<PAGE>
As filed with the Securities and Exchange Commission on August 9, 1996.
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MERCURY INTERACTIVE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0225776
--------------- ----------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
470 POTRERO AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 523-9900
(ADDRESS, INCLUDING ZIP CODE, OF REGISTRANTS PRINCIPAL EXECUTIVE OFFICES)
1989 STOCK OPTION PLAN
1996 SUPPLEMENTAL STOCK PLAN
(FULL TITLE OF THE PLANS)
ARYEH FINEGOLD
CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
470 POTRERO AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 523-9900
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
HENRY P. MASSEY, JR., ESQ.
SUSAN J. SKAER, ESQ.
WILSON, SONSINI, GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300
================================================================================
<PAGE>
<TABLE>
<CAPTION>
========================================================================================
CALCULATION OF REGISTRATION FEE
========================================================================================
Proposed Proposed
Title of Maximum Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share Price Fee
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.002 par value... 634,950 shares(1) $12.87(2) $8,171,806.50(3) $2,817.86
Common Stock,
$.002 par value... 483,500 shares(4) $13.06(2) $6,314,510.00(5) $2,177.42
Common Stock,
$.002 par value... 91,020 shares(6) $15.00(7) $1,365,300.00 $ 70.79
--------------- --------- -------------- ----------
TOTAL.......... 1,209,470 -- $15,851,616.50 $5,466.07
=========================================================================================
</TABLE>
(1) For the sole purpose of calculating the registration fee, the number of
shares to be registered under this Registration Statement has been broken down
into three sub-totals. This sub-total represents 634,950 shares issuable upon
exercise of presently outstanding options (options that have been granted as of
the date of this Registration Statement) issued under the 1989 Stock Option
Plan.
(2) Estimated in accordance with Rule 457(h) under the Securities Act of 1933
solely for the purpose of calculating the total registration fee. Computation
based on the weighted average exercise price (rounded to the nearest cent) at
which the options whose exercise will result in the issuance of the shares being
registered may be exercised.
(3) Calculated in accordance with Rule 457(h) based on the aggregate exercise
price for all presently outstanding options described in note 1 above.
(4) This sub-total represents 483,500 shares issuable upon exercise of
presently outstanding options (options that have been granted as of the date of
this Registration Statement) issued under the 1996 Supplemental Stock Plan.
(5) Calculated in accordance with Rule 457(h) based on the aggregate exercise
price for all presently outstanding options described in note 4 above.
(6) This subtotal represents the sum of shares issuable upon exercise of
options that have not yet been granted under the 1989 Stock Option Plan and the
1996 Supplemental Stock Plan as of the date of this Registration Statement. Of
the total of 91,020 shares that will be issuable upon exercise of options to be
granted in the future, 74,520 shares will be issuable upon exercise of options
to be granted in the future under the 1989 Stock Option Plan and 16,500 shares
will be issuable upon exercise of options to be granted in the future under the
1996 Supplemental Stock Plan.
(7) Estimated in accordance with Rule 457(h) under the Securities Act of 1933
solely for the purpose of calculating the total registration fee. Computation
based upon the average of the high and low prices of the Common Stock as
reported on the Nasdaq National Market on August 6, 1996 because the price at
which the options to be granted in the future may be exercised is not currently
determinable.
-2-
<PAGE>
PART II:
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INFORMATION INCORPORATED BY REFERENCE
-------------------------------------
The following documents and information heretofore filed with the Securities
and Exchange Commission are hereby incorporated by reference:
ITEM 3(A)
The Registrant's Annual Report on Form 10-K filed on March 28, 1996 pursuant
to Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act")
which contains audited financial statements for the Registrant's latest
fiscal year ended December 31, 1995 for which such statements have been
filed.
ITEM 3(B)
All other reports filed by the Registrant pursuant to Sections 13(a) or 15(d)
of the Exchange Act since the end of the fiscal year covered by the Annual
Report on Form 10-K referred to in Item 3(a) above.
ITEM 3(C)
Items 1 and 2 of the Registrant's Registration Statement on Form 8-A filed on
September 9, 1993, as amended by Amendment No. 1 to Form 8-A filed on October
27, 1993, pursuant to Section 12 of the Exchange Act and Items 1 and 2 of the
Registrant's Registration Statement on Form 8-A filed on July 8, 1996.
