Exhibit 10.13

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

STRATEGIC ALLIANCE AGREEMENT

 

by and between

 

THERAVANCE, INC.

 

and

 

GLAXO GROUP LIMITED

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

ARTICLE 1 DEFINITIONS

6

ARTICLE 2 RIGHTS AND OBLIGATIONS

16

2.1

License Grants from Theravance to GSK

16

 

2.1.1

Development License

16

 

2.1.2

Commercialization License

16

 

2.1.3

Manufacturing License

16

 

2.1.4

Licenses to Third Parties

16

2.2

Sublicensing and Subcontracting

16

2.3

Trademarks and Housemarks

16

 

2.3.1

Trademarks

16

 

2.3.2

Housemarks

16

ARTICLE 3 GOVERNANCE OF RESEARCH, DEVELOPMENT AND COMMERCIALIZATION OF ALLIANCE
PRODUCTS

17

3.1

Discovery Programs

17

 

3.1.1

Research Term

17

3.2

Joint Steering Committee

17

 

3.2.1

Purpose

17

 

3.2.2

Members; Officers

18

 

3.2.3

Responsibilities

18

 

3.2.4

Meetings

19

 

3.2.5

Decision-Making

19

3.3

Joint Program Committee

20

 

3.3.1

Purpose

20

 

3.3.2

Members; Officers

20

 

3.3.3

Responsibilities

20

 

3.3.4

Meetings

21

 

3.3.5

Decision-Making

21

3.4

Minutes of Committee Meetings

21

 

3.4.1

Distribution of Minutes

21

 

3.4.2

Review of Minutes

21

 

3.4.3

Discussion of Comments

21

3.5

Expenses

 

21

3.6

General Guidelines and Initial Coordination Efforts

21

ARTICLE 4 DELIVERY OF THERAVANCE COMPOUNDS AND DEVELOPMENT OF ALLIANCE PRODUCTS

22

4.1

Delivery of Theravance Compounds

22

 

4.1.2

Theravance Funding Responsibility

22

 

4.1.3

GSK Assistance

22

 

4.1.4

Additional Discovery Programs

22

4.2

GSK Opt-In Rights

22

 

4.2.1

Existing and Additional Respiratory Discovery Programs

23

 

4.2.2

Non-Respiratory Discovery Programs

25

 

4.2.3

Early Opt-In

28

4.3

Obligations for Development

29

 

4.3.1

General; GSK

29

 

4.3.2

GSK Funding Responsibility

29

 

4.3.3

Decisions with Respect to Alliance Products

29

 

4.3.4

Development Timelines

29

 

1

--------------------------------------------------------------------------------

 

4.4

Activity Outside the Alliance

30

ARTICLE 5 COMMERCIALIZATION

30

5.1

Global Marketing Plans

30

 

5.1.1

General

30

 

5.1.2

Contents of Each Marketing Plan

30

5.2

Obligations for Commercialization

30

5.3

Commercialization

30

 

5.3.1

GSK Responsibility

30

 

5.3.2

Limited Co-Promotion in the United States

31

 

5.3.3

Semi-Annual Reports

31

 

5.3.4

Exports to the United States

31

ARTICLE 6 FINANCIAL PROVISIONS

31

6.1

Option Fee; Equity Investment; Governance Agreement; Opt-In Fee

31

 

6.1.1

Option Fee

31

 

6.1.2

Equity Investment

31

 

6.1.3

Governance Agreement

31

 

6.1.4

Opt-In Fee

31

6.2

Milestone Payments

32

 

6.2.1

General

32

 

6.2.2

Specific Milestones

33

 

6.2.3

Notification and Payment

34

6.3

Payment of Royalties on Net Sales

34

 

6.3.1

[*] Royalty on Single-Agent Alliance Products from Discovery Programs for Which
GSK Exercised its Opt-In Right [*] for the First Theravance Compound in Such
Discovery Program

34

 

6.3.2

[*] Royalty on Single-Agent Alliance Products from Discovery Programs for Which
GSK Exercised its Opt-In Right [*] for the First Theravance Compound in Such
Discovery Program

34

 

6.3.3

[*] Royalty on Single-Agent Alliance Products from Discovery Programs for Which
GSK Exercised its Opt-In Right [*] for the First Theravance Compound in Such
Discovery Program

34

 

6.3.4

[*] Royalty on Single-Agent Alliance Products from Discovery Programs for Which
GSK Exercised its Opt-In Right [*] for the First Theravance Compound in Such
Discovery Program

35

 

6.3.5

[*] Royalty on Single-Agent Alliance Products from Discovery Programs for Which
GSK Exercised its Opt -In Right [*] for the First Theravance Compound in Such
Discovery Program

35

 

6.3.6

[*] Royalty on Single-Agent Alliance Products from Discovery Programs for Which
GSK Exercised its Opt -In Right [*] for the First Theravance Compound in Such
Discovery Program

35

 

6.3.7

Royalty on Combination Products

35

 

6.3.8

Estimates

35

 

6.3.9

Duration of Royalty Payments

36

6.4

Royalty Responsibilities; Net Sales Reports

36

 

6.4.1

Payments to Third Parties

36

 

6.4.2

Net Sales Report

36

6.5

IFRS

36

6.6

Currencies

37

6.7

Manner of Payments

37

6.8

Interest on Late Payments

37

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

2

--------------------------------------------------------------------------------

 

6.9

Tax Withholding

37

6.10

Financial Records; Audits

38

ARTICLE 7 COMMUNICATIONS, PROMOTIONAL MATERIALS AND SAMPLES

38

7.1

Communications and Promotional Materials

38

 

7.1.1

Housemark Exposure

38

 

7.1.2

Review of Core Promotional Materials

38

7.2

Samples

38

7.3

Statements Consistent with Labeling

39

7.4

Implications of Change in Control in Theravance

39

ARTICLE 8 REGULATORY MATTERS

39

8.1

Governmental Authorities

39

8.2

Filings

39

8.3

Exchange of Drug Safety Information

39

8.4

Recalls or Other Corrective Action

39

8.5

Events Affecting Integrity or Reputation

39

ARTICLE 9 ORDERS; SUPPLY AND RETURNS

40

9.1

Orders and Terms of Sale

40

9.2

Supply of API Compound and Formulated Alliance Product for Development

40

 

9.2.1

Supply of API Compound for Development

40

 

9.2.2

Supply of Formulated Alliance Products for Development

40

9.3

Supply of API Compound for Commercial Requirements

40

9.4

Supply of Alliance Products for Commercialization

41

9.5

Inventories

41

9.6

Potential Differences in Supply/Manufacturing Needs on an Alliance Product by
Alliance Product Basis

41

ARTICLE 10 CONFIDENTIAL INFORMATION

41

10.1

Confidential Information

41

10.2

Permitted Disclosure and Use

41

10.3

Publications

41

10.4

Public Announcements

42

10.5

Confidentiality of This Agreement

42

10.6

Further Agreements Concerning Confidentiality

42

10.7

Survival

42

ARTICLE 11 REPRESENTATIONS AND WARRANTIES; COVENANTS

42

11.1

Mutual Representations and Warranties

42

11.2

Additional GSK Representations and Warranties

43

11.3

Additional Theravance Representations and Warranties

43

11.4

Covenants

44

11.5

Disclaimer of Warranty

44

ARTICLE 12 INDEMNIFICATION

44

12.1

Indemnification by GSK

44

12.2

Indemnification by Theravance

44

12.3

Procedure for Indemnification

44

 

12.3.1

Notice

44

 

12.3.2

Defense of Claim

45

12.4

Assumption of Defense

45

12.5

Insurance

45

ARTICLE 13 PATENTS AND INVENTIONS

46

13.1

Prosecution and Maintenance of Patents

46

 

13.1.1

Prosecution and Maintenance of Theravance Patents

46

 

13.1.2

Prosecution and Maintenance of Patents Covering Joint Inventions

46

 

3

--------------------------------------------------------------------------------

 

 

13.1.3

Prosecution and Maintenance of GSK Patents

48

 

13.1.4

GSK Step-In Rights

48

 

13.1.5

Theravance Step-In Rights

48

 

13.1.6

Execution of Documents by Agents

48

 

13.1.7

Patent Term Extensions

48

13.2

Patent Infringement

48

 

13.2.1

Infringement Claims

48

 

13.2.2

Infringement of Theravance Patents

49

 

13.2.3

Infringement of GSK Patents

49

 

13.2.4

Notice and Cooperation

49

13.3

Notice of Certification

49

 

13.3.1

Notice

49

 

13.3.2

Option

50

 

13.3.3

Name of Party

50

13.4

Assistance

50

13.5

Settlement

50

13.6

Ownership of Inventions

50

ARTICLE 14 TERM AND TERMINATION

50

14.1

Term and Expiration of Term

50

14.2

Termination for Material Breach

50

14.3

GSK Right to Terminate Development of an Alliance Product

51

14.4

GSK Right to Terminate Commercialization of an Alliance Product Following First
Commercial Sale

51

14.5

Effects of Termination

51

 

14.5.1

Effect of Termination for Material Breach

51

 

14.5.2

Effect of Termination of Development of an Alliance Product

51

 

14.5.3

Effect of Termination by GSK of a Terminated Commercialized Alliance Product

55

14.6

Effect of Post-Termination Provisions on a Change in Control in Theravance

58

14.7

Milestone Payments

58

14.8

Accrued Rights; Surviving Obligations

59

ARTICLE 15 MISCELLANEOUS

59

15.1

Relationship of the Parties

59

15.2

Registration and Filing of This Agreement

59

15.3

Force Majeure

59

15.4

Governing Law

60

15.5

Attorneys’ Fees and Related Costs

60

15.6

Assignment

60

15.7

Notices

60

15.8

Severability

61

15.9

Waiver

61

15.10

Entire Agreement

61

15.11

No License

61

15.12

Third Party Beneficiaries

61

15.13

Counterparts

61

15.14

Agreement Closing Condition

61

15.15

Alliance Program Closing Condition

62

 

4

--------------------------------------------------------------------------------

 

List of Schedules

 

Schedule 1.36

 

Existing Discovery Programs

Schedule 1.66

 

Long Acting Muscarinic Antagonist Respiratory Discovery Criteria

Schedule 1.72

 

Muscarinic Antagonist-Beta Agonist Respiratory Discovery Criteria

Schedule 6.1.2(A)

 

Class A Common Stock Purchase Agreement

Schedule 6.1.3(A)

 

Governance Agreement

 

5

--------------------------------------------------------------------------------

 

STRATEGIC ALLIANCE AGREEMENT

 

This STRATEGIC ALLIANCE AGREEMENT (“Agreement”) dated March 30, 2004, is made by
and between THERAVANCE, INC., a Delaware corporation, and having its principal
office at 901 Gateway Boulevard, South San Francisco, California 94080
(“Theravance”), and GLAXO GROUP LIMITED, a United Kingdom corporation, and
having its principal office at Glaxo Wellcome House, Berkeley Avenue, Greenford,
Middlesex, UB6 0NN, United Kingdom (“GSK”). Theravance and GSK may be referred
to as a “Party” or together, the “Parties”.

 

RECITALS

 

WHEREAS, GSK and Theravance have previously entered into a Collaboration
Agreement dated as of November 14, 2002 (the “LABA Collaboration Agreement”);
and

 

WHEREAS, Theravance is engaged in drug discovery for other compounds outside the
LABA Collaboration Agreement;

 

WHEREAS, GSK desires to receive from Theravance and Theravance desires to grant
to GSK the right to Develop and Commercialize other compounds discovered by
Theravance on an exclusive, worldwide basis in accordance with the terms and
conditions of this Agreement;

 

WHEREAS, GSK and Theravance are willing to undertake research, Development and
Commercialization activities and investment and to coordinate such activities
and investment as provided by this Agreement with respect to the Alliance
Products; and

 

WHEREAS, GSK and Theravance believe that a strategic alliance pursuant to this
Agreement for the performance of research, Development and Commercialization of
Alliance Products in which Theravance conducts experimental and research work in
certain program areas to discover chemical entities suitable for development and
GSK, at its option, undertakes the development and commercialization of such
chemical entities would be desirable and compatible with their respective
business objectives.

