Exhibit 10.18
(CUMBERLAND LOGO) [c08393c0839301.gif]
2007 LONG-TERM INCENTIVE COMPENSATION PLAN,
AS AMENDED ON NOVEMBER 4, 2010

 

 

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CUMBERLAND PHARMACEUTICALS INC.
2007 LONG-TERM INCENTIVE COMPENSATION PLAN,
AS AMENDED ON NOVEMBER 4, 2010
Table of Contents

         
1. Definitions
    1  
2. Incentives
    4  
3. Administration
    5  
4. Eligibility/Forfeiture in the Event of Termination for Cause
    7  
5. Qualified Performance-Based Incentives
    7  
6. Shares Available for Incentives and Limits on Incentives
    9  
7. Effect of Employment Termination on Options and SARs
    10  
8. Options
    11  
9. Stock Appreciation Rights (“SARs”)
    13  
10. Restricted Stock
    14  
11. Acquisition and Change of Control Events
    16  
12. Discontinuance or Amendment of the Plan
    19  
13. Nontransferability
    19  
14. No Right of Employment
    19  
15. Taxes
    19  
16. Governing Law
    20  
17. “Lockup” Agreement
    20  
18. Limitation of Liability
    20  
19. Unfunded Status of Incentives
    20  
20. Nonexclusivity of the Plan
    20  
21. Successors and Assigns
    21  
22. Severability
    21  
23. Miscellaneous
    21  

 

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CUMBERLAND PHARMACEUTICALS INC.
2007 LONG-TERM INCENTIVE COMPENSATION PLAN,
AS AMENDED ON NOVEMBER 4, 2010
This Cumberland Pharmaceuticals Inc. 2007 Long-Term Incentive Compensation Plan,
as amended on November 4, 2010 (the “Plan”), effective November 4, 2010, is
established primarily to encourage employees and Consultants of Cumberland
Pharmaceuticals Inc. (the “Company”), its Affiliates, and its joint ventures to
acquire Stock and other equity-based interests in the Company. It is believed
that the Plan will stimulate employees’ and Consultants’ efforts on the
Company’s behalf, will tend to maintain and strengthen their desire to remain
with the Company, will be in the interest of the Company and its shareholders,
and will encourage such employees and Consultants to have greater personal
financial investment in the Company through ownership of its Stock. The Plan
supersedes and replaces the Cumberland Pharmaceuticals Inc. 1999 Stock Option
Plan (the “Original Incentive Plan”) but does not impair the vesting or exercise
of any option granted under the Original Incentive Plan prior to the date that
this Plan became effective.
1. Definitions
“Affiliate” shall have the meaning assigned to the term pursuant to Rule 12b-2
as promulgated under the Exchange Act.
“Blackout Period” means any period self-imposed by the Company or required under
applicable law that restricts the purchase and sale of the Stock by designated
persons for a period of time.
The “Board” means the Board of Directors of the Company.
“Cause” shall mean: (a) theft of property belonging to the Company or one of its
Affiliates (including but not limited to trade secrets and confidential
information); (b) fraud on the Company or one of its Affiliates; (c) conviction
of, or pleading “no contest” to, a felony committed while employed by or
consulting for the Company or one of its Affiliates; (d) breach of fiduciary
duty to the Company or one of its Affiliates; or (e) deliberate, willful or
gross misconduct related to the Company or an Affiliate.
The “Code” means the Internal Revenue Code of 1986, as amended, or any successor
code thereto.
The “Committee” means the Compensation Committee of the Board of Directors of
the Company.
The “Company” means Cumberland Pharmaceuticals Inc.

 

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“Consultant” means a person engaged to provide consulting or advisory services
(other than as an Employee or a member of the Board) to the Company or one of
its Affiliates or joint ventures, provided that the identity of such person, the
nature of such services or the Person to which such services are provided would
not preclude the Company from offering or selling securities to such person
pursuant to the Plan in reliance on registration on a Form S-8 Registration
Statement under the Securities Act.
“Covered Employee” means an employee, as described in Section 162(m) of the Code
and the associated Treasury regulations, who, on the last day of the Company’s
taxable year, is either the Company’s Chief Executive Officer or among the four
highest compensated employees of the Company or one of its Affiliates.
“Division” means a section of the Company or an Affiliate.
“Eligible Employee” means a regular full-time or part-time employee of one of
the Related Entities, including officers, whether or not under direction of the
Company.
“Employment Termination” means termination of the employment of an individual
who is employed by one of the Related Entities, provided that termination of an
individual from a Related Entity for the purpose of immediately transferring
such individual to another Related Entity shall not constitute “Employment
Termination” for purposes of this Plan.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means (i) if the Stock or other security is listed on an
established stock exchange or any automated quotation system that provides sale
quotations, the closing sale price for a share thereof on such exchange or
quotation system on the applicable date, and if shares are not traded on such
day, on the next preceding trading date, (ii) if the Stock or other security is
not listed on any exchange or quotation system, but bid and asked prices are
quoted and published, the mean between the quoted bid and asked prices on the
applicable date, and if bid and asked prices are not available on such day, on
the next preceding day on which such prices were available, and (iii) if the
Stock or other security is not regularly quoted, the fair market value of a
share thereof on the applicable date as established by the Committee in good
faith. For purposes of awards effective as of the effective date of the
Company’s initial public offering, Fair Market Value of Stock shall be the price
at which the Stock is offered to the public in its initial public offering.
“Incentive Option” means an Option that by its terms is to be treated as an
“incentive stock option” within the meaning of Section 422 of the Code.
“Incentives” means awards made under this Plan of any of the following, or any
combination of the following: (a) Options (including both Incentive Options and
Nonstatutory Stock Options); (b) Stock Appreciation Rights; and (c) Restricted
Stock.
“Nonstatutory Stock Option” means any Option that is not an Incentive Option.