All documents subsequently filed by the Registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Registration Statement and to be part
hereof from the date of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES
-------------------------
Not Applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
--------------------------------------
Not Applicable.
-3-
<PAGE>
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
As permitted by the Delaware General Corporation Law, the Registrant has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions.
In addition, the By-laws of the Registrant provide that the Registrant is
required to indemnify its officers and directors under certain circumstances,
including those circumstances in which indemnification would otherwise be
discretionary, and the Registrant is required to advance expenses to its
officers and directors as incurred in connection with proceedings against them
for which they may be indemnified. The Registrant has entered into
indemnification agreements with its officers and directors containing provisions
that are in some respects broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements may require the Registrant, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
to obtain directors' and officers' insurance if available on reasonable terms.
At present, the Registrant is not aware of any pending or threatened litigation
or proceeding involving a director, officer, employee or agent of the Registrant
in which indemnification would be required or permitted. The Registrant
believes that its charter provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
-----------------------------------
Not Applicable.
ITEM 8
EXHIBITS
--------
Exhibit
Number Document
- ------ ------------------------------------------------------------------
4.1 1989 Stock Option Plan.
4.2 1996 Supplemental Stock Plan.
5.1 Opinion of Counsel as to Legality of Securities Being Registered.
23.1 Consent of Independent Accountants (see page 7).
23.2 Consent of Counsel (contained in Exhibit 5.1 hereto).
24.1 Power of Attorney (see page 6).
-4-
<PAGE>
ITEM 9. UNDERTAKINGS
------------
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 (the "Securities Act"), each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Mercury Interactive Corporation, a corporation organized and
existing under the laws of the State of Delaware, certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-8 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on August 8, 1996.
MERCURY INTERACTIVE CORPORATION
By: /s/ Sharlene Abrams
-----------------------------------------------
Sharlene Abrams, Vice President of Finance and
Administration and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Aryeh Finegold, Sharlene Abrams and Susan
J. Skaer, jointly and severally, as his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign any
amendments to this Registration Statement on Form S-8, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ----------------------------- ---------------
<S> <C> <C>
/s/ Aryeh Finegold Chief Executive Officer August 8, 1996
- -------------------------------- (Principal Executive Officer)
(Aryeh Finegold) and Chairman of the Board of Directors
/s/ Sharlene Abrams Vice President of Finance August 8, 1996
- -------------------------------- and Administration and Chief
(Sharlene Abrams) Financial Officer (Principal
Financial and Accounting Officer)
/s/ Igal Kohavi Director August 8, 1996
- --------------------------------
(Igal Kohavi)
/s/ Amnon Landan Director August 8, 1996
- --------------------------------
(Amnon Landan)
/s/ Standish O'Grady Director August 8, 1996
- --------------------------------
(Standish O'Grady)
/s/ Yair Shamir Director August 8, 1996
- --------------------------------
(Yair Shamir)
/s/ Giora Yaron Director August 8 , 1996
- --------------------------------
(Giora Yaron)
</TABLE>
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<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated February 7, 1996, except as to Note
10, which is as of March 13, 1996, appearing on page F-1 of Mercury Interactive
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995.
We also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in such Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
San Jose, California
August 8 , 1996
-7-
<PAGE>
EXHIBIT 4.1
MERCURY INTERACTIVE CORPORATION
1989 STOCK OPTION PLAN
(as Amended through January 1996)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to such individuals of the
Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Administrator and as
reflected in the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Committee, if one has been
-------------
appointed, or the Board of Directors of the Company, if no Committee is
appointed.
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Common Stock" shall mean the Common Stock of the Company.
------------
(f) "Company" shall mean Mercury Interactive Corporation, a Delaware
-------
corporation.
(g) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, the term Consultant shall not include directors who
are not compensated for their services or are paid only a director's fee by the
Company.
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Administrator, including sick leave, military leave, or
any other personal leave; provided, however, that for purposes of Incentive
Stock Options, any such leave may not exceed ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; or (ii) transfers between
locations of the Company or between the Company, its Parent, its Subsidiaries or
its successor.
<PAGE>
(i) "Employee" shall mean any person, including officers and
--------
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Incentive Stock Option" shall mean any Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(l) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(m) "Option" shall mean a stock option granted pursuant to the Plan.
