<PAGE>
As filed with the Securities and Exchange Commission on August 24, 1998.
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)
1325 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089
(408) 822-5200
(Address, including zip code, of Registrant's principal executive offices)
AMENDED AND RESTATED 1989 STOCK OPTION PLAN
1999 STOCK OPTION PLAN
1998 EMPLOYEE STOCK PURCHASE PLAN
(FULL TITLE OF THE PLANS)
AMNON LANDAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1325 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089
(408) 822-5200
(Name, address and telephone number, including area code, of agent for service)
Copies to:
SUSAN J. SKAER, ESQ.
General Counsel Associates LLP
1891 Landings Drive
Mountain View, CA 94043
(650) 428-3900
<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.. 807,230 shares (1) $29.20(2) $23,573,639(3) $ 7,144
Common Stock,
$.002 par value.. 850,000 shares (4) $42.00(5) $35,700,000(5) $10,818
TOTAL........ 1,657,230 shares --- $59,273,639 $17,962
===============================================================================================
</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 two sub-totals. This sub-total represents the number of 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 subtotal represents the sum of shares issuable upon exercise of
options that have not yet been granted under the Amended and Restated 1989
Stock Option Plan, 1999 Stock Option Plan, and the 1998 Employee Stock
Purchase Plan, as of the date of this Registration Statement.
(5) 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 21, 1998 because
the price at which the options to be granted in the future may be exercised
is not currently determinable.
<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 31, 1998 pursuant
to Section 13(a) 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, 1997 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
28, 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.
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
-2-
<PAGE>
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 Amended and Restated 1989 Stock Option Plan, as amended through
June 1998.
4.2 1999 Stock Option Plan
4.3 1998 Employee Stock Purchase Plan
5.1 Opinion of Counsel as to Legality of Securities being Registered.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (contained in Exhibit 5.1 hereto).
24.1 Power of Attorney (see page 4).
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.
-3-
<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 24, 1998.
MERCURY INTERACTIVE CORPORATION
By: /s/Sharlene Abrams
--------------------------------------------------------
Sharlene Abrams, Vice President of Finance and
Administration, Chief Financial Officer and Secretary
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.
SIGNATURES TITLE DATE
---------- ----- ----
/s/Aryeh Finegold Chairman of the August 24, 1998
- --------------------- Board of Directors
ARYEH FINEGOLD
/s/Amnon Landan President, August 24, 1998
- --------------------- Chief Executive Officer and
AMNON LANDAN Director (Principal Executive
Officer)
/s/Sharlene Abrams Vice President of August 24, 1998
- --------------------- Finance and Administration
SHARLENE ABRAMS Chief Financial Officer
(Principal Financial
and Accounting Officer) and
Secretary
/s/Igal Kohavi Director August 24, 1998
- ---------------------
IGAL KOHAVI
/s/Yair Shamir Director August 24, 1998
- ---------------------
YAIR SHAMIR
/s/Giora Yaron Director August 24, 1998
- ---------------------
GIORA YARON
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Document
------ --------
4.1 Amended and Restated 1989 Stock Option Plan, as amended through June
1998.
4.2 1999 Stock Option Plan.
4.3 1998 Employee Stock Purchase Plan.
5.1 Opinion of Counsel as to Legality of Securities Being Registered.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (contained in Exhibit 5.1 hereto).
24.2 Power of Attorney (see page 4).
-5-
<PAGE>
EXHIBIT 4.1
MERCURY INTERACTIVE CORPORATION
1989 STOCK OPTION PLAN
(as Amended through June 1998)
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
-1-
<PAGE>
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.
(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 6,108,669 Shares (such number includes the 4% increases in 1996,
1997 and 1998 as described below), increased on the first day of each new fiscal
year of the Company from and including the 1996 fiscal year by a
-2-
<PAGE>
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 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
-3-
<PAGE>
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:
(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;
-4-
<PAGE>
(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;
(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 designations, 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
-5-
<PAGE>
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 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.
-6-
<PAGE>
(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 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;
-7-
<PAGE>
(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.
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.
