Noven Pharmaceuticals, Inc. Nonqualified Deferred Compensation Plan

Page

Definitions

1

Selection, Enrollment, Eligibility

10

Selection by Committee

10

Enrollment and Eligibility Requirements; Commencement of Participation

10

Deferral Commitments/Company Contribution Amounts/Company Restoration

Matching Amounts/Restricted Stock Amounts /Vesting/Crediting/Taxes

11

[Intentionally Omitted]

11

Maximum Deferral

11

Election to Defer; Effect of Election Form

12

Withholding and Crediting of Annual Deferral Amounts

13

Company Contribution Amount

14

Company Restoration Matching Amount

14

Restricted Stock Amount

14

Crediting of Amounts after Benefit Distribution

15

Vesting

15

Crediting/Debiting of Account Balances

16

FICA and Other Taxes

18

Scheduled Distribution; Unforeseeable Emergencies

19

Scheduled Distribution

19

Postponing Scheduled Distributions

19

Other Benefits Take Precedence Over Scheduled Distributions

20

Unforeseeable Emergencies

20

Change In Control Benefit

21

Change in Control Benefit

21

Payment of Change in Control Benefit

21

Retirement Benefit

22

Retirement Benefit

22

Payment of Retirement Benefit

22

Termination Benefit

23

Termination Benefit

23

Payment of Termination Benefit

23

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Disability Benefit

24

Disability Benefit

24

Payment of Disability Benefit

24

Death Benefit

24

Death Benefit

24

Payment of Death Benefit

24

Beneficiary Designation

24

Beneficiary

24

Beneficiary Designation; Change; Spousal Consent

25

Acknowledgement

25

No Beneficiary Designation

25

Doubt as to Beneficiary

25

Discharge of Obligations

25

Leave of Absence

26

Paid Leave of Absence

26

Unpaid Leave of Absence

26

Leaves Resulting in Separation from Service

26

Termination of Plan, Amendment or Modification

26

Termination of Plan

26

Amendment

27

Plan Agreement

27

Effect of Payment

27

Administration

28

Committee Duties

28

Administration Upon Change In Control

28

Agents

28

Binding Effect of Decisions

28

Indemnity of Committee

28

Employer Information

28

Other Benefits and Agreements

29

Coordination with Other Benefits

29

Page

Claims Procedures

29

Presentation of Claim

29

Notification of Decision

29

Review of a Denied Claim

30

Decision on Review

30

Legal Action

31

Trust

31

Establishment of the Trust

31

Interrelationship of the Plan and the Trust

31

Distributions From the Trust

31

Miscellaneous

31

Status of Plan

31

Unsecured General Creditor

31

Employer’s Liability

32

Nonassignability

32

Not a Contract of Employment

32

Furnishing Information

32

Terms

32

Captions

32

Governing Law

32

Notice

32

Successors

33

Spouse’s Interest

33

Validity

33

Incompetent

33

Domestic Relations Orders

33

Distribution in the Event of Income Inclusion Under Code Section 409A

33

Deduction Limitation on Benefit Payments

34

Insurance

34

1.1

“Account Balance” shall mean, with respect to a Participant, an entry on the records of the Employer equal to the sum of (i) the Deferral Account balance, (ii) the Company Contribution Account balance, (iii) the Company Restoration Matching Account balance, and (iv) the Restricted Stock Account balance. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.

      If a Participant is both an Employee and a Director and participates in the Plan in each capacity, then separate Account Balances shall be established for such Participant as a device for the measurement and determination of the (a) amounts deferred under the Plan that are attributable to the Participant’s status as an Employee, and (b) amounts deferred under the Plan that are attributable to the Participant’s status as a Director.

1.2

“Annual Deferral Amount” shall mean that portion of a Participant’s Base Salary, Bonus, Director Fees and LTIP Amounts that a Participant defers in accordance with Article 3 for any one Plan Year, without regard to whether such amounts are withheld and credited

during such Plan Year. In the event of a Participant’s Retirement, Disability, death or Termination of Employment prior to the end of a Plan Year, such year’s Annual Deferral Amount shall be the actual amount withheld prior to such event.

