000
represents severance compensation and $192 represents premiums paid on
behalf of Mr. Courtot for life insurance coverage in excess of a base amount
of $50,000 in coverage.

STOCK OPTION GRANTS AND EXERCISES

The Company grants options to its executive officers under its 1995 Stock
Option Plan. As of July 31, 1998, options to purchase a total of 1,526,255
shares were outstanding under the 1995 Stock Option Plan and options to purchase
630,551 shares remained available for grant thereunder.

The following tables show for the fiscal year ended May 31, 1998, certain
information regarding options granted to, exercised by, and held at year end by,
the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE OR TERM
OPTIONS FISCAL BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) 1998 ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ----------- -------------

Gary J. Sbona(1)............... 350,000 13.16% $5.1250 03/02/06 $856,436 $2,051,312
Anthony J. Bettencourt(2)...... 125,000 4.70 $4.5625 09/05/05 $330,012 $ 735,937
500 0.02 $5.1250 03/02/06 $ 1,223 $ 2,930
24,500 0.92 $5.1250 03/02/06 $ 59,951 $ 143,592
John Navas(3).................. 0 -- -- -- -- --
Hugh S. Njemanze............... 25,000 0.94 $6.4375 08/01/05 $ 76,840 $ 184,046
25,000 0.94 $5.2500 10/31/05 $ 62,666 $ 150,096
500 0.02 $5.1250 03/02/06 $ 1,223 $ 2,930
4,500 0.17 $5.1250 03/02/06 $ 11,011 $ 26,374
James E. Ticehurst............. 10,000 0.38 $4.5625 09/04/05 $ 21,784 $ 52,176
15,000 0.56 $5.2500 10/31/05 $ 37,600 $ 90,058
500 0.02 $5.1250 03/02/06 $ 1,223 $ 2,930
4,500 0.17 $5.1250 03/02/06 $ 11,011 $ 26,374
Ronald F.E. Weissman........... 30,000 1.13 $5.2500 10/31/05 $ 75,199 $ 180,115
500 0.02 $5.1250 03/02/06 $ 1,223 $ 2,930
4,500 0.17 $5.1250 03/02/06 $ 11,011 $ 26,374
Stephen W. Young(4)............ 0 -- -- -- -- --
Former Officer:
Philippe F. Courtot(5)......... 0 -- -- -- -- --

- ---------------
(1) Mr. Sbona replaced Mr. Courtot as President and Chief Executive Officer of
the Company on July 31, 1997 and is partially compensated for his services
to the Company by Regent Pacific Management Corporation. See "Employment
Agreements and Termination and Change in Control Agreements" and "Certain
Transactions."

(2) Mr. Bettencourt served as Vice President, Worldwide Sales and Marketing, of
the Company until December 1996. He rejoined the Company in September 1997,
and currently serves as Senior Vice President, Worldwide Sales and
Marketing.

(3) Mr. Navas is compensated for his services to the Company by Regent Pacific
Management Corporation. See "Employment Agreements and Termination and
Change in Control Agreements" and "Certain Transactions."

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18

(4) Mr. Young is compensated for his services to the Company by Regent Pacific
Management Corporation. See "Employment Agreements and Termination and
Change in Control Agreements" and "Certain Transactions."

(5) Mr. Courtot served as President and Chief Executive Officer of the Company
until July 31, 1997 and as a director of the Company until August 21, 1997.
He is no longer an employee or a director of the Company.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT
SHARES ACQUIRED VALUE (#) EXERCISABLE/ FY-END ($) EXERCISABLE/
NAME ON EXERCISE(#) REALIZED(1) UNEXERCISABLE(2) UNEXERCISABLE(3)
---- --------------- ------------ ----------------- -----------------------

Gary J. Sbona(4)................ 0 -- 107,692/242,308 $282,692/$636,059
Anthony J. Bettencourt.......... 15,000 $75,999 27,769/107,231 $ 87,893/$328,357
John Navas(5)................... 0 -- -- --
Hugh S. Njemanze................ 4,000 $33,650 85,773/84,307 $360,992/$142,645
James E. Ticehurst.............. 6,980 $28,169 4,425/27,110 $ 48,302/$73,837
Ronald F.E. Weissman............ 0 -- 29,332/80,668 $ 64,477/$178,335
Stephen W. Young(6)............. 0 -- -- --
Former Officer:
Philippe F. Courtot(7).......... 0 -- -- --

- ---------------
(1) Represents the fair market value of the underlying securities on the
exercise date minus the aggregate exercise price of such option.