-8-
<PAGE>
(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 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, as to
all of the Optioned Stock, including Shares as to which it would not otherwise
be exercisable, and such Shares shall be fully vested and not subject to any
repurchase option; or
(ii) within three (3) months (or such shorter period as is
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
-9-
<PAGE>
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 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:
-10-
<PAGE>
(i) Each outstanding Option shall be assumed or an equivalent
option substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. Any Shares subject to a repurchase option of the
Company shall be exchanged for the consideration (whether stock, cash, or
other securities or property) received in the merger or asset sale by the
holders of the Common Stock for the successor corporation or a parent or
subsidiary of such successor corporation for each Share held on the effective
date of the transaction and such consideration shall, in the case of
securities of the successor corporation, be subject to a repurchase option
with terms consistent to the Company's repurchase option and in the case of
any other property shall be subject to vesting according to the schedule for
the lapse of the repurchase option.
(ii) 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, and such Shares shall be fully
vested and not subject to any repurchase option. In the event that the
successor corporation fails to assume the restricted stock purchase agreement
pursuant to which the Optionee purchased unvested Shares, the Company's
repurchase option shall lapse and the shares shall be fully vested. 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.
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.
-------------------------------------
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<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.
-12-
<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
1999 STOCK OPTION PLAN
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" means the Committee, if one has been appointed,
-------------
or the Board of Directors of the Company, if no Committee is appointed.
(b) "Board" means the Board of Directors of the Company. A member of
-----
the Board shall be referred to hereinafter as a "Director."
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means 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" means the Common Stock of the Company.
------------
(f) "Company" means Mercury Interactive Corporation, a Delaware
-------
corporation.
(g) "Consultant" means 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.
(i) "Employee" means 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.
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<PAGE>
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Incentive Stock Option" means any Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(l) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(m) "Option" means a stock option granted pursuant to the Plan.
------
(n) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(o) "Optionee" means an Employee or Consultant who receives an Option.
--------
(p) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this 1999 Stock Option Plan.
----
(r) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(s) "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 to Section 11 of
-------------------------
the Plan, the total number of shares reserved and available for issuance is
[200,000] Shares.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. 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 transaction intended to qualify as an exempt transaction under Rule 16b-3
and/or in accordance with Section 162(m) of the Code, or (B) a Committee (or
Committees) designated by the Board to administer the Plan, which Committee
shall be constituted to comply with the rules governing a plan transaction
intended to qualify as an exempt transaction under Rule 16b-3 and/or in
accordance with Section 162(m) of the Code. Once appointed, such Committee
shall continue to
-2-
<PAGE>
serve in its designated capacity until otherwise directed by the Board. From
time to time, as the Board deems appropriate (and for the purposes of
satisfying Rule 16b-3 and/or Section 162(m)), it 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.
(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 in such a manner as to satisfy the
legal requirements relating to the administration of stock option plans, if
any, of state corporate law, the relevant stock exchange and the Code (the
"Applicable Rules"). 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 the Applicable
Rules.
(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 8(b) 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;
-3-
<PAGE>
(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 (subject to Section 14(b)
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 previously
granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions applicable to
Options; 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.
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 designations, 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:
-4-
<PAGE>
(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 reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6. Term of Plan. The term of the Plan shall be ten (10) years,
------------
commencing on August 31, 1999 and terminating on August 31, 2009 unless sooner
terminated under Section 13 of the Plan.
7. Term of Option. The term of each 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 no less than 100% of the Fair Market Value per Share
on the date of grant.
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.
-5-
<PAGE>
(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 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
and any tax withholding resulting from such exercise;
(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.
-6-
<PAGE>
An Option may not be exercised for a fraction of a Share.
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 as promptly as practicable 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, such Optionee may, but only within thirty (30) days after the
date of such termination (or such other period as is set out by the
Administrator in the Option Agreement, but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the 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. Notwithstanding anything to the contrary contained
herein, an individual's Continuous Status as an Employee or Consultant shall
not be interrupted if such individual converts from a Consultant to an Employee
or from an Employee to a Consultant; provided, however, that if an Employee who
converts to Consultant status holds an Incentive Stock Option, such Incentive
Stock Option shall automatically convert to a Nonstatutory Stock Option on the
ninety-first (91st) day following such change of status.
