-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UMc1qQNUD+4j1wllu0Fyo4BFYVh5CNsFmuAiAZygUPL5wHMTK8379Dq9iJ/hqM3H OpFbDNa+7WEGhSOBbcZklw== 0000950135-02-004597.txt : 20021024 0000950135-02-004597.hdr.sgml : 20021024 20021024161926 ACCESSION NUMBER: 0000950135-02-004597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETEGRITY INC CENTRAL INDEX KEY: 0000840824 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042911320 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10139 FILM NUMBER: 02797466 BUSINESS ADDRESS: STREET 1: 245 WINTER ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178901700 MAIL ADDRESS: STREET 1: 245 WINTER STREET STREET 2: 0 CITY: WALTHAM STATE: MA ZIP: 02184 FORMER COMPANY: FORMER CONFORMED NAME: SOFTWARE DEVELOPERS CO INC/DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 b44468nie10vq.txt NETEGRITY, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, FOR THE TRANSITION PERIOD FROM_______ TO_______ COMMISSION FILE NUMBER 1-10139 NETEGRITY, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-2911320 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 52 SECOND AVENUE WALTHAM, MA 02451 (Address of principal executive offices) (Zip Code) (781) 890-1700 (Registrant's Telephone Number) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such other shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [X] No [ ] As of October 21, 2002 there were 34,192,339 shares of Common Stock outstanding, exclusive of Treasury Stock. QUARTERLY REPORT ON FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2002 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Condensed Financial Statements Consolidated Condensed Balance Sheets as of December 31, 2001 and September 30, 2002 (unaudited) 3 Consolidated Condensed Statements of Operations for the three months ended September 30, 2001 and 2002 (unaudited) 4 Consolidated Condensed Statements of Operations for the nine months ended September 30, 2001 and 2002 (unaudited) 5 Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2001 and 2002 (unaudited) 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market 25 Risk Item 4. Controls and Procedures 25 PART II OTHER INFORMATION 27 Item 1. Legal Proceedings 27 Item 2. Changes in Securities 27 Item 3. Defaults upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Forms on 8-K 27 SIGNATURES 29 CERTIFICATIONS 30
2 PART I. - FINANCIAL INFORMATION NETEGRITY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2002 2001 (UNAUDITED) --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents ........................................ $ 26,332 $ 14,446 Short-term marketable securities ................................. 76,651 63,353 Accounts receivable--trade, net of allowances of $1,579 at December 31, 2001; $1,367 at September 30, 2002 ................. 16,122 11,228 Prepaid expenses and other current assets ........................ 3,418 2,986 --------- --------- Total Current Assets .......................................... 122,523 92,013 Long-term marketable securities .................................... 6,083 15,143 Property and equipment, net ........................................ 8,494 6,910 Restricted cash .................................................... 631 1,070 Goodwill ........................................................... 57,262 -- Other intangible assets, net ....................................... 10,846 8,097 Other assets ....................................................... 340 340 --------- --------- Total Assets .................................................. $ 206,179 $ 123,573 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable---trade ......................................... $ 1,707 $ 1,906 Accrued compensation and benefits ................................ 5,152 4,490 Other accrued expenses ........................................... 9,956 6,713 Deferred revenue ................................................. 13,223 12,607 --------- --------- Total Current Liabilities ..................................... 30,038 25,716 --------- --------- Commitments and Contingencies STOCKHOLDERS' EQUITY: Common stock, voting, $.01 par value; 55,000 shares authorized; 33,866 shares issued and 33,828 shares outstanding at December 31, 2001; 34,230 issued and 34,192 outstanding at September 30, 2002 339 342 Additional paid-in capital ......................................... 196,492 197,053 Accumulated other comprehensive loss ............................... (44) (38) Accumulated deficit ................................................ (20,432) (99,286) Loan to officer .................................................... (130) (130) --------- --------- 176,225 97,941 Less--Treasury stock, at cost: 38 shares .......................... (84) (84) --------- --------- Total Stockholders' Equity ......................................... 176,141 97,857 --------- --------- Total Liabilities and Stockholders' Equity ......................... $ 206,179 $ 123,573 ========= =========
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 NETEGRITY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, ----------------------- 2001 2002 -------- -------- Revenues: Software licenses ........................ $ 9,016 $ 6,457 Services ................................. 7,260 7,885 Other .................................... 908 836 -------- -------- Total revenues ........................ 17,184 15,178 -------- -------- Cost of Revenues: Cost of software licenses ................ 136 715 Non-cash cost of software licenses ....... -- 917 Cost of services ......................... 3,507 3,272 Cost of other ............................ 522 517 -------- -------- Total cost of revenues ................ 4,165 5,421 -------- -------- Gross profit ............................... 13,019 9,757 Selling, general and administrative expenses 12,275 13,262 Research and development expenses .......... 3,857 5,794 Impairment charge .......................... -- 57,374 Non-recurring charges ...................... 603 -- -------- -------- Loss from operations ....................... (3,716) (66,673) Other income, net .......................... 1,324 521 -------- -------- Loss before provision for income taxes ..... (2,392) (66,152) Provision for income taxes ................. -- -- -------- -------- Net loss ................................... $ (2,392) $(66,152) ======== ======== Net loss per share: Basic ................................. $ (0.08) $ (1.94) Diluted ............................... $ (0.08) $ (1.94) Weighted average shares outstanding: Basic ................................. 31,203 34,180 Diluted ............................... 31,203 34,180
The accompanying notes are an integral part of the consolidated condensed financial statements. 4 NETEGRITY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 2001 2002 -------- -------- Revenues: Software licenses ........................... $ 43,842 $ 27,743 Services .................................... 22,203 22,957 Other ....................................... 2,772 2,257 -------- -------- Total revenues ........................... 68,817 52,957 -------- -------- Cost of Revenues: Cost of software licenses ................... 1,503 1,680 Non-cash cost of software licenses .......... -- 2,750 Cost of services ............................ 11,991 10,704 Cost of other ............................... 1,671 1,359 -------- -------- Total cost of revenues ................... 15,165 16,493 -------- -------- Gross profit .................................. 53,652 36,464 Selling, general and administrative expenses .. 40,617 40,791 Research and development expenses ............. 11,865 18,330 Impairment charge ............................. -- 57,374 Non-recurring charges ......................... 603 689 -------- -------- Income (loss) from operations ................. 567 (80,720) Other income, net ............................. 4,098 1,900 -------- -------- Income (loss) before provision for income taxes 4,665 (78,820) Provision for income taxes .................... 607 40 -------- -------- Net income (loss) ............................. $ 4,058 $(78,860) ======== ======== Net income (loss) per share: Basic .................................... $ 0.13 $ (2.32) Diluted .................................. $ 0.12 $ (2.32) Weighted average shares outstanding: Basic .................................... 30,850 34,020 Diluted .................................. 32,962 34,020
The accompanying notes are an integral part of the consolidated condensed financial statements. 5 NETEGRITY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 2001 2002 --------- --------- OPERATING ACTIVITIES: Net income (loss) ................................................ $ 4,058 $ (78,860) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation, amortization and impairment ...................... 1,936 63,640 Provision for doubtful accounts ................................ 902 45 Non-cash interest income ....................................... -- 154 Loss on sale of marketable securities .......................... -- (4) Changes in operating assets and liabilities: Accounts receivable trade ...................................... (1,128) 4,849 Prepaid expenses and other current assets ...................... (613) (380) Other assets ................................................... (120) 812 Accounts payable trade ......................................... (488) 200 Accrued compensation and benefits .............................. (2,972) (662) Other accrued expenses ......................................... 3,853 (3,356) Deferred revenue ............................................... 2,711 (617) --------- --------- Net cash provided by (used for) operating activities ............. 8,139 (14,179) --------- --------- INVESTING ACTIVITIES: Proceeds from sales of marketable securities ..................... -- 141,713 Proceeds from maturities of marketable securities ................ -- 6,665 Purchases of marketable securities ............................... (75,317) (144,253) Purchases of property and equipment .............................. (4,223) (1,931) Restricted cash .................................................. 316 (439) --------- --------- Net cash provided by (used for) investing activities ............. (79,224) 1,755 --------- --------- FINANCING ACTIVITY: Proceeds from issuance of common stock under stock plans ......... 6,566 564 --------- --------- Net cash provided by financing activity .......................... 6,566 564 --------- --------- Effect of exchange rate changes on cash and cash equivalents ..... (26) (26) Net change in cash and cash equivalents .......................... (64,545) (11,886) Cash and cash equivalents at beginning of period ................. 115,747 26,332 --------- --------- Cash and cash equivalents at end of period ....................... $ 51,202 $ 14,446 ========= =========
The accompanying notes are an integral part of the consolidated condensed financial statements. 6 NETEGRITY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The unaudited financial information furnished herein reflects all adjustments (which are of a normal recurring nature), which in the opinion of management are necessary to fairly state Netegrity, Inc.'s ("Netegrity" or "the Company") financial position, cash flows and results of operations for the periods presented. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The consolidated financial statements of the Company also include the accounts and operations of its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the remainder of the year ending December 31, 2002. This information should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2001, included in Form 10-K filed on March 22, 2002. (b) REVENUE RECOGNITION The Company's revenues have primarily been generated from the sale of perpetual licenses to the Company's proprietary SiteMinder(R), Delegated Management Services(TM) and PortalMinder(TM) products and services and from licensing the rights to use software products developed by Checkpoint Software Technologies, Ltd. to end users and resellers. (Such Checkpoint revenue is included in "other" revenue in the accompanying consolidated condensed statement of operations.) The Company generates its services revenue from consulting and training services performed for customers and from maintenance and support for the Company's products. Installation by Netegrity is not considered essential to the functionality of our products as these services do not alter the product capabilities, do not require specialized skills and may be performed by the customers or other vendors. Revenues from software license agreements are recognized when persuasive evidence of an arrangement exists, the product has been delivered, fees are fixed or determinable and collection of the resulting receivable is reasonably assured. The Company does not offer a right of return on its products. Revenues may include multiple software products, maintenance and other services sold together; these are allocated to each element based on the residual method in accordance with Statement of Position No. 98-9, "Software Revenue Recognition, with Respect to Certain Transactions". Under the residual method, the fair value of the undelivered elements is deferred and subsequently recognized when earned. The Company has established sufficient vendor specific objective evidence for professional services, training and maintenance services based on the price when these elements are sold separately. Accordingly, software license revenue is recognized under the residual method upon delivery in arrangements in which software is licensed with professional services, training and maintenance services. Revenues for maintenance and support are recognized ratably over the term of the support period. Revenues from consulting and training services are recognized as the services are performed. Maintenance, training and consulting services that have been billed but not recognized are included in deferred revenue. (c) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash, money market investments and other highly liquid investments with original maturities of three months or less at the date of purchase. (d) MARKETABLE SECURITIES Investments with a maturity greater than three months, which primarily consist of debt securities, are accounted for under Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board (FASB). Pursuant to the provisions of SFAS No. 115, the Company has classified its investment portfolio as "trading", "available-for-sale" or "held to maturity". "Trading" securities are bought and held principally for the purpose of selling them in the near term and are recorded at fair value. Fair value is based upon quoted market prices. Unrealized gains and losses on trading securities are included in the determination of net earnings. "Available-for-sale" securities include debt securities that are being held for an unspecified period of time and may be used for liquidity or other corporate purposes and are recorded at fair value. Unrealized gains and losses on available-for-sale securities are reported as a separate component of 7 comprehensive income (loss) in stockholders' equity. "Held to maturity" securities are debt securities that the Company intends to hold to maturity and are recorded at amortized cost. As of September 30, 2002, based on management's intentions, all marketable securities have been classified as "available for sale". The change in the net unrealized loss included in accumulated other comprehensive loss in stockholders' equity was approximately $32,000 for the nine months ended September 30, 2002. Net realized losses of approximately $14,000 and $4,000 for the three and nine months ended September 30, 2002, respectively, are included in other income, net in the consolidated condensed statements of operations. (e) INTANGIBLE AND OTHER LONG-LIVED ASSETS Other intangible assets, net consists of acquired technology that resulted from the acquisition of DataChannel during 2001. The Company accounts for these intangible assets in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed". Acquired technology is being amortized over a three-year period on a straight-line basis and is required to be tested for impairment annually, or on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred, by comparing the unamortized costs of capitalized software to the expected future net realizable value of the products. If the unamortized costs exceed the expected future net realizable value of the products, the excess amount is written off. See Note 2. (f) COMPREHENSIVE INCOME (LOSS) Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities held as "available for sale". For the three and nine months ended September 30, 2001, comprehensive income (loss) was $(2.5) million and $4.0 million, respectively, compared to net income (loss) of $(2.4) million and $4.1 million, respectively. The difference in the three and nine months ended September 30, 2001, is due to cumulative translation adjustment of approximately $(121,000) and $(20,000), respectively. For the three and nine months ended September 30, 2002, comprehensive loss was $(66.1) million and $(78.9) million, respectively, compared to net loss of $(66.2) million and $(78.9) million, respectively. The difference in the three and nine months ended September 30, 2002, is due to unrealized gains on marketable securities of approximately $48,000 and $32,000 and cumulative translation adjustment of approximately $11,000 and $(26,000), respectively. (g) NET INCOME (LOSS) PER SHARE Basic net income (loss) per share (EPS) is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of the outstanding stock options and warrants using the "treasury stock" method. During periods of net loss, diluted net loss per share does not differ from basic net loss per share since potential common shares from stock options and warrants are anti-dilutive and therefore are excluded from the calculation. The following table sets forth basic and diluted net income (loss) per share computational data for the periods presented (in thousands, except per share data):
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------- ---------------------- 2001 2002 2001 2002 -------- -------- -------- -------- Net income (loss) ....................... $ (2,392) $(66,152) $ 4,058 $(78,860) -------- -------- -------- -------- Basic weighted average shares outstanding 31,203 34,180 30,850 34,020 Dilutive effect of stock options and warrants ........................... -- -- 2,112 -- -------- -------- -------- -------- Diluted shares outstanding .............. 31,203 34,180 32,962 34,020 ======== ======== ======== ======== Basic net income (loss) per share ....... $ (0.08) $ (1.94) $ 0.13 $ (2.32) ======== ======== ======== ======== Diluted net income (loss) per share ..... $ (0.08) $ (1.94) $ 0.12 $ (2.32) ======== ======== ======== ========
Options to purchase a total of 3.7 million, 3.0 million, 6.4 million and 5.5 million weighted shares outstanding for the three and nine months ended September 30, 2001 and 2002, respectively, were outstanding but were excluded in the computation of diluted EPS because the options are anti-dilutive. (h) RECENT ACCOUNTING PRONOUNCEMENTS 8 In July 2001, FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations initiated after June 30, 2001, be accounted for using the purchase method of accounting. SFAS No. 142 discusses how intangible assets that are acquired should be accounted for in financial statements upon their acquisition. In addition, under SFAS No. 142, goodwill and other indefinite lived intangible assets are no longer amortized but are reviewed at least annually for impairment (or more frequently if impairment indicators arise). Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. The acquisition discussed in Note 2 was accounted for in accordance with the transition provisions of SFAS No. 141 and No. 142. In connection with the adoption of SFAS No. 142, goodwill will be tested at least annually and on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. We currently operate as a single reporting unit and all of our goodwill is associated with the entire company. A transitional impairment test was performed on January 1, 2002. See Note 2 regarding the impairment of goodwill recorded during the quarter ended September 30, 2002. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for the Company on January 1, 2002. SFAS No. 144 addresses accounting and reporting of certain long-lived assets, except goodwill, that are either held and used or disposed of through sale or other means. The Company adopted SFAS No's. 141, 142 and No. 144 during the first quarter of 2002 without a material impact on its financial position or results of operations. If the Company had accounted for goodwill and other intangibles in accordance with SFAS 142 during the period ended September 30, 2001, the results of operations would not be different from those previously reported. In November 2001, the Emerging Issues Task Force issued Topic No. D-103 (Topic D-103) relating to the accounting for reimbursements received from customers for the Company's out-of-pocket expenses for the delivery of services. In accordance with Topic D-103, reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the statement of operations. The Company has historically accounted for reimbursements received for out-of-pocket expenses incurred as a reduction to the cost of service revenues in the statement of operations to offset the costs incurred. The Company adopted Topic D-103 effective January 1, 2002 and approximately $0.5 million and $1.3 million have been reclassified as revenues from reduction of cost of revenues for the three and nine months ended September 30, 2001, respectively, to comply with this guidance. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit of Disposal Activities". SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is effective for fiscal years beginning after December 31, 2002. We do not believe that the impact of adopting SFAS No. 146 will have a material impact on the consolidated financial statements. NOTE 2: ACQUISITION On December 14, 2001 (the Acquisition Date) the Company acquired, for aggregate consideration of $70.2 million, all of the outstanding stock of DataChannel, Inc., a Washington Corporation (DataChannel). On the Acquisition Date, DataChannel, a provider of enterprise portal solutions, became a wholly-owned subsidiary of the Company (the Acquisition). The aggregate consideration included approximately $17.5 million in cash (including assumed debt of approximately $1.4 million), $3.0 million in acquisition costs and 2,499,968 shares of the Company's Common Stock valued at approximately $49.7 million. The Acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141. Accordingly the excess of the purchase price over the fair value of the tangible net liabilities assumed of approximately $71.4 million was allocated to in-process research and development (IPRD), acquired technology and goodwill in the amounts of approximately $3.0 million, $11.0 million and $57.4 million, respectively. Results of operations of DataChannel from the Acquisition Date are included in the Company's consolidated results of operations. The amount allocated to IPRD of $3.0 million was charged to expense in the fourth quarter of fiscal year 2001. At the Acquisition Date, DataChannel was conducting testing activities associated with the development of next-generation technologies that were expected to address emerging market demands for Enterprise Information Portal solutions. At the acquisition date, the technologies under development were approximately 50% complete based on project duration and costs. DataChannel had spent approximately $1.8 million on the IPRD projects prior to the acquisition date, and expected to spend another $1.9 million to complete these specific research and development activities. As of September 30, 2002, the technologies are 100% complete. 9 The Company is amortizing the acquired existing technology of approximately $11.0 million over an estimated remaining useful life of three years. Amortization expense on intangible assets other than goodwill was $0.9 million and $2.8 million for the three and nine months ended September 30, 2002, respectively, and has been classified as non-cash cost of software licenses in the accompanying consolidated condensed statements of operations. Amortization expense for the intangible assets other than goodwill is estimated to be approximately $3.7 million for each of the years ended December 31, 2002, 2003 and 2004. The total goodwill of approximately $57.4 million related to the Acquisition was not amortized in accordance with SFAS No. 142. In lieu of being amortized, goodwill is required to be tested for impairment annually or on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. During the first quarter of 2002, the Company performed a transitional impairment test on goodwill and concluded that there was no impairment as of January 1, 2002. During the third quarter of 2002, the Company determined that the recent significant decline in our stock price as a result of underperformance relative to recent and expected operating results and the overall adverse change in the business climate had resulted in a triggering event that warranted an impairment review in accordance with SFAS No. 142. As a result, the Company tested for impairment based on a two-step approach. The first step was to test for indicators of impairment of goodwill by comparing the fair value of the Company with its carrying value. Since the Company operates as an enterprise-wide reporting unit, it was determined that the market value of the Company represents an approximation of its fair value as of September 30, 2002. Furthermore, it was determined that the fair value of the Company as of September 30, 2002 was less than its carrying value and therefore, an indication of impairment existed. The second step was to measure the amount of the impairment of goodwill. As a result of the second step, we determined that the implied fair value of the goodwill determined using the market capitalization of the Company on September 30, 2002 was lower than its carrying value and therefore, goodwill had been impaired. The Company has recorded a charge of $57.4 million in the third quarter of 2002, classified as impairment charge in the accompanying consolidated condensed statements of operations, to write down goodwill to its implied fair value of zero. In connection with the Acquisition, the Company initiated an overall integration plan that included the elimination of redundant headcount and facilities. The Company accrued approximately $2.2 million of cost related to the integration plan consisting of approximately $1.8 million of facilities costs and $0.4 million for planned workforce reductions consisting primarily of duplicative general and administrative functions. Approximately $287,000 and $962,000 of these costs were paid during the three and nine months ended September 30, 2002, respectively. The following unaudited pro forma financial information presents the combined results of operations of the Company and DataChannel as if the Acquisition occurred on January 1, 2001, after giving effect to certain adjustments, including amortization expense. Due to the non-recurring nature of the IPRD charge, the amount has not been included in the unaudited pro forma financial information. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Acquisition been completed as of the dates indicated or of the results that may be obtained in the future (in thousands except per share information).
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2001 ------------------ ------------------ Revenues .................................. $ 18,593 $ 75,386 Net loss .................................. $ (8,811) $ (17,593) Net loss per basic and fully diluted common $ (0.26) $ (0.53) share
NOTE 3: TENDER OFFERS On August 9, 2001 and as subsequently amended, the Company filed a tender offer statement with the Securities and Exchange Commission in connection with certain stock options issued after December 1, 1999 (the Option Offer). Under the Option Offer, the Company offered to exchange certain employee options to purchase shares of the Company's common stock for new options to purchase shares of its common stock. The Option Offer, which excluded executive officers, directors and non-employees of the Company and which expired on September 7, 2001, provided for the grant of new options on or about March 11, 2002 to eligible employees who were actively employed on the grant date. The number of shares underlying the new options was equal to the number of shares underlying the cancelled eligible options. The exercise price of the new options was equal to the fair market value of one share of common stock on the date of grant of the new options as determined in accordance with the applicable option plans. Each new option will vest in accordance with a vesting schedule that is equivalent to what would have been in place had the cancelled option remained in effect. 10 On March 11, 2002, the Company granted options to purchase an aggregate of 2,103,406 shares of its common stock at fair market value in connection with the Option Offer. In accordance with FASB Interpretation No. 44, since the replacement options were granted more than six months after cancellation of the old options, the new options were considered a fixed award and therefore did not result in any compensation expense. On August 23, 2002, the Company filed a tender offer statement with the Securities and Exchange Commission in connection with certain stock options outstanding under non-director stock plans (the Offer to Exchange). Under the Offer to Exchange, the Company offered to exchange certain employee options to purchase shares of the Company's common stock for new options to purchase shares of its common stock. The Offer to Exchange, which excluded directors and non-employees of the Company and which expired on September 23, 2002, provided for the grant of new options on two different dates. The Company expects to grant 50% of the new options on or about March 25, 2003 and the remaining 50% on or about April 25, 2003 to employees that are continuously and actively employed from the date the employee tendered eligible options for exchange to the date of the grant of the new options. The number of shares underlying the new options will be equal to the number of shares underlying the cancelled eligible options, except that certain options granted to certain executive officers will be exchanged at a rate of one share underlying a new option for each two shares underlying the tendered options. The exercise price of the new options will be equal to the fair market value of one share of common stock on the date of grant of the new options as determined in accordance with the applicable option plans. Each new option will vest in accordance with a schedule tied to the length of time of an individual's employment with the Company. NOTE 4: OPERATING SEGMENTS AND GEOGRAPHICAL INFORMATION (a) OPERATING SEGMENTS The Company has one operating segment that provides products which securely manage e-business relationships. Operating segments are defined as components of the enterprise about which separate financial information is available that is reviewed regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing their performance. (b) GEOGRAPHIC INFORMATION The Company operates in three geographic regions: North America, Europe and Asia Pacific. Revenues (based on the location of the customer) and long-lived assets (including marketable securities) by geographic region are as follows:
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------------------ ------------------------------------ 2001 2002 2001 2002 ------------ ------------ ------------ ------------ Revenues: North America $ 12,871 $ 11,914 $ 56,812 $ 42,864 Europe ...... 3,265 2,403 8,626 7,851 Asia Pacific 1,048 861 3,379 2,242 ------------ ------------ ------------ ------------ Total ....... $ 17,184 $ 15,178 $ 68,817 $ 52,957 ============ ============ ============ ============
SEPTEMBER 30, SEPTEMBER 30, 2001 2002 ------------ ------------ Long-Lived Assets: North America $ 27,168 $ 30,731 Europe ...... 187 400 Asia Pacific 609 429 ------------ ------------ Total ....... $ 27,964 $ 31,560 ============ ============
NOTE 5: NON-RECURRING CHARGES During the nine months ended September 30, 2002, the Company recorded net restructuring expenses of $689,000 in accordance with Emerging Issues Task Force Issue No. 94-3 and Staff Accounting Bulletin No. 100. These expenses are classified as non-recurring charges in the accompanying condensed consolidated statements of operations. 11 The Company's restructuring expenses related to severance charges associated with a 10% reduction in workforce and the closing of several sales offices during April 2002. Employees affected by the restructuring were notified both through direct personal contact and by written notification. Approximately, $223,000 and $642,000 of these costs were paid out during the three and nine months ended September 30, 2002, respectively. The remainder is expected to be paid prior to March 31, 2003. During the nine months ended September 30, 2001, the Company recorded non-recurring charges of approximately of $603,000 primarily related to severance charges associated with an 8% reduction in workforce and a contribution to the James Hayden Memorial Fund established in memory of the Company's former Chief Financial Officer. NOTE 6: EMPLOYEE STOCK PURCHASE PLAN During May 2002, the Company held its Annual Meeting of Stockholders, at which time the stockholders approved the 2002 Employee Stock Purchase Plan and reserved 700,000 shares of common stock for issuance thereunder. NOTE 7: RELATED PARTY TRANSACTIONS The consolidated condensed balance sheets as of December 31, 2001 and September 30, 2002 include $130,000 in loans to an officer of the Company issued in connection with the exercise of stock options in 1996. The loan is reflected as a reduction of stockholders' equity in the accompanying consolidated condensed financial statements. The loan is represented by a full recourse note, is payable upon demand and bears interest at 7% per annum. Prior to May 2002, the note was amended such that it became an unsecured note. The consolidated condensed balance sheet at September 30, 2002 also includes an advance of approximately $17,000 to this officer. The advance is reflected in prepaid and other current assets in the accompanying consolidated condensed financial statements. NOTE 8: COMMITMENTS AND CONTINGENCIES In August 2002, the Company entered into a five-year non-cancellable operating lease for an office building for its Corporate headquarters. The Company anticipates moving to the new facility in March 2003. In connection with the lease agreement, the Company has paid a security deposit in the amount of $760,000 in the form of an irrevocable, unconditional, negotiable letter of credit. This letter of credit is reflected in restricted cash on the accompanying consolidated condensed balance sheets. The Company anticipates that it will expend approximately $913,000 for leasehold improvements to build out the new facility. The Company has entered into Indemnification Agreements with its non-executive members of the Board of Directors. Additionally, the Company has entered into employment and executive retention agreements with certain employees and executive officers which, among other things, include certain severance and change of control provisions. NOTE 9: SUBSEQUENT EVENTS Due to changing market dynamics and economic factors, during October 2002, the Company announced its decision to focus its efforts and resources on expanding its leadership position in the access control and identity management market. In connection with this decision, the Company has decided not to continue developing, marketing or selling the PortalMinder product on a stand-alone basis. We will continue to use the PortalMinder technology in our other strategic product initiatives. In addition to this strategic decision, the Company also announced changes in its sales and services organization to better leverage the Company's inside sales organization and partner channel. These decisions resulted in a reduction in workforce of 90 people, representing approximately 20% of the Company's worldwide workforce. These reductions were in the development group associated with the PortalMinder product, as well as in the sales and services departments, predominantly in Europe and Asia, where we continue to experience a weakening economy. In connection with these decisions, the Company anticipates recording a non-recurring charge of approximately $1.0 million to $1.5 million during the quarter ending December 31, 2002. 12 ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA This report contains forward-looking statements about our plans, objectives, expectations and intentions. You can identify these statements by words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," "may," "will" and "continue" or similar words. You should read statements that contain these words carefully. They discuss our future expectations, contain projections of our future results of operations or our financial condition or state other forward-looking information, and may involve known and unknown risks over which we have no control. You should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of activity, performance or achievements. Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements, except as required by law. The factors discussed in the sections captioned "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report identify important factors that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. RECENT EVENT Due to changing market dynamics and economic factors, during October 2002, the Company announced its decision to focus its efforts and resources on expanding its leadership position in the access control and identity management market. In connection with this decision, the Company has decided not to continue developing, marketing or selling the PortalMinder product on a stand-alone basis. We will continue to use the PortalMinder technology in our other strategic product initiatives. In addition to this strategic decision, the Company also announced changes in its sales and services organization to better leverage the Company's inside sales organization and partner channel. These decisions resulted in a reduction in workforce of 90 people, representing approximately 20% of the Company's worldwide workforce. These reductions were in the development group associated with the PortalMinder product, as well as in the sales and services departments, predominantly in Europe and Asia, where we continue to experience a weakening economy. In connection with these decisions, the Company anticipates recording a non-recurring charge of approximately $1.0 million to $1.5 million during the quarter ending December 31, 2002. RISK FACTORS The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. In that context, the discussion in this item contains forward-looking statements that involve certain degrees of risk and uncertainty, including statements relating to liquidity and capital resources. Except for the historical information contained herein, the matters discussed in this section are such forward-looking statements that involve risks and uncertainties, including: WE HAVE INCURRED SUBSTANTIAL LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE. In recent years, we have incurred substantial operating losses. We cannot predict if we will achieve profitability for any substantial period of time. Failure to maintain levels of profitability as expected by investors may adversely affect the market price of our common stock. In the nine months ended September 30, 2002, we had a net loss of $78.9 million. As a result of historical operating losses, as of September 30, 2002, we had an accumulated deficit of approximately $99.3 million. OUR QUARTERLY RESULTS MAY FLUCTUATE WIDELY. Our quarterly revenues and operating results are difficult to predict and may continue to fluctuate significantly from quarter to quarter for several reasons, including, but not limited to, the following: - customers choosing to delay their purchase commitments or purchase in smaller than expected quantities due to a general slowdown in the economy; 13 - market acceptance of our SiteMinder, Delegated Management Services ("DMS"), TransactionMinder and related products; - our success in obtaining follow-on sales to existing customers; - the long sales and deployment cycle of our products; - our ability to hire and retain personnel, particularly in development, services and sales and marketing; - the loss of or changes in key management personnel; - the release of new versions of SiteMinder, DMS, TransactionMinder or other products; - pricing pressures that result in increased discounts; - the development of our direct and indirect sales channels; and - integration issues with acquired technology. In addition, because our revenues from services are largely correlated with our software revenues, a decline in software revenues could also cause a decline in our services revenues in the same quarter or in subsequent quarters. Other factors, many of which are outside our control, could also cause variations in our quarterly revenues and operating results. Most of our expenses, such as employee compensation and rent, are relatively fixed. Moreover, our expense levels are based, in part, on our expectations regarding future revenue increases. As a result, any shortfall in revenues in relation to our expectations could cause significant changes in our operating results from quarter to quarter and could result in future losses. OUR SUCCESS WILL DEPEND ON OUR ABILITY TO MARKET OUR PRODUCTS AND RELATED SERVICES SUCCESSFULLY. We currently derive the majority of our total revenues from the sale of SiteMinder software licenses and related products and services. Commercial deployments of SiteMinder products have grown to include not only business-to-business and e-business applications, but large intranet and multi-million user business-to-consumer deployments as well. Broad market acceptance of our products will depend on the development of a market for access control and identity management, usage of our products for software business-to-consumer applications and customer demand for the specific functionality of our products. Market acceptance for our products, and customer demand for the services they provide, may not develop. In addition, we have recently announced several new product offerings. If we fail to gain market acceptance for these products, it could have a material adverse effect on our business, operating results and financial position. Our ability to develop the market for our products depends in part on our ability to provide support services on a 24 hour per day, seven-day per week basis. Any damage or disruptions to our service centers, including the service center in Malaysia, whether as a result of terrorism or some other cause, could seriously impact our ability to provide the necessary service to our customers and fulfill our service contracts. OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO ENHANCE OUR PRODUCT LINES AND DEVELOP NEW PRODUCTS. We believe our success is dependent, in large part, on our ability to enhance and broaden our product lines to meet the evolving needs of both the business-to-business and business-to-consumer markets. We may be unable to respond effectively to technological changes or new industry standards or developments. In the past, we have been forced to delay introduction of several new product versions. Currently, due to industry and economic factors, we have chosen to cease developing, marketing and selling our PortalMinder product on a stand-alone basis. In the future, we could be adversely affected and be at a competitive disadvantage if we incur significant delays or are unsuccessful in enhancing our product lines or developing new products, or if any of our enhancements or new products do not gain market acceptance. OUR PERFORMANCE DEPENDS ON OUR ABILITY TO OBTAIN FOLLOW-ON SALES. 14 Customers typically place small initial orders for a Netegrity product installation to allow them to evaluate its performance. Our strategy is to pursue more significant follow-on sales after these initial installations. Our financial performance depends on successful initial deployments of our products that, in turn, lead to follow-on sales. If the initial deployments of our products are not successful, we may be unable to obtain follow-on sales. In addition, even if initial deployments are successful, there can be no assurances that customers will choose to make follow-on purchases, which could have a material adverse effect on our ability to generate revenues. WE FACE SIGNIFICANT COMPETITION FROM OTHER TECHNOLOGY COMPANIES AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. The market for access control and identity management is highly competitive. We expect the level of competition to increase as a result of the anticipated growth of access control and identity management. Our primary competitors include IBM, RSA/Securant, Entrust, OpenNetwork Technology, Oblix and many early-stage companies. In addition, a number of other software companies have indicated that they offer products which may compete with ours. We also face competition from web development professional services organizations. We expect that additional competitors will emerge in the future. Current and potential competitors have established, or may in the future establish, cooperative relationships with third parties to increase the availability of their products to the marketplace. It is possible that current and potential competitors may attempt to hire our highly skilled employees and although we have non-compete agreements in place with most of our employees, they may or may not be enforceable. It is possible that new competitors or alliances may emerge and rapidly acquire significant market share. Potential competitors may have significantly greater financial, marketing, technical and other competitive resources than we have. If, in the future, a competitor chooses to bundle a competing point product with other applications within a suite, the demand for our products might be substantially reduced. Because of these factors, many of which are out of our control, we may be unable to maintain or enhance our competitive position against current and future competitors. REGULATIONS OR CONSUMER CONCERNS REGARDING THE USE OF "COOKIES" ON THE INTERNET COULD REDUCE THE EFFECTIVENESS OF OUR SOFTWARE PRODUCTS. Certain of our products use cookies to support their single sign-on functionality. A cookie is information keyed to a specific user that is stored on the hard drive of the user's computer, typically without the user's knowledge. Cookies are generally removable by the user, and can be refused by the user at the point at which the information would be stored on the user's hard drive. A number of governmental bodies and commentators in the United States and abroad have urged passage of laws limiting or abolishing the use of cookies. The passage of laws limiting or abolishing the use of cookies, or the widespread deletion or refusal of cookies by web site users, could reduce or eliminate the effectiveness of our single sign-on functionality and could reduce market demand for our products. WE MAY BE UNABLE TO HIRE AND RETAIN SKILLED PERSONNEL. Qualified personnel are in great demand throughout the software industry. Our success depends, in large part, upon our ability to attract, train, motivate and retain highly skilled employees, particularly software engineers, professional services personnel, sales and marketing personnel and other senior personnel. A change in key management, such as the recent appointment of Thomas Thimot, Vice President of Worldwide Sales and Services, could result in transition and attrition in the affected department. Our failure to attract and retain the highly trained technical personnel that are integral to our product development, professional services and direct sales teams may limit the rate at which we can generate sales and develop new products or product enhancements. This could have a material adverse effect on our business, operating results and financial condition. OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP OUR DIRECT SALES AND INDIRECT DISTRIBUTION CHANNELS. To increase our revenues, we must develop our direct sales channel and increase the number of our indirect channel partners. There is intense competition for sales personnel in our business, and we cannot be sure that we will be successful in attracting, integrating, motivating and retaining sales personnel. In addition, we must increase the number of strategic partnerships and other third-party relationships with system integrators, vendors of Internet-related systems and application software and resellers. Our existing, or future, channel partners may choose to devote greater resources to marketing and supporting the products of other companies or conflicts may develop among our sales force and channel partners. If we fail to develop these relationships or these relationships do not result in successful partnerships, our revenue could suffer. WE RELY ON THIRD PARTY TECHNOLOGY TO ENHANCE OUR PRODUCTS. 