EXHIBIT 10.20

 

AMENDED AND RESTATED

REPLACES LETTER DATED OCTOBER 1, 2003

 

December 23, 2003

 

Via Hand Delivery

 

Kenneth Klein

 

Dear Ken:

 

This letter, upon your signature, will be the agreement (this “Agreement”)
between you and Mercury Interactive Corporation (“Mercury” or the “Company”) on
the terms of the change in your employment status with Mercury.

 

1. Your term of full time employment at Mercury, and your role as Chief
Operating Officer and your service on the Board of Directors, will end effective
December 31, 2003 (the “Transition Date”). After the Transition Date, you will
have 30 days to exercise your vested stock options in accordance with the terms
of the applicable option agreement, except as provided in Section 2(b) below.
You will be eligible for COBRA coverage commencing January 1, 2004. On or before
December 31, 2003, you will be paid your accrued vacation of $185,455.78.

 

2. Although you are not otherwise entitled to it, in consideration of your
acceptance of this Agreement, Mercury will provide you with the following:

 

(a) During the period from January 1, 2004 through October 3, 2005 (the
“Transition Period”), Mercury will pay you $29,166.67 per month in accordance
with Mercury’s standard payroll practices, less applicable taxes. You will also
receive (at or about the same time as the date it is paid to other Mercury
executives), your annual bonus of $250,000.00 for the year ending December 31,
2003. Thereafter, you will also receive a similar bonus payment for the year
ending December 31, 2004 (paid at 100% or such other percentage as the other
Mercury executives receive based on the Company’s performance for that year),
when other executives are paid their bonuses for 2004. Finally, you will receive
a pro-rated bonus for 2005 in the amount of $187,500.00 (or an amount equal to
the prorated portion of your annual bonus for 2005 paid at the same percentage
rate as the other Mercury executives receive based on the Company’s performance)
at the end of the Transition Period. Please note that all bonus payments are
subject to all appropriate tax and related withholding requirements.

 

(b) Those stock options that would have otherwise vested during the Transition
Period (as set forth on Exhibit B, the “Accelerated Options”) will be
accelerated and shall be vested immediately effective as of the date of the
action of the Compensation Committee of the Board of Directors (and in any event
prior to December 31, 2003). Notwithstanding the terms of your option agreement,
the Accelerated Options shall be exercisable until October 3, 2005. In addition,
the vested portion of your stock option to purchase 350,000 shares with an
exercise price of $60.875 that was granted on January 8, 2001 (the “Underwater
Option”) shall also be exercisable until October 3, 2005. There are no changes
to any options other than the Accelerated Options and the Underwater Option.

 

(c) Your laptop, RIM and cell phone will become your personal property.

 

(d) Mercury will transfer ownership of the Mercedes Benz CL500 that Mercury
purchased for your business use to you promptly after December 31, 2003
provided, however, that Mercury will withhold from your salary, bonus or other
amounts due to you by Mercury all applicable taxes on such car based on the then
Kelly Blue Book value (expected to be no more than approximately $77,000).

 

(e) The parties acknowledge that the outstanding loan from stock option
exercises has been paid in full.

 

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(f) Upon a Change of Control (as defined on Exhibit A), all consideration due
and owing under this letter agreement will accelerate and become immediately due
and payable to you.

 

3. You agree that the Change of Control Agreement between you and Mercury dated
July 22, 1998 is terminated effective as of December 31, 2003.

 

4. You hereby affirm all of the provisions set forth in the Mercury Interactive
Corporation Proprietary Information Agreement that you signed upon joining the
Company as copy of which is attached hereto as Exhibit A.

 

5. You further agree, in exchange for the benefits provided above, that until
the end of the Transition Period:

 

(a) you will not work for any business, whether as an employee, consultant or
advisor, that is a competitor of Mercury. Competition is defined as: companies
that sell application management (application performance management),
application delivery (testing, tuning and deployment assurance) or IT Governance
products and services including such companies as: Computer Associates,
Compuware, BMC, Empirix, IBM, IBM Global Services, IBM Software, Keynote,
Micromuse, Quest, Radview, Segue and Tivoli.

 

(b) and for a period of twelve (12) months thereafter, you will not personally
solicit or recruit any of the Company’s employees to leave their employment
(provided that for this purpose, a general employment advertisement by an entity
of which you are a part will not constitute solicitation or recruitment and
nothing in this Section 5(b) shall prevent any entity of which you are a part
from hiring a Company employee).