 

NOW, THEREFORE, in consideration of the foregoing premises and the
representations, covenants and agreements contained herein, Theravance and GSK,
intending to be legally bound, hereby agree as follows:

 

ARTICLE 1
DEFINITIONS

 

For purposes of this Agreement, the following initially capitalized terms,
whether used in the singular or plural, shall have the following meanings:

 

1.1 “Alliance” shall mean the Parties’ strategic alliance pursuant to this
Agreement.

 

1.2 “Alliance Product” means any Theravance Compound for which GSK has exercised
its Opt-In Right subject to and in accordance with the terms of this Agreement,
which such Alliance Product can be used as a single agent and/or in combination
with other therapeutically active components for human pharmaceutical
applications. The term “Alliance Product” shall also include any formulation of
excipients, stabilizers, propellants, or other components necessary to prepare
and deliver a pharmaceutically effective dose of such Theravance Compound and
[*].

 

1.3 “Alliance Program” shall mean any Discovery Program for which GSK has
exercised its Opt-In Right.

 

1.4 “Alliance Program Acceptance Date” shall have the meaning set forth in
Section 13.1.1.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

6

--------------------------------------------------------------------------------

 

1.5 “Additional Respiratory Discovery Program” shall mean any new, additional
Respiratory Discovery Program initiated between the Effective Date and the
expiration of the Research Term. The foregoing shall be without prejudice to the
possibility that other additional Discovery Programs in other therapeutic areas
may be initiated by Theravance as contemplated by Sections 1.36 and 4.1.4.

 

1.6 “Adverse Drug Experience” means any of: an “adverse drug experience,” a
“life-threatening adverse drug experience,” a “serious adverse drug experience,”
or an “unexpected adverse drug experience,” as those terms are defined at either
21 C.F.R.(S)312.32 or 21 C.F.R.(S)314.80.

 

1.7 “Affiliate” of a Party means any Person, whether de jure or de facto, which
directly or indirectly controls, is controlled by, or is under common control
with such Person for so long as such control exists, where “control” means the
decision-making authority as to such Person and, further, where such control
shall be presumed to exist where a Person owns more than fifty percent (50%) of
the equity (or such lesser percentage which is the maximum allowed to be owned
by a foreign corporation in a particular jurisdiction) having the power to vote
on or direct the affairs of the entity.

 

1.8 “API Compound” means bulk quantities of each active pharmaceutical
ingredient compound of a particular Alliance Product prior to the commencement
of secondary manufacturing.

 

1.9 “Breaching Alliance Program” shall have the meaning set forth in
Section 14.2.

 

1.10 “Breaching Party” shall have the meaning set forth in Section 14.2.

 

1.11 “Business Day” means any day on which banking institutions in both New York
City, New York, United States and London, England are open for business.

 

1.12 “Calendar Month” means for each Calendar Year, each of the one-month
periods.

 

1.13 “Calendar Quarter” means for each Calendar Year, each of the three month
periods ending March 31, June 30, September 30 and December 31; provided,
however, that the first calendar quarter for the first Calendar Year shall
extend from the Effective Date to the end of the first complete calendar quarter
thereafter.

 

1.14 “Calendar Year” means, for the first calendar year, the period commencing
on the Effective Date and ending on December 31 of the calendar year during
which the Effective Date occurs, and each successive period beginning on
January 1 and ending twelve (12) consecutive calendar months later on
December 31.

 

1.15 “Change in Control” means, with respect to a Party, any transaction or
series of related transactions following which continuing stockholders of such
Party hold less than 50% of the outstanding voting securities of either such
Party or the entity surviving such transaction.

 

1.16 “Claim” means all charges, complaints, actions, suits, proceedings,
hearings, investigations, claims and demands.

 

1.17 “Closing Condition” shall have the meaning set forth in Section 15.14.

 

1.18 “Combination Product” means an Alliance Product that contains one or more
therapeutically active agents in addition to the Theravance Compound.

 

1.19 “Commercial Conflict” means a situation where Theravance determines that
GSK’s decision related to Development or Commercialization of an Alliance
Product is likely to result in [*], and that such decision is not based on [*]
but primarily [*] whereby GSK is likely to achieve [*].

 

1.20 “Commercial Failure” means failure of an Alliance Product for reasons other
than Technical Failure, based on the determination that such product will result
in [*] that is materially worse than [*] based on GSK’s normal and customary
procedures for determining [*]. The [*] of an Alliance Product will be based on
[*] from such product not taking into account [*].

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

7

--------------------------------------------------------------------------------

 

1.21 “Commercialization” means any and all activities directed to marketing,
promoting, distributing, offering for sale and selling an Alliance Product,
importing an Alliance Product (to the extent applicable) and conducting Phase IV
Studies. When used as a verb, “Commercialize” means to engage in
Commercialization.

 

1.22 “Competing Product” means a product that is intended for the treatment of
the same disease as an Alliance Product and which is not an Alliance Product.

 

1.23 “Confidential Information” means all secret, confidential or proprietary
information, data or Know-How (including GSK Know-How and Theravance Know-How)
whether provided in written, oral, graphic, video, computer or other form,
provided by one Party (the “Disclosing Party”) to the other Party (the
“Receiving Party”) pursuant to this Agreement or generated pursuant to this
Agreement, including but not limited to, information relating to the Disclosing
Party’s existing or proposed research, development efforts, patent applications,
business or products, the terms of this Agreement and any other materials that
have not been made available by the Disclosing Party to the general public.
Confidential Information shall not include any information or materials that the
Receiving Party can document with competent written proof:

 

1.23.1 were already known to the Receiving Party (other than under an obligation
of confidentiality), at the time of disclosure by the Disclosing Party;

 

1.23.2 were generally available to the public or otherwise part of the public
domain at the time of its disclosure to the Receiving Party;

 

1.23.3 became generally available to the public or otherwise part of the public
domain after its disclosure or development, as the case may be, and other than
through any act or omission of a Party in breach of such Party’s confidentiality
obligations under this Agreement;

 

1.23.4 were disclosed to a Party, other than under an obligation of
confidentiality, by a Third Party who had no obligation to the Disclosing Party
not to disclose such information to others; or

 

1.23.5 were independently discovered or developed by or on behalf of the
Receiving Party without the use of the Confidential Information belonging to the
other Party.

 

1.24 “Co-Promote” shall mean, as applied to Theravance, to promote and detail
Alliance Products through its own sales force and to otherwise engage in
activities as contemplated and/or mutually agreed by the Parties under
Section 5.3.

 

1.25 “Co-Promotion Option” shall have the meaning set forth in Section 5.3.2(a).

 

1.26 “Country” means any generally recognized sovereign entity.

 

1.27 “Creditable taxes” shall have the meaning set forth in Section 6.9.2.

 

1.28 “Date of Final Delivery of Opt-In Data” shall have the meaning set forth in
Sections 4.2.1(a), 4.2.2(a) and 4.2.2(b).

 

1.29 “Designated Foreign Filings” shall have the meaning set forth in
Section 13.1.2(b).

 

1.30 “Development Candidate Data” means the material, data and supporting
documentation relating to a Respiratory Compound prepared by Theravance and
delivered to GSK which demonstrates that such compound meets the applicable
Respiratory Discovery Criteria. The Development Candidate Data will be presented
in sufficient detail to enable GSK, to determine whether or not to exercise its
Opt-In Right with respect to such Respiratory Compound in accordance with
Section 4.2.1.

 

8

--------------------------------------------------------------------------------

 

1.31 “Development” or “Develop” means preclinical and clinical drug development
activities, including, among other things: test method development and stability
testing, toxicology, formulation, process development, manufacturing scale-up,
development-stage manufacturing, current Good Manufacturing Practices audits,
current Good Clinical Practices audits, current Good Laboratory Practices
audits, analytical method validation, manufacturing process validation, cleaning
validation, scale-up and post approval changes, quality assurance/quality
control development, statistical analysis and report writing, preclinical and
clinical studies, regulatory filing submission and approval, and regulatory
affairs related to the foregoing. When used as a verb, “Develop” means to engage
in Development.

 

1.32 “Development Milestone” shall have the meaning set forth in Section 6.2.1

 

1.33 “Development Plan” means the outline plan for each Alliance Product in an
Alliance Program designed to achieve the Development for such Alliance Product,
including, without limitation, the nature, number and schedule of Development
activities as such may be amended in accordance with the terms of this
Agreement.

 

1.34 “Diligent Efforts” means the carrying out of obligations in a sustained
manner consistent with the efforts a Party devotes (or would devote) to [*]
conditions then prevailing, including [*], with the objective of [*] and the
other terms and conditions of this Agreement. Diligent Efforts requires that:
(i) each Party [*] and monitor such progress on an on-going basis, (ii) each
Party [*] for carrying out such obligations, and (iii) each Party [*] designed
to advance progress with respect to such objectives.

 

1.35 “Disclosing Party” shall have the meaning set forth in Section 1.23.

 

1.36 “Discovery Program” means [*] that exists as of the Effective Date or is
initiated during the Research Term having the goal of discovering compounds [*]
and, for non-respiratory programs, completing early Development of any such
discovered compounds. A list of existing Discovery Programs as of the Effective
Date is attached as Schedule 1.36. Theravance shall notify GSK of the initiation
of any additional Discovery Program during the Research Term in accordance with
Section 4.1.4.

 

1.37 “Effective Date” means the first business day following the date on which
the last of the conditions contained in Section 15.14 of this Agreement has been
satisfied.

 

1.38 “European Union” or “Europe” means collectively the Countries of the
European Union.

 

1.39 “FDA” means the United States Food and Drug Administration and any
successor agency thereto.

 

1.40 “Filing for Regulatory Approval” shall have the meaning set forth in
Section 6.2.2.

 

1.41 “First Commercial Sale” means the first shipment of commercial quantities
of any Alliance Product sold to a Third Party by a Party or its sublicensees in
any Country after receipt of Marketing Authorization Approval for such Alliance
Product in such Country. Sales for test marketing, sampling and promotional
uses, clinical trial purposes or compassionate or similar uses shall not be
considered to constitute a First Commercial Sale.

 

1.42 “First Theravance Compound” shall have the meaning set forth in Sections
4.2.1(a), 4.2.2(a) and 4.2.2(b).

 

1.43 “Force Majeure Event” shall have the meaning set forth in Section 15.3

 

1.44 “Governmental Authority” means any court, tribunal, arbitrator, agency,
legislative body, commission, official or other instrumentality of (i) any
government of any Country, (ii) a federal, state, province, county, city or
other political subdivision thereof or (iii) any supranational body, including
without limitation the European Agency for the Evaluation of Medicinal Products.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

9

--------------------------------------------------------------------------------

 

1.45 “GSK Invention” means an Invention that is invented by an employee or agent
of GSK solely or jointly with a Third Party.

 

1.46 “GSK Know-How” means all present and future information directly relating
to the Alliance Products including without limitation all data, records, and
regulatory filings relating to Alliance Products, that is required for
Theravance to perform its obligations or exercise its rights under this
Agreement, and which during the Term are in GSK’s or any of its Affiliates’
possession or control and are or become owned by, or otherwise may be licensed
to (provided there is no restriction on GSK thereof), GSK. GSK Know-How does not
include any GSK Patents.

 

1.47 “GSK Patents” means all present and future patents and patent applications
including United States provisional applications and any continuations,
continuations-in-part, divisionals, registrations, confirmations, revalidations,
reissues, Patent Cooperation Treaty applications, certificates of addition,
utility models, design patents, petty patents as well as all other intellectual
property related to the application or patent including extensions or
restorations of terms thereof, pediatric use extensions, supplementary
protection certificates or any other such right covering Alliance Product(s) or
the GSK Inventions which are or become owned by GSK or GSK’s Affiliates, or as
to which GSK or GSK’s Affiliates otherwise are or become licensed, now or in the
future, where GSK has the right to grant the sublicense rights granted to
Theravance under this Agreement, which such patent rights cover the making,
having made, use, offer for sale, sale or importation of the Alliance Products.
For the avoidance of doubt, GSK Patents shall include GSK’s interest in any
patents covering Joint Inventions.

 

1.48 “GSK Property” shall have the meaning set forth in Section 14.5.2(b)(iv).

 

1.49 “GSK’s Percentage Interest” means the percentage of voting power,
determined on the basis of the number of shares of Voting Stock actually
outstanding, that is controlled directly or indirectly by GSK and its
Affiliates.

 

1.50 “Hatch-Waxman Certification” shall have the meaning set forth in Section
13.3.