1.3

“Annual Installment Method” shall be an annual installment payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: (i) for the first annual installment, the Participant’s vested Account Balance shall be calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee in its sole discretion, and (ii) for remaining annual installments, the Participant’s vested Account Balance shall be calculated on every anniversary of such calculation date, as applicable. Each annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects a ten (10) year Annual Installment Method for the Retirement Benefit, the first payment shall be 1/10 of the vested Account Balance, calculated as described in this definition. The following year, the payment shall be 1/9 of the vested Account Balance, calculated as described in this definition. Shares of Stock that shall be distributable from the Restricted Stock Account shall be distributable in shares of actual Stock in the same manner previously described. However, the Committee may, in its sole discretion, adjust the annual installments in order to distribute whole shares of actual Stock .

1.4

“Base Salary” shall mean the annual cash compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, director fees and other fees, and automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant’s gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee.

1.5

“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 10, that are entitled to receive benefits under this Plan upon the death of a Participant.

1.6

“Beneficiary Designation Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.

1.7

“Benefit Distribution Date” shall mean the date that triggers distribution of a Participant’s vested Account Balance. A Participant’s Benefit Distribution Date shall be determined upon the occurrence of any one of the following:

(a)

If the Participant Retires, his or her Benefit Distribution Date shall be

(b)

If the Participant experiences a Termination of Employment, his or her Benefit Distribution Date shall be

(c)

The date on which the Committee is provided with proof that is satisfactory to the Committee of the Participant’s death, if the Participant dies prior to the complete distribution of his or her vested Account Balance; or

(d)

The date on which the Participant becomes Disabled; or

(e)

The date on which the Company experiences a Change in Control, as determined by the Committee in its sole discretion, if (i) the Participant has elected to receive a Change in Control Benefit, as set forth in Section 5.1 below, and (ii) if a Change in Control occurs prior to the Participant’s Termination of Employment, Retirement, death or Disability.

1.11

“Change in Control Benefit” shall have the meaning set forth in Article 5.

1.12

“Claimant” shall have the meaning set forth in Section 15.1.

1.13

“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.

1.14

“Committee” shall mean the committee described in Article 13.

1.15

“Company” shall mean Noven Pharmaceuticals, Inc., a Delaware corporation, and any successor to all or substantially all of the Company’s assets or business.

1.16

“Company Contribution Account” shall mean (i) the sum of the Participant’s Company Contribution Amounts, plus (ii) amounts credited or debited to the Participant’s Company Contribution Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Contribution Account.

1.17

“Company Contribution Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.5.

1.18

“Company Restoration Matching Account” shall mean (i) the sum of all of a Participant’s Company Restoration Matching Amounts, plus (ii) amounts credited or debited to the Participant’s Company Restoration Matching Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Restoration Matching Account.

1.19

“Company Restoration Matching Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.6.

1.20

“Death Benefit” shall mean the benefit set forth in Article 9.

1.21

“Deferral Account” shall mean (i) the sum of all of a Participant’s Annual Deferral Amounts, plus (ii) amounts credited or debited to the Participant’s Deferral Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account.

1.22

“Director” shall mean any elected or appointed member of the board of directors of any Employer.

1.23

“Director Fees” shall mean the annual fees payable in cash that are earned by a Director from any Employer, including retainer fees and meetings fees, as compensation for serving on the board of directors.

1.24

“Disability” or “Disabled” shall mean that a Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a

continuous period of not less than 12 months, or (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident or health plan covering employees of the Participant’s Employer. For purposes of this Plan, a Participant shall be deemed Disabled if determined to be totally disabled by the Social Security Administration, or if determined to be disabled in accordance with the applicable disability insurance program of such Participant’s Employer, provided that the definition of “disability” applied under such disability insurance program complies with the requirements in the preceding sentence.

1.25

“Disability Benefit” shall mean the benefit set forth in Article 8.

1.26

“Election Form” shall mean the form, which may be in electronic format, established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan.

1.27

“Employee” shall mean a person who is an employee of any Employer.