(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 six
(6) months from the date of such termination (or such other period as is
-7-
<PAGE>
specified in the grant, 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 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
following the date of death ((or such other period as is specified in the
grant, 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, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, as to all of the Optioned
Stock, including Shares as to which it would not otherwise be exercisable, and
such Shares shall be fully vested and not subject to any repurchase option; or
(ii) during the post-termination exercise period specified in
the grant with respect to terminations under Section 9(b) above, at any time
within six (6) months following the date of death (or such other period as is
determined by the Administrator, 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. Except as otherwise designated by the
------------------------------
Administrator,
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.
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
-8-
<PAGE>
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, 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:
(i) Each outstanding Option shall be assumed or an equivalent
option substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. Any Shares subject to a repurchase option of the
Company shall be exchanged for the consideration (whether stock, cash, or
other securities or property) received in the merger or asset sale by the
holders of the Common Stock for the successor corporation or a parent or
subsidiary of such successor corporation for each Share held on the effective
date of the transaction and such consideration shall, in the case of
securities of the successor corporation, be subject to a repurchase option
with terms consistent to the Company's repurchase option and in the case of
any other property shall be subject to vesting according to the schedule for
the lapse of the repurchase option.
(ii) 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, and such Shares shall be fully
vested and not subject to any repurchase option. In the event that the
successor corporation fails to assume the restricted stock purchase agreement
pursuant to which the Optionee purchased unvested Shares, the Company's
repurchase option shall lapse and the shares shall be fully vested. 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
-9-
<PAGE>
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.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with the exercise of an Option, which tax liability is subject to tax
withholding under applicable tax laws, and the Optionee is obligated to pay the
Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option that
number of Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is determined (the
"Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent of the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
13. 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.
14. Amendment and Termination of the Plan.
-------------------------------------
(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 revisions or amendments to increase the number of Shares in the
Share Pool (other than in connection with an
-10-
<PAGE>
adjustment under Section 11 of the Plan) and/or change the designation of the
class of persons eligible to be granted Options shall require approval of the
stockholders of the Company in the manner described in Section 18 of the Plan.
(b) 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.
15. 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.
16. 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. 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. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
18. Stockholder Approval. Any required stockholder approval obtained at a
--------------------
duly held stockholders' meeting, may be obtained by the affirmative vote of the
holders of a majority of the outstanding Shares of the Company present or
represented and entitled to vote thereon.
-11-
<PAGE>
EXHIBIT 4.3
MERCURY INTERACTIVE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of Mercury
-------
Interactive Corporation and its Designated Subsidiaries with an opportunity to
purchase Common Stock of Mercury Interactive Corporation through accumulated
payroll deductions. It is the intention of Mercury Interactive Corporation to
have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of
the Internal Revenue Code of 1986, as amended. The provisions of the Plan
shall, accordingly, be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of Mercury Interactive
-----
Corporation.
(b) "Code" means the U.S. Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of Mercury Interactive
------------
Corporation.
(d) "Company" means Mercury Interactive Corporation, a Delaware
-------
corporation and (where the context so requires), its Designated Subsidiaries.
(e) "Compensation" means all regular straight time earnings, and all
------------
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses, commissions or other compensation.
(f) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan. As of the date of adoption of the Plan, the Designated
Subsidiaries are Mercury Interactive (Israel) Ltd, Mercury Interactive (Europe)
N.V., Mercury Interactive France S.A.R.L., Mercury Interactive GmbH, and Mercury
Interactive (UK) Ltd. Additional Designated Subsidiaries, as added by the Board,
shall be listed in Appendix I to the Plan.
(g) "Employee" means any individual who is an employee of the Company
--------
or its Designated Subsidiary for purposes of U.S. income tax withholding under
the Code whose customary employment is at least twenty (20) hours per week and
more than five months in any calendar year (including Employees of a Designated
Subsidiary who would, if subject to US. income tax, be an employee for such
purposes). For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
(h) "Exercise Date" means the date one day prior to the date 6 months
-------------
from any Offering Date.
(i) "Offering Date" means the first day of each Offering Period of the
-------------
Plan. The first Offering Date under the Plan will be May 20, 1998.
<PAGE>
(j) "Offering Period" means a 6-month period beginning on the Offering
---------------
Date and ending on the Exercise Date.
(k) "Plan" means this 1998 Employee Stock Purchase Plan.