 

1.51 “Housemark” means the name and logo of GSK or Theravance or any of their
respective Affiliates as identified by one Party to the other from time to time.

 

1.52 “Indemnified Party” shall have the meaning set forth in Section 12.3.1.

 

1.53 “Indemnifying Party” shall have the meaning set forth in Section 12.3.1.

 

1.54 “Initial Due Diligence Commencement Date” shall have the meaning set forth
in Sections 4.2.1(a), 4.2.2(a) and 4.2.2(b).

 

1.55 “Initiation of a Phase I Study” shall have the meaning set forth in Section
6.2.2.

 

1.56 “Initiation of a Phase III Study” shall have the meaning set forth in
Section 6.2.2.

 

1.57 “Interim Period” shall have the meaning set forth in Section 4.3.2.

 

1.58 “Invention” means any discovery (whether patentable or not) invented during
the Term as a result of research, Development or manufacturing activities and
specifically related to an Alliance Product hereunder.

 

1.59 “Investigational Authorization” means, with respect to a Country, the
regulatory authorization required to investigate an Alliance Product in such
Country as granted by the relevant Governmental Authority.

 

1.60 “Joint Invention” means an Invention that is invented jointly by employees
and/or agents of both Theravance and GSK hereunder and the patent rights in such
Invention.

 

1.61 “Joint Program Committee” shall have the meaning set forth in Section 3.3.

 

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1.62 “Joint Steering Committee” shall have the meaning set forth in Section 3.2.

 

1.63 “Launch” shall have the meaning set forth in Section 6.2.2.

 

1.64 “Laws” means all laws, statutes, rules, regulations (including, without
limitation, current Good Manufacturing Practice Regulations as specified in 21
C.F.R. (S) 210 and 211; Investigational New Drug Application regulations at 21
C.F.R. (S) 312; NDA regulations at 21 C.F.R. (S) 314, relevant provisions of the
Federal Food, Drug and Cosmetic Act, and other laws and regulations enforced by
the FDA), ordinances and other pronouncements having the binding effect of law
of any Governmental Authority.

 

1.65 “Litigation Condition” shall have the meaning set forth in Section 12.3.2.

 

1.66 “Long Acting Muscarinic Antagonist Respiratory Discovery Criteria” shall
have the meaning set forth in Schedule 1.66.

 

1.67 “Losses” means any and all damages (including all incidental,
consequential, statutory and treble damages), awards, deficiencies, settlement
amounts, defaults, assessments, fines, dues, penalties, costs, fees,
liabilities, obligations, taxes, liens, losses, lost profits and expenses
(including without limitation court costs, interest and reasonable fees of
attorneys, accountants and other experts) incurred by or awarded to Third
Parties and required to be paid to Third Parties with respect to a Claim by
reason of any judgment, order, decree, stipulation or injunction, or any
settlement entered into in accordance with the provisions of this Agreement,
together with all documented out-of-pocket costs and expenses incurred in
complying with any judgments, orders, decrees, stipulations and injunctions that
arise from or relate to a Claim of a Third Party.

 

1.68 “Major Market Country” means each of the United States, Canada, Japan,
France, United Kingdom, Italy, Germany and Spain.

 

1.69 “Marketing Authorization” means, with respect to a Country, the regulatory
authorization required to market and sell an Alliance Product in such Country as
granted by the relevant Governmental Authority.

 

1.70 “Marketing Authorization Approval” means approval by a Governmental
Authority for sale of a pharmaceutical product for human use, including any
applicable pricing, final labeling or reimbursement approvals.

 

1.71 “Marketing Plan” means for each relevant Alliance Product the global plan
prepared by GSK identifying the core strategic, commercial and promotional
claims and objectives for the specific Alliance Product as reviewed under
Section 5.1.

 

1.72 “Muscarinic Antagonist-Beta Agonist Respiratory Discovery Criteria” shall
have the meaning set forth in Schedule 1.72.

 

1.73 “NDA” means a new drug application or supplemental new drug application or
any amendments thereto submitted to the FDA in the United States.

 

1.74 “NDA Acceptance” shall mean the written notification by the FDA that the
NDA has met all the criteria for filing acceptance pursuant to 21
C.F.R.(S)314.101.

 

1.75 “Net Sales” means [*] GSK, its Affiliates or their licensees (or such
licensees’ Affiliates) to a Third Party, less the following to the extent borne
by the seller and not taken into account in determining gross sales price: (a)
[*]; (b) [*] which [*] (c) [*]; (d) any other adjustments required [*]. Net
Sales shall exclude Samples distributed in the usual course of business.

 

1.76 “Net Sales Report” shall have the meaning set forth in Section 6.4.2.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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1.77 “Non-validated Target” means a biological drug target against which no drug
has received Marketing Authorization Approval.

 

1.78 “Officers” shall have the meaning set forth in Section 3.2.5.

 

1.79 “Opt-In Right” shall have the meaning set forth in Section 4.2.

 

1.80 “OUS Filings” shall have the meaning set forth in Section 13.1.1.

 

1.81 “Patent Infringement Claim” shall have the meaning set forth in Section
13.2.1.

 

1.82 “Patent Infringement Notice” shall have the meaning set forth in Section
13.2.2.

 

1.83 “PCT” shall have the meaning set forth in Section 13.1.1.

 

1.84 “Person” means any natural person, corporation, general partnership,
limited partnership, limited liability company, joint venture, proprietorship or
other business organization.

 

1.85 “Phase I Studies” means that portion of the Development Plan or Development
relating to each Alliance Product which provides for the first introduction into
humans of such Alliance Product including small scale clinical studies conducted
in normal volunteers to obtain information on such Alliance Product’s safety,
tolerability, pharmacological activity, pharmacokinetics, drug metabolism and
mechanism of action, as well as early evidence of effectiveness.

 

1.86 “Phase II Studies” means that portion of the Development Plan or
Development relating to each Alliance Product which provides for well controlled
clinical trials of such Alliance Product in patients, including clinical studies
conducted in patients with the disease or condition, and designed to evaluate
clinical efficacy and safety for such Alliance Product for one or more
indications, and/or to obtain an indication of the dosage regimen required.

 

1.87 “Phase IIa Study” means a controlled study conducted in patients with the
disease or condition designed to evaluate clinical efficacy and safety for such
Alliance Product for one or more indications using generally accepted primary
clinical endpoint(s). For the avoidance of doubt, a Phase IIa Study shall not be
a study designed [*].

 

1.88 “Phase IIb Study” means the definitive study or studies in patients with
the disease or condition designed to evaluate clinical efficacy and safety for
such Alliance Product for one or more indications, and/or to obtain the dosage
regimen required for subsequent Phase III Studies.

 

1.89 “Phase III Studies” means that portion of the Development Plan or
Development relating to each Alliance Product which provides for large scale,
pivotal, clinical studies conducted in a sufficient number of patients and whose
primary objective is to obtain a definitive evaluation of the therapeutic
efficacy and safety of the Alliance Product in patients for the particular
indication in question that is needed to evaluate the overall risk-benefit
profile of the Alliance Product and to provide adequate basis for obtaining
requisite regulatory approval(s) and product labeling.

 

1.90 “Phase IV Studies” means a study or studies for an Alliance Product that is
initiated after receipt of a Marketing Authorization for an Alliance Product and
is principally intended to support the marketing and Commercialization of such
Alliance Product, including without limitation investigator initiated trials,
clinical experience trials and studies conducted to fulfill local commitments
made as a condition of any Marketing Authorization.

 

1.91 “POC Validated Target Data” means the material, data and supporting
documentation relating to achievement of clinical proof of concept by a
Theravance Compound, prepared by Theravance and delivered to GSK in sufficient
detail and which enables GSK to determine whether or not to exercise its Opt-In
Right with respect to such Discovery Program in accordance with Section
4.2.2(a).

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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1.92 “POC Non-Validated Target Data” means the material, data and supporting
documentation relating to achievement of clinical proof of concept by a
Theravance Compound, prepared by Theravance and delivered to GSK in sufficient
detail and which enables GSK to determine whether or not to exercise its Opt-In
Right with respect to such Discovery Program in accordance with Section
4.2.2(b).

 

1.93 “Product Supplier” means any manufacturer, packager or processor of an
Alliance Product for development, marketing and sale.

 

1.94 “Promotional Materials” means the core written, printed, video or graphic
advertising, promotional, educational and communication materials (other than
Alliance Product labeling) for marketing, advertising and promotion of the
Alliance Products.

 

1.95 “Receiving Party” shall have the meaning set forth in Section 1.23.

 

1.96 “Recording Party” shall have the meaning set forth in Section 6.10.

 

1.97 “Respiratory Compound” means a compound discovered by Theravance intended
for the treatment of respiratory disease [*] and that meets the Respiratory
Discovery Criteria.

 

1.98 Respiratory Discovery Criteria” means the requirements that a compound
within a Respiratory Discovery Program must meet before the Development
Candidate Data is then delivered to GSK under Section 4.2.1. The Long-Acting
Muscarinic Antagonist Compound Criteria and the Muscarinic Antagonist—Beta
Agonist Bronchodilator Compound Criteria are each attached hereto as Schedule
1.66 and 1.72, respectively. The Respiratory Discovery Criteria for any
Additional Respiratory Discovery Program initiated pursuant to the Alliance
formed under this Agreement will be (i) comparable in scope and detail with the
criteria set forth in Schedules 1.66 and 1.72 hereto, and (ii) established by
mutual written agreement of the Parties at the time of notification of
initiation of such Additional Respiratory Discovery Program by Theravance to GSK
pursuant to Section 4.1.

 

1.99 “Respiratory Discovery Program” shall mean any Theravance Discovery Program
having the goal of [*].

 

1.100 “Research Term” shall have the meaning set forth in Section 3.1.1.

 

1.101 “Reversion Program” shall have the meaning set forth in Sections 4.2.1(a),
4.2.2(a) and 4.2.2(b)(i).

 

1.102 “ROW” means Countries other than the Major Market Countries.

 

1.103 “Samples” means Alliance Product packaged and distributed as a
complimentary trial for use by patients in the Territory.

 

1.104 “Specific Alliance Product Development & Commercialization Appendix” shall
have the meaning set forth in Sections 4.2.1(a), 4.2.2(a)(i) and 4.2.2(b)(i).

 

1.105 “Subsequent Theravance Compound” shall have the meaning set forth in
Sections 4.2.1(b), 4.2.2(a)(ii) and 4.2.2(b)(ii).

 

1.106 “Successful completion of a Phase II Study” shall have the meaning set
forth in Section 6.2.2.

 

1.107 “Taxes” shall have the meaning set forth in Section 6.9.1.

 

1.108 “Technical Failure” means the discontinuation of Development of an
Alliance Product for [*] reasons, such as but not limited to [*] the inability
to [*], or demonstration of [*] currently marketed products, or inability to
produce [*] with acceptable [*].

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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1.109 “Technology Transfer Package” means all Theravance Confidential
Information and Theravance Know-How relating to: (1) the lead Theravance
Compound in the relevant Alliance Program, as well as any back-up and follow up
Theravance Compound for which Theravance in good faith believes there is
sufficient in vivo data and which are part of such Alliance Program; (2) where
applicable, all information regarding the bulk drug substance and finished
dosage form(s) and methods of manufacturing the same, including without
limitation analytical methods; and (3) the full disclosure of all information
relating to the lead Theravance Compound and any such back-up Theravance
Compound (including, where applicable and without limitation, clinical and
protocol results, analytical methodologies, bulk and final product manufacturing
processes, batch records, pre-formulation studies, reports summarizing
development pharmaceutics, vendor information, validation documentation,
regulatory documentation, patent information), regulatory filings, transfer of
information related to regulatory information and filings, pre-clinical and
clinical data, adverse event data, regulatory correspondence (including records
of meetings and telephone conversations), analyses, and manufacturing data.

 

1.110 “Term” means, on a Country-by-Country and Alliance Product-by-Alliance
Product basis, the period from the Effective Date until the later of (a) the
expiration or termination of the last Valid Claim of a Patent Right covering the
Alliance Compound in such Country, or (b) fifteen (15) years from First
Commercial Sale in such Country, unless this Agreement is terminated earlier in
accordance with Article 14.

 

1.111 “Terminated Alliance Product” means a Terminated Development Alliance
Product or a Terminated Commercialized Alliance Product.

 

1.112 “Terminated Commercialized Alliance Product” shall have the meaning set
forth in Section 14.4.

