Document:

Exhibit

EXHIBIT 10.1  
CONFIDENTIAL TREATMENT REQUESTED

SUBJECT TO FEDERAL RULE OF EVIDENCE 408

SETTLEMENT AGREEMENT

This Settlement Agreement (this “Agreement”) is executed on April 8, 2016, but shall be deemed entered into on March 7, 2016 (the “Agreement Date”) between ServiceNow, Inc., a Delaware corporation (“ServiceNow”) and BMC Software, Inc., a Delaware corporation (“BMC”).  ServiceNow and BMC are referred to herein from time to time collectively as the “Parties” and each individually as a “Party.”

BACKGROUND

WHEREAS, BMC filed lawsuits for alleged patent infringement against ServiceNow in the U.S. District Court for the Eastern District of Texas, Case No. 2:16-cv-132 EDTX, and Case No. 2:14-cv-902 EDTX; and BMC v. ServiceNow, EP 807 Dusseldorf (collectively, the “BMC Litigations”) seeking damages and injunctive relief;

WHEREAS, ServiceNow denies that BMC’s patents are valid and/or infringed or that any damages or injunctive relief are available with respect thereto;

WHEREAS. BMC and ServiceNow executed a binding Term Sheet on March 7, 2016 (“Term Sheet”) to resolve the BMC Litigations which is intended to be replaced in its entirety by this Agreement;

WHEREAS, the U.S. Patent and Trademark Office instituted Inter Partes Review 073 IPR – IPR2015-0121, 992 IPR – IPR2015-01631, 594 IPR – IPR2015-01176, and Covered Business Method Review 093 CBM – CBM2015-0017 (hereafter the “Instituted Patent Office Proceedings”); and

WHEREAS, notwithstanding their disagreements in the BMC Litigations and the Instituted Patent Office Proceedings, the Parties now desire to resolve their disputes, and accordingly, seek a settlement of the BMC Litigations and the Instituted Patent Office Proceedings (hereafter the “Litigations”) and enter into this Agreement providing for settlement on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.          Definitions; Interpretation.

For purposes of this Agreement, capitalized terms not defined in this Section 1 shall have the meanings assigned to them elsewhere in this Agreement.

“Affiliate” shall mean, with respect to any Party, any other entity that directly, or through one or more intermediaries, Controls or is Controlled by or is under common Control with such Party, but, with respect 

NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

to BMC, excluding: (a) the equity holders of Boxer Parent Company Inc., and (b) affiliates or portfolio companies of the equity holders of Boxer Parent Company Inc.

“Agreement” shall have the meaning set forth in the Preamble.

“Agreement Date” shall mean the date set forth in the Preamble.

“Acquiring Entities” shall have the meaning set forth in Section 8 of this Agreement.
“Arbitrated Claims” shall have the meaning set forth in Section 4.1 of this Agreement.
“Arbitration Notice” shall have the meaning set forth in Section 4.2 of this Agreement.

“Assertion” or “Asserted” shall mean an action of any nature alleging infringement of any Patent right by a product or service before any legal, judicial, arbitration, administrative, executive, or other type of body that has or claims to have authority to adjudicate such action in whole or part, such as but not limited to United States state and federal courts, the U.S. International Trade Commission, and any foreign counterparts of any of the foregoing or any other authorized communications alleging the same.
“Assertion Notice” shall have the meaning set forth in Section 4.2 of this Agreement.
“BMC” shall have the meaning set forth in the Preamble.

“BMC Covered Affiliates” shall mean BMC’s Affiliates that exist as of the Agreement Date, and newly created Affiliates of BMC or its Affiliates resulting from a corporate restructuring or reorganization (including a reincorporation) of BMC or any of its Affiliates, and any New Affiliate.

“BMC Covenant Patents” shall mean all Patents held by or Controlled by BMC and/or BMC Covered Affiliates throughout the world at any time during the Covenant Term.

“BMC  Covered  Products  or  Services”  shall  mean  past,  present,  and  future  products  and  services (provided the future means during the Covenant Term and such future products and services meet the requirements of any of (i) through (iv) below, during the Covenant Term): (i) developed by, or for, BMC or a BMC Covered Affiliate; (ii) owned by BMC or any BMC Covered Affiliate; (iii) operated or distributed as part of BMC’s products and services (i.e., combination products or services) by, or for, BMC or any BMC Covered Affiliate but only to the extent of the combination; or (iv) used internally to operate BMC’s or any BMC Covered Affiliate’s business; where products and services include, without limitation, all hardware, object code, source code, know-how, inventions, trade secrets, designs or innovations and all technology associated with developing, producing and operating such products or services, but only to the extent as described in any of (i) through (iv).

“BMC In-Suit Patents” shall mean: (i) U.S. Patent Nos. 5,978,594, 6,816,898, 6,895,586, 7,062,683, 7,617,073, 8,646,093, 8,674,992, 7,877,783, 8,554,750, and 7,966,398 as well as EP 1444807; and (ii) any and all continuations, continuations-in-part, divisionals, reissues or re-examinations which claim priority to the patents listed in the foregoing (i); and (iii) all foreign equivalents of the patents listed in the foregoing (i) or (ii).

“BMC Litigations” shall hall have the meaning set forth in the Preamble.

“Change of Control” shall be deemed to have occurred through any one or more of the following transactions 

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

(whether effected as a single transaction or series of transactions): (i) a sale, transfer or other disposition of all or substantially all of the assets of a Party and its Affiliates on an aggregate basis; (ii) a spin-off, split-off or other pro rata distribution of more than 50% of the equity interests of a Party and its Affiliates on an aggregate basis to all of the public shareholders of the ultimate parent company of such Party and its Affiliates; or (iii) the acquisition by an entity or group of more than 50% of the total combined voting power of a Party and any of its Affiliates on an aggregate basis.

“Control” (including, without limitation, with correlative meaning, “Controls,” or “Controlled by,”) of an asset or entity means possessing the power, directly or indirectly, to direct the management, activities and policies related to an asset or of an entity, whether through ownership of title or securities or by contract, or otherwise and is not limited solely to entities that possess a majority ownership interest in such entity or person.   As a non-limiting example relating to Patents, “Control” with respect to a Patent includes, without limitation, the power, directly or indirectly (including by directing the management, activities and policies of a person or entity) to assert a claim for infringement, grant licenses, grant covenants, grant assignments, or grant freedom from suit.

“Courts” shall have the meaning set forth in Section 6.1 of this Agreement.

“Covenant Term” shall mean the period commencing on the Agreement Date and continuing until [***].

“Covered Affiliates” means the BMC Covered Affiliates and/or ServiceNow Covered Affiliates, as the context dictates.

“Covered Third Parties” shall mean, with respect to the subject Party, a person or entity that is such Party’s and/or its Covered Affiliates’ past, present, or future: (i)direct or indirect customer or end-user; or (ii) supplier, developer, vendor, operator, distributor, or reseller of such Party’s Covered Products or Services, but only to the extent such a person or entity uses, makes, sells, offers for sale, imports, exports, or otherwise provides such Party’s Covered Products or Services or supplies a component of such Party’s Covered Products or Services, on behalf of or under authorization of such Party or its Covered Affiliates.