 

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“Option” means an option to purchase one or more shares of the Company’s Stock.
“Participant” means any holder of an Incentive awarded under the Plan.
“Performance Criteria” means the criteria that the Committee selects for
purposes of establishing the Performance Goal or Performance Goals for a Covered
Employee for a Performance Period. The Performance Criteria used to establish
Performance Goals include but are not limited to: pre- or after-tax net
earnings, sales growth, operating earnings, operating cash flow, return on net
assets, return on shareholders’ equity, return on assets, return on capital,
stock price growth, shareholder returns, gross or net profit margin, earnings
per share, price per share of stock, and market share, any of which may be
measured either in absolute terms or as compared to any incremental increase or
as compared to results of a peer group. The Committee will, within the time
prescribed by Section 162(m) of the Code, objectively define the manner of
calculating the Performance Criteria it selects to use for such Performance
Period for Covered Employees who received Qualified Performance-Based
Incentives.
“Performance Goals” means, for a Performance Period, the written goals
established by the Committee for the Performance Period based upon the
Performance Criteria. Depending on the Performance Criteria used to establish
such Performance Goals, the Performance Goals may be expressed in terms of
overall Company performance or the performance of an Affiliate or Division or a
joint venture of which the Company or an Affiliate is a member.
“Performance Period” means the one or more periods of time, which may be of
varying and overlapping durations, selected by the Committee, over which the
attainment of one or more Performance Goals will be measured for purposes of
determining a Covered Employee’s right to, and the payment of, a Qualified
Performance-Based Incentive.
“Plan” shall refer to the Cumberland Pharmaceuticals Inc. 2007 Long-Term
Incentive Compensation Plan, as amended on November 4, 2010 described in this
document.
“Qualified Performance-Based Incentives” means awards of Incentives intended to
qualify as “performance-based compensation” under Section 162(m) of the Code.
“Related Entities” shall refer to the Company and its Affiliates and to joint
ventures in which the Company or one of its Affiliates is a member.
“Restricted Stock” means shares of Stock granted to a Participant subject to a
Risk of Forfeiture.

 

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“Restriction Period” means the period of time, established by the Committee in
connection with an award of Restricted Stock, during which the shares of
Restricted Stock are subject to a Risk of Forfeiture described in the applicable
award agreement.
“Risk of Forfeiture” means a limitation on the right of the Participant to
retain Restricted Stock, including a right in the Company to reacquire shares of
Restricted Stock at less than their then Fair Market Value, arising because of
the occurrence or non-occurrence of specified events or conditions.
“SARs” shall refer to Stock Appreciation Rights.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Stock” shall refer to one or more shares of the Company’s Stock.
“Terminated Employee” means an individual who meets the following criteria:
(a) the individual is granted Incentives under this Plan at a time when he or
she is employed by one of the Related Entities; and
(b) the individual is thereafter terminated from a Related Entity due to:
(i) such person’s voluntary resignation, retirement, death, or extended absence
from work as a consequence of disability; (ii) a reduction in force; (iii) a
termination without Cause; or (iv) any other reason not covered by subsection
4(b) below, provided that an individual who is terminated merely for purposes of
transferring such individual from one Related Entity to another shall not
constitute a “Terminated Employee” for purposes of this definition.
“Stock Appreciation Right” means a right to receive any excess in the Fair
Market Value of shares of Stock over a specified exercise price.
2. Incentives
Incentives under the Plan may be granted to Eligible Employees in any one or a
combination of: (a) Incentive Options (or other statutory stock option);
(b) Nonstatutory Stock Options; (c) SARs; and (d) Restricted Stock. Incentives
under the Plan may be granted to Consultants in any one or a combination of:
(a) Nonstatutory Stock Options, (b) SARs, and (c) Restricted Stock. All
Incentives shall be subject to the terms and conditions set forth herein and to
such other terms and conditions as may be established by the Committee, except
that the provisions of this Plan shall not apply retroactively to any Incentive
issued before the effective date of this Plan. Determinations by the Committee
under the Plan (including, without limitation, determinations as to the Eligible
Employees; the form, amount and timing of Incentives; and the terms and
provisions of agreements evidencing Incentives) need not be uniform and may be
made selectively among Eligible Employees and Consultants who receive, or are
eligible to receive, Incentives, whether or not such Eligible Employees and
Consultants are similarly situated.

 

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3. Administration
(a) Committee. The Plan shall be administered by the Committee. No person who
makes or participates in making an award under this Plan, whether as a member of
the Committee, a delegate of the Committee, or in any other capacity, shall make
or participate in making an award to himself or herself. No member of the Board
or person acting pursuant to the authority delegated by the Committee shall be
liable for any action or determination relating to or under the Plan made in
good faith.
(b) Powers of Committee. The Committee will have full discretionary power to
administer the Plan in all of its details, subject to applicable requirements of
law. For this purpose, in addition to all other powers provided by this Plan,
the Committee’s discretionary powers will include, but will not be limited to,
the following discretionary powers:
(i) To make and enforce such rules and regulations as it deems necessary or
proper for the efficient administration of the Plan;
(ii) To interpret the Plan;
(iii) To decide all questions concerning the Plan and the eligibility of any
person to participate in the Plan, and the determination of whether a worker is
an Eligible Employee shall be made in the sole and exclusive discretion of the
Committee;
(iv) To appoint such agents, counsel, accountants, consultants and other persons
as may be required to assist in administering the Plan;
(v) To the extent allowed by law, to delegate some or all of its power and
authority to the Company’s Chief Executive Officer, other senior members of
management, or committee or subcommittee, as the Committee deems appropriate.
However, the Committee may not delegate its authority with regard to any matter
or action affecting an officer subject to the Exchange Act;
(vi) To impose such restrictions and limitations on any awards granted under the
Plan as it may deem advisable, including, but not limited to share ownership or
holding period requirements and requirements to enter into or to comply with
confidentiality agreements and, to the extent allowed by law, non-competition
and other restrictive or similar covenants.
(vii) To correct any defect, supply any omission or reconcile any inconsistency
in the Plan or any award made under the Plan in the manner and to the extent it
shall deem expedient to carry the Plan into effect and it shall be the sole and
final judge of such expediency; and