----
(l) "Subsidiary" means a corporation, domestic or foreign, of which not
----------
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(m) "Trading Day" means a day on which national stock exchanges and the
-----------
National Market System of the National Association of Securities Dealers
Automated Quotation (NASDAQ) System are open for trading.
3. Eligibility.
-----------
(a) Any Employee as defined in Section 2 who shall be employed by the
Company on the date his or her participation in the Plan is effective shall be
eligible to participate in the Plan, subject to limitations imposed by Section
423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent or more of
the total combined voting power or value of all classes of stock of the Company
or of any Subsidiary of the Company, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate which exceeds $25,000 of fair market value of
such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive 6-month
----------------
Offering Periods with a new Offering Period commencing on February 16 and August
16 of each year; except that the initial Offering Period shall be short Offering
Period commencing on May 20, 1998 and ending on August 14, 1998. (the "Initial
Offering Period"). The Plan shall continue thereafter until terminated in
accordance with Section 20 hereof. Subject to the requirements of Section 19,
the Board shall have the power to change the duration of Offering Periods with
respect to future offerings without stockholder approval if such change is
announced at least 10 days prior to the scheduled beginning of the first
Offering Period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions on a form
provided by the Company and filing it with the Company's payroll office at least
10 business days prior to the applicable Offering Date, unless a later time for
filing the subscription agreement is set by the Board for all eligible Employees
with respect to a given offering.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Offering Date and shall end on the Exercise Date of the
offering to which such authorization is applicable, unless sooner terminated by
the participant as provided in Section 10.
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each payday during the
Offering Period in an amount not exceeding 15% nor less than one percent of his
or her Compensation. The aggregate of such payroll deductions during any
Offering Period shall not exceed 15% of his or her aggregate Compensation during
said Offering Period.
(b) All payroll deductions made by a participant shall be credited to
his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or may decrease (but not increase) the rate or amount of
his or her payroll deductions during the Offering Period (within the limitations
of Section 6(a)) by completing and filing with the Company a new subscription
agreement authorizing a decrease in the rate or amount of payroll deductions;
provided, however, that a participant may not decrease the rate or amount of his
or her payroll deductions more than once in any one month. The change in rate
shall be effective 15 days following the Company's receipt of the new
authorization or such shorter period as may be permitted by the Company. Subject
to the limitations of Section 6(a), a participant's subscription agreement shall
remain in effect for successive Offering Periods unless revised as provided
herein or terminated as provided in Section 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) herein, a participant's payroll
deductions may be decreased to zero percent by the Administrator at such time
during any Offering Period which is scheduled to end during the current calendar
year that the aggregate of all payroll deductions accumulated with respect to
such Offering Period and any other Offering Period ending within the same
calendar year equal $21,250. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of, the participant must make adequate provision for the Company's federal,
state or other tax withholding obligations, if any, which arise upon the
exercise of the option or the dispositions, if any, which arise upon the
exercise of the option or the disposition of the Common Stock. At any time, the
Company may, but will not be obligated to, withhold from the participant's
Compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option.
---------------
(a) Subject to Sections 7(c) and 7(d) below, on the Offering Date of each
Offering Period, each eligible Employee participating in such Offering Period
shall be granted an option to purchase on each Exercise Date during such
Offering Period (at the per share option price) up to a number of shares of the
Company's Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the lower of (i) 85% of the fair market value
of a share of the Company's Common Stock on the Offering Date or (ii) 85% of the
fair market value of a share of the Company's Common Stock on the Exercise Date;
provided, however, that the
<PAGE>
maximum number of shares an Employee may purchase during each Offering Period
shall be determined at the Offering Date by dividing $25,000 by the fair market
value of a share of the Company's Common Stock on the Offering Date, and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. Exercise of each option during each
Offering Period shall occur as provided in Section 8, unless the participant has
withdrawn pursuant to Section 10, and each option shall expire at midnight on
the last day of the applicable Offering Period. Fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 7(b)
herein.