 

1.113 “Terminated Development Alliance Product” shall have the meaning set forth
in Section 14.3.

 

1.114 “Terminated Non-Respiratory Commercialized Alliance Product” shall have
the meaning set forth in Section 14.5.3(a).

 

1.115 “Terminated Non-Respiratory Development Alliance Product” shall have the
meaning set forth in Section 14.5.2(a).

 

1.116 “Terminated Respiratory Commercialized Alliance Product” shall have the
meaning set forth in Section 14.5.3(b).

 

1.117. “Terminated Respiratory Development Alliance Product” shall have the
meaning set forth in Section 14.5.2(b).

 

1.118 “Territory” means worldwide.

 

1.119 “Theravance Compound” means a chemical entity, including all of [*], that
results from a Discovery Program.

 

1.120 “Theravance Invention” means an Invention that is invented by an employee
or agent of Theravance solely or jointly with a Third Party.

 

1.121 “Theravance Know-How” means all present and future information directly
relating to an Alliance Product that is required for GSK to perform its
obligations or exercise its rights under this Agreement and which up until five
(5) years after the First Commercial Sale of such Alliance Product is in
Theravance’s or any of its Affiliates’ possession or control and is or are, or
becomes owned by, or otherwise may be licensed (provided there are no
restrictions on Theravance thereof) by, Theravance. Theravance Know-How does not
include any Theravance Patents.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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1.122 “Theravance Patents” means all present and future patents and patent
applications including United States provisional applications and any
continuations, continuations-in-part, divisionals, registrations, confirmations,
revalidations, reissues, Patent Cooperation Treaty applications, certificates of
addition, utility models, design patents, petty patents as well as all other
intellectual property related to the application or patent including extensions
or restorations of terms thereof, pediatric use extensions, supplementary
protection certificates or any other such right covering an Alliance Product(s)
or the Theravance Inventions which are or become owned by Theravance or
Theravance’s Affiliates, or as to which Theravance or Theravance’s Affiliates
are or become licensed, now or in the future, with the right to grant the
sublicense rights granted to GSK under this Agreement, which patent rights cover
the making, having made, use, offer for sale, sale or importation of the
Alliance Product(s). For the avoidance of doubt, Theravance Patents shall
include Theravance’s interest in any patents covering Joint Inventions.

 

1.123 “Third Party” means a Person who is not a Party or an Affiliate of a
Party.

 

1.124 “Third Party Claim” shall have the meaning set forth in Section 12.3.1.

 

1.125 “Top-Up Fees” shall have the meaning set forth in Section 4.3.2

 

1.126 “Trademarks” shall have the meaning set forth in Section 2.3.1.

 

1.127 “United States” means the United States, its territories and possessions.

 

1.128 “Valid Claim” means any claim(s) pending in a patent application or in an
unexpired patent which has not been held unenforceable, unpatentable or invalid
by a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, and which has not
has been admitted to be invalid or unenforceable through reissue or disclaimer.

 

1.129 “Validated Target” means a biological drug target against which any drug
has received Marketing Authorization Approval.

 

1.130 “Voting Stock” means the outstanding securities of Theravance having the
right to vote generally in any election of Directors to the Board of Directors
of Theravance.

 

1.131 “Weighted Average Sales Price” means the average sales price calculated by
[*], where applicable.

 

1.132 “Withholding Party” shall have the meaning set forth in Section 6.9.1.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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ARTICLE 2
RIGHTS AND OBLIGATIONS

 

2.1 License Grants from Theravance to GSK.

 

2.1.1 Development License. Effective only upon a Theravance Compound becoming an
Alliance Product and on an Alliance Product-by-Alliance Product basis, and
subject to the terms of this Agreement, including without limitation Section
2.2, Theravance grants to GSK, and GSK accepts, an exclusive (except as to
Theravance and its Affiliates) license under the Theravance Patents and
Theravance Know-How to make, have made, use and Develop Alliance Products for
Commercialization in the Territory.

 

2.1.2 Commercialization License. Subject to the terms of this Agreement,
including without limitation Section 2.2 and Theravance’s Co-Promotion rights in
Section 5.3.2, Theravance hereby grants to GSK, and GSK accepts, an exclusive
license under the Theravance Patents and Theravance Know-How to make, have made,
use, sell, offer for sale and import Alliance Products in the Territory.

 

2.1.3 Manufacturing License. Subject to the terms of this Agreement, including
without limitation Section 2.2, Theravance grants to GSK an exclusive license
under the Theravance Patents and Theravance Know-How to make and have made API
Compound or formulated Alliance Product in the Territory.

 

2.1.4 Licenses to Third Parties. The licenses granted to GSK under Sections
2.1.1, 2.1.2 and 2.1.3 shall not prevent Theravance from granting licenses to
Third Parties under Theravance Patents and Theravance Know-How for a purpose
other than the research in connection with or the Development, manufacture or
Commercialization of an Alliance Product. For the avoidance of doubt, in no
event shall any such license to a Third Party as contemplated by the preceding
sentence of this Section 2.1.4 conflict with the terms and provisions of this
Agreement, including but not limited to Theravance’s obligations, and GSK’s
concomitant rights, in respect of the delivery up of any Discovery Program, and
GSK’s Opt-In Rights thereof, as more particularly set forth in Article 4.

 

2.2 Sublicensing and Subcontracting. GSK may sublicense or subcontract its
rights to Develop, Manufacture or Commercialize the Alliance Products in whole
or in part to one or more of its Affiliates, provided that the rights
sublicensed or subcontracted to such Affiliate shall automatically terminate
upon any event in connection with which such Affiliate ceases to be an Affiliate
of GSK. GSK may also sublicense or subcontract any of GSK’s rights to Develop or
Manufacture the Alliance Products, in whole or in part, to one or more Third
Parties. In the event GSK wishes to sublicense or subcontract any of GSK’s
rights to Commercialize the Alliance Products, in whole or in part, to one or
more Third Parties, GSK shall obtain the prior written consent of Theravance,
such consent not to be unreasonably withheld, provided always that no such
restriction shall apply in respect of those countries of the Territory wherein
GSK is or has been required under applicable local laws to appoint a Third Party
as its distributor or marketing partner. GSK shall secure all appropriate
covenants, obligations and rights from any such sublicensee or subcontractor
granted by it under this Agreement, including, but not limited to, intellectual
property rights and confidentiality obligations in any such agreement or other
relationship, to ensure that such sublicensee can comply with all of GSK’s
covenants and obligations to Theravance under this Agreement. GSK’s rights to
sublicense, subcontract or otherwise transfer its rights granted under Section
2.1 are limited to those expressly set forth in this Section 2.2.

 

2.3 Trademarks and Housemarks.

 

2.3.1 Trademarks. The Alliance Products shall be Commercialized under trademarks
(the “Trademarks”) and trade dress selected by the Joint Program Committee and
approved by the Joint Steering Committee. Prior to any such proposed
Trademark(s) being submitted to the Joint Program Committee, GSK shall be
responsible for undertaking their preliminary selection. GSK shall exclusively
own all Trademarks, and shall be responsible for the procurement, filing and
maintenance of trademark registrations for such Trademarks and all costs and
expenses related thereto. GSK shall also exclusively own all trade dress and
copyrights associated with the Alliance Products. Nothing herein shall create
any ownership rights of Theravance in and to the Trademarks or the copyrights
and trade dress associated with the Alliance Products.

 

2.3.2 Housemarks. Each Party shall enter into appropriate licenses and covenants
in respect of its or its Affiliates’ use of the other Party’s Housemarks at such
time as the Joint Steering Committee determines prior to Commercialization of
the applicable Alliance Product. Such licenses shall ensure that each Party

 

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acknowledges the goodwill and reputation that has been associated with the other
Party’s Housemarks over the years, and shall use such Housemarks in a manner
that maintains and promotes such goodwill and reputation and is consistent with
trademark guidelines. Further, such licenses shall ensure that each Party shall
take all reasonable precautions and actions to protect the goodwill and
reputation that has inured to the other Party’s Housemarks, shall refrain from
doing any act that is reasonably likely to impair the reputation of such
Housemarks, and shall cooperate fully to protect such Housemarks.

 

ARTICLE 3
GOVERNANCE OF RESEARCH, DEVELOPMENT AND
COMMERCIALIZATION OF ALLIANCE PRODUCTS

 

3.1 Discovery Programs. Subject to the terms of this Agreement, GSK will have an
option to obtain exclusive rights to any Discovery Program that exists or that
is initiated during the Research Term. For the avoidance of doubt, in respect of
any new Discovery Program that is initiated by Theravance during the Research
Term, the provisions of Article 4 shall apply in respect of both Theravance’s
obligation to offer such Discovery Program to the Alliance and GSK’s Opt-In
Rights in relation thereto, even if at the time such Discovery Program is
actually ready to be offered by Theravance to GSK under Section 4.2 the Research
Term may have then expired.

 

3.1.1 Research Term. Subject to the terms of this Agreement, Theravance shall
have sole responsibility for the conduct of all activities under each Discovery
Program. The Research Term (the “Research Term”) will be the period beginning on
the Effective Date and ending on September 1, 2007 unless (i) terminated earlier
in accordance with the provisions of this Agreement or (ii) extended by mutual
agreement of the Parties or (iii) automatically extended for an additional five
(5) year period commencing on September 1, 2007 if, pursuant to the Governance
Agreement to be entered into between the Parties in the form attached hereto as
Schedule 6.1.3(A), GSK’s Percentage Interest exceeds fifty per cent (50%) at the
Call/Put Termination Date (as defined in the Governance Agreement). If however,
pursuant to the Governance Agreement, GSK’s Percentage Interest is 50.1% or
greater and thereafter GSK breaches its obligation not to dispose of beneficial
ownership of Voting Stock prior to September 1, 2012, the Research Term shall
end simultaneously with such breach and accordingly all of GSK’s future Opt-In
Rights to Theravance’s Discovery Programs on or after such date of breach (but
not, for the avoidance of doubt, any pre-existing Alliance Program in respect of
which GSK has already exercised its Opt-In Right) shall terminate forthwith.

 

3.2 Joint Steering Committee.

 

3.2.1 Purpose. The purposes of the Joint Steering Committee shall be (i) to
determine the overall strategy for this alliance between the Parties and (ii) to
coordinate the Parties’ activities hereunder. The Parties intend that their
respective organizations will work together and will use Diligent Efforts to
assure success of the alliance.

 

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3.2.2 Members; Officers. Within thirty (30) days after the Effective Date, the
Parties shall establish a joint steering committee (the “Joint Steering
Committee”), which shall consist of eight (8) members, four (4) of whom shall be
designated by each of GSK and Theravance and shall have appropriate expertise,
with at least one (1) member from GSK being its Senior Vice-President, Drug
Discovery, and one member from Theravance being its Executive Vice President,
Research. Subject to the foregoing requirement, each of GSK and Theravance may
replace its other representatives on the Joint Steering Committee at any time
upon written notice to the other Party. A Party may designate a substitute to
temporarily attend and perform the functions of such Party’s designee at any
meeting of the Joint Steering Committee. GSK and Theravance each may, on advance
written notice to the other Party, invite non-member representatives of such
Party to attend meetings of the Joint Steering Committee. The Joint Steering
Committee shall be chaired on an annual rotating basis by a representative of
either Theravance or GSK, as applicable, on the Joint Steering Committee, with
Theravance providing the first such chairperson. The chairperson shall appoint a
secretary of the Joint Steering Committee, who shall be a representative of the
other Party and who shall serve for the same annual term as such chairperson.