(2) These options are immediately exercisable in full at the date of grant, but
shares purchased on exercise of unvested options are subject to a repurchase
right in favor of the Company which lapses ratably over four years and
entitles the Company to repurchase unvested shares at the original issuance
price.

(3) Calculated on the basis of the fair market value of the underlying
securities as of May 29, 1998, of $7.75 per share, the last trading day of
fiscal 1998, as reported by the Nasdaq National Market, minus the aggregate
exercise price.

(4) Mr. Sbona replaced Mr. Courtot as President and Chief Executive Officer of
the Company on July 31, 1997 and is partially compensated for his services
to the Company by Regent Pacific Management Corporation. See "Employment
Agreements and Termination and Change in Control Agreements" and "Certain
Transactions" below.

(5) Mr. Navas is compensated for his services to the Company by Regent Pacific
Management Corporation. See "Employment Agreements and Termination and
Change in Control Agreements" and "Certain Transactions."

(6) Mr. Young is compensated for his services to the Company by Regent Pacific
Management Corporation. See "Employment Agreements and Termination and
Change in Control Agreements" and "Certain Transactions."

EMPLOYMENT AGREEMENTS AND TERMINATION
AND CHANGE IN CONTROL AGREEMENTS

The 1995 Stock Option Plan provides that, in the event of (i) a sale or
exchange by the stockholders of all or substantially all of the Company's voting
stock or certain mergers or consolidations to which the Company is a party in
which the stockholders of the Company do not retain beneficial ownership of at
least a majority of the voting stock of the Company or its successor, (ii) the
sale, exchange or transfer of all or substantially all of

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19

the assets of the Company other than to one or more subsidiary corporations, or
(iii) liquidation or dissolution of the Company, the Board of Directors of the
Company may provide for the acquiring or successor corporation to assume or
substitute new options for the options outstanding under the 1995 Stock Option
Plan. To the extent that the options outstanding under the Option Plan are not
assumed, substituted for, or exercised prior to such event, they will terminate;
provided, however, that the Company has granted options to certain of its
officers, including Messrs. Sbona, Bettencourt and Weissman, which provide for
acceleration of vesting upon such a change in control.

Under the 1995 Stock Option Plan, the Board of Directors 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 the Company 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 the Company. 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 (8) years. All
options were granted at fair market value as determined by the Board of
Directors of the Company on the date of grant.

On July 31, 1997, the Company and Regent Pacific Management Corporation
("Regent Pacific") executed an agreement (the "Agreement") pursuant to which
Regent Pacific agreed to provide certain management services to the Company.
Pursuant to the original agreement, Regent Pacific agreed to provide management
services to the Company, at a fee of $50,000 per week, including the services of
Mr. Sbona as President and Chief Executive Officer and at least three other
Regent Pacific personnel as part of the Company's management team. The agreement
had a one-year term, but could be canceled by the Company after expiration of
the initial 26-week period, with a minimum compensation to Regent Pacific of
$1,300,000 for that initial period. The agreement required that the Company
indemnify Regent Pacific and Mr. Sbona for certain liabilities arising out of
the performance of services under the agreement. On April 13, 1998, the Company
and Regent Pacific agreed to amend the agreement to provide that Mr. Sbona and
at least four other Regent Pacific personnel would serve as part of the
Company's management team. The amendment also served to extend the term of the
agreement until August 31, 1999, and to extend the noncancelable period of the
agreement until February 28, 1999. In connection with Mr. Sbona's service as
President and Chief Executive Officer of the Company, the Company pays salary to
Mr. Sbona at the rate of $52,000 per year and the Compensation Committee of the
Company's Board granted to him an option to purchase 350,000 shares of the
Company's Common Stock at an exercise price of $5.125 per share. The shares
subject to such option will vest on a monthly basis during the 13-month period
ending on February 28, 1999, subject to Mr. Sbona's continued employment as the
Company's President and Chief Executive Officer; provided, however, that the
option will vest entirely upon certain change of control transactions or upon
termination of Mr. Sbona without cause. The option will also remain exercisable
for one year following the termination of Mr. Sbona's services.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION

The Compensation Committee (the "Committee") is comprised of two
non-employee directors of the 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 the Company's 1995 Stock
Option Plan.