15 We incorporate into our products software licensed from third-party software companies that enhances and enables the functionality of our product. Third-party software may not continue to be available on commercially reasonable terms or with acceptable levels of support, or at all. Failure to maintain those license arrangements or defects and errors in or infringement claims against those third-party products could delay or impair our ability to develop and sell our products. In addition, often these third party software companies require prepayment of royalties on their products and in the past, we have had to write-off certain of these prepayments when there has been an adverse change in forecasted sales volume. OUR FAILURE TO EXPAND OUR PARTNER ENABLEMENT MODEL COULD LIMIT OUR ABILITY TO INCREASE OUR PRODUCT SALES. Our professional services organization and our partner enablement model provide critical support to our customers' installation and deployment of our products. If we fail to adequately develop our partner enablement model, our ability to increase products sales may be limited. In addition, if we cannot adequately support product installations, our customers' use of our products may fail which could harm our reputation and hurt our business. OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY OPERATING RESULTS. We have a long sales cycle because we generally need to educate potential customers regarding the use and benefits of our products. The length of our sales cycle varies depending on the size and type of customer contemplating a purchase and whether we have conducted business with a potential customer in the past. In addition, these potential customers frequently need to obtain approvals from multiple decision makers prior to making purchase decisions, a process that has been further lengthened as a result of the current market conditions surrounding IT spending. Our long sales cycle, which can range from several weeks to several months or more, makes it difficult to predict the quarter in which sales will occur. Delays in sales could cause significant variability in our revenues and operating results for any particular period. OUR FAILURE TO EFFECTIVELY MANAGE CHANGES IN THE BUSINESS ENVIRONMENT IN WHICH WE OPERATE COULD HURT OUR BUSINESS. Our failure to effectively manage changes in the business environment in which we operate could have a material adverse effect on the quality of our products, our ability to retain key personnel and our business, operating results and financial condition. Historically, we had experienced a period of rapid growth that placed a significant strain on all of our resources. More recently, based upon economic factors beyond our control, we implemented a reduction in workforce of 48 positions during April 2002 and 90 positions during October 2002. We may experience similar changes in the future. To effectively manage changes in the business environment in which we operate we must maintain and enhance our financial and accounting systems and controls, maintain our ability to retain key personnel, integrate new personnel and manage operations. IF WE LOSE THE SERVICES OF BARRY BYCOFF OR ANY OTHER MEMBER OF OUR MANAGEMENT TEAM, OUR BUSINESS COULD SUFFER. Our future success depends, to a significant degree, on the skill, experience and efforts of Barry Bycoff, our chief executive officer, and the rest of our management team. The loss of any member of our management team or the inability of our officers and key employees to work effectively as a team could have a material adverse effect on our business, operating results and financial condition. AS WE CONTINUE TO OPERATE IN INTERNATIONAL MARKETS, WE WILL FACE CONTINUED RISKS TO OUR SUCCESS. At the current time, we have no plans to expand beyond our current international operations. However, if in the future we decide to expand our international operations, the expansion will require additional resources and management attention, and will subject us to increased regulatory, economic and political risks. We have limited experience in international markets and we cannot be sure that our continued expansion into global markets will be successful. In addition, we will face increased risks in conducting business internationally. These risks could reduce demand for our products and services, increase the prices at which we can sell our products and services, or otherwise have an adverse effect on our operating results. Among the risks we believe are most likely to affect us are: - longer decision making cycles; 16 - longer payment cycles and problems in collecting accounts receivable; - adverse changes in trade and tax regulations, including restrictions on the import and export of sensitive technologies, such as encryption technologies, that we use or may wish to use in our software products; - the absence or significant lack of legal protection for intellectual property rights; - selling under contracts governed by local law; - difficulties in managing an organization spread over several countries, including complications arising from cultural, language and time differences that may lengthen sales and implementation cycles; - currency risks, including fluctuations in exchange rates; - political and economic instability; - increased use of contractors on a global basis for both professional services and development, that may result in increased cost of services and/or less direct control; and - disruption caused by terrorist activities in various regions around the world. OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS. Our success depends to a significant degree upon the protection of our software and other proprietary technology. The unauthorized reproduction or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without paying us for it. This could have a material adverse effect on our business, operating results and financial condition. We depend upon a combination of patent, trademark, trade secret and copyright laws, license agreements and non-disclosure and other contractual provisions to protect proprietary and distribution rights in our products. In addition, we attempt to protect our proprietary information and the proprietary information of our vendors and partners through confidentiality and/or license agreements with our employees and others. Although we have taken steps to protect our proprietary technology, they may be inadequate and the unauthorized use of our source code could have an adverse effect on our business. Existing trade secret, copyright and trademark laws offer only limited protection. Moreover, the laws of other countries in which we market our products may afford little or no effective protection of our intellectual property. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive, even if we were to prevail. CLAIMS BY OTHER COMPANIES THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD HURT OUR FINANCIAL CONDITION. If we discover that any of our products violate third-party proprietary rights, there can be no assurance that we would be able to reengineer our product or to obtain a license on commercially reasonable terms to continue offering the product without substantial reengineering. We do not conduct comprehensive patent searches to determine whether the technology used in our products infringes patents held by third parties. In addition, product development is inherently uncertain in a rapidly evolving technology environment in which there may be numerous patent applications pending for similar technologies, many of which are confidential when filed. Any claim of infringement, even if invalid, could cause us to incur substantial costs defending against the claim and could distract our management from our business. Furthermore, a party making such a claim could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from selling our products. Any of these events could have a material adverse effect on our business, operating results and financial condition. OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN ERRORS. Software products as complex as ours may contain undetected errors or "bugs" that result in product failures. The occurrence of errors could result in loss of, or delay in, revenues, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation, or damage to our efforts to build brand awareness, any of which could have a material adverse effect on our business, operating results and financial condition. Additionally, we provide technical support to our customers and if 17 customers were dissatisfied with product functionality or performance or response times of our technical support staff, we could lose revenue or be subject to liability for service or warranty costs and claims. WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR CUSTOMERS' USE OF OUR PRODUCTS. Many of the e-business applications supported by our products are critical to the operations of our customers' businesses. Any failure in a customer's web site or application caused or allegedly caused by our products could result in a claim for substantial damages against us, regardless of our responsibility for the failure. Although we maintain general liability insurance, including coverage for errors and omissions, we cannot be sure that our existing coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. OUR ACQUISITION OF OTHER COMPANIES MAY INCREASE THE RISKS WE FACE. On December 14, 2001, we acquired the capital stock of DataChannel, Inc., a privately held Washington corporation. In the future, we may pursue other acquisitions to obtain complementary products, services and technologies. DataChannel and any other such acquisition may not produce the revenues, earnings or business synergies that we anticipated, and an acquired product, service or technology might not perform as we expected. In pursuing any acquisition, our management could spend a significant amount of time and effort in identifying and completing the acquisition. If we complete an acquisition, we would probably have to devote a significant amount of management resources to integrate the acquired business with our existing business. To pay for an acquisition, we might use our stock or cash. Alternatively, we might borrow money from a bank or other lender. If we use our stock, our stockholders would experience dilution of their ownership interests. If we use cash or debt financing, our financial liquidity will be reduced. THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE. Our stock price, like that of other technology companies, has been extremely volatile. The announcement of new products, services, technological innovations or distribution partners by us or our competitors, quarterly variations in our operating results, changes in revenues or earnings estimates by securities analysts, speculation in the press or investment community and overall economic conditions are among the factors affecting our stock price. In addition, the stock market in general and the market prices for technology companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. Recently, when the market price of a stock has been volatile, holders of that stock have often instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management. The general economic uncertainties in the United States and abroad continue to cause significant volatility in the stock markets. The continued threat of terrorism in the United States and abroad, the ongoing military action and heightened security measures undertaken in response to that threat can be expected to cause continued volatility in securities markets. In addition, foreign political unrest may continue to adversely affect the economy. WE MAY LOSE MONEY ON FIXED-PRICE CONSULTING CONTRACTS. In the future, an increased portion of our services revenues may be derived from fixed-price contracts. We work with complex technologies in compressed time frames and it can be difficult to judge the time and resources necessary to complete a project. If we miscalculate the resources or time we need to complete work under fixed-price contracts, our operating results could be materially harmed. As of September 30, 2002, the Company had no fixed-price contracts. CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF OUR COMPANY MORE DIFFICULT. Our corporate documents and Delaware law contain provisions that might enable our management to resist a takeover of our company. These provisions might discourage, delay or prevent a change in the control of Netegrity or a change in our management. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take 18 other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES Netegrity's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, bad debts, valuation of long-lived and intangible assets and goodwill and income taxes. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The significant accounting policies that management believes are most critical to aid in fully understanding and evaluating our reported financial results include the following: Revenue Recognition The Company's revenues have been primarily generated from the sale of perpetual licenses for its proprietary SiteMinder, DMS and PortalMinder products and services. In the future, the Company anticipates generating its revenue primarily from the sale of perpetual licenses for SiteMinder, IdentityMinder, TransactionMinder products and services as well as from new product offerings. The Company generates its services revenue from consulting and training services performed for customers and from maintenance and support. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Management analyzes various factors, including a review of specific transactions, historical experience, creditworthiness of customers and current market and economic conditions. Changes in judgments based upon these factors could impact the timing and amount of revenue and cost recognized. We license our software products on a perpetual basis. We apply the provisions of Statement of Position No. 97-2, "Software Revenue Recognition," as amended by Statement of Position No. 98-9, "Software Revenue Recognition, with Respect to Certain Transactions," to all transactions involving the sale of software products. We recognize revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fees are fixed or determinable and collection of the resulting receivable is reasonably assured. This policy is applicable to all sales, including sales to resellers and end users. The Company does not offer a right of return on its products. For all sales, we use either a binding purchase order or signed license agreement as evidence of an arrangement. For arrangements with multiple obligations (for example, product, undelivered maintenance and support, and training and consulting), we allocate revenue to each component of the arrangement using the residual value method based on the fair value of the undelivered elements. We defer revenue from the arrangement equivalent to the fair value of the undelivered elements. Fair values for the ongoing maintenance and support obligations are based upon separate sales of renewals to other customers. Fair value of services, such as training or consulting, is based upon separate sales of these services to other customers. At the time of the transaction, we assess whether the fee associated with the transaction is fixed or determinable based on the payment terms associated with the transaction. If a significant portion of the fee is due after our normal payment terms, which are 30 to 90 days from invoice date, we account for the fee as not being fixed or determinable. In these cases, we recognize revenue as the fees become due. In addition, we assess whether collection is probable or not based on the credit worthiness of the customer. Initial credit worthiness is assessed through Dun & Bradstreet or similar credit rating agencies. Credit worthiness for follow-on transactions is assessed through a review of the transaction history with the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. Installation by Netegrity is not considered essential to the functionality of our products as these services do not alter the product capabilities, do not require specialized skills and may be performed by the customer or other vendors. Revenues for maintenance and 19 support are recognized ratably over the term of the support period. Revenues from consulting and training services are recognized as the services are performed. Accounts Receivable Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible amounts is based primarily on a specific analysis of accounts in the receivable portfolio and historical write-off experience. While management believes the allowance to be adequate, if the financial condition of the Company's customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required and could materially impact our financial position and results of operations. Valuation of Long-Lived Assets and Goodwill Effective January 1, 2002, the Company adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill is required to be tested for impairment annually in lieu of being amortized. Furthermore, we are required to test for impairment of goodwill on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. The Company will recognize an impairment loss to the extent that the carrying amount of goodwill exceeds its implied fair value. The impairment loss will be recognized in operations. The acquisition of DataChannel, Inc. on December 14, 2001 was accounted for in accordance with the transition provisions of SFAS No. 141 and No. 142. The Company adopted SFAS No. 142 during the first quarter of 2002 without a material impact on its financial position or results of operations. Under SFAS No. 142, goodwill is not amortized but is reviewed at least annually for impairment. Intangible assets other than goodwill that are not deemed to have indefinite lives are amortized over their useful lives. The annual impairment test will be completed in the fourth quarter of each fiscal year (or more frequently if impairment indicators arise). If the Company had accounted for goodwill and other intangibles in accordance with SFAS 142 during the three and nine months ended September 30, 2001, the results of operations would not be different from those previously reported. During the third quarter of 2002, the Company determined that the recent significant decline in our stock price as a result of underperformance relative to recent and expected operating results and the overall adverse change in the business climate had resulted in a triggering event that warranted an impairment review in accordance with SFAS No. 142. As a result, the Company tested for impairment based on a two-step approach. The first step was to test for indicators of impairment of goodwill by comparing the fair value of the Company with its carrying value. Since the Company operates as an enterprise-wide reporting unit, it was determined that the market value of the Company represents an approximation of its fair value as of September 30, 2002. Furthermore, it was determined that the fair value of the Company as of September 30, 2002 was less than its carrying value and therefore, an indication of impairment existed. The second step was to measure the amount of the impairment of goodwill. As a result of the second step, we determined that the implied fair value of the goodwill determined using the market capitalization of the Company on September 30, 2002 was lower than its carrying value and therefore, goodwill had been impaired. The Company has recorded a charge of $57.4 million in the third quarter of fiscal 2002, classified as impairment charge in the accompanying consolidated condensed statements of operations, to write down goodwill to its implied fair value of zero. The Company reviews the valuation of long-lived assets, including property and equipment and capitalized software, under the provision of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed". The Company is required to assess the impairment of long-lived assets and certain identifiable intangible assets annually, or on an interim basis whenever events and circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include the following: - significant underperformance relative to expected historical or projected future operating results; - significant changes in the manner of our use of the acquired assets or the strategy of our overall business; - significant negative industry or economic trends; - significant decline in our stock price for a sustained period; and 20 - our market capitalization relative to net book value. In accordance with SFAS No. 144, when we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we evaluate whether the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of that asset. If such a circumstance exists, we would measure an impairment loss to the extent the carrying amount of the particular long-lived asset or group exceeds its fair value. We would determine the fair value based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. In accordance with SFAS No. 86, when we determine that the carrying value of long-lived assets may not be recoverable based on the existence of one or more of the above indicators of impairment, we evaluate whether the unamortized cost exceeds the expected future net realizable value of the products. If the unamortized costs exceed the expected future net realizable value of the products, the excess amount is written off. Changes in judgments on any of these factors could impact the value of the asset. The Company adopted SFAS No. 144, which addresses accounting and reporting of certain long-lived assets, except goodwill, that are either held and used or disposed of through sale or other means, during the first quarter of fiscal year 2002 without a material impact on its financial position or results of operations. At September 30, 2002, in conjunction with the impairment review of goodwill, we evaluated the carrying amount of the capitalized software acquired in the DataChannel acquisition in accordance with SFAS No. 86 by comparing the unamortized costs of capitalized software to the expected future net realizable value of the products. We determined that no impairment existed as of September 30, 2002. Accounting for Income Taxes The preparation of our consolidated financial statements require us to estimate our income taxes in each of the jurisdictions in which we operate, including those outside the United States which may be subject to certain risks that ordinarily would not be expected in the United States. The income tax accounting process involves our estimating our actual current exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. The Company must then record a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. The Company has recorded a valuation allowance of $65.8 million as of September 30, 2002, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating losses carried forward before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to adjust our valuation allowance which could materially impact our financial position and results of operations. 21 RESULTS OF OPERATIONS The following table presents statement of operations data as percentages of total revenues for the periods indicated:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------------ ----------------------------- 2001 2002 2001 2002 -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Revenues: Software licenses ..................... 53% 43% 64% 53% Services .............................. 42 52 32 43 Other ................................. 5 5 4 4 -------- -------- -------- -------- Total revenues ..................... 100 100 100 100 Cost of revenues: Cost of software licenses ............. 1 5 2 3 Non-cash cost of software licenses .... -- 6 -- 5 Cost of services ...................... 20 22 17 20 Cost of other ......................... 3 3 2 3 -------- -------- -------- -------- Total cost of revenues ............. 24 36 21 31 -------- -------- -------- -------- Gross profit ............................ 76 64 79 69 -------- -------- -------- -------- Selling, general and administrative expenses............................... 71 87 59 77 Research and development expenses ....... 22 38 17 35 Impairment charges ...................... -- 378 -- 108 Non-recurring charges ................... 4 -- 1 1 -------- -------- -------- -------- Income (loss) from operations ........... (21) (439) 2 (152) Other income, net ....................... 8 3 6 4 -------- -------- -------- -------- Income (loss) before provision for income (13) (436) 8 (148) taxes Provision for income taxes .............. -- -- 1 -- -------- -------- -------- -------- Net income (loss) ....................... (13)% (436)% 7% (148)% -------- -------- -------- --------
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 The following discussion reviews the results of operations for the three and nine months ended September 30, 2002 (the "2002 Quarter" and "2002 Period", respectively) compared to the three and nine months ended September 30, 2001 (the "2001 Quarter" and "2001 Period", respectively). Revenues. Total revenues decreased by $2.0 million or 12%, to $15.2 million in the 2002 Quarter, from $17.2 million in the 2001 Quarter, and by $15.8 million or 23%, to $53.0 million in the 2002 Period, from $68.8 million in the 2001 Period. The decrease was primarily due to decreases in software license revenues for the SiteMinder product, partially offset by an increase in service revenues and the impact of the acquisition of DataChannel in December 2001, which contributed approximately 6% and 7% of total revenues in the 2002 Quarter and 2002 Period, respectively. Additionally, revenues in both Europe and Asia have continued to decline throughout the current year. Overall, we believe that revenue growth will be modest over the next couple of quarters as constraints on IT spending continue. However, we believe that the continued build-out of the leveraged model with our partners and our focus on expanding our leadership position in the access control and identity management market with our new product offerings will help to drive new account acquisition and increase deal size in the future. Software license revenues decreased by $2.5 million or 28%, to $6.5 million in the 2002 Quarter, from $9.0 million in the 2001 Quarter, and by $16.1 million or 37%, to $27.7 million in the 2002 Period, from $43.8 million in the 2001 Period. The decrease is due to broad based economic weakness, specifically in Europe, and reduced technology spending which resulted in deals being delayed or reduced in size. While the number of new name deals decreased from 50 in the 2001 Quarter to 33 in the 2002 Quarter, the average size of new name deals increased from approximately $102,000 in the 2001 Quarter to approximately $111,000 in the 2002 Quarter. In slight contrast, the number of follow on deals increased from 45 in the 2001 Quarter to 54 in the 2002 Quarter and the average size of follow on deals decreased from approximately $96,000 in the 2001 Quarter to approximately $70,000 in the 2002 Quarter. The primary reason for the decrease in deal size was that customers continue to buy licenses for a smaller number of users. Services revenues increased by $0.6 million or 8%, to $7.9 million in the 2002 Quarter, from $7.3 million in the 2001 Quarter, and by $0.8 million or 4%, to $23.0 million in the 2002 Period, from $22.2 million in the 2001 Period. The increase is primarily attributable to an increase of $1.8 million and $4.9 million in the 2002 Quarter and the 2002 Period, respectively, in maintenance and support revenue resulting from maintenance renewals by our existing customer base and, to a lesser extent, the impact of the acquisition of DataChannel, which contributed approximately 12% and 2% of services revenues in the 2002 Quarter and 2002 Period, respectively. The increase was partially offset by a decrease of $0.8 million and $4.2 million in the 2002 Quarter and the 2002 Period, respectively, 22 in consulting and training revenue as a result of broad based economic weakness and reduced technology spending. The number of trained billable third party consultants increased from 420 in the 2001 Quarter to 850 in the 2002 Quarter. Other revenues decreased by $0.1 million or 11%, to $0.8 million in the 2002 Quarter, from $0.9 million in the 2001 Quarter, and by $0.5 million or 18%, to $2.3 million in the 2002 Period, from $2.8 million in the 2001 Period. Other revenues are derived from the Firewall legacy business. This business has declined during the 2002 Period and is not expected to have a significant impact in future periods. Cost of revenues. Total cost of revenues increased by $1.2 million or 29%, to $5.4 million in the 2002 Quarter, from $4.2 million in the 2001 Quarter, and by $1.3 million or 9%, to $16.5 million in the 2002 Period, from $15.2 million in the 2001 Period. Overall, we believe that the cost of revenues, and particularly the cost of services, will increase over the short term primarily as a result of, (i) the cost of third party software products that enhance and enable our products, and (ii) increased investment in our technical support organization. Cost of software license revenue increased by $1.5 million or 1,100%, to $1.6 million in the 2002 Quarter from $0.1 million in the 2001 Quarter, and by $2.9 million or 193%, to $4.4 million in the 2002 Period, from $1.5 million in the 2001 Period. This increase is primarily due to the amortization of purchased software recorded in connection with the acquisition of DataChannel of approximately $0.9 million per quarter and a $0.3 million write-off of a prepaid third party royalty arrangement which was entered into during the first quarter of 2002. The write off was recorded because the latest release of the product was no longer dependent on the third party technology. Cost of services decreased by $0.2 million or 6%, to $3.3 million in the 2002 Quarter, from $3.5 million in the 2001 Quarter, and by $1.3 million or 11%, to $10.7 million in the 2002 Period, from $12.0 million in the 2001 Period. The decrease is primarily due to the leveraging of our system integrator partner relationships. The number of fully trained billable consultants at our affiliated partners increased from 420 in the 2001 Quarter to 850 in the 2002 Quarter. This leveraging allowed us to reduce the headcount in our professional services organization by approximately 20% from September 30, 2001 to September 30, 2002. This decrease was partially offset by increased investment in the technical support organization during the quarter in order to enhance overall customer satisfaction. Cost of other revenues remained flat at $0.5 million in the 2002 Quarter as compared to the 2001 Quarter, and decreased by $0.3 million or 18%, to $1.4 million in the 2002 Period, from $1.7 million in the 2001 Period. The decrease in the 2002 Period is in relative proportion to the decrease in revenue. Cost of other revenues are not expected to have a significant impact in future periods. Selling, general and administrative expenses. Selling, general and administrative expenses increased by $1.0 million, or 8%, to $13.3 million in the 2002 Quarter, from $12.3 million in the 2001 Quarter, and by $0.2 million or 1%, to $40.8 million in the 2002 Period, from $40.6 million in the 2001 Period. The increase is primarily attributable to increased salaries and wages associated with a full quarter effect of increasing headcount throughout 2001, increased legal, accounting, facility rent, marketing program and insurance expenses (primarily Directors and Officers insurance premiums) partially offset by reduced commission expenses in connection with decreased license revenue. We will continue to scrutinize all discretionary expenses and evaluate investment reductions in non-strategic programs. In the immediate future, we anticipate selling, general and administration expenses will decrease in future periods as we realize the economic impact of the restructuring initiatives completed in April 2002 and October 2002. Research and development costs. Research and development costs increased by $1.9 million or 49%, to $5.8 million in the 2002 Quarter, from $3.9 million in the 2001 Quarter, and by $6.4 million or 54%, to $18.3 million in the 2002 Quarter, from $11.9 million in the 2001 Period. The increase was primarily due to the addition of approximately 65 employees (including 40 from the acquisition of DataChannel in the fourth quarter of 2001) and to the increased usage of approximately 50 contractors in India between the 2001 Quarter and the 2002 Quarter and other incremental expenses associated with the research and development of our new product offerings. We recognize that our investment in research and development is required to remain competitive and therefore, expect that research and development expenses may increase in future periods due to the continued development of our products and services. Impairment charges. Impairment charges increased by $57.4 million or 100%, to $57.4 million in both the 2002 Quarter and the 2002 Period. There were no impairment charges recorded in the 2001 Quarter or 2001 Period. In the 2002 Quarter, we determined that the recent significant decline in our stock price as a result of underperformance relative to recent and expected operating results and the overall adverse change in the business climate had resulted in a triggering event that warranted an impairment review in accordance with SFAS No. 142. As a result, the Company tested for impairment based on a two-step approach. The first step was to test for indicators of impairment of goodwill by comparing the fair value of the Company with its carrying value. Since the Company operates as an enterprise-wide reporting unit, it was determined that the market value of the Company represents an approximation of 23 its fair value as of September 30, 2002. Furthermore, it was determined that the fair value of the Company as of September 30, 2002 was less than its carrying value and therefore, an indication of impairment existed. The second step was to measure the amount of the impairment of goodwill. As a result of the second step, we determined that the implied fair value of the goodwill determined using the market capitalization of the Company on September 30, 2002 was lower than its carrying value and therefore, goodwill had been impaired. The Company has recorded a charge of $57.4 million in the third quarter of fiscal 2002, classified as impairment charge in the accompanying consolidated condensed statements of operations, to write down goodwill to its implied fair value of zero. Non-recurring charges. Non-recurring charges of $0.7 million during the 2002 Period primarily represent severance charges associated with a 10% reduction in workforce and the closing of several sales offices during April 2002. Non-recurring expenses of $0.6 million during the 2001 Period primarily represent severance charges associated with an 8% reduction in workforce in September 2001 and a contribution to the James Hayden Memorial Fund established in memory of the Company's former Chief Financial Officer. In connection with the decision not to continue developing, marketing or selling the PortalMinder product on a stand-alone basis and changes made in its sales and services organization to better leverage the Company's inside sales organization and partner channel, the Company anticipates recording a non-recurring charge of approximately $1.0 million to $1.5 million during the quarter ending December 31, 2002. Other income, net. Other income, net which is comprised primarily of interest income earned on the company's cash and marketable securities, decreased by approximately $0.8 million or 62%, to $0.5 million in the 2002 Quarter, from $1.3 million in the 2001 Quarter, and by $2.2 million or 54%, to $1.9 million in the 2002 Period, from $4.1 million in the 2001 Period. The decrease was attributable primarily to a decline in the average cash and marketable securities balances combined with lower average interest rates on such investment balances. Provision for income taxes. For the 2002 and 2001 Quarters, there was no provision for income taxes due to the Company's loss position for the periods. There was no provision for income taxes in the 2002 Period due to the Company's loss position. In the 2001 Period, the Company recorded a provision for income taxes of approximately $0.6 million. The provision is lower than the statutory rate due to a reduction in the valuation allowance related to federal net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES Cash used for operating activities in the 2002 Period was $14.2 million, primarily due to the net loss for the period, decreases in accrued expenses (including approximately $1.9 million in fees paid in connection with the December 2001 acquisition of DataChannel), and decreases in deferred revenue as a result of lower license sales and maintenance commitments in the third quarter of 2001 coupled with longer approval cycles for maintenance contract renewals in 2002, all of which was partially offset by a decrease in accounts receivable. Cash provided by investing activities was $1.8 million in the 2002 Period. Investing activities for the period consisted primarily of net sales and maturities of marketable securities of approximately $148.4 million, offset by the purchases of marketable securities of approximately $144.3 million, and the purchase of $1.9 million of equipment, primarily computer related. Cash provided by financing activities in the 2002 Period was approximately $0.6 million, which primarily related to the exercise of employee stock options. As of September 30, 2002, our primary financial commitments consisted of obligations outstanding under operating leases. In August 2002, the Company entered into a five year non-cancellable operating lease for an office building for its Corporate headquarters. The Company anticipates moving to the new facility in March 2003. In connection with the lease agreement, the Company has paid a security deposit in the amount of $760,000 in the form of an irrevocable, unconditional, negotiable letter of credit. The Company anticipates that it will expend approximately $913,000 in leasehold improvements to build out the new facility. The Company has entered into Indemnification Agreements with the non-executive members of its Board of Directors. Additionally, the Company has entered into employment and executive retention agreements with certain employees and executive officers which, among other things, include certain severance and change of control provisions. As of September 30, 2002, we had cash and cash equivalents totaling $14.4 million, short-term marketable securities of $63.4 million and long-term marketable securities of $15.1 million. In the past, we had experienced a period of rapid growth which resulted in significantly increases our operating expenses. More recently, due to economic conditions beyond our control, we have made considerable efforts to reduce our operating expenses through 24 constrained spending and reductions in workforce. Due to changing market dynamics and economic factors, during October 2002, the Company announced its decision to focus its efforts and resources on expanding its leadership position in the access control and identity management market. In connection with this decision, the Company has decided not to continue developing, marketing or selling the PortalMinder product on a stand-alone basis. We will continue to use the PortalMinder technology in our other strategic product initiatives. In addition to this strategic decision, the Company also announced changes in its sales and services organization to better leverage the Company's inside sales organization and partner channel. These decisions resulted in a reduction in workforce of 90 people, representing approximately 20% of the Company's worldwide workforce. These reductions were in the development group associated with the PortalMinder product, as well as in the sales and services departments, predominantly in Europe and Asia, where we continue to experience a weakening economy. In connection with these decisions, the Company anticipates recording a non-recurring charge of approximately $1.0 million to $1.5 million during the quarter ending December 31, 2002. We anticipate that we will continue to scrutinize all discretionary expenses and evaluate investment reductions in non-strategic programs for the foreseeable future and that our operating expenses and capital expenditures will constitute a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions or investments in businesses, technologies, products or services that are complementary to our business. We believe that our existing cash and cash equivalents, together with our short-term marketable securities, will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for at least the next twelve months. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency In the three and nine months ended September 30, 2002, the Company generated approximately 22% and 19%, respectively, of its revenues outside of North America. International sales are typically denominated in U.S. dollars. Our foreign subsidiaries incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Translation gains and losses (amounting to a loss of approximately $70,000 as of September 30, 2002) are deferred and accumulated as a separate component of stockholders' equity (accumulated other comprehensive income (loss). Net gains and losses resulting from foreign exchange transactions, amounting to a loss of approximately $37,000 for the three months ended September 30, 2002 and a loss of approximately $11,500 for the nine months ended September 30, 2002 are included in other income, net in the accompanying consolidated condensed statements of operations. A 10% change in the valuation of the functional currencies relative to the U.S. dollar as of September 30, 2002 would not have a material impact on the Company's results of operations for the three and nine month periods. Interest Rates We invest our cash in a variety of financial instruments including floating rate bonds, municipal bonds, asset-backed securities and money market instruments in accordance with an investment policy approved by the Company's Board of Directors. These investments are denominated in U.S. dollars. Cash balances in foreign currencies overseas are operating balances and are only invested in short-term deposits of the local operating bank. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. However, due to the conservative nature of our investment portfolio, a sudden change in interest rates would not have a material effect on the value of the portfolio. We estimate that if the average yield of our investments had decreased by 100 basis points, our interest income for the three and nine months ended September 30, 2002 would have decreased by less than $0.1 million. This estimate assumes that the decrease occurred on the first day of the quarter and reduced the yield of each investment instrument by 100 basis points. The same 100 basis point change in interest rates would not have a material impact on the fair value of the investment portfolio. The impact on our future interest income and future changes in investment yields will depend largely on the gross amount of our investment portfolio. ITEM 4. CONTROLS AND PROCEDURES Within the ninety day period prior to the date of this report, the Company conducted an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer (its principal Executive Officer and principal Financial Officer, respectively) regarding the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-14 of the Securities Exchange Act of 1934 (the "Exchange 25 Act"). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to them by others within those entities. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation. 26 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not presently a party to any legal proceedings, the adverse outcome of which, in management's opinion would have a material adverse effect on the Company's results of operations or financial position. ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit 10.1 Lease Agreement by and between Netegrity, Inc., and Stonybrook Associates, LLC dated August 2002. Exhibit 10.2 Offer letter from Netegrity, Inc., to Thomas Thimot, dated September 6, 2002. Exhibit 10.3 Indemnification Agreement by and between Netegrity, Inc., a Delaware corporation, and Eric P. Giler, a director of the Corporation. Exhibit 10.4 Indemnification Agreement by and between Netegrity, Inc., a Delaware corporation, and Lawrence D. Lenihan, Jr., a director of the Corporation. Exhibit 10.5 Indemnification Agreement by and between Netegrity, Inc., a Delaware corporation, and Michael L. Mark, a director of the Corporation. Exhibit 10.6 Indemnification Agreement by and between Netegrity, Inc., a Delaware corporation, and Ralph B. Wagner, a director of the Corporation. Exhibit 10.7 Consulting Agreement by and between Netegrity, Inc. and Thomas M. Palka. Exhibit 10.8 Transition Agreement by and between Netegrity, Inc. and Thomas M. Palka. Exhibit 10.9 Executive Retention Agreement by and between Netegrity, Inc. and Barry N. Bycoff Exhibit 10.10 Executive Retention Agreement by and between Netegrity, Inc. and Regina O. Sommer Exhibit 10.11 Executive Retention Agreement by and between Netegrity, Inc. and Deepak Taneja Exhibit 10.12 Executive Retention Agreement by and between Netegrity, Inc. and James Rosen Exhibit 10.13 Executive Retention Agreement by and between Netegrity, Inc. and William Bartow Exhibit 10.14 Executive Retention Agreement by and between Netegrity, Inc. and Thomas Thimot Exhibit 10.15 Executive Retention Agreement by and between Netegrity, Inc. and Scott Sullivan
27
Exhibit 10.16 Executive Retention Agreement by and between Netegrity, Inc. and Carmen Parisi Exhibit 10.17 Executive Retention Agreement by and between Netegrity, Inc. and Bradley Nelson Exhibit 10.18 Executive Retention Agreement by and between Netegrity, Inc. and Mary Jefts Exhibit 10.19 Executive Retention Agreement by and between Netegrity, Inc. and Vadim Lander Exhibit 10.20 Executive Retention Agreement by and between Netegrity, Inc. and Amit Jasuja Exhibit 10.21 Executive Retention Agreement by and between Netegrity, Inc. and Thomas Locke Exhibit 10.22 Executive Retention Agreement by and between Netegrity, Inc. and Mary Colette Cooke Exhibit 10.23 Executive Retention Agreement by and between Netegrity, Inc. and Geoffrey Charron Exhibit 10.24 Executive Retention Agreement by and between Netegrity, Inc. and Michael Hyman Exhibit 10.25 Executive Retention Agreement by and between Netegrity, Inc. and Jill Maunder
(b) Reports on Form 8-K None 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, Barry N. Bycoff, President, Chief Executive Officer, Director and Chairman of the Board, and Regina O. Sommer, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer), thereunto duly authorized. NETEGRITY, INC. Date: October 24, 2002 By: /s/ Barry N. Bycoff ---------------------------------- Barry N. Bycoff President, Chief Executive Officer, Director and Chairman of the Board Date: October 24, 2002 By: /s/ Regina O. Sommer ---------------------------------- Regina O. Sommer Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 29 CERTIFICATIONS I, Barry N. Bycoff, President and Chief Executive Officer, certify that 1. I have reviewed this quarterly report on Form 10-Q of Netegrity, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 24, 2002 By: /s/ Barry N. Bycoff -------------------------------- Barry N. Bycoff President and Chief Executive Officer (Principal Executive Officer) 30 CERTIFICATIONS I, Regina O. Sommer, Chief Financial Officer and Treasurer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Netegrity, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 24, 2002 By: /s/ Regina O. Sommer -------------------------------------------- Regina O. Sommer Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 31 Netegrity, Inc. Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes/Oxley Act of 2002 In connection with the Quarterly Report of Netegrity, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Barry N. Bycoff, President and Chief Executive Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 24, 2002 By: /s/ Barry N. Bycoff --------------------------------------- Barry N. Bycoff President and Chief Executive Officer (Principal Executive Officer) 32 Netegrity, Inc. Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes/Oxley Act of 2002 In connection with the Quarterly Report of Netegrity, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Regina O. Sommer, Chief Financial Officer and Treasurer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 24, 2002 By: /s/ Regina O. Sommer ------------------------------------------------- Regina O. Sommer Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) 33 EX-10.1 3 b44468niexv10w1.txt LEASE AGREEMENT Exhibit 10.1 WALTHAM WESTON CORPORATE CENTER 201 JONES ROAD WALTHAM, MASSACHUSETTS LEASE DATED August 27, 2002 THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the Tenant are the parties hereinafter named, and which relates to space in a certain building (the "Building") known as, and with an address at, 201 Jones Road, Waltham, Massachusetts. The parties to this Indenture of Lease hereby agree with each other as follows: ARTICLE I REFERENCE DATA 1.1 SUBJECTS REFERRED TO: Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Article: LANDLORD: STONY BROOK ASSOCIATES LLC, a Delaware limited liability company LANDLORD'S ORIGINAL c/o Boston Properties Limited Partnership ADDRESS: 111 Huntington Avenue, Suite 300 Boston, Massachusetts 02199-7610 LANDLORD'S CONSTRUCTION REPRESENTATIVE: Jeff Lowenberg and Mark Denman TENANT: NETEGRITY, INC., a Delaware corporation TENANT'S ORIGINAL 52 Second Avenue ADDRESS: Waltham, Massachusetts 02154 TENANT'S CONSTRUCTION REPRESENTATIVE: Donna Burke
ESTIMATED TERM COMMENCEMENT DATE: March 1, 2003 COMMENCEMENT DATE: As defined in Sections 2.4 and 3.2 RENT COMMENCEMENT DATE: The later to occur of (i) August 1, 2003 and (ii) that date which is four (4) months from the Commencement Date. OUTSIDE COMPLETION DATE: June 30, 2003 TERM (SOMETIMES CALLED Sixty-four (64) calendar months (plus THE "ORIGINAL TERM"): the partial month, if any, immediately following the Commencement Date), unless extended or sooner terminated as provided in this Lease. EXTENSION OPTION: One (1) period of five (5) years as provided in and on the terms set forth in Section 8.20 hereof. THE SITE: Those certain parcels of land in Waltham, Middlesex County, Massachusetts, being more particularly described in Exhibit A attached hereto. THE BUILDING: The Building known as and numbered 201 Jones Road, Waltham, Massachusetts. The Building is appropriately labeled on Exhibit A-1 attached hereto and hereby made a part hereof. THE COMPLEX: The Building together with all parking areas, decks and structures and the Site. TENANT'S SPACE: The entire fifth (5th) floor of the Building in accordance with the floor plan annexed hereto as Exhibit D and incorporated herein by reference. NUMBER OF Two Hundred Eighteen (218) PARKING SPACES: ANNUAL FIXED RENT: (a) For the period commencing on the Rent Commencement Date and ending on the last
2 day of the twelfth (12th) full calendar month of the Original Term of this Lease at the annual rate of $1,359,575.00 (being the product of (i) $25.00 and (ii) the "Rentable Floor Area of Tenant's Space" (hereinafter defined in this Section 1.1 (b) For the period commencing on the first day of the thirteenth (13th) full calendar month of the Original Term of this Lease and ending on the last day of the thirty-sixth (36th) full calendar month of the Original Term of this Lease, at the annual rate of $1,468,341.00 (being the product of $27.00 and (ii) the Rentable Floor Area of Tenant's Space). (c) For the period commencing on the first day of the thirty-seventh (37th) full calendar month of the Original Term of this Lease and ending on the last day of the Original Term of this Lease, at the annual rate of $1,522,724.00 (being the product of $28.00 and (ii) the Rentable Floor Area of Tenant's Space). (d) During the extension option period (if exercised), as determined pursuant to Section 8.20. BASE OPERATING EXPENSES: Landlord's Operating Expenses (as hereinafter defined in Section 2.6) for calendar year 2003, being January 1, 2003 through December 31, 2003. TENANT ELECTRICITY: Initially as provided in Section 2.5 subject to adjustment as provided in Section 2.8. ADDITIONAL RENT: All charges and other sums payable by Tenant as set forth in this Lease, in addition to Annual Fixed Rent.