“Covered Patents” shall mean the BMC Covenant Patents and the ServiceNow Covenant Patents, as applicable.

“Covered Products or Services” shall mean both ServiceNow Covered Products or Services and BMC Covered Products or Services.
“Instituted Patent Office Proceedings” shall have the meaning set forth in the Preamble.
“New Affiliate” shall have the meaning set forth in Section 3.8 of this Agreement.

“Notice Period” means a period commencing upon conclusion of the Covenant Term and continuing for [***].
“Parties” shall have the meaning set forth in the Preamble.
“Party” shall have the meaning set forth in the Preamble.

“Patents”  means  patents  and  applications  and  all  continuations,  continuations-in-part,  divisionals, reissues, reexaminations, and foreign counterparts to any and all of the foregoing.

“Payment” shall have the meaning set forth in Section 5.1 of this Agreement.
“Resolution Period” shall have the meaning set forth in Section 4.2 of this Agreement.

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

“ServiceNow” shall have the meaning set forth in the Preamble.

“ServiceNow Covered Affiliates” shall mean ServiceNow’s Affiliates that exist as of the Agreement Date, and newly created Affiliates of ServiceNow resulting from a corporate restructuring or reorganization (including a reincorporation) of ServiceNow or any of its Affiliates, and any New Affiliate.

“ServiceNow Covenant Patents” shall mean all Patents held by or Controlled by ServiceNow and/or ServiceNow Covered Affiliates throughout the world at any time during the Covenant Term.

“ServiceNow Covered Products or Services” shall mean past, present, and future products, and services (provided the future means during the Covenant Term and such future products and services meet the requirements of any of (i) through (iv) below during the Covenant Term): (i) developed by, or for, ServiceNow or a ServiceNow Covered Affiliate; (ii) owned by ServiceNow or any ServiceNow Covered Affiliate; (iii) operated or distributed, as part of ServiceNow’s products and services (i.e., combination products or services) by, or for, ServiceNow or any ServiceNow Covered Affiliate but only to the extent of  the  combination;  or  (iv)  used  internally  to  operate  ServiceNow’s  or  any  ServiceNow  Covered Affiliate’s business; where products and services include, without limitation, all hardware, object code, source code, know-how, inventions, trade secrets, designs or innovations and all technology associated with developing, producing and operating such products or services, but only to the extent as described in any one of (i) through (iv).
“Signature Date” shall have the meaning set forth in Section 5.1 of this Agreement.
“Term Sheet” shall hall have the meaning set forth in the Preamble.
2.          Release.

2.1        Release.  Each Party on behalf of itself, its Covered Affiliates (and each such person’s respective successors, heirs and assigns, administrators, executors, employees, officers, directors, and representatives), hereby releases the other Party, its Covered Affiliates (and each such person’s respective successors,  heirs  and  assigns,  administrators,  executors,  employees,  officers,  directors,  and representatives) and their respective Covered Third Parties from all claims, demands, liabilities, losses, damages, attorneys’ fees, court costs, or any other form of claim or compensation, known or unknown, arising out of or in connection with any act or omission of a Party or its Affiliates occurring before the Agreement Date of this Agreement including, without limitation, any and all claims of infringement of the released BMC In-Suit Patents.

2.2        Waiver.  With respect to the releases provided in Section 2.1 above, BMC and ServiceNow each hereby expressly waive any right (but only to the extent such right relates to a claim of Patent infringement) that each may have under the laws or statutes of any jurisdiction which limits the extension of a general release to certain types of claims, such as California Civil Code § 1542, which provides that:

“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.”

3.          Covenant Not to Sue.

3.1        BMC Covenant.  BMC hereby covenants that, in each case during the Covenant Term, neither it nor any BMC Covered Affiliate shall file or make any Assertion: (a) against ServiceNow or any ServiceNow Covered Affiliate alleging infringement of any BMC Covenant Patent for making, having made, using, selling, offering for sale, importing, exporting, distributing (including distributing or using third party products as 

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

embedded into, or otherwise combined with, ServiceNow Covered Products or Services (i.e., combination products or services), provided however that such covenant not to sue will not apply to the third party products on a stand-alone basis) or otherwise providing (including providing a service to a customer where the combination of a customer-provided element and such provided service create the Patent infringement, provided however that such covenant not to sue will not apply to the customer-provided element on a stand-alone basis) ServiceNow Covered Products or Services; or (b) against any ServiceNow Covered Third Party alleging infringement of any BMC Covenant Patent due to such ServiceNow Covered Third Party’s using (including receiving a service from ServiceNow where the combination of the third party-provided element and such provided service create the Patent infringement, provided however that such covenant not to sue will not apply to the third party-provided element on a stand-alone basis), making, selling, offering for sale, importing, exporting, or otherwise providing ServiceNow Covered Products or Services on behalf of or as authorized by ServiceNow or a ServiceNow Covered Affiliate.  Notwithstanding the foregoing and for the avoidance of doubt, this covenant does not apply to any ServiceNow Covered Third Party’s components, whether ServiceNow Covered Third Party - provided or not, that infringe a BMC Covenant Patent on a stand-alone basis that are sold or provided by the ServiceNow Covered Third Party to third parties (i.e., without regard to the activities or any involvement from ServiceNow or a ServiceNow Covered Affiliate).  In the event of a violation of this covenant, BMC agrees that specific performance shall be an appropriate and available remedy to ServiceNow, in addition to any other remedies available at law.

3.2        ServiceNow Covenant.   ServiceNow hereby covenants that, in each case during the Covenant Term, neither it nor any ServiceNow Covered Affiliate shall file or make any Assertion: (a) against BMC or any BMC Covered Affiliate alleging infringement of any ServiceNow Covenant Patent for making, having made, using selling, offering for sale, importing, exporting, distributing (including distributing or using third party products as embedded into, or otherwise combined with, BMC Covered Products or Services (i.e., combination products or services), provided however that such covenant not to sue will not apply to the third-party product on a stand-alone basis) or otherwise providing (including a service to a customer where the combination of a customer-provided element and such provided service create the Patent infringement, provided however that such covenant not to sue will not apply to the customer- provided element on a stand-alone basis) BMC Covered Products or Services; or (b) against any BMC Covered  Third  Party  alleging  infringement  of  any  ServiceNow  Covenant  Patent  due  to  such  BMC Covered Third Party’s using (including receiving a service from BMC where the combination of the third party-provided element and such provided service create the Patent infringement, provided however that such covenant not to sue will not apply to the third party-provided element on a stand-alone basis), making, selling, offering for sale, importing, exporting, or otherwise providing BMC Covered Products or Services on behalf of or as authorized by BMC or a BMC Covered Affiliate. Notwithstanding the foregoing and for the avoidance of doubt, this covenant does not apply to any BMC Covered Third Party’s components, whether BMC Covered Third Party -provided or not, that infringe a ServiceNow Covenant Patent on a stand-alone basis that are sold or provided by the BMC Covered Third Party to third parties (i.e. without regard to the activities or any involvement from BMC or a BMC Covered Affiliate). In the event of a violation of this covenant, ServiceNow agrees that specific performance shall be an appropriate and available remedy to BMC, in addition to any other remedies available at law.