 

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Any determination by the Committee or its delegate(s) shall be final, binding
and conclusive on all persons, in the absence of clear and convincing evidence
that the Committee or its delegates(s) acted arbitrarily and capriciously.
(c) Vesting Period. If applicable, the Committee shall determine the vesting
period for Incentives granted under this Plan and shall specify such vesting
period in writing in making an award of an Incentive under this Plan. However,
should the Committee award Options or SARs under this Plan without specifying a
vesting period, (i) any SAR awarded in tandem with any underlying Option shall
vest on the date that its underlying Option vests, and (ii) Options and SARs
awarded without an underlying Option shall vest on a graduated basis over a
five-year period, with 20% of the Options (or, if applicable, the SARs) vesting
on each anniversary of the date of grant until all Options (or, if applicable,
SARs) covered by the grant are vested.
(d) Compliance with Code Section 409A. It is intended that the Incentives
granted under this Plan shall be exempt from, or in compliance with, Code
Section 409A. This Plan is intended to comply with Code Section 409A only if and
to the extent applicable. In this respect, any ambiguous provision will be
construed in a manner that is compliant with or exempt from the application of
Code Section 409A. To the extent applicable, the Plan and granting documents
prepared in connection with the Plan shall be interpreted in accordance with
§409A of the Code. To the extent that an Incentive, issuance and/or payment is
subject to Section 409A, it shall be awarded, issued and paid in a manner that
will comply with Section 409A, as determined by the Committee. If any provision
of this Plan (or of any Incentive) would cause a Participant to incur any
additional tax or interest under Code Section 409A and accompanying Treasury
regulations and other authoritative guidance thereunder, the Company shall,
after consulting with the Participant, reform such provision to comply with Code
Section 409A to the extent permitted under Code Section 409A; provided, however,
the Company agrees to maintain, to the maximum extent practicable, the original
intent and economic benefit to the Participant of the applicable provision
without violating the provisions of Code Section 409A. Furthermore, to the
extent that the Board determines that any Incentive granted under the Plan is
subject to §409A of the Code, the granting document evidencing such Incentive
shall incorporate the terms and conditions required by §409A of the Code. To the
extent applicable, the Plan and granting documents prepared in connection with
the Plan shall be interpreted in accordance with §409A of the Code.
Notwithstanding any provision of the Plan to the contrary, in the event that,
following the effective date of this Plan, the Board determines that any
Incentive may be subject to §409A of the Code, the Board may adopt such
amendments to the Plan and the applicable granting document or adopt other
policies and procedures (including amendments, policies and procedures with
retroactive effect), or take any other actions that the Board determines are
necessary or appropriate to (1) exempt the Incentive from §409A of the Code
and/or preserve the intended tax treatment of the benefits provided with respect
to the Incentive or (2) comply with the requirements of §409A of the Code.

 

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(e) Documentation of Award of Incentive. Each Incentive awarded under this Plan
shall be evidenced in such written form as the Committee shall determine. Each
award may contain terms and conditions in addition to those set forth in the
Plan.
(f) Participants Outside the United States. The Committee may modify the terms
of any Incentive granted under the Plan to a Participant who is, at the time of
grant or during the term of the Incentive, resident or primarily employed
outside of the United States. Such modification, which may be made in any manner
deemed by the Committee to be necessary or appropriate, shall only be made in
order that the Incentive shall conform to laws, regulations, and customs of the
country in which the Participant is then resident or primarily employed, or so
that the value and other benefits of the Incentive to the Participant, as
affected by foreign tax laws and other restrictions applicable as a result of
the Participant’s residence or employment abroad, shall be comparable to the
value of such an Incentive to a Participant who is resident or primarily
employed in the United States. The Committee may establish supplements to, or
amendments, restatements, or alternative versions of, the Plan for the purpose
of granting and administrating any such modified Incentive. No such
modification, supplement, amendment, restatement or alternative version may
increase the share limits set forth in this Plan or violate any applicable law
of the United States.
4. Eligibility/Forfeiture in the Event of Termination for Cause
(a) Eligibility. Eligible Employees may receive Incentives under this Plan.
Those members of the Board who are not Eligible Employees are not eligible to
receive Incentives under this Plan. Consultants are eligible to receive
Incentives to the extent specified in Section 2 above.
(b) Forfeiture. If the Company or one of its Affiliates or joint ventures
terminates an Eligible Employee for Cause or cancels the engagement of a
Consultant for Cause or discovers facts that would have entitled it to cancel
the engagement of such Consultant if such engagement were still ongoing, the
Board, by written resolution, may, to the fullest extent allowed by law, cancel
and/or cause the forfeiture of any unvested and/or unexercised Option, unvested
or unexercised SAR, or Restricted Stock awarded to such Eligible Employee or
Consultant.
5. Qualified Performance-Based Incentives
(a) Applicability. This section will apply only to Covered Employees, or to
those persons whom the Committee determines are reasonably likely to become
Covered Employees in the period covered by an Incentive. The Committee may, in
its discretion, select particular Covered Employees to receive Qualified
Performance-Based Incentives. The Committee may, in its discretion, grant
Incentives (other than Qualified Performance-Based Incentives) to Covered
Employees that do not satisfy the requirements of this section.