 

3.2.3 Responsibilities. The Joint Steering Committee shall perform the following
functions:

 

(a) Review the status and progress of all Discovery Programs (through updates
provided to the Joint Steering Committee by Theravance as contemplated and
required by Section 4.1), including any additional work related to any Discovery
Program as contemplated by Sections 4.2.1(b) and 4.2.2(b);

 

(b) Oversee the Development and Commercialization of the Alliance Products
pursuant to the terms of this Agreement;

 

(c) Review the Development Plans and the Marketing Plans for Alliance Products
and any material amendments to the Development Plans and Marketing Plans;

 

(d) At each meeting of the Joint Steering Committee, review Net Sales for the
year-to-date as available;

 

(e) Review the progress of any Joint Program Committee;

 

(f) Review the Trademarks selected under Section 2.3;

 

(g) Subject to GSK’s termination rights under and in accordance with Article 14,
review and approve “go/no-go” decisions and other matters referred to the Joint
Steering Committee, including, without limitation, the continued Development of
a particular Alliance Product except that, notwithstanding the foregoing, GSK
shall always be required, through the Joint Steering Committee, to notify
Theravance of, and obtain Theravance’s consent (such consent not to be
unreasonably withheld) to:

 

(i) any anticipated and/or actual cumulative delay of more than [*] months
between each key progression point in the Development of a particular Alliance
Product (where “key progression point in the Development of a particular
Alliance Product” for this purpose shall mean the planned initiation of either a
Phase I Study, a Phase II Study or a Phase III Study for such Alliance Product,
as applicable); and

 

(ii) any GSK wish to cease Development of a lead Theravance Compound in an
Alliance Program (other than for Technical Failure) where, instead of
termination of the relevant Alliance Program under Section 14, GSK wishes to
progress Development of the relevant back-up Theravance Compound in such
Alliance Program and such proposed activity will or is likely to result in a
corresponding delay in Development within such Alliance Program of more than [*]
months;

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(h) Oversee life cycle management of, and intellectual property protection for,
the Alliance Products;

 

(i) In accordance with the procedures established in Section 3.2.5, resolve
disputes, disagreements and deadlocks unresolved by the Joint Program Committee;
and

 

(j) Have such other responsibilities as may be assigned to the Joint Steering
Committee pursuant to this Agreement or as may be mutually agreed upon by the
Parties from time to time.

 

3.2.4 Meetings. The Joint Steering Committee shall meet at least quarterly
during every Calendar Year (of which at least two such meetings shall be
face-to-face meetings), and more or less frequently (i) as mutually agreed by
the Parties or (ii) as required to resolve disputes, disagreements or deadlocks
in the Joint Program Committee, on such dates, and at such places and times, as
such Parties shall agree; provided that the Parties shall endeavor to have the
first meeting of the Joint Steering Committee within thirty (30) days after the
establishment of the Joint Steering Committee. The Joint Steering Committee
shall arrange to meet in person or convene otherwise to review any Development
Plans or Marketing Plans, if any, submitted to the Joint Steering Committee in
each Calendar Year so that such plans will be reviewed within thirty (30) days
following submission to the Joint Steering Committee. To the extent any such
Development Plans or Marketing Plans need to be reformulated by the Joint
Program Committee, such plans shall be reviewed by the Joint Steering Committee
as soon as reasonably practicable after resubmission of same. Meetings of the
Joint Steering Committee that are held in person shall alternate between offices
of GSK and Theravance, or such other place as the Parties may agree. In addition
to face to face meetings the Joint Steering Committee may also be held by means
of telecommunications or, video conferences as deemed appropriate by the
Parties.

 

3.2.5 Decision-Making.

 

(a) The Joint Steering Committee may make decisions with respect to any subject
matter that is subject to the Joint Steering Committee’s decision-making
authority and functions as set forth in Section 3.2.3. Except as specified in
Section 3.2.5(b), all decisions of the Joint Steering Committee shall be made by
consensus, with the representatives from each Party presenting a unified
position on behalf of such Party. The Joint Steering Committee shall use
Diligent Efforts to resolve the matters within its roles and functions or
otherwise referred to it.

 

(b) With respect to any issue, if the Joint Steering Committee cannot reach
consensus within ten (10) Business Days after the matter has been brought to the
Joint Steering Committee’s attention, then such issue shall be referred to the
Chief Executive Officer of Theravance and either the Chairman of GSK R&D (if the
issue relates to a discovery and/or development matter) or the Chief Executive
Officer of GSK (if the issue relates to a commercial matter) (collectively, the
“Officers”) for resolution. The Parties accept that the use of the Officers for
resolution of any unresolved issues will be on an exceptional basis. In the
event that the use of the Officers occurs on more than two occasions in any
consecutive twelve (12) month period and such disputes are not related to
Commercial Conflict issues, then GSK will from then on retain the final vote
within the Joint Steering Committee for all issues other than Commercial
Conflict. If the Officers are unable to reach consensus within thirty (30) days
after the matter has been referred to them, the final decision on such disputed
issue will reside with GSK; provided, however, that if the disputed issue
involves [*], then the final decision will be made by a mutually acceptable
Third Party mediator. Either Party can initiate such mediation on [*] to the
other Party. The Parties will use best efforts to agree on a mediator within
such [*] day [*]. Such mediation will occur as promptly as practicable following
selection of the mediator and will be held in [*]. The decision of the mediator
will be final and binding on the Parties; provided that either Party shall
retain all rights to bring an action against the other for damages and other
monetary relief related to or arising out of the issue decided by the mediator.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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3.3 Joint Program Committee.

 

3.3.1 Purpose. The purposes of each Joint Program Committee shall be to manage
the Parties’ day-to-day activities hereunder with respect to each corresponding
Alliance Program. For the avoidance of doubt, there will be a separate Joint
Program Committee for each Alliance Program (unless, in certain circumstances,
the Parties mutually agree upon the appropriateness of combining two or more
Joint Program Committees).

 

3.3.2 Members; Officers. Within ten (10) days after each relevant Theravance
Compound in a Discovery Program is accepted by GSK as an Alliance Product, the
Parties shall establish a Program Committee for such Alliance Product (the
“Joint Program Committee”), and GSK and Theravance shall designate an equal
number of representatives, up to a maximum total of eight (8) members on such
Joint Program Committee, with a maximum of four (4) from each Party. Each of GSK
and Theravance may replace any or all of its representatives on the Joint
Program Committee at any time upon written notice to the other Party. Such
representatives shall include individuals who have the relevant experience and
expertise for the next twelve months as included in the Development Plan for the
relevant Alliance Product. A Party may designate a substitute to temporarily
attend and perform the functions of such Party’s designee at any meeting of the
Joint Program Committee. GSK and Theravance each may, on advance written notice
to the other Party, invite non-member representatives of such Party to attend
meetings of the Joint Program Committee. The Joint Program Committee shall be
chaired by a representative of GSK. The chairperson shall appoint a secretary of
the Joint Program Committee, who shall be a representative of Theravance.

 

3.3.3 Responsibilities. Each Joint Program Committee shall perform the following
functions:

 

(a) Review the Development Plan(s) in relation to the relevant Alliance Product
as prepared by GSK;

 

(b) On an annual rolling basis beginning within six months of the establishment
of the Joint Program Committee, update and amend any initial Development Plan
and review the Development Plan for the relevant Alliance Product for the
following Calendar Year so that it can immediately thereafter submit such
proposed Development Plan to the Joint Steering Committee for review;

 

(c) At each meeting of the Joint Program Committee, review and recommend to the
Joint Steering Committee any material amendments or modifications to the
Development Plan(s) for such Alliance Product;

 

(d) Review and recommend to the Joint Steering Committee “go/no-go” decisions
for the Development of the relevant Alliance Product;

 

(e) Review the Marketing Plans where appropriate;

 

(f) Review and recommend to the Joint Steering Committee any material amendments
or modifications to the Marketing Plans;

 

(g) Discuss the state of the markets for the relevant Alliance Product and
opportunities and issues concerning the Commercialization of such Alliance
Product, including consideration of marketing and promotional strategy,
marketing research plans, labeling, Alliance Product positioning and Alliance
Product profile issues;

 

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(h) At each meeting of the Joint Program Committee, review the status of all
Studies conducted on the relevant Alliance Product and any results therefrom;

 

(i) At each meeting of the Joint Program Committee, review Net Sales in relation
to the relevant Alliance Product for the year-to-date, as available; and

 

(j) Have such other responsibilities as may be assigned to the Joint Program
Committee pursuant to this Agreement or as may be mutually agreed upon by the
Parties through the Joint Steering Committee from time to time.

 

3.3.4 Meetings. The Joint Program Committee shall meet at least once during
every Calendar Quarter, and more frequently as GSK and Theravance mutually agree
on such dates, and at such places and times, as such Parties shall agree;
provided that the Parties shall endeavor to have the first meeting of the Joint
Program Committee as a face to face meeting within thirty (30) days after the
establishment of the Joint Program Committee. Meetings of the Joint Program
Committee that are held in person shall alternate between the offices of GSK and
Theravance, or such other place as the Parties may agree and such face to face
meetings shall occur no less than twice a year. The remaining meetings may be
held by means of telecommunications or video conferences as deemed appropriate.
Following Commercialization of the relevant Alliance Product in the first Major
Market, the Joint Program Committee shall meet twice a year with only one annual
face to face meeting required.

 

3.3.5 Decision-Making. The Joint Program Committee may make decisions with
respect to any subject matter that is subject to the Joint Program Committee’s
decision-making authority and functions as set forth in Section 3.3.3. All
decisions of the Joint Program Committee shall be made by consensus, with the
representatives from each Party presenting a unified position on behalf of such
Party. If the Joint Program Committee cannot reach consensus within ten
(10) Business Days after it has first met and attempted to reach such consensus,
the matter shall be referred on the eleventh (11th) Business Day to the Joint
Steering Committee for resolution.

 

3.4 Minutes of Committee Meetings. Definitive minutes of all committee meetings
shall be finalized no later than thirty (30) days after the meeting to which the
minutes pertain as follows:

 

3.4.1 Distribution of Minutes. Within ten (10) days after a committee meeting,
the secretary of such committee shall prepare and distribute to all members of
such committee draft minutes of the meeting. Such minutes shall provide a list
of any issues yet to be resolved, either within such committee or through the
relevant resolution process.

 

3.4.2 Review of Minutes. The Party members of each committee shall have ten
(10) days after receiving such draft minutes to collect comments thereon and
provide them to the secretary of such committee.

 

3.4.3 Discussion of Comments. Upon the expiration of such second ten (10) day
period, the Parties shall have an additional ten (10) days to discuss each
other’s comments and finalize the minutes. The secretary and chairperson(s) of
such committee shall each sign and date the final minutes. The signature of such
chairperson(s) and secretary upon the final minutes shall indicate each Party’s
assent to the minutes.

 

3.5 Expenses. Each Party shall be responsible for all travel and related costs
and expenses for its members and other representatives to attend meetings of,
and otherwise participate on, a committee.

 

3.6 General Guidelines and Initial Coordination Efforts. In all matters related
to the collaboration established by this Agreement, the Parties shall strive to
balance as best they can the legitimate interests and concerns of the Parties
and to maximize the economic potential of Alliance Products. In all matters
relating to this Agreement, the Parties shall seek to comply with good
pharmaceutical and environmental practices. The Parties intend, following the
Effective Date, to organize meetings of internal staff to communicate and
explain the provisions of this Agreement to ensure the efficient and timely
Development and Commercialization of the Alliance Products.

 

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ARTICLE 4
DELIVERY OF THERAVANCE COMPOUNDS AND
DEVELOPMENT OF ALLIANCE PRODUCTS

 

4.1 Delivery of Theravance Compounds. During the Research Term it is
Theravance’s goal to discover and deliver to the Alliance:

 

(i) in the case of each Respiratory Discovery Program, a lead Respiratory
Compound and a back-up Respiratory Compound, each in a different structural
class, each of which meets the relevant Respiratory Discovery Criteria
established by the Parties for such compounds;

 

(ii) in the case of each non-respiratory Discovery Program directed at a
Validated Target, a Theravance Compound that has successfully completed a Phase
IIa Study and, excepting the following two Existing Discovery Programs: [*] (as
more particularly referred to in Schedule 1.36), a back-up compound at
Development Candidate stage in a different structural class; and

 

(iii) in the case of each non-respiratory Discovery Program directed at a
Non-validated Target, a Theravance Compound that has successfully completed the
Phase IIb Study and a back-up compound at Development Candidate Stage in a
different structural class.

 

In relation to its achievement of the foregoing goals, Theravance shall use
Diligent Efforts at all times, it being understood, however, that Theravance
shall maintain at all times sole decision making authority with respect to its
Discovery Programs, including without limitation decisions relating to
initiation and termination of Discovery Programs, and staffing and resource
allocation between and among Discovery Programs. Through the Joint Steering
Committee, Theravance shall provide GSK with updates of the status and progress
of each Existing Discovery Program and any Additional Discovery Program that has
been initiated, or whose initiation is at such time under consideration and
shall consider any comments and further input from GSK in relation to same.