3.3        Restriction on Sales.  The Parties agree that the covenants set forth in this Section 3 shall run with the  BMC  Covenant  Patents  and  the  ServiceNow  Covenant  Patents  and  shall  be  binding  on  any successors-in-interest thereto.  BMC and ServiceNow may freely assign, sell, or otherwise transfer the BMC Covenant Patents and the ServiceNow Covenant Patents and/or any exclusionary rights thereof to another entity, respectively, provided such entity agrees in writing to be bound by the terms of this Section 3 prior to, or as part of, such transfer, and to similarly bind any transferees to whom it may further transfer such Patents.

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

3.4        Scope.    During  the  Covenant  Term  no  damages  shall  accrue  for  infringement  by  Covered Products or Services of the Covered Patents anywhere in the world where such Covered Patents exist. Damage accrual begins upon an Assertion Notice for the Patents in the Assertion Notice if the Assertion Notice is sent during the Notice Period. Nothing in this Agreement shall prevent either Party from litigating non-Patent related disputes not otherwise related to the release under Section 2.1. Neither Party may use the covenants not to sue described in Sections 3.1 and 3.2 above in support of an estoppel or laches defense in any subsequent proceeding after the expiration of the Covenant Term, and the Parties agree that the length of time of the Covenant Term shall not count toward any estoppel-or-laches-defense- required time period and that the length of time of the Covenant Term shall not accrue for the purpose of an estoppel or laches defense by a defending Party.

3.5        Defensive Termination by BMC.  If at any time ServiceNow or a ServiceNow Covered Affiliate makes any Assertion against BMC, a BMC Covered Affiliate, or a BMC Covered Third Party in breach of its obligations under Section 3.2 above and does not retract, dismiss, or otherwise cure the making of such Assertion within sixty (60) days of written notice from BMC, BMC shall have the right to terminate its obligations under Section 3.1, effective on written notice to ServiceNow.

3.6        Defensive Termination by ServiceNow. If at any time BMC or a BMC Covered Affiliate makes any Assertion against ServiceNow, a ServiceNow Covered Affiliate, or a ServiceNow Covered Third Party in breach of its obligations under Section 3.1 above and does not retract, dismiss, or otherwise cure the making of such Assertion within sixty (60) days of written notice from ServiceNow, ServiceNow shall have the right to terminate its obligations under Section 3.2, effective on written notice to BMC.

3.7    Defensive IPR.  During the Covenant Term neither Party nor their respective Affiliates shall file an Inter Partes Review, Post Grant Review or Covered Business Method review with the United States Patent and Trademark office or any similar foreign proceeding with any other government related to any of the other Party’s or its Covered Affiliates’ Covered Patents, except in response to an Assertion brought in contravention of Section 3.1 or 3.2 above.

3.8    New Affiliate.  If an Affiliate is acquired by a Party or otherwise becomes an Affiliate after the Agreement Date,  such affiliate shall be deemed a Covered Affiliate, effective only as of the date of the acquisition or otherwise becoming a Covered Affiliate; provided, however, there is no Patent litigation pending against the affiliate by the other Party as of the date it becomes publically known that the affiliate has agreed to be acquired (a “New Affiliate”).

3.9    Divested Affiliates. The obligations in Section 3 shall apply to any Affiliate who is an Affiliate of a Party at any time during the Covenant Term even if such Affiliate ceases to be an Affiliate during the Covenant Term (a “Divested Affiliate”), and the Parties agree to require as a condition of the divestiture that such Divested Affiliate agrees to remain bound by the terms of this Agreement.

3.10      No Laundering.  Each Party understands and acknowledges that the rights granted to such Party and its Covered Affiliates’ hereunder cover only such Party’s and their Covered Affiliates’ Covered Products or Services and do not, cover manufacturing activities that such Party or its Covered Affiliates may undertake on behalf of third parties.

4.          Notice Period and Arbitration.

4.1        Notice Period. During the Notice Period and the pendency of any Resolution Period (if any), neither Party nor any of its Affiliates may bring an Assertion against the other Party, its Covered Affiliates or its respective Covered Third Parties, except for providing the notices permitted in Section 4.2 below and any 

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

resulting arbitration with respect to a Patent for which an Arbitration Notice (as defined below) is provided under Section 4.2 (the “Arbitrated Claims”). Upon the expiration of the Notice Period and Resolution Period (if any), either Party may bring an Assertion against the other Party (except for an Assertion related to the Arbitrated Claims (if any)), in which case each Party reserves all rights, defenses and legal arguments in such proceeding (including, without limitation, challenging any Asserted Patents in proceedings before the United States Patent and Trademark Office).

4.2        Assertion Notice. During the Notice Period, either Party may provide one hundred and twenty (120) days of written notice (the “Resolution Period”) through private correspondence to the other Party that it intends to assert a Patent against such Party (the “Assertion Notice”). The Assertion Notice must specify the specific Patents the sending Party believes to be infringed, the products and/or services of the receiving Party that are believed to be infringing, and the basis for the sending Party's belief that Patent infringement has occurred. The Parties acknowledge and agree that the Assertion Notice shall not be publicly disclosed or otherwise made available to any customer or potential customer of either Party.  The Party receiving an Assertion Notice shall be entitled to elect to have the dispute over the Asserted Patents sent to binding arbitration by providing written notice during the Resolution Period of its election to arbitrate (the “Arbitration Notice”).   A Party receiving the Assertion Notice shall be prohibited from filing any declaratory judgment action or other legal proceeding (including Inter Partes Review, Post Grant Review, or Covered Business Method review with the United States Patent and Trademark office or any other proceeding in any foreign jurisdiction) relating to the Patents identified in the Assertion Notice during the Notice Period and the pendency of any Resolution Period (if any), unless and until a Party brings an Assertion (apart from the Assertion Notice itself) after the expiration of the Notice Period and Resolution Period (if any).

4.3        Arbitration. If the Party receiving the Assertion Notice provides an Arbitration Notice to the Party that sent the Assertion Notice, then notwithstanding the provisions of Section 4.1 above, the Parties shall enter binding arbitration administered by JAMS regarding the dispute over the noticed Patents as their sole and exclusive remedy for all claims of Patent infringement pertaining to the Patents specified in the Assertion Notice under the following terms: (a) the arbitration shall take place in New York City and shall be conducted by three (3) neutral arbitrators, with one neutral arbitrator to be selected by each Party from the then prevailing list of available JAMS neutral arbitrators (or as otherwise agreed by the Parties in writing) and a third arbitrator to be selected by the two party-selected arbitrators, provided that all arbitrators shall be patent attorneys and at least one is a patent litigator; (b) the arbitrators shall have the authority to determine infringement and whether proposed non-infringing alternatives or workarounds are or are not infringing, make an award of damages (with respect to the Patents subject to the Assertion Notice sent after the expiration of the Covenant Term) and determine a running royalty, (c) the arbitrators shall have no authority to issue any provisional or injunctive relief, and the Party sending the Assertion Notice waives any right to seek any provisional or injunctive relief with respect to the Patents identified in the Assertion Notice against a Party, (d) each side shall have no right to recover from the other any fees or costs incurred in connection with the arbitration, (e) the arbitrators shall have no authority to award any damages based on willfulness or any enhanced damages under 35 U.S.C. § 284 (e.g., compensatory damages only); and (f) the arbitrators decisions shall be final and binding, and each side waives any right to appeal the same, except that the Party against whom an award is made can appeal the amount of the award or the running royalty in federal court in Delaware.