 

(c) you agree that you will not actively counsel or assist any attorneys or
their clients in the presentation or prosecution of any disputes, differences,
grievances, claims, charges, or complaints by any third party against the
Company and/or any officer, director, employee, agent, representative,
shareholder or attorney of the Company, unless under a subpoena or other court
order to do so or unless otherwise required by law to do so.

 

(d) if you materially breach any of the terms of this Agreement, that you, from
the time of such material breach forward, shall not be entitled to any further
payments or benefits under this Agreement, including but not limited to any
further vesting under Mercury’s stock option plan; provided however, that in the
case of a material breach, Mercury will provide you with written notice of such
breach and you shall have 10 days from the date of such notice to cure such
material breach (if such breach is capable of being cured).

 

6. With the exception of the breach of this Agreement by Mercury, you waive and
release and promise never to assert any and all claims that you have or might
have against Mercury and its predecessors, subsidiaries, related entities,
officers, directors, shareholders, agents, attorneys, employees, successors, or
assigns (collectively, the “Released Parties”), arising from or related to your
employment with Mercury (other than your rights to receive your account balance
under the Mercury 401(k) plan) and/or the termination of your employment with
Mercury or any other claim that arises after the effective date of this
Agreement.

 

These claims include, but are not limited to, claims arising under federal,
state and local statutory or common law, such as the California Fair Employment
and Housing Act, the California Labor Code, Title VII of the Civil Rights Act of
1964; the Americans with Disabilities Act, and the law of contract and tort
(collectively, the “Released Claims”).

 

You agree that you will not file (or ask or allow anyone to file on your
behalf), any charge, complaint, claim or lawsuit of any kind in connection with
any claim released by this Agreement. This provision shall not apply, however,
to any non-waivable charges or claims brought before any governmental agency.
With respect to any such non-waivable claims, you agree to waive your right (if
any) to any monetary or other recovery should any governmental agency or other
third party pursue any claims on your behalf, either individually, or as part of
any collective action. Nothing herein shall preclude any claim you may file
alleging that your waiver of claims under the Age Discrimination in Employment
Act of 1967 (“ADEA”) was not knowing or voluntary.

 

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You understand that the Released Claims include not only claims presently known
to you, but also include all unknown claims and causes of action of any kind
which would otherwise come within the scope of the Released Claims as described
in above in this section 6. You therefore waive your rights under section 1542
of the Civil Code of California, which states:

 

A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known to him must have materially affected his settlement with the debtor.

 

7. You will not, unless required or otherwise permitted by law, until after such
time as the terms of this agreement have been publicly disclosed by Mercury,
disclose to others any information regarding the terms of this Agreement, the
benefit being paid under it or the fact of its payment, except that you may
disclose this information to your attorney, accountant or other professional
advisor to whom you must make the disclosure in order for them to render
professional services to you. You will instruct them, however, to maintain the
confidentiality of this information just as you must.

 

8. You and Mercury agree to work together on a mutually acceptable press release
regarding your transition from the Company. You and Mercury, its officers and
directors, agree to refrain from any disparagement, criticism, defamation,
slander of the other or tortious interference with the contracts and
relationships of the other. In discussing your employment with and transition
from the Company, you, Mercury and Mercury’s officer and directors will not in
any material way, deviate from or expand upon the discussion in the press
release.

 

9. Unless accepted in the manner set forth below on or before December 31, 2003,
this Agreement will expire and become of no further legal effect or consequence.

 

To accept the agreement, please date and sign this letter and return it to me.
Ken, I hope that we will be able to part ways on these amicable terms. Mercury
Interactive Corporation and I wish you every success in your future endeavors.

 

Very truly yours,

 

 

MERCURY INTERACTIVE CORPORATION

/s/    SUSAN J. SKAER        

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Susan J. Skaer Vice President, General Counsel and Secretary

 

By signing this letter, I acknowledge that I have had the opportunity to review
this Agreement carefully with an attorney of my choice, that I understand the
terms of the agreement, and that I voluntarily agree to them.

 

Dated: 12/30/03

 

/s/    KENNETH KLEIN        

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Kenneth Klein

 

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EXHIBIT A

 

Definition of “Change of Control”.

 

“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 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

 

(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.

 

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EXHIBIT B

 

Accelerated Options

 

Option Number

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   Option Date

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

   Exercise Price

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Shares subject to accelerated
vesting (reflecting vesting from

12/31/03 to 10/3/05)

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00001619

   1/6/00    $ 40.7188    6,250

00003750

   1/8/01    $ 60.8750    94,792

00007775

   1/22/02    $ 29.2900    153,125

0001114

   1/3/03    $ 31.4100    120,312

 

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