**Exhibit 10.1**

 

**PHASE FORWARD INCORPORATED**

**SECOND AMENDED AND RESTATED 2003NON-EMPLOYEE DIRECTOR**

**STOCK OPTION PLAN**

 

1.             Purpose.  This Non-Qualified StockOption Plan, to be known as the Second Amended and Restated 2003 Non-EmployeeDirector Stock Option Plan (hereinafter, this “Plan”) is intended to promotethe interests of Phase Forward Incorporated (hereinafter, the “Company”) byproviding an inducement to obtain and retain the services of qualified personswho are not employees or officers of the Company to serve as members of itsBoard of Directors (the “Board”).

 

2.             Available Shares.  Thetotal number of shares of common stock, par value $.01 per share, of theCompany (the “Common Stock”), for which options may be granted under this Planshall not exceed 562,000 shares, subject to adjustment in accordance withparagraph 10 of this Plan. Shares subject to this Plan are authorized butunissued shares or shares that were once issued and subsequently reacquired bythe Company. If any options granted under this Plan are surrendered beforeexercise or lapse without exercise (and without being used to pay the exerciseprice or tax withholding), in whole or in part, the shares reserved thereforshall continue to be available under this Plan.

 

3.             Administration.  ThisPlan shall be administered by the Board or by a committee appointed by theBoard (the “Committee”). In the event the Board fails to appoint or refrainsfrom appointing a Committee, the Board shall have all power and authority toadminister this Plan. In such event, the word “Committee” wherever used hereinshall be deemed to mean the Board. The Committee shall, subject to theprovisions of the Plan, have the power to construe this Plan, to determine allquestions hereunder, and to adopt and amend such rules and regulations forthe administration of this Plan as it may deem desirable. No member of theBoard or the Committee shall be liable for any action or determination made ingood 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) eachperson who is a member of the Board during the term of this Plan and who is notan employee or officer of the Company or affiliated with a “Purchaser” (as suchterm is defined in the Fifth Amended and Restated Investors’ Rights Agreement,as amended) (such director referred to as an “Outside Director”) shall beautomatically granted an option (a “Director Option”) to purchase 100,000shares of Common Stock less the number of shares of Common Stock, if any, thensubject to an issued and outstanding stock option or otherwise held by theOutside Director (the “Number of Option Shares”) on the later of (A) thedate of the Outside Director’s election to the Board or (B) October 21, 2003(the “Grant Date”).  **The optionsto be granted under this paragraph 4 shall be the only options ever to begranted at any time to such member under this Plan. Except for the specificoptions referred to above, no other options shall be granted under this Plan.**

 

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5.             Option Price and Fair Market Value.  Thepurchase price of the stock covered by an option granted pursuant to this Planshall be 100% of the fair market value of such shares on the day the option isgranted. The option price will be subject to adjustment in accordance with theprovisions of paragraph 10 of this Plan. For purposes of this Plan, if, at thetime an option is granted under the Plan, the Company’s Common Stock ispublicly traded, “fair market value” shall be determined as of the lastbusiness day for which the prices or quotes discussed in this sentence areavailable prior to the date such option is granted and shall mean (i) theaverage (on that date) of the high and low prices of the Common Stock on theprincipal national securities exchange on which the Common Stock is traded, ifthe Common Stock is then traded on a national securities exchange; or (ii) thelast reported sale price (on that date) of the Common Stock on the NasdaqNational Market, if the Common Stock is not then traded on a nationalsecurities exchange; or (iii) the closing bid price (or average of bidprices) last quoted (on that date) by an established quotation service forover-the-counter securities, if the Common Stock is not reported on the NasdaqNational Market.

 

6.             Period of Option. Unless sooner terminated in accordance with the provisions of paragraph8 of this Plan, an option granted hereunder shall expire on the date which isten (10) years after the date of grant of the option.

