- David Murphy Appointed Chief Financial Officer; Giora Yaron
Elected Chairman MOUNTAIN VIEW, Calif., Nov. 2
/PRNewswire-FirstCall/ -- Mercury Interactive Corporation
(NASDAQ:MERQE) today announced that the Board of Directors has
named Anthony ("Tony") Zingale as chief executive officer. Mr.
Zingale, who joined Mercury in December 2004 as the Company's
president and chief operating officer, is a highly regarded
executive with more than twenty years of experience building
profitable, high growth information technology companies. David
Murphy, who joined the Company in 2003 as senior vice president,
corporate development, has been named chief financial officer. Dr.
Giora Yaron, a member of the Mercury Board since 1996, has been
elected Chairman of the Board. The appointments of Mr. Zingale, Mr.
Murphy, and Dr. Yaron follow the presentation of determinations by
the Special Committee and its independent counsel, O'Melveny &
Myers LLP to the Board of Directors regarding the previously
announced investigation. As previously announced, the Special
Committee was formed in June 2005 to conduct an internal
investigation relating to past stock option grants in response to
an inquiry which was initiated by the Securities and Exchange
Commission in November 2004. The Special Committee, its outside
legal counsel and accounting experts reviewed millions of pages of
documents, interviewed numerous individuals, and engaged in a
forensic audit of the issues under investigation. As a part of its
continuing investigation, the Special Committee has determined the
following: From 1995 to the present, there have been forty-nine
instances in which the stated date of a Mercury stock option grant
is different from the date on which the option appears to have
actually been granted. In almost every such instance, the price on
the actual date was higher than the price on the stated grant date.
These instances represent the overwhelming majority of the grants
between January 1996 and April 2002. The misdating occurred with
respect to grants to all levels of employees. Chief Executive
Officer Amnon Landan, Chief Financial Officer Douglas Smith, and
General Counsel Susan Skaer were each aware of and, to varying
degrees, participated in the practices discussed above. Each of
them also benefited personally from the practices. While each of
these officers asserts that he or she did not focus on the fact
that the practices and their related accounting were improper, the
Special Committee has concluded that each of them knew or should
have known that the practices were contrary to the options plan and
proper accounting. While the Special Committee is appreciative of
and sympathetic to the far-reaching demands of these executives'
positions during this critical period, missing or overlooking a
practice as basic and important as the proper granting of options
is not acceptable. On at least three occasions, between 1998 and
2001, exercise dates for options exercised by Mr. Landan appear to
be incorrectly reported, which would have had the effect of
reducing Mr. Landan's income and exposing the Company to possible
penalties for failure to pay withholding taxes. In addition, a $1
million loan to Mr. Landan in 1999 (which has since been repaid)
did not appear to have been approved in advance by the Board of
Directors and was referred to in some of the Company's public
filings, but was not clearly disclosed. Intentional selection of a
favorable price for option grants appears to have ended in or about
April 2002, at which time the Company began to follow a different
dating practice for grants. The Special Committee believes that
questions should have been raised in the minds of the Compensation
Committee members from 1995 through 2002 (who included present
directors Igal Kohavi, Yair Shamir and Dr. Yaron) whether six
grants that they approved by unanimous written consent were
properly dated. It appears that the Compensation Committee members
reasonably, but mistakenly, relied on management to draft the
proper documentation for the option grants and to account for the
options properly. The Special Committee believes that changes in
Board procedures made in recent years will prevent similar
oversights occurring in the future. During the relevant period,
Mercury's internal controls and accounting controls with respect to
option grants and exercises were inadequate. The weaknesses allowed
dates of both grants and exercises to be manipulated. They also
allowed grant dates to be changed to provide employees with more
favorably priced options. The Company began to improve its controls
and procedures in April 2002 and has continued to improve them. The
Special Committee believes that changes that Mercury has made with
respect to its option practices will help prevent a recurrence of
the problems. Based on the evidence reviewed during its
investigation, the Special Committee has concluded that the actions
of Mr. Landan, Mr. Smith and Ms. Skaer are not acceptable.
