Exhibit 10.1

 

[Mailing Date]

 

[Exec Name]

 

Dear [Exec Name]:

 

We are pleased to inform you that the Company’s Board of Directors has approved
a special severance benefit program for you. The purpose of this letter
agreement is to set forth the terms and conditions of your severance benefits.

 

Your severance package will become payable should your employment terminate
under certain circumstances following a substantial change in ownership or
control of the Company. To understand the full scope of your benefits, you
should familiarize yourself with the definitional provisions of Part One of this
letter agreement. The benefits comprising your severance package are detailed in
Parts Two and Three. Part Four deals with ancillary matters affecting your
severance arrangement.

 

PART ONE – DEFINITIONS

 

For purposes of this letter agreement, the following definitions will be in
effect:

 

Base Salary means the annual rate of base salary in effect for you immediately
prior to the Change in Control or (if greater) the annual rate of base salary in
effect at the time of your Involuntary Termination.

 

Board means the Company’s Board of Directors.

 

Change in Control means a change in the ownership or control of the Company
effected through any of the following transactions:

 

(i) a merger or consolidation approved by the Company’s stockholders in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company’s outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior to
such transaction;

 

(ii) any stockholder-approved sale, transfer or other disposition of all or
substantially all of the Company’s assets in complete liquidation or dissolution
of the Company;

 

(iii) the acquisition, directly or indirectly, by any person or related group of
persons (other than the Company or a person that directly

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or indirectly controls, is controlled by or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Company’s
outstanding securities pursuant to a tender or exchange offer made directly to
the Company’s stockholders; or

 

(iv) a change in the composition of the Board over a period of thirty-six (36)
consecutive months or less such that a majority of the Board members ceases, by
reason of one or more contested elections for Board membership, to be comprised
of individuals who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board approved
such election or nomination.

 

Code means the Internal Revenue Code of 1986, as amended.

 

Common Stock means the Company’s common stock.

 

Company means Portal Software, Inc., a Delaware corporation, or any successor
corporation, whether or not resulting from a Change in Control.

 

Disability means your inability to perform the normal and usual duties of your
position with the Company by reason of any physical or medical impairment which
is expected to result in death or continue for a period of twelve (12)
consecutive months or more.

 

Fair Market Value means, with respect to the shares of Common Stock subject to
any of your Options, the closing selling price per share of Common Stock on the
date in question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market and published in The Wall
Street Journal. If there is no closing selling price reported for the Common
Stock on the date in question, then the Fair Market Value will be the closing
selling price on the last preceding date for which such report exists.

 

Health Care Coverage means the continued coverage to which you and your eligible
dependents may become entitled under the Company’s health care plans pursuant to
the severance benefit provisions of Part Two of this letter agreement.

 

Involuntary Termination means (i) the involuntary termination of your employment
with the Company other than a Termination for Cause or (ii) your voluntary
resignation within one hundred eighty days (180) days (A) following both (x) a
material reduction in your duties and responsibilities or the level of
management to which you report in the acquiror (for example if the Employee was
the CFO of the Company previously reported to the CEO of the Company and now
reports to the CFO of the acquiror, the employee would have experienced a
reduction in level of management to which he reports; also if the employee was a

 

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Section 16 reporting officer of the Company and is not deemed to be a Section 16
reporting officer of the acquiror, a material reduction will have been deemed to
have taken place) AND (y) a 120 day period following the change of control, (B)
following a reduction in your level of compensation (including Base Salary,
fringe benefits and target bonus under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) following a
relocation of your principal place of employment by more than fifty (50) miles.

 

An Involuntary Termination will not be deemed to occur in the event your
employment terminates by reason of your death or Disability or a Termination for
Cause.

 

Option means any outstanding option you hold under the Plan at the time of the
Change in Control or upon your subsequent Involuntary Termination. Your Options
will be divided into two (2) separate categories as follows:

 

Acquisition-Accelerated Options: any outstanding Option (or installment thereof)
which automatically accelerates, pursuant to the acceleration provisions of the
agreement evidencing that Option, upon a Change in Control.

 

Severance-Accelerated Options: any outstanding Option (or installment thereof)
which, pursuant to Part Two of this letter agreement, accelerates upon an
Involuntary Termination.