 

4.1.2 Theravance Funding Responsibility. Theravance shall bear all costs and
expenses associated with any Discovery Program.

 

4.1.3 GSK Assistance. Without prejudice to the foregoing, GSK will endeavor to
provide Theravance, upon Theravance’s request, and at GSK’s sole discretion,
such assistance as may be reasonably required by Theravance to achieve this
objective, which such assistance may include providing directly or through GSK’s
vendors, assistance in (i) [*], (ii) [*], (iii) [*], (iv) [*], and (v) [*].

 

4.1.4. Additional Discovery Programs. Theravance shall use Diligent Efforts at
all times to initiate at least three new full Discovery Programs during the
Research Term. Theravance shall inform GSK, through the Joint Steering
Committee, of the initiation of any Additional Discovery Program and the
Parties, through the Joint Steering Committee, shall also mutually agree at that
point whether or not such Additional Discovery Program is directed at Validated
or Non-Validated Targets. For the avoidance of doubt, the Parties agree that
Theravance’s existing programs set forth on Schedule 1.36 are each Discovery
Programs directed at Validated Targets.

 

4.2 GSK Opt-In Rights. GSK shall have the exclusive option (in each case, an
“Opt-in Right”) on a Discovery Program-by-Discovery Program basis, to Develop
and Commercialize any Theravance Compound arising out of each such Discovery
Program pursuant to the terms and conditions of this Agreement, and as more
fully set forth below in this Section 4.2. For the avoidance of doubt, GSK may
exercise its Opt-In Right at any time up through the applicable sixty (60) day
periods following the Date of Final Delivery of Opt-In Data set forth in
Sections 4.2.1 and 4.2.2.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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4.2.1 Existing and Additional Respiratory Discovery Programs.

 

(a) At the appropriate time in respect of each Existing or Additional
Respiratory Discovery Program, and upon the provision to GSK of at least two
(2) days advance written notice, Theravance shall deliver on such date (“Initial
Due Diligence Commencement Date”) and to GSK’s appointed designee (in a manner
and format to be specified by GSK), all available Development Candidate Data on
the first Theravance Compound (“First Theravance Compound”) in an Existing or
Additional Respiratory Discovery Program (it being recognized, and it being in
the contemplation of the Parties, that not all but a substantial amount of
Development Candidate Data on the First Theravance Compound in the relevant
Discovery Program will be made available at this point). At such time, and in
light of GSK’s funding obligations under Section 4.3.2, Theravance shall also
deliver up to GSK an outline budget of its proposed expenditures in relation to
such Discovery Program for the next one hundred and twenty (120) days) (which
such proposed expenditures shall be proposed net external expenditures only,
including any planned Third Party contracting and future committed expenditures,
but shall not, for the avoidance of doubt include the internal salary costs of
Theravance employees). If such outline budget is [*] or less, it shall remain in
Theravance’s sole discretion; provided, however, GSK shall be permitted to bring
to Theravance’s attention areas of potential cost savings or comparable
efficiencies and Theravance will reasonably consider any recommendations by GSK
in this regard. To the extent that the outline budget exceeds [*], the Parties
shall as promptly as possible meet and attempt to mutually agree either to
changes in the schedule of activities such that the total budget for the
relevant period does not exceed [*] or alternatively, if GSK agrees that the
circumstances warrant activities that justify a budget in excess of such amount,
a higher maximum budget. If the Parties cannot reach mutual agreement on any
excess budgeted amounts then GSK shall not be obligated to pay for such excess
budgeted amounts under Section 4.3.2. Within a further sixty days of the Initial
Due Diligence Commencement Date, Theravance shall deliver to GSK final and
complete Development Candidate Data in respect of such First Theravance Compound
(“Date of Final Delivery of Opt-In Data”). To facilitate GSK’s review throughout
the aforesaid periods, Theravance shall deliver all such materials to GSK in a
diligent, prompt and timely manner and shall respond promptly and fully to any
GSK requests and/or queries raised as part of such review. It is hereby
anticipated and acknowledged by the Parties that such process as contemplated
hereunder shall take the form of as many face-to-face meetings between the
Parties as GSK shall reasonably request of Theravance. GSK shall also notify
Theravance of its most likely plans for Development in respect of such Alliance
Program and such intent shall form the basis of the first Development Plan to be
drawn up pursuant to Section 3.3.3. It is anticipated that the Parties will also
endeavor to agree, where appropriate, any specific and/or additional terms
related to GSK’s proposed future Development and Commercialization activities in
relation to such Alliance Program, particularly where appropriate provisions are
not contained in this Agreement or, if such provisions are contained in this
Agreement, such provisions are not, for whatever reason, relevant. It is further
envisaged that such specific and/or additional terms will then be appended to
this Agreement as a Specific Alliance Product Development & Commercialization
Appendix. Within a further sixty (60) days after the Date of Final Delivery of
Opt-In Data, GSK shall notify Theravance in writing as to whether or not it is
exercising its Opt-In Right with respect to such Discovery Program. If GSK
notifies Theravance in writing of its wish to exercise its Opt-In Right in
respect of such Discovery Program, such notice of exercise shall not take effect
until the date of satisfaction of the Alliance Program Closing Condition (the
“Effective Date of GSK’s Exercise of its Opt-In Right”). On the Effective Date
of GSK’s Exercise of its Opt-In Right, (i) such Discovery Program for which GSK
has notified Theravance of its wish to exercise its Opt-In Right shall become an
Alliance Program; (ii) any payment and/or compensation that becomes payable by
GSK to Theravance as a consequence, including but not limited to the payment of
an Opt-In Fee and/or any relevant Development Milestone, shall be paid by GSK to
Theravance (subject to and in accordance with the further provisions of
Article 6); and (iii) Theravance shall promptly deliver to GSK at no cost to GSK
the Technology Transfer Package. If GSK elects not to exercise its Opt-In Right
for such Discovery Program, or if the Alliance Program Closing Condition is not
satisfied or is terminated pursuant to Section 15.15, the Discovery Program will
revert in full to Theravance (a “Reversion Program”) and Theravance will be
entitled to pursue development of all compounds from such Reversion Program
outside the Alliance alone or with a Third Party.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(b) If at the Date of Final Delivery of Opt-In Data, only data related to the
First Theravance Compound is available, then, without prejudice to GSK’s
exercise of its Opt-In Right with respect to such Discovery Program in
accordance with Section 4.2.1(a) (including but not limited to the specified
process and timelines related thereto), Theravance shall, at Theravance’s
expense, diligently work toward the goal of delivering up to GSK within a
further [*] days from the Date of Final Delivery of Opt-In Data further
discovery data related to such Discovery Program including but not limited to
data related to any back-up Respiratory Compound which meets the relevant
Respiratory Discovery Criteria (“Subsequent Theravance Compound(s)”). Further,
if Development of the First Theravance Compound is subsequently discontinued
and/or terminated by GSK for reasons of Technical Failure and for whatever
reason no Subsequent Theravance Compound(s) in such Discovery Program exists or
has been made available to GSK by Theravance or does not meet the relevant
Respiratory Discovery Criteria on or before the expiration of [*] days from the
Date of Final Delivery of Opt-In Data, then the next payment to be made by GSK
to Theravance under this Agreement (whether an Opt-In Fee, Development Milestone
or any other payment) shall [*].

 

(c) If GSK elects not to exercise its Opt-In Right for any Discovery Program
under Section 4.2.1, it will no longer have any Opt-In Right for any subsequent
Theravance Compound arising out of the same Discovery Program.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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4.2.2 Non-respiratory Discovery Programs.

 

(a) Discovery Programs Directed at Validated Targets

 

(i) At the appropriate time in respect of each non-respiratory, Validated Target
Discovery Program, and upon the provision to GSK of at least two (2) days
advance written notice, Theravance shall deliver on such date (“the Initial Due
Diligence Commencement Date”) and to GSK’s appointed designee (in a manner and
format to be specified by GSK), all available POC Validated Target Data on the
first Theravance Compound (“First Theravance Compound”) in such non-respiratory,
validated target Discovery Program (it being recognized, and it being in the
contemplation of the Parties, that not all but a substantial amount of POC
Validated Target Data on the First Theravance Compound in such non-respiratory,
validated target Discovery Program will be made available at this point). At
such time, and in light of GSK’s funding obligations under Section 4.3.2,
Theravance shall also deliver up to GSK an outline budget of its proposed
expenditures in relation to such Discovery Program for the next one hundred and
twenty (120) days) (which such proposed expenditures shall be proposed net
external expenditures only, including any planned Third Party contracting and
future committed expenditures, but shall not, for the avoidance of doubt include
the internal salary costs of Theravance employees). If such outline budget is
[*] or less, it shall remain in Theravance’s sole discretion; provided, however,
GSK shall be permitted to bring to Theravance’s attention areas of potential
cost savings or comparable efficiencies and Theravance will reasonably consider
any recommendations by GSK in this regard. To the extent that the outline budget
exceeds [*], the Parties shall as promptly as possible meet and attempt to
mutually agree either to changes in the schedule of activities such that the
total budget for the relevant period does not exceed [*] or alternatively, if
GSK agrees that the circumstances warrant activities that justify a budget in
excess of such amount, a higher maximum budget. If the Parties cannot reach
mutual agreement on any excess budgeted amounts then GSK shall not be obligated
to pay for such excess budgeted amounts under Section 4.3.2. Within a further
sixty days of the Initial Due Diligence Commencement Date, Theravance shall
deliver to GSK final and complete POC Validated Target Data in respect of such
First Theravance Compound (“Date of Final Delivery of Opt-In Data”). To
facilitate GSK’s review throughout the aforesaid periods, Theravance shall
deliver all such materials to GSK in a diligent, prompt and timely manner and
shall respond promptly and fully to any GSK requests and/or queries raised as
part of such review. It is hereby anticipated and acknowledged by the Parties
that such process as contemplated hereunder shall take the form of as many
face-to-face meetings between the Parties as GSK shall reasonably request of
Theravance. GSK shall also notify Theravance of its most likely plans for
Development in respect of such Alliance Program and such intent shall form the
basis of the first Development Plan to be drawn up pursuant to Section 3.3.3. It
is anticipated that, within such sixty (60) day period the Parties will also
endeavor to agree, where appropriate, any specific and/or additional terms
related to GSK’s proposed future Development and Commercialization activities in
relation to such Alliance Program, particularly where appropriate provisions are
not contained in this Agreement or, if such provisions are contained in this
Agreement, such provisions are not, for whatever reason, relevant. It is further
envisaged that such specific and/or additional terms will then be appended to
this Agreement as a Specific Alliance Product Development & Commercialization
Appendix. Within a further sixty (60) days after Date of Final Delivery of
Opt-In Data, GSK shall notify Theravance in writing as to whether or not it is
exercising its Opt-In Right with respect to such Discovery Program. If GSK
notifies Theravance in writing of its wish to exercise its Opt-In Right in
respect of such Discovery Program, such notice of exercise shall not take effect
until the date of satisfaction of the Alliance Program Closing Condition (the
“Effective Date of GSK’s Exercise of its Opt-In Right”). On the Effective Date
of GSK’s Exercise of its Opt-In Right, (i) such Discovery Program for which GSK
has notified Theravance of its wish to exercise its Opt-In Right shall become an
Alliance Program; (ii) any payment and/or compensation that becomes payable by
GSK to Theravance as a consequence, including but not limited to the payment of
an Opt-In Fee and/or any relevant Development Milestone, shall be paid by GSK to
Theravance (subject to and in accordance with the further provisions of
Article 6); and (iii) Theravance shall promptly deliver to GSK at no cost to GSK
the Technology Transfer Package. If GSK elects not to exercise its Opt-In Right
for such Discovery Program, or if the Alliance Program Closing Condition is not
satisfied or is terminated pursuant to Section 15.15, the Discovery Program will
become a Reversion Program (a “Reversion Program”) and Theravance will be
entitled to pursue development of all compounds from such Reversion Program
outside the Alliance alone or with a Third Party.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(ii) Subject to the exclusion contained in Section 4.1(ii), if at the Date of
Final Delivery of Opt-In Data, only data related to the First Theravance
Compound is available, then, without prejudice to GSK’s exercise of its Opt-In
Right with respect to such Discovery Program in accordance with
Section 4.2.2(a)(i) (including but not limited to the specified process and
timelines related thereto), Theravance shall, at Theravance’s expense,
diligently work toward the goal of delivering up to GSK within a further [*]
days from the Date of Final Delivery of Opt-In Data further discovery data
related to such Discovery Program including but not limited to data related to
any back-up Non-respiratory Compound (“Subsequent Theravance Compound(s)”).
Further, if Development of the First Theravance Compound is subsequently
discontinued and/or terminated by GSK for reasons of Technical Failure and for
whatever reason no Subsequent Theravance Compound(s) in such Discovery Program
exists or has been made available to GSK by Theravance on or before the
expiration of [*] days from the Date of Final Delivery of Opt-In Data, then the
next payment to be made by GSK to Theravance under this Agreement (whether an
Opt-In Fee, Development Milestone or any other payment) shall [*].

