Exhibit 10.1

 

PHASE FORWARD INCORPORATED

SECOND AMENDED AND RESTATED 2003 NON-EMPLOYEE DIRECTOR

STOCK OPTION PLAN

 

1.             Purpose.  This Non-Qualified Stock Option Plan, to be known as
the Second Amended and Restated 2003 Non-Employee Director Stock Option Plan
(hereinafter, this “Plan”) is intended to promote the interests of Phase Forward
Incorporated (hereinafter, the “Company”) by providing an inducement to obtain
and retain the services of qualified persons who are not employees or officers
of the Company to serve as members of its Board of Directors (the “Board”).

 

2.             Available Shares.  The total number of shares of common stock,
par value $.01 per share, of the Company (the “Common Stock”), for which options
may be granted under this Plan shall not exceed 562,000 shares, subject to
adjustment in accordance with paragraph 10 of this Plan. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise (and without being
used to pay the exercise price or tax withholding), in whole or in part, the
shares reserved therefor shall continue to be available under this Plan.

 

3.             Administration.  This Plan shall be administered by the Board or
by a committee appointed by the Board (the “Committee”). In the event the Board
fails to appoint or refrains from appointing a Committee, the Board shall have
all power and authority to administer this Plan. In such event, the word
“Committee” wherever used herein shall be deemed to mean the Board. The
Committee shall, subject to the provisions of the Plan, have the power to
construe this Plan, to determine all questions hereunder, and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to this Plan or any
option granted under it.

 

4.             Automatic Grant of Options.  Subject to the availability of
shares under this Plan, (i) each person who is a member of the Board during the
term of this Plan and who is not an employee or officer of the Company or
affiliated with a “Purchaser” (as such term is defined in the Fifth Amended and
Restated Investors’ Rights Agreement, as amended) (such director referred to as
an “Outside Director”) shall be automatically granted an option (a “Director
Option”) to purchase 100,000 shares of Common Stock less the number of shares of
Common Stock, if any, then subject to an issued and outstanding stock option or
otherwise held by the Outside Director (the “Number of Option Shares”) on the
later of (A) the date of the Outside Director’s election to the Board or
(B) October 21, 2003 (the “Grant Date”).  The options to be granted under this
paragraph 4 shall be the only options ever to be granted at any time to such
member under this Plan. Except for the specific options referred to above, no
other options shall be granted under this Plan.

 

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5.             Option Price and Fair Market Value.  The purchase price of the
stock covered by an option granted pursuant to this Plan shall be 100% of the
fair market value of such shares on the day the option is granted. The option
price will be subject to adjustment in accordance with the provisions of
paragraph 10 of this Plan. For purposes of this Plan, if, at the time an option
is granted under the Plan, the Company’s Common Stock is publicly traded, “fair
market value” shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date such
option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market.

 

6.             Period of Option.  Unless sooner terminated in accordance with
the provisions of paragraph 8 of this Plan, an option granted hereunder shall
expire on the date which is ten (10) years after the date of grant of the
option.

 

7.             Vesting of Shares and Non-Transferability of Options.

 

(a)           Vesting.  Options granted under this Plan shall not be exercisable
until they become vested.  Director Options granted under Paragraph 4 of the
Plan shall vest in the optionee, and thus become exercisable so that 6.25% of
each Director Option shall become exercisable at the end of each fiscal quarter
following the Grant Date, provided that the optionee has (i) continuously served
as a member of the Board through such vesting date and (ii) attended at least
seventy-five percent (75%) of Board meetings, including at least fifty percent
(50%) of Board meetings in person (the “Minimum Attendance Criteria”), during
the prior four fiscal quarters.  Notwithstanding the foregoing, unless otherwise
sooner vested in accordance with the terms of the Plan, all Director Options
shall vest and become exercisable on the date that is five (5) years from the
Grant Date; provided that the optionee has continuously served as a member of
the Board through such vesting date.  For purposes of calculating the Minimum
Attendance Criteria during the first three fiscal quarters following the Grant
Date, the Minimum Attendance Criteria shall be deemed satisfied for each such
fiscal quarter even if the Outside Director fails to attend any meetings during
such period(s); provided, however that, in the event the Outside Director
resigns as a member of the Board prior to the first anniversary of the Grant
Date and the Outside Director has not attended at least seventy-five percent
(75%) of Board meetings, including at least fifty percent (50%) of Board
meetings in person prior to such resignation, the Outside Director shall be
prohibited from exercising any of the Director Options (including those that
have otherwise vested).  For purposes of enforcing the foregoing provision, the
Company may hold in escrow shares exercised under the Director Options during
the first three fiscal quarters following the Grant Date.  In the event that an
Outside Director fails to meet the Minimum Attendance Criteria for a given
fiscal quarter, that portion of the Director Option due to vest on such date
shall expire and shall no longer be exercisable until the date which is five
(5) years from the Grant Date.  The number of shares as to which options may be
exercised shall be

 

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cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan.