COMPENSATION POLICIES GENERALLY

The goals of the Company's executive officer compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align executive officer compensation with the Company's performance
and to motivate executive officers to achieve the Company's business objectives.
The Company uses salary, executive officer bonuses and stock options to achieve
these goals.

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20

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 officers' achievements during the prior fiscal year
towards key Company-wide objectives set annually by the Board of Directors, in
consultation with the Chief Executive Officer, as well as the executive
officers' performance of their individual responsibilities.

Variable cash incentive compensation for fiscal 1998 was provided through
the Company's employee bonus plan for one executive officer. All other executive
officers were either compensated through sales commission plans, or other plans
negotiated between the officer and the Company (Messrs. Sbona, Navas and Young
also received compensation from their employer, Regent Pacific Management
Corporation). In accordance with the Committee's goal, fiscal 1998 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.

In fiscal 1998, the Company also hired certain executive officers whose
cash and equity incentive compensation was determined based upon a combination
of the executive compensation policies of the Company described above and
negotiations between the individual executive officers and the Company.

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 generally 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 four
year period from the date of grant. The Committee believes that refresher
options have provided strong incentives for executive officers to remain with
the Company.

Deductibility of Executive Compensation. The Company has 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 Option Plan to assist in the qualification of
compensation recognized in connection with the exercise of such options for an
exemption; these restrictions were approved at the Special Meeting of
Stockholders held on March 28, 1996. The Committee does not believe that other
components of the Company's 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 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

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21

Company and Regent Pacific agreed to amend the agreement to provide that Mr.
Sbona and at least four other Regent Pacific personnel would serve as part of
the Company's management team. The amendment also served to extend the term of
the agreement until August 31, 1999, and to extend the noncancelable period of
the agreement until February 28, 1999. In connection with Mr. Sbona's service as
President and Chief Executive Officer of the Company, the Company pays salary to
Mr. Sbona at the rate of $52,000 per year and the Compensation Committee of the
Company's Board granted to him an option to purchase 350,000 shares of the
Company's Common Stock at an exercise price of $5.125 per share. The shares
subject to such option will vest on a monthly basis during the 13-month period
ending on February 28, 1999, subject to Mr. Sbona's continued employment as the
Company's President and Chief Executive Officer; provided, however, that the
option will vest entirely upon certain change of control transactions or upon
termination of Mr. Sbona without cause. The option will also remain exercisable
for one year following the termination of Mr. Sbona's services.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Steven M. Krausz and Charles P. Waite, Jr. served as members of the Board
of Directors' Compensation Committee (the "Committee") during the fiscal year
ended May 31, 1998.

The Company has entered into indemnification agreements with its directors
and officers. Such agreements require the Company to indemnify such individuals
to the fullest extent permitted by law.

See "Certain Transactions" and "Employment Agreements and Termination and
Change of Control Agreements."

19
22

PERFORMANCE MEASUREMENT COMPARISON(1)

Comparison of 5 year Cumulative Total Return on Investment from October 6,
1995 through May 29, 1998(2)

Nasdaq Computer
Nasdaq Stock and Data
'Verity, Inc.' Market Processing Stocks

10/6/95 100.000 100.000 100.000
10/31/95 198.649 102.551 109.744
11/30/95 268.919 104.959 110.553
12/29/95 239.189 104.399 109.135
1/31/96 205.405 104.914 108.013
2/29/96 256.757 108.907 114.731
3/29/96 182.432 109.268 114.248
4/30/96 185.811 118.333 127.596
5/31/96 212.162 123.767 131.815
6/28/96 155.405 118.188 126.985
7/31/96 118.243 107.664 113.719
8/30/96 131.757 113.696 116.762
9/30/96 66.892 122.392 129.509
10/31/96 64.189 121.041 127.228
11/29/96 89.865 128.523 136.359
12/31/96 83.108 128.407 134.669
1/31/97 76.351 137.534 146.893
2/28/97 53.041 129.927 134.981
3/31/97 41.892 121.445 125.004
4/30/97 30.068 125.241 141.317
5/30/97 35.135 139.434 156.855
6/30/97 29.054 143.704 160.290
7/31/97 35.135 158.873 176.948
8/29/97 34.797 158.630 172.229
9/30/97 26.351 168.015 175.301
10/31/97 28.378 159.313 171.668
11/28/97 56.520 160.111 176.006
12/31/97 27.027 157.552 165.466
1/30/98 23.649 162.495 177.930
2/27/98 27.534 177.750 202.081
3/31/98 45.270 184.306 218.650
4/30/98 51.351 187.428 220.525
5/29/98 41.892 177.179 205.178
6/30/98 58.446 189.680 242.672