5.          Payment.

5.1         In consideration of the releases and covenants granted by BMC in this Agreement, ServiceNow shall, within ten (10) business days from the last date set forth under the signature blocks below (the “Signature Date”), make to BMC a payment of [***] (the “Payment”).

5.2        The Payment shall be paid to:

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

Bank:    Citibank, N.A.
Bank Address:    300 Crescent Court, Suite # 950, Dallas, TX 75201
ABA Routing No:    113193532
Account Name:    McKool Smith PC IOLTA Trust Account
Account Number:    9771210379

5.3    In  the  event  the  U.S.  tax  authorities  impose  any  taxes  on  any  part  of  the  Payment,  and ServiceNow is legally required to withhold such taxes at source, ServiceNow shall be permitted to deduct such withheld taxes from the Payment. Each Party shall be solely responsible for any taxes imposed on that Party. ServiceNow shall make the Payment from a United States bank.

6.          Dismissal of the Lawsuit and Stipulated Consent Order.

6.1        Within three (3) business days of receipt of the Payment, BMC and ServiceNow shall jointly file the  appropriate  papers  with  the  courts  in  which  the  BMC  Litigations  are  pending  (“Courts”)  (a) dismissing without prejudice all claims of Patent infringement asserted in the BMC Litigations, and (b) dismissing without prejudice any counterclaims or defenses of patentability, invalidity, unenforceability or non-infringement in the BMC Litigations, by filing with such Courts a Stipulation and Proposed Order for Dismissal without Prejudice in the form attached hereto as Exhibit A hereto.  Each Party shall bear its own fees and costs incurred in connection with the Litigations.

6.2        Within three (3) business days of receipt of the Payment, BMC and ServiceNow shall jointly file the appropriate papers with the U.S. Patent and Trademark Office requesting termination of the Instituted Patent  Office  Proceedings.    BMC  and  ServiceNow  agree  that  a  decision  by  the  U.S.  Patent  and Trademark Office to continue the Instituted Patent Office Proceedings in spite of the request for termination shall not affect this Agreement or any other right, obligation, or provision of this Agreement.

7.          Confidentiality.

Each Party shall keep the terms and conditions of this Agreement confidential, and each Party (including their agents, attorneys, directors, officers, and employees) shall not now or hereafter disclose such terms and conditions to any third party except: (a) with the prior written consent of the other Party; (b) as may be required by law, subpoena or order of a governmental authority of competent jurisdiction; (c) to the professional  legal  counsel,  accountants,  insurers,  auditors  and  banks  of  such  Party,  so  long  as  the disclosure is made pursuant to confidentiality obligations at least as stringent as those provided in this Section; and (d) to an Affiliate, a potential acquirer of, actual or prospective investor in, or actual or prospective lender to a Party (only if, and to the extent, required by contract), so long as the disclosure is made pursuant to confidentiality obligations at least as stringent as those provided in this Section. With respect to the forgoing (b), such disclosing Party shall, to the extent legally permissible, provide the other Party with reasonable prior written notice of the disclosure and, use reasonable and customary efforts to maintain confidential treatment.  Upon receipt of written notice, when and if the noticed party wishes to contest production of the agreement and/or its terms or conditions, the burden of contesting same with be on the noticed party.  Notwithstanding the foregoing (without further notice to, or consent from, the other Party) either Party may: (i) issue a press release stating that the Parties have entered into a confidential settlement agreement that resolves all claims asserted in the Litigations to their mutual satisfaction, and that  as  a  result  of  the  settlement  agreement,  the  Parties  will  dismiss  the  Litigations  and  request termination of the Instituted Patent Office Proceedings; and (ii) disclose the terms of this Agreement in any required filings with the United States Securities and Exchange Commission or the New York Stock Exchange.

Nothing herein shall restrict either Party from discussing facts related to this matter which 

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

are in the public domain. However, the Parties further agree that during the Covenant Term each Party and each of their respective Affiliates shall not: (a) provide information relating to their respective Patent portfolios and how they read on the other Party’s (or their Affiliates’) products or services to any third party for purposes of impeding the other Party’s (or their Affiliates’) sales or marketing of their products or services; or (b) train their employees or any third party relating to how their respective Patent portfolios read on the other Party’s (or their Affiliates’) products or services for purposes of impeding the other Party’s (or their Affiliates’) sales or marketing of their products or services.

8.    Transferability.

Except as provided in this Section 8 in connection with a Change of Control and Section 9.5 of this Agreement, the rights, and obligations hereunder may not be assigned, by operation of law or otherwise, by a Party without the express prior written consent of the other Party, which may be withheld in that Party’s sole discretion.  Either Party may, without prior notice to or consent of the other Party assign, delegate, sell, transfer, or otherwise dispose of all of its rights and obligations under this Agreement to a third party in the context of a Change of Control to that third party (“Acquiring Entity”). Notwithstanding the foregoing, the rights acquired by an Acquiring Entity as permitted by this Section 8 shall apply only to Covered Products or Services in existence as of the consummation of the initial Change of Control and shall not apply to any pre-existing or other product or service of the Acquiring Entity or any subsequent Acquiring Entity.

9.          Miscellaneous.

9.1        Counterparts.  This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party (including by means of electronic delivery or facsimile), it being understood that the Parties need not sign the same counterpart.  Signatures to  this  Agreement  transmitted  by  facsimile  transmission,  by  electronic  mail  in  “portable  document format” (“.pdf”) form, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing the original signature.

9.2    Governing Law; Jurisdiction and Forum.

(a)        This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without reference to the choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.

(b)         Each Party irrevocably submits to the exclusive jurisdiction of the state or federal courts located in Delaware (other than as provided in Section 4.3 above) in any action arising out of, or relating to, a breach of this Agreement, and hereby irrevocably agrees that all claims in respect of such action may be heard and determined in such courts.  Each Party hereby irrevocably waives, to the fullest extent that it may effectively do so, the defense of an inconvenient forum to the maintenance of such action.   The Parties further agree, to the extent permitted by law, that final and unappealable judgment against any of them in any action contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment.

9.3        Entire Agreement.   This Agreement contains the entire agreement between the Parties with respect to the subject matter of this Agreement and supersedes any prior discussion, negotiation, Term Sheet, 

9
SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

agreement, understanding or arrangement and there are no agreements, understandings, representations, or warranties between the Parties other than those set forth or referred to in this Agreement.

9.4        Notices.  Any notice required to be given hereunder shall be sufficient if in writing by reliable overnight delivery service (with proof of service) or hand delivery, addressed as follows:
		
	(a)
	To ServiceNow: ServiceNow, Inc.