 

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(b) Purpose. As to any Covered Employee or person likely to become a Covered
Employee during the period covered by an Incentive, the Committee shall have the
ability to qualify any of the Incentives as “performance-based compensation”
under Section 162(m) of the Code. If the Committee, in its discretion, decides
to grant an Incentive as a Qualified Performance-Based Incentive, the provisions
of this section will control over any contrary provision contained in the Plan.
In the course of granting any Incentive, the Committee may specifically
designate the Incentive as intended to qualify as a Qualified Performance-Based
Incentive. However, no Incentive shall be considered to have failed to qualify
as a Qualified Performance-Based Incentive solely because the Incentive is not
expressly designated as a Qualified Performance-Based Incentive, if the
Incentive otherwise satisfies the provisions of this section and the
requirements of Section 162(m) of the Code and the regulations thereunder
applicable to “performance-based compensation.”
(c) Authority. All grants of Incentives intended to qualify as Qualified
Performance-Based Incentives shall be made by the Committee or, if all of the
members thereof do not qualify as “outside directors” within the meaning of
applicable IRS regulations under Section 162 of the Code, by a subcommittee of
the Committee consisting of such of the members of the Committee who do so
qualify. Any action by such a subcommittee shall be considered the action of the
Committee for purposes of the Plan. The Committee (or subcommittee, if
necessary) shall also determine the terms applicable to Qualified
Performance-Based Incentives.
(d) Discretion of Committee. Options may be granted as Qualified
Performance-Based Incentives. The exercise price of any Option intended to
qualify as a Qualified Performance-Based Incentive shall in no event be less
that the Fair Market Value on the date of the grant of the Stock covered by the
Option. With regard to other Incentives intended to qualify as Qualified
Performance-Based Incentives, the Committee will have full discretion to select
the length of any applicable Restriction Period or Performance Period.
Additionally, the Committee shall have full discretion to establish the
Performance Criteria, the kind and/or level of the applicable Performance Goal,
and whether the Performance Goal is to apply to the Company, Affiliate or
Division. Any Performance Goal or Goals applicable to Qualified
Performance-Based Incentives shall be objective, shall be established not later
than ninety (90) days after the beginning of any applicable Performance Period
(or at such other date as may be required or permitted for “performance-based
compensation” under Section 162(m) of the Code), and shall otherwise meet the
requirements of Section 162(m) of the Code, including the requirement that the
outcome of the Performance Goal or Goals be substantially uncertain (as defined
in the regulations under Section 162(m) of the Code) at the time established.

 

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(e) Payment of Qualified Performance-Based Incentives. A Covered Employee will
be eligible to receive payment under a Qualified Performance-Based Incentive
that is subject to achievement of a Performance Goal or Goals only if the
applicable Performance Goal or Goals are achieved within the applicable
Performance Period, as determined by the Committee. In determining the actual
size of an individual Qualified Performance-Based Incentive, the Committee may
reduce or eliminate the amount of the Qualified Performance-Based Incentive
earned for the Performance Period, if, in its sole and absolute discretion, such
reduction or elimination is appropriate.
(f) Limitation of Adjustments for Certain Events. No adjustment of any Qualified
Performance-Based Incentive shall be made except on such basis, if any, as will
not cause such Incentive to provide other than “performance-based compensation”
within the meaning of Section 162(m) of the Code.
6. Shares Available for Incentives and Limits on Incentives
(a) Maximum Shares. Subject to adjustment as provided in this Section 6, there
is hereby reserved for issuance under the Plan up to 1,200,000 shares of Stock
of the Company.
(b) Limit on an Individual’s Incentives. In any given year, no Eligible Employee
or Consultant may receive Incentives covering more than 20% of the aggregate
number of shares that may be issued pursuant to the Plan. Except as may
otherwise be permitted by the Code, Incentive Options granted to an employee of
the Company or its parent or subsidiary during one calendar year shall be
limited as follows: at the time the Incentive Options are granted, the Fair
Market Value of the Stock covered by Incentive Options first exercisable by such
employee in any calendar year may not, in the aggregate, exceed $100,000. The
maximum Qualified Performance-Based Incentive payment to any one Participant
under the Plan for a Performance Period is 20% of the aggregate number of shares
that may be issued pursuant to the Plan, or if the Qualified Performance-Based
Incentive is paid in cash, that number of shares multiplied by the Fair Market
Value of the Stock as of the date the Qualified Performance-Based Incentive is
granted.
(c) Source of Shares. Shares under this Plan may be delivered by the Company
from its authorized but unissued shares of Stock or from Stock held in the
Company treasury. To the extent that shares of Stock subject to an outstanding
award under the Plan are not issued by reason of forfeiture, termination,
surrender, cancellation, or expiration while unexercised; by reason of the
tendering or withholding of shares to pay all or a portion of the exercise price
or to satisfy all or a portion of the tax withholding obligations relating to
the award; by reason of being settled in cash in lieu of shares or settled in a
manner that some or all of the shares covered by the award are not issued to the
Participant; or being exchanged for a grant under the Plan that does not involve
Stock, then such shares shall immediately again be available for issuance under
the Plan, unless such availability would cause the Plan to fail to comply with
Rule 16b-3 under Exchange Act, or any other applicable law or regulation.

 