(1) Assumes that $100.00 was invested on October 6, 1995 in the Company's Common
Stock and each index. Stockholder returns over the indicated period should
not be considered indicative of future stockholder returns.

(2) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
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.

CERTAIN TRANSACTIONS

20
23

for that initial period. The agreement required that the Company indemnify
Regent Pacific and Mr. Sbona for certain liabilities arising out of the
performance of services under the agreement. On April 13, 1998, the Company and
Regent Pacific agreed to amend the agreement to provide that Mr. Sbona and at
least four other Regent Pacific personnel would serve as part of the Company's
management team. The amendment also served to extend the term of the agreement
until August 31, 1999, and to extend the noncancelable period of the agreement
until February 28, 1999. In connection with Mr. Sbona's service as President and
Chief Executive Officer of the Company, the Company pays salary to Mr. Sbona at
the rate of $52,000 per year and the Compensation Committee of the Company's
Board granted to him an option to purchase 350,000 shares of the Company's
Common Stock at an exercise price of $5.125 per share. The shares subject to
such option will vest on a monthly basis during the 13-month period ending on
February 28, 1999, subject to Mr. Sbona's continued employment as the Company's
President and Chief Executive Officer; provided, however, that the option will
vest entirely upon certain change of control transactions or upon termination of
Mr. Sbona without cause. The option will also remain exercisable for one year
following the termination of Mr. Sbona's services.

OTHER MATTERS

The 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

LOGO
Timothy J. Moore
Secretary

August 27, 1998

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24

DETACH HERE

PROXY

VERITY, INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS

The undersigned hereby appoints Gary J. Sbona and James E. Ticehurst, and each
of them, with full power of substitution to represent the undersigned and to
vote all of the shares of stock in Verity, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of said
Company to be held at the Sheraton Four Points Hotel, 1100 N. Mathilda Avenue,
Sunnyvale, California on Thursday, September 24, 1998 at 11:00 a.m., Pacific
Daylight Time, and at any adjournment thereof (1) as hereinafter specified upon
the proposals listed on the reverse side and as more particularly described in
the Company's Proxy Statement, receipt of which is hereby acknowledged, and (2)
in their discretion upon such other matters as may properly come before the
meeting.

THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1, 2 AND 3.

SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE

DETACH HERE

PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.

A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:

1. Election of Class III Director

NOMINEE: Gary J. Sbona

FOR WITHHELD
[ ] [ ]

2. To approve the amendment to the 1995 Stock Option FOR AGAINST ABSTAIN
Plan increasing the number of shares of Common Stock [ ] [ ] [ ]
authorized for issuance thereunder from 3,310,836
shares to 4,060,836 shares.

3. To approve the selection of PricewaterhouseCoopers FOR AGAINST ABSTAIN
LLP as the Company's independent public accountants [ ] [ ] [ ]
for the current fiscal year.

MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT [ ]

Even if you are planning to attend the
meeting in person, you are urged to sign and
mail the Proxy in the return envelope so that
your stock may be represented at the meeting.

Sign exactly as your name(s) appear(s) on
your stock certificate. If shares of stock
stand on record in the names of two or more
persons or in the name of husband and wife,
whether as joint tenants or otherwise, both
or all of such persons should sign the above
Proxy. If shares of stock are held of record
by a corporation, the Proxy should be
executed by the President or Vice President
and the Secretary or Assistant Secretary, and
the corporate seal should be affixed thereto.
Executors or administrators or other
fiduciaries who execute the above Proxy for a
deceased stockholder should give their full
title. Please date the Proxy.

Signature: Date:
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