Attn: General Counsel
2225 Lawson Lane
Santa Clara, CA 95054
with copies to: Cooley LLP
Attn: Heidi Keefe
3175 Hanover Street
Palo Alto, CA 94304

(b)    To BMC:

BMC Software, Inc. Attn: General Counsel
2103 City West Blvd. Houston, TX 77042
with copies to: McKool Smith P.C.
Attn: Robert Cote
One Bryant Park, 47th Floor
New York, NY 10036

Either Party may notify the other Party of any changes to the address or any of the other details specified in this Section 9.4, which shall be effective immediately upon receipt.   Rejection or other refusal to accept, or the inability to deliver because of changed address of which no notice was given, shall be deemed to be receipt of the notice as of the date of such rejection, refusal or inability to deliver.

9.5        Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns; provided, however, that other than pursuant to Section 8 of this Agreement, no Party will assign its rights or delegate any or all of its obligations under this Agreement without the express prior written consent of the other Party.

9.6        Third-Party Beneficiaries. This Agreement is not intended to confer upon any Third Party (and their successors and assigns) status as a third party beneficiary hereunder, provided that this Section 9.6 shall not be construed to restrict any rights conferred upon Covered Affiliates and Covered Third Parties pursuant to Section 2 and Section 3 of this Agreement or upon Acquiring Entities pursuant to Section 8 of this Agreement.

9.7       Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by both Parties.  The failure or delay on the part of any Party to assert any of its rights hereunder shall not constitute a waiver of such rights.  The waiver by any Party of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach.

9.8        Specific Performance.

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SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

(a)        The Parties agree that irreparable damage would occur in the event that any Party fails to comply with this Agreement in accordance with its terms and that the Parties shall be entitled to specific performance in such event, in addition to any other remedy at law or in equity.

(b)        Both Parties further agree that neither Party nor any other person shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 9.9, and both Parties irrevocably waive any rights they may have to require the obtaining, furnishing or posting of any such bond or similar instrument.

(c)        Notwithstanding the foregoing, except for a breach of Sections 3 and 7, in no event shall a Party have liability to the other Party for any consequential, special, incidental, indirect or punitive damages, lost profits or similar items arising from a breach of this Agreement.

9.9        Severability.  The invalidity of any portion of this Agreement shall not affect the validity, force or effect of the remaining portions hereof.  If it is ever held that any restriction hereunder is too broad to permit enforcement of such restriction to its fullest extent, such restriction shall be enforced to the maximum extent permitted by law.

9.10      Representations and Warranties; Disclaimer.

(a)        Each Party, on behalf of itself and its Affiliates, represents and warrants to the other Party that it has all requisite legal right, power, and authority to execute, deliver, and perform this Agreement on behalf of itself and its Affiliates and that the Party has not assigned, subrogated or transferred, or purported to assign, subrogate or transfer to any third party, the whole or any part or portion of any of the claims released in this Agreement.  BMC further represents and warrants that: (a) it is the sole owner of all right, title and interest in the BMC In-Suit Patents; and (b) it has full authority to enter into the releases and covenants set forth in this Agreement.  ServiceNow further represents and warrants that: (a) it is the sole owner of all right, title and interest in the ServiceNow Covenant Patents; and (b) it has full authority to enter into the releases and covenants set forth in this Agreement.

(b)       Except for the express warranties made in Sections 9.11(a), the Parties make no representations or warranties, express, implied or statutory. Without limiting the generality of the foregoing, nothing in this Agreement will be construed as giving rise to a warranty or representation by either Party as to the validity, enforceability, or scope of any Covered Patents.

(c)    BMC represents and warrants that Boxer Parent Company Inc. is the ultimate parent of BMC.

9.11      Further Assurances.  On and after the Agreement Date, each Party shall cooperate with the other Party, without any further consideration, to cause to be executed and delivered, all instruments, including instruments of joinder, and to make all filings with, and to obtain all consents, and to take all such other actions as each of the Parties may reasonably request to take by the other Party from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement.

IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the Parties as of the day first above written.

11
SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

	
					
	SERVICENOW, INC.
	 
	BMC SOFTWARE, INC.

	 
	 
	 
	 
	 

	By:
	/s/ Michael P. Scarpelli
	 
	By: 
	/s/ Patrick Tagtow

	Name:
	Michael P. Scarpelli
	 
	Name:
	Patrick Tagtow

	Title:
	Chief Financial Officer
	 
	Title:
	Sr. VP, General Counsel

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

12
SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

EXHIBIT A

STIPULATED MOTION FOR DISMISSAL WITHOUT PREJUDICE

[intentionally omitted]

13
SUBJECT TO FEDERAL RULE OF EVIDENCE 408
NOTE: Confidential treatment has been requested for portions of this Exhibit 10.1 designated with [***].  The copy filed herewith omits the information subject to the confidentiality request.  A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.mbvt_Ex10_1

		

			 

		

		
			Exhibit 10.1
		

		
			 
		

		
			EMPLOYMENT AGREEMENT
		

		
			This Employment Agreement (“Agreement”) is made as of the 26th of May, 2016 (the “Commencement Date”), among Merchants Bank, a Vermont chartered bank (the “Bank”), Merchants Bancshares, Inc., a Delaware corporation (the “Corporation” and together with the Bank, the “Corporations”), and Anita Bourgeois (the “Executive”).
		

		
			WHEREAS, the Corporation is a party to this Agreement solely for purposes of Sections 2(f), 19 and 21;
		

		
			NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree to amend and restate the Prior Agreement as follows:
		

			
	
			
				 1.
			Employment.

			
	
			
				 (a)
			Position and Duties.  The Executive shall serve as Senior Director, Deposit Growth and Profitability of the Bank and shall have supervision and control over and responsibility for the day‐to‐day business and affairs of the Bank and shall have such other powers and duties as may from time to time be prescribed by the Board of Directors of the Bank (the “Board”), the Chief Executive Officer of the Bank (the “CEO”) or other authorized executive.  The Executive shall devote his/her full working time and efforts to the business and affairs of the Bank.  Notwithstanding the foregoing, the Executive may serve on other boards of directors, with the approval of the Board, or engage in charitable or other community activities as long as such services and activities are disclosed to the Board and do not materially interfere with the Executive’s performance of his/her duties to the Bank as provided in this Agreement.

			
	
			
				 2.
			Compensation and Related Matters.

			
	
			
				 (a)
			Base Salary.  The Executive’s annual base salary shall be $180,000 (one hundred eighty thousand dollars and 00/100).  The Executive’s base salary shall be reviewed annually and adjusted at the discretion of the Bank’s Board of Directors.  The base salary in effect at any given time is referred to herein as “Base Salary;” provided, however, that if the Executive’s employment is terminated for Good Reason pursuant to clause (ii) of Section 3(e) due to a material diminution in the Executive’s Base Salary, the term “Base Salary” for purposes of calculating the Executive’s Severance Amount (or Change in Control Severance Amount, as the case may be) under Section 4(b) shall be the Executive’s Base Salary as in effect immediately prior to the material diminution.  The Base Salary shall be payable in a manner that is consistent with the Bank’s usual payroll practices for senior executives.