------
(n) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(o) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(p) "Parent" shall mean a "parent corporation", whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(q) "Plan" shall mean this 1989 Stock Option Plan.
----
(r) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(s) "Subsidiary" shall mean a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions to Section 11 of
-------------------------
the Plan, the total number of shares reserved and available for issuance under
the Plan is 4,253,741 Shares, increased on the first day of each new fiscal year
of the company from and including the 1996 fiscal year by a number of shares
equal to 4% of the sum of the number of Shares outstanding as of the last
business day preceding each such first day of each new fiscal year plus the
number of shares subject to outstanding and unexercised options. However,
notwithstanding the preceding sentence, the maximum number of Shares reserved
and available for issuance pursuant to Incentive Stock Options is 3,544,271
Shares.
Subject to Section 11 of the Plan, if any Shares that have been optioned
under an Option or Stock Purchase Right cease to be subject to such Option or
Stock Purchase Right (other than through exercise of the Option or Stock
Purchase Right), or if any Option granted hereunder is forfeited, or
-2-
<PAGE>
any such award otherwise terminates prior to the issuance of Common Stock to the
participant, the Shares that were subject to such Option or Stock Purchase Right
shall again be available for distribution in connection with future Option or
Stock Purchase Right grants under the Plan. Shares that have actually been
issued under the Plan, whether upon exercise of an Option or Stock Purchase
Right, shall not in any event be returned to the Plan and shall not become
available for future distribution under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
(ii) Administration With Respect to Directors and Officers
-----------------------------------------------------
Subject to Section 16(b). With respect to Option or Stock Purchase Right grants
- ------------------------
made to Employees who are also Officers or Directors subject to Section 16(b) of
the Exchange Act, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan in compliance with the rules governing a plan intended
to qualify as a discretionary plan under Rule 16b-3, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted to comply with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the rules governing a plan intended to qualify as a discretionary
plan under Rule 16b-3.
(iii) Administration With Respect to Other Persons. With
--------------------------------------------
respect to Option or Stock Purchase Right grants made to Employees or
Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a committee designated by the
Board, which committee shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
-3-
<PAGE>
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 8(b) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Purchase Rights may be exercised (which may be based
on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan);
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
-4-
<PAGE>
(xiii) to determine the terms and restrictions applicable to
Options and Stock Purchase Rights and any Restricted Stock; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designa tions, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Options designated as Incentive
Stock Options are exercisable for the first time by any Optionee during any
calendar year (under all plans of the Company) exceeds $100,000, such Options
shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into account
in the order in which they were granted, and the Fair Market Value of the Shares
shall be determined as of the time the Option with respect to such Shares is
granted.
(d) Nothing in the Plan or any Option granted hereunder shall confer
upon any Optionee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
the Optionee's right or the Company's right to terminate his employment or
consulting relationship at any time, with or without cause.
(e) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 200,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as
described in Section 11.
(iii) If an Option is canceled (other than in connection
with a transaction described in Section 11), the canceled Option will
be counted against the limit set forth in Section 5(e)(i). For this
purpose, if the exercise price of an Option is
-5-
<PAGE>
reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years from that date unless sooner
terminated under Section 13 of the Plan.
7. Term of Option. The term of each Incentive Stock Option shall be no
--------------
more than ten (10) years from the date of grant. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be no more than five
(5) years from the date of grant.
8. Exercise Price and Consideration.
--------------------------------
(a) The per Share exercise price under each Option shall be such price
as is determined by the Board, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option the per Share
exercise price shall be determined by the Administrator.
For purposes of this Section 8(a), in the event that an Option is amended to
reduce the exercise price, the date of grant of such Option shall thereafter be
considered to be the date of such amendment.
(b) The Fair Market Value shall be determined by the Board in good
faith; provided, however, that where there is a public market for the Common
Stock, the Fair Market Value per Share shall be the mean of the bid and asked
prices (or the closing price per share if the Common Stock is listed on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System) of the Common Stock for the date of grant, as reported
in the Wall Street Journal (or, if not so reported, as otherwise reported by the
NASDAQ System) or, in the event the
-6-
<PAGE>
Common Stock is listed on a stock exchange, the Fair Market Value per Share
shall be the closing price on such exchange on the date of grant of the Option,
as reported in the Wall Street Journal.