1.28

“Employer(s)” shall be defined as follows:

(i)

The entity for which the Participant performs services and with respect to which the legally binding right to compensation deferred or contributed under this Plan arises; and

(ii)

All other entities with which the entity described above would be aggregated and treated as a single employer under Code Section 414(b)(controlled group of corporations) and Code Section 414(c)(a group of trades or businesses, whether or not incorporated, under common control), as applicable. In order to identify the group of entities described in the preceding sentence, the Committee shall use an ownership threshold of at least 50% as a substitute of the 80% minimum ownership threshold that appears in, and otherwise must be used when applying, the applicable provisions of (A) Code Section 1563 for determining a controlled group of corporations under Code Section 414(b), and Treas. Reg. §1.414(c)-2 for determining the trades or businesses that are under common control under Code Section 414(c).

1.29

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.30

“401(k) Plan” shall mean, with respect to an Employer, a plan qualified under Code Section 401(a) that contains a cash or deferral arrangement described in Code Section 401(k), adopted by the Employer, as it may be amended from time to time, or any successor thereto.

1.31

“Key Employee” shall mean any Participant who is a “key employee” (as defined in Code Section 416(i) without regard to paragraph (5) thereof) of an Employer whose stock is publicly traded on an established securities market or otherwise, as determined by the Committee based upon the 12-month period ending on each December 31 ^st (such 12-month period is referred to below as the “identification period”). In applying the applicable provisions of Code Section 416(i) to identify such individuals, “compensation” shall be determined in accordance with Treas. Reg. §1.415(c)-2(a) without regard to (i) any safe harbor provided in Treas. Reg. §1.415(c)-2(d), (ii) any of the special timing rules provided in Treas. Reg. §1.415(c)-2(e), and (iii) any of the special rules provided in Treas. Reg. §1.415(c)-2(g). All Participants who are determined to be key employees under Code Section 416(i) (without regard to paragraph (5) thereof) during the identification period shall be treated as Key Employees for purposes of the Plan during the 12-month period that begins on the first day of the 4 ^th month following the close of such identification period.

1.32

“LTIP Amounts” shall mean any portion of the cash compensation attributable to a Plan Year that is earned by a Participant as an Employee under any Employer’s long-term incentive plan or any other long-term incentive arrangement designated by the Committee.

1.33

“Participant” shall mean any Employee or Director (i) who is selected to participate in the Plan, (ii) who submits an executed Plan Agreement, Election Form and Beneficiary Designation Form, which are accepted by the Committee, and (iii) whose Plan Agreement has not terminated.

1.34

“Performance-Based Compensation” shall mean compensation the entitlement to or amount of which is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months, as determined by the Committee in accordance with Treas. Reg. §1.409A-1(e).

1.35

“Plan” shall mean the Noven Pharmaceuticals, Inc. Nonqualified Deferred Compensation Plan, which shall be evidenced by this instrument and any Plan Agreement, as they may be amended from time to time, and by any other documents that together with this instrument define a Participant’s rights to amounts credited to his or her Account Balance.

1.36

“Plan Agreement” shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant’s Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional

benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant.

1.37

“Plan Year” shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year.

1.38

“Restricted Stock” shall mean rights to receive unvested shares of restricted stock selected by the Committee in its sole discretion and awarded to the Participant under any Noven Pharmaceuticals, Inc. stock incentive plan or director compensation program.

1.39

“Restricted Stock Account” shall mean the aggregate value, measured on any given date, of (i) the number of shares of Restricted Stock deferred by a Participant as a result of all Restricted Stock Amounts, plus (ii) the number of additional shares credited to a Participant’s Restricted Stock Account as a result of the deemed reinvestment of dividends in accordance with this Plan, less (iii) the number of shares of Restricted Stock previously distributed to the Participant or his or her Beneficiary pursuant to this Plan, subject in each case to any adjustments to the number of such shares determined by the Committee with respect to the Noven Pharmaceuticals, Inc. Stock Unit Fund pursuant to Section 3.10. This portion of the Participant’s Account Balance shall only be distributable in actual shares of Stock.