			
	
			
				 (b)
			Incentive Compensation.  The Executive shall be eligible to receive an annual cash incentive compensation in an amount determined in accordance with the terms of the annual incentive plan adopted by the Bank’s Board of Directors from time to time.  Such bonus, if any, shall relate to the performance of the Corporations over a calendar year (a “Bonus Year”) and if awarded shall be paid in the calendar year following the Bonus Year to which it relates.

			
	
			
				 (c)
			Expenses.  The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him/her in performing services hereunder, in accordance with the policies and procedures then in effect and established by the Bank for its senior executive officers.

			
	
			
				 (d)
			Other Benefits.  The Executive shall be entitled to continue to participate in or receive benefits as the Bank generally provides to its senior executive employees, including without limitation, life, health and disability insurance, vacation and sick pay, and retirement benefits.

		 

		

			 

		

 

			
	
			
				 (e)
			Vacations.  The Executive shall be entitled to accrue up to five (5) weeks paid vacation in each year, which shall be accrued ratably.  The Executive shall also be entitled to all paid holidays given by the Bank to its executives.

			
	
			
				 (f)
			Equity Grants.  The Executive may receive grants of equity-based compensation pursuant to any equity compensation plans the Corporation may adopt from time to time for the purpose of providing executive compensation, including grants in the form of shares of restricted common stock of the Corporation and/or options to buy shares of common stock of the Corporation. The parties acknowledge that Section 11(b) of the Amended and Restated Merchants Bancshares, Inc. 2008 Stock Incentive Plan provides that, upon the occurrence of a Special Transaction (as defined therein), (i) all then outstanding stock options shall become fully vested and exercisable; (ii) all then outstanding awards of restricted stock with time-based vesting conditions shall become fully vested and nonforfeitable; and (iii) all then outstanding awards of restricted stock with conditions and restrictions relating to the attainment of performance goals may become vested in the discretion of the Compensation Committee of the Corporation’s Board. The Corporation confirms and agrees that any future amendment to Section 11(b) of the 2008 Plan adopted by the Corporation that has the effect of eliminating, reducing or restricting the rights of any holder of a stock option or restricted stock award upon the occurrence of a Special Transaction shall be deemed to apply only prospectively to grants of equity compensation made under such plan after the date of the Corporation’s approval of the amendment.

			
	
			
				 3.
			Termination.  The Executive’s employment hereunder may be terminated without any breach of this Agreement under the following circumstances:

			
	
			
				 (a)
			Death.  The Executive’s employment hereunder shall terminate upon his/her death.

			
	
			
				 (b)
			Disability.  The Bank may terminate the Executive’s employment if he/she  is disabled and unable to perform the essential functions of the Executive’s then existing position or positions under this Agreement with or without reasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period.  If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive’s then existing position or positions with or without reasonable accommodation, the Executive may, and at the request of the Bank shall, submit to the Bank a certification in reasonable detail by a physician selected by the Bank to whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue.  The Executive shall cooperate with any reasonable request of the physician in connection with such certification.  If such question shall arise and the Executive shall fail to submit such certification, the Bank’s determination of such issue shall be binding on the Executive.  Nothing in this Section 3(b) shall be construed to waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.    

			
	
			
				 (c)
			Termination by Bank for Cause.  The Bank may terminate the Executive’s employment hereunder for Cause.  For purposes of this Agreement, “Cause” shall mean:  (i) fraud, embezzlement or other misappropriation by the Executive of funds, property or rights of the Bank; (ii) conviction of the Executive, by plea or otherwise, of any felony, or of any misdemeanor, if such misdemeanor involves a crime of theft, trust or dishonesty; (iii) any gross misconduct by the Executive that is injurious in any material respect to the Bank; (iv) continued non-performance by the Executive of his or her duties to the Bank or the Executive’s failure to perform in any material respect any of his/her material obligations under this Agreement (other than by reason of the Executive’s physical or mental illness, incapacity or disability); or (v) a breach of the Executive’s fiduciary duties as an employee of the Bank, including a breach of any of the provisions contained in Section 7 of this Agreement; provided, however, that “Cause” shall not be deemed to exist under clause (iv) unless the Bank shall have given written notice to the Executive specifying in reasonable detail the Executive’s acts or omissions that the Bank alleges would constitute Cause and the Executive fails to rescind any such act or cure any such omission within 30 days after delivery of the notice.

		 

		

			2

		

		

			 

		

 

			
	
			
				 (d)
			Termination Without Cause.  The Bank may terminate the Executive’s employment hereunder at any time without Cause.  Any termination by the Bank of the Executive’s employment under this Agreement which does not constitute a termination for Cause under Section 3(c) and does not result from the death or disability of the Executive under Section 3(a) or (b) shall be deemed a termination without Cause.  

			
	
			
				 (e)
			Termination by the Executive.  The Executive may terminate his/her employment hereunder at any time for any reason, including but not limited to Good Reason.  For purposes of this Agreement, “Good Reason” shall mean that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events:  (i) a material diminution in the Executive’s responsibilities, authority or duties; (ii) a material diminution in the Executive’s Base Salary for any reason other than in connection with the termination of the Executive’s employment hereunder; (iii) the Executive is required to be based in any specific location more than 50 miles from 275 Kennedy Drive, South Burlington, Vermont or (iv) the material breach of this Agreement by the Bank or the Corporation.  “Good Reason Process” shall mean that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) the Executive notifies the Bank in writing of the first occurrence of the Good Reason condition within 60 days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Bank’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates his/her employment within 60 days after the end of the Cure Period.  If the Bank cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

			
	
			
				 (f)
			Notice of Termination.  Except for termination as specified in Section 3(a), any termination of the Executive’s employment by the Bank or any such termination by the Executive shall be communicated by written Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.

			
	
			
				 (g)
			Date of Termination.  “Date of Termination” shall mean:  (i) if the Executive’s employment is terminated by his/her death, the date of his/her death; (ii) if the Executive’s employment is terminated on account of disability under Section 3(b) or by the Bank with or without Cause under Section 3(c) or 3(d), the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Executive under Section 3(e) without Good Reason, 30 days after the date on which a Notice of Termination is given, and (iv) if the Executive’s employment is terminated by the Executive under Section 3(e) with Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period.  Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Bank pursuant to clauses (iii) or (iv) of the preceding sentence, the Bank may unilaterally accelerate the Date of Termination but only if such acceleration would not cause any portion of the payment to be made to the Executive under this Agreement to be subject to any tax or penalty under Section 409A.

			
	
			
				 4.
			Compensation Upon Termination.

			
	
			
				 (a)
			Termination Generally.  If the Executive’s employment with the Bank is terminated for any reason, the Bank shall pay or provide to the Executive (or to his/her authorized representative or estate) any earned but unpaid base salary, unpaid expense reimbursements, accrued but unused vacation and any vested benefits the Executive may have under any employee benefit plan of the Bank (the “Accrued Benefit”) on or before the time required by law but in no event more than 30 days after the Executive’s Date of Termination.

