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.


 





















 


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.”