(b) Subject to Sections 7(c) and 7(d) below, the option price per share
of the shares offered in a given Offering Period shall be the lower of: (i) 85%
of the fair market value of a share of the Common Stock of the Company on the
Offering Date; or (ii) 85% of the fair market value of a share of the Common
Stock of the Company on the Exercise Date. The fair market value of the
Company's Common Stock on a given date shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per share shall be the closing price of the
Common Stock for such date, as reported by the NASDAQ National Market System,
or, in the event the Common Stock is listed on a stock exchange, the fair market
value per share shall be the closing price on such exchange on such date, as
reported in the Wall Street Journal. In the event the Offering Date or the
Exercise Date occurs on a weekend or legal holiday, the fair market value shall
be based on the closing bid price on the next Trading Day.
(c) Notwithstanding Sections 7(a) and 7(b) above, (i) each eligible
Employee participating in the Initial Offering Period shall be granted an option
to purchase (at the per share option price) up to a number of shares of the
Company's Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to the Exercise Date and retained in the Participant's account
as of the Exercise Date by 85% of the fair market value of a share of the
Company's Common Stock on the Exercise Date; provided, however, that the maximum
number of shares an Employee may purchase during the Initial Offering Period
shall be determined at the Offering Date by dividing $25,000 by the fair market
value of a share of the Company's Common Stock on the Offering Date, and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof and (ii) the option price per share of the
shares offered in the Initial Offering Period shall be 85% of the fair market
value of a share of the Common Stock of the Company on the Exercise Date.
(d) Notwithstanding anything to the contrary contained herein, in the
event that during any Offering Period the accounting rules relating to
noncompensatory treatment of employee stock purchase plans under section 423 of
the Code change so as to require, in the written opinion of the Company's
independent public accountants, that the Company recognize a compensatory charge
to earnings with respect to options granted during such Offering Period, the
Board may, in its discretion, take any steps necessary to reduce or eliminate
such charge to earnings. Such steps may include (without limitation) (i)
amending the Plan to provide that the Exercise Price for any Offering Period
(including the current Offering Period) shall be equal to 85% of the fair market
value of a share of the Common Stock of the Company on the Exercise Date only or
(ii) immediately terminating the Offering Period and returning all payroll
deductions withheld to participants prior to the Exercise Date. The Board will
advise participants of any accounting-related amendment that affects pricing no
less than 5 business days prior to the Exercise Date of the affected Offering
Period. No prior notice will be required in the event of an accounting-related
termination of the Offering Period provided that payroll deductions are returned
to the participant as promptly as practicable after the termination.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of shares will be
exercised automatically on the
<PAGE>
Exercise Date, and the maximum number of full shares subject to option shall be
purchased for such participant at the applicable option price with the
accumulated payroll deductions in his or her account. No fractional shares will
be purchased and any amount remaining in the participant's account after an
Exercise Date shall be held in the account until the Exercise Date of the next
Offering Period, unless the Offering Period has been oversubscribed or the Plan
has terminated with such Exercise Date, in which case such amount shall be
refunded to the participant. During a participant's lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after the Exercise Date, the
--------
Company shall arrange the delivery to each participant, as appropriate, of a
certificate representing the shares purchased upon exercise of his or her
option. Any cash remaining to the credit of a participant's account under the
Plan after a purchase by him or her of shares at the termination of each
Offering Period which is insufficient to purchase a full share of Common Stock
of the Company shall be applied to the participant's account for the next
Offering Period.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company
pursuant to a form to be provided by the Company. All of the participant's
payroll deductions credited to his or her account will be paid to such
participant as promptly as practicable after receipt of notice of withdrawal and
such participant's remaining option or options for the Offering Period will be
automatically terminated, and no further payroll deductions for the purchase of
shares will be made during the Offering Period. If a participant withdraws from
an Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a new
subscription agreement.
(b) Upon a participant's ceasing to be an Employee prior to an Exercise
Date for any reason, including retirement or death, or upon termination of a
participant's employment relationship (as described in Section 2(g)), the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option will be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 14, and such participant's remaining option or
options will be automatically terminated.
(c) In the event an Employee fails to remain an Employee of the Company
for at least 20 hours per week during an Offering Period in which the Employee
is a participant, he or she will be deemed to have elected to withdraw from the
Plan and the payroll deductions credited to his or her account will be returned
to such participant and such participant's remaining option or options
terminated.