(c) The Administrator shall determine the acceptable form of
consideration for exercising an Option, including the method of payment. In the
case of an Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Such consideration may
consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
(vi) any combination of the foregoing methods of payment; or
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by applicable laws.
(d) Prior to issuance of the Shares upon exercise of an Option, the
Optionee shall pay or make adequate provision for any federal or state
withholding obligations of the Company, if applicable.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board at the time of grant, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
-7-
<PAGE>
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. In
the event that the exercise of an Option is treated in part as the exercise of
an Incentive Stock Option and in part as the exercise of a Nonstatutory Stock
Option pursuant to Section 5(b), the Company shall issue a separate stock
certificate evidencing the Shares treated as acquired upon exercise of an
Incentive Stock Option and a separate stock certificate evidencing the Shares
treated as acquired upon exercise of a Nonstatutory Stock Option, and shall
identify each such certificate accordingly in its stock transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant
with the Company (but not in the event of a change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first (91st)
day following such change of status) or from Consultant to Employee), such
Optionee may, but only within such period of time as is determined by the
Administrator, of at least thirty (30) days, with such determination in the case
of an Incentive Stock Option not exceeding three (3) months after the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), he may, exercise his Option to the
extent he was entitled to exercise it at the date of such termination within
twelve (12) months (or such shorter period as is specified in the grant) from
the date of such termination (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement). To the extent
that the Optionee was not entitled to exercise the Option at
-8-
<PAGE>
the date of termination, or does not exercise such Option (to the extent
exercisable) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 9(b)
-----------------
above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death
an Employee or Consultant of the Company and who shall have been in Continuous
Status as an Employee or Consultant since the date of grant of the Option, the
Option may be exercised, at any time within six (6) months (or such shorter
period as is specified in the grant) following the date of death (but in no
event later than the date of expiration of the term of such Option as set forth
in the Option Agreement), by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
six (6) months after the date of death; or
(ii) within three (3) months (or such shorter period as is
specified in the grant) or such shorter period as may be specified at time of
grant after the termination of Continuous Status as an Employee or Consultant,
the Option may be exercised, at any time within six (6) months following the
date of death (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.
10. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
----------------------------------------------------------------------
Sale or Change of Control.
-------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made
-9-
<PAGE>
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Board and give each Optionee the right to exercise his or
her Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right shall be substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Administrator shall, in lieu of such assumption or substitution,
provide for the Optionee to have the right to exercise the Option as to all of
the Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If the Administrator makes an Option exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase, for each
Share of Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation and the participant, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
-10-
<PAGE>
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the stockholders of the Company in the manner described in Section 17 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) any material increase in the benefits accruing to
participants under the Plan.
(b) Stockholder Approval. Stockholder approval shall be solicited as
--------------------
described in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-11-
<PAGE>
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Stockholder Approval.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted.
(b) Any required approval of the stockholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the stockholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 17(b) hereof, then the Company shall, at or prior to the
first annual meeting of stockholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and Exchange
Commission four copies of the written information referred to in subsection (i)
hereof not later than the date on which such information is first sent or given
to stockholders.
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<PAGE>
EXHIBIT 4.2
MERCURY INTERACTIVE CORPORATION
1996 SUPPLEMENTAL STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees and Consultants, and
. to promote the success of the Company's business.
Nonstatutory Stock Options may be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options, are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board in
---------
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Mercury Interactive Corporation, a Delaware
-------
corporation.
(h) "Consultant" means any person, including an advisor, who is not a
----------
United States citizen, engaged by the Company or a Parent or Subsidiary to
render services and who is compensated for such services. The term "Consultant"
shall not include Directors.
(i) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company
<PAGE>
or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company.
(j) "Director" means a member of the Board.
--------
(k) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(l) "Employee" means any person, excluding Officers and Directors,
--------
who is not a United States citizen, employed by the Company or any Parent or
Subsidiary of the Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Notice of Grant" means a written notice evidencing certain
---------------
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
-2-
<PAGE>
(q) "Option" means a stock option granted pursuant to the Plan.
------
(r) "Option Agreement" means a written agreement between the Company
----------------
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(s) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(u) "Optionee" means an Employee or Consultant who holds an
--------
outstanding Option.
(v) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1996 Supplemental Option Plan.