Accordingly, the Board has accepted the resignations of Mr. Landan
as chairman, chief executive officer and director, Mr. Smith as
executive vice president and chief financial officer, and Ms. Skaer
as vice president, general counsel and secretary. Pursuant to his
employment agreement, Mr. Landan is entitled to 60 days prior
notice for his resignation being effective. He is being relieved of
all his duties immediately. The Company expects revenue to be
$205.0 million to $210.0 million for the third quarter ended
September 30, 2005. As a result of these announcements and the
findings of the Special Committee, the Company is not in a position
to provide its entire financial results for Q3 2005. The Company is
working diligently to determine the impact of the misdated stock
grants identified by the Special Committee, and the impact of the
new issues related to misdated option exercises and certain loans
to officers in 1998, 1999, and 2001 on its current and historical
financial statements included in its current report on Form 10-K
and its report on Form 10-Q for the first quarter of 2005. The
Company does not believe that these items will have an impact on
its historical revenues, cash position or non-stock option related
operating expenses. Due to the pending restatement, the Company is
not able to give GAAP fully diluted earnings per share or non-GAAP
fully diluted earnings per share at this time. The Company believes
that its ability to file amended reports by November 30, 2005 on
Form 10-K and Form 10-Q with the Securities and Exchange Commission
with respect to such periods is in serious jeopardy. The Company
anticipates that the fourth quarter will be challenging and at this
time we will not provide guidance for Q4 2005. As previously
announced, the Company may be delisted by NASDAQ in the event it
does not complete such restatements and submit the required filings
to the SEC by November 30, 2005. The Company anticipates providing
the Panel with a revised plan of compliance by no later than
November 15, 2005. There is no assurance that the Panel will
provide the Company with any additional extensions beyond November
30, 2005. The Company's Board of Directors stated, "Amnon Landan
should be credited with establishing the Company as a leader in its
markets. However, the adverse findings of the Special Committee's
investigation make it appropriate for him, and the other two
individuals, to relinquish their positions. Mercury is well served
having Tony Zingale assume the leadership of the Company. He is a
highly respected professional, with a proven track record. He is
knowledgeable about Mercury, its markets, and customers. He is
uniquely qualified to lead Mercury for long-term success." "Mercury
is committed to achieving consistently strong profitable growth
over the long term to the benefit of its customers, people, and in
so doing, realizing enhanced value to shareholders," said Tony
Zingale, Mercury's new chief executive officer. "Our focus is to
ensure we capitalize on our significant market opportunity, clear
technology leadership, great people, and loyal customer base."
"Similarly, our constituencies can be fully assured that Mercury
will be a model for best business practices and full compliance
with all regulatory and legal requirements. This is a
responsibility that we have to all our constituencies and is a core
element of our business foundation going forward," concluded Mr.
Zingale. Anthony ("Tony") Zingale Background Prior to serving as
Mercury's President and Chief Operating Officer, Mr. Zingale was
president and chief executive officer of Clarify, a publicly traded
enterprise technology company that was a leader in the customer
relationship management market from 1997 until it was acquired by
Nortel Networks. in 2000. Following the acquisition, he served as
president of Nortel's billion-dollar eBusiness Solutions Group.
Prior to that, Mr. Zingale spent more than 10 years at Cadence
Design Systems, Inc., a leading supplier of electronic design
products and services, in a succession of executive management
positions leading to his role as senior vice president of worldwide
marketing. Mr. Zingale holds a Bachelor of Science degree in
electrical and computer engineering and a Bachelor of Arts degree
in business administration from the University of Cincinnati. David
Murphy Background David Murphy joined Mercury in January 2003.
Previously, he was CEO of Asera, where he led the company's efforts
as a pioneer in delivering real time collaborative business process
solutions for the extended enterprise. Before joining Asera, Mr.
Murphy was president and general manager of Tivoli Systems at IBM
where he was responsible for day-to-day operations and drove
aggressive expansion into new markets. Previously he was head of
the private equity investments group at Perot Systems and a partner
at McKinsey & Company. Mr. Murphy holds master's degrees in
business administration from the Stanford Graduate School of
Business Administration and in electrical engineering from Florida
Atlantic University, as well as a bachelor's degree in computer
science and applied mathematics from the University of Louisville.
Dr. Giora Yaron Background Dr. Giora Yaron has been a Director of
Mercury since February 1996. Dr. Yaron is a founder of several
startup companies and currently serves as their active Chairman.
Prior to that, Dr. Yaron served as the president of Indigo NV, from
August 1992 to November 1995. From April 1979 to July 1992, Dr.
