Exhibit 10.2

 

Cubist Pharmaceuticals, Inc.

Performance-Based Management Incentive Plan

 

1.              Purpose.  The purpose of the annual/short-term incentive
programs of Cubist Pharmaceuticals, Inc. (the “Company”) is to attract and
retain persons of outstanding abilities and qualifications and, among other
things, to motivate these individuals to focus on the achievement of important
short-term business objectives that create and protect shareholder value and
that are expected to have a positive long-term impact on the Company’s success,
and to reward the accomplishment of such short-term business objectives.

 

2.              Certain Key Terms.

 

a.                                      This Cubist Pharmaceuticals, Inc.
Performance-Based Management Incentive Plan (the “MIP”) sets forth the terms of
the Company’s annual incentive program for individuals who the Compensation
Committee (the “Committee”) of the Company’s Board of Directors determines are
“covered employees” within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (“Section 162(m)”).

 

b.                                      Payments made pursuant to awards under
the MIP are intended to qualify for the performance-based compensation exception
under Section 162(m) and will be construed in a manner consistent with
Section 162(m).

 

c.                                       Except as otherwise set forth in the
MIP, the MIP will be administered by the Committee.

 

d.                                      Any awards granted or amounts paid under
the MIP, shall identify, in or more written documents:

 

i.                  the performance period for each award;

 

ii.               the target payouts for each award, which may be expressed as a
percentage of the annual base salary of the Participant or as a specified dollar
amount; and

 

iii.            one or more applicable objective corporate or individual
performance goals applicable to each award for the performance period, and that
will be assessed to determine the target payout, based on the Performance
Criteria listed in Section 5 below and the relative weighting of such
performance goals.

 

3.              Performance Periods.  Performance periods may be a minimum of
six (6) months and a maximum of sixty (60) months in length.  Performance
periods need not be sequential and may occur simultaneously.  Performance
periods under the MIP may overlap, and separate payments may be made to
Participants pursuant to awards for overlapping performance periods.

 

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4.              Target Payouts/Payments

 

a.                                      Payments pursuant to awards under the
MIP will be paid in cash and/or Company common stock.  The Company has the right
to deduct taxes or other amounts required by law to be withheld from payments
made under the MIP.

 

b.                                      The Committee will adopt objective
formulas or standards for calculating the payments to be made to a Participant
upon the achievement of performance goals based on one or more Performance
Criteria listed in Section 5.  The Committee will adopt such formulas or
standards for each performance period no later than the latest time permitted by
Section 162(m) (generally, for performance periods of one year or more, no later
than 90 days after the commencement of the performance period; and, for periods
of less than one year, before twenty-five percent (25%) of the performance
period has elapsed). The Committee may establish certain specified performance
goals as threshold goals, which, if not met, will preclude the Participant from
receiving any award for the performance period to which such formula or standard
applies.

 

c.                                       Except as provided in Section 6 below,
no Participant will be entitled to receive a payment under the MIP unless and
until the Committee certifies in writing that the Company and/or the Participant
has achieved the established performance goals based upon applicable Performance
Criteria and the level of achievement against such performance goals.  The
Committee will, as soon as reasonably practicable after the necessary
performance results for the performance period become available, determine the
final percentage achievement against the corporate and/or individual performance
goals based upon applicable Performance Criteria and make the written
certification to that effect required by this Section 4(c), and the
determinations in the Committee’s written certification will be final and
conclusive.  In making its determination and issuing its written certification,
the Committee may not waive the achievement of the applicable performance goals,
except as provided in Section 6, or under such other conditions where such
waiver will not jeopardize the treatment of other payments made under the MIP as
“performance-based compensation” under Section 162(m).

 

d.                                      The Committee may not exercise
discretion to increase a Participant’s payout as determined under the applicable
formula or standard for determining payouts for a performance period and as set
forth in the Committee’s certification; however, the Committee may, in its sole
discretion, reduce a payment under the MIP on the basis of corporate and/or
specific individual goals or for other reasons.

 

e.                                       Except as set forth in Section 6, all
payments made under the MIP shall be made within the sooner of 90 days following
the end of the performance period or March 15 of the year following the calendar
year in which any payment under the MIP was earned.

 

f.                                        The amount payable under the MIP to
any Participant during any calendar year may not exceed $2,000,000.