3 RENTABLE FLOOR AREA OF TENANT'S SPACE (SOMETIMES ALSO CALLED RENTABLE FLOOR AREA OF THE PREMISES): 54,383 square feet. TOTAL RENTABLE FLOOR AREA OF THE BUILDING: 304,050 square feet. PERMITTED USE: General office purposes. INITIAL MINIMUM $10,000,000.00 combined single limit per LIMITS OF TENANT'S occurrence. COMMERCIAL GENERAL LIABILITY INSURANCE: BROKERS: The Columbia Group Realty Advisors 50 Rowes Wharf Suite 420 Boston, Massachusetts 02110 CRF Partners, Inc. 338 Main Street Wakefield, Massachusetts 01880 Trammell Crow Company 125 High Street Boston, Massachusetts 02110 SECURITY DEPOSIT: $679,787.50, subject to and in accordance with the terms and provision of Section 8.21 below.
1.2 EXHIBITS. There are incorporated as part of this Lease: EXHIBIT A Description of Site EXHIBIT A-1 Site Plan of Complex EXHIBIT B Plan of Landlord's Work EXHIBIT B-1 Tenant's Submission EXHIBIT C Landlord's Services 4 EXHIBIT D Floor Plan EXHIBIT E Form of Commencement Date Agreement EXHIBIT F Broker Determination EXHIBIT G Notice of Lease 1.3 TABLE OF ARTICLES AND SECTIONS ARTICLE I-REFERENCE DATA 1.1 Subjects Referred to 1.2 Exhibits 1.3 Table of Articles and Sections ARTICLE II-BUILDING, PREMISES, TERM AND RENT 2.1 The Premises 2.1.1 Tenant's Expansion Options 2.1.2 Tenant's Right of First Offer 2.2 Rights To Use Common Facilities 2.2.1 Tenant's Parking 2.3 Landlord's Reservations 2.4 Habendum 2.5 Fixed Rent Payments 2.6 Operating Expenses 2.7 Real Estate Taxes 2.8 Tenant Electricity ARTICLE III-CONDITION OF PREMISES; ALTERATIONS 3.1 Substantial Completion 5 3.2 Certain Tenant Rights 3.3 General Provisions Applicable to Construction 3.4 Intentionally Omitted 3.5 Additional Tenant Work Costs 3.6 Alterations ARTICLE IV-LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS 4.1 Landlord's Covenants 4.1.1 Services Furnished by Landlord 4.1.2 Additional Services Available to Tenant 4.1.3 Roof, Exterior Wall, Floor Slab and Common Facility Repairs 4.1.4 Door Signs 4.2 Interruptions and Delays in Services and Repairs, etc. 4.3 Landlord Insurance 4.4 ADA Compliance ARTICLE V-TENANT'S COVENANTS 5.1 Payments 5.2 Repair and Yield Up 5.3 Use 5.4 Obstructions; Items Visible From Exterior; Rules and Regulations 5.5 Safety Appliances; Licenses 5.6 Assignment; Sublease 5.7 Indemnity; Insurance 6 5.8 Personal Property at Tenant's Risk 5.9 Right of Entry 5.10 Floor Load; Prevention of Vibration and Noise 5.11 Personal Property Taxes 5.12 Compliance with Laws 5.13 Payment of Litigation Expenses ARTICLE VI-CASUALTY AND TAKING 6.0 Landlord's Restoration Estimate 6.1 Damage Resulting from Casualty 6.2 Uninsured Casualty 6.3 Rights of Termination for Taking 6.4 Award ARTICLE VII-DEFAULT 7.1 Tenant's Default 7.2 Landlord's Default ARTICLE VIII-MISCELLANEOUS PROVISIONS 8.1 Extra Hazardous Use 8.2 Waiver 8.3 Cumulative Remedies 8.4 Quiet Enjoyment 8.5 Notice To Mortgagee and Ground Lessor 8.6 Assignment of Rents 8.7 Surrender 7 8.8 Brokerage 8.9 Invalidity of Particular Provisions 8.10 Provisions Binding, Etc. 8.11 Recording 8.12 Notices 8.13 When Lease Becomes Binding 8.14 Section Headings 8.15 Rights of Mortgagee 8.16 Status Reports and Financial Statements 8.17 Self-Help 8.18 Holding Over 8.19 Non-Subrogation 8.20 Extension Option 8.21 Security Deposit 8.22 Late Payment 8.23 Tenant's Payments 8.24 Waiver of Trial by Jury 8.25 Governing Law ARTICLE II BUILDING, PREMISES, TERM AND RENT 2.1 THE PREMISES. Landlord hereby demises and leases to Tenant, and Tenant hereby hires and accepts from Landlord, Tenant's Space in the Building excluding exterior faces 8 of exterior walls, the common stairways and stairwells, elevators and elevator wells, fan rooms, electric and telephone closets, janitor closets, freight elevator vestibules, and pipes, ducts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of the Building and if Tenant's Space includes less than the entire rentable area of any floor, excluding the common corridors, elevator lobbies and toilets located on such floor. Subject to events beyond Landlord's reasonable control, Tenant shall have access to the Premises, including elevator access, twenty-four (24) hours per day, seven (7) days per week. Tenant's Space with such exclusions is hereinafter referred to as the "Premises". The term "Building" means the Building identified on the first page, and which is the subject of this Lease; the term "Site" means all, and also any part of the Land described in Exhibit A, plus any additions or reductions thereto resulting from the acquisition of adjacent property by Landlord or from the change of any abutting street line and all parking areas and structures. The term "Property" means the Building and the Site. 2.1.1 TENANT'S EXPANSION OPTIONS. (A) Upon written notice to be given by Tenant to Landlord no later than October 1, 2003 ("Tenant's First Expansion Notice") Tenant shall have the right to lease an additional 5,000 to 10,000 square feet of rentable floor area located on either the first, second, third or fourth floor of the Building ("Expansion Premises A"), it being understood and agreed that the actual location and square footage of Expansion Premises A shall be determined by Landlord in its sole discretion after receipt by Landlord of Tenant's First Expansion Notice. Expansion Premises A shall be delivered to Tenant between January 1, 2004 and June 30, 2004 (the "Expansion Premises A Delivery Date"), which date shall be determined by Landlord in its sole discretion. Effective as of the Expansion Premises A Delivery Date, for the remainder of the Term of this Lease (including any extension thereof), Expansion Premises A shall be automatically added to the Premises demised under this Lease upon all the same terms and conditions applicable to the Premises (including, without limitation, the rate of Annual Fixed Rent and the provisions for payment of operating expenses, real estate taxes and electricity as set forth below), except as expressly provided to the contrary in the next paragraph of this subsection (A), and from and after the Expansion Premises A Delivery Date the Rentable Floor Area of the Premises shall be increased by the rentable floor area of Expansion Premises A. Landlord and Tenant shall enter into an instrument amending this Lease to memorialize the addition of Expansion Premises A no later than thirty (30) days after the Expansion Premises A Delivery Date, provided, however, that the failure to enter into such an instrument shall not affect the addition of Expansion Premises A to the Premises. Notwithstanding anything contained herein to the contrary, (i) in the event that Expansion Premises A is in "shell" condition, Landlord shall, at Landlord's sole cost and expense, deliver said Expansion Premises A to Tenant in substantially the same condition as the Premises are being delivered to Tenant in accordance with Article III below, and (ii) in the event that Expansion Premises A has previously been built out, Landlord shall (x) patch and repaint Expansion Premises A with one coat of paint in the then-existing color 9 of such Expansion Premises A and (ii) perform minor repartitioning work in Expansion Premises A at a cost not to exceed $25,000.00, it being understood and agreed that Tenant shall be responsible for all costs of repartitioning work above $25,000.00 (provided, however, that Tenant shall have the option of accepting Expansion Premises A in their "as-is" condition without any obligation on Landlord's part to perform any additions, alterations, improvements or other work therein or pertaining thereto, and without any cost or expense to Landlord or Tenant). (B) Upon written notice to be given by Tenant to Landlord no later than September 1, 2004 ("Tenant's Second Expansion Notice"), Tenant shall have the right to lease an additional 10,000 to 25,000 square feet of rentable floor area located on either the first, second, third or fourth floor of the Building ("Expansion Premises B"). Expansion Premises B shall be delivered to Tenant between July 1, 2005 and December 31, 2005 (the "Expansion Premises B Delivery Date"), which date shall be determined by Landlord in its sole discretion. Within twenty (20) days after the date of Tenant's Second Expansion Notice, Landlord shall advise Tenant of (i) the actual location and square footage of Expansion Premises B (which shall be determined by Landlord in its sole discretion) and the Expansion Premises B Delivery Date, (ii) the annual fair market rent for such space as of the Expansion Premises B Delivery Date based upon the use of such space as first class office space and the location of such space in the Building utilizing properties of similar character in the Boston West Suburban Market (the "Expansion Premises B Annual Market Rent") and (iii) the other business terms upon which Expansion Premises B is to be made available to Tenant (said notice from Landlord being hereinafter referred to as "Landlord's Expansion Premises B Terms Notice"). Within ten (10) days after receipt of Landlord's Expansion Premises B Terms Notice, Tenant shall provide Landlord with written notice (x) of Tenant's agreement with and acceptance of the terms set forth in Landlord's Expansion B Premises Terms Notice or (y) requesting a broker determination of the "Prevailing Market Rent" and other business terms and conditions for such space (the "Expansion Premises B Broker Determination"), to be made in the manner set forth in Exhibit F or (z) revoking its exercise of Tenant's Second Expansion Notice. If Tenant shall give the notice specified in subsection (x) above, then Expansion Premises B shall be incorporated into the Premises as of the Expansion Premises B Delivery Date upon all of the same terms and conditions contained in this Lease, except for the provisions of this Section 2.1.1(B), the Annual Fixed Rent for such space (which shall be equal to the Expansion Premises B Annual Market Rent as quoted by Landlord) and those provisions which are inconsistent with the terms of Landlord's Expansion Premises B Terms Notice. If Tenant shall have given the notice specified in subsection (y) above requesting the Expansion Premises B Broker Determination, then Expansion Premises B shall be incorporated into the Premises as of the Expansion Premises B Delivery Date upon all of the same terms and conditions contained in this Lease, except for the provisions of this Section 2.1.1(B) and the Annual Fixed Rent and other business terms and conditions for such space (which shall be as determined by the Expansion Premises B Broker Determination). From and after the Expansion Premises B Delivery Date the Rentable Floor Area of the Premises shall be 10 increased by the rentable floor area of Expansion Premises B. Landlord and Tenant shall enter into an instrument amending this Lease to memorialize the addition of Expansion Premises B within thirty (30) days after the Expansion Premises B Delivery Date, provided, however, that the failure to enter into such an instrument shall not affect the addition of Expansion Premises B to the Premises. If Tenant shall have given the notice specified in subsection (z) above revoking its exercise of Tenant's Second Expansion Notice, then the provisions of this Section 2.1.1(B) shall be null and void and of no further force and effect and Tenant shall have no further rights with respect to Expansion Premises B (except as may be set forth in Section 2.1.2 below). Notwithstanding anything contained in this Lease to the contrary, it is understood and agreed that in the event Tenant shall exercise its option to lease Expansion Premises B as set forth in this Section 2.1.1(B), the Term of this Lease for the entire Premises (i.e. the Premises, Expansion Premises A if Tenant has leased the same and Expansion Premises B, but not including any First Offer Space as defined in Section 2.1.2 below) shall be adjusted to create a new term commencing on the Expansion Premises B Delivery Date and expiring on the last day of the sixtieth (60th) full calendar month immediately following the Expansion Premises B Delivery Date (the "Adjusted Term") (it being understood and agreed that Tenant's right to extend the Term of this Lease as set forth in Section 8.20 hereof would thereafter apply to the entire Premises as described above and would be exercisable upon the expiration of the Adjusted Term). Annual Fixed Rent and Additional Rent with respect to the Premises and Expansion Premises A would continue to be payable at the rates set forth in this Lease with respect to that portion of the Adjusted Term as would otherwise have constituted the remainder of the Original Term of this Lease; provided, however, that upon what would have otherwise been the expiration of the Original Term of this Lease with respect to the Premises and Expansion Premises A and for the remainder of the Adjusted Term, Annual Fixed Rent and Additional Rent with respect to such space shall be payable at the same rates as applicable to Expansion Premises B as determined in accordance with the provisions of this Section 2.1.1(B). (C) Time is of the essence in the delivery by Tenant of Tenant's First Expansion Notice and Tenant's Second Expansion Notice. It is understood and agreed that Tenant's rights as set forth in this Section 2.1.1 shall only be available to the extent that at the time Tenant exercises its option and upon the delivery of the applicable expansion premises to Tenant (i) Tenant is not then in default in the performance of any of its obligations under this Lease beyond any applicable notice and cure periods, (ii) Tenant has not assigned this Lease nor sublet in the aggregate thirty-three percent (33%) or more of the Rentable Floor Area of the Premises (except for an assignment or subletting permitted without Landlord's consent under Section 5.6.1 hereof) and (iii) this Lease is still in full force and effect. It is further understood and agreed that Tenant's rights as set forth in subsection (A) and (B) above shall be independent of each other, such that Tenant shall have the right to lease Expansion Premises B even if it had not previously exercised its option to lease Expansion Premises A. 11 2.1.2 TENANT'S RIGHT OF FIRST OFFER. (A) As of the date hereof, the fourth (4th) floor of the Building (the "First Offer Space") is currently unoccupied. Landlord shall have the right to market and lease such First Offer Space to third parties (the "Initial Tenants") in Landlord's sole discretion. Any such leases and the terms thereof, including, but not limited to, the original terms, any options to extend the terms, any expansion rights or options and any amendments thereto are hereinafter called the "Initial Leases". Subject to the Initial Leases and the rights of the Initial Tenants thereunder, which rights are prior to the offer right of Tenant under this Section 2.1.2 and notwithstanding that amendments to Initial Leases may be executed by the Initial Tenants subsequent to the date of this Lease, and provided that at the time any portion of the First Offer Space becomes available for leasing (i) there is no "Event of Default" (as defined in Section 7.1), (ii) Tenant has not assigned this Lease or sublet in the aggregate thirty-three percent (33%) or more of the Rentable Floor Area of the Premises (except for an assignment or subletting permitted without Landlord's consent under Section 5.6.1 hereof) and (iii) this Lease is still in full force and effect, Landlord agrees not to enter into a lease or leases to relet any portion of the First Offer Space on or after October 1, 2004 without first giving to Tenant an opportunity to lease such space on the terms and conditions hereinafter provided. If such space becomes so available for reletting, Landlord shall notify Tenant of the availability of such space ("Landlord's Offer Notice") and shall advise Tenant of the annual fair market rent for such space as of the date when the same becomes so available for reletting based upon the use of such space as first class office space and the location of such space in the Building utilizing properties of similar character within the Boston West Suburban Market and other business terms upon which Landlord is willing to lease such space (collectively, the "First Offer Space Terms and Conditions"). (B) If Tenant wishes to exercise Tenant's right of offer, Tenant shall do so, if at all, by giving Landlord notice within fifteen (15) business days after receipt of Landlord's Offer Notice, time being of the essence, (i) of Tenant's desire to lease such space on the terms set forth in Landlord's Offer Notice or (ii) requesting a broker determination of the "Prevailing Market Rent" and other business terms and conditions for such space (the "First Offer Space Broker Determination"), to be made in the manner set forth in Exhibit F. (C) If Tenant timely shall give the notice specified in subsection (B)(i) hereinabove, the same shall constitute an agreement to enter into an amendment to this Lease to incorporate such space into the Premises within twenty (20) days thereafter, upon all of the same terms and conditions contained in this Lease, except for the provisions of this Section 2.1.2, the Annual Fixed Rent and other business terms and conditions for such space (which shall be the First Offer Space Terms and Conditions as quoted by Landlord) and those provisions which are inconsistent with the terms of Landlord's Offer Notice. If Tenant timely shall have given the notice specified in subsection (B) (ii) above requesting the First Offer Space Broker Determination, then in order to exercise its right of first offer, Tenant, within fifteen (15) business days after receipt of the First Offer Space Broker Determination, shall give written notice to Landlord of Tenant's exercise of its right of offer pursuant to this Section, in which case the Annual Fixed Rent and other 12 business terms and conditions for such space shall be as determined by the First Offer Space Broker Determination. Upon the giving of notice by Tenant within said fifteen (15) day period as provided in this subsection then the same shall constitute an agreement to enter into an amendment to this Lease to incorporate such space into the Premises within twenty (20) days thereafter upon all the same terms, conditions, covenants and agreements contained in this Lease, except for the provisions of this Section 2.1.2, the Annual Fixed Rent and other business terms and conditions for such space which shall be determined as described in this subsection and those provisions which are consistent with the terms of Landlord's Offer Notice. (D) If Tenant shall not so exercise such right to lease such space within the periods specified in subsections (B) or (C) above, as applicable, time being of the essence in respect of such exercise, Tenant shall have no further right of offer hereunder with respect to that portion of the First Offer Space then being offered for lease (it being understood that Tenant's right of first offer shall be a one time right only) and Landlord shall be free to enter into a lease or leases of such space with another prospective tenant or tenants upon such terms and conditions as Landlord shall determine, which terms may include rights for options to extend the term or to expand the size of the premises under such lease or leases; provided, however, that if following the date of Landlord's Offer Notice, Landlord proposes to lease the applicable portion of the First Offer Space at a rental rate that is equal to or less than ninety-five percent (95%) of the rental rate set forth in Landlord's Offer Notice, the terms of this Section 2.1.2 shall continue to apply to such portion of the First Offer Space. (E) If Tenant shall exercise any such right of first offer and if, thereafter, the then occupant of the premises with respect to which Tenant shall have so exercised such right wrongfully fails to deliver possession of such premises at the time when its tenancy is scheduled to expire, commencement of the term of Tenant's occupancy and lease of such additional space shall, in the event of such holding over by such occupant, be deferred until possession of the additional space is delivered to Tenant and no rent shall be due on such additional space until the same is delivered to Tenant. The failure of the then occupant of such premises to so vacate, shall not give Tenant any right to terminate this Lease or to deduct from, offset against or withhold Annual Fixed Rent or additional rent or other charges payable under this Lease or any portions thereof. Notwithstanding the foregoing, Tenant shall have the right to rescind its exercise of its right of first offer hereunder in the event that Landlord shall fail to deliver the applicable portion of the First Offer Space within six (6) months from the delivery date set forth in Landlord's Offer Notice, which such rescission shall be set forth in a notice given by Tenant to Landlord no later than fifteen (15) days from the expiration of the aforesaid six-month period. (F) It is understood and agreed that Tenant's rights as set forth in this Section 2.1.2 shall be independent of its rights as set forth in Section 2.1.1 above, such that Tenant shall have the right to lease the First Offer Space regardless of whether or not it has exercised its rights to lease Expansion Premises A and/or Expansion Premises B. 13 2.2 RIGHTS TO USE COMMON FACILITIES. Subject to Landlord's right to change or alter any of the following in Landlord's discretion as herein provided, Tenant shall have, as appurtenant to the Premises, the non- exclusive right to use in common with others, subject to reasonable rules of general applicability to tenants of the Building from time to time made by Landlord of which Tenant is given notice (a) the common lobbies, corridors, stairways, elevators and loading platform of the Building, and the pipes, ducts, conduits, wires and appurtenant meters and equipment serving the Premises in common with others, (b) common walkways and driveways necessary for access to the Building, (c) if the Premises include less than the entire rentable floor area of any floor, the common toilets, corridors and elevator lobby of such floor, and (d) the cafeteria and fitness center serving the Building. Notwithstanding anything to the contrary herein, Landlord has no obligation to allow any particular telecommunication service provider to have access to the Building or to the Premises except as may be required by applicable law. If Landlord permits such access, Landlord may condition such access upon the payment to Landlord by the service provider of fees assessed by Landlord in its sole discretion. 2.2.1 TENANT'S PARKING. In addition, Tenant shall have the right, free of charge during the Original Term of this Lease, to use in the parking area the Number of Parking Spaces (referred to in Section 1.1, which such Number of Parking Spaces shall be increased proportionately to reflect any increases in the Rentable Floor Area of the Premises) for the parking of automobiles, in common with use by other tenants from time to time of the Complex, provided, however, that Landlord shall not be obligated to furnish stalls or spaces on the Site specifically designated for Tenant's use. Tenant covenants and agrees that it and all persons claiming by, through and under it, shall at all times abide by all reasonable rules and regulations of general application promulgated by Landlord with respect to the use of the parking areas on the Site. The parking privileges granted herein are non-transferable except to a permitted assignee or subtenant as provided in Section 5.6 through Section 5.6.5. Further, Landlord assumes no responsibility whatsoever for loss or damage due to fire, theft or otherwise to any automobile(s) parked on the Site or to any personal property therein, however caused (except to the extent caused by the negligence or willful misconduct of Landlord or its agents, employees or contractors), and Tenant covenants and agrees, upon request from Landlord from time to time, to notify its officers, employees, agents and invitees of such limitation of liability. Tenant acknowledges and agrees that a license only is hereby granted, and no bailment is intended or shall be created. 2.3 LANDLORD'S RESERVATIONS. Landlord reserves the right from time to time, without unreasonable interference with Tenant's use and with no material reduction in the usable floor area of the Premises: (a) to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises or Building, and (b) to alter or relocate any other common facility, provided that substitutions are substantially equivalent or better. Installations, replacements and relocations referred to in clause (a) above shall be located so far as practicable in the central core area of the 14 Building, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. 2.4 HABENDUM. Tenant shall have and hold the Premises for a period commencing on the earlier of (a) that date on which the Premises are ready for occupancy as in Section 3.1 provided, or (b) that date on which Tenant commences occupancy of any portion of the Premises for the Permitted Uses, and continuing for the Term unless sooner terminated as provided in Article VI or Article VII or unless extended as provided in Section 8.20. As soon as may be convenient after the date has been determined on which the Term commences as aforesaid, Landlord and Tenant agree to join with each other in the execution of a written Declaration, in the form of Exhibit E, in which the date on which the Term commences as aforesaid and the Term of this Lease shall be stated. If Tenant fails to execute such Declaration, the Commencement Date and Lease Term shall be as reasonably determined by Landlord in accordance with the terms of this Lease. 2.5 FIXED RENT PAYMENTS. Tenant agrees to pay to Landlord, or as directed by Landlord, at Landlord's Original Address specified in Section 1.1 hereof, or at such other place as Landlord shall from time to time designate by notice, (1) (a) on the Rent Commencement Date (defined in Section 1.1 hereof) and thereafter monthly, in advance, on the first day of each and every calendar month during the Original Term, a sum equal to one twelfth (1/12th) of the Annual Fixed Rent (sometimes hereinafter referred to as "fixed rent") and (b) on the Commencement Date and thereafter monthly, in advance, on the first day of each and every calendar month during the Original Term, a sum equal to one twelfth (1/12th) of $1.00 per annum for each square foot of Rentable Floor Area of Tenant's Space for tenant electricity subject to escalation as provided in Section 2.8 and (2) on the first day of each and every calendar month during the extension option period (if exercised), a sum equal to (a) one twelfth (1/12th) of the annual fixed rent as determined in Section 8.20 for the extension option period plus (b) then applicable monthly electricity charges (subject to escalation for electricity as provided in Section 2.8 hereof). Until notice of some other designation is given, fixed rent and all other charges for which provision is herein made shall be paid by remittance to or for the order of Boston Properties Limited Partnership at P.O. Box 3557, Boston, Massachusetts 02241-3557, and all remittances received by Boston Properties Limited Partnership, as Agents as aforesaid, or by any subsequently designated recipient, shall be treated as payment to Landlord. Annual Fixed Rent for any partial month shall be paid by Tenant to Landlord at such rate on a pro rata basis, and, if the Rent Commencement Date is a day other than the first day of a calendar month, the first payment of Annual Fixed Rent which Tenant shall make to Landlord shall be a payment equal to a proportionate part of such monthly Annual Fixed Rent for the partial month from the Rent Commencement Date to the first day of the succeeding calendar month. 15 Additional Rent payable by Tenant on a monthly basis, as hereinafter provided, likewise shall be prorated, and the first payment on account thereof shall be determined in similar fashion but shall commence on the Commencement Date; and other provisions of this Lease calling for monthly payments shall be read as incorporating this undertaking by Tenant. Notwithstanding that the payment of Annual Fixed Rent payable by Tenant to Landlord shall not commence until the Rent Commencement Date, Tenant shall be subject to, and shall comply with, all other provisions of this Lease as and at the times provided in this Lease. The Annual Fixed Rent and all other charges for which provision is herein made shall be paid by Tenant to Landlord, without offset, deduction or abatement except as otherwise specifically set forth in this Lease. 2.6 OPERATING EXPENSES. "Landlord's Operating Expenses" means the cost of operation of the Building and the Site which shall exclude costs of special services rendered to tenants (including Tenant) and tenant electricity for which a separate charge is made, but shall include, without limitation, the following: premiums for insurance carried with respect to the Building and the Site (including, without limitation, liability insurance, insurance against loss in case of fire or casualty and insurance of monthly installments of fixed rent and any Additional Rent which may be due under this Lease and other leases of space in the Building for not more than 12 months in the case of both fixed rent and Additional Rent and if there be any first mortgage of the Property, including such insurance as may be required by the holder of such first mortgage); compensation and all fringe benefits, worker's compensation insurance premiums and payroll taxes paid to, for or with respect to all persons engaged in the operating, maintaining or cleaning of the Building or Site, water, sewer, electric, gas, oil and telephone charges (excluding utility charges separately chargeable to tenants for additional or special services); cost of building and cleaning supplies and equipment; cost of maintenance, cleaning and repairs (other than repairs not properly chargeable against income or reimbursed from contractors under guarantees); cost of snow removal and care of landscaping; payments under service contracts with independent contractors; cost of operating, maintaining and cleaning the cafeteria and fitness center serving the Building; management fees at reasonable rates consistent with the type of occupancy and the service rendered; and all other reasonable and necessary expenses paid in connection with the operation, cleaning and maintenance of the Building and the Site and properly chargeable against income, provided, however, there shall be included (a) depreciation for capital expenditures made by Landlord (i) to reduce Landlord's Operating Expenses if Landlord shall have reasonably determined that the annual reduction in Landlord's Operating Expenses shall exceed depreciation therefor and interest thereon or (ii) to comply with applicable laws, rules, regulations, requirements, statutes, ordinances, by-laws and court decisions of all public authorities which are hereafter in force; plus (b) in the case of both (i) and (ii) an interest factor, reasonably determined by Landlord, as being the interest rate then charged for long term mortgages by institutional lenders on 16 like properties within the locality in which the Building is located; depreciation in the case of both (i) and (ii) shall be determined by dividing the original cost of such capital expenditure by the number of years of useful life of the capital item acquired and the useful life shall be reasonably determined by Landlord in accordance with generally accepted accounting principles and practices in effect at the time of acquisition of the capital item. Notwithstanding the foregoing provisions, the following shall be excluded from Landlord's Operating Expenses: (1) Leasing fees or commissions, advertising and promotional expenses, legal fees, the cost of tenant improvements, build out allowances, moving expenses, and other concessions incurred in connection with leasing spacing in the Building; (2) Interest on indebtedness, debt amortization, ground rent, and refinancing costs for any mortgage or ground lease of the Building or the Site; (3) Expenses incurred in obtaining a tax refund and abatement which have otherwise been paid by Tenant pursuant to Section 2.7; (4) Costs incurred in performing work or finishing services for any tenant (including Tenant), whether at such tenant's or Landlord's expense, to the extent that such work or services is in excess or any work or service the Landlord is obligated to furnish to Tenant at Landlord's expense; (5) The cost of any item or service to the extent to which Landlord is reimbursed or compensated by insurance, any tenant, or any third party; (6) The cost of repairs or replacements incurred by reason of fire or other casualty or condemnation other than costs not in excess of the deductible on any insurance maintained by Landlord which provides a recovery for such repair or replacement; (7) Any advertising, promotional or marketing expenses for the Building; (8) With the exception of the management fee described in the first paragraph of this Section 2.6, the cost of any service or materials provided by any party related to Landlord, to the extent such costs exceed the reasonable cost for such service or materials absent such relationship in buildings similar to the Building in the vicinity of the Building; (9) Penalties and interest for late payment of any obligations of Landlord, including, without limitation, taxes, insurance, equipment leases and other past due amounts; (10) Salaries or other compensation paid to employees above the grade of Building manager; 17 (11) Cost of installing sculpture, paintings or other objects of art; (12) Cost of repairs, replacements, alterations or improvements necessary to make the Building comply with applicable law as of the date of this Lease; (13) Legal fees or other expenses incurred in connection with negotiating and enforcing leases with tenants in the Building; and (14) Depreciation except as specifically otherwise expressly provided in this Lease. "Operating Expenses Allocable to the Premises" shall mean the same proportion of Landlord's Operating Expenses for and pertaining to the Building and the Site as the Rentable Floor Area of Tenant's Space bears to the Total Rentable Floor Area of the Building. "Base Operating Expenses" is hereinbefore defined in Section 1.1. Base Operating Expenses shall not include utility increases due to extraordinary circumstances, including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages. "Base Operating Expenses Allocable to the Premises" means the same proportion of Base Operating Expenses for and pertaining to the Building and the Site as the Rentable Floor Area of Tenant's Space bears to the Total Rentable Floor Area of the Building. If with respect to any calendar year falling within the Term, or fraction of a calendar year falling within the Term at the beginning or end thereof, the Operating Expenses Allocable to the Premises for a full calendar year exceed Base Operating Expenses Allocable to the Premises, or for any such fraction of a calendar year exceed the corresponding fraction of Base Operating Expenses Allocable to the Premises, then Tenant shall pay to Landlord, as Additional Rent, the amount of such excess. Such payments shall be made at the times and in the manner hereinafter provided in this Section 2.6. (Base Operating Expenses Allocable to the Premises referred to above do not include the $1.00 for tenant electricity to be paid by Tenant at the time of payment of Annual Fixed Rent and for which provision is made in Section 2.5 hereof, separate provision being made in Section 2.8 of this Lease for Tenant's share of increases in electricity costs.) Not later than one hundred and twenty (120) days after the end of the first calendar year or fraction thereof ending December 31 and of each succeeding calendar year during the Term or fraction thereof at the end of the Term, Landlord shall render Tenant a statement in reasonable detail and according to usual accounting practices certified by a representative of Landlord, showing for the preceding calendar year or fraction thereof, as the case may be, Landlord's Operating Expenses and Operating Expenses Allocable to the Premises. Said statement to be rendered to Tenant shall also show for the preceding year or fraction thereof as the case may be the amounts of operating expenses already paid by Tenant as Additional Rent, and the amount of operating expenses remaining due from, or 18 overpaid by, Tenant for the year or other period covered by the statement. Within thirty (30) days after the date of delivery of such statement, Tenant shall pay to Landlord the balance of the amounts, if any, required to be paid pursuant to the above provisions of this Section 2.6 with respect to the preceding year or fraction thereof, or Landlord shall credit any amounts due from it to Tenant pursuant to the above provisions of this Section 2.6 against (i) monthly installments of fixed rent next thereafter coming due or (ii) any sums then due from Tenant to Landlord under this Lease (or refund within thirty (30) days such portion of the overpayment as aforesaid if the Term has ended and Tenant has no further obligation to Landlord). Upon no less than five (5) business days prior notice to Landlord, Tenant, at Tenant's expense, may examine Landlord's books and records regarding such statement at a mutually agreeable time during Landlord's business hours at a place designated by Landlord, but Landlord need not retain such books or records for more than three (3) years after the close of the applicable calendar year. In the event such examination reveals a discrepancy between such statement and Landlord's Operating Expenses, Tenant shall provide Landlord written notice thereof within thirty (30) days of the examination. Within a reasonable time following Landlord's receipt of such notice not to exceed thirty (30) days, Landlord shall have the right to verify such discrepancy as stated in Tenant's notice, and if Landlord reasonably determines such discrepancy shall exist, Landlord shall provide Tenant notice confirming the amount of the refund due to Tenant or payment due to Landlord, as applicable, due to such discrepancy. The failure by Landlord to respond to Tenant's notice within the aforesaid thirty (30) day period shall be deemed to be a confirmation by Landlord of such discrepancy. Within thirty (30) days of Tenant's receipt of such notice, the amount due to such discrepancy shall be refunded to Tenant or paid to Landlord, as applicable. In addition, in the event there is a discrepancy between Landlord's statement and Landlord's Operating Expenses exceeding five percent (5%), Landlord shall reimburse Tenant for Tenant's reasonable fees paid by Tenant for the examination of Landlord's books and records in an amount not to exceed $5,000.00. Tenant shall hold such books, records and other information gathered from such examination in confidence and not disclose the same to any other party, including, without limitation, any other tenant in the Building. In addition, Tenant shall make payments monthly on account of Tenant's share of increases in Landlord's Operating Expenses anticipated for the then current year at the time and in the fashion herein provided for the payment of fixed rent. The amount to be paid to Landlord shall be an amount reasonably estimated annually by Landlord to be sufficient to cover, in the aggregate, a sum equal to Tenant's share of such increases in operating expenses for each calendar year during the Term. Notwithstanding the foregoing provisions, no decrease in Landlord's Operating Expenses shall result in a reduction of the amount otherwise payable by Tenant if and to the extent said decrease is attributable to vacancies in the Buildings rather than to any other causes. 2.7 REAL ESTATE TAXES. If with respect to any full Tax Year or fraction of a Tax Year falling within the Term, Landlord's Tax Expenses Allocable to the Premises as hereinafter defined for a full Tax Year exceed $3.75 per square foot of Rentable Floor Area of the 19 Premises, or for any such fraction of a Tax Year exceed the corresponding fraction of $3.75 per square foot of Rentable Floor Area of the Premises, then Tenant shall pay to Landlord, as Additional Rent, the amount of such excess. Not later than ninety (90) days after Landlord's Tax Expenses Allocable to the Premises are determined for the first such Tax Year or fraction thereof and for each succeeding Tax Year or fraction thereof during the Term, Landlord shall render Tenant a statement in reasonable detail certified by a representative of Landlord showing for the preceding year or fraction thereof, as the case may be, real estate taxes on the Building and the Site and abatements and refunds of any taxes and assessments. Expenditures for legal fees and for other expenses incurred in obtaining the tax refund or abatement may be charged against the tax refund or abatement before the adjustments are made for the Tax Year. Said statement to be rendered to Tenant shall also show for the preceding year or fraction thereof as the case may be the amounts of real estate taxes already paid by Tenant as Additional Rent, and the amount of real estate taxes remaining due from, or overpaid by, Tenant for the year or other period covered by the statement. Within thirty (30) days after the date of delivery of the foregoing statement, Tenant shall pay to Landlord the balance of the amounts, if any, required to be paid pursuant to the above provisions of this Section 2.7 with respect to the preceding year or fraction thereof, or Landlord shall credit any amounts due from it to Tenant pursuant to the provisions of this Section 2.7 against (i) monthly installments of fixed rent next thereafter coming due or (ii) any sums then due from Tenant to Landlord under this Lease (or refund within thirty (30) days such portion of the over-payment as aforesaid if the Term has ended and Tenant has no further obligation to Landlord). In addition, payments by Tenant on account of increases in real estate taxes anticipated for the then current year shall be made monthly at the time and in the fashion herein provided for the payment of fixed rent. The amount so to be paid to Landlord shall be an amount reasonably estimated by Landlord to be sufficient to provide Landlord, in the aggregate, a sum equal to Tenant's share of such increases, at least ten (10) days before the day on which such payments by Landlord would become delinquent. To the extent that real estate taxes shall be payable to the taxing authority in installments with respect to periods less than a Tax Year, the foregoing statement shall be rendered and payments made on account of such installments. Notwithstanding the foregoing provisions, no decrease in Landlord's Tax Expenses with respect to any Tax Year shall result in a reduction of the amount otherwise payable by Tenant if and to the extent said decrease is attributable to vacancies in the Building or partial completion of the Building rather than to any other causes. Terms used herein are defined as follows: (i) "Tax Year" means the twelve-month period beginning July 1 each year during the Term or if the appropriate governmental tax fiscal period shall begin on any date other than July 1, such other date. 20 (ii) "Landlord's Tax Expenses Allocable to the Premises" shall mean the same proportion of Landlord's Tax Expenses for and pertaining to the Building and the Site as the Rentable Floor Area of Tenant's Space bears to the Total Rentable Floor Area of the Building. (iii) "Landlord's Tax Expenses" with respect to any Tax Year means the aggregate real estate taxes on the Building and Site with respect to that Tax Year, reduced by any abatement receipts with respect to that Tax Year. (iv) "Real estate taxes" means all taxes and special assessments of every kind and nature and user fees and other like fees assessed by any governmental authority on the Building or Site which the Landlord shall become obligated to pay because of or in connection with the ownership, leasing and operation of the Site, the Building and the Property and reasonable expenses of any proceedings for abatement of taxes. The amount of special taxes or special assessments to be included shall be limited to the amount of the installment (plus any interest, other than penalty interest, payable thereon) of such special tax or special assessment required to be paid during the year in respect of which such taxes are being determined. There shall be excluded from such taxes all income, estate, succession, inheritance and transfer taxes; provided, however, that if at any time during the Term the present system of ad valorem taxation of real property shall be changed so that in lieu of the whole or any part of the ad valorem tax on real property there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Site or Building or Property, or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge distinct from any now in effect in the jurisdiction in which the Property is located) measured by or based, in whole or in part, upon any such gross rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term "real estate taxes" but only to the extent that the same would be payable if the Site and Buildings were the only property of Landlord. 