			
	
			
				 (b)
			Termination by the Bank Without Cause or by the Executive with Good Reason.  If the Executive’s employment is terminated by the Bank without Cause as provided in Section 3(d), or the Executive terminates his/her employment for Good Reason as provided in Section 3(e), then the Bank shall, through the Date of Termination, pay the Executive his/her Accrued Benefit.  In addition, subject to the Executive signing a general release of claims in favor of the Bank and related persons and entities in a form and manner satisfactory to the Bank (the “Release”) within the 45-day period following the Date of Termination and the expiration of the seven-day revocation period for the Release, the Bank shall pay the Executive an amount equal to the Executive’s Base Salary 

		 

		

			3

		

		

			 

		

 

	(the “Severance Amount”) and if the Executive’s termination of employment occurs after March 31 of any calendar year , the Prorated Bonus Amount.  The Severance Amount shall be paid out in substantially equal installments in accordance with the Bank’s payroll practice over 12 months, within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Severance Amount shall commence to be paid in the second calendar year.  Solely for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), each installment payment is considered a separate payment.  The Prorated Bonus Amount shall be paid in a lump sum in the following calendar year after the payout under the Bank’s annual cash incentive compensation plan has been determined and at the same time as bonus payments are paid to other Bank executives pursuant to such incentive plan.  Notwithstanding the foregoing, (i) if the Executive breaches in any material respect any of the provisions contained in Section 7 of this Agreement, all further payments of the Severance Amount and the Prorated Bonus Amount shall immediately cease and shall not be payable, or (ii) if the Executive’s employment is terminated by the Bank (or its successors) without Cause as provided in Section 3(d), or the Executive terminates his/her employment for Good Reason as provided in Section 3(e) and either termination occurs within 24 months following a Change in Control (as defined in Section 5(a)) of either the Bank or the Corporation, instead of the amounts payable pursuant to the preceding sentences of this Section 4(b), the Executive shall be entitled to a payment (the “Change in Control Severance Amount”) equal to the sum of (x) one time the Prorated Bonus Amount and (y) two times the Severance Amount and such Change in Control Severance Amount shall be paid in a lump sum, without discount for early payment, within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Change in Control Severance Amount shall be paid in the second calendar year.  In addition, if the Executive was participating in the Bank’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, he or she shall receive such health continuation at the Bank’s expense but subject to the Executive’s continued copayment of premium in amounts consistent with that applicable to similarly situated active employees, for a period of up to 12 months if the termination of employment occurs before a Change in Control and for a period of up to 18 months if the termination of employment occurs after a Change in Control.  For purposes of this Section 4(b), the Prorated Bonus Amount shall be the amount payable to the Executive under the Bank’s annual incentive compensation plan based on the extent to which the applicable performance criteria for the year of termination of employment have been achieved, as measured after the end of such year, multiplied by a fraction, the numerator of which shall be the number of days the Executive was employed by the Bank in the year of termination of employment and the denominator of which shall be 365; provided, however, that if the Prorated Bonus Amount is payable on account of a termination of employment within 24 months following a Change in Control (as defined in Section 5(a)) of either the Bank or the Corporation, such amount shall be the amount payable to the Executive under the Bank’s annual incentive compensation plan  (or similar plan of any successor to the Bank or the Corporation) based on the extent to which the applicable performance criteria for the year of termination of employment have been achieved, as measured through the end of the most recently completed calendar quarter, multiplied by a fraction, the numerator of which shall be the number of days the Executive was employed by the Bank in the year of termination of employment and the denominator of which shall be 365.

			
	
			
				 (c)
			No Duty to Mitigate.  The Executive will not be required to mitigate the amount of any compensation provided for in Section 4(b), by seeking other employment or otherwise.

			
	
			
				 5.
			Change in Control.

			
	
			
				 (a)
			Change in Control.  A “Change in Control” of either the Bank or the Corporation shall be deemed to have occurred upon the occurrence of any one of the following events:

			
	
			
				 (i)
			any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Act”) (other than the Corporation, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Corporation or any of its subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 25 percent or more of the combined voting power of the Corporation’s then outstanding securities having the right to vote in an election of the Board (“Voting Securities”) (in such case other than as a result of an acquisition of securities directly from the Corporation); or

		 

		

			4

		

		

			 

		

 

			
	
			
				 (ii)
			the consummation of (1) any consolidation or merger of the Bank or the Corporation where the stockholders of the Bank or the Corporation, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50 percent of the voting shares of the entity issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (2) any sale or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Bank or the Corporation.

		
			Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Corporation that, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to 25 percent or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Corporation) and immediately thereafter beneficially owns 25 percent or more of the combined voting power of all then outstanding Voting Securities, then a “Change in Control” shall be deemed to have occurred for purposes of the foregoing clause (i).
		

			
	
			
				 (b)
			Limitation.

			
	
			
				 (i)
			Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Corporations to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Severance Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, then the Severance Payments shall be reduced (but not below zero) to the extent necessary so that the sum of all Severance Payments shall not exceed the Threshold Amount.  In such event, the Severance Payments shall be reduced in the following order:  (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits.  To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.

			
	
			
				 (ii)
			For the purposes of this Section 5, “Threshold Amount” shall mean three times the Executive’s “base amount” within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00); and “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred by the Executive with respect to such excise tax.

			
	
			
				 (iii)
			The determination of the reduction provided in Section 5 shall be made by a nationally recognized accounting firm selected by the Corporations (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Bank and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Bank or the Executive.  For purposes of this determination, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.  Any determination by the Accounting Firm shall be binding upon the Corporations and the Executive.

		 

		

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				 6.
			Section 409A.

			
	
			
				 (a)
			Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s separation from service within the meaning of Section 409A of the Code, the Corporations determine that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death.  If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.  

			
	
			
				 (b)
			All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Bank or incurred by the Executive during the time periods set forth in this Agreement.  All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred.  The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year.  Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

			
	
			
				 (c)
			To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.”  The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A‐1(h).

			
	
			
				 (d)
			The parties intend that this Agreement will be administered in accordance with Section 409A of the Code.  To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code.  The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

			
	
			
				 (e)
			The Bank makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

			
	
			
				 7.
			Confidential Information, Noncompetition, Nonsolicitation and Cooperation.

			
	
			
				 (a)
			Confidential Information.  As used in this Agreement, “Confidential Information” means information belonging to the Corporations which is of value to the Corporations in the course of conducting their business and the disclosure of which could result in a competitive or other disadvantage to the Corporations.  Confidential Information includes, without limitation, financial information, reports, and forecasts; inventions, improvements and other intellectual property; trade secrets; know‐how; designs, processes or formulae; software; market or sales information or plans; customer lists; and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Corporations.  Confidential Information includes information developed by the Executive in the course of the Executive’s employment by the Bank, as well as other information to which the Executive may have access in connection with the Executive’s employment.  Confidential Information also includes the confidential information of others with which the Corporations have a business relationship.  Notwithstanding the foregoing, 

		 

		

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	Confidential Information does not include information in the public domain, unless due to breach of the Executive’s duties under Section 7(b).