 

g.                                       No payment may be made pursuant to an
award under the MIP for a performance period that will end after the Company’s
2016 annual stockholders meeting until the listed performance measures set forth
in the definition of “Performance Criteria” in Section 5 (as originally approved
or as subsequently amended) have been resubmitted to and reapproved by

 

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the Company’s stockholders in accordance with the requirements of
Section 162(m), unless such payout is made contingent upon such approval.

 

h.                                      In addition to any other terms and
conditions set forth in the MIP or other relevant documentation, all or part of
the grant, vesting and/or payout of a payment under the MIP may be made subject
to future service and such other restrictions and conditions as may be
established by the Committee.

 

5.              Performance Goals and Performance Criteria.  Performance goals
will be based on objectively determinable measures of performance relating to
any of or to any combination of the following (measured either absolutely or by
reference to an index or indices and determined either on a consolidated basis
or, as the context permits, on a divisional, functional, subsidiary, line of
business, project or geographical basis or in combinations thereof)
(“Performance Criteria”): sales; revenues; assets; expenses; earnings or
earnings per share; return on equity, investment, capital or assets; one or more
operating ratios; borrowing levels, leverage ratios or credit rating; market
share; capital expenditures; cash flow; stock price; stockholder return; income,
pre-tax income, net income, operating income, pre-tax profit, operating profit,
net operating profit or economic profit; gross margin, operating margin, profit
margin, return on operating revenue, return on operating assets, cash from
operations, operating ratio or operating revenue; market capitalization;
expenses or certain types of expenses; sales of particular products or services;
customer acquisition, expansion or retention; acquisitions and divestitures (in
whole or in part) and/or integration activities related thereto; joint ventures,
collaborations, licenses and strategic alliances, and/or the management and
performance of such relationships; spin-offs, split-ups and the like;
reorganizations; recapitalizations, restructurings, financings (issuance of debt
or equity) or refinancings; achievement of clinical trial or research
objectives; achievement of manufacturing and/or supply chain objectives;
achievement of litigation-related objectives and/or objectives related to
litigation expenses; achievement of human resource, organizational and/or
personnel objectives; achievement of information technology or information
services objectives; or achievement of real estate, facilities or space planning
objectives.   A Performance Criterion and any targets with respect thereto
determined by the Committee shall be based on achievement of an objectively
determinable performance goal.  To the extent consistent with the requirements
of the performance-based compensation exception under Section 162(m), the
Committee may adjust one or more of the Performance Criteria applicable to a
Participant’s payout in an objectively determinable manner to reflect events
(for example, but without limitation, acquisitions or dispositions) occurring
during the performance period that affect the applicable Performance Criterion
or Criteria.

 

6.              Effect of Certain Events.

 

a.                                      Except as set forth in Section 6(b) or
(c), if a Participant’s employment terminates during a performance period, then
the Participant shall not be entitled to a payment under the MIP for such
performance period.

 

b.                                      An award, or otherwise applicable
agreement, may provide that the award will be deemed earned as a result of a
Participant’s death or disability, even if the award would not constitute
“performance-based compensation” under Section 162(m) following the occurrence
of

 

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such an event.  In the absence of any such provision addressing the consequences
of a Participant’s death or disability, the Committee may also determine, in its
sole discretion, that an award may be deemed earned by a Participant as a result
of death or disability even if the award would not constitute “performance-based
compensation” under Section 162(m).  Unless the award or otherwise applicable
agreement provides otherwise, or the Committee determines otherwise, the amount
to be paid under these circumstances shall be determined by multiplying the
Participant’s target payout for the performance period by a fraction
representing the portion of the performance period that has elapsed prior to the
Participant’s death or disability.  Payments under this Section 6(b) will be
made within the sooner of 90 days of the Participant’s death or disability or
March 15 of the year following the calendar year in which such event occurred.

 

c.                                       An award, or otherwise applicable
agreement, may provide that the award will be deemed earned in connection with,
or on the basis of termination of employment following, a change of control,
even if the award would not constitute “performance-based compensation” under
Section 162(m) following the occurrence of such a change of control.  In the
absence of any such provision addressing the consequences of a change of
control, the Committee may also determine, in its sole discretion, that an award
may be deemed earned by a Participant in connection with, or on the basis of
termination of employment following, a change of control, even if the award
would not constitute “performance-based compensation” under Section 162(m). 
Payments under this Section 6(c) will be made within the sooner of 90 days of
the change of control, or the Participant’s termination of employment following
a change of control, as the case may be, or March 15 of the year following the
calendar year in which such event occurred.