2.8 TENANT ELECTRICITY. If with respect to any calendar year falling within the Term or fraction of a calendar year falling within the Term at the beginning or end thereof, the cost of furnishing electricity to the Premises (including electricity usage for lighting and outlets within the Premises and the distribution component of the heating, ventilation and air conditioning system serving the Premises) per check meter readings for a full calendar year exceeds $1.00 per square foot of Rentable Floor Area of the Building, or for any such fraction of a calendar year exceeds the corresponding fraction of $1.00 per square foot of Rentable Floor Area of the Premises, then Tenant shall pay to Landlord, as Additional Rent, on or before the thirtieth (30th) day following receipt by Tenant of the statement referred to below in this Section 2.8, the amount of such excess. Payments by 21 Tenant on account of such excess shall be made monthly at the time and in the fashion herein provided for the payment of Annual Fixed Rent. The amount so to be paid to Landlord shall be an amount from time to time reasonably estimated by Landlord to be sufficient to cover, in the aggregate, a sum equal to such excess for each calendar year during the Term. If the Landlord shall reasonably determine that the cost of the electricity furnished to the Tenant at the Premises exceeds the amount being paid under Sections 2.5 and 2.8, then the Landlord may charge the Tenant for such excess and the Tenant shall pay the same within thirty (30) days of billing therefor. Not later than ninety (90) days after the end of the first calendar year or fraction thereof ending December 31 and of each succeeding calendar year during the Term or fraction thereof at the end of the Term, Landlord shall render Tenant a reasonably detailed accounting certified by a representative of Landlord showing for the preceding calendar year, or fraction thereof, as the case may be, the costs of furnishing electricity to the Premises. Said statement to be rendered to Tenant also shall show for the preceding year or fraction thereof, as the case may be, the amount already paid by Tenant on account of electricity, and the amount remaining due from, or overpaid by, Tenant for the year or other period covered by the statement. ARTICLE III CONDITION OF PREMISES; ALTERATIONS 3.1 SUBSTANTIAL COMPLETION. (A) Plans and Construction Process. (1) Landlord's Work. Attached hereto as Exhibit B are a space plan and detailed scope showing the work to be performed by Landlord, at Landlord's cost and expense, in order to prepare the Premises for Tenant's occupancy (such work being hereinafter referred to as the "Landlord's Work"). For the purposes of this Lease, the term "Landlord's Work" shall mean all labor, materials and other work necessary for the construction of the improvements described in Exhibit B. (2) Additional Tenant Work. On or before September 1, 2002 (the "Tenant's Submission Date"), Tenant shall deliver to Landlord the data and information required by Exhibit B-1 attached hereto for approval by Landlord (the "Tenant's Submission"), which approval Landlord shall not unreasonably withhold or delay (provided, however, that Landlord's determination of matters relating to aesthetic issues relating to alterations or changes visible outside the Premises shall be in Landlord's sole discretion), showing items of work Tenant desires Landlord to perform in addition to the Landlord's Work (such work being hereinafter referred to as the "Additional Tenant Work"). For the purposes of this Lease, the term "Additional Tenant Work" shall mean all labor, materials and other work necessary for the construction of the improvements described in the Tenant's Submission. Landlord shall respond to Tenant within three (3) business days 22 after receipt of Tenant's Submission, either approving such Tenant's Submission, requesting additional information in connection therewith or disapproving particular items shown thereon. (3) Additional Tenant Work Costs. Upon its approval of the Tenant's Submission, Landlord shall cause to be prepared a detailed floor plan layout together with working drawings (the "Plans") reflecting the Landlord's Work and the Additional Tenant Work (such work being hereinafter referred to collectively as the "Work"). In connection with the foregoing, it is understood and agreed that Landlord shall be responsible for the design costs associated with the Landlord's Work and Tenant shall be responsible (as part of the Additional Tenant Work Costs, as hereinafter defined) for the design costs associated with the Additional Tenant Work. On or before October 1, 2002, Landlord shall furnish to Tenant (i) a written statement of the costs of the Additional Tenant Work (such costs being hereinafter referred to as the "Additional Tenant Work Costs"), which such costs shall be paid by Tenant as Additional Rent in accordance with Section 3.5 below, and (ii) a list of any items of the Additional Tenant Work for which there is a long lead time in obtaining the materials therefor or which are specially or specifically manufactured, produced or milled for the Additional Tenant Work in the Premises and require additional time for receipt or installation ("Long Lead Items"). (4) Authorization to Proceed Date. On or before October 8, 2002 (the "Authorization to Proceed Date"), Tenant shall give Landlord written authorization to either proceed with the Additional Tenant Work in accordance with the approved Tenant's Submission or to proceed with the Additional Tenant Work as the same may be modified by Tenant to remove particular items of work originally shown on the Tenant's Submission (such notice in either event being referred to as the "Notice to Proceed"). In addition, Tenant shall, on or before the later to occur of (x) the Authorization to Proceed Date or (y) five (5) business days after the request therefor, execute and deliver to Landlord any affidavits and documentation requested by Landlord in writing required in order to obtain all permits and approvals necessary for Landlord to commence and complete Landlord's Work on a timely basis ("Permit Documentation"). (5) Change Orders. Tenant shall have the right, in accordance herewith, to submit for Landlord's approval change order requests subsequent to the Notice to Proceed, if any (each, a "Change Order Request"). Landlord agrees to respond to any such Change Order Request within such time as is reasonably necessary (taking into consideration the information contained in such Change Order Request) after the submission thereof by Tenant, advising Tenant of any anticipated costs ("Change Order Costs") associated with such Change Order Request, as well as an estimate of any delay which would likely result in the completion of the Work if a Change Order Request is made pursuant thereto. Tenant shall have the right to then approve or withdraw such Change Order Request within five (5) business days after receipt of such information. If Tenant fails to respond within such five (5) business day period, such Change Order Request shall be deemed withdrawn. If Tenant approves such Change Order Request, then such Change Order Request shall be deemed a "Change Order" hereunder and if the Change Order is made, 23 then the Change Order Costs associated with the Change Order shall be deemed additions to the Additional Tenant Work Costs and shall be paid in the same manner as Additional Tenant Work Costs are paid as set forth in Section 3.5. (6) Tenant Response to Requests for Information and Approvals. Except to the extent that another time period is expressly herein set forth, Tenant shall respond to any written (including e-mail) request from Landlord, Landlord's architect, Landlord's contractor and/or Landlord's Construction Representative for approvals or information in connection with the Work, within three (3) business days of Tenant's receipt of such request. (7) Time of the Essence. Time is of the essence in connection with the obligations of Landlord and Tenant under this Section 3.1. (B) Tenant Delay. (1) A "Tenant Delay" shall be defined as the following: (a) Tenant's failure to submit the Tenant's Submission on or before the Tenant's Submission Date, to give authorization to Landlord to proceed with the Additional Tenant Work on or before the Authorization to Proceed Date or to provide all required Permit Documentation to Landlord on or before the Authorization to Proceed Date (assuming in any event that such failure is not the direct result of Landlord's failure to timely give any notice required in this Section 3.1); or (b) Tenant's failure timely to respond to any request from Landlord, Landlord's architect, Landlord's contractor and/or Landlord's Construction Representative including, without limitation, within the time periods set forth in Section 3.1(A)(6) above; (c) Tenant's failure to pay the Additional Tenant Work Costs in accordance with Section 3.5; (d) Any delay due to Long Lead Items; (e) Any delay due to changes, alterations or additions required or made by Tenant after giving Landlord the Notice to Proceed, including, without limitation, Change Orders; or (f) Any other delays caused by Tenant, Tenant's contractors, or anyone else engaged by Tenant in connection with the preparation of the Premises for Tenant's occupancy, including, without limitation, utility companies and other entities furnishing communications, data processing or other service, equipment, or furniture. 24 (2) Tenant Obligations with Respect to Tenant Delays. (a) Tenant covenants that no Tenant Delay shall delay commencement of the Term or the obligation to pay Annual Fixed Rent or Additional Rent, regardless of the reason for such Tenant Delay or whether or not it is within the control of Tenant, unless such Tenant Delay is the direct result of Landlord's failure to give any notice required by Landlord to be given under this Section 3.1. The Work shall be deemed substantially completed as of the date when the Work would have been substantially completed but for any Tenant Delays, as determined by Landlord's architect in the exercise of its good faith business judgment. (b) Tenant shall reimburse Landlord the amount, if any, by which the cost of the Work is increased as the result of any Tenant Delay, as reasonably evidenced by Landlord. (c) Any amounts due from Tenant to Landlord under this Section 3.1(B)(2) shall be due and payable within thirty (30) days of billing therefor, and shall be considered to be Additional Rent. Nothing contained in this Section 3.1(B)(2) shall limit or qualify or prejudice any other covenants, agreements, terms, provisions and conditions contained in this Lease. (C) Substantial Completion of Landlord's Work. (1) Landlord's Obligations. Subject to Tenant Delays and delays due to governmental regulation, unusual scarcity of or inability to obtain labor or materials, labor difficulties, casualty, or other events reasonably beyond Landlord's control (collectively, "Force Majeure"), Landlord shall use reasonable speed and diligence to have the Work substantially completed on or before the Estimated Commencement Date, but Tenant shall have no claim against Landlord for failure so to complete construction in the Premises, except as set forth in Section 3.2 below. (2) Definition of Substantial Completion. The Premises shall be treated as having been substantially completed on the later of: (a) The date on which the Work, together with common facilities for access and services to the Premises, has been completed (or would have been completed except for Tenant Delays) except for minor items of work and adjustment of equipment and fixtures which can be completed after occupancy has been taken without causing substantial interference with Tenant's use of the Premises (i.e. so-called "punch list" items), or (b) The date when permission has been obtained from the applicable governmental authority, to the extent required by law, for occupancy by Tenant of the Premises for the Permitted Use (or would have been obtained but for Tenant Delays). 25 In the event of any dispute as to the date on which the Work has been substantially completed, the reasonable determination of Landlord's architect as to such date shall be deemed conclusive and binding on both Landlord and Tenant. (3) Incomplete Work. Landlord shall complete as soon as conditions practically permit any incomplete items of Work, and Tenant shall cooperate with Landlord in providing access as may be required to complete such work in a normal manner. Landlord shall use reasonable efforts to minimize disruption to Tenant's business during Landlord's completion of such work to the extent reasonably practicable under the circumstances. (4) Early Access by Tenant. Landlord shall permit Tenant access for installing Tenant's trade fixtures and computer, telephone and other communications equipment, furniture, systems and wiring in portions of the Premises no later than fourteen (14) days prior to substantial completion when it can be done without material interference with remaining work or with the maintenance of harmonious labor relations. Any such access by Tenant shall be at upon all of the terms and conditions of the Lease (other than the payment of Annual Fixed Rent, Operating Expenses Allocable to the Premises and Landlord's Tax Expenses Allocable to the Premises and tenant electricity) and shall be at Tenant's sole risk, and Landlord shall not be responsible for any injury to persons or damage to property resulting from such early access by Tenant (except to the extent caused by the negligence or willful misconduct of Landlord or its agents, employees or contractors). (5) Prohibition on Access by Tenant Prior to Actual Substantial Completion. If, prior to the date that the Premises are in fact actually substantially complete, the Premises are deemed to be substantially complete pursuant to the provisions of this Section 3.1 (i.e. and the Commencement Date has therefore occurred), Tenant shall not (except with Landlord's consent, which consent shall not be unreasonably withheld, conditioned or delayed) be entitled to take possession of the Premises for the Permitted Use until the Premises are in fact actually substantially complete. 3.2 CERTAIN TENANT RIGHTS. (A) If Landlord shall have failed substantially to complete the Work in the Premises described in the Plans on or before April 1, 2003 (which date shall be extended automatically for such periods of time as Landlord is prevented from proceeding with or completing the same by reason of Tenant Delays), Landlord shall pay to Tenant or grant Tenant free rent (at Landlord's election) in an amount equal to the sum of (I) Seventy Thousand Two Hundred Seventy-Three and 00/100 Dollars ($70,273.00) per month (prorated as appropriate to the extent that Tenant is only required to pay holdover costs for a partial month) (the "Holdover Compensation"), being equal to the difference between (x) the monthly holdover costs chargeable by the sublandlord and payable by Tenant under that certain Agreement of Sublease dated March 31, 2000 (the "52 Second Avenue Sublease") by and between 26 Renaissance Worldwide, Inc., as sublandlord, and Tenant, as subtenant, with respect to premises located at 52 Second Avenue, Waltham, Massachusetts (the "52 Second Avenue Premises") during any period of time in which Tenant remains in occupancy of the 52 Second Avenue Premises beyond the expiration date of the 52 Second Avenue Sublease (as set forth in the next paragraph of this subsection (A)) and (y) the monthly amount that Tenant otherwise have been required to pay for the 52 Second Avenue Premises in accordance with the terms and provisions of the 52 Second Avenue Sublease in the absence of any holdover penalties, plus (II) the costs (if any) actually incurred by Tenant under Section 17 of the 52 Second Avenue Sublease as the direct result of Landlord's failure to substantially complete the Work by April 1, 2003, as such date may be extended as the result of Tenant Delays (it being understood and agreed that in no event shall Landlord be liable for any costs pursuant to this subsection (II) in excess of Seventy Thousand Two Hundred Seventy-Three and 00/100 Dollars ($70,273.00) in the aggregate). In that regard, it is understood and agreed that Landlord shall under no circumstances be required to pay any Holdover Compensation if the Work is substantially completed on or before April 1, 2003 or if no holdover penalties are actually imposed by the sublandlord under the 52 Second Avenue Sublease. In connection with the foregoing, Tenant represents and warrants that (i) there are no amendments to the 52 Second Avenue Sublease other than those listed in the immediately preceding paragraph (if any) and (ii) the term of the 52 Second Avenue Sublease is scheduled to expire on March 31, 2003. Tenant further covenants and agrees that it will not amend the 52 Second Avenue Sublease or otherwise take any action thereunder that would increase the amount of holdover costs to be paid by Tenant under the 52 Second Avenue Sublease following the expiration of the term thereof without the prior written consent of Landlord (provided that in any event, if the holdover costs are increased without Landlord's consent, Landlord shall have no liability or responsibility therefor and such increase shall not be deemed to be a part of the Holdover Compensation otherwise payable hereunder). In addition, notwithstanding anything contained in this subsection (A) to the contrary, it is understood and agreed that (i) Landlord shall have no liability or responsibility to pay any holdover costs incurred by Tenant attributable to any reason other than the failure of Landlord to substantially complete the Work by April 1, 2003 and (ii) such right to receive Holdover Compensation shall be Tenant's sole and exclusive remedy for Landlord's failure to substantially complete the Work within such time. (B) If Landlord shall have failed substantially to complete the Work in the Premises described in the Plans on or before the Outside Completion Date as defined in Section 1.1 hereof (which date shall be extended automatically (i) for such periods of time as Landlord is prevented from proceeding with or completing the same by reason of Tenant Delays or (ii) for up to two hundred forty (240) days in the event of any Force Majeure as defined in Section 3.1) Tenant shall have the right to terminate this Lease by giving notice to Landlord of Tenant's desire to do so before such completion and within the time period from the Outside Completion Date (as so extended) until the date which is thirty (30) days subsequent to the Outside Completion Date (as so extended); and, upon the giving of such notice, the term of this Lease shall cease and come to an end without further 27 liability or obligation on the part of either party unless, within thirty (30) days after receipt of such notice, Landlord substantially completes the Work; and such right of termination shall be Tenant's sole and exclusive remedy for Landlord's failure so to complete the Work within such time. Each day of Tenant Delay shall be deemed conclusively to cause an equivalent day of delay by Landlord in substantially completing the Work pursuant to Section 3.1, and thereby automatically extend for each such equivalent day of delay the date of the Outside Completion Date. 3.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION. All construction work required or permitted by this Lease shall be done in a good and workmanlike manner and in compliance with all applicable laws, ordinances, rules, regulations, statutes, by-laws, court decisions, and orders and requirements of all public authorities ("Legal Requirements") and all requirements of insurers of the Building ("Insurance Requirements"). All of Tenant's work shall be coordinated with any work being performed by or for Landlord and in such manner as to maintain harmonious labor relations. Each party may inspect the work of the other at reasonable times and shall promptly give notice of observed defects. Each party authorizes the other to rely in connection with design and construction upon approval and other actions on the party's behalf by any Construction Representative of the party named in Section 1.1 or any person hereafter designated in substitution or addition by notice to the party relying. Except as otherwise provided in Article IV, the work required of Landlord pursuant to this Article III shall be deemed approved by Tenant when Tenant commences occupancy of the Premises for the Permitted Uses, except for (i) items which are uncompleted (including punch list items and long lead items) at the time Tenant commences occupancy, (ii) items as to which Tenant shall have given notice to Landlord within thirty (30) days of the Commencement Date and (iii) items which could not readily have been discovered in the exercise of reasonable diligence within the thirty (30) day period set forth in subsection (ii) above and as to which Tenant shall have given notice no later than twelve (12) months after the date Landlord's Work is deemed substantially complete in accordance with Section 3.1 above. 3.4 INTENTIONALLY OMITTED. 3.5 ADDITIONAL TENANT WORK COSTS. To the extent, if any, that there are Additional Tenant Work Costs, Tenant shall pay Landlord, as Additional Rent, 100% of the Additional Tenant Work Costs at the time the Notice to Proceed is given (or in the case of a Change Order, at the time of Tenant's approval of the Change Order Request). 3.6 ALTERATIONS. Tenant shall not make alterations and additions to Tenant's space except in accordance with plans and specifications therefor first approved by Landlord, which approval shall not be unreasonably withheld or delayed (provided, however, that Tenant shall have the right to make decorative changes such as repainting or recarpeting the Premises at a cost not to exceed $50,000 during any twelve (12) month period during the Lease Term without Landlord's consent, so long as the other conditions set forth in this Section 3.6 have been satisfied). However, Landlord's determination of matters 28 relating to aesthetic issues relating to alterations, additions or improvements which are visible outside the Premises shall be in Landlord's sole discretion. Without limiting such standard Landlord shall not be deemed unreasonable for withholding approval of any alterations or additions (including, without limitation, any alterations or additions to be performed by Tenant under Section 3.1) which (a) in Landlord's opinion might adversely affect any structural or exterior element of the Building, any area or element outside of the Premises, or any facility serving any area of the Building outside of the Premises, or (b) involve or affect the exterior design, size, height, or other exterior dimensions of the Building or (c) will require unusual expense to readapt the Premises to normal office use on Lease termination or expiration or increase the cost of construction or of insurance or taxes on the Building or of the services called for by Section 4.1 unless Tenant first gives assurance acceptable to Landlord for payment of such increased cost and that such readaptation will be made prior to such termination or expiration without expense to Landlord, or (d) enlarge the Rentable Floor Area of the Premises. Landlord's review and approval of any such plans and specifications and consent to perform work described therein shall not be deemed an agreement by Landlord that such plans, specifications and work conform with applicable Legal Requirements and Insurance Requirements nor deemed a waiver of Tenant's obligations under this Lease with respect to applicable Legal Requirements and Insurance Requirements nor impose any liability or obligation upon Landlord with respect to the completeness, design sufficiency or compliance of such plans, specifications and work with applicable Legal Requirements and Insurance Requirements. All alterations and additions shall be part of the Building unless and until Landlord shall specify the same for removal pursuant to Section 5.2. All of Tenant's alterations and additions and installation of furnishings shall be coordinated with any work being performed by Landlord and in such manner as to maintain harmonious labor relations and not to damage the Building or Site or unreasonably interfere with construction or operation of the Building and other improvements to the Site and, except for installation of furnishings, shall be performed by Landlord's general contractor or by contractors or workmen first approved by Landlord. Except for work by Landlord's general contractor, Tenant, before its work is started, shall secure all licenses and permits necessary therefor; deliver to Landlord a statement of the names of all its contractors and subcontractors and the estimated cost of all labor and material to be furnished by them and security satisfactory to Landlord protecting Landlord against liens arising out of the furnishing of such labor and material; and cause each contractor to carry workmen's compensation insurance in statutory amounts covering all the contractor's and subcontractor's employees and commercial general liability insurance or comprehensive general liability insurance with a broad form comprehensive liability endorsement with such limits as Landlord may reasonably require, but in no event less than $2,000,000.00 combined single limit per occurrence on a per location basis (all such insurance to be written in companies reasonably approved by Landlord and naming and insuring Landlord and Landlord's managing agent as additional insureds and insuring Tenant as well as the contractors), and to deliver to Landlord certificates of all such insurance. Tenant agrees to pay promptly when due the entire cost of any work done on the Premises by Tenant, its agents, employees, or independent contractors, and not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach 29 to the Premises or the Buildings or the Site and immediately to discharge any such liens which may so attach. Tenant shall pay, as Additional Rent, 100% of any real estate taxes on the Complex which shall, at any time after commencement of the Term, directly and specifically result from any alteration, addition or improvement to the Premises made by Tenant. ARTICLE IV LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS 4.1 LANDLORD COVENANTS: 4.1.1 SERVICES FURNISHED BY LANDLORD. To furnish services, utilities, facilities and supplies set forth in Exhibit C equal to those customarily provided by landlords in high quality buildings in the Boston West Suburban Market subject to escalation reimbursement in accordance with Section 2.6. 4.1.2 ADDITIONAL SERVICES AVAILABLE TO TENANT. To furnish, at Tenant's expense, reasonable additional Building operation services which are usual and customary in similar office buildings in the Boston West Suburban Market upon reasonable advance request of Tenant at reasonable and equitable rates from time to time established by Landlord. Tenant agrees to pay to Landlord, as Additional Rent, the cost of any such additional Building services requested by Tenant and for the cost of any additions, alterations, improvements or other work performed by Landlord in the Premises at the request of Tenant within thirty (30) days after being billed therefor. 4.1.3 ROOF, EXTERIOR WALL, FLOOR SLAB AND COMMON FACILITY REPAIRS. Except for (a) normal and reasonable wear and use and (b) damage caused by fire and casualty and by eminent domain, and except as otherwise provided in Article VI and subject to the escalation provisions of Section 2.6, (i) to make such repairs to and replacements of the roof, exterior walls, floor slabs and common areas, building systems (including heating, ventilation and air conditioning, electrical, water and sewer) and facilities as may be necessary to keep them in good and serviceable condition and (ii) to maintain the Building (exclusive of Tenant's responsibilities under this Lease) in a first class manner comparable to the maintenance of similar properties in the Boston West Suburban Market. 4.1.4 SIGNAGE. (A) To provide and install, at Landlord's expense, letters to identify Tenant's official name (i) in the existing building standard directory located at the ground floor entrances to the Building, (ii) on the existing monument sign at the intersection of Route 117 and Jones Road, (iii) on the existing monument type directional sign at the entrance to the drop-off area for the Building and (iv) in the existing brush stainless steel signage system in the main lobby on the ground floor of the Building. 30 (B) All signage described herein shall be in the building standard graphics and no others shall be used or permitted. (C) Tenant's rights set forth herein shall be available only so long as this Lease is in full force and effect and there shall not exist any Event of Default, and shall not be available and shall cease at such time as Netegrity, Inc. shall cease to be the Tenant hereunder (provided, however, that such signage rights shall be transferable in the event of an assignment or subleasing pursuant to Section 5.6.1 below, so long as Tenant pays all costs associated with resigning). (D) Tenant's rights as set forth herein shall be in common with signage rights granted from time to time by Landlord or the owner of the Site or portions thereof to other tenants of the Building or the Site. 4.2 INTERRUPTIONS AND DELAYS IN SERVICES AND REPAIRS, ETC. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from the necessity of Landlord or its agents entering the Premises in the manner set forth in this Lease for any of the purposes in this Lease authorized, or for repairing the Premises or any portion of the Building however the necessity may occur. In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any services or performing any other covenant or duty to be performed on Landlord's part, by reason of any cause reasonably beyond Landlord's control, including without limitation the causes set forth in Section 3.2 hereof as being reasonably beyond Landlord's control, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided below or in Article VI, shall Tenant be entitled to any abatement or reduction of rent by reason thereof. Notwithstanding the foregoing, in the event that the electrical, heating, ventilating, air conditioning, or all elevator service to the Premises shall be shut down for more than five (5) full and consecutive business days, then, Tenant shall be entitled to an equitable abatement of Annual Fixed Rent in an amount proportionate to the nature and extent of the interruption of Tenant's usage of the Premises as a result of the loss of service (taking into account any recovery Tenant may receive under any insurance policy providing coverage for business interruption). Notwithstanding anything herein contained to the contrary, in no event shall any of the events referred to in this Section give rise to a claim in Tenant's favor that such failure constitutes actual or constructive, total or partial, eviction from the Premises. Landlord reserves the right to stop any service or utility system, when necessary by reason of accident or emergency, or until necessary repairs have been completed; provided, however, that in each instance of stoppage, Landlord shall exercise reasonable diligence to eliminate the cause thereof. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof. 4.3 LANDLORD INSURANCE. Landlord shall carry at all times during the Term of this 31 Lease (i) commercial general liability insurance with respect to the Building in an amount not less than $5,000,000.00 combined single limit per occurrence and (ii) insurance against loss or damage with respect to the Building covered by the so-called "all risk" type insurance coverage in an amount equal to at least the replacement value of the Building. Landlord may also maintain such other insurance as may from time to time be required by a mortgagee holding a mortgage lien on the Building. Further, Landlord may also maintain such insurance against loss of annual fixed rent and additional rent and such other risks and perils as Landlord deems proper. Any and all such insurance (i) may be maintained under a blanket policy affecting other properties of Landlord and/or its affiliated business organizations, (ii) may be written with deductibles as determined by Landlord and (iii) shall be subject to escalation reimbursement in accordance with Section 2.6. 4.4 ADA COMPLIANCE. As of the date hereof, Landlord represents and warrants that Landlord has not received notice from any governmental agencies that the Building is in violation of Title III of the Americans with Disabilities Act. ARTICLE V TENANT'S COVENANTS Tenant covenants during the term and such further time as Tenant occupies any part of the Premises: 5.1 PAYMENTS. To pay when due all fixed rent and Additional Rent and all charges for utility services rendered to the Premises (except as otherwise provided in Exhibit C) and, as further Additional Rent, all charges for additional services rendered pursuant to Section 4.1.2. 5.2 REPAIR AND YIELD UP. Except as otherwise provided in Article VI and Section 4.1.3 to keep the Premises in good order, repair and condition, reasonable wear and tear and damage caused by casualty or eminent domain only excepted, and all glass in windows (except glass in exterior walls unless the damage thereto is attributable to Tenant's negligence or misuse) and doors of the Premises whole and in good condition with glass of the same type and quality as that injured or broken, damage by fire or taking under the power of eminent domain only excepted, and at the expiration or termination of this Lease peaceably to yield up the Premises all construction, work, improvements, and all alterations and additions thereto in good order, repair and condition, reasonable wear and tear and damage caused by casualty or eminent domain only excepted, first removing (i) all goods and effects of Tenant, (ii) to the extent specified by Landlord by notice to Tenant given at least ten (10) days before such expiration or termination, the wiring for Tenant's computer, telephone and other communication systems and equipment and (iii) to the extent specified by Landlord at the time approval of the same is given, all alterations and additions made by Tenant and all partitions, and in any event repairing any 32 damage caused by such removal and restoring the Premises and leaving them clean and neat. Tenant shall not permit or commit any waste, and Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damage to common areas in the Building, to the Site or to the other building caused by Tenant, Tenant's agents, contractors, employees, sublessees, licensees, concessionaires or invitees. 5.3 USE. To use and occupy the Premises for the Permitted Use only, and not to injure or deface the Premises, Building, the Site or any other part of the Complex nor to permit in the Premises or on the Site any auction sale, vending machine (unless consented to by Landlord, which consent shall not be unreasonably withheld or delayed), or inflammable fluids or chemicals, or nuisance, or the emission from the Premises of any objectionable noise or odor, and not to use or devote the Premises or any part thereof for any purpose other than the Permitted Uses, nor any use thereof which is inconsistent with the maintenance of the Building as an office building of the first class in the quality of its maintenance, use and occupancy, or which is contrary to law or ordinance or liable to invalidate or increase the premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building that would not have been rendered necessary but for such use by Tenant. Further, (i) Tenant shall not, nor shall Tenant permit its employees, invitees, agents, independent contractors, contractors, assignees or subtenants to, keep, maintain, store or dispose of (into the sewage or waste disposal system or otherwise) or engage in any activity which might produce or generate any substance which is or may hereafter be classified as a hazardous material, waste or substance (collectively "Hazardous Materials"), under federal, state or local laws, rules and regulations, including, without limitation, 42 U.S.C. Section 6901 et seq., 42 U.S.C. Section 9601 et seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C. Section 1802 et seq. and Massachusetts General Laws, Chapter 21E and the rules and regulations promulgated under any of the foregoing, as such laws, rules and regulations may be amended from time to time (collectively "Hazardous Materials Laws"), (ii) Tenant shall immediately notify Landlord of any incident in, on or about the Premises, the Building or the Site that would require the filing of a notice under any Hazardous Materials Laws, (iii) Tenant shall comply and shall cause its employees, invitees, agents, independent contractors, contractors, assignees and subtenants to comply with each of the foregoing and (iv) Landlord shall have the right to make such inspections (including testing) as Landlord shall elect from time to time to determine that Tenant is complying with the foregoing. Notwithstanding the foregoing, Tenant may use normal amounts and types of substances typically used for office uses, provided that Tenant uses such substances in the manner in which they are normally used, and in compliance with all Hazardous Materials Laws and other Legal Requirements. 5.4 OBSTRUCTIONS; ITEMS VISIBLE FROM EXTERIOR; RULES AND REGULATIONS. Not to obstruct in any manner any portion of the Building not hereby leased or any portion thereof or of the Site used by Tenant in common with others; not without prior consent of Landlord to permit the painting or placing of any signs, curtains, blinds, shades, awnings, aerials or flagpoles, or the like, visible from outside the 33 Premises; and to comply with all reasonable Rules and Regulations of general applicability now or hereafter made by Landlord, of which Tenant has been given notice, for the care and use of the Building and Site and their facilities and approaches; Landlord shall not be liable to Tenant for the failure of other occupants of the Buildings to conform to such Rules and Regulations. 5.5 SAFETY APPLIANCES. To keep the Premises equipped with all safety appliances required by any public authority because of any use made by Tenant other than normal office use, and to procure all licenses and permits so required because of such use and, if requested by Landlord, to do any work so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant's Permitted Use. 5.6 ASSIGNMENT; SUBLEASE. Except as otherwise expressly provided herein, Tenant covenants and agrees that it shall not assign, mortgage, pledge, hypothecate or otherwise transfer this Lease and/or Tenant's interest in this Lease or sublet (which term, without limitation, shall include granting of concessions, licenses or the like) the whole or any part of the Premises. Any assignment, mortgage, pledge, hypothecation, transfer or subletting not expressly permitted in or consented to by Landlord under Sections 5.6.1-5.6.5 shall be void, ab initio; shall be of no force and effect; and shall confer no rights on or in favor of third parties. In addition, Landlord shall be entitled to seek specific performance of or other equitable relief with respect to the provisions hereof. 5.6.1 Notwithstanding the foregoing provisions of Section 5.6 above and the provisions of Sections 5.6.2 and 5.6.4 below, but subject to the provisions of Sections 5.6.3 and 5.6.5, below Tenant shall have the right to assign this Lease or to sublet the Premises (in whole or in part) to (i) any parent or subsidiary corporation of Tenant, (ii) any corporation into which Tenant may be converted or with which it may merge or (iii) any entity which acquires all or substantially all of the stock or assets of Tenant, provided that in the event of any of the foregoing the entity to which this Lease is so assigned or which so sublets the Premises has a credit worthiness (e.g. assets on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) which is the same or better than the Tenant as of the date of this Lease. In the event of an assignment or subletting pursuant to subsection (i) above, if any parent or subsidiary corporation of Tenant to which this Lease is assigned or the Premises sublet (in whole or in part) shall cease to be such a parent or subsidiary corporation, such cessation shall be considered a new assignment or subletting subject to the applicable provisions of Sections 5.6 through 5.6.5 as appropriate. 5.6.1.1 Notwithstanding the provisions of Section 5.6 above, in the event Tenant desires (i) to assign this Lease or (ii) to sublet fifty percent (50%) or more of the Rentable Floor Area of the Premises for all or substantially all of the then-remaining Term of this Lease, Tenant shall notify Landlord thereof in writing and Landlord shall have the right at its sole option, to be exercised within twenty (20) days after receipt of Tenant's notice, to terminate this Lease as of the effective date of the proposed assignment or subletting (as 34 set forth in Tenant's notice); provided, however, that upon the termination date, all obligations relating to the period after such termination date (but not those relating to the period before such termination date) shall cease and promptly upon being billed therefor by Landlord, Tenant shall make final payment of all Annual Fixed Rent and Additional Rent due from Tenant through the termination date. Notwithstanding the foregoing, in the event that Tenant shall only propose to sublease a portion of the Premises, Landlord shall only have the right to so terminate this Lease with respect to the portion of the Premises which Tenant proposes to sublease (the "Terminated Portion of the Premises") and from and after the termination date the Rentable Floor Area of the Premises shall be reduced to the rentable floor area of the remainder of the Premises and the definition of Rentable Floor Area of the Premises shall be so amended and after such termination all references in this Lease to the "Premises" or the "Rentable Floor Area of the Premises" shall be deemed to be references to the remainder of the Premises and accordingly Tenant's payments for Annual Fixed Rent, operating costs, real estate taxes and electricity shall be reduced on a pro rata basis to reflect the size of the remainder of the Premises. In the event that Landlord shall not exercise its termination rights as aforesaid, or shall fail to give any or timely notice pursuant to this Section, the provisions of Sections 5.6.2-5.6.5 shall be applicable. This Section 5.6.1.1 shall not be applicable to an assignment or sublease pursuant to Section 5.6.1. 