(d) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) Subject to Section 18 of the Plan, the maximum number of Shares
reserved and available for issuance pursuant to the Plan is 325,000. If any
Shares that have been
<PAGE>
optioned under the Plan cease to be subject to an option (other than through
exercise of the option), or if any option granted hereunder is forfeited, the
Shares that were subject to such option shall again be available for
distribution in connection with future grants under the Plan. Notwithstanding
the previous sentence, if Shares subject to an option are used for tax
withholding, only the net number of Shares issued to the participant in the
transaction shall be considered to be "issued" under the Plan, and the remaining
Shares that were subject to such option shall again be available for
distribution in connection with future option grants under the Plan.
If on a given Exercise Date the number of shares with respect to which options
are to be exercised exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Board shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable or, subject to the restrictions of Section 423 of the Code, take
such other steps to reallocate Shares as it determines shall be equitable. The
Company shall give written notice of such reduction or reallocation to each
Employee affected thereby and shall similarly reduce the rate of payroll
deductions, if necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company or a committee appointed by the Board. The Board or
its committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties. Members of the Board
who are eligible Employees are permitted to participate in the Plan.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to an Exercise Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of
<PAGE>
descent and distribution or as provided in Section 14 hereof) by the
participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds from an Offering Period in accordance with
Section 10.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
annually, which statements will set forth the amounts of payroll deductions, the
per share purchase price, the number of shares purchased and the remaining cash
balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves") as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, 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 shares of Common Stock effected without receipt of any
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 issue 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.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the Board
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least 5 business days prior to the New Exercise
Date, that the Exercise Date for his or her option has been changed to the New
Exercise Date and that his or her option has been changed to the New Exercise
Date and that his or her option will be exercised automatically on the New
Exercise Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was
<PAGE>
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Board may, with the consent of the successor
corporation and the participant, provide for the consideration to be received
upon exercise of 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 sale of assets or
merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend the
Plan. Except as provided in Section 7(c) and Section 18, no such termination can
affect options previously granted, provided that the Plan may be terminated by
the Board on any Exercise Date if the Board determines that the termination of
the Plan is in the best interests of The Company and its stockholders. Except as
provided in Section 7(c) and Section 18 no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law or regulation), the
Company shall obtain stockholder approval in such a manner and to such a degree
as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof. All notices or
other communications by the Company to a participant under or in connection with
the Plan shall be deemed to have been duly given when mailed to the participant
at the last address provided by the participant to the Company.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, 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.
<PAGE>
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 applicable provisions of law.
21. Term of Plan. The Plan shall become effective on May 20, 1998 and
------------
terminate on August 16, 2008 unless sooner terminated under Section 19.
<PAGE>
EXHIBIT A
---------
MERCURY INTERACTIVE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
[_] Original Application Offering Date:
[_] Decrease in Payroll Deduction Rate
[_] Change of Beneficiary
1. ____________________________ hereby elects to participate in the Mercury
Interactive Corporation 1998 Employee Stock Purchase Plan (the "Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
__% of my Compensation on each payday (not to be less than one percent and
not to exceed 15%) during the Offering Period in accordance with the Stock
Purchase Plan. (Please note that no fractional percentages are permitted).
Such deductions are to continue for succeeding Offering Periods under the
Stock Purchase Plan until I give written instructions for a decrease in or
termination of such deductions.
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price
determined in accordance with the Stock Purchase Plan. I further
understand that, except as otherwise set forth in the Stock Purchase Plan,
shares will be purchased for me automatically on each Exercise Date unless
I otherwise withdraw from the Stock Purchase Plan by giving written notice
to the Company for such purpose and any amounts not used to purchase shares
will be applied to the next Offering Period.
4. Shares purchased for me under the Stock Purchase Plan should be issued in
the name(s) of: ________________________________________________________
________________________________________________________________________
________________________________________________________________________.
5. I acknowledge that, under the Internal Revenue Code, there are special tax
"holding period" rules that govern the tax consequences of buying and
selling shares under the Stock Purchase Plan. I understand that if I
dispose of shares purchased under the Plan within two years of the Offering
Date (i.e., the first day of the Offering Period) or within one year of the
Exercise Date (i.e., the date the shares are purchased), I will be treated
for federal income tax purposes as having received ordinary income at the
time of the sale equal to the difference between my purchase price and the
market value of the stock on the Exercise Date. Any amount in excess of
--------------------
that difference will be treated as capital gain. I hereby agree to notify
the Company in writing within 30 days after the date of any such
disposition.
