Document:

Exhibit 10.2

 

CUBIST PHARMACEUTICALS, INC.

 

AMENDED AND RESTATED

2002 DIRECTORS’ EQUITY INCENTIVE PLAN

 

(Adopted
by the Board of Directors on March 5, 2002, effective upon ratification
and approval by the stockholders of the Company on June 13, 2002, and amended
and restated upon ratification and approval by the stockholders of the Company
on June 10, 2003.  First Amendment
effective upon approval by the Board of Directors on August 2, 2005.  Amended and restated upon ratification and
approval by the stockholders of the Company on June 8, 2006. Amended and
restated again effective upon approval by the Board of Directors on March 8,
2007 and ratified and approved by the stockholders of the Company on June 7,
2007. Amended and restated further effective upon approval by the Board of
Directors on March 10, 2008 and April 9, 2008.)

 

The
options granted under this Amended and Restated 2002 Directors’ Equity
Incentive Plan (the “Plan”) of Cubist Pharmaceuticals, Inc. (the “Company”)
are not intended to be treated as “incentive
stock options” within the meaning of Section 422 of the Code.

 

1.             Definitions.  As used in this Plan, the following terms
shall have the following meanings:

 

1.1.          Accelerate, Accelerated,
and Acceleration, means: (a) when used with respect to an Option,
that as of the relevant time of reference such Option will become exercisable
with respect to some or all of the shares of Stock for which it was not then
otherwise exercisable by its terms; and (b) when used with respect to
Restricted Stock, that the Risk of Forfeiture otherwise applicable to the Stock
will expire with respect to some or all of the shares of Restricted Stock for
which it was not then still otherwise subject to the Risk of Forfeiture.

 

1.2           Award means any grant or sale,
pursuant to the Plan, of Options, Stock Grants or Restricted Stock.

 

1.3           Award  Agreement means
an Option Agreement or any other agreement between the Company and the
recipient of an Award, setting forth the terms and conditions of the Award.

 

1.4.          Board means the Company’s Board
of Directors.

 

1.5.          Change  in  Corporate
Control means (1) the closing of (A) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which Shares would be converted into cash,
securities or other property, other than a merger or consolidation which the
holders of Stock immediately prior to the merger or consolidation will have the
same proportionate ownership of common stock of the surviving corporation
immediately after the merger or 

 

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consolidation
as before the merger or consolidation, or (B) any sale, lease, exchange,
or other transfer in a single transaction or a series of related transactions
of all or substantially all of the assets of the Company, or (2) the date
on which any “person” (as defined in Section 13(d) of the Exchange
Act), other than the Company or a Subsidiary or employee benefit plan or trust
maintained by the Company or any of its Subsidiaries shall become (together
with its “affiliates” and “associates,” as defined in Rule 12b-2 under the
Exchange Act) the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 100% of the Stock outstanding at the
time, with the prior approval of the Board, or (3) a Hostile Change in
Corporate Control.

 

1.6.          Code means the United States
Internal Revenue Code of 1986, as amended.

 

1.7.          Company means Cubist
Pharmaceuticals, Inc., a Delaware corporation.

 

1.8.          Compensation  Committee means
a committee comprised of two or more Outside Directors, appointed by the Board,
and vested by the Board with the power and authority to administer the Plan in
accordance with the provisions of Section 5.

 

1.9.          Exchange  Act means the Securities Exchange Act of 1934,
as amended.

 

1.10.        Eligible  Director means a director of one or more of the
Company and its Subsidiaries who is not also an employee or officer of one or
more of the Company and its Subsidiaries.

 

1.11.        Fair  Market  Value
means on any date (i) if the Stock is listed on an exchange, the closing
price of the Stock on such date or, if no trades were reported on such date,
the closing price on the most recent trading day preceding such date on which a
trade occurred, and (ii) if the Stock is not traded on an exchange, the
price at which the Stock was purchased or sold in the most recent transaction
in the Stock.

 

1.12.        Grant  Date means the date as of which an Option is
granted.

 

1.13.        Holder means, with respect to any
Award, (i) the Eligible Director to whom such Award shall have been
granted under the Plan, or (ii) any transferee of such Award to whom such
Award shall have been transferred in accordance with the provisions of Section 14.

 

1.14.        Hostile  Change  in
Corporate  Control
means the date on which any “person” (as defined in Section 13(d) of
the Exchange Act), other than the Company or a Subsidiary or employee benefit
plan or trust maintained by the Company or any of its Subsidiaries shall become
(together with its “affiliates” and “associates,” as defined in Rule 12b-2
under the Exchange Act) the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of more than 25% of the Stock
outstanding at the time, without the prior approval of the Board.

 

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1.15.        Incentive  Option means an “incentive
stock option” within the meaning of Section 422 of the Code.

 

1.16.        Incumbent  Directors means, in the case of a Hostile Change in
Corporate Control, those individuals who were members of the Company’s Board of
Directors immediately prior to such Hostile Change in Corporate Control.

 

1.17.        Option means an option granted
under the Plan to purchase Shares.

 

1.18.        Option  Agreement means an
agreement between the Company and an Optionee, setting forth the terms and
conditions of an Option.

 

1.19.        Option  Price means the
price paid by an Optionee for a Share upon exercise of an Option.

 

1.20.        Optionee means a person eligible
to receive an Option, to whom an Option shall have been granted under the Plan.

 

1.21.        Outside  Director shall mean a member of the Board who is not
an officer, employee or consultant of the Company or any Subsidiary.

 

1.22         Plan means this Amended and
Restated 2002 Directors’ Equity Incentive Plan of the Company, as amended from
time to time.