----
(x) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(y) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 500,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
--------
however, that Shares that have actually been issued under the Plan, upon
exercise of an Option, shall not be returned to the Plan and shall not become
available for future distribution under the Plan.
4. Administration of the Plan.
--------------------------
(a) Administration. The Plan shall be administered by (A) the Board
--------------
or (B) a Committee designated by the Board, which Committee shall be constituted
to satisfy Applicable Laws. Once appointed, such Committee shall serve in its
designated capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however
-3-
<PAGE>
caused), and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 14(b) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan ;
-4-
<PAGE>
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Employees
-----------
and Consultants. If otherwise eligible, an Employee or Consultant who has been
granted an Option may be granted additional Options. Notwithstanding anything to
the contrary contained in the Plan, an Option may not be granted to Officers or
Directors under this Plan.
6. Limitations. Neither the Plan nor any Option shall confer upon an
-----------
Optionee any right with respect to continuing the Optionee's employment or
consulting relationship with the Company, nor shall they interfere in any way
with the Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
7. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. IT SHALL CONTINUE IN EFFECT UNTIL TERMINATED UNDER SECTION 14 OF THE
PLAN.
8. Term of Option. The term of each Option shall be stated in the Notice
--------------
of Grant.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:
-5-
<PAGE>
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
(viii) any combination of the foregoing methods of payment.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue
-6-
<PAGE>
(or cause to be issued) such stock certificate promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
----------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Notice of
Grant to the extent that he or she is entitled to exercise it on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the absence of a specified time
in the Notice of Grant, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's
change in status from Consultant to Employee or Employee to Consultant, the
Optionee's Continuous Status as an Employee or Consultant shall not
automatically terminate solely as a result of such change in status.
(c) Disability of Optionee. Upon termination of an Optionee's
----------------------
Continuous Status as an Employee or Consultant as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of termination, but only to the extent that the
Optionee is entitled to exercise it on the date of termination (and in no event
later than the expiration of the term of the Option as set forth in the Notice
of Grant). If, on the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. Upon the death of an Optionee, the Option
-----------------
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Notice of Grant), by the Optionee's estate or by a person who
acquires the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee would have been entitled to exercise the Option on
the date of death. If, at the time of death, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If the Optionee's
estate or the person who acquires the right to exercise the Option by bequest or
inheritance does not
-7-
<PAGE>
exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
-----------------
to buy out for a payment in cash or Shares, an Option previously granted based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. AN OPTION MAY NOT BE SOLD, PLEDGED,
------------------------------
ASSIGNED, HYPOTHECATED, TRANSFERRED, OR DISPOSED OF IN ANY MANNER OTHER THAN BY
WILL OR BY THE LAWS OF DESCENT OR DISTRIBUTION AND MAY BE EXERCISED, DURING THE
LIFETIME OF THE OPTIONEE, ONLY BY THE OPTIONEE.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding
-8-
<PAGE>
Option shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option, the Optionee shall have the right to exercise the Option as to all of
the Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If an Option is exercisable in lieu of assumption or substitution
in the event of a merger or sale of assets, the Administrator shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger or sale of assets, the option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
-------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed
-9-
<PAGE>
or quoted, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Liability of Company. The inability of the Company to obtain authority
--------------------
from any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not have
been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-10-
<PAGE>
MERCURY INTERACTIVE CORPORATION
1996 SUPPLEMENTAL STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
____________________________
[Optionee's Name and Address]
_____________________________
_____________________________
You have been granted a nonstatutory stock option to purchase Common Stock
of the Company, subject to the terms and conditions of the Plan and this Stock
Option Agreement, as follows:
Grant Number __________________________________
Date of Grant __________________________________
Vesting Commencement Date __________________________________
Exercise Price per Share __________________________________
Total Number of Shares Granted __________________________________
Total Exercise Price __________________________________
Term/Expiration Date: __________________________________
Exercise and Vesting Schedule:
_____________________________
This Option is exercisable immediately, in whole or in part, conditioned
upon Optionee entering into a Restricted Stock Purchase Agreement with respect
to any unvested Option Shares. The Shares subject to this Option shall vest
and/or be released from the Company's repurchase option, as set forth in the
Restricted Stock Purchase Agreement, according to the following schedule:
-1-
<PAGE>
25% of the Shares subject to the Option shall vest one year after the
Vesting Commencement Date, and 1/36th of the Shares subject to the Option shall
vest each month thereafter, so long as the Optionee's Continuous Status as an
Employee or Consultant is not interrupted or terminated.
