8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): June 15, 2006

Mercury Interactive Corporation

(Exact name of registrant as specified in its charter)

Delaware	0-22350	77-0224776
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)

379 North Whisman Road, Mountain View, California 94043

(Address of Principal Executive Offices)

(Registrant's Telephone Number, Including Area Code)

(650) 603-5200

(former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Solicitation material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 241.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.            Entry into a Material Definitive Agreement

On June 15, 2006, the Compensation Committee of the Board of Directors of Mercury Interactive Corporation (the “Company”) approved Amendment No. 1 to Employment Agreement (the “Amendment No. 1 to the Employment Agreement”) with David Murphy, the Company’s chief financial officer.

Amendment No. 1 to the Employment Agreement provides that Mr. Murphy is eligible to receive a retention bonus in the aggregate amount of $1,500,000 (the “Retention Bonus”) on the following terms and conditions: (a) the Retention Bonus is payable in two installments as follows, subject to Mr. Murphy’s continued employment on each such date: (i) $500,000 payable on January 15, 2007; and (ii) $1,000,000 payable on January 15, 2008; (b) Mr. Murphy will receive promptly any unpaid portion of the Retention Bonus in the event that: (i) his employment is terminated by the Company without “cause” or by Mr. Murphy for “good reason” (as those terms are defined in Mr. Murphy’s Employment Agreement), or (ii) Mr. Murphy’s employment is terminated for any reason after a “change of control” (as that term is defined in Mr. Murphy’s Change of Control Agreement); (c) if prior to August 1, 2009, Mr. Murphy’s employment is terminated by Mr. Murphy without “good reason” or by the Company for “cause”, Mr. Murphy agrees to repay to the Company the full amount of the Retention Bonus previously paid to him; and (d) if Mr. Murphy’s employment terminates by reason of death or “disability” (as defined in Mr. Murphy’s Change of Control Agreement), (i) no portion of the Retention Bonus previously paid will be required to be repaid, and (ii) no unpaid portion of the Retention Bonus will be payable to Mr. Murphy or his estate, as applicable.

The foregoing description of this Amendment No. 1 to the Employment Agreement does not purport to be complete and is qualified in its entirety by reference to such agreement, a copy of which is filed as Exhibit 10.58 hereto and is incorporated by reference herein. The other terms of Mr. Murphy’s Employment Agreement are contained in Exhibit 10.53 attached to the Form 8-K filed by the Company on March 16, 2006.

On June 15, 2006, the Compensation Committee also approved the following adjustments in connection with the annual compensation review for Brian Stein, Senior Vice President and Chief Accounting Officer: a merit increase in his annual base salary to $315,000 and his bonus target percentage to 50%, to be effective July 1, 2006, and a cash retention bonus in an amount of $100,000 to be awarded in three equal installments on July 31, 2006, October 31, 2006, and January 31, 2007.

Item 9.01.            Financial Statements and Exhibits.

The following exhibit is filed herewith:

10.58    Amendment No. 1 to Employment Agreement by and between the Company and David Murphy dated June 20, 2006

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: June 21, 2006	MERCURY INTERACTIVE CORPORATION
	By:	/s/ Anthony Zingale
	Name: Anthony Zingale
	Title: Chief Executive Officer

EXHIBIT INDEX

Exhibit No.	Description
10.58	Amendment No. 1 to Employment Agreement by and between the Company and David Murphy dated June 20, 2006

EX-10.58

Exhibit 10.58

AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT

     AMENDMENT dated as of June 20, 2006 (this “Amendment”) to the Employment Agreement (“Agreement”) by and between Mercury Interactive Corporation, a Delaware corporation (the “Company”) and David Murphy (“Executive”).

     WHEREAS, the Company and Executive entered into an Employment Agreement dated as of March 16, 2006 (the “Employment Agreement”);

     WHEREAS, the Board and Executive desire to set forth the matters described below relating to the terms and conditions of Executive’s employment;

     NOW THEREFORE the parties hereto agree as follows:

     Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Employment Agreement has the meaning assigned to such term in the Employment Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Employment Agreement shall, after this Amendment becomes effective, refer to the Employment Agreement as amended hereby.

     Section 2. Addition to Article 2. The following is hereby added as Section 2.07 to the Employment Agreement:

     Section 2.07 Retention Bonus. Executive shall be eligible to receive a retention bonus in the aggregate amount of $1,500,000 (the “Retention Bonus”), less applicable tax withholding, on the following terms and conditions:

     (a)The Retention Bonus shall be payable in two installments as follows, subject to Executive’s continued employment on each such date: (i) $500,000 shall be payable on January 15, 2007; and (ii) $1,000,000 shall be payable on January 15, 2008.

     (b)Executive shall receive promptly any unpaid portion of the Retention Bonus in the event that: (i) Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason, or (ii) Executive’s employment is terminated (by the Company or the Executive) for any reason after a Change of Control; provided that such payment shall be delayed for up to six months to the extent required by Section 409A of the Code.

     (c)If prior to August 1, 2009, Executive’s employment is terminated by Executive without Good Reason or by the Company for Cause, Executive agrees to repay to the Company the full amount of the

Retention Bonus previously paid to him; provided that in no event shall Executive be required to repay any portion of the Retention Bonus in the event of any termination of employment after a Change of Control.

     (d)If Executive’s employment terminates by reason of death or Disability (as defined in the Change of Control Agreement), (i) no portion of the Retention Bonus previously paid shall be required to be repaid, and (ii) no unpaid portion of the Retention Bonus shall be payable to Executive or Executive’s estate, as applicable.

     (e)For purposes of this Section, “Change of Control” shall have the meaning set forth in the Change of Control Agreement to the extent such definition complies with Section 409A of the Code.

     Section 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California.

     Section 4. Successors; Binding Agreement. This Amendment shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.

     Section 5. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

MERCURY INTERACTIVE
CORPORATION
By:	/s/ Anthony Zingale
Name: Anthony Zingale
Title: President and Chief Executive Officer
/s/ David Murphy
David Murphy

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