 

1.23         Restricted  Stock means Shares subject to a Risk of
Forfeiture, rights to which are granted to an Eligible Director under the Plan.

 

1.24         Restriction  Period means the period of time, established by the
Compensation 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.

 

1.25         Risk  of  Forfeiture means a limitation on the right of the
Eligible Director to retain Restricted Stock, including a right of 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.

 

1.26.        Securities  Act means the
United States Securities Act of 1933, as amended.

 

1.27.        Shares means shares of Stock.

 

1.28.        Stock means common stock, $.001
par value per share, of the Company.

 

1.29         Stock Grant means an Award
pursuant to Section 9A below of shares of Stock not subject to
restrictions or other forfeiture conditions.

 

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1.30.        Subsidiary means any corporation
which qualifies as a subsidiary of the Company under the definition of “subsidiary
corporation” in Section 424(f) of the Code.

 

2.             Purpose.  This Plan is intended to promote the
recruiting and retention of highly qualified Eligible Directors, to strengthen
commonality of interest between directors and stockholders by encouraging
ownership of Stock by Eligible Directors, and to provide additional incentives
for Eligible Directors to promote the success of the Company’s business.  The Plan is not
intended to be an incentive stock option plan within the meaning of Section 422
of the Code.  None of the Options granted
hereunder will be Incentive Options.

 

3.             Term  of  the  Plan.  Awards may be granted hereunder at any time
in the period commencing upon the effectiveness of the Plan pursuant to Section 20
and ending on June 30, 2012.

 

4.             Stock  Subject  to
the  Plan.  Subject to the
provisions of Section 14 of the Plan, at no time shall the number of
Shares issued pursuant to or subject to outstanding Awards granted under the
Plan exceed 975,000 Shares.  The shares
of Stock to be issued under the Plan, will be made available, at the discretion
of the Compensation Committee, from authorized but unissued Shares or Shares
held by the Company in its treasury. 
Options awarded shall reduce the number of Shares available for Awards
by one Share for every one Share so awarded. 
Stock Grant Awards and Awards of Restricted Stock shall reduce the
number of Shares available for Awards by two Shares for every one Share so
awarded.  If any Option expires,
terminates or is cancelled for any reason without having been exercised in
full, or if any Award other than an Option is forfeited by the recipient or
repurchased by the Company at less than its Fair Market Value, the Shares not
purchased by the Optionee or forfeited by the recipient or repurchased shall
again be available for Awards to be granted under the Plan.

 

5.             Administration. The Plan
shall be administered by the Compensation Committee.  Subject to the provisions of the Plan, the
Compensation Committee shall have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective Award Agreements (which
need not be identical), and to make all other determinations necessary or
advisable for the administration of the Plan. 
The Compensation Committee’s determinations on the matters referred to
in this Section 5 shall be final, binding and conclusive on all persons
having or claiming an interest under the Plan or an Award made pursuant
hereto.  Notwithstanding anything
expressed or implied in the Plan to the contrary, at any time and on any one or
more occasions, the Board may itself exercise any of the powers and
responsibilities assigned to the Compensation Committee under the Plan and when
so acting shall have the benefit of all of the provisions of this Plan
pertaining to the Compensation Committee’s exercise of its authorities
hereunder.

 

6.             Eligibility.  Only Eligible Directors shall be granted
Awards under the Plan.

 

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7.             Options.

 

7.1.          Directors  Elected  For
First  Time.  Subject to the
Plan’s effectiveness as set forth in Section 20, each Eligible Director
who is elected to the Board during the term of the Plan (whether elected at an
annual or special stockholders’ meeting or by action of the Board or written
consent of stockholders without a meeting), and who prior to such election was
never previously a member of the Board, shall be granted, on the date of such
meeting or other appointment, an Option to purchase 10,000 Shares; provided,
however, that if such Eligible Director is elected at such time to be
Lead Director or Chairman of the Board (as such titles may be determined by the
Board), then such Eligible Director shall be granted, on the date of such
meeting or other appointment and in lieu of any such Option to purchase 10,000
Shares, an Option to purchase 15,000 Shares in the case of a Lead Director or
20,000 Shares in the case of the Chairman. 
Subject to Sections 10, 11 and 12, grants of Options under this Section 7.1
occur automatically without any action being required of the Optionee, the
Compensation Committee, the Board, the Company or any other person, entity or
body.

 

7.2.          Annual  Grants.  Subject to the Plan’s effectiveness as set
forth in Section 20, on the date of each annual meeting of stockholders of
the Company commencing with the 2006 Annual Meeting of Stockholders of the
Company, each Eligible Director who continues to be a director of the Company
as of the close of business on the date of such annual meeting of stockholders
shall be granted an Option on such business day, to purchase Shares in an
amount set by resolution of the Board prior to such business day. Subject to
Sections 10, 11 and 12, grants of Options under this Section 7.2 occur
automatically without any action being required of the Optionee, the
Compensation Committee, the Board, the Company or any other person, entity or
body.

 

7.3.          Certain
Terms  of  Options. 
Each Option granted to an Optionee under this Section 7
shall have an exercise price equal to at least 100% of the Fair Market
Value of the Stock on the applicable Grant Date.  No Option granted pursuant to this Section 7
is intended to qualify as an Incentive Option. 
The grants shall be evidenced by Option Agreements containing provisions
that are in all respects consistent with this Section 7.  All of such Option Agreements shall contain
identical terms and conditions, except as otherwise required or permitted by
this Section 7.