1.40

“Restricted Stock Amount” shall mean, with respect to a Participant for any one Plan Year, the amount of Restricted Stock deferred in accordance with Section 3.7 of this Plan, calculated using the closing price of Stock at the end of the business day closest to the date such Restricted Stock would otherwise vest (and/or all restrictions on such Restricted Stock would have lapsed), but for the election to defer. In the event of a Participant’s Retirement, Termination of Employment, Disability, or death prior to the end of a Plan Year, such year’s Restricted Stock Amount shall be the actual amount withheld prior to such event.

1.41

“Retirement”, “Retire(s)” or “Retired” shall mean, with respect to a Participant who is an Employee, a Separation from Service on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with five (5) Years of Service; and shall mean with respect to a Participant who is a Director, a Separation from Service. If a Participant is both an Employee and a Director and participates in the Plan in each capacity, (a) the determination of whether the Participant qualifies for Retirement as an Employee shall be made when the Employee experiences a Separation from Service as an Employee and such determination shall only apply to the applicable Account Balance established in accordance with Section 1.1 for amounts deferred under the Plan as an Employee, and (b) the determination of whether the Participant qualifies for Retirement as a Director shall be made at the time the Participant experiences a Separation from Service as a Director and such determination shall apply only to the applicable Account Balance established in accordance with Section 1.1. for amounts deferred under the Plan as a Director.

1.42

“Retirement Benefit” shall mean the benefit set forth in Article 6.

1.43

“Separation from Service” shall mean a termination of services provided by a Participant to his or her Employer, whether voluntary or involuntary, other than by reason of death or Disability, as determined by the Committee in accordance with Treas. Reg. §1.409A-1(h). In determining whether a Participant has experienced a Separation from Service the following provisions shall apply:

an independent contractor, as determined in accordance with the provisions set forth in parts (a) and (b) of this section, respectively. Similarly, if a Participant either (i) ceases providing services for an Employer as an independent contractor and begins providing services for such Employer as an Employee, or (ii) ceases providing services for an Employer as an Employee and begins providing services for such Employer as an independent contractor, the Participant will not be considered to have experienced a Separation from Service until the Participant has ceased providing services for such Employer in both capacities, as determined in accordance with the applicable provisions set forth in parts (a) and (b) of this Section.

      Notwithstanding the foregoing provisions in this part (c), if a Participant provides services for an Employer as both an Employee and as a Director, to the extent permitted by Treas. Reg. §1.409A-1(h)(5) the services provided by such Participant as a Director shall not be taken into account in determining whether the Participant has experienced a Separation from Service as an Employee, and the services provided by such Participant as an Employee shall not be taken into account in determining whether the Participant has experienced a Separation from Service as a Director.

without regard to paragraphs (b)(1), (b)(2) and (d)(1)(b) thereof), (ii) a loss of the Participant’s property due to casualty, or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined by the Committee based on the relevant facts and circumstances.

1.51

“Years of Service” shall mean the total number of full years in which a Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee’s date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. The Committee shall make a determination as to whether any partial year of employment shall be counted as a Year of Service.

2.1

Selection by Committee . Participation in the Plan shall be limited to Directors and, as determined by the Committee in its sole discretion, a select group of management or highly compensated Employees. From that group, the Committee shall select, in its sole discretion, those individuals who may actually participate in this Plan.

2.2

Enrollment and Eligibility Requirements; Commencement of Participation .

(c)

Each Director or selected Employee who is eligible to participate in the Plan shall commence participation in the Plan on the date that the Committee determines, in its sole discretion, that the Director or Employee has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period. Notwithstanding the foregoing, the Committee shall process such Participant’s deferral election as soon as administratively practicable after such deferral election is submitted to and accepted by the Committee.

(d)

If a Director or an Employee fails to meet all requirements contained in this Section 2.2 within the period required, that Director or Employee shall not be eligible to participate in the Plan during such Plan Year.

3.1

[Intentionally Omitted]

3.2

Maximum Deferral .