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(d) Recapitalization Adjustment. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of the Company, the Committee shall make appropriate adjustments in
the number and kind of shares authorized by the Plan; in the number and kind of
shares covered by Incentives granted; in the price of Options; and in the Fair
Market Value of SARs. No adjustment under this section or any other part of this
Plan shall be made if: (1) it would cause an Incentive granted under this Plan
as a Qualified Performance-Based Incentive to fail under Code 162(m), (2) it
would cause an Incentive Option granted under this Plan to fail to meet the
criteria for an Incentive Option, or (3) it would violate any applicable law or
regulation.
7. Effect of Employment Termination on Options and SARs
(a) As to a “Terminated Employee”:
(i) Any unvested Options and unvested SARs held by such individual on the date
of his or her Employment Termination shall lapse and be automatically cancelled
and of no further force and effect as of midnight on the date of such
individual’s Employment Termination.
(ii) Any vested but unexercised Options held by such individual as of the date
of his or her Employment Termination shall expire and be of no further force and
effect unless either exercised or surrendered under a SAR within the earlier of:
(a) 90 days after the date of such individual’s Employment Termination, or
(b) the expiration date of the Option. However, in the event that such an
individual is subject to a Blackout Period during the entire 90 days after such
individual’s Employment Termination, then such individual shall have until 10
business days after the expiration of the Blackout Period applicable to him or
her to exercise Options that were vested but unexercised as of his or her
Termination Date, unless such Option expires by its own terms prior to the end
of the Blackout Period.
(iii) Any vested but unexercised SARs held by such individual as of the date of
his or her Employment Termination shall expire and be of no further force and
effect unless either exercised within the earlier of: (a) 90 days after the date
of such individual’s Employment Termination, or (b) the expiration date of the
SAR. However, in the event that such an individual is subject to a Blackout
Period during the entire 90 days after such individual’s Employment Termination,
then such individual shall have until 10 business days after the expiration of
the Blackout Period applicable to him or her to exercise SARs that were vested
but unexercised as of his or her Termination Date, unless such SARs expire by
their own terms prior to the end of the Blackout Period.
(b) In a situation in which an individual is terminated from a Related Entity
for Cause, his or her unvested Options and SARs shall lapse and be automatically
cancelled in accordance with subsection 4(b) above; however, if for any reason
such individual’s unvested Options and SARs have not either lapsed and been
automatically cancelled under subsection 4(b) by midnight on the date that his
or her employment is terminated by the Related Entity for Cause, then such
individual’s unvested Options and unvested SARs shall lapse, be cancelled,
and/or expire at midnight on the date that he or she is terminated by the
Related Entity for Cause.

 

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(c) In a situation in which an individual is terminated by a Related Entity for
Cause, his or her Options and SARs that are vested but unexercised as of the
date that his or her employment is terminated for Cause shall be forfeited and
automatically cancelled in accordance with subsection 4(b) above; however, if
for any reason such individual’s vested and unexercised Options and SARs have
not either been forfeited and automatically cancelled under subsection 4(b)
above or otherwise expired within seven (7) days following the date of his or
her termination for Cause, then such individual’s vested but unexercised Options
and SARs shall lapse, be cancelled, and/or expire if they have not been
exercised within such seven (7) day period.
8. Options
The Committee may grant options qualifying as Incentive Options under the Code,
other statutory options under the Code, and Nonstatutory Options. However, in
accordance with Code § 422(b), no one may be granted an Incentive Option under
this Plan unless such person, as of the date of grant, is an employee of the
Company or an employee of the Company’s parent company or a Company subsidiary.
All Options granted under this Plan shall be subject to the following terms and
conditions and such other terms and conditions as the Committee may prescribe:
(a) Option Price. The option price per share with respect to each Option shall
be determined by the Committee, but shall not be less than one hundred percent
(100%) of the Fair Market Value of the Company’s Stock on the date the Option is
granted; provided, however, that in the case of an Incentive Option granted to
an Eligible Employee who, immediately prior to such grant, owns (directly or
indirectly) stock (either common or preferred) possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or a subsidiary of the Company, the option price shall not be less than one
hundred ten percent (110%) of the Fair Market Value on the date of grant.
(b) Vesting. Options granted under this Plan shall vest in accordance with
subsection 3(c) above unless the granting document for such Options specifies a
different vesting schedule.
(c) Expiration Date for Option. The expiration date for each Option shall be
fixed by the Committee in the granting document but shall not exceed ten
(10) years. If an Incentive Option is granted to an Eligible Employee of the
Company or its parent company or one of its affiliates who owns shares
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company as of the date the Incentive Option is granted,
then the Incentive Option will expire five (5) years from the date it is
granted, unless it is earlier terminated under one of the other provisions of
this Plan.

 

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(d) Payment for Option Exercise. At the time an Option is exercised, the holder
must tender of the full purchase price for the applicable shares, which may be
paid or satisfied by: (i) cash; (ii) check; (iii) delivery of shares of Stock,
which shares shall be valued for this purpose at the Fair Market Value on the
business day immediately preceding the date such Option is exercised and, unless
otherwise determined by the Committee, shall have been held by the optionee for
at least six months; or (iv) in such other manner as may be authorized from time
to time by the Committee. All such payments shall be made or denominated in
United States dollars. No shares shall be issued until full payment for such
shares has been made. A grantee of an Option shall have none of the rights of a
shareholder until the shares are issued.
(e) Exercise of Option. An Option may be exercised only by giving written
notice, specifying the number of shares of Stock to be purchased. Additional
procedures for exercise of each Option awarded under this Plan will be set forth
in the granting document for such Option. The Committee may, from time to time,
amend the exercise procedures, in which case Participants will be notified of
such revised procedures. If an Option grantee is awarded the Option while he or
she is employed by the Company or one of its Affiliates or joint ventures, then
so long as such Option grantee remains employed by the Company or one of its
Affiliates or joint ventures, the shares covered by an Option may be purchased
in such installments and on such exercise dates as the Committee or its delegate
may determine and as set forth in the document awarding the Option. In no event
shall any Option be exercisable after its specified expiration period. If a
Consultant is awarded an Option, the shares covered by such Option may be
purchased in such installments and on such exercise dates and conditions as set
forth in the document awarding the Option. A Participant, and those claiming
through a Participant, may not exercise Options during a Blackout Period
applicable to that Participant.
(f) Handling of Options When Employment Ends.
(i) A Terminated Employee’s Options that are unvested on the date of his or her
Employment Termination shall be handled in accordance with subsection 7(a)(i)
above.
(ii) A Terminated Employee’s Options that are vested but unexercised on the date
of his or her Employment Termination shall be handled in accordance with
subsection 7(a)(ii) above.
(iii) In a situation in which an employee of a Related Entity is terminated for
Cause, subsection 4(b) above shall apply to such individual’s: (x) unvested
Options and (y) vested but unexercised Options. If, for any reason such
individual’s unvested Options have not either lapsed and been automatically
cancelled under subsection 4(b) by midnight on the date that his or her
employment is terminated by the Related Entity for Cause, then such person’s
unvested Options shall lapse, be cancelled, and/or expire in accordance with
subsection 7(b) above. If, for any reason. within seven (7) days following the
date of his or her termination for Cause, such individual’s vested and
unexercised Options have not been forfeited and/or automatically cancelled under
subsection 4(b) above or otherwise expired, then such individual’s vested but
unexercised Options shall lapse, be cancelled, and/or expire if they have not
been exercised within seven (7) days after the date such individual’s employment
is terminated by the Related Entity for Cause.