 

7.4.          Option  Period.  The option period for any Option granted
pursuant to this Section 7 shall be no longer than ten years from the
Grant Date.

 

7.5.          Exercisability. Each Option
granted to an Eligible Director pursuant to Section 7.1 hereof (a “Section 7.1
Option”) shall become
exercisable in twelve (12) equal quarterly installments, with the first
installment becoming exercisable on the last day of the first full fiscal
quarter following the Grant Date applicable to such Section 7.1 Option and
an additional installment becoming exercisable on the last day of each of the eleven
successive fiscal quarters following such first fiscal quarter; provided,
however, that if the Optionee with respect to such Section 7.1
Option shall cease to be a director of the Company, then, notwithstanding
anything in this Section 7.5 to the contrary and subject

 

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to
Sections 7.6 and 12 hereof, such Section 7.1 Option shall thereafter be
exercisable only with respect to those of such installments for which such Section 7.1
Option is exercisable, pursuant to this Section 7.5, at the time of such
cessation.  Each Option granted to an
Eligible Director pursuant to Section 7.2 hereof (a “Section 7.2
Option”) shall be
exercisable according to a schedule determined by the Board in its sole
discretion (and not the Compensation Committee, notwithstanding the
responsibilities assigned to the Compensation Committee pursuant to Section 5),
provided, however, that if the Optionee with respect to such Section 7.2
Option shall cease to be a director of the Company, then, subject to Sections
7.6 and 12 hereof, such Section 7.2 Option shall thereafter be exercisable
only with respect to those of such installments for which such Section 7.2
Option is exercisable, pursuant to this Section 7.5, at the time of such
cessation.

 

7.6.          Certain  Modifications  of
Options.  Notwithstanding anything
in this Section 7 or any applicable Option Agreement to the contrary, in
the case of an Option not otherwise immediately exercisable in full, the
Compensation Committee may accelerate the exercisability of such Option in
whole or in part at any time.  In the
event that the Compensation Committee accelerates the exercisability of any
Option in whole or in part at any time, the Compensation Committee may require
as a condition precedent to the effectiveness of any such acceleration that the
holder of such Option shall enter into a written agreement with the Company
providing, among other things, that the Shares subject to such Option shall,
following their issuance upon exercise of such Option, be subject to a
repurchase option in favor of the Company upon such terms as the Compensation
Committee shall determine in its sole and absolute discretion.

 

8.                                       Exercise  of  Option.

 

(a)           An Option may be
exercised only by giving written notice, in the manner provided in Section 19
hereof, specifying the number of Shares as to which the Option is being
exercised, accompanied (except as otherwise provided in paragraphs (b) and
(c) of this Section 8) by full payment for such Shares in the form of
a check or bank draft payable to the order of the Company or other Shares with
a current Fair Market Value equal to the Option Price of the Shares to be
purchased.  Receipt by the Company of
such notice and payment shall constitute the exercise of the Option or a part
thereof.  Subject to the provisions of
the Plan (including, without limitation, Sections 10, 11 and 12) or any
applicable Option Agreement, within 30 days after receipt of such notice and
payment, the Company shall deliver or cause to be delivered to the Holder the
number of Shares then being purchased by the Holder.  Such Shares shall be fully paid and
nonassessable.

 

(b)           In lieu of payment
by check, bank draft or other Shares accompanying the written notice of
exercise as described in paragraph (a) of this Section 8, a Holder
may, unless prohibited by applicable law, elect to effect payment by including
with the written notice referred to in paragraph (a) of this Section 8
irrevocable instructions to deliver for sale to a registered securities broker
acceptable to the Company that number of Shares subject to the Option being
exercised sufficient, after brokerage

 

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commissions, to cover the aggregate exercise price of such Option and,
if the Holder further elects, the withholding obligations of the Optionee
and/or such Holder pursuant to Section 12 with respect to such exercise,
together with irrevocable instructions to such broker to sell such Shares and
to remit directly to the Company such aggregate exercise price and, if the
Holder has so elected, the amount of such withholding obligation.  The Company shall not be required to deliver
to such securities broker such Shares until it has received from the broker such
exercise price and, if the Holder has so elected, the amount of such
withholding obligation.

 

(c)           No
Holder shall be permitted to effect payment of any amount of the Option Price
of the Shares to be purchased by executing and delivering to the Company a promissory note.

 

(d)           The
right of the Holder to exercise an Option pursuant to any provision of this Section 8,
and the obligation of the Company to issue Shares upon any exercise of an
Option pursuant to this Section 8, is subject to compliance with all of
the other provisions of the Plan (including, without limitation, Sections 10,
11 and 12) or any applicable Option Agreement.

 

9.             Restricted  Stock.

 

9.1           Purchase  Price.  Shares of Restricted Stock shall be issued
under the Plan for such consideration, in cash, other property or services, or
any combination thereof, as is determined by the Compensation Committee.

 

9.2           Issuance  of
Certificates.  Each Eligible
Director receiving a Restricted Stock Award, subject to Section 9.3 below,
shall be issued a stock certificate in respect of such shares of Restricted
Stock.  Such certificate shall be
registered in the name of such Eligible Director, and, if applicable, shall
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award substantially in the following form:

 

The transferability of this certificate and the shares represented by
this certificate are subject to the terms and conditions of the Cubist
Pharmaceuticals, Inc. Amended and Restated 2002 Directors’ Equity
Incentive Plan and an Award Agreement entered into by the registered owner and
Cubist Pharmaceuticals, Inc.  Copies
of such Plan and Agreement are on file in the offices of Cubist Pharmaceuticals, Inc.