5.6.2 Notwithstanding the provisions of Section 5.6 above, but subject to the provisions of this Section 5.6.2 and the provisions of Sections 5.6.3, 5.6.4 and 5.6.5 below, in the event that Landlord shall not have exercised the termination right as set forth in Section 5.6.1.1, or shall have failed to give any or timely notice under Section 5.6.1.1, then for a period of one hundred twenty (120) days (i) after the receipt of Landlord's notice stating that Landlord does not elect the termination right, or (ii) after the expiration of the twenty (20) day period referred to in Section 5.6.1.1, in the event Landlord shall not give any or timely notice under Section 5.6.1.1 as the case may be, Tenant shall have the right to assign this Lease or sublet the Premises in accordance with Tenant's notice to Landlord given as provided in Section 5.6.3 provided that, in each instance, Tenant first obtains the express prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Without limiting the foregoing standard, Landlord shall not be deemed to be unreasonably withholding its consent to such a proposed assignment or subleasing if: (a) the proposed assignee or subtenant is in active negotiation with Landlord for premises in the Building (and adequate space is available for such tenant in the Building) or is not of a character consistent with the operation of a first class office building (by way of example Landlord shall not be deemed to be unreasonably withholding its consent to an assignment or subleasing to any governmental or quasi-governmental agency), or (b) the proposed assignee or subtenant is not of good character and reputation, or 35 (c) the proposed assignee or subtenant does not possess adequate financial capability to perform the Tenant obligations as and when due or required, or (d) the assignee or subtenant proposes to use the Premises (or part thereof) for a purpose other than the purpose for which the Premises may be used as stated in Section 1.1 hereof, or (e) the character of the business to be conducted or the proposed use of the Premises by the proposed subtenant or assignee shall (i) be likely to increase Landlord's Operating Expenses beyond that which Landlord now incurs for use by Tenant; (ii) be likely to increase the burden on elevators or other Building systems or equipment over the burden permitted in this Lease; or (iii) violate or be likely to violate any provisions or restrictions contained herein relating to the use or occupancy of the Premises, or (f) there shall be existing an Event of Default (defined in Section 7.1), or (g) any part of the rent payable under the proposed assignment or sublease shall be based in whole or in part on the income or profits derived from the Premises or if any proposed assignment or sublease shall potentially have any adverse effect on the real estate investment trust qualification requirements applicable to Landlord and its affiliates. 5.6.3 Tenant shall give Landlord notice of any proposed sublease or assignment, and said notice shall specify the provisions of the proposed assignment or subletting, including (a) the name and address of the proposed assignee or subtenant, (b) in the case of a proposed assignment or subletting pursuant to Section 5.6.2, such information as to the proposed assignee's or proposed subtenant's net worth and financial capability and standing as may reasonably be required for Landlord to make the determination referred to in Section 5.6.2 above (provided, however, that Landlord shall hold such information confidential having the right to release same to its officers, accountants, attorneys and mortgage lenders on a confidential basis), (c) all of the material terms and provisions upon which the proposed assignment or subletting is to be made, (d) in the case of a proposed assignment or subletting pursuant to Section 5.6.2, all other information necessary to make the determination referred to in Section 5.6.2 above and (e) in the case of a proposed assignment or subletting pursuant to Section 5.6.1 above, such information as may be reasonably required by Landlord to determine that such proposed assignment or subletting complies with the requirements of said Section 5.6.1. Landlord shall respond to Tenant's request for consent within fifteen (15) days after receipt thereof, either approving the proposed assignment or sublease, rejecting the same or requesting additional information; it being understood and agreed that Landlord's failure to timely respond shall be deemed to be an approval of the proposed assignment or 36 sublease. If Landlord shall consent to the proposed assignment or subletting, as the case may be, then, in such event, Tenant may thereafter sublease or assign pursuant to Tenant's notice, as given hereunder; provided, however, that if such assignment or sublease shall not be executed and delivered to Landlord within one hundred twenty (120) days after the date of Landlord's consent, the consent shall be deemed null and void and the provisions of Section 5.6.1.1 shall be applicable. 5.6.4 In addition, in the case of any assignment or subleasing as to which Landlord may consent (other than an assignment or subletting permitted under Section 5.6.1 hereof) such consent shall be upon the express and further condition, covenant and agreement, and Tenant hereby covenants and agrees that, in addition to the Annual Fixed Rent, Additional Rent and other charges to be paid pursuant to this Lease, fifty percent (50%) of the "Assignment/Sublease Profits" (hereinafter defined), if any, shall be paid to Landlord. The "Assignment/Sublease Profits" shall be the excess, if any, of (a) the "Assignment/Sublease Net Revenues" as hereinafter defined over (b) the Annual Fixed Rent and Additional Rent and other charges provided in this Lease (provided, however, that for the purpose of calculating the Assignment/Sublease Profits in the case of a sublease, appropriate proportions in the applicable Annual Fixed Rent, Additional Rent and other charges under this Lease shall be made based on the percentage of the Premises subleased and on the terms of the sublease). The "Assignment/Sublease Net Revenues" shall be the fixed rent, additional rent and all other charges and sums payable either initially or over the term of the sublease or assignment plus all other profits and increases to be derived by Tenant as a result of such subletting or assignment, less the actual costs of Tenant incurred in such subleasing or assignment (the definition of which shall include but not necessarily be limited to rent concessions, brokerage commissions, alteration allowances and reasonable attorneys fees), as set forth in a statement certified by an appropriate officer of Tenant and delivered to Landlord within sixty (60) days of the full execution of the sublease or assignment document. All payments of the Assignment/Sublease Profits due Landlord shall be made within ten (10) days of receipt of same by Tenant. 5.6.5 (A) It shall be a condition of the validity of any assignment or subletting of right under Section 5.6.1 above, or consented to under Section 5.6.2 above, that both Tenant and the assignee or sublessee enter into a separate written instrument directly with Landlord in a form and containing terms and provisions reasonably required by Landlord, including, without limitation, the agreement of the assignee or sublessee to be bound directly to Landlord for all the obligations of the Tenant hereunder, including, without limitation, the obligation (a) to pay the rent and other amounts provided for under this Lease (but in the case of a partial subletting pursuant to Section 5.6.1, such subtenant shall agree on a pro rata basis to be so bound) and (b) to comply with the provisions of Sections 5.6 through 5.6.5 hereof. Such assignment or subletting shall not relieve the Tenant named herein of any of the obligations of the Tenant hereunder and Tenant shall remain fully and primarily liable therefor and the liability of Tenant and such assignee (or subtenant, as the 37 case may be) shall be joint and several. Further, and notwithstanding the foregoing, the provisions hereof shall not constitute a recognition of the assignment or the assignee thereunder or the sublease or the subtenant thereunder, as the case may be, and at Landlord's option, upon the termination of the Lease, the assignment or sublease shall be terminated. (B) As Additional Rent, Tenant shall reimburse Landlord promptly for reasonable out of pocket legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting (such legal expenses not to exceed $2,500.00 in connection with any single request for consent). (C) If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anyone other than Tenant, Landlord may upon prior notice to Tenant, at any time and from time to time following the occurrence of an Event of Default hereunder, collect rent and other charges from the assignee, sublessee or occupant and apply the net amount collected to the rent and other charges herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of this covenant, or a waiver of the provisions of Sections 5.6 through 5.6.5 hereof, or the acceptance of the assignee, sublessee or occupant as a tenant or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained, the Tenant herein named to remain primarily liable under this Lease. (D) The consent by Landlord to an assignment or subletting under any of the provisions of Sections 5.6.1 or 5.6.2 shall in no way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or subletting. (E) On or after the occurrence and during the continuation of an "Event of Default" (defined in Section 7.1), Landlord shall be entitled to one hundred percent (100%) of any Assignment/Sublease Profits (provided, however, that fifty percent (50%) of such Assignment/Sublease Profits shall be credited against amounts due and payable from Tenant on account of Annual Fixed Rent for such period). (F) In addition to the other requirements set forth in this Lease and notwithstanding any other provision of this Lease, partial sublettings of the Premises shall only be permitted under the following terms and conditions: (i) the layout of both the subleased premises and the remainder of the Premises must comply with applicable laws, ordinances, rules and/or regulations and be approved by Landlord, including, without limitation, all requirements concerning access and egress, such approval not to be unreasonably withheld, conditioned or delayed; (ii) in the event the subleased premises are separately physically demised from the remainder of the Premises, Tenant shall pay all costs of separately physically demising the subleased premises; and (iii) there shall be no more than seven (7) subleases in effect for the Premises at any given time. 38 5.7 INDEMNITY; INSURANCE. (A) To defend with counsel first approved by Landlord (which approval shall not be unreasonably withheld or delayed), save harmless, and indemnify Landlord from any liability for injury, loss, accident or damage to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including without limitation reasonable counsel fees) (i) arising from or claimed to have arisen from (a) the omission, fault, willful act, negligence or other misconduct of Tenant or Tenant's contractors, licensees, invitees, agents, servants, independent contractors or employees or (b) any use made or thing done or occurring on the Premises not due to the omission, fault, willful act, negligence or other misconduct of Landlord, or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease. (B) To maintain commercial general liability insurance or comprehensive general liability insurance written on an occurrence basis with a broad form comprehensive liability endorsement covering the Premises insuring Landlord and Landlord's managing agent (and such persons as are in privity of estate with Landlord and Landlord's managing agent as may be set out in notice from time to time) as additional insureds as well as Tenant with limits which (i) may be maintained via an umbrella policy and (ii) shall, at the commencement of the Term, be at least equal to those stated in Section 1.1 and from time to time during the Term shall be for such higher limits, if any, as are customarily carried in Greater Boston with respect to similar properties or which may reasonably be required by Landlord, and worker's compensation insurance with statutory limits covering all of Tenant's employees working in the Premises, and to deposit with Landlord on or before the Commencement Date and concurrent with all renewals thereof, certificates for such insurance bearing the endorsement that the policies will not be canceled until after thirty (30) days' written notice to Landlord. All insurance required to be maintained by Tenant pursuant to this Lease shall be maintained with responsible companies qualified to do business, and in good standing, in the Commonwealth of Massachusetts and which have a rating of at least "A-" and are within a financial size category of not less than "Class VIII" in the most current Best's Key Rating Guide or such similar rating as may be reasonably selected by Landlord if such Guide is no longer published. Any and all such insurance (x) may be maintained under a blanket policy affecting other properties of Tenant and (y) may be written with deductibles as determined by Tenant and, as affect the Premises, reasonably approved by Landlord. 5.8 PERSONAL PROPERTY AT TENANT'S RISK. That all of the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in the Building or on the Site, shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft or from any other cause, no part of said loss or damage is to be charged to or be borne by Landlord, except that Landlord shall in no event be indemnified or held 39 harmless or exonerated from any liability to Tenant or to any other person, for any injury, loss, damage or liability to the extent such indemnity, hold harmless or exoneration is prohibited by law or to the extent that such loss, damage or liability is caused by the negligence or willful misconduct of Landlord. Further, Tenant, at Tenant's expense, shall maintain at all times during the Term of this Lease insurance against loss or damage covered by so-called "all risk" type insurance coverage with respect to Tenant's fixtures, equipment, goods, wares and merchandise, tenant improvements made by or paid for by Tenant, and other property of Tenant (collectively "Tenant's Property"). Such insurance shall be in an amount at least equal to the full replacement cost of Tenant's Property. 5.9 RIGHT OF ENTRY. To permit Landlord and its agents to examine the Premises at reasonable times and upon reasonable prior notice (except in the event of an emergency) and, if Landlord shall so elect, to make any repairs or replacements Landlord may deem necessary; to remove, at Tenant's expense, any alterations, addition, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the like not consented to in writing; and to show the Premises to prospective tenants during the nine (9) months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times. In connection with its exercise of the rights set forth herein, Landlord shall use reasonable efforts to minimize interference with Tenant's business operations at the Premises to the extent reasonably practicable under the circumstances. 5.10 FLOOR LOAD; PREVENTION OF VIBRATION AND NOISE. Not to place a load upon the Premises exceeding an average rate of 70 pounds of live load per square foot of floor area (partitions shall be considered as part of the live load); and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such manner and at such time as Landlord shall in each instance authorize; Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other space in the Building shall be so installed, maintained and used by Tenant so as to eliminate such vibration or noise. 5.11 PERSONAL PROPERTY TAXES. To pay promptly when due all taxes which may be imposed upon Tenant's Property in the Premises to whomever assessed. 5.12 COMPLIANCE WITH LAWS. To comply with all applicable Legal Requirements now or hereafter in force which shall impose a duty on Landlord or Tenant relating to or as a result of the use or occupancy of the Premises; provided that Tenant shall not be required to make any alterations or additions to the structure, roof, exterior and load bearing walls, foundation, structural floor slabs and other structural elements of the Building unless the same are required by such Legal Requirements as a result of or in connection with Tenant's use or occupancy of the Premises beyond normal use of space of this kind. Tenant shall promptly pay all fines, penalties and damages that may arise out of or be imposed because of its failure to comply with the provisions of this Section 5.12. Notwithstanding the foregoing, except to the extent caused by Tenant or its employees, agents or contractors, Tenant shall not be obligated to correct any violations of laws, 40 regulations or code existing in the Premises as of the Commencement Date (which such violations shall be remedied by Landlord). 5.13 PAYMENT OF LITIGATION EXPENSES. As Additional Rent, to pay all reasonable costs, counsel and other fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease or in connection with any bankruptcy case involving Tenant or any guarantor (Landlord hereby similarly agreeing to pay all reasonable costs, counsel and other fees incurred by Tenant in connection with the successful enforcement by Tenant of any obligations of Landlord under this Lease). ARTICLE VI CASUALTY AND TAKING 6.0 LANDLORD'S RESTORATION ESTIMATE. In case during the Lease Term the Building or Site are damaged by fire or other casualty, Landlord shall within forty-five (45) days after the occurrence thereof notify Tenant in writing of Landlord's reasonable estimate of the length of time necessary to repair or restore such fire or casualty damage from the time that repair work would commence ("Landlord's Restoration Estimate"). 6.1 DAMAGE RESULTING FROM CASUALTY. In case during the Lease Term the Building or the Site are damaged by fire or casualty, and if according to Landlord's Restoration Estimate such fire or casualty damage cannot, in the ordinary course, reasonably be expected to be repaired within three hundred (300) days from the time that repair work would commence, either party may, at its election, terminate this Lease by notice given to the other party within sixty (60) days after the date of such fire or other casualty, specifying the effective date of termination. The effective date of termination specified by the terminating party shall not be less than thirty (30) days nor more than forty-five (45) days after the date of notice of such termination. In case during the last year of the Lease Term, the Premises are damaged by fire or casualty and such fire or casualty damage cannot, in the ordinary course, reasonably be expected to be repaired within the lesser of (x) one hundred fifty (150) days from the time that repair work would commence, or (y) the number of days then remaining in the Lease Term, Tenant may, at its election, terminate this Lease by notice given to Landlord within sixty (60) days after the date of such fire or other casualty, specifying the effective date of termination. The effective date of termination specified by Tenant shall be not less than thirty (30) days nor more than forty-five (45) days after the date of notice of such termination. Unless terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect following any such damage subject, however, to the following provisions. 41 If the Building or the Site or any part thereof are damaged by fire or other casualty and this Lease is not so terminated, or Landlord or Tenant have no right to terminate this Lease, and in any such case the holder of any mortgage which includes the Building as a part of the mortgaged premises or any ground lessor of any ground lease which includes the Site as part of the demised premises allows the net insurance proceeds to be applied to the restoration of the Building (and/or the Site), Landlord promptly after such damage and the determination of the net amount of insurance proceeds available shall use due diligence to restore the Premises and the Building in the event of damage thereto (excluding Tenant's Property) into proper condition for use and occupation and a just proportion of the Annual Fixed Rent, Tenant's share of Operating Costs and Tenant's share of real estate taxes according to the nature and extent of the injury to the Premises shall be abated until the Premises shall have been put by Landlord substantially into such condition except for punch list items and long lead items of such a nature that Tenant can reasonably use the Premises for the Permitted Use notwithstanding the fact that such long lead items have not been completed. Notwithstanding anything herein contained to the contrary, Landlord shall not be obligated to expend for such repair and restoration any amount in excess of the net insurance proceeds. Unless such restoration is completed within ten (10) months from the date of the casualty or taking, such period to be subject, however, to extension where the delay in completion of such work is due to causes beyond Landlord's reasonable control (but in no event beyond twelve (12) months from the date of the casualty or taking), Tenant, as its sole and exclusive remedy, shall have the right to terminate this Lease at any time after the expiration of such ten-month (as extended) period until the restoration is substantially completed, such termination to take effect as of the thirtieth (30th) day after the date of receipt by Landlord of Tenant's notice, with the same force and effect as if such date were the date originally established as the expiration date hereof unless, within thirty (30) days after Landlord's receipt of Tenant's notice, such restoration is substantially completed, in which case Tenant's notice of termination shall be of no force and effect and this Lease and the Lease Term shall continue in full force and effect. 6.2 UNINSURED CASUALTY. Notwithstanding anything to the contrary contained in this Lease, if the Building or the Premises shall be substantially damaged by fire or casualty as the result of a risk not covered by the forms of casualty insurance at the time maintained by Landlord (or required to be maintained by Landlord hereunder) and such fire or casualty damage cannot, in the ordinary course, reasonably be expected to be repaired within ninety (90) days from the time that repair work would commence, Landlord may, at its election, terminate the Term of this Lease by notice to the Tenant given within sixty (60) days after such loss. If Landlord shall give such notice, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof. 6.3 RIGHTS OF TERMINATION FOR TAKING. If the entire Building, or such portion of the Premises as to render the balance (if reconstructed to the maximum extent practicable 42 in the circumstances) unsuitable for Tenant's purposes, shall be taken by condemnation or right of eminent domain, Landlord or Tenant shall have the right to terminate this Lease by notice to the other of its desire to do so, provided that such notice is given not later than thirty (30) days after Tenant has been deprived of possession. If either party shall give such notice, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof. Further, if so much of the Building shall be so taken that continued operation of the Building would be uneconomic as a result of the taking, Landlord shall have the right to terminate this Lease by giving notice to Tenant of Landlord's desire to do so not later than thirty (30) days after Tenant has been deprived of possession of the Premises (or such portion thereof as may be taken). If Landlord shall give such notice, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof. Should any part of the Premises be so taken or condemned during the Lease Term hereof, and should this Lease not be terminated in accordance with the foregoing provisions, and the holder of any mortgage which includes the Premises as part of the mortgaged premises or any ground lessor of any ground lease which includes the Site as part of the demised premises allows the net condemnation proceeds to be applied to the restoration of the Building, Landlord agrees that after the determination of the net amount of condemnation proceeds available to Landlord, Landlord shall use due diligence to put what may remain of the Premises into proper condition for use and occupation as nearly like the condition of the Premises prior to such taking as shall be practicable (excluding Tenant's Property). Notwithstanding the foregoing, Landlord shall not be obligated to expend for such repair and restoration any amount in excess of the net condemnation proceeds made available to it. If the Premises shall be affected by any exercise of the power of eminent domain, then the Annual Fixed Rent, Tenant's share of operating costs and Tenant's share of real estate taxes shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant; and in case of a taking which permanently reduces the Rentable Floor Area of the Premises, a just proportion of the Annual Fixed Rent, Tenant's share of operating costs and Tenant's share of real estate taxes shall be abated for the remainder of the Lease Term. 6.4 AWARD. Landlord shall have and hereby reserves to itself any and all rights to receive awards made for damages to the Premises, the Buildings, the Complex and the Site and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority. Tenant hereby grants, releases and assigns to Landlord all Tenant's rights to such awards, and covenants to execute and deliver such further assignments and assurances thereof as Landlord may from time to time request, and if Tenant shall fail to execute and deliver the same within fifteen (15) days after notice from Landlord, Tenant 43 hereby covenants and agrees that Landlord shall be irrevocably designated and appointed as its attorney-in-fact to execute and deliver in Tenant's name and behalf all such further assignments thereof which conform with the provisions hereof. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceeding a claim for the value of any of Tenant's usual trade fixtures installed in the Premises by Tenant at Tenant's expense and for relocation and moving expenses, provided that such action and any resulting award shall not affect or diminish the amount of compensation otherwise recoverable by Landlord from the taking authority. ARTICLE VII DEFAULT 7.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this Lease any one or more of the following events (herein sometimes called an "Event of Default") shall occur: (i) Tenant shall fail to pay the fixed rent, Additional Rent or other charges for which provision is made herein on or before the date on which the same become due and payable, and the same continues for ten (10) days after written notice from Landlord thereof; or (ii) Landlord having rightfully given the notice specified in subdivision (a) above twice in any calendar year, Tenant shall thereafter in the same calendar year fail to pay the fixed rent, Additional Rent or other charges on or before the date on which the same become due and payable; or (iii) Tenant shall assign its interest in this Lease or sublet any portion of the Premises in violation of the requirements of Sections 5.6 through 5.6.5 of this Lease; or (iv) Tenant shall neglect or fail to perform or observe any other covenant herein contained on Tenant's part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after written notice to Tenant specifying such neglect or failure, or if such failure is of such a nature that Tenant cannot reasonably remedy the same within such thirty (30) day period, Tenant shall fail to commence promptly to remedy the same and to prosecute such remedy to completion with diligence and continuity; or (v) Tenant's leasehold interest in the Premises shall be taken on execution or by other process of law directed against Tenant; or 44 (vi) Tenant shall make an assignment for the benefit of creditors or shall file a voluntary petition in bankruptcy or shall be adjudicated bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future Federal, State or other statute, law or regulation for the relief of debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or shall admit in writing its inability to pay its debts generally as they become due; or (vii) A petition shall be filed against Tenant in bankruptcy or under any other law seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future Federal, State or other statute, law or regulation and shall remain undismissed or unstayed for an aggregate of ninety (90) days (whether or not consecutive), or if any debtor in possession (whether or not Tenant) trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties or of the Premises shall be appointed without the consent or acquiescence of Tenant and such appointment shall remain unvacated or unstayed for an aggregate of ninety (90) days (whether or not consecutive) then, and in any of said cases (notwithstanding any license of a former breach of covenant or waiver of the benefit hereof or consent in a former instance), Landlord lawfully may, immediately or at any time thereafter, and without demand or further notice terminate this Lease by notice to Tenant, specifying a date not less than ten (10) business days after the giving of such notice on which this Lease shall terminate, and this Lease shall come to an end on the date specified therein as fully and completely as if such date were the date herein originally fixed for the expiration of the Lease Term (Tenant hereby waiving any rights of redemption), and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided; or (viii) Tenant shall abandon the Premises in such a manner as to create a hazard or nuisance in, or diminution in value to, the Premises or the Building. (b) If this Lease shall have been terminated as provided in this Article, then Landlord may, without notice, re-enter the Premises, either by force, summary proceedings, ejectment or otherwise, and remove and dispossess Tenant and all other persons and any and all property from the same, as if this Lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. (c) In the event that this Lease is terminated under any of the provisions contained in Section 7.1 (a) or shall be otherwise terminated by breach of any obligation of Tenant, Tenant covenants and agrees forthwith to pay and be liable for, on the 45 days originally fixed herein for the payment thereof, amounts equal to the several installments of rent and other charges reserved as they would, under the terms of this Lease, become due if this Lease had not been terminated or if Landlord had not entered or re-entered, as aforesaid, and whether the Premises be relet or remain vacant, in whole or in part, or for a period less than the remainder of the Term, and for the whole thereof, but in the event the Premises be relet by Landlord, Tenant shall be entitled to a credit in the net amount of rent and other charges received by Landlord in reletting, after deduction of all reasonable expenses incurred in reletting the Premises (including, without limitation, remodeling costs, brokerage fees and the like), and in collecting the rent in connection therewith, in the following manner: Amounts received by Landlord after reletting shall first be applied against such Landlord's expenses, until the same are recovered, and until such recovery, Tenant shall pay, as of each day when a payment would fall due under this Lease, the amount which Tenant is obligated to pay under the terms of this Lease (Tenant's liability prior to any such reletting and such recovery not in any way to be diminished as a result of the fact that such reletting might be for a rent higher than the rent provided for in this Lease); when and if such expenses have been completely recovered, the amounts received from reletting by Landlord as have not previously been applied shall be credited against Tenant's obligations as of each day when a payment would fall due under this Lease, and only the net amount thereof shall be payable by Tenant. Further, amounts received by Landlord from such reletting for any period during what would have been the Term of this Lease had the same not been terminated shall be credited only against obligations of Tenant allocable to such period, and shall not be credited against obligations of Tenant hereunder accruing subsequent or prior to such period; nor shall any credit of any kind be due for any period after the date when the term of this Lease is scheduled to expire according to its terms. (d) (i) At any time after such termination and whether or not Landlord shall have collected any damages as aforesaid, as liquidated final damages and in lieu of all other damages beyond the date of notice from Landlord to Tenant, at Landlord's election, Tenant shall pay to Landlord such a sum as at the time of the giving of such notice represents the amount of the excess, if any, of the total rent and other benefits which would have accrued to Landlord under this Lease from the date of such notice for what would be the then unexpired Lease Term if the Lease terms had been fully complied with by Tenant over and above the then cash rental value (in advance) of the Premises for the balance of the Lease Term, discounted to present value at a discount rate equal to the then-prevailing prime rate in Boston as set by Fleet National Bank (or its successor). (d) (ii) For the purposes of this Article, if Landlord elects to require Tenant to pay damages in accordance with the immediately preceding paragraph, the total rent shall be computed by assuming that Tenant's share of excess taxes, Tenant's share 46 of excess operating costs and Tenant's share of excess electrical costs would be, for the balance of the unexpired Term from the date of such notice, the amount thereof (if any) for the immediately preceding annual period payable by Tenant to Landlord. (e) In case of any Event of Default, re-entry, dispossession by summary proceedings or otherwise, Landlord may (i) re-let the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and may grant concessions, abatements or free rent to the extent that Landlord considers advisable or necessary to re-let the same and (ii) may make such alterations and repairs in the Premises as Landlord in its sole judgment considers advisable or necessary for the purpose of reletting the Premises; and the making of such alterations and repairs shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to re-let the Premises, or, in the event that the Premises are re-let, for failure to collect the rent under re-letting. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease. (f) The specified remedies to which Landlord may resort hereunder are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be entitled lawfully, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for. Further, nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. (g) In lieu of any other damages or indemnity and in lieu of the recovery by Landlord of all sums payable under all the foregoing provisions of this Section 7.1, Landlord may elect to collect from Tenant, by notice to Tenant, at any time after this Lease is terminated under any of the provisions contained in this Article VII or otherwise terminated by breach of any obligation of Tenant and before full recovery under such foregoing provisions, and Tenant shall thereupon pay, as liquidated damages, an amount equal to the sum of (x) the Annual Fixed Rent and all Additional Rent payable for the lesser of (i) the twelve (12) months ended next prior to such termination or (ii) the number of months then remaining in the Term of this Lease, plus (y) the amount of Annual Fixed Rent and Additional Rent of 47 any kind accrued and unpaid at the time of such election plus any and all expenses which the Landlord may have incurred for and with respect of the collection of any of such rent. 7.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the performance of any of Landlord's obligations hereunder unless and until Landlord shall have failed to perform such obligations within thirty (30) days, or such additional time as is reasonably required to correct any such default, after notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation. ARTICLE VIII 8.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not do or permit anything to be done in or upon the Premises, or bring in anything or keep anything therein, which shall increase the rate of insurance on the Premises or on the Building above the standard rate applicable to premises being occupied for the use to which Tenant has agreed to devote the Premises; and Tenant further agrees that, in the event that Tenant shall do any of the foregoing, Tenant will promptly pay to Landlord, on demand, any such increase resulting therefrom, which shall be due and payable as Additional Rent thereunder. 8.2 WAIVER. Failure on the part of Landlord or Tenant to complain of any action or non-action on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of its rights hereunder. Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render unnecessary Landlord's or Tenant's consent or approval to or of subsequent similar act by the other. No payment by Tenant, or acceptance by Landlord, of a lesser amount than shall be due from Tenant to Landlord shall be treated otherwise than as a payment on account. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant. 8.3 CUMULATIVE REMEDIES. Except as expressly provided in this Lease, the specific remedies to which either party may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which any such party may be lawfully entitled in case of any breach or threatened breach by the other party of any provisions of this Lease. In addition to the other remedies provided in this Lease, the parties shall be entitled to the restraint by injunction of the violation or 48 attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions. 8.4 QUIET ENJOYMENT. Tenant, subject to the terms and provisions of this Lease on payment of the rent and observing, keeping and performing all of the terms and provisions of this Lease on Tenant's part to be observed, kept and performed, shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises during the Term (exclusive of any period during which Tenant is holding over after the expiration or termination of this Lease without the consent of Landlord), without hindrance or ejection by any persons lawfully claiming to have title to the Premises superior to Tenant, subject, however, to the terms of this Lease; the foregoing covenant of quiet enjoyment is in lieu of any other covenant, express or implied; and it is understood and agreed that this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and Landlord's successors, including ground or master lessees, only with respect to breaches occurring during Landlord's or Landlord's successors' respective ownership of Landlord's interest hereunder, as the case may be. Further, Tenant specifically agrees to look solely to Landlord's then equity interest in the Building (including proceeds from sale, financing or insurance) at the time owned, or in which Landlord holds an interest as ground lessee, for recovery of any judgment from Landlord; it being specifically agreed that neither Landlord (original or successor), nor any beneficiary of any trust of which any person holding Landlord's interest is trustee, nor any member, manager, partner, director or stockholder, nor Landlord's managing agent, shall ever be personally liable for any such judgment, or for the payment of any monetary obligation to Tenant. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest, or any action not involving the personal liability of Landlord (original or successor), any successor trustee to the persons named herein as Landlord, or any beneficiary of any trust of which any person holding Landlord's interest is trustee, or of any manager, member, partner, director or stockholder of Landlord or of Landlord's managing agent to respond in monetary damages from Landlord's assets other than Landlord's equity interest aforesaid in the Building. In no event shall Landlord ever be liable to Tenant for any indirect or consequential damages or loss of profits or the like. 8.5 NOTICE TO MORTGAGEE AND GROUND LESSOR. After receiving notice from any person, firm or other entity that it holds a mortgage which includes the Premises as part of the mortgaged premises, or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Premises as a part of the demised premises, no default notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such holder or ground lessor, and the curing of any of Landlord's defaults by such holder or ground lessor within a reasonable time thereafter (not to exceed sixty (60) days or such shorter time period as may be agreed upon by Tenant and such mortgagee or ground lessor in a subordination, non-disturbance and attornment agreement) shall be 49 treated as performance by Landlord. For the purposes of this Section 8.5 or Section 8.15, the term "mortgage" includes a mortgage on a leasehold interest of Landlord (but not one on Tenant's leasehold interest). 8.6 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage or ground lease on property which includes the Premises, Tenant agrees: (a) That the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage or the ground lessor, shall never be treated as an assumption by such holder or ground lessor of any of the obligations of Landlord hereunder, unless such holder, or ground lessor, shall, by notice sent to Tenant, specifically otherwise elect; and (b) That, except as aforesaid, such holder or ground lessor shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage and the taking of possession of the Premises, or, in the case of a ground lessor, the assumption of Landlord's position hereunder by such ground lessor. In no event shall the acquisition of title to the Building and the land on which the same is located by a purchaser which, simultaneously therewith, leases the entire Building or such land back to the seller thereof be treated as an assumption by such purchaser-lessor, by operation of law or otherwise, of Landlord's obligations hereunder, but Tenant shall look solely to such seller-lessee, and its successors from time to time in title, for performance of Landlord's obligations hereunder subject to the provisions of Section 8.4 hereof. In any such event, this Lease shall be subject and subordinate to the lease to such purchaser provided that such purchaser agrees to recognize the right of Tenant to use and occupy the Premises upon the payment of rent and other charges payable by Tenant under this Lease and the performance by Tenant of Tenant's obligations hereunder and provided that Tenant agrees to attorn to such purchaser. For all purposes, such seller-lessee, and its successors in title, shall be the landlord hereunder unless and until Landlord's position shall have been assumed by such purchaser-lessor. 8.7 SURRENDER. No act or thing done by Landlord during the Lease Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid, unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of the Lease or a surrender of the Premises. 