<PAGE>
I further understand that if I hold the shares for both the two-year and
one-year holding periods described above, at the time I dispose of the
shares I will be treated for federal income tax purposes as having received
ordinary income in an amount equal only to the lesser of (1) the difference
between my purchase price and the market value of the stock on the Offering
---------------
Date or (2) the difference between my purchase price and the actual sale
----
price for my stock. Any additional gain I receive on the sale will be
treated as capital gain.
6. I have received a copy of the Company's most recent prospectus which
describes the Stock Purchase Plan and a copy of the complete "Mercury
Interactive Corporation 1998 Employee Stock Purchase Plan." I understand
that my participation in the Stock Purchase Plan is in all respects subject
to the terms of the Plan.
7. I hereby agree to be bound by the terms of the Stock Purchase Plan. The
effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Stock
Purchase Plan:
NAME (Please print):____________________________________________________________
(First) (Middle) (Last)
_____________________________ _____________________________________________
Relationship
________________________________________________________
(Address)
NAME (Please print):____________________________________________________________
(First) (Middle) (Last)
_____________________________ _____________________________________________
Relationship
________________________________________________________
(Address)
NAME (Please print):____________________________________________________________
(First) (Middle) (Last)
_____________________________ _____________________________________________
Relationship
________________________________________________________
(Address)
<PAGE>
Employee's Social Security Number:_____________________________________________
Employee's Address:____________________________________________________________
____________________________________________________________
____________________________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:______________ ______________________________________________________
Signature of Employee
<PAGE>
EXHIBIT B
---------
MERCURY INTERACTIVE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Mercury Interactive
Corporation 1998 Employee Stock Purchase Plan which began on ________ __, 199_
(the "Offering Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as possible all the payroll deductions credited
to his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her remaining option or options for such
Offering Period will be automatically terminated. The undersigned understands
further that no further payroll deductions will be made for the purchase of
shares in the current Offering Period and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company a
new Subscription Agreement.
Name and Address of Participant
___________________________________________
___________________________________________
___________________________________________
Signature
___________________________________________
Date:______________________________________
<PAGE>
EXHIBIT C
---------
MERCURY INTERACTIVE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF SALE OR OTHER DISPOSITION
To: Mercury Interactive Corporation
_________________________________________________
_________________________________________________
_________________________________________________
Attn: _________________________________________________
This notice is to inform the Company of sales or other dispositions of stock
acquired under the 1998 Employee Stock Purchase Plan, so that the Company can
fulfill its tax reporting obligations. This form must be completed and
submitted to the Company whenever you sell stock acquired under the Plan, even
if you no longer are employed by the Company. IF YOU NEED ASSISTANCE IN
COMPLETING THIS FORM, CONTACT THE HUMAN RESOURCES DEPARTMENT.
1. Employee Name:___________________________________________________________
2. Number of Shares Sold or Disposed of:____________________________________
3. Date(s) these Shares were purchased under the Plan:______________________
_________________________________________________________________________
4. Date of Sale or other Disposition:_______________________________________
5. Type of Disposition: Sale __ Gift __ Other (describe) __
_________________________________________________________________________
6. Stock Price per Share at Sale or Disposition: $__________________________
7. Amount Received on Sale or Disposition: $________________________________
_______________________________
Employee Signature
<PAGE>
EXHIBIT 5.1
August 24, 1998
Mercury Interactive Corporation
1325 Borregas Avenue
Sunnyvale, California 94089
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 24, 1998 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 1,657,230 shares of your
Common Stock (the "Shares") reserved for issuance under the Amended and Restated
1989 Stock Option Plan, 1999 Stock Option Plan and the 1998 Employee Stock
Purchase Plan (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 Plan.
It is our opinion that, when issued and sold in the manner referred to in
the Plan and pursuant to the agreement which accompanies each grant under the
Plan, 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,
GENERAL COUNSEL ASSOCIATES LLP
/s/ General Counsel Associates LLP
<PAGE>
Exhibit 23.1
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 4, 1998 appearing on page F-1
of Mercury Interactive Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997.
/s/ PRICE WATERHOUSE LLP
San Jose, California
August 21, 1998