Deferral

Maximum Percentage

75

%

100

%

100

%

100

%

(b)

Restricted Stock Amount . For each grant of Restricted Stock, a Participant may elect to defer, as his or her Restricted Stock Amount, Restricted Stock in the following maximum percentage:

Deferral

Maximum Percentage

100

%

(c)

Short Plan Year . Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance, except to the extent permissible

under Code Section 409A and related Treasury guidance or Regulations. For compensation that is earned based upon a specified performance period, the Participant’s deferral election will apply to the portion of such compensation that is equal to (i) the total amount of compensation for the performance period, multiplied by (ii) a fraction, the numerator of which is the number of days remaining in the service period after the Participant’s deferral election is made, and the denominator of which is the total number of days in the performance period.

     (a) General Timing Rule for Deferral Elections . Except as otherwise provided in this Section 3.3, in order for a Participant to make a valid election to defer Base Salary, Bonus, Commissions, Director Fees and/or LTIP Amounts, the Participant must submit an Election Form on or before the deadline established by the Committee, which in no event shall be later than the December 31 ^st preceding the Plan Year in which such compensation will be earned.

      Any deferral election made in accordance with this Section 3.3 shall be irrevocable; provided, however, that if the Committee permits or requires Participants to make a deferral election by the deadline described above for an amount that qualifies as Performance-Based Compensation, the Committee may permit a Participant to subsequently change his or her deferral election for such compensation by submitting a new Election Form in accordance with Section 3.3(d) below.

(b) Timing of Deferral Elections for Newly Eligible Plan Participants . A Director or selected Employee who first becomes eligible to participate in the Plan on or after the beginning of a Plan Year, as determined in accordance with Treas. Reg. §1.409A-2(a)(7)(ii) and the “plan aggregation” rules provided in Treas. Reg. §1.409A-1(c)(2), may be permitted to make an election to defer the portion of Base Salary, Bonus, Commissions, Director Fees and/or LTIP Amounts attributable to services to be performed after such election, provided that the Participant submits an Election Form on or before the deadline established by the Committee, which in no event shall be later than 30 days after the Participant first becomes eligible to participate in the Plan.

      If a deferral election made in accordance with this Section 3.3(b) relates to compensation earned based upon a specified performance period, the amount eligible for deferral shall be equal to (i) the total amount of compensation for the performance period, multiplied by (ii) a fraction, the numerator of which is the number of days remaining in the service period after the Participant’s deferral election is made, and the denominator of which is the total number of days in the performance period.

     Any deferral election made in accordance with this Section 3.3(b) shall become irrevocable no later than the 30 ^th day after the date the Director or selected Employee becomes eligible to participate in the Plan.

(c) Restricted Stock Deferral . For an election to defer Restricted Stock to be valid, an Election Form must be completed and signed by the Participant with respect to such Restricted Stock. Such Election Form must be timely delivered to the Committee and accepted by the Committee no later than (i) the end of the calendar year preceding the Plan Year during which such Restricted Stock may be initially granted to the Participant under the terms of the applicable Noven Pharmaceuticals, Inc. stock incentive plan or director compensation program, or (ii) such other deadline established by the Committee in accordance with the requirements of Code Section 409A and related Treasury guidance or Regulations, including, without limitation, such deadline as may be applicable under Section 3.3(d) or Section 3.3(e) below.

(d) Performance-Based Compensation . Subject to the limitations described below, the Committee may determine that an irrevocable deferral election for an amount that qualifies as Performance-Based Compensation may be made by submitting an Election Form on or before the deadline established by the Committee, which in no event shall be later than 6 months before the end of the performance period. In order for a Participant to be eligible to make a deferral election for Performance-Based Compensation in accordance with the deadline established pursuant to this Section 3.3(d), the Participant must have performed services continuously from the later of (i) the beginning of the performance period for such compensation, or (ii) the date upon which the performance criteria for such compensation are established, through the date upon which the Participant makes the deferral election for such compensation. In no event shall a deferral election submitted under this Section 3.3(d) be permitted to apply to any amount of Performance-Based Compensation that has become readily ascertainable..

(e) Compensation Subject to Risk of For