Exhibit 10.2

 

December 1, 2004

 

  Re: Change of Control Agreement

 

Dear Anthony Zingale:

 

Mercury Interactive Corporation (the “Company”) has agreed to extend certain
benefits to you in the event your employment with the Company is terminated
within eighteen months of a “Change of Control” of the Company. This letter sets
out the terms of our agreement (the “Letter”). Capitalized terms are defined on
Exhibit A, attached.

 

1. Severance Benefits. If you or the Company terminate your employment at any
time within the Change of Control Period, then you will be entitled to receive
severance benefits as follows:

 

(a) Voluntary Resignation; Termination for Cause. If you terminate your
employment by reason of voluntary resignation (other than by Involuntary
Termination) or if you are terminated for Cause, then you will not be entitled
to receive severance or other benefits. All outstanding vested stock options
shall remain exercisable for seven months after the termination of your
employment.

 

(b) Involuntary Termination. If your employment is terminated or you terminate
your employment as a result of Involuntary Termination, you will be entitled to
receive the following benefits:

 

(i) severance pay, equal to your base compensation as of the date your
employment ceases, for the Severance Period and according to normal Company
payroll practices and commencing with the month immediately after the month in
which your employment so ceases;

 

(ii) coverage under the Company’s health, life, dental and other insurance
programs for the Severance Period; and

 

(iii) accelerated vesting of all stock options and other forms of long-term
compensation held by you, including those granted after this Letter, with all
outstanding vested stock options remaining exercisable for seven months after
the termination of your employment.

 

(c) Disability; Death. If the Company terminates your employment as a result of
your Disability (as defined below) or such employment is terminated by your
death, then such termination shall be treated as if it were an Involuntary
Termination, and the severance and other benefits shall be provided, in
accordance with subsection (b) above.

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2. Successors. Any successor to the Company (whether direct or indirect and
whether by purchase, lease, merger, consolidation, liquidation or otherwise) to
all or substantially all of the Company’s business and/or assets shall assume
the obligations under this Letter and agree expressly to perform the obligations
under this Letter in the same manner and to the same extent as the Company would
be required to perform such obligations in the absence of a succession. For all
purposes under this Letter, the term “Company” shall include any successor to
the Company’s business and/or assets which executes and delivers the assumption
agreement described in this Section 3 or which becomes bound by the terms of
this Letter by operation of law.

 

3. Law Governing; Arbitration. This Letter shall be governed by and construed in
accordance with the laws of the State of California. Any dispute or controversy
arising under or in connection with this Letter shall be settled exclusively in
arbitration conducted in Sunnyvale, California, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator’s award in any court having jurisdiction. Punitive damages shall
not be awarded. In any arbitration proceeding, the party determined to be the
prevailing party shall be entitled to receive, in addition to any other award,
its attorneys’ fees and expenses of the proceeding.

 

4. Employment and Income Taxes. All payments made pursuant to this Letter will
be subject to withholding of employment taxes.

 

5. Golden Parachute Excise Tax.

 

a. Notwithstanding anything in the foregoing to the contrary, if any of the
payments to you (prior to any reduction described in this paragraph) provided
for in this Agreement, together with any other payments which you have the right
to receive from the Company or any corporation which is a member of an
“affiliated group” as defined in Section 1504(a) of the Internal Revenue Code of
1986, as amended (“Code”), without regard to Section 1504(b) of the Code, of
which the Company is a member (the “Payments”) would constitute a “parachute
payment” (as defined in Section 280G(b)(2) of the Code) and if the Safe Harbor
Amount is greater than the Taxed Amount, then the total amount of such Payments
shall be reduced to the Safe Harbor Amount. The “Safe Harbor Amount” is the
largest portion of the Payments that would result in no portion of the Payments
being subject to the excise tax set forth at Section 4999 of the Code (“Excise
Tax”). The “Taxed Amount” is the total amount of the Payments (prior to any
reduction as described in this paragraph) notwithstanding that all or some
portion of the Payments may be subject to the Excise Tax. Solely for the purpose
of comparing which of the Safe Harbor Amount and the Taxed Amount is greater,
the determination of each such amount, shall be made on an after-tax basis,
taking into account all applicable federal, state and local employment taxes,
income taxes, and the Excise Tax (all of which shall be computed at the highest
applicable marginal rate). If a reduction of the Payments to the Safe Harbor
Amount is necessary, then the reduction shall occur in the following order
unless you elect in writing a different order (provided, however, that such
election shall be subject to Company approval if made on or after the date on
which the event that

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triggers the Payments occurs): reduction of cash payments; cancellation of
accelerated vesting of stock awards; reduction of employee benefits. In the
event that acceleration of vesting of a stock award is to be reduced, such
acceleration of vesting shall be cancelled in the reverse order of the date of
grant of your stock awards unless you elect in writing a different order for
cancellation.