 

9.3           Escrow  of
Shares.  The Compensation
Committee may require that the stock certificates evidencing shares of
Restricted Stock be held in custody by a designated escrow agent (which may but
need not be the Company) until the restrictions thereon shall have lapsed, and
that the Eligible Director deliver a stock power, endorsed in blank, relating to
the Shares covered by such Award.

 

9.4           Restrictions  and
Restriction  Period.  During
the Restriction Period 

 

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applicable to shares of Restricted Stock, such shares shall be subject
to limitations on transferability and a Risk of Forfeiture arising on the basis
of such conditions related to the performance of services, Company or affiliate
performance or otherwise as the Compensation Committee may determine and
provide for in the applicable Award Agreement. 
Any such Risk of Forfeiture may be waived or terminated, or the
Restriction Period shortened, at any time by the Compensation Committee on such
basis as it deems appropriate.

 

9.5           Rights  Pending
Lapse  of  Risk  of  Forfeiture  or  Forfeiture
of  Award.  Except as
otherwise provided in the Plan or the applicable Award Agreement, at all times
prior to lapse of any Risk of Forfeiture applicable to, or forfeiture of, an
Award of Restricted Stock, the Eligible Director shall have all of the rights
of a stockholder of the Company, including the right to vote, and the right to
receive any dividends with respect to, the shares of Restricted Stock.  The Compensation Committee, as determined at
the time of Award, may permit or require the payment of cash dividends to be deferred
and, if the Compensation Committee so determines, reinvested in additional
Restricted Stock to the extent Shares are available under Section 4.

 

9.6           Lapse of Restrictions.  If and
when the Restriction Period expires without a prior forfeiture of the
Restricted Stock, the certificates for such Shares shall be delivered to the
Eligible Director promptly if not theretofore so delivered.

 

9A.          Stock Grants.  In recognition of contributions to the
success of the Company, in lieu of compensation otherwise already due and in
such other circumstances as the Compensation Committee deems appropriate,
shares of Stock may be issued to Eligible Directors, either alone or in
addition to other Awards granted under the Plan at such price, if any, as the
Compensation Committee may determine. Stock Grant Awards shall be made without
forfeiture conditions of any kind and otherwise pursuant to such terms and
conditions as the Compensation Committee may determine.

 

10.                                 Restrictions
on  Issue  of  Shares.

 

(a)           Notwithstanding any
other provision of the Plan, if, at any time, in the reasonable opinion of the
Company the issuance of Shares covered by an Award may constitute a violation
of law, then the Company may delay such issuance and the delivery of such
Shares until (i) approval shall have been obtained from such governmental
agencies, other than the Securities and Exchange Commission, as may be required
under any applicable law, rule, or regulation; and (ii) in the case where
such issuance would constitute a violation of a law administered by or a
regulation of the Securities and Exchange Commission, one of the following
conditions shall have been satisfied:

 

(1)           the Shares are at
the time of the issue of such Shares effectively registered under the
Securities Act; or

 

(2)           the Company shall
have determined, on such basis as it deems appropriate (including an opinion of
counsel or a no-action letter, each in form and substance

 

8

 

reasonably satisfactory to the Company) that the sale, transfer,
assignment, pledge, encumbrance or other disposition of such Shares or such
beneficial interest, as the case may be, does not require registration under
the Securities Act or any applicable state securities laws.

 

The Company shall make all reasonable efforts to bring about the
occurrence of said events.

 

(b)           If the Company shall
deem it necessary or desirable to register under the Securities Act or other
applicable statutes any Shares covered by an Award, or to qualify any such
Shares for exemption from the Securities Act or other applicable statutes, then
the Company shall take such action at its own expense.  The Company may require from each Holder,
such information in writing for use in any registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers
and directors from such holder against all losses, claims, damage and
liabilities arising from such use of the information so furnished and caused by
any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.

 

(c)           All Shares or other
securities delivered under the Plan shall be subject to such stop-transfer
orders and other restrictions as the Compensation Committee may deem advisable
under the rules, regulations, and other requirements of any stock exchange upon
which the Stock is then listed, and any applicable federal or state securities
law, and the Compensation Committee may, if certificated, cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.

 

11.           Purchase  for
Investment.

 

(a)           Without limiting the
generality of Section 10 hereof, if the Shares covered by an Award granted
under the Plan have not been effectively registered under the Securities Act,
the Company shall be under no obligation to issue any such Shares unless the
Holder shall have made such written representations and covenants to the
Company (upon which the Company believes it may reasonably rely) as the Company
may deem necessary or appropriate for purposes of ensuring that the issuance of
such Shares will be exempt from the registration requirements of the Securities
Act and any applicable state securities laws and otherwise in compliance with
all applicable laws, rules and regulations, including but not limited to
written representations that the Holder is acquiring the shares for his or her
own account for the purpose of investment and not with a view to, or for sale
in connection with, the distribution of any such Shares.

 

(b)           Each Share to be
issued pursuant to an Award granted pursuant to this Plan may bear a reference
to the investment representation made in accordance with this Section 11
and to the fact that no registration statement has been filed with the
Securities 

 

9

 

and Exchange Commission in respect to such Shares of Stock.

 

12.                                 Withholding;
Notice  of  Disposition  of  Stock  Prior  to
Expiration  of  Specified  Holding  Period.

 

(a)           Whenever Shares are
to be issued in satisfaction of an Award granted hereunder, the Company shall
have the right to require the Award recipient and/or any subsequent Holder to
remit to the Company an amount sufficient to satisfy federal, state, local,
employment or other tax withholding requirements if, when and to the extent
required by law (whether so required to secure for the Company an otherwise
available tax deduction or otherwise) prior to the delivery of any such
Shares.  The obligations of the Company
under the Plan shall be conditional on such payment and the Company shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the recipient of an Award.