Termination Period:
------------------
This Option may be exercised, to the extent vested, for thirty (30) days
after termination of Optionee's employment or consulting relationship, or such
longer period as may be applicable upon death or Disability of Optionee as
provided in the Plan, but in no event later than the Term/Expiration Date as
provided above.
II. AGREEMENT
---------
1. Grant of Option. Mercury Interactive Corporation (the "Company"),
---------------
hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an
option (the "Option") to purchase the total number of shares of Common Stock
(the "Shares") set forth in the Notice of Grant, at the exercise price per share
set forth in the Notice of Grant (the "Exercise Price") subject to the terms,
definitions and provisions of the 1996 Supplemental Stock Option Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
2. Exercise of Option. This Option shall be exercisable during its
------------------
term in accordance with the provisions of Section 10 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) Subject to subsections 2(i)(b) through 2(i)(e) below,
this Option shall be exercisable cumulatively according to the vesting schedule
set out in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to Option shall vest based on continued employment of Optionee with the Company.
Vested Shares shall not be subject to the Company's repurchase right (as set
forth in the Restricted Stock Purchase Agreement, attached hereto as Exhibit
B-1).
(b) As a condition to exercising this Option for unvested
Shares, the Optionee shall execute the Restricted Stock Purchase Agreement.
(c) This Option may not be exercised for a fraction of a
Share.
(d) In the event of Optionee's death, disability or other
termination of the employment or consulting relationship, the exercisability of
the Option is governed by Sections 6, 7 and 8 below, subject to the limitation
contained in subsection 2(i)(e).
-2-
<PAGE>
(e) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by
------------------
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and, together with an executed copy of the Restricted Stock
Purchase Agreement, if applicable, shall be delivered in person or by certified
mail to the Secretary of the Company. The written notice and Restricted Stock
Purchase Agreement shall be accompanied by payment of the Exercise Price. This
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and Restricted Stock Purchase Agreement accompanied by the
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. Method of Payment. Payment of the Exercise Price shall be by any
-----------------
of the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) a combination of the foregoing payment methods.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
-3-
<PAGE>
6. Termination of Relationship. In the event an Optionee's
---------------------------
Continuous Status as an Employee or Consultant terminates, Optionee may, to the
extent the Option was vested at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not vested in this Option at the date
of such termination, or if Optionee does not exercise this Option within the
time specified herein, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section
----------------------
6 above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her Disability, Optionee
may, but only within ninety (90) days from the date of such termination (and in
no event later than the expiration date of the term of such Option as set forth
in the Stock Option Agreement), exercise the Option to the extent the Option was
vested at the date of such termination. To the extent that Optionee is not
vested in the Option at the date of termination, or if Optionee does not
exercise such Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
8. Death of Optionee. In the event of termination of Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, or the Optionee's death occurs within thirty (30) days after
termination of Optionee's Continuous Status as an Employee or Consultant, the
Option may be exercised at any time within ninety (90) days following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent the Option was vested at the date of death. To the extent
that Optionee is not vested in the Option at the date of death, or if the Option
is not exercised within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
9. Non-Transferability of Option. This Option may not be transferred
-----------------------------
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term
--------------
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
11. Withholding and Employment Taxes Upon Exercise of Option. Option
--------------------------------------------------------
understands that, upon exercise of this Option, Optionee will recognize income
for tax purposes in an amount equal to the excess of the then fair market value
of the shares over the exercise price. The Company will be required to withhold
tax from Optionee's current compensation with respect to such income; to the
extent that Optionee's current compensation is insufficient to satisfy the
withholding tax liability, the Company may require the Optionee to make a cash
payment to cover such liability as a condition of exercise of this Option. To
the extent authorized by the Board in its sole discretion,
-4-
<PAGE>
Optionee may make an election, by means of a form of election to be prescribed
by the Board, to have shares of Common Stock or other securities of the Company
which are acquired upon exercise of the Option withheld by the Company or to
tender other shares of Common Stock or other securities of the Company owned by
Optionee to the Company at the time of exercise of the Option to pay the amount
of tax that would otherwise be required by law to be withheld by the company as
a result of any exercise of the Option from amounts payable to such person. Any
securities so withheld or tendered will be valued by the Company as of the day
of exercise.