Yaron was with National Semiconductor Corporation where he served
as general manager of its Israeli operations and corporate vice
president of Microprocessor Products. Dr. Yaron also serves as
chairman of the board of Yissum Research & Development Company
of the Hebrew University and a member of the Board of Governors and
the Executive Committee of the Hebrew University. Appendix: Summary
of Special Committee Findings to Date From 1995 to the present,
there have been forty-nine instances in which the stated date of a
Mercury Interactive Corporation ("Mercury" or "the Company") stock
option grant is different from the date on which the option appears
to have actually been granted. In almost every such instance, the
price on the actual date was higher than the price on the stated
grant date. These instances represent the overwhelming majority of
the grants between January 1996 and April 2002. The misdating
occurred with respect to grants to all levels of employees. On at
least three occasions, the exercise dates for options exercised by
Mercury executives appear to have been incorrectly recorded. In
addition, a $1 million loan to Mr. Landan in 1999 (which has since
been repaid) was not clearly disclosed in the Company's public
filings. The misdated stock option grants fall largely into three
categories: (i) "look back" grants, in which the date of the grant
was picked retroactively (e.g., a decision in February to pick a
January date); (ii) "wait and see" grants, in which a grant date
was selected, but the decision was finalized - and sometimes
changed - at a later date (e.g., a decision on January 1 to issue a
grant on January 15, but there is a period after January 15 in
which the grantor waits to see if a more advantageous price occurs
and, if one does, uses that later date instead); and (iii) grants
where there was a failure to complete the option grant process by
the date of the grant (e.g., where there is a decision to issue a
grant as of a certain date, but after that date there are changes
in the grantees or amounts to grantees, and although the work is
not complete on those grants as of the stated grant date, that date
is nonetheless used). During the 1995 to April 2002 period, most
grants fell into the "look back" and "wait and see" categories.
Since April 2002, there have been a small number of instances of
the third category identified above, in which the Company appears
to have been making changes to the grantees or amounts of the
options after the stated date of the option grant. However,
intentional selection of a favorable price for option grants
appears to have ended in or about April 2002, at which time the
Company began to follow a different dating practice for new-hire,
transfer and promotion grants. Pursuant to that practice, which is
in effect now, all such grants are to be made on a fixed date based
on the employee's hire date. Chief Executive Officer Amnon Landan,
Chief Financial Officer Douglas Smith, and General Counsel Susan
Skaer were each aware of and, to varying degrees, participated in
the practices discussed above. Each of them also benefited
personally from the practices. While each of these officers asserts
that he or she did not focus on the fact that the practices and
their related accounting were improper, the Special Committee has
concluded that each of them knew or should have known that the
practices were contrary to the options plan and proper accounting.
While the Special Committee is appreciative of and sympathetic to
the far-reaching demands of these executives' positions during this
critical period, missing or overlooking a practice as basic and
important as the proper granting of options is not acceptable. In
reviewing the evidence, the Special Committee believes that
questions should have been raised in the minds of the Compensation
Committee members from 1995 through 2002 (who included present
directors Mr. Kohavi, Mr. Shamir and Dr. Yaron) whether six grants
that they approved by unanimous written consent were properly
dated. The evidence indicates that the Compensation Committee
members were focused on the substance of who received options and
how many options they received, as opposed to the effective dates
of the unanimous written consents. It appears that the Compensation
Committee members reasonably, but mistakenly, relied on management
to draft the proper documentation for the option grants and to
account for the options properly. The Special Committee believes
that changes in Board procedures made in recent years will prevent
similar oversights occurring in the future. On at least three
occasions, the exercise dates for the options exercised by Mercury
executives including Mr. Landan appear to have been incorrectly
reported. In each case, the price of Mercury stock was
substantially lower on the reported date than on the date the
option appears to have been actually exercised. The reporting of an
incorrect date would have had the effect of reducing the
executives' taxable income significantly and exposing Mercury to
possible penalties for failing to pay withholding taxes. In at
least one instance, Ms. Skaer was involved in Mr. Landan's exercise
of options as of a prior date. Mr. Landan received three loans from
Mercury. Two of the loans were for a total of approximately $3.4
million in connection with the exercise of options by him and other
executives. In September 1999, Mr. Landan received a $1 million
loan from Mercury. The Special Committee has not been able to find
any record that the $1 million loan was approved in advance by the
Board of Directors, although the board did approve an extension of
the loan in December 2000. The loan was referred to in some of the
Company's public filings, but was not clearly disclosed. Nor did
Mr. Landan disclose it in his Directors and Officers questionnaire
in February 2000. The Special Committee has not yet been able to
ascertain the purpose or use of the loan. Each of the loans,
together with applicable interest, has subsequently been repaid in
full. Based on the evidence reviewed during its investigation, the
Special Committee has concluded that the actions of Mr. Landan, Mr.