 

(iii) If GSK elects not to exercise its Opt-In Right for any Discovery Program
under Section 4.2.2(a)(i), it will no longer have any Opt-In Right for any
subsequent Theravance Compound arising out of the same Discovery Program.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(b) Discovery Programs Directed at Non-validated Targets.

 

(i) At the appropriate time in respect of each non-respiratory, Non-Validated
Target Discovery Program, and upon the provision to GSK of at least two (2) days
advance written notice, Theravance shall deliver on such date (“the Initial Due
Diligence Commencement Date”) and to GSK’s appointed designee (in a manner and
format to be specified by GSK), all available POC Non-Validated Target Data on
the first Theravance Compound (“First Theravance Compound”) in such
non-respiratory, non-validated target Discovery Program (it being recognized,
and it being in the contemplation of the Parties, that not all but a substantial
amount of POC Non-Validated Target Data on the First Theravance Compound in such
non-respiratory, non-validated target Discovery Program will be made available
at this point). At such time, and in light of GSK’s funding obligations under
Section 4.3.2, Theravance shall also deliver up to GSK an outline budget of its
proposed expenditures in relation to such Discovery Program for the next one
hundred and twenty (120) days) (which such proposed expenditures shall be
proposed net external expenditures only, including any planned Third Party
contracting and future committed expenditures, but shall not, for the avoidance
of doubt include the internal salary costs of Theravance employees). If such
outline budget is [*] or less, it shall remain in Theravance’s sole discretion;
provided, however, GSK shall be permitted to bring to Theravance’s attention
areas of potential cost savings or comparable efficiencies and Theravance will
reasonably consider any recommendations by GSK in this regard. To the extent
that the outline budget exceeds [*], the Parties shall as promptly as possible
meet and attempt to mutually agree either to changes in the schedule of
activities such that the total budget for the relevant period does not exceed
[*] or alternatively, if GSK agrees that the circumstances warrant activities
that justify a budget in excess of such amount, a higher maximum budget. If the
Parties cannot reach mutual agreement on any excess budgeted amounts then GSK
shall not be obligated to pay for such excess budgeted amounts under
Section 4.3.2. Within a further sixty days of the Initial Due Diligence
Commencement Date, Theravance shall deliver to GSK final and complete POC
Non-Validated Target Data in respect of such First Theravance Compound (“Date of
Final Delivery of Opt-In Data”). To facilitate GSK’s review throughout the
aforesaid periods, Theravance shall deliver all such materials to GSK in a
diligent, prompt and timely manner and shall respond promptly and fully to any
GSK requests and/or queries raised as part of such review. It is hereby
anticipated and acknowledged by the Parties that such process as contemplated
hereunder shall take the form of as many face-to-face meetings between the
Parties as GSK shall reasonably request of Theravance. GSK shall also notify
Theravance of its most likely plans for Development in respect of such Alliance
Program and such intent shall form the basis of the first Development Plan to be
drawn up pursuant to Section 3.3.3. It is anticipated that, within such sixty
(60) day period the Parties will also endeavor to agree, where appropriate, any
specific and/or additional terms related to GSK’s proposed future Development
and Commercialization activities in relation to such Alliance Program,
particularly where appropriate provisions are not contained in this Agreement
or, if such provisions are contained in this Agreement, such provisions are not,
for whatever reason, relevant. It is further envisaged that such specific and/or
additional terms will then be appended to this Agreement as a Specific Alliance
Product Development & Commercialization Appendix. Within a further sixty (60)
days after Date of Final Delivery of Opt-In Data, GSK shall notify Theravance in
writing as to whether or not it is exercising its Opt-In Right with respect to
such Discovery Program. If GSK notifies Theravance in writing of its wish to
exercise its Opt-In Right in respect of such Discovery Program, such notice of
exercise shall not take effect until the date of satisfaction of the Alliance
Program Closing Condition (the “Effective Date of GSK’s Exercise of its Opt-In
Right”). On the Effective Date of GSK’s Exercise of its Opt-In Right, (i) such
Discovery Program for which GSK has notified Theravance of its wish to exercise
its Opt-In Right shall become an Alliance Program; (ii) any payment and/or
compensation that becomes payable by GSK to Theravance as a consequence,
including but not limited to the payment of an Opt-In Fee and/or any relevant
Development Milestone, shall be paid by GSK to Theravance (subject to and in
accordance with the further provisions of Article 6); and (iii) Theravance shall
promptly deliver to GSK at no cost to GSK the Technology Transfer Package. If
GSK elects not to exercise its Opt-In Right for such Discovery Program, or if
the Alliance Program Closing Condition is not satisfied or is terminated
pursuant to Section 15.15, the Discovery Program will become a Reversion Program
(a “Reversion Program”) and Theravance will be entitled to pursue development of
all compounds from such Reversion Program outside the Alliance alone or with a
Third Party.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(ii) If at the Date of Final Delivery of Opt-In Data, only data related to the
First Theravance Compound is available, then, without prejudice to GSK’s
exercise of its Opt-In Right with respect to such Discovery Program in
accordance with Section 4.2.2(b)(i) (including but not limited to the specified
process and timelines related thereto), Theravance shall, at Theravance’s
expense, diligently work toward the goal of delivering up to GSK within a
further [*] days from the Date of Final Delivery of Opt-In Data further
discovery data related to such Discovery Program including but not limited to
data related to any back-up Non-respiratory Compound (“Subsequent Theravance
Compound(s)”). Further, if Development of the First Theravance Compound is
subsequently discontinued and/or terminated by GSK for reasons of Technical
Failure and for whatever reason no Subsequent Theravance Compound(s) in such
Discovery Program exists or has been made available to GSK by Theravance on or
before the expiration of [*] days from the Date of Final Delivery of Opt-In
Data, then the next payment to be made by GSK to Theravance under this Agreement
(whether an Opt-In Fee, Development Milestone or any other payment) shall [*].

 

(iii) If GSK elects not to exercise its Opt-In Right for any Discovery Program
under Section 4.2.2(b)(i), it will no longer have any Opt-In Right for any
subsequent Theravance Compound arising out of the same Discovery Program.

 

4.2.3 Early Opt-In Nothing contained herein shall prevent GSK from exercising an
Opt-In Right with respect to a Discovery Program at any time earlier than set
forth in Sections 4.2.1 and 4.2.2 in which case such Discovery Program shall
become an Alliance Program. Should GSK determine that it would like to consider
exercising its Opt-In Right with respect to a Discovery Program prior to the
expected or anticipated Initial Due Diligence Date, GSK shall notify Theravance
through the Joint Steering Committee and the parties shall use their reasonable
efforts to mutually agree on the information requirements and timetables
applicable to such a decision.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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4.3 Obligations for Development.

 

4.3.1 General; GSK. GSK will, subject to the other terms of this Agreement
(including Section 3.2.3(g)), endeavor to move Alliance Products forward in
Development from each Discovery Program for which GSK has exercised an Opt-In
Right provided always that it is understood and hereby acknowledged by the
Parties that any GSK decision to pursue Development of [*] shall not, for the
avoidance of doubt, constitute a breach of GSK’s Diligent Efforts obligations
under this Agreement. GSK shall have the overall responsibility for, and use
Diligent Efforts in, the performance of all such Development activities which
shall include, where applicable, relevant regulatory filings (as contemplated
under Article 8) for any such Alliance Product moved forward in Development.
Further, GSK shall use Diligent Efforts to advance such Alliance Product through
Development in accordance with the Go/No-Go checkpoints identified in the then
current Development Plan for such Alliance Product. GSK shall also use Diligent
Efforts to develop an optimal formulation of such Alliance Product.

 

4.3.2 GSK Funding Responsibility. As of the Effective Date of GSK’s Exercise of
its Opt-In Right with respect to any Alliance Program, GSK shall bear all
subsequent costs and expenses associated with the Development of Alliance
Products from such Alliance Program (excepting at all times, for the avoidance
of doubt, any costs related to any Theravance continuing work on Subsequent
Theravance Compounds in relation to such Alliance Program as contemplated by
Sections 4.2.1(b), 4.2.2(a)(ii) and 4.2.2(b)(ii), which such costs shall be
excluded from such computation). Further, if GSK elects to exercise its Opt-In
Right for any Discovery Program and, subject to satisfaction under Section 15.15
of the Alliance Program Closing Condition, the Discovery Program thereby becomes
an Alliance Program then, during the period [*] (the “Interim Period”), and
recognizing the increase in the value of the licences granted hereunder as a
result of the work performed by Theravance in the Interim Period, the Opt-In Fee
payable under Section 6.1.4 will [*] (the “Top-Up Fees”) and GSK shall reimburse
Theravance for such Top-Up Fees provided always that unless otherwise agreed by
the Parties the amount of any such Top-Up Fees shall be strictly in accordance
with the budget established by the Parties pursuant to Sections 4.2.1 (a), 4.2.2
(a)(i) or 4.2.2(b)(i), as applicable. Notwithstanding the foregoing, the Parties
hereby acknowledge and recognize that the timing of GSK’s payment to Theravance
of the aforesaid Top-Up Fees may not necessarily be simultaneous with the timing
of GSK’s payment of the relevant Opt-In Fee, since the payment of the Top-Up
Fees by GSK will require prior submission from Theravance to GSK of an
appropriate and suitable invoice for monies spent and GSK shall have thirty (30)
days to reimburse Theravance from the date of GSK’s receipt of said invoice.

 

4.3.3 Decisions with Respect to Alliance Products.

 

(a) GSK shall have the sole discretion with respect to Development decisions for
Alliance Products subject to and in accordance with Sections 3.2.5, 3.3.5, and
4.3.1.

 

(b) GSK will provide the Joint Program Committee with (i) a notification within
thirty (30) days of the initiation (i.e. the first person dosed) of any Study
involving an Alliance Product, and (ii) a “top line results” report within sixty
(60) days following the last person dosed/last visit in any Study involving an
Alliance Product.

 

4.3.4 Development Timelines. It is hereby acknowledged that the Parties’ mutual
strategic objective is to move Alliance Products into Development and subsequent
Commercialization at the earliest opportunity. GSK will consult with the Joint
Program Committee and will share, modify and further develop all applicable
Development Plans and timelines in that forum. GSK will use Diligent Efforts to
secure the necessary resources and will keep the Joint Program Committee
informed on the progress of individual studies and activities relating to
Alliance Products in accordance with Section 3.2.3.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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4.4 Activity Outside of the Alliance. The Parties acknowledge that the research,
Development and Commercialization objectives of this Alliance are intended to be
complementary to GSK’s other research, development and commercialization efforts
outside this Alliance. Accordingly, the Parties agree that GSK shall be free to
discover and develop other compounds for the treatment of diseases targeted by
Alliance Products outside of this Agreement, subject to GSK’s obligations
hereunder with respect to any Alliance Product for which GSK has exercised its
Opt-In Right.

 

ARTICLE 5
COMMERCIALIZATION

 

5.1 Global Marketing Plans.

 

5.1.1 General. The Joint Program Committee shall be responsible for reviewing a
Global Marketing Plan for each Alliance Product (“Marketing Plan”). Each
Marketing Plan shall define the goals and objectives for Commercializing the
Alliance Products in the pertinent Calendar Year consistent with the applicable
Development Plan.

 

5.1.2 Contents of Each Marketing Plan. The Marketing Plan for each Alliance
Product shall be prepared during the Calendar Year wherein, and where
applicable, Phase III Studies for such Alliance Product have commenced and shall
be a rolling, three-year plan, updated annually and shall contain at a minimum
and as appropriate to current knowledge:

 

(a) Results of market research and strategy, including market size, dynamics,
growth, customer segmentation, customer targeting, competitive analysis and
global Alliance Product positioning;

 

(b) Annual sales forecasts for Major Market Countries;

 

(c) For each major Market Country (as available): sales plans, which will
include target number of sales representatives, detail order and target number
of details;

 

(d) Core, global advertising and promotion programs and strategies, including
literature, media plans, symposia and speaker programs; and

 

(e) Core Phase III/Phase IIIb Studies to be conducted.