 

7.             Vesting of Shares and Non-Transferability ofOptions.

 

(a)           Vesting.  Options granted under this Plan shall not beexercisable until they become vested. Director Options granted under Paragraph 4 of the Plan shall vest in theoptionee, and thus become exercisable so that 6.25% of each Director Optionshall become exercisable at the end of each fiscal quarter following the GrantDate, *provided that*the optionee has (i) continuouslyserved as a member of the Board through such vesting date and (ii) attendedat least seventy-five percent (75%) of Board meetings, including at least fiftypercent (50%) of Board meetings in person (the “Minimum Attendance Criteria”),during the prior four fiscal quarters. Notwithstanding the foregoing, unless otherwise sooner vested in accordancewith the terms of the Plan, all Director Options shall vest and becomeexercisable on the date that is five (5) years from the Grant Date; *provided that*the optionee has continuously served as amember of the Board through such vesting date. For purposes of calculating the Minimum Attendance Criteria during thefirst three fiscal quarters following the Grant Date, the Minimum AttendanceCriteria shall be deemed satisfied for each such fiscal quarter even if theOutside Director fails to attend any meetings during such period(s); *provided, however that*, in the event the Outside Directorresigns as a member of the Board prior to the first anniversary of the GrantDate and the Outside Director has not attended at least seventy-five percent(75%) of Board meetings, including at least fifty percent (50%) of Boardmeetings in person prior to such resignation, the Outside Director shall beprohibited from exercising any of the Director Options (including those thathave otherwise vested).  For purposes ofenforcing the foregoing provision, the Company may hold in escrow sharesexercised under the Director Options during the first three fiscal quartersfollowing the Grant Date.  In the eventthat an Outside Director fails to meet the Minimum Attendance Criteria for agiven fiscal quarter, that portion of the Director Option due to vest on suchdate shall expire and shall no longer be exercisable until the date which isfive (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 shallbecome exercisable as to any shares it shall continue to be exercisable as tosaid shares, until expiration or termination of the option as provided in thisPlan.

 

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

 

(c)           Acceleration Upon a Changeof Control.  The form ofinstruments granting stock options pursuant to this Plan shall provide that inthe 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 suchinstruments and not yet exercisable shall immediately vest and becomeexercisable.

 

(d)           Definition of “Change ofControl”.  Forpurposes of this Plan, a “Change in Control” shall mean and include any of thefollowing:

 

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

 

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

 

(iii)          the acquisition by any person or any group ofpersons (other than the Company, any of its direct or indirect subsidiaries, orany trustee, fiduciary or other person or entity holding securities under anyemployee benefit plan or trust of the Company or any of its direct or indirectsubsidiaries) acting together in any transaction or related series oftransactions, of such number of shares of the Company’s Voting Stock as causessuch 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 Companyother than as a result of an acquisition of securities directly from theCompany, or solely as a result of an acquisition of securities by the Companywhich by reducing the number of shares of the Voting Stock outstandingincreases the proportionate voting power represented by the Voting Stock ownedby any such person to 50% or more of the combined voting power of such VotingStock; and

 

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

 

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

 

(e)           Legend on Certificates. Thecertificates representing such shares shall carry such appropriate legend, andsuch written instructions shall be given to the Company’s transfer agent, asmay be deemed necessary or advisable by counsel to the Company in order tocomply with the requirements of the Securities Act of 1933 or any statesecurities laws.

 

(f)            Non-transferability. Any optiongranted pursuant to this Plan shall not be assignable or transferable otherthan by will or the laws of descent and distribution and shall be exercisableduring the optionee’s lifetime only by him or her.

 

8.             Termination ofOption Rights.

 

(a)           In the event an optioneeceases to be a member of the Board for any reason other than death or permanentdisability, any then unexercised portion of options granted to such optioneeshall, 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 thetime the optionee so ceases to be a member of the Board may be exercised, tothe extent it is then vested, by the optionee within 45 days of the date theoptionee ceased to be a member of the Board; and all options shall terminateafter such 45 days have expired.

 

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

 

9.             Exercise ofOption and Resale Restrictions.

 

(a)           Exercise of Options. Subject to theterms and conditions of this Plan and the option agreements, an option grantedhereunder shall, to the extent then exercisable, be exercisable in whole or inpart by giving written notice to the Company by mail or in person addressed toPhase Forward Incorporated at its principal executive offices, stating thenumber 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 theCompany;

 

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

 

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check sufficient to pay the exercise price;or

 

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

 

The Company’s transfer agent shall, on behalf of the Company, prepare acertificate or certificates representing such shares acquired pursuant toexercise of the option, shall register the optionee as the owner of such shareson 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 practicableafter payment of the option price in full. The holder of an option shall nothave any rights of a stockholder with respect to the shares covered by theoption, except to the extent that one or more certificates for such sharesshall be delivered to him or her upon the due exercise of the option.

