Exhibit 10.42

 

Mercury Interactive Corporation

Long-Term Incentive Plan

(Amended as of February 11, 2005)

 

Section 1. Purpose. The purpose of this Long-Term Incentive Plan (the “Plan”) is
to aid Mercury Interactive Corporation, a Delaware corporation (together with
its successors and assigns, the “Company”), in attracting, retaining, motivating
and rewarding key senior employees and executives of the Company or its
subsidiaries or affiliates using stock-based and cash-based incentives.

 

Section 2. Definitions. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:

 

(a) “Award” means any right granted to a Participant under this Plan to receive
cash awards.

 

(b) “Board” means the Board of Directors of the Company.

 

(c) “Cause” means, unless otherwise provided by the Committee or in an
employment agreement of any Participant, (i) any act of personal dishonesty
taken by a Participant in connection with such Participant’s responsibilities as
an employee and intended to result in substantial personal enrichment; (ii) a
Participant being convicted of a felony; or (iii) a willful act by a Participant
which constitutes gross misconduct and which is materially injurious to the
Company.

 

(d) “Change of Control Agreement” means a change of control agreement between a
Participant and the Company.

 

(e) “Code” means the Internal Revenue Code of 1986, as amended. References to
any provision of the Code or regulation (including a proposed regulation)
thereunder shall include any successor provisions and regulations.

 

(f) “Committee” means the compensation committee or other committee consisting
of one or more directors designated by the Board to administer the Plan. If no
Committee has been designated to administer the Plan, the Board shall be the
“Committee” for purposes of the Plan.

 

(g) “Participant” means a person who has been granted an Award under the Plan.

 

(h) “Performance Goals” means the performance objectives of the Company during a
Performance Period for the purposes of determining whether, and to what extent,
Awards will be earned for the Performance Period.

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(i) “Performance Period” means the period of time over and within which
performance is measured for the purposes of determining whether an Award has
been earned.

 

Section 3. Administration; Eligibility; Termination and Amendment.

 

(a) Administration. The Committee shall have full power and authority to
construe, interpret and administer the Plan. All decisions, actions or
interpretations of the Committee shall be final, conclusive, and binding upon
all parties.

 

(b) Eligibility. Participants in the Plan shall be selected by the Committee in
its discretion from among the executive officers and senior managers of the
Company. In making this selection and in determining the form and amount of
awards, the Committee may consider any factors it deems relevant, including,
without limitation, the individuals’ functions, responsibilities, value of
services to the Company and past and potential contributions to the Company’s
profitability and growth.

 

(c) Term. The Plan shall commence on the date determined by the Committee, which
is expected to be the start of fiscal 2005, and may continue in full force and
effect until terminated by the Committee.

 

(d) Amendment and Termination. The Committee reserves the right at any time to
amend, suspend, or terminate the Plan in whole or in part and for any reason and
without the consent of any Participant; provided that any outstanding Award
shall not be materially adversely affected without the consent of the
Participant.

 

Section 4. Cash Awards.

 

(a) Generally. Cash-based Awards that are granted by the Committee shall be
earned if and to the extent the Company achieves Performance Goals as specified
by the Committee hereunder. The Committee may also determine to consider a
Participant’s individual performance making Awards hereunder and may condition
receipt of payment of an Award on vesting beyond the Performance Period.

 

(b) Business Criteria. The Committee shall determine the business criteria for
the Company that shall be used in establishing Performance Goals for such
Awards. These criteria may include earnings per share, revenues, bookings,
expenses, gross profit, operating income, net income, cash flow, capital
expenditures, working capital, economic value added, stock price per share,
market value, enterprise value, book value, return on equity, return on book
value, return on invested capital, return on asset, capital structure, return on
investment, and/or utilization. The Committee expects the initial Performance
Goals to be earnings per share and bookings growth. The Committee shall
determine the

 

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target level of performance that must be achieved with respect to each criterion
that is identified in a Performance Goal in order for a Performance Goal to be
treated as attained as well as the incremental effect of achieving performance
greater than the target.

 

(c) Performance Period; Timing for Establishing Performance Goals. Achievement
of Performance Goals in respect of such Awards shall be measured over a
Performance Period established by the Committee. In addition, the Committee may
specify a vesting period for payment of the Award that may be longer than the
Performance Period. Initially, the Performance Period is expected to be one
fiscal year with vesting after three years. If necessary and desired to meet the
requirements of Section 162(m) of the Code for any Participant, the Performance
Goals shall be established in writing not later than 90 days after the beginning
of any Performance Period applicable to such Award.

 

(d) Payment.

 

(i) General. Except as otherwise set forth herein or determined by the
Committee, a Participant must be an active employee in good standing and on the
Company’s or an approved subsidiary’s payroll on the day the Award is paid to
receive any portion of the Award. A Participant who is not actively employed or
on an approved payroll for whatever reason on the date an Award is paid is not
entitled to a partial or pro rata Award. The Committee may make exceptions in
its sole discretion.