 

Option Parachute Payment means, with respect to any Acquisition-Accelerated
Option or any Severance-Accelerated Option, the portion of that Option deemed to
be a parachute payment under Code Section 280G and the Treasury Regulations
issued thereunder. The portion of such Option which is categorized as an Option
Parachute Payment will be calculated in accordance with the valuation provisions
established under Code Section 280G and the applicable Treasury Regulations and
will include an appropriate dollar adjustment to reflect the lapse of your
obligation to remain in the Company’s employ as a condition to the vesting of
the accelerated installment. In no event, however, will the Option Parachute
Payment attributable to any Acquisition-Accelerated Option or
Severance-Accelerated Option (or accelerated installment) exceed the spread (the
excess of the Fair Market Value of the accelerated option shares over the option
exercise price payable for those shares) existing at the time of acceleration.

 

Other Parachute Payment means any payment in the nature of compensation (other
than the benefits to which you become entitled under Part Two of this letter
agreement) which is made to you in connection with the Change in Control and
which accordingly qualifies as parachute payments within the meaning of Code
Section 280G(b)(2) and the Treasury Regulations issued thereunder. Your Other
Parachute Payment will include (without limitation) the Present Value, measured
as of the Change in Control, of the aggregate Option Parachute Payment
attributable to your Acquisition-Accelerated Options (if any).

 

Parachute Payment means any payment or benefit provided you under Part Two of
this letter agreement (other than the Option Parachute Payment attributable to
your Severance-Accelerated Options) which is deemed to constitute a parachute
payment within the meaning of Code Section 280G(b)(2) and the Treasury
Regulations issued thereunder.

 

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Plan means (i) the Company’s 1999 Stock Incentive Plan, as amended or restated
from time to time, (ii) the Company’s 2000 Supplemental Stock Option Plan and
(iii) any successor stock incentive plan subsequently implemented by the
Company.

 

Present Value means the value, determined as of the date of the Change in
Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or your subsequent Involuntary
Termination, including (without limitation) the Option Parachute Payment
attributable to your Severance-Acceleration Options, the additional benefits to
which you become entitled under Part Two of this letter agreement and the Option
Parachute Payment attributable to your Acquisition-Accelerated Options. The
Present Value of each such payment will be determined in accordance with the
provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one
hundred twenty percent (120%) of the applicable Federal rate in effect at the
time of such determination, compounded semi-annually to the effective date of
the Change in Control.

 

Target Bonus means the target bonus (as a percentage of base salary ) in effect
for you under the Company’s annual cash incentive bonus program immediately
prior to the Change in Control or (if greater) the target bonus in effect for
you at the time of your Involuntary Termination.

 

Termination for Cause means the Company’s termination of your employment for any
of the following reasons: (i) your commission of any act of fraud, embezzlement
or dishonesty, (ii) your unauthorized use or disclosure of any confidential
information or trade secrets of the Company, (iii) any intentional misconduct by
you which has a materially adverse effect upon the Company’s business or
reputation, (iv) your continued failure to perform the major duties, functions
and responsibilities of your position after written notice from the Company
identifying the deficiencies in your performance and a reasonable cure period of
not less than thirty (30) days or (v) a material breach of your fiduciary duties
as an officer of the Company.

 

PART TWO — CHANGE IN CONTROL BENEFITS

 

Should your employment with the Company terminate by reason of an Involuntary
Termination within twelve (12) months after a Change in Control, then you will
become entitled to receive the severance benefits provided under this Part Two,
provided you execute and deliver to the Company, at the time of such Involuntary
Termination, a General Release in substantially the form of attached Exhibit A.
However, your benefits under this Part Two will be in lieu of all other
severance benefits to which you might otherwise be entitled upon such
termination of your employment.

 

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1. Accelerated Vesting.

 

Each outstanding Option which you hold at the time of your Involuntary
Termination, to the extent not otherwise exercisable for all the shares of
Common Stock subject to that Option, will immediately vest and become
exercisable for all those option shares and may be exercised for any or all of
those shares as fully vested shares. Each such accelerated Option granted prior
to the date of this letter agreement will remain exercisable until the earlier
of (i) the expiration of the option term or (ii) the end of the three (3)-month
period following the date of your Involuntary Termination, and each such
accelerated Option granted after the date of this letter agreement will remain
exercisable until the earlier of (x) the expiration of the option term or (y)
the end of the twelve (12)-month period following the date of your Involuntary
Termination. Any Options not exercised prior to the expiration of the applicable
post-service exercise period will lapse and cease to remain exercisable.