 

(b)           The Compensation
Committee may, at or after grant, permit an Award recipient and/or subsequent
Holder to satisfy any tax withholding requirements pertaining to the exercise
of an Option or the receipt of shares of Restricted Stock by delivery to the
Company of Shares (including, without limitation, Shares obtained pursuant to
the Award that is creating the tax obligation) having a value equal to the
amount to be withheld.  The value of
Shares to be so delivered shall be based on the Compensation Committee’s
determination of the Fair Market Value of a Share on the date the amount of tax
to be withheld is to be determined.

 

13.                                 Termination
of  Association  with  the  Company.

 

(a)           If an Optionee
ceases to be a director of the Company, and if applicable, its Subsidiaries,
for any reason other than death of such Optionee, any Option held by such
Optionee and/or any subsequent Holder may be exercised by such Optionee and/or
such subsequent Holder at any time within 90 days after the termination of such
relationship, but only to the extent exercisable at termination and in no event
after the applicable option period.  If
an Optionee dies, any Option held by such Optionee and/or any subsequent Holder
may be exercised by such Optionee, such subsequent Holder and/or the executor
or administrator of such Optionee or such subsequent Holder at any time within
the shorter of the applicable option period or 12 months after the date of the
Optionee’s death, but only to the extent exercisable at the time of such
Optionee’s death.  Options which are not
exercisable at the time of termination between the Company and the Optionee or
which are so exercisable but are not exercised within the time periods
described above shall terminate.

 

(b)           If an Eligible
Director ceases to be a director of the Company, and if applicable, its
Subsidiaries, for any reason other than death of such Eligible Director, any
Awards of Restricted Stock held by such Eligible Director at such time shall be
forfeited or otherwise subject to return to or repurchase by the Company on the
terms specified in the applicable Award Agreement.

 

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(c)           Notwithstanding
anything to the contrary in this Section 13, in the event that (i) the
applicable Award Agreement with respect to an Award shall contain specific
provisions governing the effect that any termination of association with the
Company shall have on the Award, or (ii) the Board shall at any time adopt
specific provisions governing the effect that any such termination shall have
on the Award, then such provisions shall, to the extent that they are
inconsistent with the provisions of this Section 13, control and be deemed
to supersede the provisions of this Section 13.

 

14.          Transferability
of  Awards. Awards shall not be transferable; provided, however,
that Awards shall be transferable by will or the laws of descent and
distribution; and provided, further, that Awards may be
transferred to a third party if and to the extent authorized and permitted by
the Compensation Committee at the time of grant of such Awards or at any time
thereafter.  In granting its authorization
and permission to any proposed transfer of an Award to a third party, the
Compensation Committee may impose conditions or requirements that must be
satisfied by the transferor or the third party transferee prior to or in
connection with such transfer, including, without limitation, any conditions or
requirements that may be necessary or desirable, in the sole and absolute
discretion of the Compensation Committee, to ensure that such proposed transfer
complies with applicable securities laws or to prevent the Company, such
transferor or such third party transferee from violating or otherwise not be in
compliance with applicable securities laws as a result of such transfer.  The Compensation Committee may at any time
and from time to time delegate to one or more officers of the Company the
authority to permit transfers of Awards to third parties pursuant to this Section 14,
which authorization shall be exercised by such officer or officers in
accordance with guidelines established by the Compensation Committee at any
time and from time to time.  The
restrictions on transferability set forth in this Section 14 shall in no
way preclude any Holder from effecting “cashless” exercises of an Option
pursuant to, and in accordance with, Section 8(b) hereof.

 

15.                               Adjustment  Provisions.

 

15.1                        Adjustment  for  Corporate  Actions.  All of the share numbers set forth in the
Plan reflect the capital structure of the Company as of April 9,
2008.  If subsequent to such date the
outstanding shares of Stock (or any other securities covered by the Plan by reason
of the prior application of this Section) are increased, decreased, or
exchanged for a different number or kind of shares or other securities or
property (including cash), or if subsequent to such date additional shares or
new or different shares or other securities or property (including cash) are
distributed with respect to or in exchange for shares of Stock or other
securities upon the merger, consolidation, sale of all or substantially all the
property or assets of the Company, sale of all of the outstanding Stock of the
Company, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, or other distribution with respect to shares
of Stock, or other securities (each of the foregoing events an “Adjustment
Event”), an appropriate and proportionate adjustment will be made in (i) the
maximum number and kind of shares or other securities subject to the provisions
of Section 4, (ii)  the numbers and kinds of shares or other
securities or property (including cash) subject to the then outstanding Awards,
(iii) the exercise price 

 

11

 

for
each share or other unit of any other securities subject to then outstanding
Options (without change in the aggregate purchase price as to which such
Options remain exercisable), and (iv) the repurchase price of each share
of Restricted Stock then subject to a Risk of Forfeiture in the form of a
Company repurchase right.  Without
limiting the generality of the foregoing provisions of this Section 15.1,
upon the occurrence of an Adjustment Event, Holders of Options outstanding
immediately prior to such Adjustment Event shall upon exercise of such Options
at any time following such Adjustment Event be entitled to receive the shares
of stock, other securities or property (including cash) that such Holders would
have received as a result of such Adjustment Event if such Holders had
exercised such Options immediately prior to such Adjustment Event.  The provisions of this Section 15.1 (including,
without limitation, the immediately preceding sentence) shall apply
successively with respect to multiple Adjustment Events that occur over time.