12. Tax Consequences. Set forth below is a brief summary as of the
----------------
date of this Option of some of the federal and state tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(i) Exercise of NSO. There may be a regular federal income tax
---------------
liability and state income tax liability upon the exercise of an NSO. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise. If
the Optionee is subject to Section 16 of the Securities Act of 1934, as amended,
the date of income recognition may be deferred for up to six months.
(ii) Disposition of Shares. In the case of an NSO, if Shares
---------------------
are held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal and state income tax
purposes.
(iii) Section 83(b) Election for Unvested Shares Purchased
----------------------------------------------------
Pursuant to Nonqualified Stock Options.
--------------------------------------
With respect to the exercise of a nonqualified stock option for unvested Shares,
an election may be filed by the Optionee with the Internal Revenue Service and,
if necessary, the proper state taxing authorities, within 30 days of the
--------------
purchase of the Shares, electing pursuant to Section 83(b) of the Code (and
similar state tax provisions if applicable) to be taxed currently on any
difference between the purchase price of the Shares and their Fair Market Value
on the date of purchase. This will result in a recognition of taxable income to
the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. Optionee is strongly encouraged to seek the advice of
his or her own tax consultants in connection with the purchase of the Shares and
the advisability of filing of the Election under Section 83(b) and similar tax
provisions. A form of Election under Section 83(b) is attached hereto as Exhibit
B-5 for reference.
-5-
<PAGE>
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
MERCURY INTERACTIVE CORPORATION
By:____________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:___________________ ________________________________
Optionee
Residence Address:
________________________________
________________________________
-6-
<PAGE>
EXHIBIT A
---------
1996 SUPPLEMENTAL STOCK PLAN
EXERCISE NOTICE
Mercury Interactive Corporation
470 Potrero Avenue
Sunnyvale, CA 94086
1. Exercise of Option. Effective as of today, ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Mercury Interactive
Corporation (the "Company") under and pursuant to the
______________________________ 1996 Supplemental Stock Option Plan, as amended
(the "Plan") and the Nonstatutory Stock Option Agreement dated ________, 19___
(the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a stockholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
<PAGE>
5. Stop-Transfer Orders.
--------------------
(a) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(b) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
7. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
8. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
9. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
10. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
11. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
12. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement, and the Restricted Stock
-2-
<PAGE>
Purchase Agreement constitute the entire agreement of the parties and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof.
Submitted by: Accepted by:
OPTIONEE: MERCURY INTERACTIVE CORPORATION
_________________________________ _________________________________
Signature By
_________________________________ _________________________________
Address Title
_________________________________ _________________________________
Date Accepted
-3-
<PAGE>
EXHIBIT B-1
-----------
1996 SUPPLEMENTAL STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the
"Purchaser") and Mercury Interactive Corporation (the "Company") as of
__________________, 199__.
RECITALS
--------
(1) Pursuant to the exercise of the stock option (grant number ____) granted
to Purchaser under the Company's 1996 Supplemental Stock Plan and pursuant to
the Stock Option Agreement (the "Option Agreement") dated ___________ by and
between the Company and Purchaser with respect to such grant, which Option
Agreement is hereby incorporated by reference, Purchaser has elected to purchase
_________ of those shares which have not become vested under the vesting
schedule set forth in the Option Agreement ("Unvested Shares"). The Unvested
Shares and the shares subject to the Option Agreement which have become vested
are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's employment or consulting relationship with the
Company is terminated for any reason, including for cause, death, and
disability, the Company shall have the right and option to purchase from
Purchaser, or Purchaser's personal representative, as the case may be, all of
the Purchaser's Unvested Shares as of the date of such termination at the price
paid by the Purchaser for such Shares (the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the stock
certificate or certificates evidencing the Unvested Shares, and the Company
shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit B-2. The Unvested Shares and stock assignment shall
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit B-3 hereto, until the Company
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit B-4. Upon vesting of the Unvested
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any Unvested Shares
purchased by Purchaser and shall acknowledge the same by signing a copy of this
Agreement.
-2-
<PAGE>
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares
--------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser
-----------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Elections.