 

2. Severance Payment.

 

You will receive a severance payment from the Company in an amount equal to
three (3) times the sum of your annual rate of Base Salary and Target Bonus,
subject to all applicable withholding taxes. The severance payment shall be paid
to you in one lump sum payment, payable no later than the date your Involuntary
Termination within twelve (12) months after the occurrence of a Change in
Control.

 

3. Health Care Coverage.

 

The Company will, at its expense, provide you and your eligible dependents with
continued health care coverage under the Company’s medical/dental plan in effect
on the date of the occurrence of a Change in Control until the earlier of (i)
the expiration of the thirty-six (36) month period measured from the first day
of the first month following the effective date of your Involuntary Termination
or (ii) the first date that you are covered under another employer’s health
benefit program which provides substantially the same level of benefits without
exclusion for pre-existing medical conditions. Such Health Care Coverage will be
in lieu of any other continued health care coverage to which you or your
dependents would otherwise be entitled at your own cost under Code Section 4980B
by reason of your termination of employment.

 

PART THREE – EFFECT OF CODE SECTION 280G

 

1. Excise Tax.

 

If any payment or distribution by the Company to you or for your benefit,
whether pursuant to the terms of this Agreement or otherwise (a “Payment”),
constitutes a parachute payment within the meaning of Code Section 280G(b)(2)
and is subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by you with respect to such excise tax (such
excise tax, together with any such interest and penalties are hereinafter
collectively referred to as the “Excise Tax”), the Company will make an
additional payment (a “Gross-Up Payment”) to you in an amount such that, after
payment by you of all taxes (including, any interest or penalties imposed with
respect to such taxes) including, without limitation, any

 

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federal, state or local income and employment taxes and the Excise Tax imposed
upon the Gross-Up Payment, you will retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Payment.

 

2. Determination of Gross Up Payment.

 

Subject to the provisions of Paragraph 3 below, all determinations under this
Part Three, including whether a Gross-Up Payment is required and the amount of
the Gross-Up Payment, will be made by a certified public accounting firm
immediately before the Change in Control occurs (the “Accounting Firm”), which
shall provide detailed supporting calculations to both you and the Company
within 15 business days after the Change in Control (or any other change in
ownership or effective control that triggers application of the Excise Tax). All
fees and expenses of the Accounting Firm will be borne solely by the Company.
The initial Gross-Up Payment determined pursuant to this Paragraph 2 will be
paid to you by the Company within five days after it receives the Accounting
Firm’s determination. If the Accounting Firm determines that no Excise Tax is
payable by you, it will furnish you with a written opinion that failure to
report the Excise Tax on your applicable federal tax return will not result in
the imposition of a negligence or similar penalty. Any determination by the
Accounting Firm will be binding on both you and the Company. Notwithstanding the
foregoing, as a result of uncertainty in applying Section 4999 of the Code, it
is possible that the Company will not have made Gross-Up Payments that it should
have made hereunder (an “Underpayment”). If the Company exhausts its remedies
pursuant to Paragraph 3 hereof and you are thereafter required to pay any Excise
Tax, the Accounting Firm will determine the amount of the Underpayment, inform
you and the Company in writing of the Underpayment, and, within five days of
receiving such written report, the Company will pay the amount of such
Underpayment to you or for your benefit.

 

3. Notice and Payment of Excise Tax.

 

You must notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the
Gross-Up Payment. You must give such notification as soon as practicable but not
later than ten business days after you are informed in writing of such claim and
the notification must apprise the Company of the nature of such claim and the
date on which such claim is required to be paid. You agree to not pay such claim
before the expiration of 30 days following the date on which you give such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such is due). If the Company notifies you in
writing before the expiration of such 30-day period that it desires to contest
such claim, you must (1) give the Company any information reasonably requested
by the Company relating to such claim, and (2) take such action in connection
with contesting such claim as the Company reasonably requests in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney selected by the Company; provided, however,
that the Company will directly pay all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and will
indemnify and hold you harmless, on an after-tax basis, for any tax, including
interest and penalties, imposed as a result of such representation and payment
of costs and expenses. The Company will control all proceedings in connection
with such contest and may, at its sole option, either direct you to pay the tax
claimed and sue for a refund or to contest

 

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the claim in any permissible manner, and you agree to prosecute such contest to
a determination before any appropriate administrative tribunal or court, as the
Company may determine; provided, that if the Company directs you to pay such
claim and sue for a refund, the Company will advance to you the amount of such
payment, on an interest-free basis, and will indemnify and hold you harmless, on
an after-tax basis, from any tax, including interest or penalties, imposed with
respect to such advance. The Company’s control of the contest will be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder, and
you will be entitled to settle or contest any other issue.

