Exhibit 10.18





Exhibit 10.18









2007 LONG-TERM INCENTIVE COMPENSATION PLAN,

AS AMENDED ON NOVEMBER 4, 2010




 


 









 







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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