 

b. The accounting firm engaged by the Company for general audit purposes as of
the day prior to the effective date of the Change of Control transaction shall
perform the foregoing calculations. If the accounting firm so engaged by the
Company is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, or the Company otherwise determines such
accounting firm should not be engaged for purposes of making the determinations
required hereunder, the Company may appoint a nationally recognized accounting
firm to make the determinations required hereunder. The Company shall bear all
expenses with respect to the determinations by such accounting firm required to
be made hereunder.

 

c. The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and you within 15 calendar days after the date on which your right
to a Payment is triggered (if requested at that time by the Company or you) or
such other time as requested by the Company or you upon written notice that a
payment related to a change of control of the Company has been or is to be made.

 

By your signature below, you indicate that you agree to the terms set out in
this Letter.

 

Very truly yours,

 

MERCURY INTERACTIVE CORPORATION

/s/ Amnon Landan

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By:

 

Amnon Landan

Title:

 

Chief Executive Officer

ACKNOWLEDGED AND AGREED:

/s/ Anthony Zingale

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Anthony Zingale

 

Date: December 1, 2004

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EXHIBIT A

 

Definition of Terms. The following terms referred to in this Letter shall have
the following meanings:

 

“Cause” means (i) any act of personal dishonesty taken by you in connection with
your responsibilities as an employee and intended to result in substantial
personal enrichment; (ii) your being convicted of a felony; or (iii) a willful
act by you which constitutes gross misconduct and which is materially injurious
to the Company.

 

“Change of Control” means the occurrence of any of the following events:

 

(a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), excluding existing beneficial
owners as of the date of this Letter, is or becomes the “beneficial owner” (as
defined in Section 13d-3 of said Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power represented by
the Company’s then outstanding voting securities, excluding conversion of any
convertible securities issued as of the date of this Letter;

 

(b) The composition of the Board of Directors changes during any period of 36
months such that individuals who at the beginning of the period were members of
the Board of Directors (the “Continuing Directors”) cease for any reason to
constitute at least a majority thereof; unless at least 66-2/3% of the
Continuing Directors has either (i) approved the election of the new Directors,
(ii) if the election of the new Directors is voted on by shareholders,
recommended that the shareholders vote for approval, or (iii) otherwise
determined that such change in composition does not constitute a Change of
Control, even if the Continuing Directors do not constitute a quorum of the
whole Board (it being understood that this requirement shall not be capable of
satisfaction unless there is at least one Continuing Director);

 

(c) The shareholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 50% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale, exclusive license or
disposition by the Company of all or substantially all of the Company’s assets;

 

(d) Any other provision of this subsection notwithstanding, the term Change of
Control shall not include either of the following events undertaken at the
election of the Company:

 

(i) Any transaction, the sole purpose of which is to change the state of the
Company’s incorporation; or

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(ii) A transaction, the result of which is to sell all or substantially all of
the assets of the Company to another corporation (the “surviving corporation”)
provided that the surviving corporation is owned directly or indirectly by the
shareholders of the Company immediately following such transaction in
substantially the same proportions as their ownership of the Company’s common
stock immediately preceding such transaction.

 

“Change of Control Period” means the period beginning with the date that a
Change of Control has occurred (as determined by the Board of Directors of the
Company) and ending eighteen months later.

 

“Disability” means that you suffer from a physical or mental disability to an
extent that renders it impracticable for you to continue performing your duties
hereunder. You shall be deemed to be so disabled if (i) a physician selected by
the Company (and the Company will use its best efforts to coordinate such
determination by the physician with the Company’s long term disability insurance
carrier) advises the Company that your physical or mental condition will render
you unable to perform your duties for a period exceeding three consecutive
months, or (ii) due to a physical or mental condition, you have not
substantially performed your duties hereunder for a period of three consecutive
months.

 

“Involuntary Termination” means without your consent (i) your assignment to any
duties or the significant reduction of your duties, either of which is
inconsistent with your position or title with the Company and responsibilities
in effect immediately prior to such assignment, or your removal from such
position and responsibility, or a reduction in your title; (ii) a greater than
10% reduction by the Company in your base compensation as in effect immediately
prior to such reduction; provided, however, that such reduction shall not apply
if substantially all executive officers of the Company agree to an equivalent
reduction in base compensation; (iii) any purported termination of you by the
Company (other than a voluntary termination initiated by the you) which is not
effected for Disability or for Cause; (iv) relocation of your principal place of
employment by more than 50 miles; (v) the failure of any successor entity to the
Company to assume this agreement or your employment agreement and (vi) any
material breach by the Company of any material provision of your employment
agreement with the Company which has not been cured within 30 days of written
notice to the Company by you of such breach.

 

“Severance Period” means the 12-month period following your termination of
employment, except that if termination of employment occurs after the fourth
anniversary of the commencement of your employment, the Severance Period shall
mean the 24-month period following such termination of employment.