 

(b)           Forgiveness of Minimum Attendance Criteria in the Event of
Disability or Illness.  Notwithstanding anything to the contrary in this Plan,
in the event an Outside Director fails to meet the Minimum Attendance Criteria
for any given fiscal quarter, the Board may, acting unanimously, choose to deem
the Minimum Attendance Criteria satisfied for such fiscal quarter if the Board
determines that the Outside Director was unable to attend the minimum number of
Board meetings due to disability, illness or family obligations.

 

(c)           Acceleration Upon a Change of Control.  The form of instruments
granting stock options pursuant to this Plan shall provide that in the event of
a Change of Control of the Company (as defined in subsection (c) below), then
one hundred percent (100%) of the options issued pursuant to such instruments
and not yet exercisable shall immediately vest and become exercisable.

 

(d)           Definition of “Change of Control”.  For purposes of this Plan, a
“Change in Control” shall mean and include any of the following:

 

(i)            a merger or consolidation of the Company with or into any other
corporation or other business entity in which the Company is the surviving
corporation (except one in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least a
majority of the outstanding securities having the right to vote in an election
of the Board of Directors (“Voting Stock”) of the Company); or any such merger
or consolidation in which the Company is not the surviving corporation;

 

(ii)           a sale, lease, exchange or other transfer (in one transaction or
a related series of transactions) of all or substantially all of the Company’s
assets;

 

(iii)          the acquisition by any person or any group of persons (other than
the Company, any of its direct or indirect subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its direct or indirect
subsidiaries) acting together in any transaction or related series of
transactions, of such number of shares of the Company’s Voting Stock as causes
such person, or group of persons, to own beneficially, directly or indirectly,
as of the time immediately after such transaction or series of transactions, 50%
or more of the combined voting power of the Voting Stock of the Company other
than as a result of an acquisition of securities directly from the Company, or
solely as a result of an acquisition of securities by the Company which by
reducing the number of shares of the Voting Stock outstanding increases the
proportionate voting power represented by the Voting Stock owned by any such
person to 50% or more of the combined voting power of such Voting Stock; and

 

(iv)          a change in the composition of the Company’s Board of Directors
following a tender offer or proxy contest, as a result of which persons who,
immediately prior to a tender offer or proxy contest, constituted the Company’s
Board of Directors shall cease to

 

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constitute at least a majority of the members of the Board of Directors.

 

(e)           Legend on Certificates. The certificates representing such shares
shall carry such appropriate legend, and such written instructions shall be
given to the Company’s transfer agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933 or any state securities laws.

 

(f)            Non-transferability. Any option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution and shall be exercisable during the optionee’s lifetime
only by him or her.

 

8.             Termination of Option Rights.

 

(a)           In the event an optionee ceases to be a member of the Board for
any reason other than death or permanent disability, any then unexercised
portion of options granted to such optionee shall, to the extent not then
vested, immediately terminate and become void; any portion of an option which is
then vested but has not been exercised at the time the optionee so ceases to be
a member of the Board may be exercised, to the extent it is then vested, by the
optionee within 45 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 45 days have expired.

 

(b)           In the event that an optionee ceases to be a member of the Board
by reason of his or her death or permanent disability, any option granted to
such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the optionee
(or by the optionee’s personal representative, heir or legatee, in the event of
death) within 365 days of the date the optionee ceased to be a member of the
Board by reason of his or her death or permanent disability; and all options
shall terminate after such 365 days have expired.

 

9.             Exercise of Option and Resale Restrictions.

 

(a)           Exercise of Options. Subject to the terms and conditions of this
Plan and the option agreements, an option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company by mail or in person addressed to Phase Forward Incorporated at its
principal executive offices, stating the number of shares with respect to which
the option is being exercised, accompanied by payment in full for such shares. 
Payment may be:

 

(i) by check payable to the order of the Company;

 

(ii) except as otherwise provided in the applicable option agreement, and only
if the Common Stock is then publicly traded, by delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price, or by delivery by the
optionee to the Company of a copy of irrevocable and unconditional instructions
to a creditworthy broker to deliver promptly to the Company cash or a

 

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check sufficient to pay the exercise price; or

 

(iii)          by delivery of shares of Common Stock owned by the optionee
valued at fair market value (as determined in accordance with Paragraph 5);
provided, however, that there shall be no such exercise at any one time as to
fewer than one hundred (100) shares or all of the remaining shares then
purchasable by the person or persons exercising the option, if fewer than one
hundred (100) shares.

 

The Company’s transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares acquired pursuant to
exercise of the option, shall register the optionee as the owner of such shares
on the books of the Company and shall cause the fully executed certificate(s)
representing such shares to be delivered to the optionee as soon as practicable
after payment of the option price in full. The holder of an option shall not
have any rights of a stockholder with respect to the shares covered by the
option, except to the extent that one or more certificates for such shares shall
be delivered to him or her upon the due exercise of the option.

 

(b)           Resale Restrictions. Under no circumstances may shares acquired
pursuant to the exercise of options hereunder be disposed of on or prior to the
date that is six months after the date such options were granted.

 

10.           Adjustments Upon Changes in Capitalization and Other Matters. 
Upon the occurrence of any of the following events, an optionee’s rights with
respect to options granted to him or her hereunder shall be adjusted as
hereinafter provided:

 

(a)           Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.