			
	
			
				 (b)
			Confidentiality.  The Executive understands and agrees that the Executive’s employment creates a relationship of confidence and trust between the Executive and the Corporations with respect to all Confidential Information.  At all times, both during the Executive’s employment with the Bank and after its termination, the Executive will keep in confidence and trust all such Confidential Information, and will not use or disclose any such Confidential Information without the written consent of the Corporations, except as may be necessary in the ordinary course of performing the Executive’s duties to the Bank.

			
	
			
				 (c)
			Documents, Records, etc.  All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, which are furnished to the Executive by the Corporations or are produced by the Executive in connection with the Executive’s employment will be and remain the sole property of the Corporations.  The Executive will return to the Corporations all such materials and property as and when requested by the Corporations.  In any event, the Executive will return all such materials and property immediately upon termination of the Executive’s employment for any reason.  The Executive will not retain with the Executive any such material or property or any copies thereof after such termination.

			
	
			
				 (d)
			Noncompetition and Nonsolicitation.  During the Executive’s employment with the Bank and for the period that the Executive is entitled to receive severance under Section 4(b), the Executive (i) will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any Competing Business (as hereinafter defined); (ii) will refrain from directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Corporations (other than terminations of employment of subordinate employees undertaken in the course of the Executive’s employment with the Bank); and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with the Corporations.  The Executive understands that the restrictions set forth in this Section 7(d) are intended to protect the Corporations’ interest in their Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose.  If the Executive chooses not to be bound by the provision of this Section 7(d), then no severance shall be payable under Section 4(b).  For purposes of this Agreement, the term “Competing Business” shall mean any financial institution with an office within a 50-mile radius of any office of the Corporations.  Notwithstanding the foregoing, (1) the Executive may own up to one percent (1%) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business, and (2) the provision of this Section 7(d) shall not apply if the Executive’s employment is terminated within two (2) years after a Change in Control of either the Bank or the Corporation.

			
	
			
				 (e)
			Third-Party Agreements and Rights.  The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party which restricts in any way the Executive’s use or disclosure of information or the Executive’s engagement in any business.  The Executive represents to the Bank that the Executive’s execution of this Agreement, the Executive’s employment with the Bank and the performance of the Executive’s proposed duties for the Bank will not violate any obligations the Executive may have to any such previous employer or other party.  In the Executive’s work for the Bank, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Bank any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

			
	
			
				 (f)
			Litigation and Regulatory Cooperation.  During and after the Executive’s employment, the Executive shall cooperate fully with the Corporations in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Corporations which relate to events or occurrences that transpired while the Executive was employed by the Bank.  The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Corporations at mutually convenient times.  During and after the Executive’s employment, the Executive also shall cooperate fully with the Corporations in 

		 

		

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	connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Bank.  The Corporations shall reimburse the Executive for any reasonable out‐of‐pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 7(f).

			
	
			
				 (g)
			Injunction.  The Executive agrees that it would be difficult to measure any damages caused to the Corporations which might result from any breach by the Executive of the promises set forth in this Section 7, and that in any event money damages would be an inadequate remedy for any such breach.  Accordingly, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Corporations shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Corporations.

			
	
			
				 (h)
			Protected Reporting; Defend Trade Secrets Act Immunity.  Nothing in this Agreement shall be interpreted or applied to prohibit the Executive from making any good faith report to any governmental agency or other governmental entity concerning any acts or omissions that the Executive may believe to constitute a possible violation of federal or state law or making other disclosures that are protected under the whistleblower provisions of applicable federal or state law or regulation.  In addition, for the avoidance of doubt, pursuant to the federal Defend Trade Secrets Act of 2016, the Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  

			
	
			
				 8.
			Indemnification.  In accordance with the limits set forth in the Vermont Business Corporations Law and Delaware General Corporations Law, as applicable, the Corporations shall indemnify the Executive as provided by the Articles of Association and Bylaws.

			
	
			
				 9.
			Integration.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties concerning such subject matter, including the Prior Agreement.

			
	
			
				 10.
			Withholding.  All payments made by the Bank to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Bank under applicable law.

			
	
			
				 11.
			Successor to the Executive.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees.  In the event of the Executive’s death after his/her termination of employment but prior to the completion by the Bank of all payments due him/her under this Agreement, the Bank shall continue such payments to the Executive’s beneficiary designated in writing to the Bank prior to his/her death (or to his/her estate, if the Executive fails to make such designation).

			
	
			
				 12.
			Enforceability.  If any portion or provision of this Agreement (including, without limitation, any portion or provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

			
	
			
				 13.
			Survival.  The provisions of this Agreement shall survive the termination of this Agreement and/or the termination of the Executive’s employment to the extent necessary to effectuate the terms contained herein.

			
	
			
				 14.
			Waiver.  No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of any party to require the performance of any term or obligation of this 

		 

		

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	Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

			
	
			
				 15.
			Notices.  Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Bank or, in the case of the Bank, at its main offices, attention of the Board.

			
	
			
				 16.
			Amendment.  This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Bank.  The Bank may not unilaterally terminate this Agreement other than through termination of the Executive’s employment in accordance with the terms of this Agreement.

			
	
			
				 17.
			Governing Law.  This is a Vermont contract and shall be construed under and be governed in all respects by the laws of the State of Vermont, without giving effect to the conflict of laws principles of such State.  With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of Appeals for the Second Circuit.

			
	
			
				 18.
			Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

			
	
			
				 19.
			Successor to Corporations.  The Corporations shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporations expressly to assume and agree to perform this Agreement to the same extent that the Corporations would be required to perform it if no succession had taken place.  Failure of the Corporations to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

			
	
			
				 20.
			Gender Neutral.  Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.

			
	
			
				 21.
			Guaranty by Corporation.  The Corporation hereby irrevocably and unconditionally guarantees to the Executive the payment of all amounts, and the performance of all other obligations, due from the Bank under this Agreement as and when due and without any requirement of presentment, demand of payment, protest or notice of dishonor or nonpayment.

		
			

		 

		

			9

		

		

			 

		

 

IN WITNESS WHEREOF, the parties have executed this Agreement this 26th day of May, 2016, effective as of the date and year first above written.
		

			
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						EXECUTIVE

					
					
						 

					
					
						MERCHANTS BANK

				
	
					
						/s/Anita Bourgeois

					
					
						           

					
					
						By:

					
					
						/s/ Michael G. Furlong

				
	
					
						Anita Bourgeois

					
					
						 

					
					
						Its:

					
					
						Chair, Board of Directors

				
	
					
						 

					
					
						 

					
					
						Date: 

					
					
						May 26, 2016

				
	
					
						 

					
					
						 

					
					
						 

					
					
						MERCHANTS BANCSHARES, INC.

				
	
					
						 

					
					
						 

					
					
						By:

					
					
						/s/ Jeffrey L. Davis

				
	
					
						 

					
					
						 

					
					
						Its:

					
					
						Chair, Board of Directors

				
	
					
						 

					
					
						 

					
					
						Date:

					
					
						May 26, 2016

				

		
			 
		

		 

		

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