 

15.2        Change  in
Corporate  Control.  Subject
to any provisions of then outstanding Awards granting greater rights to the
holders thereof, in the event of a Change in Corporate Control any then
outstanding Awards shall Accelerate.  For
the purposes of the preceding sentence, (i) in the case of a Change in
Corporate Control that is not a Hostile Change in Corporate Control, the Board
(and not the Compensation Committee, notwithstanding the responsibilities
assigned to the Compensation Committee pursuant to Section 5) shall have
the discretion to exclude any such Change in Corporate Control from the
application of the provisions of the immediately preceding sentence, and (ii) in
the case of a Hostile Change in Corporate Control, a majority of the Incumbent
Directors prior to such Hostile Change in Corporate Control shall have the
discretion to exclude any such Change in Corporate Control from the application
of the provisions of the immediately preceding sentence.  To the extent Awards are not assumed,
substituted or replaced upon a Change in Corporate Control that is not a
Hostile Change in Corporate Control, the Board (and not the Compensation
Committee, notwithstanding the responsibilities assigned to the Compensation
Committee pursuant to Section 5) shall have the discretion to (a) terminate
any outstanding Options to the extent not exercised prior to or simultaneously
with such Change in Corporate Control and (b) cause any shares of
Restricted Stock still subject to a Risk of Forfeiture immediately prior to
such Change in Corporate Control to be forfeited or repurchased by the Company
in accordance with the terms specified in the applicable Award Agreement.  Upon a Change in Corporate Control, each
outstanding Award will be appropriately adjusted simultaneously with such
Change in Corporate Control in accordance with Section 15.1.

 

15.3          Dissolution  or  Liquidation.  Upon dissolution or liquidation of the
Company each outstanding Option shall terminate, but the Optionee (if at the
time in the employ of or otherwise associated with the Company or any of its
Subsidiaries) shall have the right, immediately prior to such dissolution or
liquidation, to exercise the Option to the extent exercisable on the date of
such dissolution or liquidation.

 

15.4        Related
Matters.  Any
adjustment in Awards made pursuant to this Section 15 shall be determined
and made, if at all, by the Compensation Committee and shall include any
correlative modification of terms, including of Option Prices, rates of vesting
or exercisability, Risks of Forfeiture, applicable repurchase prices for
Restricted 

 

12

 

Stock
and other financial objectives which the Compensation Committee may deem
necessary or appropriate so as to ensure the rights of the Holders are not
substantially diminished nor enlarged as a result of the adjustment and
corporate action other than as expressly contemplated in this Section 15.  No fraction of a share shall be purchasable
or deliverable upon exercise, but in the event any adjustment hereunder of the
number of shares covered by an Award shall cause such number to include a fraction
of a share, such number of shares shall be adjusted to the nearest smaller
whole number of shares.

 

16.          Reservation  of Stock.  The Company shall at all times during the
term of the Plan and, without duplication, of any outstanding Awards, reserve
or otherwise keep available such number of Shares as will be sufficient to
satisfy the requirements of the Plan (if not then terminated) and such
outstanding Awards and shall pay all fees and expenses necessarily incurred by
the Company in connection therewith.

 

17.          Limitation  of  Rights
in  Stock; No  Special  Employment  or  Other
Rights.  A Holder shall not be
deemed for any purpose to be a stockholder of the Company with respect to any
of the Shares covered by an Award, unless and until the Company shall have issued
and delivered to the Holder or his agent such Shares.  Any Stock issued pursuant to Awards granted
under the Plan shall be subject to all restrictions upon the transfer thereof
which may be now or hereafter imposed by the Certificate of Incorporation, and
the By-laws of the Company, if any. 
Nothing contained in the Plan or in any Award Agreement shall confer
upon any Eligible Director any right with respect to the continuation of his or
her retention as a director to the Company (or any Subsidiary), or interfere in
any way with the right of the Company (or any Subsidiary), subject to the terms
of any separate employment or consulting agreement or provision of law or
corporate articles or by-laws to the contrary, at any time to terminate such
directorship or to increase or decrease the compensation of the Eligible
Director from the rate in existence at the time of the grant of an Award.

 

18.          Termination  and  Amendment
of  the  Plan.  The
Board may at any time terminate the Plan or make such modifications of the Plan
as it shall deem advisable.  Any
termination of the Plan shall not affect the terms of any Award outstanding on
the date of such termination.  Unless the
Board otherwise expressly provides and except to the extent otherwise provided
in the next sentence, amendments of the Plan shall apply to all Awards
outstanding on the date of such amendments to the same extent as if such
amendments had been in effect at the time that each of such outstanding Awards
were granted.  Notwithstanding the
foregoing, no amendment of the Plan may, without the consent of any recipient
of an Award outstanding on the date of such amendment, (i) reduce the
number of shares of Stock subject to such Award, (ii) increase the Option
Price of such Award, or (iii) change the vesting schedule of such Award in
a manner that adversely affects the rights of the recipient thereof.  The Compensation Committee may amend the
terms of any Award theretofore granted, prospectively or retroactively, provided
that the Award as amended is consistent with the terms of the Plan, and provided,
further, that no such amendment of such Award may, without the consent
of the Holder thereof, (x) reduce the number of shares of Stock subject to
such Award, (y) increase the Option Price, or (z) change the vesting
schedule of such Award in a manner 

 

13

 

that
adversely affects the rights of the recipient under such Award.  Notwithstanding the foregoing or anything to
the contrary in the Plan, no repricing of outstanding Awards shall be permitted
under the Plan without first receiving approval from the holders of Stock
representing not less than a majority of the then outstanding Shares.  For
this purpose, the term “repricing” shall mean any of the following or any other
action that has the same effect:  (i) lowering the Option Price of an
Option after it is granted, (ii) buying-out an outstanding Option at a
time when its Option Price exceeds the Fair Market Value of the Stock for cash
or shares, (iii) any other action that is treated as a repricing under
generally accepted accounting principles, or (iv) canceling an Option at a
time when its Option Price exceeds the Fair Market Value of the Stock in
exchange for another Option, Restricted Stock, a Stock Grant or other equity of
the Company, unless the cancellation and exchange occurs in connection with a
Change in Corporate Control.