 

4. Refund of Excise Tax.

 

If, after you receive an advance by the Company pursuant to Paragraph 3 hereof,
you become entitled to receive a refund claimed pursuant to such Paragraph 3,
you will (subject to the Company’s complying with the requirements of such
Paragraph 3) promptly pay to the Company the amount of such refund (together
with any interest thereon, after taxes applicable thereto). If, after you
receive an amount advanced by the Company pursuant to Paragraph 3 hereof, a
determination is made that you will not be entitled to any refund claimed
pursuant to such Paragraph 3, and the Company does not notify you in writing of
its intent to contest such denial of refund before the expiration of 30 days
after such determination, you will not be required to repay such advance, and
the amount of such advance shall offset, to the extent thereof, the amount of
the required Gross-Up Payment.

 

PART FOUR — MISCELLANEOUS

 

1. Amendment and Termination.

 

This letter agreement may only be amended by written instrument signed by you
and an authorized officer of the Company. This letter agreement shall remain in
effect through [start date, 1 yr later] or any earlier termination of your
employment with the Company. Provided you continue in the Company’s employ, this
letter agreement shall automatically be renewed for successive one (1)-year
terms, beginning [1 day after date (this paragraph)] September 16, 2004, unless
the Company provides you with written notice of termination of this letter
agreement at least thirty (30) days prior to the start of any such one (1)-year
renewal period. Once a Change in Control occurs, this letter agreement may not
be terminated at any time prior to the expiration of the twelve (12)-month
period following the effective date of that Change of Control, and no subsequent
termination of this letter agreement shall adversely affect your right to
receive any benefits to which you may have previously become entitled hereunder
in connection with your Involuntary Termination following that Change in
Control.

 

2. Termination for Cause.

 

Should your employment cease by reason of a Termination for Cause or should you
voluntarily resign under circumstances which would otherwise constitute grounds
for a Termination for Cause, then the Company will only be required to pay you
(i) any unpaid compensation earned for services previously rendered through the
date of such termination and (ii) any accrued but unpaid vacation benefits or
sick days, and no benefits will be payable to you under Part Two of this letter
agreement.

 

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3. Death.

 

Should you die before receipt of one or more salary continuation/target bonus
payments to which you become entitled under this letter agreement, then those
payments will be made to the executors or administrators of your estate. Should
you die before you exercise all your outstanding Options as accelerated
hereunder, then such Options may be exercised, within twelve (12) months after
your death, by the executors or administrators of your estate or by persons to
whom the Options are transferred pursuant to your will or in accordance with the
laws of inheritance. In no event, however, may any such Option be exercised
after the specified expiration date of the option term.

 

4. Indemnification.

 

The indemnification provisions for Officers and Directors under the Company
By-Laws will (to the maximum extent permitted by law) be extended to you, during
the period following your Involuntary Termination, with respect to any and all
matters, events or transactions occurring or effected during your period of
employment with the Company.

 

5. Miscellaneous.

 

This letter agreement will be binding upon the Company, its successors and
assigns (including, without limitation, the surviving entity in any Change in
Control) and is to be construed and interpreted under the laws of the State of
California. If any provision of this letter agreement as applied to you or the
Company or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision will in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this letter
agreement, or the enforceability or invalidity of this letter agreement as a
whole. Should any provision of this letter agreement become or be deemed
invalid, illegal or unenforceable in any jurisdiction by reason of the scope,
extent or duration of its coverage, then such provision will be deemed amended
to the extent necessary to conform to applicable law so as to be valid and
enforceable or, if such provision cannot be so amended without materially
altering the intention of the parties, then such provision will be stricken and
the remainder of this letter agreement will continue in full force and effect.

 

6. General Creditor Status.

 

All cash payments to which you become entitled hereunder will be paid, when due,
from the general assets of the Company, and no trust fund, escrow arrangement or
other segregated account will be established as a funding vehicle for such
payment. Accordingly, your right (or the right of the personal representatives
or beneficiaries of your estate) to receive such cash payments hereunder will at
all times be that of a general creditor of the Company and will have no priority
over the claims of other general creditors.

 

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7. At Will Employment.