-----------------------
(a) Election for Unvested Shares Purchased Pursuant to Nonqualified
---------------------------------------------------------------
Stock Options. Purchaser hereby acknowledges that he or she has
-------------
been informed that, with respect to the exercise of a nonqualified stock option
for Unvested Shares, that unless an election is filed by the Purchaser with the
Internal Revenue Service and, if necessary, the proper state taxing authorities,
within 30 days of the purchase of the Shares, electing pursuant to Section 83(b)
- --------------
of the Code (and similar state tax provisions if applicable) to be taxed
currently on any difference between the purchase price of the Shares and their
Fair Market Value on the date of purchase, there will be a recognition of
taxable income to the Optionee, measured by the excess, if any, of the fair
market value of the Shares, at the time the Company's Repurchase Option lapses
over the purchase price for the Shares. Optionee represents that Optionee has
consulted any tax consultant(s) Optionee deems advisable in connection with the
purchase of the Shares or the filing of the Election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) is attached
hereto as Exhibit B-5 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON
PURCHASER'S BEHALF.
-3-
<PAGE>
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or represen tations of the Company or
any of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with applicable California state laws.
Purchaser represents that he has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
PURCHASER: MERCURY INTERACTIVE CORPORATION:
_____________________________ _______________________________
Signature By
_____________________________ _______________________________
Address Title
_____________________________ _______________________________
Date Accepted
-4-
<PAGE>
EXHIBIT B-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto __________________________________________________________________
________________ (__________) shares of the Common Stock of Mercury Interactive
Corporation standing in my name of the books of said corporation represented by
Certificate No. _____ herewith and do hereby irrevocably constitute and appoint
_____________________________________________ to transfer the said stock on the
books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between________________________ and the undersigned
dated ______________, 19__.
Dated: _______________, 19__
Signature: ____________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT B-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
_____________, 19__
Corporate Secretary
Mercury Interactive Corporation
470 Potrero Avenue
Sunnyvale, CA 94086
Attention: Secretary
Dear _________________:
As Escrow Agent for both Mercury Interactive Corporation (the "Company"),
and the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Mercury Interactive Corporation
470 Potrero Avenue
Sunnyvale, CA 94086
Attention: Secretary
PURCHASER: _______________________________
_______________________________
_______________________________
_______________________________
ESCROW AGENT: Corporate Secretary
Mercury Interactive Corporation
470 Potrero Avenue
Sunnyvale, CA 94086
Attention: Secretary
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
MERCURY INTERACTIVE CORPORATION
_______________________________
By
_______________________________
Title
PURCHASER
_______________________________
Signature
_______________________________
Typed or Printed Name
Escrow Agent:
________________________________
Corporate Secretary
4
<PAGE>
EXHIBIT B-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Agreement. In consideration of granting of the right to
my spouse to purchase shares of Mercury Interactive Corporation, as set forth in
the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to
the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital prop erty in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, 19____
__________________________________
<PAGE>
EXHIBIT B-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:__________ shares (the "Shares") of the Common Stock of Mercury
Interactive Corporation (the "Company").
3. The date on which the property was transferred is: _______________, 19__.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These
restrictions lapse upon the satisfaction of certain conditions contained in
such agreement.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, or such property is:
$__________________.
6. The amount (if any) paid for such property is:
$__________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer or said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:______________, 19__ _____________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:_____________, 19__ _____________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 5.1
August 8, 1996
Mercury Interactive Corporation
470 Potrero Avenue
Sunnyvale, California 94086
RE: REGISTRATION STATEMENT ON FORM S-8
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-8 to be filed by you
with the Securities and Exchange Commission on or about August 9, 1996 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 1,209,470 shares of your
Common Stock (the "Shares") reserved for issuance under the 1989 Stock Option
Plan and the 1996 Supplemental Stock Plan (collectively, the "Plans"). As legal
counsel for Mercury Interactive Corporation, we have examined the proceedings
taken and are familiar with the proceedings proposed to be taken by you in
connection with the sale and issuance of the Shares under the Plans.
It is our opinion that, when issued and sold in the manner referred to in
the Plans and pursuant to the agreement which accompanies each grant under the
Plans, the Shares will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever it appears in the
Registration Statement and any amendments thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
/s/ Wilson, Sonsini, Goodrich & Rosati