 

19.            Notices  and  Other  Communications.  All notices and other communications required
or permitted under the Plan shall be effective if in writing and if delivered
or sent by certified or registered mail, return receipt requested (a) if
to the Holder, at his or her residence address last filed with the Company, and
(b) if to the Company, at 65 Hayden Avenue, Lexington, Massachusetts 02421,
Attention: General Counsel or to such other persons or addresses as the Holder
or the Company may specify by a written notice to the other from time to
time.  Copies of all notices sent to any
Holder that is not the Award recipient shall also be sent to the Award
recipient in the manner set forth in this Section 19.

 

              20.            Effectiveness. 
This Plan was originally entitled the “2002 Directors’ Stock Option Plan”
and was first approved by the Board on March 5, 2002.  The Plan was first ratified and approved by
the stockholders of the Company on June 13, 2002.  The Plan, as previously amended and restated,
was ratified and approved by the stockholders on June 10, 2003 and on June 10,
2004.  The First Amendment to the Plan
was approved by the Board on August 2, 2005.  A further amendment and restatement of the
Plan was ratified and approved by the stockholders of the Company on June 8,
2006.  A further amendment and
restatement of the Plan was approved by the Board on March 8, 2007, and
was ratified and approved by the stockholders of the Company on June 7,
2007.  A further amendment and
restatement of the Plan was approved by the Board on March 10, 2008 and April 9,
2008

 

14Exhibit 10.3

 

 

October 9, 2007

 

BY HAND DELIVERY

Lindon
Fellows

Cubist Pharmaceuticals, Inc.

65 Hayden Avenue

Lexington, MA  02421

 

Re:  Retention Letter

 

Dear  Lindon:

 

You
are a highly valuable employee of Cubist Pharmaceuticals, Inc. (including
any successor organizations, “Cubist”). 
Cubist wishes to retain you as an employee, and is therefore willing to
make certain commitments in order to induce you to remain an employee.  This letter will confirm the agreement
between you and Cubist (“Agreement”) in that regard.  The Agreement is as follows:

 

1.             Definitions. 
For the purposes of this Agreement, the following definitions apply:

 

(a)           “Cause”
means: (i) you commit of an act of dishonesty, fraud or misrepresentation
in connection with your employment; (ii) you are convicted of, or plead nolo contendere to, a felony or a crime involving moral
turpitude; (iii) you breach any material obligation under your Proprietary
Information and Inventions Agreement or Cubist’s Code of Conduct and Ethics; (iv) you
engage in substantial or continuing inattention to or neglect of your duties
and responsibilities reasonably assigned to you by Cubist; (v) you engage
in substantial or continuing acts to the detriment of Cubist or inconsistent
with Cubist’s policies or practices; or (vi) you fail to carry out the
reasonable and lawful instructions of your supervisor or the Cubist Board of
Directors that are consistent with your duties.

 

(b)           “Good
Reason” means: (i) the failure of Cubist to employ you in your current or
a substantially similar position, without regard to title, such that your
duties and responsibilities are materially diminished without your consent (ii) a
material reduction in your total target cash compensation  without your consent (unless such reduction is
in connection with a proportional reduction in compensation to all or
substantially all of Cubist’s employees); or (iii) a relocation of your
primary place of employment more than 35 miles from

 

1

 

your current site of
employment without your consent; provided however, if any of these conditions
occur, you are required to provide notice of any such condition to Cubist’s
Board of Directors within 60 days of the initial occurrence of the condition,
and Cubist will then have 30 days to remedy the condition, prior to the
existence of such condition being deemed to be “Good Reason.

 

(c)           a “Change of
Control” occurs: (i) when any person or entity other than Cubist or one of
its subsidiaries becomes the owner more than  fifty percent (50%) of Cubist’s common stock
or (ii) upon the effective date of an agreement of acquisition, merger, or
consolidation that has been approved by Cubist’s stockholders and that
contemplates that all or substantially all of the business and/or assets of
Cubist shall be owned or otherwise controlled by another person or entity upon
the effective date of such agreement.

 

(d)           “Bonus” shall mean the greater of either (i) the current year
target annual bonus amount or (ii) the previous year’s actual bonus amount.

 

2.             Severance.  (a) Except
as set forth in Section 2(b) below, in the event that your employment
is terminated by Cubist for any reason other than for Cause, then, following
receipt by Cubist of your signed release as more fully described in Section 7
below, Cubist shall pay you an amount equal to eighteen (18) months of your
then-current base salary, with such payment to be made in twelve (12) equal
semi-monthly installments.

 

(b) In
the event that, within twenty-four (24) months after a Change of Control, your
employment is terminated either (i) by Cubist for any reason other than
for Cause or (ii) by you for Good Reason, then Cubist shall make a
one-time, lump-sum payment to you equal to eighteen (18) months of your then current
base salary plus Bonus on the later of (i) your termination date or (ii) the
eighth day following receipt by Cubist of your signed release.