 

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(g) Divorce. Incentive Options transferred incident to divorce will cease to be
statutory stock options on transfer.
(h) Cancellation of Options with No Value. Any person who receives a grant of
Options under this Plan may be required, at the time the Options are awarded, to
sign a consent allowing the Board, in its discretion, to cancel the Options if
the Fair Market Value of the Stock decreases such that the exercise price of the
Options is significantly above the Fair Market Value of the Stock.
9. Stock Appreciation Rights (“SARs”)
The Committee may, in its discretion, grant SARs to Eligible Employees and to
Consultants. SARs may be granted either singly or in combination with an
underlying Option granted hereunder. Such SARs shall be subject to the following
terms and conditions and such other terms and conditions as the Committee may
prescribe:
(a) Vesting and Exercise Period of SAR. If a SAR is granted with respect to an
underlying Option, it may be granted at the time of the Option or at any time
thereafter but prior to the expiration of the Option. In no event shall the
exercise period for a SAR exceed the exercise period for its underlying Option,
if any. If the Committee fails to set the vesting period in the granting
document for a SAR, then the vesting period for such SAR shall be as stated in
Subsection 3(c) above. Unless otherwise specified in the granting document for a
SAR, the exercise period for the SAR shall be five (5) years from the date of
vesting unless such exercise period is earlier terminated under subsections 4(b)
or 9(d) of this Plan. If an Option is granted with respect to an underlying
Option, then upon exercise of the Option the SAR will be cancelled.
(b) Value of SAR. If a SAR is granted with respect to an underlying Option, the
grantee will be entitled to surrender the Option that is then exercisable and
receive in exchange an amount equal to the excess of the Fair Market Value of
the Stock on the date the election to surrender is received by the Company over
the Option price multiplied by the number of shares covered by the Options that
are surrendered. If a SAR is granted without an underlying Option, the grantee
will receive upon exercise of the SAR an amount equal to the Fair Market Value
of the Stock on the date the election to surrender such SAR is received by the
Company over the Fair Market Value of the Stock on the date of grant multiplied
by the number of shares covered by the SARs being exercised.
(c) Payment of SAR. When a SAR is exercised, payment for the SAR shall be in the
form of shares of Stock, cash, or any combination of Stock and cash.

 

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(d) Handling of SAR When Employment Ends.
(i) A Terminated Employee’s SARs that are unvested on the date of his or her
Employment Termination shall be handled in accordance with subsection 7(a)(i)
above.
(ii) A Terminated Employee’s SARs that are vested but unexercised on the date of
his or her Employment Termination shall be handled in accordance with subsection
7(a)(iii) above.
(iii) In a situation in which an Eligible Employee is terminated for Cause,
subsection 4(b) above shall apply to such individual’s: (x) unvested SARs and
(y) vested but unexercised SARs. If, for any reason, such individual’s unvested
SARs have not lapsed and been automatically cancelled under subsection 4(b) by
midnight on the date that his or her employment is terminated by the Related
Entity for Cause, then such individual’s unvested SARs shall lapse, be
cancelled, and/or expire in accordance with subsection 7(b) above. If, for any
reason, within seven (7) days following the date of his or her termination for
Cause, such individual’s vested and unexercised SARs have not been forfeited
and/or automatically cancelled under subsection 4(b) above or otherwise expired,
then such individual’s vested but unexercised SARs shall lapse, be cancelled,
and/or expire if they have not been exercised within seven (7) days after the
date such individual’s employment is terminated by the Related Entity for Cause.
10. Restricted Stock
The Committee may award Restricted Stock to a grantee. All shares of Restricted
Stock granted shall be subject to a Risk of Forfeiture as determined by the
Committee, including but not limited to the following terms and conditions and
such other terms and conditions as the Committee may prescribe:
(a) Restriction Period. Each grant of Restricted Stock made under this Plan
shall specify a Restriction Period. If the grant fails to specify a Restriction
Period, then the Restriction Period shall be as follows:

  •  
20% of the Restricted Stock awarded under the grant will be subject to a
one-year Restriction Period ending on the first anniversary of the date of
grant;

  •  
20% of the Restricted Stock awarded under the grant will be subject to a
two-year Restriction Period ending on the second anniversary of the date of
grant;

  •  
20% of the Restricted Stock awarded under the grant will be subject to a
three-year Restriction Period ending on the third anniversary of the date of
grant;

 

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  •  
20% of the Restricted Stock awarded under the grant will be subject to a
four-year Restriction Period ending on the fourth anniversary of the date of
grant; and

  •  
20% of the Restricted Stock awarded under the grant will be subject to a
five-year Restriction Period ending on the fifth anniversary of the date of
grant.