 

(b)           Resale Restrictions. Under nocircumstances may shares acquired pursuant to the exercise of options hereunderbe disposed of on or prior to the date that is six months after the date such optionswere granted.

 

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

 

(a)           Stock Dividends and StockSplits. If the shares of Common Stock shall be subdivided or combined into agreater or smaller number of shares or if the Company shall issue any shares ofCommon Stock as a stock dividend on its outstanding Common Stock, the number ofshares of Common Stock deliverable upon the exercise of options shall beappropriately increased or decreased proportionately, and appropriateadjustments shall be made in the purchase price per share to reflect suchsubdivision, combination or stock dividend.

 

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

 

(c)           Issuances of Securities. Except asexpressly provided herein, no issuance by the Company of shares of stock of anyclass, or securities convertible into shares of stock of any class, shallaffect, and no adjustment by reason thereof shall be made with respect to, thenumber or price of shares subject to options. No adjustments shall be made fordividends 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 foregoingevents set forth in Sections 10(a) through 10(c), the class and aggregatenumber of shares set forth in paragraph 2 of this Plan that are subject tooptions which previously have been or subsequently may be granted under thisPlan shall also be appropriately adjusted to reflect such events. The Boardshall determine the specific adjustments to be made under this paragraph 10 andits determination shall be conclusive.

 

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

 

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

 

(b)           Counsel for theCompany shall have given an opinion that such shares are exempt fromregistration under Federal and state securities laws as now in force orhereafter amended; and the Company has complied with all applicable laws andregulations with respect thereto, including without limitation all regulationsrequired by any stock exchange upon which the Company’s outstanding CommonStock is then listed.

 

12.           Representation of Optionee. If requestedby the Company, the optionee shall deliver to the Company writtenrepresentations and warranties upon exercise of the option that are necessaryto show compliance with federal and state securities laws, includingrepresentations and warranties to the effect that a purchase of shares underthe option is made for investment and not with a view to their distribution (asthat term is used in the Securities Act of 1933).

 

13.           Option Agreement orCertificate.  Each optiongranted under the provisions of this Plan shall be evidenced by an optionagreement or certificate, which agreement or certificate shall be duly executedand delivered on behalf of the Company and delivered to the optionee to whomsuch option is granted. The option agreement or certificate shall contain suchterms, provisions and conditions not inconsistent with this Plan as may bedetermined by the officer executing it.

 

14.           Termination and Amendment ofPlan.  Options may no longer begranted under this Plan after March 13, 2013, and this Plan shallterminate when all options granted or to be granted hereunder are no longeroutstanding. The Board may at any time terminate this Plan or make suchmodification or amendment thereof as it deems advisable; *provided,however*, that the Board may not, without approval by the affirmativevote of the holders of a majority of the shares of Common Stock present inperson or by proxy and entitled to vote at the meeting, (a) increase themaximum number of shares for which options may be granted under this Plan orthe number of shares for which an option may be granted to any participatingdirector hereunder, (b) change the provisions of this Plan regarding thetermination of the options or the times when they may be exercised, (c) changethe period during which any options may be granted or remain outstanding or thedate on which this Plan shall terminate, (d) change the designation of theclass of persons eligible to receive options, or otherwise change paragraph 4, (e) materiallyincrease

 

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benefits accruing to option holders under this Plan, or (f) amendthis Plan in any manner which would cause Rule 16b-3 to becomeinapplicable to this Plan.  Terminationor any modification or amendment of this Plan shall not, without consent of aparticipant, affect his or her rights under an option previously granted to himor her.

 

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

 

16.           Governing Law.  Thevalidity and construction of this Plan and the instruments evidencing optionsshall be governed by the laws of the State of Delaware, without giving effectto 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 ofDirectors on:

**October 21, 2003**

 

Amended and Restated Plan Approved by Stockholderson:

**October 21, 2003**

 

Second Amended and Restated Plan Approved by theBoard of Directors on:

**March 11, 2004**

 

Second Amended and Restated Plan Approved byStockholders on:

**April 20, 2004**

 

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**Approved by the Phase ForwardIncorporated Board of Directors**

 

**by Written Consent dated June 23,2005**

 

**Amendment to Second Amended and Restated Non-Employee Director StockOption Plan**

 

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

 

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

 

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