50 8.8 BROKERAGE. (A) Tenant warrants and represents that Tenant has not dealt with any broker in connection with the consummation of this Lease other than the broker, person or firm, if any, designated in Section 1.1 hereof (the "Brokers"); and in the event any claim is made against the Landlord relative to dealings by Tenant with brokers other than the Brokers, Tenant shall defend the claim against Landlord with counsel of Tenant's selection first approved by Landlord (which approval will not be unreasonably withheld) and save harmless and indemnify Landlord on account of loss, cost or damage which may arise by reason of such claim. (B) Landlord warrants and represents that Landlord has not dealt with any broker in connection with the consummation of this Lease other than the Brokers; and in the event any claim is made against the Tenant relative to dealings by Landlord with brokers other than the Brokers, Landlord shall defend the claim against Tenant with counsel of Landlord's selection and save harmless and indemnify Tenant on account of loss, cost or damage which may arise by reason of such claim. Landlord agrees that it shall be solely responsible for the payment of brokerage commissions to the Brokers for the Original Term of this Lease and, to the extent any such commission is due and payable in connection therewith, for the Extended Term (if exercised). 8.9 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 8.10 PROVISIONS BINDING, ETC. The obligations of this Lease shall run with the land, and except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and assigns. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both a covenant and a condition. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to subletting or assignment by Tenant. 8.11 RECORDING. Tenant agrees not to record the within Lease, but each party hereto agrees, on the request of the other, to execute a so-called Notice of Lease or short form lease in form recordable and complying with applicable law and reasonably satisfactory to both Landlord's and Tenant's attorneys. In no event shall such document set forth rent or other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease, and is not intended to vary the terms and conditions of this Lease. 51 8.12 NOTICES. Whenever, by the terms of this Lease, notice shall or may be given either to Landlord or to Tenant, such notice shall be in writing and shall be sent by registered or certified mail postage prepaid: If intended for Landlord, addressed to Landlord at the address set forth on the first page of this Lease (or to such other address or addresses as may from time to time hereafter be designated by Landlord by like notice) with a copy to Landlord, Attention: General Counsel. If intended for Tenant, addressed to Tenant at the address set forth on the second page of this Lease except that from and after the Commencement Date the address of Tenant shall be the Premises (or to such other address or addresses as may from time to time hereafter be designated by Tenant by like notice), with a courtesy copy to Jennifer C. Platt, Esq. at Hutchins, Wheeler & Dittmar, P.C., 101 Federal Street, Boston, Massachusetts 02110. Except as otherwise provided herein, all such notices shall be effective when received; provided, that (i) if receipt is refused, notice shall be effective upon the first occasion that such receipt is refused or (ii) if the notice is unable to be delivered due to a change of address of which no notice was given, notice shall be effective upon the date such delivery was attempted. Where provision is made for the attention of an individual or department, the notice shall be effective only if the wrapper in which such notice is sent is addressed to the attention of such individual or department. Any notice given by an attorney on behalf of Landlord or Tenant or by Landlord's managing agent shall be considered as given by Landlord or Tenant, as appropriate, and shall be fully effective. Time is of the essence with respect to any and all notices and periods for giving notice or taking any action thereto under this Lease. 8.13 WHEN LEASE BECOMES BINDING. Employees or agents of Landlord have no authority to make or agree to make a lease or any other agreement or undertaking in connection herewith. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and may be modified or altered only by written agreement between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof. 8.14 SECTION HEADINGS. The titles of the Articles throughout this Lease are for convenience and reference only, and the words contained therein shall in no way be held 52 to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. 8.15 RIGHTS OF MORTGAGEE. This Lease shall be subject and subordinate to any mortgage now or hereafter on the Site or the Building, or both, and to each advance made or hereafter to be made under any mortgage, and to all renewals, modifications, consolidations, replacements and extensions thereof and all substitutions therefor provided that the holder of such mortgage agrees to recognize the rights of Tenant under this Lease (including the right to use and occupy the Premises) upon the payment of rent and other charges payable by Tenant under this Lease and the performance by Tenant of Tenant's obligations hereunder. In confirmation of such subordination and recognition, Tenant shall execute and deliver promptly such instruments of subordination and recognition as such mortgagee may reasonably request. Landlord agrees to use reasonable efforts to obtain a subordination, non-disturbance and attornment agreement from the current mortgagee of the Site. In the event that any mortgagee or its respective successor in title shall succeed to the interest of Landlord, then, this Lease shall nevertheless continue in full force and effect and Tenant shall and does hereby agree to attorn to such mortgagee or successor and to recognize such mortgagee or successor as its landlord provided that such mortgagee or successor agrees to recognize the rights of Tenant under this Lease (including the right to use and occupy the Premises) upon the payment of rent and other charges payable by Tenant under this Lease and the performance by Tenant of Tenant's obligations hereunder. If any holder of a mortgage which includes the Premises, executed and recorded prior to the date of this Lease, shall so elect, this Lease and the rights of Tenant hereunder, shall be superior in right to the rights of such holder, with the same force and effect as if this Lease had been executed, delivered and recorded, or a statutory Notice hereof recorded, prior to the execution, delivery and recording of any such mortgage. The election of any such holder shall become effective upon either notice from such holder to Tenant in the same fashion as notices from Landlord to Tenant are to be given hereunder or by the recording in the appropriate registry or recorder's office of an instrument in which such holder subordinates its rights under such mortgage to this Lease. If in connection with obtaining financing a bank, insurance company, pension trust or other institutional lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or condition its consent thereto, provided that such modifications do not increase the monetary obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created. 8.16 STATUS REPORTS AND FINANCIAL STATEMENTS. Recognizing that Landlord may find it necessary to establish to third parties, such as accountants, banks, potential or existing mortgagees, potential purchasers or the like, the then current status of performance hereunder, Tenant, on the request of Landlord made from time to time, will promptly furnish to Landlord, or any existing or potential holder of any mortgage encumbering the Premises, the Building, the Site and/or the Complex or any potential 53 purchaser of the Premises, the Building, the Site and/or the Complex, (each an "Interested Party"), a statement of the status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease. In addition, Tenant shall deliver to Landlord, or any Interested Party designated by Landlord, financial statements of Tenant and any guarantor of Tenant's obligations under this Lease, as reasonably requested by Landlord no more frequently than once during any twelve (12) month period, including, but not limited to financial statements for the past three (3) years (provided, however, that the provisions of this sentence shall be inapplicable for so long as Tenant is a public company whose stock is traded on a national exchange). Any such status statement or financial statement delivered by Tenant pursuant to this Section 8.16 may be relied upon by any Interested Party. 8.17 SELF-HELP. If Tenant shall at any time default beyond the expiration of any applicable notice and cure periods provided in this Lease (except in the event of an emergency situation, in which event Landlord may act prior to the expiration of any applicable cure period) in the performance of any obligation under this Lease, Landlord shall have the right, but shall not be obligated, to enter upon the Premises and to perform such obligation notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act. All sums so paid by Landlord (together with interest at the rate of two and one-half percentage points over the then prevailing prime rate in Boston as set by Fleet National Bank or its successor (but in no event greater than the maximum rate permitted by applicable law) and all costs and expenses in connection with the performance of any such act by Landlord, shall be deemed to be Additional Rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 8.18 HOLDING OVER. Any holding over by Tenant after the expiration of the term of this Lease shall be treated as a tenancy at sufferance and shall be on the terms and conditions as set forth in this Lease, as far as applicable except that Tenant shall pay as a use and occupancy charge an amount equal to the greater of (x) 150% of the Annual Fixed Rent and Additional Rent calculated (on a daily basis) at the highest rate payable under the terms of this Lease, or (y) the fair market rental value of the Premises, in each case for the period measured from the day on which Tenant's hold-over commences and terminating on the day on which Tenant vacates the Premises. In addition, Tenant shall save Landlord, its agents and employees harmless and will exonerate, defend and indemnify Landlord, its agents and employees from and against any and all damages which Landlord may suffer on account of Tenant's hold-over in the Premises after the expiration or prior termination of the term of this Lease. Nothing in the foregoing nor any other term or provision of this Lease shall be deemed to permit Tenant to retain possession of the Premises or hold over in the Premises after the expiration or earlier termination of the Lease Term. All property which remains in the Building or the Premises after the 54 expiration or termination of this Lease shall be conclusively deemed to be abandoned and may either be retained by Landlord as its property or sold or otherwise disposed of in such manner as Landlord may see fit. If any part thereof shall be sold, then Landlord may receive the proceeds of such sale and apply the same, at its option against the expenses of the sale, the cost of moving and storage, any arrears of rent or other charges payable hereunder by Tenant to Landlord and any damages to which Landlord may be entitled under this Lease and at law and in equity. 8.19 NON-SUBROGATION. Any insurance carried by either party with respect to the Premises or property therein or occurrences thereon shall, if it can be so written without additional premium or with an additional premium which the other party agrees to pay, include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occurrence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by such insurance to the extent of the indemnification received thereunder. In addition, this waiver of rights by Tenant shall apply to, and be for the benefit of, Landlord's managing agent. 8.20 EXTENSION OPTION. (A) On the conditions (which conditions Landlord may waive by written notice to Tenant) that at the time of exercise of the herein described option to extend (i) there exists no "Event of Default" (defined in Section 7.1), (ii) this Lease is still in full force and effect, and (iii) Tenant has neither assigned this Lease nor sublet in the aggregate thirty-three percent (33%) or more of the Rentable Floor Area of the Premises (except for an assignment or subletting permitted without Landlord's consent under Section 5.6.1 hereof), Tenant shall have the right to extend the Term hereof upon all the same terms, conditions, covenants and agreements herein contained (except for the Annual Fixed Rent which shall be adjusted during the option period as hereinbelow set forth and except that there shall be no further option to extend) for one (1) period of five (5) years as hereinafter set forth. The option period is sometimes herein referred to as the "Extended Term." Notwithstanding any implication to the contrary Landlord has no obligation to make any additional payment to Tenant in respect of any construction allowance or the like or to perform any work to the Premises as a result of the exercise by Tenant of any such option. (B) If Tenant desires to exercise its option to extend the Term, then Tenant shall give notice to Landlord, not earlier than eighteen (18) months nor later than fifteen (15) months prior to the expiration of the Term of this Lease of Tenant's request for Landlord's quotation to Tenant of a proposed Annual Fixed Rent for the Extended Term. If at the expiration of thirty (30) days after the date when Landlord receives Tenant's written request as aforesaid (the "Negotiation Period"), Landlord and Tenant have not reached agreement on a determination of an Annual Fixed Rent for such Extended Term and executed a written instrument extending the Term of this Lease pursuant to such agreement, then Tenant shall have the right, for ten (10) days following the expiration of the Negotiation Period, to either (i) revoke its exercise of the extension option or (ii) 55 make a request to Landlord for a broker determination (the "Broker Determination") of the Prevailing Market Rent (as defined in Exhibit F) for the Extended Term, which Broker Determination shall be made in the manner set forth in Exhibit F. If Tenant timely shall have requested the Broker Determination, then the Annual Fixed Rent for such Extended Term shall be the greater of (a) ninety-five percent (95%) of the Prevailing Market Rent as determined by the Broker Determination or (b) the Annual Fixed Rent in effect during the last twelve (12) month period of the Lease Term immediately prior to such Extended Term. (C) Upon either (a) the agreement by the parties on the Annual Fixed Rent for the Extended Term during the Negotiation Period or (b) the timely delivery by Tenant of notice to Landlord requesting the Broker Determination in accordance with Section 8.20(B) above, then this Lease and the Lease Term hereof shall automatically be deemed extended, for the Extended Term, without the necessity for the execution of any additional documents, except that Landlord and Tenant agree to enter into an instrument in writing setting forth the Annual Fixed Rent for the Extended Term as determined in the relevant manner set forth in this Section 8.20; and in such event all references herein to the Lease Term or the Term of this Lease shall be construed as referring to the Lease Term, as so extended, unless the context clearly otherwise requires, and except that there shall be no further option to extend the Lease Term. Notwithstanding anything contained herein to the contrary, in no event shall the Lease Term hereof be extended for more than five (5) years after the expiration of the Original Lease Term hereof. 8.21 SECURITY DEPOSIT. (A) Concurrently with the execution of this Lease, Tenant shall pay to Landlord a security deposit in the amount of Six Hundred Seventy-Nine Thousand Seven Hundred Eighty-Seven and 50/100 Dollars ($679,787.50) and Landlord shall hold the same, throughout the Term of this Lease, as security for the performance by Tenant of all obligations on the part of Tenant to be performed under this Lease. Such deposit shall be in the form of an irrevocable, unconditional, negotiable letter of credit (the "Letter of Credit"). The Letter of Credit shall (i) be issued by and drawn on a bank reasonably approved by Landlord and at a minimum having a corporate credit rating from Standard & Poor's Professional Rating Service of BBB- or comparable minimum rating from Moody's Professional Rating Service, (ii) be in a form reasonably acceptable to Landlord, (iii) permit one or more draws thereunder to be made accompanied by a certification by Landlord that pursuant to the terms of this Lease, Landlord is entitled to draw upon such Letter of Credit, (iv) permit transfers or pledges at any time without charge to any purchase of the Building or Landlord's interest therein or to any lender as security for a loan and (v) permit presentment in Boston, Massachusetts. Any such Letter of Credit shall be for a term of two (2) years (or for one (1) year if the issuer thereof regularly and customarily only issues letters of credit for a maximum term of one (1) year) and shall in either case provide for automatic renewals through the date which is thirty (30) days subsequent to the scheduled expiration of this Lease or if the issuer will not grant automatic renewals, the Letter of Credit shall be renewed or substituted (by substitute Letter of Credit) by Tenant each year and each renewal or substitution Letter of Credit shall be delivered to and received by Landlord not later than thirty (30) days before the 56 expiration of the then current Letter of Credit (herein called a "Renewal Presentation Date"). In the event of a failure to so deliver such renewal or substitution Letter of Credit on or before the applicable Renewal Presentation Date, Landlord shall be entitled to present the then existing Letter of Credit for payment and to receive the proceeds thereof, which proceeds shall be held as Tenant's security deposit, subject to the terms of this Section 8.21. Upon the occurrence and during the continuation of any Event of Default on the part of Tenant under the terms of this Lease, Landlord shall have the right from time to time without prejudice to any other remedy Landlord may have on account thereof, to draw on all or any portion of such deposit held as a Letter of Credit and to apply the proceeds of such Letter of Credit or any cash held as such deposit, or any part thereof, to Landlord's damages arising from such default. If Landlord so applies all or any portion of such deposit, Tenant shall within ten (10) days after notice from Landlord deposit cash with Landlord or increase the amount of the Letter of Credit in an amount sufficient to restore such deposit to the full amount stated in this Section 8.21. While Landlord holds any cash deposit Landlord shall have no obligation to pay interest on the same and shall have the right to commingle the same with Landlord's other funds. Neither the holder of a mortgage nor the Landlord in a ground lease on property which includes the Premises shall ever be responsible to Tenant for the return or application of any such deposit, whether or not it succeeds to the position of Landlord hereunder, unless such deposit shall have been received in hand by such holder or ground Landlord. (B) Provided that Tenant has maintained liquidity of at least $25,000,000.00 as of the fiscal quarter ending immediately prior to the scheduled reduction date set forth herein, Landlord shall exchange the Letter of Credit for a Letter of Credit delivered by Tenant which reduces the amount secured by the Letter of Credit by Three Hundred Thirty-Nine Thousand Eight Hundred Ninety-Three and 75/100 Dollars ($339,893.75) so that the remaining amount secured by the Letter of Credit shall be Three Hundred Thirty-Nine Thousand Eight Hundred Ninety-Three and 75/100 Dollars ($339,893.75) on the first day of the thirty-seventh (37th) month of the Lease Term if (i) Tenant is not then in default under the terms of this Lease without the benefit of notice or grace (provided that such reduction shall occur if and when Tenant cures the same within the applicable cure period), and (ii) Landlord has not applied such deposit, or any portion thereof, to Landlord's damages arising from any default on the part of Tenant, whether or not Tenant has restored the amount so applied by Landlord. For the purposes hereof, "liquidity" shall be measured as a total of cash, cash equivalents and short-term and long-term marketable securities on Tenant's balance sheet. (C) Tenant not then being in default and having performed all of its obligations under this Lease, including the payment of all Annual Fixed Rent, Landlord shall return the deposit, including all interest earned thereon, or so much thereof as shall not have theretofore been applied in accordance with the terms of this Section 8.21, to Tenant on the expiration or earlier termination of the term of this Lease (as the same may have been extended) and surrender possession of the Premises by Tenant to Landlord in the condition required in the Lease at such time. 57 8.22 LATE PAYMENT. If after having received written notice of late payment one time during any calendar year during the Lease Term, Tenant shall thereafter fail to make any payment or installment of Annual Fixed Rent or Additional Rent on or before the date (the "Interest Accrual Date") which is five (5) days from the date on which the same first becomes payable under this Lease, the amount of such payment or installment shall bear interest from the Interest Accrual Date through and including the date such payment or installment is received by Landlord, at a rate equal to the lesser of (i) the rate announced by Fleet National Bank (or its successor) from time to time as its prime or base rate (or if such rate is no longer available, a comparable rate reasonably selected by Landlord), plus two percent (2%), or (ii) the maximum applicable legal rate, if any. Such interest shall be deemed Additional Rent and shall be paid by Tenant to Landlord upon demand. 8.23 TENANT'S PAYMENTS. Each and every payment and expenditure, other than Annual Fixed Rent, shall be deemed to be Additional Rent hereunder, whether or not the provisions requiring payment of such amounts specifically so state, and shall be payable, unless otherwise provided in this Lease, within thirty (30) days after written demand by Landlord, and in the case of the non-payment of any such amount, Landlord shall have, in addition to all of its other rights and remedies, all the rights and remedies available to Landlord hereunder or by law in the case of non-payment of Annual Fixed Rent. Unless expressly otherwise provided in this Lease, the performance and observance by Tenant of all the terms, covenants and conditions of this Lease to be performed and observed by Tenant shall be at Tenant's sole cost and expense. If Tenant has not objected to any statement of Additional Rent which is rendered by Landlord to Tenant within ninety (90) days after Landlord has rendered the same to Tenant, then the same shall be deemed to be a final account between Landlord and Tenant not subject to any further dispute. In the event that Tenant shall seek Landlord's consent or approval under this Lease, then Tenant shall reimburse Landlord, upon demand, as Additional Rent, for all reasonable costs and expenses, including legal and architectural costs and expenses, incurred by Landlord in processing such request, whether or not such consent or approval shall be given. 8.24 WAIVER OF TRIAL BY JURY. To induce Landlord to enter into this Lease, Tenant hereby waives any right to trial by jury in any action, proceeding or counterclaim brought by either Landlord or Tenant on any matters whatsoever arising out of or any way connected with this Lease, the relationship of the Landlord and the Tenant, the Tenant's use or occupancy of the Premises and/or any claim of injury or damage, including but not limited to, any summary process eviction action. 8.25 GOVERNING LAW. This Lease shall be governed exclusively by the provisions hereof and by the law of the Commonwealth of Massachusetts, as the same may from time to time exist. 58 EXECUTED as a sealed instrument in two or more counterparts each of which shall be deemed to be an original. LANDLORD: WITNESS: STONY BROOK ASSOCIATES LLC, a Delaware limited liability company - ---------------------------- By: Jones Road Development Associates LLC, a managing member By: Boston Properties Limited Partnership, a managing member By: Boston Properties, Inc., its general partner By: /s/ Michael A. Cantalupa ------------------------------- Name: Michael A. Contalupa ----------------------------- Title: Sr. Vice President ---------------------------- TENANT: NETEGRITY, INC. By: /s/ Regina O. Sommer --------------------------------------- Name: ------------------------------------- Title: PRESIDENT ------------------------------------ (OR VICE PRESIDENT) ------------------------------------ HERETO DULY AUTHORIZED ATTEST: Name: By: /s/ Regina O. Sommer ---------------------- Title: SECRETARY Name: --------------------- (ASSISTANT SECRETARY) Title: TREASURER - ---------------------------- ------------------------------------ (OR ASSISTANT TREASURER) ------------------------------------ HERETO DULY AUTHORIZED (CORPORATE SEAL) 59 EXHIBIT A Five parcels of land in Waltham and Weston, Middlesex County, Commonwealth of Massachusetts, of which Parcel I and Parcel II are shown on a plan entitled "Plan of Land in Waltham, Massachusetts, Prepared For Boston Properties," by Bradford Saivetz + Associates, Inc., Engineers and Architects, Scale 1" - 80', dated August 4, 1998, and recorded with Middlesex South Registry of Deeds as Plan #863 of 1998 in Book 28950, Page 76; being further described as follows: PARCEL I: The land in Waltham shown as "Parcel One" on said plan, and being further described as follows: Beginning at a stone bound on the northerly sideline of the land formerly of The Boston and Maine Railroad Central Mass. Div., now of the Massachusetts Bay Transportation Authority (MBTA) said bound being at the southeasterly corner of the herein described premises; thence running by a curve to the right having a radius of 1122.13 feet and an arc length of 253.63 feet; thence turning and running N 67(degree) 04' 17" W by land now or formerly of Abigail Hemenway a distance of 97.00 feet to a point; thence turning and running S 15(degree) 48' 39" W by land of said Hemenway a distance of 15.00 feet; thence running by said MBTA land by a curve to the right having a radius of 1122.13 feet and an arc length of 367.75 feet to a point; thence turning and running N 54(degree) 43' 37" W by said MBTA land 162.84 feet to a point; thence running by said MBTA land by a curve to the left having a radius of 1183.68 feet and an arc length of 293.42 feet to a point on a stone wall; thence turning and running by said wall and by land now or formerly of the Robinson/Waltham Company the following eight courses: N 16(degree) 49' 21" E, 62.97 feet; N 34(degree) 45' 37" E, 18.58 feet to a drill hole; N 51(degree) 21' 13" E, 11.21 feet; N 62(degree) 49' 54" E, 28.58 feet; N 80(degree) 23' 22" E, 13.70 feet: N 84(degree) 13' 51" E, 77.28 feet to a drill hole; S 64(degree) 16' 21" E, 43.21 feet to a drill hole; S 35(degree) 57' 50" E, 26.95 feet. Thence turning and running by land now or formerly of Ethel V. Slawsby, land of Rob, Paul & James McGinty, Jones Road, and land of Greenwall Associates, S 69(degree) 49' 03" E a distance of 877.27 feet to a point; thence turning and running by land now or formerly of Philip Pagliazzo and by said MBTA land S 09(degree) 42' 43" E a distance of 203.18 feet to the point of beginning. The above described parcel contains 5.25 acres, more or less, according to said plan. Said Parcel I is also shown as three parcels known as "Lot 17A, 121,699 +/- S.F. (2.79 +/- AC.)," "Lot 17B, 85,950 +/- S.F. (1.97 +/- AC.)," and "Jones Road Extension (Private) (50' Wide)" on a plan entitled "Lot Layout Plan I, Jones Road Extension, Waltham, Massachusetts, Issued for Definitive Subdivision Plan Approval, Drawing C-4 of 15," and prepared by Vanasse Hangen Brustlin, Inc., last dated revision August 12, 1998, which plan was recorded with Middlesex South Registry of Deeds as Plan #162 of 1999, in Book 29826, Page 353. PARCEL II: The land in Waltham and Weston shown as "Parcel Two" on said plan, and being further described as follows: Beginning at a stone bound at the southeasterly corner of the above-described Parcel One; thence running S 01(degree) 22' 22" E a distance of 82.50 feet across land of the MBTA to a point on the southerly layout line of said MBTA land; thence running by a curve to the right having a radius of 1204.63 feet and an arc length of 374.70 feet to the true point of beginning. thence turning and running S 15(degree) 48' 39" W a distance of 98.17 feet to a point; thence turning and running S 86(degree) 00' 21" E a distance of 96.94 feet to a point; thence turning and running S 24(degree) 00' 59" W, partly by a wall, 488.49 feet to a drill hole; thence turning and running by a wall S 33(degree) 31' 30" W a distance of 91.45 feet to a drill hole; 2 thence turning and running by a wall N 51(degree) 00' 53" W a distance of 49.01 feet to a drill hole; thence turning and running by a wall N 57(degree) 39' 25" W a distance of 108.53 feet to a drill hole; thence turning and running by a wall N 53(degree) 23' 23" W a distance of 46.45 feet to a drill hole; thence turning and running by a wall N 34(degree) 40' 17" W a distance of 87.60 feet to a drill hole; thence turning and running by a wall N 68(degree) 31' 10" W a distance of 143.69 feet to a drill hole; thence turning and running S 60(degree) 25' 39" W a distance of 70 feet more or less to a point in the centerline of Stony Brook; then turning and running by the centerline of Stony Brook, approximately 590+/- feet to a point on the northerly side of the land formerly of The Boston & Maine Railroad, Fitchburg Div., now of the Massachusetts Bay Transportation Authority (MBTA); thence running by said MBTA land, by a curve to the left having a radius of 1959.37 feet and an arc length of 42 feet, more or less, to a point of compound curvature; thence running by said MBTA land, by a curve to the left having a radius of 1923.21 feet and an arc length of 212.96 feet to a point; thence turning and running by said MBTA land N 53(degree) 58' 14" W a distance of 272.68 feet to a point on the Town Line dividing the City of Waltham and Town of Weston; thence turning and running by said Town Line N 22(degree) 22' 15" E a distance of 52.90 feet to a point; thence continuing by said Town Line N 22(degree) 22' 16" E a distance of 147.63 feet to a point on the southerly sideline of land now of the Massachusetts Bay Transportation Authority (MBTA) land, formerly of the Boston & Maine Railroad Central Mass. Division; thence running by said MBTA land by a curve to the right having a radius of 1101.18 feet and an arc length of 898.10 feet to a point; 3 thence turning and running by said MBTA land S 54(degree) 43' 37" E a distance of 162.84 feet to a point; thence running by said MBTA land by a curve to the left having a radius of 1204.63 feet and an arc length of 395.77 feet to the true point and place of beginning. The above described premises contains 17.5+/- acres, according to said plan. So much of said Parcel II as is located in Waltham is also shown as "Lot 1A, 760,126 +/- S.F. (17.5 +/- AC.)" on a plan entitled "Lot Layout Plan I, Jones Road Extension, Waltham, Massachusetts, Issued for Definitive Subdivision Plan Approval, Drawing C-4 of 15," and prepared by Vanasse Hangen Brustlin, Inc., last dated revision August 12, 1998, which plan was recorded with Middlesex South Registry of Deeds as Plan #162 of 1999, in Book 29826, Page 353. PARCEL III: A parcel of land in Weston shown as "Samuel Philip Miller" on a plan entitled "Plan of Lands in Waltham, Massachusetts" by Rowland H. Barnes & Co. - Civil Engineers, dated May 1952, and recorded as Plan No. 2231 of 1952 in Book 8010, Page 143. Said parcel is also shown on a Survey entitled "ALTA/ACSM Land Title Survey, Waltham/Weston Corporate Center, 50 Jones Road, Waltham, Massachusetts," prepared by Cubellis Saivetz Associates, Zero Campanelli Drive, Braintree, Mass., 02184, dated January 17, 2001, and bounded and described as follows: Beginning at a point on the northerly sideline of land formerly of the Boston & Maine Railroad, Fitchburg, Div., now of the Massachusetts Bay Transportation Authority (MBTA), at its intersection with the southerly sideline of land formerly of the Boston & Maine Railroad Central Mass. Div., now of the MBTA; thence running by said MBTA land by a curve to the right having a radius of 1101.18 feet and an arc length of 228.90 feet to a point intersecting said southerly line of said MBTA land and the approximate town line dividing the Town of Weston and the City of Waltham; thence turning and running S 22(degree) 22' 16" W by Parcel Two a distance of 147.63 feet to a point; thence turning and running N 67(degree) 09' 45" W by said MBTA land, in part by a wall, a distance of 175.59 feet to the point of beginning. 4 PARCEL IV: A parcel of land in Weston being shown as lot "5A, 0.8 acres, Alfred Jones," on a plan entitled "Plan of Lands in Waltham, Massachusetts" by Rowland H. Barnes & Co. - Civil Engineers, dated May 1952, and recorded as Plan No. 2231 of 1952 in Book 8010, Page 143. The above described parcel contains 0.8 acres, more or less, according to said plan. Said parcel is also shown on a Survey entitled "ALTA/ACSM Land Title Survey, Waltham/Weston Corporate Center, 50 Jones Road, Waltham, Massachusetts," prepared by Cubellis Saivetz Associates, Zero Campanelli Drive, Braintree, Mass., 02184, dated January 17, 2001, and bounded and described as follows: Beginning at the southeasterly corner of the herein described premises; thence running by land of the MBTA by a curve to the left having a radius of 1959.37 feet and an arc length of 519 feet, more or less, to a point in the centerline of the Stony Brook; thence turning and running by the centerline of the Stony Brook and by Parcel Two a distance of 590+/- feet, more or less, to a point; thence running by land now or formerly of the Massachusetts Broken Stone Company S 60 (degree) 25' 39" W a distance of 100+/- feet, more or less, to the point of beginning. PARCEL V (Easement Parcel): Crossing Easement from Massachusetts Bay Transportation Authority as recited in Easement Agreement dated February 11, 1999, recorded February 22, 1999, in Book 29826, Page 393, and shown on Easement Plan recorded as Plan #163 of 1999, in Book 29826, Page 392; also shown as "Crossing Easement A" over land in Waltham on a plan entitled "Lot Layout Plan I, Jones Road Extension, Waltham, Massachusetts, Issued for Definitive Subdivision Plan Approval, Drawing C-4 of 15," and prepared by Vanasse Hangen Brustlin, Inc., last dated revision August 12, 1998, which plan was recorded with Middlesex South Registry of Deeds as Plan #162 of 1999, in Book 29826, Page 353. 5 EXHIBIT B WALTHAM WESTON CORPORATE CENTER NETEGRITY, INC. BUILDING STANDARD MATERIALS AND TURNKEY SCOPE Landlord will provide a turn-key buildout of Tenant's Premises substantially in accordance with the following scope definition and plan dated 7/30/02 attached hereto and incorporated herein as part of this Exhibit B. The improvements will be constructed with the building standard materials described below. PARTITIONS The following building standard materials will be provided by Landlord: a. Interior ceiling partitions (i.e. partitions within a single premises) will be 2-1/2" metals studs 24" on center with one layer of 5/8" gypsum board on each side. Partition will extend from floor to six (6) inches above the acoustic tile ceiling. b. Demising or other partitions providing sound attenuation will be 2-1/2" metal studs with two layers of 5/8" gypsum board on one side and one layer of 5/8" gypsum board on the other. Demising partitions will extend from floor to underside of structure above, subject to requirements of the building air conditioning system, and the partition will be filled with 3" compressed fiberglass sound insulation. c. All partitions will have vinyl base 4" high. d. The CEO office, CEO's Assistant Area and the office next to the Engr Kitchen and Play Area to receive demising partitions described in b. above. Additional sound attenuation materials to be evaluated by the architect. The following turnkey scope will be provided by Landlord: a. Ceiling high partitions will be provided for the following: 1. Twenty-two (22) offices - 100 SF 2. Fourteen (14) offices - 120 SF 3. Fourteen (14) offices - 150 SF 4. Six (6) offices - 175 SF 5. Two (2) offices - 200 SF 6. One (1) Large Conference Room - 400 SF 7. Six (6) Medium Conference Room - 300 SF 8. Three (3) Small Conference Room - 140 SF 9. One (1) Large Lab - 670 SF 10. Three (3) Medium Labs - Two (2) at 300 SF and One (1) at 400 SF 11. One (1) Large Server Room - 720 SF 12. One (1) Engr Kitchen & Play Area 13. One (1) Shipping & Receiving Area Netegrity, Inc. - Exhibit B 1 14. One (1) Service Lobby 15. Four (4) Small Storage Closets 16. Four (4) Small Telephone Closets 17. One (1) Break Area 18. One (1) Lunch/Vending Area 19. One (1) Kitchen Area 20. One (1) Toilet Room 21. One (1) Travel Office b. Glass sidelights (18") shall be provided at all office and conference room doors 100 SF and larger (68 total) DOORS Building standard doors shall consist of the following: a. All doors within a single premises will be 3'0" x 8'0" solid core with stain grade, standard veneer faces, 1-3/4" thick and shall receive two coats of factory clear polyurethane finish. Door frames will be aluminum. Hardware will include 2 pair of butts, one standard duty latch set and one door stop. Offices greater than 175 SF shall be equipped with locksets (9 total). b. All office doors to contain one coat hook. c. Lab, Server Room, and Playroom doors to have closers (11 total). d. The four (4) doors located off the main reception area and two (2) doors in the East Wing Service Lobby shall have vision panels. e. Glass sidelights - frames will be aluminum with 18" single pane glazing. f. Perimeter office sidelights shall have a glazing film applied (23 total). PAINTING AND WALL COVERING The building standard for painting and wall covering is: a. All wall surfaces shall receive two coats of eggshell finish latex paint. Color selection will be made from a mutually agreed upon color palette with not more than one color per office. Accent colors may be used throughout the Premises. b. Conference rooms and senior VP office (175 SF or larger) may contain one accent color per room. c. All door frames within a single premises shall receive two coats of semi-gloss enamel to be selected from building standard samples. All interior door frames shall receive two coats of clear polyurethane. CEILING Building standard ceilings shall be 2'0" x 2'0" reveal edge textured acoustic lay-in tile, Celotex LeBaron, or equal. Ceiling height will be 9'0" typically. Above building standard ceiling will be provided in the following areas: a. Reception Area - Per mutually agreed to perspective drawing dated August 8, 2002, a combination drywall ceiling (approximately 50%) and Netegrity, Inc. - Exhibit B 2 upgraded 2'0" x 2'0" acoustic tile (approximately 50%; target $3.25/sf) will be provided. b. Medium Conference Room - Per mutually agreed to perspective drawing dated August 8, 2002, a combination drywall ceiling (approximately 50%) and upgraded 2'0" x 2'0" acoustic tile (approximately 50%; target $3.25/sf) will be provided. c. Large Conference Room - A combination of drywall and upgraded 2'0" x 2'0" acoustic tile (target $3.25/sf) will be provided. Target percentage of drywall and acoustic tile is 25% and 75%, respectively. d. Engr Lunch and Playroom - A drywall soffit will be installed above the counters on the east side of the Play Room (22 LF). e. Intersection points - upgraded ceiling treatment (drywall or dropped 2' x 2' acoustic tile) to be evaluated by architect, tenant and landlord at various corridor intersection points (6 locations total). LIGHTING Building standard lighting shall be 2' x 4', low-brightness three tube parabolic reflector fixtures. Above building standard lighting shall be provided in the following areas: a. Reception Area - Incandescent downlight fixtures shall be installed in the Reception Area (approximately 14 fixtures). In addition, one standard drop fixture to be located over the seating area. b. Medium Conference Room - Incandescent downlight fixtures shall be installed in the Medium Conference Room (approximately 10 fixtures). In addition, one standard drop fixture to be located over the conference table. c. Large Conference Room - Incandescent downlight fixtures to be installed in the Large Conference Room (approximately 14 fixtures). d. Open office areas - Indirect lighting to be installed in the open office areas. e. Private offices - tenant will determine whether to install building standard 2' x 4' fixtures or indirect lighting in partitioned offices. For offices 120 SF or smaller, a 6' indirect fixture will be provided. For offices larger than 120 SF, a 8' indirect fixture will be provided. TELEPHONE OUTLETS Building standard tel/data work shall include one wall location per office prepared to receive a telephone outlet installation by Tenant's telecommunication contractor. In total, one tel/data box will be provided for each 200 square feet of rentable area, each to consist of plaster ring and cable pull string to above its individual ceiling. In addition, each conference room shall have two tel/data boxes on opposite walls. ELECTRIC The following describes building standard materials and turnkey scope for Tenant's electrical: a. Two (2) electric outlets (one of which may be a quadplex outlet) and one (1) telephone outlet per office, except all conference rooms to have four Netegrity, Inc. - Exhibit B 3 (4) electric duplex outlets and two (2) telephone outlets. Eight (8) duplex outlets per circuit. b. Power feeds to two hundred forty-eight (248) workstations, four (4) workstations per circuit. c. Tenant to provide data and telephone wiring to offices and workstations. d. Miscellaneous duplex outlets, as reasonably required, in all auxiliary space such as lichens, mail room, printer/fax locations and copy rooms with the exception of special electrical requirements in excess of the criteria specified in Exhibit C Landlord Services. HVAC The building standard HVAC scope consists of a complete variable air volume (VAV) system installed to serve all areas of the premises, including the installation of a medium pressure ring duct, as provided in the preliminary Base Building Outline Specifications previously furnished. Space thermostats and separate zones will be provided for approximately each 50 lineal feet of building perimeter and approximately each 2,000 square feet of building interior. Any thermostats located at an exterior wall shall be insulated. Supply air shall be provided through ceiling mounted diffusers. Return air will be into a ceiling return air plenum through slots in the light fixtures or separate ceiling mounted grills as required. A separate zone and exhaust fan to the ceiling plenum for the conference rooms. MILLWORK a. Plastic laminate base cabinets and counter tops in: i) Copy Rooms, 25 LF ii) Break Rooms/Kitchens, 52 LF iii) Fax/Printer locations, 35 LF b. Paint grade shelf and rod in each Coat Closet (2 total). PLUMBING One (1) sink with waste and hot and cold water in Engr Lunch & Play Area, Break Room, East Wing Kitchen and restroom located near the Reception Area. In addition a coffee maker hook up will be provided in the in Engr Lunch & Play Area, Break Room and East Wing Kitchen. One (1) toilet will be provided in the restroom located near the Reception Area. Any additional plumbing required to be provided at Tenant's Cost. FLOOR FINISHES A flooring allowance of $20/SY of installed area shall be provided (including vinyl base at partitions). Netegrity, Inc. - Exhibit B 4 STRUCTURAL REINFORCEMENT No additional structural requirements beyond that provided by Base Building Specifications are included in tenant improvements. FIRE PROTECTION The fire protection system will be installed to meet all applicable local, state and federal codes and regulations for light hazard occupancy. SPECIAL ALLOWANCE Landlord will provide a Special Allowance of $30,000 to be used by Tenant in connection with Tenant Improvements to the Premises above and beyond the turnkey scope described above. Except as described above, the following work is excluded from the Landlord's turnkey scope of work: a. Any electrical work in excess of that described in the preliminary Base Building Outline Specifications previously furnished. b. Any HVAC work in excess of that described in the preliminary Base Building Outline Specifications previously furnished. c. Tenant's telecommunication design, systems, wires, equipment and other services or infrastructure required by Tenant. d. Tenant's security design, systems, equipment, wires and other services and infrastructure required by Tenant. e. Tenant's audio/visual design, systems, equipment and other services and infrastructure required by Tenant. f. Tenant's furniture design, wiring, and installation. Netegrity, Inc. - Exhibit B 5 EXHIBIT B-1 WALTHAM WESTON CORPORATE CENTER ADDITIONAL TENANT WORK DRAWING REQUIREMENTS 1. Floor plan indicating workstation and furniture locations. 