(b) Effect of Employment Termination on Restricted Stock. If a grantee is
awarded Restricted Stock while he or she is employed by one of the Related
Entities, then, as a condition of the grant, the grantee must remain employed by
one of the Related Entities during the applicable Restriction Period in order to
retain the shares of Restricted Stock. If the grantee leaves the employment of
one of the Related Entities prior to the end of the Restriction Period, the
Restricted Shares still subject to a Restriction Period shall revert to the
Company and any rights of the grantee in such Restricted Shares shall
automatically terminate and such shares shall be returned immediately to the
Company. This subsection shall apply without regard to whether the reason for
termination of the grantee’s employment is voluntary termination, involuntary
termination, retirement, extended absence due to disability, or death. However,
this subsection shall not apply if the grantee is terminated from one Related
Entity and immediately transferred to another Related Entity. If a grantee of
Restricted Stock is terminated for Cause, the Board shall have discretion to
apply subsection 4(b) to such grantee’s Restricted Stock. However, if the Board
fails to apply 4(b), then the Restricted Stock of a grantee terminated for Cause
shall revert to the Company under this subsection 10(b).
(c) Restrictions on Transfer and Legend on Stock Certificates. During the
Restriction Period, the grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Stock except as expressly permitted in this
Plan. Each certificate for shares of Restricted Stock granted hereunder shall
contain a legend giving appropriate notice of the restrictions in the grant.
(d) Escrow Agreement. The Committee may require the grantee to enter into an
escrow agreement providing that the certificates representing the Restricted
Stock award will remain in the physical custody of an escrow holder until all
restrictions are removed or expire.
(e) Lapse of Restrictions. All restrictions imposed on the Restricted Stock
shall lapse upon the expiration of the Restriction Period if the conditions of
the grant have been met. The grantee shall then be entitled to have the legend
removed from the certificates.

 

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11. Acquisition and Change of Control Events
(a) Definitions.
“Acquisition Event” shall mean:
(i) Any merger or consolidation of the Company with or into another entity as a
result of which the Company’s Stock is converted into or exchanged for the right
to receive cash, securities of the other entity, or other property; or
(ii) Any exchange of shares of the Company for cash, securities of another
entity or other property pursuant to a statutory share exchange transaction.
“Change of Control Event” shall mean:
(i) any merger or consolidation that results in the voting securities of the
Company outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; or
(ii) the acquisition by an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of 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) 51% or more of either (A) the then-outstanding shares of Stock of
the Company (the “Outstanding Company Stock”), or (B) the combined voting power
of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”). However, for purposes of this subsection (ii), the following
acquisitions shall not give rise to a Change of Control event: (A) any
acquisition directly from the Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or an Affiliate, or (D) any acquisition by any Person
pursuant to a transaction that results in all or substantially all of the
individuals and entities who were the beneficial owners of 50% or more of the
Outstanding Company Stock and Outstanding Company Voting Securities immediately
prior to such transaction beneficially owning, directly or indirectly, more than
50% of the then-outstanding shares of Stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring Person in such
transaction (which shall include, without limitation, a Person that 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) in substantially the
same proportions as their ownership, immediately prior to such transaction, of
the Outstanding Company Stock and Outstanding Company Voting Securities,
respectively;

 

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(iii) any sale of all or substantially all of the assets of the Company; or
(iv) the complete liquidation of the Company.
(b) Effect on Options.
(i) Acquisition Event. Upon the occurrence of an Acquisition Event (regardless
of whether such event also constitutes a Change in Control Event), or the
execution by the Company of any agreement with respect to an Acquisition Event
(regardless of whether such event will result in a Change in Control Event), the
Board shall provide that all outstanding Options shall be assumed, or equivalent
options shall be substituted, by the acquiring or succeeding Person (or an
Affiliate thereof). However, if such Acquisition Event also constitutes a Change
in Control Event, except to the extent specifically provided to the contrary in
the instrument evidencing any Option or any other agreement between the Option
holder and the Company, such assumed or substituted options shall be immediately
exercisable in full upon the occurrence of such Acquisition Event. For purposes
of this section, an Option shall be considered to be assumed if, following
consummation of the Acquisition Event, the Option confers the right to purchase,
for each share of Stock subject to the Option immediately prior to the
consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Stock for each share of Stock held immediately prior to the
consummation of the Acquisition Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Stock). However, if the consideration received as a
result of the Acquisition Event is not solely Stock of the acquiring or
succeeding Person (or an Affiliate thereof), the Company may, with the consent
of the acquiring or succeeding Person, provide for the consideration to be
received upon the exercise of Options to consist solely of Stock of the
acquiring or succeeding Person (or an Affiliate thereof) equivalent in Fair
Market Value to the per share consideration received by holders of outstanding
shares of Stock as a result of the Acquisition Event. Notwithstanding the
foregoing, if the acquiring or succeeding Person (or an Affiliate thereof), does
not agree to assume such Options, or substitute equivalent options for such
Options, then the Board shall, upon written notice to the Option holders,
provide that all then unexercised Options will become exercisable in full as of
a specified time prior to the Acquisition Event and will terminate immediately
prior to the consummation of such Acquisition Event, except to the extent
exercised by the Option holders before the consummation of such Acquisition
Event. However, in the event of an Acquisition Event under the terms of which
holders of Stock will receive upon consummation thereof a cash payment for each
share of Stock surrendered pursuant to such Acquisition Event (the “Acquisition
Price”), then the Board may instead provide that all outstanding Options shall
terminate upon consummation of such Acquisition Event and that each Option
holder shall receive, in exchange therefor, a cash payment equal to the amount
(if any) by which (A) the Acquisition Price multiplied by the number of shares
of Stock subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options.