 

7.              Administration.

 

a.                                      The Committee shall administer the MIP. 
The Committee shall consist solely of two or more members of the Board of
Directors that qualify as “outside directors” for purposes of Section 162(m). 
Except as set forth in the MIP or as required by the Company’s governance
documents and/or applicable laws and regulations with respect to the approval of
the Board of Directors, the Committee shall have full power to construe and
interpret the MIP, establish and amend rules and regulations for its
administration, determine eligibility, determine, modify or waive the terms and
conditions of any award, prescribe forms, rules and procedures and perform all
other acts relating to the MIP, including the delegation of administrative
responsibilities, that it believes reasonable and proper and in conformity with
the purposes of the MIP.  All decisions made by the Committee relating to or in
connection with the MIP shall be final, conclusive, and binding on all affected
persons.  Notwithstanding the above, and except as otherwise provided in
Section 6, the Committee will exercise its discretion consistent with qualifying
payments under the MIP for the performance-based compensation exception under
Section 162(m).  Subject to applicable laws and regulations, including
Section 162(m), the Committee may delegate: (i) to one or more of its members
such of its duties, powers and responsibilities as it may determine and (ii) to
such employees or other persons as it determines, such administrative tasks as
it deems appropriate.  The Committee shall provide the Board of Directors with
regular reports regarding its administration of the MIP.

 

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b.                                      The Committee may amend, modify or
terminate the MIP or any Participant’s participation in the MIP at any time or
on such conditions as the Committee shall deem appropriate.  The rights of the
Committee set forth in the preceding sentence are subject to the following:
(i) once the Committee has established the performance goals underlying an award
under the MIP and except as provided for in Section 5, the Committee may not
change such performance goals or the formula for computing whether such goals
were met or increase the amount of the target payout, except that the Committee
may decrease the amount of a Participant’s actual payout; (ii) no amendment of
the MIP shall operate to annul, without the consent of the affected Participant,
an award already made under the MIP; and (iii) if stockholder approval is
required to effect the Committee’s action, the action will be subject to the
receipt of stockholder approval.

 

8.              General.

 

a.                                      The terms and provisions of the MIP will
be construed in a manner that is consistent with Section 162(m).

 

b.                                      The MIP is not a contract between the
Company and any Participant.  Neither the establishment of the MIP, nor any
action taken hereunder, shall be construed as giving any Participant any right
to remain in the employ of the Company.

 

c.                                       The Committee may cancel, rescind,
withhold or otherwise limit or restrict any payment at any time if a Participant
is not in compliance with all applicable provisions of the MIP and any
applicable agreement or violates any Company policy.

 

d.                                      The Company may recoup payments made to
a Participant under the MIP if required by applicable law or regulation or in
accordance with any clawback/recoupment policy implemented by the Company from
time to time.

 

e.                                       A Participant’s right and interest
under the MIP may not be assigned or transferred, and any attempted assignment
or transfer shall be null and void and shall extinguish, in the Company’s sole
discretion, the Company’s obligation to make any payments under the MIP with
respect to the Participant.

 

f.                                        The MIP shall be unfunded. The Company
shall not be required to establish any special or separate fund, or to make any
other segregation of assets, to assure payments under the MIP.

 

g.                                       Payments under the MIP are intended
either to be exempt from the rules of Section 409A of the Internal Revenue Code
of 1986, or any successor thereto (“Section 409A”) or to satisfy those rules,
and shall be construed accordingly. Notwithstanding anything to the contrary in
the MIP, the Company, its affiliates and subsidiaries, the Committee, the Board
of Directors and any person acting on its or their behalf shall not be liable to
any Participant or to the estate or beneficiary of any Participant by reason of
any acceleration of income, or any additional tax, asserted by reason of the
failure of a payment under the MIP to satisfy the

 

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requirements of Section 409A or by reason of Section 4999 of the Internal
Revenue Code of 1986, or any successor thereto.

 

h.                                      The validity, construction,
interpretation and effect of the MIP shall exclusively be governed by and
determined in accordance with the laws of the state of Delaware, without giving
effect to its conflict of laws provisions.

 

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