 

Nothing in this letter agreement is intended to provide you with any right to
continue in the employ of the Company (or any subsidiary) for any period of
specific duration or interfere with or otherwise restrict in any way your rights
or the rights of the Company (or any subsidiary), which rights are hereby
expressly reserved by each, to terminate your employment at any time and for any
reason .

 

8. Legal Fees and Expenses.

 

The Company will pay all legal fees and expenses (including but not limited to
reasonable attorneys’ fees) which you may incur as a result of the Company’s
contesting the validity, enforceability or your interpretation of, or
determinations under, this letter agreement or the Company’s failure to perform
its obligations under this letter agreement.

 

9. Entire Agreement.

 

With respect to the subject matter hereto, this letter agreement supersedes and
replaces all previous severance or change in control contracts and agreements,
and constitutes the entire agreement between you and the Company. No oral
statements or prior written material, unless specifically incorporated herein,
shall be of any force and effect.

 

Please indicate your agreement with the foregoing terms and conditions of your
change in control severance package by signing the Acceptance section of the
enclosed copy of this letter and returning it to the Company.

 

Very truly yours, PORTAL SOFTWARE, INC. By:  

 

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Name:  

 

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Title:  

 

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ACCEPTANCE

 

I hereby agree to all the terms and provisions of the foregoing letter agreement
governing the special benefits to which I may become entitled in the event my
employment should terminate under certain prescribed circumstances following a
substantial change in control or ownership of the Company.

 

Signature:

 

 

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Name:

  [Exec Name, Title]

Dated:

 

 

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EXHIBIT A

 

GENERAL RELEASE

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RELEASE AND WAIVER OF CLAIMS

 

In consideration of the severance payments and other benefits to which I have
become entitled, pursuant to that certain letter agreement between Portal
Software, Inc., a Delaware corporation (the “Company”), and myself dated
                ,          (the “Severance Agreement), in connection with the
termination of my employment on this date, I,                     , hereby
furnish the Company with the following release and waiver (“Release and
Waiver”).

 

I hereby release and forever discharge the Company, its officers, directors,
agents, employees, stockholders, successors, assigns and affiliates from any and
all claims, liabilities, demands, causes of action, costs, expenses, attorney
fees, damages, indemnities and obligations of every kind and nature, in law,
equity or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising from or relating to my employment with the Company and the
termination of that employment, including (without limitation) claims of
wrongful discharge, emotional distress, defamation, fraud, breach of contract,
breach of the covenant of good faith and fair dealing, discrimination claims
based on sex, age, race, national origin, disability or any other basis under
Title VII of the Civil Rights Act of 1964, as amended, the California Fair
Employment and Housing Act, the Federal Age Discrimination in Employment Act of
1967, as amended (“ADEA”), the Americans with Disability Act, contract claims,
tort claims, and wage or benefit claims, including but not limited to, claims
for salary, bonuses, commissions, stock grants, stock options, vacation pay,
fringe benefits, severance pay or any other form of compensation (other than the
payments and benefits to which I am entitled under the Severance Agreement).

 

In releasing claims unknown to me at present, I am waiving all rights and
benefits under Section 1542 of the California Civil Code, and any law or legal
principle of similar effect in any jurisdiction: “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 by him must have
materially affected his settlement with the debtor.”

 

This Release and Waiver does not pertain to any claims which may subsequently
arise in connection with the Company’s default in any of its payment obligations
under the Severance Agreement.

 

I acknowledge that, among other rights subject to his Release and Waiver, I am
hereby waiving and releasing any rights I may have under ADEA, that this release
and waiver is knowing and voluntary, and that the consideration given for this
release and waiver is in addition to anything of value to which I was already
entitled as an executive of the Company. I further acknowledge that I have been
advised, as required by the Older Workers Benefit Protection Act, that: (a) the
release and waiver granted herein does not relate to claims which may arise
after this release and waiver is executed; (b) I have the right to consult with
an attorney prior to executing this release and waiver (although I may choose
voluntarily not to do so); and if I am over 40 years old upon execution of this
(c) I have twenty-one (21) days from the date of termination of my employment
with the Company in which to consider this release and waiver (although I may

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choose voluntarily to execute this release and waiver earlier); (d) I have seven
(7) days following the execution of this release and waiver to revoke my consent
to this release and waiver; and (e) this release and waiver shall not be
effective until the seven (7)-day revocation period has expired.

 

Date:

 

 

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        EXECUTIVE