 

Notwithstanding
any other provision with respect to the timing of payments under this Section 2,
in order to comply with the requirements of Section 409A of the Internal Revenue
Code of 1986 (“Section 409A”), any payment or portion thereof, to which
you are entitled under this Section 2 which is not exempt from the
application of Section 409A’s “six month delay” provision (in Cubist’s
sole discretion), shall be withheld until the first business day of the seventh
month following your termination. At such time, you shall be paid the remaining
balance otherwise owed to you under this Section 2 in a lump sum.

 

3.             Withholding.  All payments made by Cubist under this
Agreement shall be reduced by any tax or other amounts required to be withheld
by Cubist under applicable law.

 

2

 

4.             Medical and Dental Benefits.  In the event
that your employment is terminated by Cubist for any reason other than for
Cause, or by you for Good Reason within twenty four (24) months after a Change
of Control, then Cubist will maintain your medical and dental insurance
coverage for a period of up to eighteen (18) months after the month in which
your employment terminates, provided that you pay the employee portion for such
coverage by making a payment to Cubist during the first five (5) days of
any month in which you elect to continue such coverage.  Except for any right you have to continue
participation in Cubist’s group health and dental plans as provided herein or
under the federal law known as “COBRA,” all employee benefits shall terminate
in accordance with the terms of the applicable benefit plans as of the date of
termination of your employment. The “qualifying event” under COBRA, which
triggers your right to continue your health insurance post employment, shall be
deemed to have occurred on your termination date.

 

5.             Equity Acceleration..  In the event that, within twenty-four (24) months
after a Change of Control, your employment is terminated either (i) by
Cubist for any reason other than for Cause or (ii) by you for Good Reason,
then all outstanding unvested stock options and/or restricted stock awards granted
to you under any Cubist equity plan prior to the Change of Control shall become
exercisable and vested in full, and all restrictions thereon shall lapse,
notwithstanding any vesting schedule or other provisions to the contrary in the
agreements evidencing such options or awards, and Cubist and you hereby agree
that such stock option agreements and restricted stock awards are hereby, and
will be deemed to be, amended to give effect to this provision.

 

6.             No Contract of Employment.  This Agreement is not a contract of
employment for a specific term, and your employment is “At Will” and may be
terminated by Cubist at any time.

 

7.             Employee Release.  Any obligation
of Cubist to provide you severance payments or other benefits under this
Agreement is expressly conditioned upon your reviewing and signing (and not
revoking during any applicable revocation period) a general release of claims
in a form reasonably satisfactory to Cubist within the time period specified in
such release.  Cubist shall provide you with
the general release promptly after the date on which you give or receive, as
the case may be, notice of termination of your employment.

 

8.             Assignment. 
You shall not make any assignment of this Agreement or any interest in
it, by operation of law or otherwise, without the prior written consent of
Cubist.  Cubist may assign its rights and
obligations under this Agreement without your consent. This Agreement shall
inure to the benefit of and be binding upon you and Cubist, and each of our
respective successors, executors, administrators, heirs and permitted assigns,
including any organization involved in a Change of Control.

 

3

 

9.             Severability. 
If any portion or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a court of competent jurisdiction, then
the remainder of this Agreement, or the application of such portion or
provision in circumstances other than those as to which it is so declared
illegal or unenforceable, shall not be affected thereby, and each portion and
provision hereof shall be valid and enforceable to the fullest extent permitted
by law.

 

10.           Miscellaneous.  This Agreement
will commence on the date hereof and will expire three (3) years from the date
hereof, unless Cubist experiences a Change of Control prior to the expiration
of the term of this Agreement, in which case this Agreement will expire on the
later of: (a) three (3) years from the date hereof or (b) two (2) years
from the date of the closing of such Change of Control.  This Agreement sets forth the entire agreement between
you and Cubist in connection with the subject matter hereof, and replaces all
prior and contemporaneous communications, agreements and understandings,
written or oral, with respect to the subject matter hereof, other than any
obligations set forth in your employee confidentiality agreement with Cubist,
which obligations shall remain in full force and effect.  In consideration of the benefits provided to
you hereunder, you agree that, in the event of your termination from Cubist,
such benefits shall be in complete satisfaction of any and all obligations that
Cubist may have to you.  This Agreement
may not be modified or amended, and no breach shall be deemed to be waived,
unless agreed to in writing by you and an expressly authorized representative
of Cubist.  This Agreement may be
executed in two counterparts, each of which shall be an original and all of
which together shall constitute one and the same instrument.  This Agreement shall be governed by the laws
of the Commonwealth of Massachusetts, without regard to its conflicts of laws
principles, and all disputes hereunder shall be adjudicated in the courts of
the Commonwealth of Massachusetts, to whose personal jurisdiction you hereby
consent.

 

4

 

If the foregoing is acceptable to you,
please sign both copies of this letter in the space provided, at which time
this letter will take effect as a binding agreement between you and Cubist.  Please keep one original for your records and
return one original to me.

 

	
   

  	
  Cubist Pharmaceuticals, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
  By: /s/

  	
  Michael W. Bonney

  
	
   

  	
   

  	
  Michael W. Bonney

  
	
   

  	
  Date:  October 10,
  2007

  
	
   

  	
   

  	
   

  
	
  Accepted and Agreed:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Lindon M. Fellows_

  	
   

  	
   

  	
   

  
	
  Name: Lindon M. Fellows

  	
   

  	
   

  
	
  Date: November 5,
  2007

  	
   

  	
   

  
						

 

5

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