Smith and Ms. Skaer set forth above are not acceptable. Ms. Skaer
and Mr. Smith have resigned from Mercury; and Mr. Landan has
resigned from Mercury and from Mercury's Board of Directors. The
Special Committee has also expressly reserved all of the Company's
rights against Mr. Landan, Mr. Smith and Ms. Skaer. During the
relevant period, Mercury's internal controls and accounting
controls with respect to option grants and exercises were
inadequate. The weaknesses allowed dates of both grants and
exercises to be manipulated. They also allowed grant dates to be
changed to provide employees with more favorably priced options.
The Company began to improve its controls and procedures in April
2002 and has continued to improve them. The Special Committee
believes that changes that Mercury has made with respect to its
option practices will help prevent a recurrence of the problems
discussed herein, and that additional remedial measures which it is
recommending will further protect against a recurrence of the
problems uncovered in its investigation. About Mercury Mercury
Interactive Corporation, the global leader in business technology
optimization (BTO) software, is committed to helping customers
optimize the business value of information technology. Founded in
1989, Mercury conducts business worldwide and is one of the largest
enterprise software companies today. Mercury provides software and
services for IT Governance, Application Delivery, and Application
Management. Customers worldwide rely on Mercury offerings to govern
the priorities, processes and people of IT and test and manage the
quality and performance of business-critical applications. Mercury
BTO offerings are complemented by technologies and services from
global business partners. For more information, please visit
http://www.mercury.com/. Forward Looking Statements The press
release contains "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995 that involve risks and
uncertainties concerning Mercury's expected financial performance,
as well as Mercury's future business prospects and product and
service offerings. Mercury's actual results may differ materially
from the results predicted or from any other forward-looking
statements made by, or on behalf of, Mercury and reported results
should not be considered as an indication of future performance.
Potential risks and uncertainties include, among other things: 1)
the timing of completion of the Company's review, restatement and
filing of its historical financial statements and the filing of its
Form 10-Q for the second and third quarters of fiscal year 2005, 2)
the impact of the expensing of stock options and stock purchases
under Mercury's employee stock purchase program pursuant to
Financial Accounting Standards Board's Statement 123 including,
without limitation, the impact of the restatement, 3) the impact of
the resignations of Amnon Landan, Douglas Smith and Susan Skaer, 4)
the possibility that the trustee for the Notes or the holders of at
least 25% of the outstanding principal amount of the Notes may, if
the Company does not file its historical financial statements and
periodic reports by March 31, 2005, cause acceleration of repayment
of the entire principal amount and accrued interest on the Notes,
5) the nature and scope of the ongoing SEC investigation, 6) the
substantial risk that the Company will not file its quarterly
reports on Form 10-Q for the periods ended June 30, 2005 and
September 30, 2005 and all required restated and other financial
statements for previous periods by November 30, 2005 and that the
Nasdaq Listing Qualifications Panel may not grant the Company's
request for a further extension to regain compliance with Nasdaq
listing qualifications, in which case the Company's common stock
would be delisted from the Nasdaq National Market, 7) the effect of
any third party litigation arising out of the Special Committee
investigation, 8) costs incurred by Mercury in connection with the
Special Committee investigation and the SEC investigation, 9) the
mix of perpetual and term licenses and the effect of the timing of
recognition of revenue from products sold under the term licenses,
8) the impact of the transition in Europe, 10) the amount of
restructuring charges incurred by Mercury in the third quarter, 11)
dependence of Mercury's growth on the continued success and
acceptance of its existing and new software products and services
and on the success of its BTO strategy, and 12) the additional
risks and important factors described in Mercury's SEC reports,
including the Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2005, which is available at the SEC's website at
http://www.sec.gov/. All of the information in this press release
is made as of November 2, 2005, and Mercury undertakes no duty to
update this information. NOTE: Mercury, Mercury Interactive and the
Mercury logo are trademarks of Mercury Interactive Corporation and
may be registered in certain jurisdictions. Other product and
company names are used herein for identification purposes only, and
may be trademarks of their respective companies. DATASOURCE:
Mercury Interactive Corporation CONTACT: investors, Michelle
Ahlmann, +1-650-603-5200, or press, Dave Peterson, +1-650-603-5200,
both of Mercury Interactive Corporation Web site:
http://www.mercury.com/
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