 

(b)           Recapitalization Adjustments.  In the event of a reorganization,
recapitalization, merger, consolidation, or any other change in the corporate
structure or shares of the Company, to the extent permitted by Rule 16b-3 under
the Securities Exchange Act of 1934, appropriate adjustments in the number and
kind of shares authorized by this Plan and in the number and kind of shares
covered by an outstanding option, and in the option price of outstanding options
under this Plan, shall be made to preserve, without exceeding, the value of such
option.

 

(c)           Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.

 

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(d)         Adjustments. Upon the happening of any of the foregoing events set
forth in Sections 10(a) through 10(c), the class and aggregate number of shares
set forth in paragraph 2 of this Plan that are subject to options which
previously have been or subsequently may be granted under this Plan shall also
be appropriately adjusted to reflect such events. The Board shall determine the
specific adjustments to be made under this paragraph 10 and its determination
shall be conclusive.

 

11.           Restrictions on Issuance of Shares.  Notwithstanding the
provisions of paragraphs 4 and 9 of this Plan, the Company shall have no
obligation to deliver any certificate or certificates upon exercise of an option
until one of the following conditions shall be satisfied:

 

(a)           The shares with respect to which the option has been exercised are
at the time of the issue of such shares effectively registered under applicable
Federal and state securities laws as now in force or hereafter amended; or

 

(b)           Counsel for the Company shall have given an opinion that such
shares are exempt from registration under Federal and state securities laws as
now in force or hereafter amended; and the Company has complied with all
applicable laws and regulations with respect thereto, including without
limitation all regulations required by any stock exchange upon which the
Company’s outstanding Common Stock is then listed.

 

12.           Representation of Optionee. If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1933).

 

13.           Option Agreement or Certificate.  Each option granted under the
provisions of this Plan shall be evidenced by an option agreement or
certificate, which agreement or certificate shall be duly executed and delivered
on behalf of the Company and delivered to the optionee to whom such option is
granted. The option agreement or certificate shall contain such terms,
provisions and conditions not inconsistent with this Plan as may be determined
by the officer executing it.

 

14.           Termination and Amendment of Plan.  Options may no longer be
granted under this Plan after March 13, 2013, and this Plan shall terminate when
all options granted or to be granted hereunder are no longer outstanding. The
Board may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and entitled to vote at the
meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan or the number of shares for which an option may be
granted to any participating director hereunder, (b) change the provisions of
this Plan regarding the termination of the options or the times when they may be
exercised, (c) change the period during which any options may be granted or
remain outstanding or the date on which this Plan shall terminate, (d) change
the designation of the class of persons eligible to receive options, or
otherwise change paragraph 4, (e) materially increase

 

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benefits accruing to option holders under this Plan, or (f) amend this Plan in
any manner which would cause Rule 16b-3 to become inapplicable to this Plan. 
Termination or any modification or amendment of this Plan shall not, without
consent of a participant, affect his or her rights under an option previously
granted to him or her.

 

15.           Tax Withholding.  By accepting options under the Plan, each
optionee acknowledges that the Company may be required to withhold taxes in
connection with the exercise of such options in respect of amounts considered to
be compensation includible in the optionee’s gross income.

 

16.           Governing Law.  The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.

 

Original Plan Approved by the Board of Directors on:

March 13, 2003

 

Original Plan Approved by Stockholders on:

May 1, 2003

 

Amended and Restated Plan Approved by the Board of Directors on:

October 21, 2003

 

Amended and Restated Plan Approved by Stockholders on:

October 21, 2003

 

Second Amended and Restated Plan Approved by the Board of Directors on:

March 11, 2004

 

Second Amended and Restated Plan Approved by Stockholders on:

April 20, 2004

 

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Approved by the Phase Forward Incorporated Board of Directors

 

by Written Consent dated June 23, 2005

 

Amendment to Second Amended and Restated Non-Employee Director Stock Option Plan

 

RESOLVED:              That, as recommended by the Management, Development and
Compensation Committee, the Corporation’s Second Amended and Restated 2003
Non-Employee Director Stock Option Plan (the “Plan”) be and is hereby amended,
effective as of the date hereof as if contained in the Plan as originally
adopted, by deleting the text of Section 4 of the Plan in its entirety and
replacing such text with the following:

 

“4.   Automatic Grant of Options.  Subject to the availability of shares under
this Plan, (i) each person who is a member of the Board during the term of this
Plan and who is not an employee or officer of the Company or affiliated with a
“Purchaser” (as such term is defined in the Fifth Amended and Restated
Investors’ Rights Agreement, as amended) (such director referred to as an
“Outside Director”) shall be automatically granted an option (a “Director
Option”) to purchase 50,000 shares of Common Stock less the number of shares of
Common Stock, if any, then subject to an issued and outstanding stock option or
otherwise held by the Outside Director (the “Number of Option Shares”) on the
date of the Outside Director’s election to the Board (the “Grant Date”).  The
options to be granted under this paragraph 4 shall be the only options ever to
be granted at any time to such member under this Plan. Except for the specific
options referred to above, no other options shall be granted under this Plan.”

 

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