 

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(ii) Change in Control Event that is not an Acquisition Event. Upon the
occurrence of a Change in Control Event that does not also constitute an
Acquisition Event, except to the extent specifically provided to the contrary in
the instrument evidencing any Option or any other agreement between a
Participant and the Company, all Options then outstanding shall automatically
become immediately vested and exercisable in full.
(c) Effect on Restricted Stock.
(i) Acquisition Event that is not a Change in Control Event. Upon the occurrence
of an Acquisition Event that is not a Change in Control Event, the repurchase
and other rights of the Company under each outstanding grant of Restricted Stock
shall inure to the benefit of the Company’s successor and shall apply to the
cash, securities or other property into which the Stock was converted or for
which it was exchanged pursuant to such Acquisition Event in the same manner and
to the same extent as such rights applied to the Stock subject to such
Restricted Stock award.
(ii) Change in Control Event. Upon the occurrence of a Change in Control Event
(regardless of whether such event also constitutes an Acquisition Event), except
to the extent specifically provided to the contrary in the instrument evidencing
any Restricted Stock award or any other agreement between a holder of a
Restricted Stock award and the Company, all restrictions and conditions on all
Restricted Stock awards then outstanding shall automatically be deemed
terminated or satisfied.
(d) Effect on Other Awards.
(i) Acquisition Event that is not a Change in Control Event. In the documents
granting such Incentive, the Board may specify the effect of an Acquisition
Event that is not a Change in Control Event on any Incentive other than Options
and Restricted Stock. If the Board does not specify the effect of any
Acquisition Event on such Incentives, the Acquisition Event shall impact such
Incentives in accordance with applicable law.
(ii) Change in Control Event. Upon the occurrence of a Change in Control Event
(regardless of whether such event also constitutes an Acquisition Event), except
to the extent specifically provided to the contrary in the instrument granting
such Incentive or any other agreement between an Incentive holder and the
Company, all Incentives within the scope of the foregoing 12(d)(i) shall become
exercisable, realizable and/or vested in full, or shall be free of all
conditions or restrictions, as applicable to each such Incentive. However, the
immediately preceding sentence shall not apply to performance-based awards. Upon
the occurrence of a Change in Control Event (regardless of whether such event
also constitutes an Acquisition Event), all performance-based award shall be
immediately payable based upon the extent, as determined by the Committee, to
which the Performance Goals for the Performance Period then in progress have
been met up through the date of the Change of Control Event or based on 100% of
the value on the date of grant of the performance-based award, if such amount is
higher.

 

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12. Discontinuance or Amendment of the Plan
The Board may discontinue the Plan at any time and may from time to time amend
or revise the terms of the Plan as permitted by applicable statutes, except that
it may not revoke or alter, in a manner unfavorable to the grantees of any
Incentives hereunder, any Incentives then outstanding, nor may the Board amend
the Plan without shareholder approval where the absence of such approval would
cause the Plan to fail to comply with the Exchange Act or any other applicable
law or regulation. No Incentive shall be granted under the Plan after April 18,
2017, but Incentives granted prior to such date may extend beyond such date.
13. Nontransferability
Incentive Options granted under the Plan shall not be transferable except by
will or the laws of descent and distribution. To the extent allowed by law,
Nonstatutory Options may be transferable to certain family members or
foundations for no value or other consideration. Additionally, other Incentives
granted under the Plan may be transferable subject to the terms and conditions
as may be established by the Committee in accordance with regulations
promulgated under the Exchange Act and any other applicable law or regulation.
14. No Right of Employment
The Plan and the Incentives granted hereunder shall not confer upon any Eligible
Employee the right to continued employment with the Company, its Affiliates, or
its joint ventures, or affect in any way the right of such entities to terminate
the employment of an Eligible Employee at any time and for any reason. Neither
shall the Plan and the Incentives granted hereunder confer on a Consultant the
right to continuation of his or her consulting agreement or a right to become an
Eligible Employee.
15. Taxes
The Company shall be entitled, at the time the Company deems appropriate under
the law then in effect, to withhold the amount of any tax attributed to any
Incentive granted under the Plan.

 

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16. Governing Law
The provisions of this Plan and all awards made under this Plan shall be
governed by and interpreted in accordance with the law of the State of
Tennessee, without regard to applicable conflicts of law principles.
17. “Lockup” Agreement
The Committee may in its discretion require that upon request of the Company or
the underwriters managing any underwritten offering of the Company’s securities,
the Participant shall agree in writing that for a period of time (not to exceed
180 days) from the effective date of any registration of securities of the
Company, the Participant will not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any shares of Stock issued
or issuable pursuant to the exercise of such Incentive, without the prior
written consent of the Company or such underwriters, as the case may be.
18. Limitation of Liability
Each member of the Committee shall be entitled to, in good faith, rely or act
upon any report or other information furnished to him or her by any officer or
other employee of the Company or any Affiliate, the Company’s independent
certified public accountants, or other professional retained by the Company to
assist in the administration of the Plan. No member of the Committee, nor any
officer, director or employee of the Company acting on behalf of the Committee,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Committee and any officer, director or employee of the Company acting on behalf
of the Committee shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
19. Unfunded Status of Incentives
The Plan is intended to constitute an “unfunded” plan for incentive
compensation. With respect to any payments not yet made to a Participant
pursuant to an Incentive, nothing contained in the Plan or any Incentive shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided, however, that the Committee may authorize the
creation of trusts or make other arrangements to meet the Company’s obligations
under the Plan to deliver cash, shares of Stock, other Incentives, or other
property pursuant to any Incentive, which trusts or other arrangements shall be
consistent with the “unfunded” status of the Plan unless the Committee otherwise
determines with the consent of each affected Participant.
20. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor its submission to the
stockholders of the Company for approval shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including, without limitation, arrangements granting
options and other Incentives otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.

 

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21. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and a
Participant, including, without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, and any receiver or
trustee in bankruptcy or representative of the Participant’s creditors.
22. Severability
If any provision of the Plan is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any Incentive
under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
23. Miscellaneous
The provisions of this Plan shall be severable, and the invalidity of any
particular provision of the Plan shall not cause the Plan as a whole to be
invalid. Any definition set forth in this Plan of the singular form of a term
shall also apply to the plural form of that term, and any definition of the
plural form of a term shall also apply to the singular form of the term. Any
reference in this Plan to one gender shall also include the other gender.
Adopted by the Board of Directors of Cumberland Pharmaceuticals Inc. this 4th
day of November, 2010.

         
 
  /s/ Jean W. Marstiller
 
Jean W. Marstiller    
 
  Senior Vice President and Corporate Secretary    
 
  Date Signed: November 4, 2010    

 

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