 

(ii) Involuntary Termination. Unless otherwise determined by the Committee when
granting an Award, if a Participant’s employment with the Company is terminated
without Cause before an outstanding Award has been paid, then: (A) if such
termination occurs after completion of the applicable Performance Period in
which the Performance Goals were met but before vesting of the Award, the
Participant shall receive payment of the Award; or (B) if such termination
occurs during a Performance Period, then the Participant shall receive a
pro-rated portion of the Award based on performance to date under the
Performance Period as determined by the Committee, with a maximum payment based
on such Participant’s target level.

 

(iii) Death of Participant. In the event of the death of a Participant after an
Award has been granted but before payment of the Award, the amount of the Award
shall be paid to the Participant’s estate or by a person who acquired the right
to the Award by bequest or inheritance.

 

(iv) Change of Control. With respect to any Participant who is subject to a
Change of Control Agreement, upon an Involuntary Termination (as defined in a
Change of Control Agreement) of such Participant during the Change of Control
Period (as defined in a Change of

 

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Control Agreement) before an outstanding Award has been paid, then (A) if such
termination occurs after completion of the applicable Performance Period in
which the Performance Goals were met but before vesting of the Award, the
Participant shall receive payment of the Award in the amount determined by the
actual achievement of the Performance Goals; or (B) if such termination occurs
during a Performance Period, then the Participant shall receive the target level
of such Award.

 

Section 5. Equity Awards. The Committee may grant equity awards to Participants
as part of its long-term incentive program. Any equity awards will be granted
under the Company’s Amended and Restated 1999 Stock Option Plan or such other
equity incentive plan as designated by the Committee (in any case, the “Equity
Plan”). The terms and conditions of any such equity awards shall be as set forth
in the applicable Equity Plan and as determined by the Committee.

 

Section 6. General Provisions.

 

(a) Limits on Transferability; Beneficiaries. No Award under the Plan shall be
assignable or transferable by the Participant thereof, except by will or by the
laws of descent and distribution, unless the Committee shall elect to permit
such an assignment or transfer in its sole discretion.

 

(b) Withholding. Whenever payments under the Plan are to be made, the Company
will withhold therefrom, or from any other amounts payable to or in respect of
the Participant, an amount sufficient to satisfy any applicable governmental
withholding tax requirements related thereto.

 

(c) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an “unfunded” plan. With respect to any payments not yet made to a
Participant or other obligations under an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company.

 

(d) Nonexclusivity of the Plan. The adoption of the Plan by the Board shall not
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements, apart from the
Plan, as it may deem desirable.

 

(e) Compliance with Section 162(m). The Committee may determine to submit the
Plan for approval by the Company’s stockholders for purposes of qualifying
Awards to executives covered under Section 162(m) of the Code and regulations
thereunder (“Section 162(m)”) as “performance based compensation” with the
meaning of Section 162(m), to the extent consistent with the business goals of
the Company. If the Committee has made that determination, in connection with
language that is designated as intended to comply with Section 162(m) of the
Code, the terms of the Plan shall be interpreted in a manner consistent with
Section 162(m). If any provision of the Plan or any Award

 

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document relating to an Award that is designated as intended to comply with
Section 162(m) does not comply or is inconsistent with the requirements of
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements, and no provision shall be
deemed to confer upon the Committee or any other person discretion to increase
the amount of compensation otherwise payable in connection with any such Award
upon attainment of the applicable performance objectives.

 

(f) Governing Law. The validity, construction, and effect of the Plan, any rules
and regulations relating to the Plan and any Award document shall be determined
in accordance with the laws of the State of California, without giving effect to
principles of conflicts of laws, and applicable provisions of federal law.

 

(g) Limitation on Rights Conferred under Plan. Neither the Plan nor any action
taken hereunder shall be construed as (i) giving any Participant the right to
continue in the employ or service of the Company, (ii) interfering in any way
with the right of the Company to terminate any Participant’s employment or
service at any time (subject to the terms and provisions of any separate written
agreements), or (iii) giving a Participant any claim to be granted any Award
under the Plan or to be treated uniformly with other Participants and employees.

 

(h) Severability; Entire Agreement. If any of the provisions of this Plan or any
Award document is finally held to be invalid, illegal or unenforceable (whether
in whole or in part), such provision shall be deemed modified to the extent, but
only to the extent, of such invalidity, illegality or unenforceability, and the
remaining provisions shall not be affected thereby; provided, that, if any of
such provisions is finally held to be invalid, illegal, or unenforceable because
it exceeds the maximum scope determined to be acceptable to permit such
provision to be enforceable, such provision shall be deemed to be modified to
the minimum extent necessary to modify such scope in order to make such
provision enforceable hereunder. The Plan and any Award documents contain the
entire agreement of the parties with respect to the subject matter thereof and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations and warranties between them, whether written or
oral with respect to the subject matter thereof.

 

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