2. Location of standard electrical convenience outlets and telephone outlets. 3. Location and details of special electrical outlets; (e.g. Xerox), including voltage, amperage, phase and NEMA configuration of outlets. 4. Locations and details of special security requirements and equipment. 5. Locations and details of special audio/visual requirements, equipment and systems. 6. Location and heat load in BTU/Hr. of all special air conditioning and ventilating requirements (i.e. rooms such as telephone closets, server room, NOC rooms and labs). 7. Location and details of special structural requirements, e.g., slab penetrations and areas with floor loadings exceeding a live load of 100 lbs./s.f (i.e. for any UPS system, heavy file storage, etc) 8. Details and specifications of special millwork, rolling doors/movevable partitions, grilles, blackboards, shelves, etc. 9. Verified dimensions of all built-in equipment (file cabinets, lockers, plan files, etc.). 10. Location of any special soundproofing requirements. 11. All drawings to be uniform size (30" X 42") and shall incorporate the standard project electrical and plumbing symbols and be at a scale of 1/8" = 1' or larger. 12. Additional Tenant Work Drawing submittal shall be in a CAD format compatible with Landlord's architect drawing system. EXHIBIT C WALTHAM WESTON CORPORATE CENTER WALTHAM, MASSACHUSETTS LANDLORD SERVICES - -------------------------------------------------------------------------------- I. CLEANING: Cleaning and janitor services as provided below: A. OFFICE AREAS: DAILY: (Monday through Friday, inclusive, holidays excepted). 1. Empty and clean all waste receptacles and ashtrays and remove waste material from the Premises; wash receptacles as necessary. 2. Sweep and dust mop all uncarpeted areas using a dust-treated mop. 3. Vacuum all rugs and carpeted areas. 4. Hand dust and wipe clean with treated cloths all horizontal surfaces, including furniture, office equipment, window sills, door ledges, chair rails, and convector tops, within normal reach. 5. Wash clean all water fountains and sanitize. 6. Move and dust under all desk equipment and telephones and replace same (but not computer terminals, specialized equipment or other materials). 7. Wipe clean all chrome and other bright work. 8. Hand dust grill work within normal reach. 9. Main doors to premises shall be locked and lights shut off upon completion of cleaning. 10. Empty all recycling bins and remove all recyclables. WEEKLY: Dust coat racks and the like. QUARTERLY: 1. Render high dusting not reached in daily cleaning to include: a) dusting all pictures, frames, charts, graphs and similar wall hangings. b) dusting of all vertical surfaces, such as walls, partitions, doors and door frames, etc. c) dusting all pipes, ducts and moldings. d) dusting of all vertical blinds. 2. Spray buff all resilient floors. B. LAVATORIES: DAILY: (Monday through Friday, inclusive, holidays excepted). 1. Sweep and damp mop. 2. Clean all mirrors, powder shelves, dispensers and receptacles, bright work, flushometers, piping and toilet seat hinges. 3. Wash both sides of all toilet seats. 4. Wash all basins, bowls and urinals. 5. Dust and clean all powder room fixtures. 6. Empty and clean paper towel and sanitary disposal receptacles. 7. Remove waste paper and refuse. 8. Refill tissue holders, soap dispensers, towel dispensers, sanitary dispensers; materials to be furnished by Landlord. MONTHLY: 1. Machine scrub lavatory floors. 2. Wash all partitions and tile walls in lavatories. 3. Dust all lighting fixtures and grills in lavatories. C. MAIN LOBBIES, ELEVATORS, STAIRWELLS AND COMMON CORRIDORS: DAILY: (Monday through Friday, inclusive, holidays excepted). 1. Sweep and damp mop all floors, empty and clean waste receptacles, dispose of waste. 2. Clean elevators, wash or vacuum floors, wipe down walls and doors. 3. Spot clean any metal work inside lobbies. 4. Spot clean any metal work surrounding building entrance doors. 5. Sweep all stairwells and dust handrails. MONTHLY: 1. All resilient tile floors in public areas to be spray buffed. D. WINDOW CLEANING: All exterior windows shall be washed on the inside and outside surfaces no less than two (2) times per year. II. HVAC: A. Heating, ventilating and air conditioning equipment will be provided with sufficient capacity to accommodate a maximum population density of one (1) person per one hundred fifty (150) square feet of rentable floor area served, and a combined lighting and standard electrical load of 4 watts per square foot of rentable floor area. In the event Tenant introduces into the Premises personnel or equipment which overloads the system's ability to adequately perform its proper functions, Landlord shall so notify Tenant in writing. If within fifteen (15) days Tenant has not modified its use so as not to cause such overload, Landlord may, if needed, provide supplemental systems at Tenant's expense. Operating criteria of the basic system are in accordance with the Massachusetts Energy Code and shall not be less than the following: i) Cooling season indoor conditions of not in excess of 78E Fahrenheit when outdoor conditions are 88E Fahrenheit drybulb and 74E Fahrenheit wetbulb. ii) Heating season minimum room temperature of 72E Fahrenheit when outdoor conditions are 1E Fahrenheit drybulb. B. Landlord shall provide heating, ventilating and air conditioning as normal seasonal charges may require during Normal Building Operating Hours (7:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturdays, legal holidays in all cases excepted). If Tenant shall require air conditioning (during the air conditioning season) or heating or ventilating during any season outside Normal Building Operating Hours, Landlord shall use landlord's best efforts to furnish such services for the area or areas specified by written request of Tenant delivered to the Building Superintendent or the Landlord before 3:00 p.m. of the business day preceding the extra usage. For such services, Tenant shall pay Landlord, as additional rent, upon receipt of billing, a sum equal to the cost incurred by Landlord. III. ELECTRICAL SERVICES: A. Landlord shall provide electric power for a combined load of 4.0 watts per square foot of useable area for lighting and for office machines through standard receptacles for the typical office space. B. Landlord, at its option, may require separate metering and direct billing to Tenant for the electric power required for any special equipment (such as computers and reproduction equipment) that requires either 3-phase electric power or any voltage other than 120, or for any other usage in excess of 3.5 watts per square foot. C. Landlord will furnish and install, at Tenant's expense, all replacement lighting tubes, lamps and ballasts required by Tenant. Landlord will clean lighting fixtures on a regularly scheduled basis at Tenant's expense. IV. ELEVATORS: Provide passenger elevator service twenty-four (24) hours per day, seven (7) days per week. V. WATER: Provide hot water for lavatory purposes and cold water for drinking, lavatory and toilet purposes. VI. BUILDING DIRECTORY Provide a building directory. VII. CARD ACCESS SYSTEM: Landlord will provide a card access system at one entry door of the building. EXHIBIT E DECLARATION AFFIXING THE COMMENCEMENT DATE OF LEASE THIS AGREEMENT made this day of , 200 , by and between STONY BROOK ASSOCIATES LLC (hereinafter "Landlord") and NETEGRITY, INC. (hereinafter "Tenant"). W I T N E S S E T H T H A T: 1. This Agreement is made pursuant to Section 2.4 of that certain Lease dated , 2002 between the parties aforenamed as Landlord and Tenant (the "Lease"). 2. It is hereby stipulated that the Lease Term commenced on , (being the "Commencement Date" under the Lease), and shall end and expire on , unless sooner terminated or extended, as provided for in the Lease. WITNESS the execution hereof under seal by persons hereunto duly authorized, the date first above written. LANDLORD: STONY BROOK ASSOCIATES LLC By: Jones Road Development Associates LLC, a managing member By: Boston Properties Limited Partnership, a managing member By: Boston Properties, Inc., its general Partner By: --------------------------- Name: ------------------------- Title: ------------------------ TENANT: NETEGRITY, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK , 200 ---------------- - Then personally appeared before me the above-named , as --------------- of Stony Brook Associates LLC as aforesaid, who acknowledged the - ------------- foregoing instrument to be his free act and deed as such officer and the free act and deed of said limited liability company. NOTARY PUBLIC My Commission Expires: COMMONWEALTH OF MASSACHUSETTS COUNTY OF , 200 --------------------------- ------------------- - Then personally appeared before me the above-named , as --------------- of Netegrity, Inc. as aforesaid, who acknowledged the - ------------------ foregoing instrument to be his/her free act and deed as such officer and the free act and deed of said corporation. NOTARY PUBLIC My Commission Expires: -2- EXHIBIT F BROKER DETERMINATION OF PREVAILING MARKET RENT AND OTHER BUSINESS TERMS AND CONDITIONS Where in the Lease to which this Exhibit is attached provision is made for a Broker Determination of Prevailing Market Rent and/or the other business terms and conditions upon which particular space is to be leased by Tenant, the following procedures and requirements shall apply: 1. Tenant's Request. Tenant shall send a notice to Landlord by the time set for such notice in the applicable section of the Lease, requesting a Broker Determination of the Prevailing Market Rent and (to the extent applicable) other business terms and conditions, which notice to be effective must (i) make explicit reference to the Lease and to the specific section of the Lease pursuant to which said request is being made, (ii) include the name of a broker selected by Tenant to act for Tenant, which broker shall have at least ten (10) years experience dealing in properties of a nature and type generally similar to the Building located in the Boston West Suburban Market, and (iii) explicitly state that Landlord is required to notify Tenant within thirty (30) days of an additional broker selected by Landlord. 2. Landlord's Response. Within thirty (30) days after Landlord's receipt of Tenant's notice requesting the Broker Determination and stating the name of the broker selected by Tenant, Landlord shall give written notice to Tenant of Landlord's selection of a broker having at least the affiliation and experience referred to above. 3. Selection of Third Broker. Within ten (10) days thereafter the two (2) brokers so selected shall select a third such broker also having at least the affiliation and experience referred to above. 4. Broker Determination. Within thirty (30) days after the selection of the third broker, the three (3) brokers so selected, by majority opinion, shall make a determination of the annual fair market rental value of the Premises and (to the extent applicable) other business terms and conditions for the period referred to in the Lease. Such determination (x) may include provision for annual increases or decreases in rent during said term if so determined, (y) shall take into account the condition of the Premises and (z) shall take account of, and be expressed in relation to, provisions for paying for operating expenses, taxes and tenant electricity as contained in the Lease. The brokers shall advise Landlord and Tenant in writing by the expiration of said thirty (30) day period of the annual fair market rental value (which as so determined shall be referred to as the Prevailing Market Exhibit F - Page 1 of 2 Rent) and (to the extent applicable) other business terms and conditions upon which the space is to be leased by Tenant. 5. Resolution of Broker Deadlock. If the Brokers are unable to agree at least by majority on a determination of annual fair market rental value and/or other business terms and conditions, then the brokers shall send a notice to Landlord and Tenant by the end of the thirty (30) day period for making said determination setting forth their individual determinations, and in the case of monetary determinations, the highest such determination and the lowest such determination shall be disregarded and the remaining determination shall be deemed to be the determination of the monetary term or provision at issue. 6. Costs. Each party shall pay the costs and expenses of the broker selected by it and each shall pay one half (1/2) of the costs and expenses of the Third Broker. 7. Failure to Select Broker or Failure of Broker to Serve. If Tenant shall have requested a Broker Determination and Landlord shall not have designated a broker within the time period provided therefor above, then Tenant's Broker shall alone make the determination of Prevailing Market Rent and (to the extent applicable) other business terms and conditions in writing to Landlord and Tenant within thirty (30) days after the expiration of Landlord's right to designate a broker hereunder. If Tenant and Landlord have both designated brokers but the two brokers so designated do not, within a period of fifteen (15) days after the appointment of the second broker, agree upon and designate the Third Broker willing so to act, the Tenant, the Landlord or either broker previously designated may request the Boston Bar Association to designate the Third Broker willing so to act and a broker so appointed shall, for all purposes, have the same standing and powers as though he had been seasonably appointed by the brokers first appointed. In case of the inability or refusal to serve of any person designated as a broker, or in case any broker for any reason ceases to be such, a broker to fill such vacancy shall be appointed by the Tenant, the Landlord, the brokers first appointed or the said Boston Bar Association, as the case may be, whichever made the original appointment, or if the person who made the original appointment fails to fill such vacancy, upon application of any broker who continues to act or by the Landlord or Tenant such vacancy may be filled by the said Boston Bar Association, and any broker so appointed to fill such vacancy shall have the same standing and powers as though originally appointed. Exhibit F - Page 2 of 2 EXHIBIT G NOTICE OF LEASE Notice is hereby given pursuant to Chapter 183, Section 4, of the Massachusetts General Laws of the following Lease: Landlord: Stony Brook Associates LLC, a Delaware limited liability company Tenant: Netegrity, Inc, a Delaware corporation Date of Execution of Lease: August , 2002 Description of Lease Premises: The entire fifth (5th) floor comprising approximately 54,383 square feet (the "Premises"), of the building located at 201 Jones Road, Waltham, Massachusetts (the "Building"), situated on the land more particularly described in Exhibit A attached hereto and incorporated herein. Term: The term of the Lease shall be a period of sixty (60) months commencing on the Commencement Date. Commencement Date: The first to occur of (a) the day on which the work described in Section 3.1 of the Lease to be performed by Landlord is substantially completed or (b) the date on which Tenant commences beneficial use of the Premises or any portion thereof. Extension Option: Tenant has the option to extend the term of the Lease for one (1) period of sixty (60) months as provided in Section 8.20 of the Lease. -1- Expansion Option: Tenant has the right to lease (i) an additional 5,000-10,000 square feet located on the either the first, second, third or fourth floor of the Building upon the terms and subject to the conditions in Section 2.1.1(A) of the Lease and (ii) an additional 10,000-25,000 square feet located on either the first, second, third or fourth floor of the Building upon the terms and subject to the conditions in Section 2.1.1(B) of the Lease. Right of First Offer: Tenant has the right to lease portions of the fourth floor of the Building subject to the availability of the same and subject to the terms and conditions set forth in Section 2.1.2 of the Lease. Executed as an instrument under seal as of the day of , 2002. STONY BROOK ASSOCIATES LLC By: Jones Road Development Associates LLC, a managing member By: Boston Properties Limited Partnership, a managing member By: Boston Properties, Inc., its general partner By: ------------------------- Name: ----------------------- Title: ---------------------- NETEGRITY, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- -2- COMMONWEALTH OF MASSACHUSETTS , ss: , 2002 - ------------------ ----------------- Then personally appeared the above-named , as of Boston Properties, Inc., who acknowledged the foregoing instrument to be his free act and deed as such officer as aforesaid and the free act and deed of said corporation as the general partner of Boston Properties Limited Partnership as managing member of Jones Road Development Associates LLC as managing member of Stony Brook Associates LLC, before me, ---------------------------------- Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS , ss: , 2002 - ------------------ ----------------- Then personally appeared the above-named , as of Netegrity, Inc., who acknowledged the foregoing instrument to be his/her free act and deed as such officer as aforesaid and the free act and deed of said corporation, before me, ---------------------------------- Notary Public My Commission Expires -3- EX-10.2 4 b44468niexv10w2.txt OFFER LETTER FROM NETEGRITY, INC. Exhibit 10.2 September 6, 2002 Mr. Tom Thimot 56 St. Botolph Street Boston, MA 02116 Dear Tom, I am very pleased to offer you the position of Vice President, Worldwide Sales and Services at Netegrity, Inc., reporting directly to me. Your employment will begin on September 10, 2002. You will assume the role of Vice President, Worldwide Sales and Services on October 2, 2002. The base compensation for this position is $20,840 per month. In addition to your base compensation, you will be eligible to participate in a bonus plan which offers the opportunity to earn up to $100,000 when the performance objectives are achieved. Your annual bonus plan will be pro-rated for Q4 2002, and based on mutually agreed upon objectives. To qualify for the Q4 bonus you must achieve a minimum 80% of the revenue objective in Q4. The bonus payment is linear between 80 and 100 percent of achievement. In Q4, you will be eligible for an additional bonus pay out based on an over achievement of the plan. Upon commencement of your employment, a proposal will be submitted to the Netegrity Board of Directors requesting approval to grant you an option to purchase 200,000 shares of Netegrity Common Stock. These will be Incentive Stock Options up to the limit allowed by the IRS and the remainder will be "non-qualified," which generally means that you will have taxable income at the time of its exercise. The exercise price of these options will be determined based on the closing trade price of Netegrity's stock on the day prior to the Board of Directors' approval of the grant. As long as you remain continuously employed by Netegrity, you will be eligible to exercise your right to purchase 6.25% of the option shares per quarter, beginning three months after the Board grants your option, subject to the terms of your written option agreement. You should consult your personal tax advisor if you have questions regarding the stock option grant. Additionally, a proposal will be submitted to the Netegrity Board of Directors requesting approval to grant you an option to purchase 100,000 shares of Netegrity Common Stock. The option will be "non-qualified". The exercise price of these options will be determined based on the closing trade price of Netegrity's stock on the day prior to the Board of Directors' approval of the grant. As long as you remain continuously employed by Netegrity, you will be eligible to exercise your right to purchase 100% of the option shares beginning five years after the Board grants your option, subject to the terms of your written option agreement. You have the opportunity to achieve accelerated vesting based on performance against the plan of $90M in total revenue for 2003 and $110M in total revenue for 2004. The vesting will accelerate to 25% of the option shares for achieving 10% beyond plan in 2003 or 2004, and by 50% for achieving 20% beyond plan for either year. For each additional 10% attained above plan for either 2003 or 2004, an additional 25% of the option shares will vest. In the event of involuntary termination that is not "for cause," you will receive six months of base salary and be eligible to continue participation in the Company's benefit plans, subject to the standard eligibility requirements for the Plans. For the purposes of this provision, the term "Cause" shall mean the occurrence of any one or more of the following: (a) You shall have been convicted of, or shall have pleaded guilty or nolo contendere to, any felony; (b) You shall have intentionally committed any fraud, embezzlement, misappropriation of funds, breach of fiduciary duty or other act of dishonesty against the Company which has a material adverse effect on the Company; or (c) You shall have willfully and continually failed to substantially perform your reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness) or adhere to Netegrity's written policies that have been disclosed to you, which failure is not cured within 30 days after a written demand for substantial performance, describing such failure in reasonable detail, is received by you from the Company. In the event of a change in control, you will be covered under the Retention Agreement that was approved by the Board of Directors on September 3, 2002, with standard terms and conditions for Officers of the Company. Netegrity also offers you a complete benefits package, including health, dental, life and disability insurance; fifteen days of vacation and personal time combined; a 401(k) plan; and tuition reimbursement. This offer for at-will, full time employment is conditional upon your arrival on your first day at work. Please sign and date both copies of this offer letter and the enclosed confidentiality agreement. Return one copy of each to the attention of Jill Maunder, Vice President of Human Resources, and keep one copy for yourself. We welcome the opportunity to work with you. We appreciate your enthusiasm, skills, and experience, and look forward to your joining our team. Regards, /s/ Barry Bycoff Barry Bycoff Chairman, President & CEO - -------------------------------------------------------------------------------- I hereby accept the above position at Netegrity, according to the terms specified. /s/ Thomas Thimot 9/13/2002 - -------------------------- ------------------------ Name Date EX-10.3 5 b44468niexv10w3.txt INDEMNIFICATION AGREEMENT Exhibit 10.3 INDEMNIFICATION AGREEMENT This Agreement is made as of the 26th day of September 2002, by and between Netegrity, Inc., a Delaware corporation (the "Corporation), and Eric P. Giler (the "Indemnitee"), a director of the Corporation. WHEREAS, it is essential to the Corporation to retain and attract as directors the most capable persons available, and WHEREAS, the substantial increase in corporate litigation subjects directors to expensive litigation risks at the same time that the availability of directors' and officers' liability insurance has been severely limited, and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors, and WHEREAS, the Indemnitee does not regard the protection available under the Corporation's Certificate of Incorporation, By-laws and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director without adequate protection, and WHEREAS, the Corporation desires the Indemnitee to serve, or continue to serve, as a director of the Corporation. NOW THEREFORE, the Corporation and the Indemnitee do hereby agree as follows: 1. Agreement to Serve. The Indemnitee agrees to serve or continue to serve as a director of the Corporation for so long as the Indemnitee is duly elected or until such time as the Indemnitee tenders a resignation in writing. 2. Third Party Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (each, a "Proceeding") (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such Proceeding. 3. Derivative Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding. 4. Expenses. To the extent that the Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Sections 2 and 3, or in defense of any claim, issue or matter therein, the Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection therewith. 5. Authorization and Request for Indemnification. (a) Any indemnification requested by the Indemnitee under Section 2 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (b) Any indemnification requested by the Indemnitee under Section 3 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, the Indemnitee shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of the Indemnitee's duty to the Corporation unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 6. Advance Payment of Expenses. Subject to Section 5 above, the Corporation shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Corporation. The Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation. The advances to be made hereunder shall be paid by the Corporation to or on behalf of the Indemnitee within 30 days following delivery of a written request therefor by the Indemnitee to the Corporation. 7. Remedies. The right to indemnification or advancement of expenses as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Unless otherwise required by law, the burden of proving that indemnification is not appropriate shall be on the Corporation. The Indemnitee's expenses reasonably incurred in connection with successfully establishing the Indemnitee's right to indemnification, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation. 8. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled. 9. Subrogation. In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. 10. Term of Agreement. This Agreement shall continue until and terminate upon the later of (a) six years after the date that the Indemnitee shall have ceased to serve as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise or (b) the final termination of all Proceedings pending on the date set forth in clause (a) in respect of which the Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Paragraph 7 of this Agreement relating thereto. 11. Indemnification Hereunder Not Exclusive. The indemnification and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Certification of Incorporation, the By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory), or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding office for the Corporation. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of the Indemnitee's status as such, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided that the Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 12. No Special Rights. Nothing herein shall confer upon the Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation. 13. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 15. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee. 16. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 17. Modification and Waiver. This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall any such waiver constitute a continuing waiver. 18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed: (a) if to the Indemnitee, to: Eric Giler Brooktrout, Inc. 250 First Avenue Suite 300 Needham, MA 02494 (b) if to the Corporation, to: Netegrity, Inc. 52 Second Avenue Waltham, Massachusetts 02451 Attention: General Counsel or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case may be. 19. Applicable Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Indemnitee may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, and if the General Corporation Law of Delaware is amended, or other Delaware law is enacted, to permit further indemnification of the directors and officers, then the Indemnitee shall be indemnified to the fullest extent permitted under the General Corporation Law, as so amended, or by such other Delaware law, as so enacted. 20. Enforcement. The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as an officer or director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity. 21. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supercedes all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. For avoidance of doubt, the parties confirm that the foregoing does not apply to or limit the Indemnitee's rights under Delaware law or the Corporation's Certificate of Incorporation or By-Laws. 22. Consent to Suit. In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware. The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue. The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction. Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. NETEGRITY, INC. Attest: By: /s/ Regina O. Sommer By: _______________________ Name: Regina O. Sommer Name: _______________________ Title: Chief Financial Officer and Treasurer INDEMNITEE: Eric P. Giler By: /s/ Eric P. Giler EX-10.4 6 b44468niexv10w4.txt INDEMNIFICATION AGREEMENT Exhibit 10.4 INDEMNIFICATION AGREEMENT This Agreement is made as of the 26th day of September 2002, by and between Netegrity, Inc., a Delaware corporation (the "Corporation), and Lawrence D. Lenihan, Jr. (the "Indemnitee"), a director of the Corporation. WHEREAS, it is essential to the Corporation to retain and attract as directors the most capable persons available, and WHEREAS, the substantial increase in corporate litigation subjects directors to expensive litigation risks at the same time that the availability of directors' and officers' liability insurance has been severely limited, and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors, and WHEREAS, the Indemnitee does not regard the protection available under the Corporation's Certificate of Incorporation, By-laws and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director without adequate protection, and WHEREAS, the Corporation desires the Indemnitee to serve, or continue to serve, as a director of the Corporation. NOW THEREFORE, the Corporation and the Indemnitee do hereby agree as follows: 1. Agreement to Serve. The Indemnitee agrees to serve or continue to serve as a director of the Corporation for so long as the Indemnitee is duly elected or until such time as the Indemnitee tenders a resignation in writing. 2. Third Party Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (each, a "Proceeding") (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such Proceeding. 3. Derivative Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding. 4. Expenses. To the extent that the Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Sections 2 and 3, or in defense of any claim, issue or matter therein, the Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection therewith. 5. Authorization and Request for Indemnification. (a) Any indemnification requested by the Indemnitee under Section 2 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (b) Any indemnification requested by the Indemnitee under Section 3 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, the Indemnitee shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of the Indemnitee's duty to the Corporation unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 6. Advance Payment of Expenses. Subject to Section 5 above, the Corporation shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Corporation. The Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation. The advances to be made hereunder shall be paid by the Corporation to or on behalf of the Indemnitee within 30 days following delivery of a written request therefor by the Indemnitee to the Corporation. 7. Remedies. The right to indemnification or advancement of expenses as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Unless otherwise required by law, the burden of proving that indemnification is not appropriate shall be on the Corporation. The Indemnitee's expenses reasonably incurred in connection with successfully establishing the Indemnitee's right to indemnification, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation. 8. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled. 9. Subrogation. In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. 10. Term of Agreement. This Agreement shall continue until and terminate upon the later of (a) six years after the date that the Indemnitee shall have ceased to serve as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise or (b) the final termination of all Proceedings pending on the date set forth in clause (a) in respect of which the Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Paragraph 7 of this Agreement relating thereto. 11. Indemnification Hereunder Not Exclusive. The indemnification and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Certification of Incorporation, the By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory), or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding office for the Corporation. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of the Indemnitee's status as such, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided that the Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 12. No Special Rights. Nothing herein shall confer upon the Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation. 13. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 15. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee. 16. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 17. Modification and Waiver. This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall any such waiver constitute a continuing waiver. 18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed: (a) if to the Indemnitee, to: Lawrence D. Lenihan, Jr. Pequot Capital Management, Inc. 153 East 53(rd) Street 35(th) Floor New York, NY 10022 (b) if to the Corporation, to: Netegrity, Inc. 52 Second Avenue Waltham, Massachusetts 02451 Attention: General Counsel or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case may be. 19. Applicable Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Indemnitee may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, and if the General Corporation Law of Delaware is amended, or other Delaware law is enacted, to permit further indemnification of the directors and officers, then the Indemnitee shall be indemnified to the fullest extent permitted under the General Corporation Law, as so amended, or by such other Delaware law, as so enacted. 20. Enforcement. The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as an officer or director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity. 21. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supercedes all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. For avoidance of doubt, the parties confirm that the foregoing does not apply to or limit the Indemnitee's rights under Delaware law or the Corporation's Certificate of Incorporation or By-Laws. 22. Consent to Suit. In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware. The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue. The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction. Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. NETEGRITY, INC. Attest: By: /s/ Regina O. Sommer By: ______________________ Name: Regina O. Sommer Name: _________________________ Title: Chief Financial Officer and Treasurer INDEMNITEE: Lawrence D. Lenihan, Jr. /s/ Lawrence D. Lenihan, Jr. EX-10.5 7 b44468niexv10w5.txt INDEMNIFICATION AGREEMENT Exhibit 10.5 INDEMNIFICATION AGREEMENT This Agreement is made as of the 7th day of October 2002, by and between Netegrity, Inc., a Delaware corporation (the "Corporation), and Michael L. Mark (the "Indemnitee"), a director of the Corporation. WHEREAS, it is essential to the Corporation to retain and attract as directors the most capable persons available, and WHEREAS, the substantial increase in corporate litigation subjects directors to expensive litigation risks at the same time that the availability of directors' and officers' liability insurance has been severely limited, and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors, and WHEREAS, the Indemnitee does not regard the protection available under the Corporation's Certificate of Incorporation, By-laws and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director without adequate protection, and WHEREAS, the Corporation desires the Indemnitee to serve, or continue to serve, as a director of the Corporation. NOW THEREFORE, the Corporation and the Indemnitee do hereby agree as follows: 1. Agreement to Serve. The Indemnitee agrees to serve or continue to serve as a director of the Corporation for so long as the Indemnitee is duly elected or until such time as the Indemnitee tenders a resignation in writing. 2. Third Party Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (each, a "Proceeding") (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such Proceeding. 3. Derivative Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding. 4. Expenses. To the extent that the Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Sections 2 and 3, or in defense of any claim, issue or matter therein, the Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection therewith. 5. Authorization and Request for Indemnification. (a) Any indemnification requested by the Indemnitee under Section 2 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (b) Any indemnification requested by the Indemnitee under Section 3 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, the Indemnitee shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of the Indemnitee's duty to the Corporation unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 6. Advance Payment of Expenses. Subject to Section 5 above, the Corporation shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Corporation. The Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation. The advances to be made hereunder shall be paid by the Corporation to or on behalf of the Indemnitee within 30 days following delivery of a written request therefor by the Indemnitee to the Corporation. 7. Remedies. The right to indemnification or advancement of expenses as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Unless otherwise required by law, the burden of proving that indemnification is not appropriate shall be on the Corporation. The Indemnitee's expenses reasonably incurred in connection with successfully establishing the Indemnitee's right to indemnification, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation. 8. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled. 9. Subrogation. In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. 10. Term of Agreement. This Agreement shall continue until and terminate upon the later of (a) six years after the date that the Indemnitee shall have ceased to serve as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise or (b) the final termination of all Proceedings pending on the date set forth in clause (a) in respect of which the Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Paragraph 7 of this Agreement relating thereto. 11. Indemnification Hereunder Not Exclusive. The indemnification and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Certification of Incorporation, the By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory), or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding office for the Corporation. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of the Indemnitee's status as such, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided that the Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 12. No Special Rights. Nothing herein shall confer upon the Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation. 13. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 15. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee. 16. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 17. Modification and Waiver. This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall any such waiver constitute a continuing waiver. 18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed: (a) if to the Indemnitee, to: Michael L. Mark 284 Summer Avenue Reading, MA 01867 (b) if to the Corporation, to: Netegrity, Inc. 52 Second Avenue Waltham, Massachusetts 02451 Attention: General Counsel or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case may be. 19. Applicable Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Indemnitee may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, and if the General Corporation Law of Delaware is amended, or other Delaware law is enacted, to permit further indemnification of the directors and officers, then the Indemnitee shall be indemnified to the fullest extent permitted under the General Corporation Law, as so amended, or by such other Delaware law, as so enacted. 20. Enforcement. The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as an officer or director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity. 21. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supercedes all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. For avoidance of doubt, the parties confirm that the foregoing does not apply to or limit the Indemnitee's rights under Delaware law or the Corporation's Certificate of Incorporation or By-Laws. 22. Consent to Suit. In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware. The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue. The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction. Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. NETEGRITY, INC. Attest: By: s/ Regina O.Sommer By: ____________________ Name: Regina O. Sommer Name: ____________________ Title: Chief Financial Officer and Treasurer INDEMNITEE: Michael L. Mark By: /s/ Michael L. Mark EX-10.6 8 b44468niexv10w6.txt INDEMNIFICATION AGREEMENT Exhibit 10.6 INDEMNIFICATION AGREEMENT This Agreement is made as of the 26th day of September 2002, by and between Netegrity, Inc., a Delaware corporation (the "Corporation), and Ralph B. Wagner (the "Indemnitee"), a director of the Corporation. WHEREAS, it is essential to the Corporation to retain and attract as directors the most capable persons available, and WHEREAS, the substantial increase in corporate litigation subjects directors to expensive litigation risks at the same time that the availability of directors' and officers' liability insurance has been severely limited, and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors, and WHEREAS, the Indemnitee does not regard the protection available under the Corporation's Certificate of Incorporation, By-laws and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as a director without adequate protection, and WHEREAS, the Corporation desires the Indemnitee to serve, or continue to serve, as a director of the Corporation. NOW THEREFORE, the Corporation and the Indemnitee do hereby agree as follows: 1. Agreement to Serve. The Indemnitee agrees to serve or continue to serve as a director of the Corporation for so long as the Indemnitee is duly elected or until such time as the Indemnitee tenders a resignation in writing. 2. Third Party Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (each, a "Proceeding") (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such Proceeding. 3. Derivative Actions. The Corporation shall indemnify the Indemnitee if the Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding. 4. Expenses. To the extent that the Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Sections 2 and 3, or in defense of any claim, issue or matter therein, the Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection therewith. 5. Authorization and Request for Indemnification. (a) Any indemnification requested by the Indemnitee under Section 2 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (b) Any indemnification requested by the Indemnitee under Section 3 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, the Indemnitee shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of the Indemnitee's duty to the Corporation unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 6. Advance Payment of Expenses. Subject to Section 5 above, the Corporation shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Corporation. The Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation. The advances to be made hereunder shall be paid by the Corporation to or on behalf of the Indemnitee within 30 days following delivery of a written request therefor by the Indemnitee to the Corporation. 7. Remedies. The right to indemnification or advancement of expenses as provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Unless otherwise required by law, the burden of proving that indemnification is not appropriate shall be on the Corporation. The Indemnitee's expenses reasonably incurred in connection with successfully establishing the Indemnitee's right to indemnification, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation. 8. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled. 9. Subrogation. In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. 10. Term of Agreement. This Agreement shall continue until and terminate upon the later of (a) six years after the date that the Indemnitee shall have ceased to serve as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise or (b) the final termination of all Proceedings pending on the date set forth in clause (a) in respect of which the Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Paragraph 7 of this Agreement relating thereto. 11. Indemnification Hereunder Not Exclusive. The indemnification and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Certification of Incorporation, the By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory), or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding office for the Corporation. Nothing contained in this Agreement shall be deemed to prohibit the Corporation from purchasing and maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any such capacity, or arising out of the Indemnitee's status as such, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided that the Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 12. No Special Rights. Nothing herein shall confer upon the Indemnitee any right to continue to serve as an officer or director of the Corporation for any period of time or at any particular rate of compensation. 13. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 15. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee. 16. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 17. Modification and Waiver. This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall any such waiver constitute a continuing waiver. 18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed: (a) if to the Indemnitee, to: Ralph Wagner 11 Monroe Road Wellesley, MA 02181 (b) if to the Corporation, to: Netegrity, Inc. 52 Second Avenue Waltham, Massachusetts 02451 Attention: General Counsel or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case may be. 19. Applicable Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Indemnitee may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, and if the General Corporation Law of Delaware is amended, or other Delaware law is enacted, to permit further indemnification of the directors and officers, then the Indemnitee shall be indemnified to the fullest extent permitted under the General Corporation Law, as so amended, or by such other Delaware law, as so enacted. 20. Enforcement. The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as an officer or director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity. 21. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supercedes all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. For avoidance of doubt, the parties confirm that the foregoing does not apply to or limit the Indemnitee's rights under Delaware law or the Corporation's Certificate of Incorporation or By-Laws. 22. Consent to Suit. In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware. The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue. The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction. Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. NETEGRITY, INC. Attest: By: /s/ Regina O. Sommer By: ________________________ Name: Regina O. Sommer Name: ________________________ Title: Chief Financial Officer and Treasurer INDEMNITEE: Ralph B. Wagner /s/ Ralph B. Wagner EX-10.7 9 b44468niexv10w7.txt CONSULTING AGREEMENT Exhibit 10.7 CONSULTING AGREEMENT This Consulting Agreement is between Thomas M. Palka (the "Consultant") and Netegrity, Inc. (the "Company"). Capitalized terms herein shall have the same meaning as in the Transition Agreement between Netegrity and Consultant dated September 6, 2002. 1. CONSULTANT'S SERVICES. The Consultant shall act as a consultant to the Company commencing on the first day after the Resignation Date and ending one year thereafter unless terminated earlier as provided for in Section 4 below (the "Consultancy Period"). No compensation payments will be made under Section 2 of this Consulting Agreement until the Consultancy Period has commenced. The Consultant shall, at such times and such places as the Company may reasonably request, provide consulting services and advice relating to, among other things, the organization, business objectives and policies of the Company (the "Services"). However, the Company will have no obligation whatsoever to make any request for the Services during the term of this Consulting Agreement. In the event that the Transition Agreement is terminated pursuant to Section 2 thereof, or in the event of revocation as provided in Section 11(c) hereof, this Consulting Agreement shall be void and of no legal force or effect. 2. COMPENSATION. (a) In full payment for performance of the Services, the Company shall pay the Consultant a consulting fee, (the "Consulting Fee"), in an amount equal to Consultant's 2002 base salary ($200,000.00), plus earned incentive bonus as defined in Schedule A if any. For the purpose of calculating Consultant's earned incentive bonus, Company shall utilize the 2002 quota of License Bookings and defined and set forth in Schedule A (the "2002 Quota"). (b) Notwithstanding paragraph 2(a) above, in the event Consultant fails to achieve at least 90% of the 2002 Quota (the "Consulting Bonus Threshold"), the Consulting Fee will be based solely on the base salary paid to Consultant during 2002. (c) Notwithstanding paragraph 2(a) above, if Consultant achieves the Consulting Bonus Threshold during calendar year 2002, but achieves less than 100% of the 2002 Quota, the amount of Consulting Fee paid to Consultant will include 2002 base salary plus an earned incentive bonus calculated in accordance with the chart set forth in Schedule A. The earned incentive bonus will be calculated based on a quarterly number and the payment of the fourth quarter incentive bonus is not contingent on achieving the third quarter incentive bonus. (d) Notwithstanding paragraph 2(a) above and subject to paragraphs 2(b) and 2(c) above, if the Consultant's employment pursuant to the Transition Agreement is terminated by the Company without cause prior to December 31, 2002, the Consulting Fee will be computed based on the full year 2002 base salary, plus the incentive bonus, if any, actually earned for his Services up to the Resignation Date, provided however, that the Consulting Bonus Threshold specified in paragraph 2(b) shall be recalculated as 90% of the 2002 Quota of License Bookings applicable to the period up to the Resignation Date. (e) The Consulting Fee shall be paid to Consultant on the last day of each month during the Consultancy Period in accordance with a schedule of equal monthly installments between twelve (12) and thirty-six (36) months to be agreed in writing between Consultant and the Company. (f) During the Consultancy Period, Consultant shall not be entitled to, and shall not receive, any of the benefits he had been receiving from the Company prior to the Resignation Date, including, but not limited to, health or dental insurance and vacation accrual, except pursuant to COBRA at his cost if elected by the Consultant. 3. NO OTHER COMPENSATION OR BENEFITS. Except as expressly set forth herein, the Company shall not be obligated to pay any compensation or Benefits to Consultant during the Consultancy Period. Consultant shall not continue to vest during the Consultancy Period in the stock options granted to him prior to the Resignation Date. Exercise of any options vested as of the Resignation Date shall be governed by the terms of the applicable stock option plan(s) and the option agreement(s) between Consultant and the Company. Consultant shall not accrue any vacation entitlement during the Consultancy Period. The Company will reimburse Consultant for properly documented business expenses in accordance with the Company's policies therefor. 4. TERMINATION (a) This Consulting Agreement will expire at the end of the Consultancy Period, at which time Consultant and the Company agree that any and all obligations which the Company may owe to the Consultant under this Consulting Agreement or otherwise will terminate. (b) This Agreement may be terminated by the Company at any time for Cause, as that term is defined in the Transition Agreement. Upon termination for Cause, the Company's sole obligation to Consultant shall be to pay a prorata portion of the Consulting Fee due through the date of termination, which payment shall be Consultant's sole and exclusive remedy on account of termination for cause. 5. CONTINUED EFFECTIVENESS OF NON-COMPETITION, NON-DISCLOSURE AND INVENTIONS AGREEMENT. Consultant hereby acknowledges and agrees that the Non-Competition, Non-Disclosure and Inventions Agreement dated 10/12/01 between Consultant and the Company ("NDA") shall remain in full force and effect during the Consultancy Period and thereafter in accordance with its terms and applicable law. Such NDA is hereby incorporated by reference into this Consulting Agreement. 6. INDEPENDENT CONTRACTOR. It is expressly understood and agreed that during the term of this Consulting Agreement, the Consultant's relationship to the Company will be that of an independent contractor, and that neither this Consulting Agreement nor the Services to be rendered hereunder shall for any purpose whatsoever or in any way or manner create, expressly or by implication, any employer-employee relationship, partnership, joint venture or other relationship with the Company, other than that of independent parties contracting with each other solely for the purpose of carrying out the provisions of this Consulting Agreement. Accordingly, Consultant acknowledges and agrees that he shall not be entitled to any benefits provided by the Company to its employees (including, without limitation, such items as health and disability benefits, except this section will not affect Consultant's rights to health and dental insurance pursuant to COBRA as set forth in Section 2 hereof. The Consultant shall have sole and exclusive responsibility for the payment of all federal, state and local income taxes, for all employment and disability insurance and for Social Security and other similar taxes with respect to the Consulting Fee. The Consultant further agrees that if the Company pays or becomes liable for such taxes or related civil penalties or interest as a result of the Consultant's failure to pay taxes or report same, or due to the Company's failure to withhold taxes, the Consultant shall indemnify and hold the Company harmless for any such liability. The Consultant shall assume and accept all responsibilities which are imposed on independent contractors by any statute, regulation, rule of law or otherwise. Further, the Consultant understands and agrees that the work to be performed is not covered under the unemployment compensation laws and that the work to be performed is not intended to be covered by applicable worker's compensation laws. 2 7. NO AGENCY AUTHORITY. The Consultant is not authorized to bind the Company, or to incur any obligation or liability on behalf of the Company, except as expressly authorized by the Company in writing. 8. INDEMNIFICATION. Consultant agrees to defend, indemnify and hold the Company harmless from any and all claims, damages, liability, attorney's fees and expenses on account of (i) an alleged breach of, or failure by Consultant to satisfy any of his obligations under, the Consulting Agreement or the Transition Agreement; or (ii) any other act or omission of Consultant. 9. RELEASE. In consideration of the payments and agreements set forth in Sections 1 and 2 hereof, the sufficiency and receipt of which are hereby acknowledged, Consultant unconditionally and irrevocably agrees that he and his representatives, agents, attorneys, executors, administrators, estates, heirs, successors and assigns (collectively, the "Releasor") hereby completely release, remise and forever discharge the Company, its predecessors, successors, assigns, parents, affiliates, subsidiaries, divisions, insurers, and its and their past and present directors, officers, employees, stockholders, partners, agents, trustees, fiduciaries, attorneys, and representatives of any kind, in both their official and individual capacities (the "Releasees") of and from any and all claims, actions, causes of actions, cross-claims, motions, counterclaims, suits, charges, debts, dues, obligations, complaints, liabilities, accounts, covenants, contracts, agreements, promises, entitlements to damages, judgments, costs, expenses, rights and demands of any nature whatsoever, either in law or in equity, known or unknown, existing or contingent, including, but not limited to: (i) any and all claims arising out of or in connection with Consultant's employment, change in employment status and/or termination of employment with the Company; (ii) any and all claims arising out of or in connection with any relationship between Consultant and the Company, including without limitation, Consultant's status as an employee, consultant or stockholder of the Company; (iii) any and all claims for stock, stock options, equity or ownership in the Company; and (iv) any and all claims based on any federal, state or local law, constitution or regulation regarding either employment or employment discrimination and/or retaliation including, without limitation, those laws or regulations concerning discrimination on the basis of race, color, age, handicap, physical or mental disability, creed, religion, sex, sex harassment, sexual orientation, marital status, national origin, ancestry, veteran status, military service and/or application for military service; (v) any and all claims arising out of or in connection with any contract, whether oral or written, express or implied; any tort; and/or any other statutory or common law claim of any nature whatsoever. This provision is intended by the parties hereto to be all-encompassing, and to include all claims that Consultant has, may have or has had against the Releasees, or any of them, from the beginning of the world to the Effective Date of this Transition Agreement. This release provision will not affect Consultant's rights under the Netegrity 1994 Stock Option Plan, the Netegrity 1997 Stock Option Plan and the Netegrity 2000 Stock Option Plan. 10. ACCORD AND SATISFACTION. Consultant accepts the payments and agreements set forth above in Sections 1 and 2 as full and complete payment, settlement, consideration, accord and/or satisfaction with respect to any and all obligations and liabilities, whether financial or otherwise, of the Releasees to Consultant, and with respect to all claims, causes of action and damages that could be asserted by Consultant against the Releasees, regarding Consultant's employment, change in employment status and/or termination, including but not limited to, any and all claims for accrued compensation and benefits, salary, wages, severance pay, draws, bonuses, commissions, incentive pay, deferred compensation, reimbursement of expenses, attorneys fees, vacation pay, equity, claims of ownership, stock and/or stock options and all other payments, compensation or reimbursements of any kind and/or 3 nature. This section will not affect Consultant's rights under the Netegrity 1994 Stock Option Plan, the Netegrity 1997 Stock Option Plan, the Netegrity 2000 Stock Option Plan. 11. WAIVER OF RIGHTS AND CLAIMS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967. SINCE CONSULTANT IS 40 YEARS OF AGE OR OLDER, HE HAS BEEN INFORMED THAT HE HAS OR MIGHT HAVE SPECIFIC RIGHTS AND/OR CLAIMS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (THE "ADEA"), AND HE AGREES AND UNDERSTANDS THAT: (A) IN CONSIDERATION FOR THE PAYMENTS AND AGREEMENTS DESCRIBED IN SECTIONS 1 AND 2 HEREOF, CONSULTANT SPECIFICALLY WAIVES SUCH RIGHTS AND/OR CLAIMS TO THE EXTENT THAT SUCH RIGHTS AND/OR CLAIMS AROSE PRIOR TO OR ON THE DATE THIS CONSULTING AGREEMENT IS EXECUTED; (B) CONSULTANT IS ADVISED OF HIS RIGHT TO CONSULT WITH AN ATTORNEY OF HIS CHOICE OR ANY OTHER PERSON OF HIS CHOOSING PRIOR TO EXECUTING THIS CONSULTING AGREEMENT. CONSULTANT ACKNOWLEDGES THAT HE HAS CONSULTED WITH COUNSEL OF HIS CHOOSING AND HAS NOT BEEN SUBJECT TO ANY UNDUE OR IMPROPER INFLUENCE INTERFERING WITH THE EXERCISE OF HIS FREE WILL IN DECIDING WHETHER TO EXECUTE THIS CONSULTING AGREEMENT; (C) CONSULTANT WAS AND IS HEREBY INFORMED THAT HE HAS AT LEAST 21 DAYS FROM THE DATE HE IS PRESENTED WITH THIS CONSULTING AGREEMENT WITHIN WHICH TO CONSIDER THE TERMS OF AND TO EXECUTE THIS CONSULTING AGREEMENT, AND SEVEN (7) DAYS FOLLOWING EXECUTION TO REVOKE HIS ACCEPTANCE OF IT. SUCH REVOCATION MUST BE DELIVERED TO THE COMPANY IN WRITING PRIOR TO THE CLOSE OF BUSINESS ON SUCH SEVENTH DAY. THIS CONSULTING AGREEMENT SHALL NOT BE EFFECTIVE UNTIL THE EIGHTH DAY FOLLOWING EXECUTION BY CONSULTANT (WITHOUT REVOCATION). (D) THE 21-DAY PERIOD WILL NOT BE AFFECTED OR EXTENDED BY ANY REVISION THAT MIGHT BE MADE TO THIS CONSULTING AGREEMENT. 12. MISCELLANEOUS. (a) This Consulting Agreement, the Transition Agreement and the NDA set forth the complete, sole and entire agreement between the parties and supersedes all prior agreements, communications, understandings, representations and negotiations between the parties, whether oral or written, except for the stock plan and the stock option agreement between the Consultant and the Company which shall remain in full force and effect in accordance with their respective terms. (b) No provision of this Consulting Agreement shall be waived, amended, modified, superseded, canceled, terminated, renewed or extended except in a written instrument signed by the party against whom any of the foregoing actions is asserted. Any waiver shall be limited to the particular instance and for the particular purpose when and for which it is given. (c) Consultant hereby agrees that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the 4 enforceability of any of the other clauses of this Consulting Agreement. Moreover, if one or more of the provisions contained in this Consulting Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. (d) This Consulting Agreement, the Services to be performed and all rights hereunder are personal to the Consultant and may not be transferred or assigned by the Consultant at any time. The Company may assign this Consulting Agreement to its successors and assigns and all rights and obligations under this Agreement will inure to the benefit of and be binding upon the Company. (e) This Consulting Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, and shall be considered a sealed instrument thereunder. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals as of the dates written below. NETEGRITY, INC. Thomas M. Palka By: /s/ Barry N. Bycoff /s/ Thomas M. Palka -------------------- -------------------- Barry N. Bycoff President, Chief Executive Officer, Dated: September 6, 2002 Dated: September 6, 2002 ---------------------------- ----------------- 5 SCHEDULE A DEFINITIONS: FOR THE PURPOSE OF THIS AGREEMENT, "LICENSE BOOKINGS" SHALL MEAN THE LICENSE FEES (EXCLUDING ANY FEES FOR SUPPORT, MAINTENANCE, TRAINING OR INSTALLATION SERVICES) FOR NETEGRITY SOFTWARE UNDER LICENSE AGREEMENTS EXECUTED IN THE APPLICABLE QUARTER, WHICH MEET THE CRITERIA FOR NETEGRITY'S THEN CURRENT REVENUE RECOGNITION GUIDELINES, 2002 QUOTA QUARTERLY BREAKDOWN
Q3 Q4 LICENSE BOOKINGS $11,510,000 $13,763,000 MAXIMUM INCENTIVE BONUS PER QUARTER $ 40,000.00 $ 40,000.00
CONSULTING FEE - INCENTIVE BONUS CALCULATION
% of Quarterly 2002 Quota Achieved % of 2002 Incentive Bonus Paid as Part of Consulting Fee <90% 0 =90% 50% **91% 55% **92% 60% **93% 65% **94% 70% **95% 75% **96% 80% **97% 85% **98% 90% **99% 95% **100% 100%
** Less than or equal to. For example, in the event Company's License Booking for Q3 2002 is $10,590,000 which is = 92% of the Q3 2002 Quota, for the purpose of this example, the 2002 Incentive Bonus for Q3 would be $24,000 (i.e. $40,000 x 60%). 6 EX-10.8 10 b44468niexv10w8.txt TRANSITION AGREEMENT Exhibit 10.8 TRANSITION AGREEMENT It is hereby agreed by and between Thomas M. Palka ("Mr. Palka") and Netegrity, Inc. (the "Company"), for good and sufficient consideration more fully described below, that: 1. EMPLOYMENT STATUS. Mr. Palka and the Company agree that Mr. Palka will resign his employment with the Company effective on a mutually agreed future date, or such earlier date if this Transition Agreement is terminated in accordance with paragraph 2 hereof (the "Resignation Date"). Mr. Palka agrees to provide to the Company a written resignation letter upon the Resignation Date. Mr. Palka and the Company further agree that they will execute the Consulting Agreement annexed hereto as Exhibit A ("Consulting Agreement") at the time they execute this Transition Agreement. This Consulting Agreement shall not be effective if (a) Mr. Palka revokes his acceptance of this Transition Agreement as provided in paragraph 9 hereof or the Consulting Agreement as provided in paragraph 11(c) thereof; or (b) the Company terminates this Transition Agreement and Mr. Palka's employment thereunder as provided in paragraph 2.1 hereof. During the period beginning on the Effective Date and ending on the Resignation Date (the "Employment Period"), Mr. Palka will dedicate his full time and best efforts to promote the business and best interests of the Company, and shall perform his duties in a competent and professional manner. 2. TERMINATION. 2.1 Notwithstanding the foregoing, this Agreement may be terminated by the Company for "Cause" prior to the Resignation Date. "Cause," for purposes of this Agreement (and the Consulting Agreement) shall mean termination by the Company on account of Mr. Palka's: (a) commission of an act of fraud, embezzlement, misappropriation or theft; (b) commission of a felony or other crime, or pleading nolo contendre for a felony or other crime; (c) commission of an unauthorized or wrongful disclosure or use of confidential, proprietary and/or trade secret information belonging to the Company or its clients; (d) refusal or failure to perform the duties and responsibilities assigned by the Company; and (e) breach of any part of this Transition Agreement (including the Consulting Agreement). Upon termination for Cause, the Company shall have no further obligation under this Transition Agreement, and the Consulting Agreement shall be null and void. Mr. Palka's obligations pursuant to Section 3 hereof shall survive termination or expiration of this Transition Agreement. 2.2 The Company may terminate this Transition Agreement, and Mr. Palka's employment thereunder, at any time without cause. 3. CONFIDENTIALITY. Mr. Palka agrees to keep the terms of this Transition Agreement confidential and not divulge or publish, directly or indirectly, any information regarding the terms, existence or negotiations of this Transition Agreement to any person or organization except as provided in this Section. Mr. Palka may make voluntary disclosure of the terms of this Transition Agreement only to his immediate family, accountants, and attorneys. However, this provision will not interfere with any obligation Mr. Palka may have to respond to a properly issued and served subpoena or legal process. 4. ENTIRE AGREEMENT. This Transition Agreement and the Consulting Agreement sets forth the complete, sole and entire agreement between the parties and supersedes all prior agreements, communications, understandings, representations and negotiations between the parties, whether oral or written, except for the Netegrity 1994 Stock Option Plan, the Netegrity 1997 Stock Option Plan, the Netegrity 2000 Stock Option Plan, and the stock option agreements between Mr. Palka and the Netegrity, Inc. Non-Competition, Non-Disclosure and Inventions Agreement between Mr. Palka and the Company dated 10/12/01, which shall continue in full force and effect in accordance with their respective terms. This Transition Agreement may not be changed, amended or modified except upon the express written consent of all parties. 5. SEVERABILITY AND CONSTRUCTION. In the event that any provision of this Transition Agreement is determined to be legally invalid, the affected provision will be stricken from this Transition Agreement, and the remaining terms of this Transition Agreement and its enforceability will remain unaffected thereby. 6. ASSIGNABILITY. Mr. Palka may not assign any of his rights or delegate any of his duties or obligations under this Transition Agreement. The rights and obligations of the Company under this Transition Agreement shall inure to the benefit of the successors and assigns of the Company, provided such successors and assigns of the Company agree to be bound by the terms hereof. 7. GOVERNING LAW. The interpretation and enforcement of this Agreement will be governed by the laws of the Commonwealth of Massachusetts, and shall be considered a sealed instrument thereunder. 8. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which will be deemed one and the same instrument. 9. EFFECTIVE DATE. For a period of seven (7) days following Mr. Palka's execution of this Transition Agreement, he may revoke his acceptance of it, and if he does so, this Transition Agreement (including the Consulting Agreement) shall not become legally effective or enforceable. The eighth day following Mr. Palka's execution of this Transition Agreement shall be the Effective Date, provided Mr. Palka has not revoked his acceptance of it. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals on the dates set forth below. NETEGRITY, INC. Thomas M. Palka By: /s/ Barry N. Bycoff /s/ Thomas M. Palka --------------- --------------- Barry N. Bycoff President, Chief Executive Officer, Dated: September 6, 2002 Dated: September 6, 2002 2 EX-10.9 11 b44468niexv10w9.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.9 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Barry N. Bycoff (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Barry N. Bycoff -------------------- Barry N. Bycoff Address: -------------------- -------------------- 11 EX-10.10 12 b44468niexv10w10.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.10 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Regina O. Sommer (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of 9 the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Barry N. Bycoff ------------------------------------- Title: President and Chief Executive Officer ------------------------------------- /s/ Regina O. Sommer --------------------------------------------- Regina O. Sommer Address: --------------------------------------------- --------------------------------------------- 11 EX-10.11 13 b44468niexv10w11.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.11 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Deepak Taneja (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of 9 the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina S. Sommer ------------------------------- Title: Chief Financial Officer and Treasurer /s/ Deepak Taneja ------------------------------------ Deepak Taneja Address: 11 EX-10.12 14 b44468niexv10w12.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.12 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and James Rosen (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 2 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; 3 (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. 4 (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 5 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice 6 or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage 8 prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of 9 the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina S. Sommer ------------------------------- Title: Chief Financial Officer and Treasurer /s/ James Rosen ------------------------------------ James Rosen Address: 11 EX-10.13 15 b44468niexv10w13.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.13 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Bill Bartow (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina S. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ William Bartow -------------------------------------------- William Bartow 11 EX-10.14 16 b44468niexv10w14.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.14 NETEGRITY, INC. EXECUTIVE RETENTION AGREEMENT THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Thomas Thimot (the "Executive") is made as of September 10, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "CHANGE IN CONTROL" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "CHANGE IN CONTROL DATE" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "CAUSE" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "GOOD REASON" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "DISABILITY" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; PROVIDED, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL. 3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 TERMINATION OF EMPLOYMENT. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. BENEFITS TO EXECUTIVE. 4.1 COMPENSATION AND STOCK ACCELERATION. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; PROVIDED, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) TERMINATION FOR DEATH OR DISABILITY. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR CAUSE. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 MITIGATION. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. DISPUTES. 5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 EXPENSES. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. SUCCESSORS. 6.1 SUCCESSOR TO COMPANY. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. NOTICE. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. MISCELLANEOUS. 8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 WAIVERS. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 TAX WITHHOLDING. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 AMENDMENTS. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 EXECUTIVE'S ACKNOWLEDGEMENTS. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina S. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Thomas Thimot --------------------------------------------- Thomas Thimot 11 EX-10.15 17 b44468niexv10w15.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.15 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Scott Sullivan (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of 9 the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer /s/ Scott Sullivan --------------------------------------------- Scott Sullivan 11 EX-10.16 18 b44468niexv10w16.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.16 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Carmen Parisi (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer /s/ Carmen Parisi --------------------------------------------- Carmen Parisi 11 EX-10.17 19 b44468niexv10w17.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.17 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Brad Nelson (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of 9 the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ---------------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------------- /s/ Brad Nelson -------------------------------------------------- Brad Nelson 11 EX-10.18 20 b44468niexv10w18.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.18 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Mary Jefts (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer -------------------------------- Title: Chief Financial Officer and Treasurer /s/ Mary Jefts ------------------------------------- Mary Jefts 11 EX-10.19 21 b44468niexv10w19.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.19 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Vadim Lander (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ---------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Vadim Lander -------------------------------------------- Vadim Lander 11 EX-10.20 22 b44468niexv10w20.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.20 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Amit Jasuja (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Amit Jasuja ------------------------------------- Amit Jasuja 11 EX-10.21 23 b44468niexv10w21.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.21 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Thom Locke (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Thom Locke ------------------------------------- Thom Locke 11 EX-10.22 24 b44468niexv10w22.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.22 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Collette Cooke (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Collette Cooke ------------------------------------- Collette Cooke 11 EX-10.23 25 b44468niexv10w23.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.23 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Geoff Charron (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of 9 the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Geoff Charron --------------------------- Geoff Charron 11 EX-10.24 26 b44468niexv10w24.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.24 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Michael Hyman (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of 9 the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- /s/ Michael Hyman ---------------------------- Michael Hyman 11 EX-10.25 27 b44468niexv10w25.txt EXECUTIVE RETENTION AGREEMENT Exhibit 10.25 NETEGRITY, INC. Executive Retention Agreement THIS EXECUTIVE RETENTION AGREEMENT by and between Netegrity, Inc., a Delaware corporation (the "Company"), and Jill Maunder (the "Executive") is made as of September 13, 2002 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders, and WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances. NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, at least 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. 2 1.3 "Cause" means: (a) the Executive's willful and continued failure to substantially perform his or her reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; (b) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the basis existing immediately prior to the Measurement Date or (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance; (c) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; 3 (d) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (e) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his or her employment for Good Reason shall not be affected by his or her incapacity due to physical or mental illness, or the fact that the Executive at such time may have an offer of employment from another employer or any other reason for terminating his or her employment with the Company. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 90 days, whether or not consecutive, during any 360-day period, due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the termination of the Executive's employment with the Company prior to the Change in Control Date, (c) the date 12 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (d) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 12 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2007; provided, however, that commencing on January 1, 2008 and each January 1 thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 12 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), 4 given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) Any Notice of Termination for Cause given by the Company must be given within 30 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which her or she may, at his or her election, be represented by counsel and at which he or she shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. Any such Notice of Termination for Cause must be approved by the Board of Directors. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Compensation and Stock Acceleration. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 12 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason within 12 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: 5 (i) (A) the vesting schedule of each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall be accelerated so that the number of shares that would otherwise have first become vested during the two-year period following the Date of Termination shall immediately become exercisable and shares of Common Stock of the Company received upon exercise of any vested options will no longer be subject to a right of repurchase by the Company, (B) the vesting schedule of each outstanding restricted stock award shall be accelerated so that the number of shares that would otherwise have first become free from conditions or restrictions during the two-year period following the Date of Termination shall immediately become free from conditions or restrictions and the aggregate number of shares free from conditions or restrictions under such award will no longer be subject to a right of repurchase by the Company and (C) notwithstanding any provision in any applicable option agreement to the contrary, each such option shall continue to be exercisable by the Executive (to the extent such option was exercisable on the Date of Termination) for a period of six months following the Date of Termination (or the remainder of the option term if less than six months); (ii) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) the Executive's base salary for the six months prior to the Date of Termination plus (B) 50% of the Executive's annual bonus opportunity under the Company's bonus plan for the most recently completed fiscal year; (iii) for 12 months after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated, in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his or her family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his or her family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his or her family; 6 (iv) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (v) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until 12 months after the Date of Termination. (b) Termination for Death or Disability. If the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. (c) Resignation without Good Reason; Termination for Cause. If the Executive voluntarily terminates his or her employment with the Company within 12 months following the Change in Control Date, excluding a termination for Good Reason, or if the Company terminates the Executive's employment with the Company for Cause within 12 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.2 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.1(a)(iii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 7 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his or her family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) 8 prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 52 Second Avenue, Waltham, Massachusetts 02451, and to the Executive at the Executive's address indicated on the signature page of this Agreement (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive's employment with the Company shall not be deemed to have terminated solely as a result of the Executive continuing to be employed by a wholly-owned subsidiary of the Company. 8.2 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.3 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.4 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.5 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.7 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.8 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of 9 the subject matter contained herein is hereby terminated and cancelled. Notwithstanding the foregoing, this Agreement shall not limit, and shall be in addition to, any rights the Executive may also have or be entitled to on the date hereof or in the future from time to time with respect to the acceleration of options pursuant to any equity plan of the Company or of a subsidiary of the Company (as administered by the relevant plan administrator), any option agreement or any other written documentation executed or assumed by or on behalf of the Company or of a subsidiary of the Company. 8.9 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. 8.10 Executive's Acknowledgements. The Executive acknowledges that he or she: (a) has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Executive's own choice or has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands that the law firm of Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by this Agreement, and is not acting as counsel for the Executive. [the next page is the signature page] 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. NETEGRITY, INC. By: /s/ Regina O. Sommer ------------------------------------- Title: Chief Financial Officer and Treasurer /s/ Jill Maunder --------------------------------------------- Jill Maunder 11 -----END PRIVACY-ENHANCED MESSAGE-----