 

5.2 Obligations for Commercialization. GSK shall use Diligent Efforts to
Commercialize the Alliance Products.

 

5.3 Commercialization.

 

5.3.1 GSK Responsibility. Subject to Section 5.3.2:

 

(a) GSK shall have the sole right and responsibility for Commercialization of
Alliance Products for distribution and sale. GSK shall bear all costs and
expenses associated with the Commercialization of Alliance Products for sale or
distribution;

 

(b) GSK shall have the sole right and responsibility to distribute, sell, record
sales and collect payments for Alliance Products;

 

(c) GSK shall have the sole right and responsibility for establishing and
modifying the terms and conditions with respect to the sale of Alliance
Products, including, without limitation, the price or prices at which the
Alliance Products will be sold, any discount applicable to payments or
receivables, all managed care contracting issues and any other similar matters;
and

 

(d) GSK will be responsible for storage, order receipt, order fulfillment,
shipping and invoicing of Alliance Products.

 

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5.3.2 Limited Co-Promotion in the United States. Theravance may elect to
Co-Promote in the United States an Alliance Product where such Alliance Product
is primarily targeted to specialist and/or hospital-based healthcare providers
in the United States in the manner and to the extent set forth below. The
limited right to Co-Promote as set forth herein is non-exclusive, and also may
not be sublicensed or sub-contracted by Theravance to a Third Party.

 

(a) Co-Promotion Option. Theravance will notify GSK in writing if it wishes to
Co-Promote an Alliance Product, not later than the date of the filing of the New
Drug Application for an Alliance Product in the United States. If GSK is willing
to progress discussions, the parties will then meet as soon as practicable to
further discuss and agree in good faith suitable terms provided always that any
such proposed arrangement shall always be [*]. Any such terms that are agreed
shall be documented separately, executed by the Parties and/or their
Affiliate(s), as applicable, and a copy thereof appended to this Agreement.

 

(b) Co-Promotion Plan. The Co-Promotion Plan will be an amendment to the
Marketing Plan and will be finalized not later than six (6) months before launch
in the United States.

 

5.3.3 Semi-Annual Reports. GSK shall provide the Joint Program Committee reports
semi-annually. Such reports shall set forth in summary form the results of GSK’s
Commercialization activities performed during such semi-annual period in the
Major Markets.

 

5.3.4 Exports to the United States. To the extent permitted by Law, the Parties
shall use Diligent Efforts to prevent the Alliance Products distributed for sale
in a particular Country other than the United States from being exported to the
United States for sale.

 

ARTICLE 6
FINANCIAL PROVISIONS

 

6.1 Option Fee; Equity Investment; Governance Agreement; Opt-In Fee.

 

6.1.1 Option Fee. In partial consideration for the right to Opt-In for Discovery
Programs hereunder, GSK shall on the Effective Date, pay to Theravance a
non-refundable amount of Twenty Million United States Dollars (U.S.
$20,000,000).

 

6.1.2 Equity Investment. On the Effective Date, GSK shall purchase nine million
nine hundred thousand (9,900,000) newly issued shares of Theravance Class A
Common Stock at a price of U.S. $11.00 per share for total consideration of One
Hundred Eight Million Nine Hundred Thousand United States Dollars (U.S.
$108,900,000.00). Such purchase will be made pursuant to the Stock Purchase
Agreement attached hereto as Schedule 6.1.2(A).

 

Simultaneously with the foregoing payment and investment by GSK, all outstanding
Theravance Preferred Stock not owned by GSK will be converted into shares of
Theravance Common Stock, and all outstanding shares of Theravance Preferred
Stock owned by GSK will be converted into shares of Theravance Class A Common
Stock.

 

6.1.3 Governance Agreement. On the Effective Date the Parties also will enter
into the Governance Agreement attached hereto as Schedule 6.1.3(A).

 

6.1.4 Opt-In Fee. Upon the Effective Date of GSK’s Exercise of its Opt-In Right
with respect to any Discovery Program, it shall simultaneously pay to Theravance
a non-refundable fee in partial consideration for the acquisition of license
rights under the Theravance Patents and the Theravance Know-How by GSK under
this Agreement, as follows:

 

(i) for a Discovery Program in which the lead Theravance Compound [*] as of the
Initial Due Diligence Commencement Date: [*];

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
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(ii) for a Discovery Program in which the lead Theravance Compound [*] as of the
Initial Due Diligence Commencement Date: [*]; and

 

(iii) for a Discovery Program in which the lead Theravance Compound [*] as of
the Initial Due Diligence Commencement Date: [*].

 

provided always that, in recognition of the increased value of the licences
granted hereunder as a result of the work performed by Theravance in the Interim
Period, [*].

 

6.2 Milestone Payments.

 

6.2.1 General. In further consideration for the acquisition of license rights
under the Theravance Patents and Theravance Know How, GSK shall also pay to
Theravance the payments set forth below for each such Development milestone
referred to therein (each, a “Development Milestone”); provided always that each
such payment shall be made only one time for each Alliance Product regardless of
how many times such Development Milestones are achieved for such Alliance
Product, and no payment shall be owed for a Development Milestone which is not
reached (except that, upon achievement of a Development Milestone for a
particular Alliance Product, any previous Development Milestone for that
Alliance Product for which payment was not made shall be deemed achieved and
payment therefore shall be made); provided further that, in the event that more
than one Development Milestone is achieved with respect to the same Alliance
Product at one time, then all applicable payments under Section 6.2 shall be
made. For example, if a single-agent Alliance Product and a Combination Product
are approved in the same Marketing Authorization Approval, then in addition to
the relevant milestone for the single-agent Alliance Product, the relevant
milestone for the Combination Product shall be paid simultaneously. In the event
of termination of development of a particular Alliance Product for Technical
Failure and an alternative Alliance Product in the same Discovery Program
replaces such Terminated Alliance Product then milestone payments for such
alternative Alliance Product shall not be paid in respect of milestones already
achieved by the Terminated Alliance Product.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
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6.2.2 Specific Milestones. GSK shall make the following milestone payments to
Theravance upon the achievement of the indicated Development Milestone for each
of the first single agent Alliance Product and the first Combination Alliance
Product per Alliance Program:

 

Milestone

 

Amount

 

 

 

 

 

Initiation of a Phase I Study*

 

U.S.$3 Million

 

 

 

 

 

Successful completion of a Phase II Study**
(where [*] means [*] for a Validated Target and [*] for a Non-Validated Target,
as such Validated/Non-Validated Targets will have been agreed by the Parties
pursuant to Section 4.1.4).

 

U.S.$10 Million

 

 

 

 

 

Initiation of a Phase III Study

 

U.S.$25 Million

 

 

 

 

 

Filing for Regulatory Approval

 

 

 

[*]

 

[*]

 

[*]

 

[*]

 

[*]

 

[*]

 

 

 

 

 

Launch

 

 

 

[*]

 

[*]

 

[*]

 

[*]

 

[*]

 

[*]

 

 

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* Phase I milestone is only payable for Theravance Compounds from Discovery
Programs for which GSK has given notice of its wish to exercise its Opt-In Right
prior to initiation of a Phase I Study for the first Theravance Compound in such
Discovery Program.

 

** Phase II milestone is only payable for Theravance Compounds from Discovery
Programs for which GSK has given notice of its wish to exercise its Opt-In Right
prior to initiation of a Phase II Study for the first Theravance Compound in
such Discovery Program.

 

For the purpose of this Section 6.2, the following definitions shall apply:

 

“Initiation of [*]” means [*] for the applicable Alliance Product

 

“Successful completion of [*]” means [*] conducted in the target population for
the applicable Alliance Product.

 

“Initiation of [*]” means [*] for the applicable Alliance Product.

 

“Filing for Regulatory Approval” means (i) in the case of [*], the date on which
[*] in relation to the applicable Alliance Product [*]; (ii) in the case of [*],
the earlier of (aa) the date on which the appropriate regulatory authorities in
[*] for the applicable Alliance Product filed by or on behalf of GSK in such
Country or (bb) the date on which [*] or any successor thereto [*] for the
applicable Alliance Product filed by or on behalf of GSK; and (iii) in the case
of [*], the date on which the relevant governmental authority in [*] for the
applicable Alliance Product filed by or on behalf of GSK in [*].

 

“Launch” means the date of First Commercial Sale in either [*], as applicable.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
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If GSK, either individually or as a member of the Joint Steering Committee or
Joint Program Committee, discontinues the Development of [*] for reasons other
than Technical Failure, and the Theravance Compound that comprises such Alliance
Product is also in a [*], GSK will not compensate Theravance for the unpaid
milestone payments otherwise due to Theravance under Section 6.2.2 except where,
and notwithstanding GSK’s intent to commercialize only [*], treatment with [*]
also forms a distinct part of the [*] for that [*] (so, for example, the safety
and efficacy of the [*] is evaluated in a separate group of patients in a [*])
such that the aforesaid milestone is also achieved for the [*] in which case
such milestone shall be due and payable by GSK. And, for the avoidance of doubt,
if in such a situation, notwithstanding GSK’s original intent to commercialize
only [*], GSK then decides to commercialize [*] and the Filing and Launch
milestones are achieved in respect of such [*], then such milestones shall also
be due and payable by GSK.

 

6.2.3 Notification and Payment. In the event an Alliance Product achieves a
Development Milestone, GSK shall promptly, but in no event more than ten
(10) days after the achievement of each such Development Milestone, notify
Theravance in writing of the achievement of same. For all Development Milestones
achieved, but subject always to satisfaction under Section 15.15 of the relevant
Alliance Program Closing Condition, GSK shall promptly, but in no event more
than thirty (30) days after notification of the achievement of each such
Development Milestone, remit payment to Theravance for such Development
Milestone.

 

6.3 Payment of Royalties on Net Sales.

 

6.3.1 [*] Royalty on Single-Agent Alliance Products from Discovery Programs for
Which GSK Exercised its Opt-In Right [*] for the First Theravance Compound in
Such Discovery Program. As further consideration for the acquisition of license
rights under the Theravance Patents under this Agreement, and in those Countries
of the Territory in which there is a Valid Claim of a Theravance Patent covering
the Alliance Product in the Country of sale at the time such Net Sales occur
(for the avoidance of doubt, “covering” as used in this Section and subsequent
Sections shall include the making, using, selling, offering for sale, or
importing the Alliance Product), GSK shall pay Theravance, within twenty (20)
days after the end of each Calendar Quarter, royalty payments for each such
Alliance Product based on Net Sales in such Calendar Quarter on a Country by
Country basis, as follows:

 

On total Annual Worldwide Net Sales up to but not including [*] 10%

 

On total Annual Worldwide Net Sales from [*]

 

On total Annual Worldwide Net Sales [*] up to an including U.S.$3.5 Billion: 20%

 

On total Annual Worldwide Net Sales over U.S.$3.5 Billion: 7.5%

 

6.3.2 [*] Royalty on Single-Agent Alliance Products from Discovery Programs for
Which GSK Exercised its Opt-In Right [*] for the First Theravance Compound in
Such Discovery Program. As further consideration for the acquisition of license
rights under the Theravance Patents under this Agreement, and in those Countries
of the Territory where an obligation to pay royalties under Section 6.3.1 has
applied during the Term but is no longer applicable (as a result of subsequent
expiration or termination of the last Valid Claim of a Theravance Patent
covering the Alliance Product in the Country of sale at the time such Net Sales
occur), GSK shall pay Theravance, within twenty (20) days after the end of each
Calendar Quarter, royalty payments for each such Alliance Product based on Net
Sales in such Calendar Quarter on a Country by Country basis, as follows:

 

[*]

 

6.3.3 [*] Royalty on Single-Agent Alliance Products from Discovery Programs for
Which GSK Exercised its Opt-In Right [*] for the First Theravance Compound in
Such Discovery Program. As further consideration for the acquisition of
Theravance Know-How by GSK under this Agreement, and in those countries which
are not subject to the royalty obligation referred to in either Sections 6.3.1
or 6.3.2, GSK shall pay Theravance, within twenty (20) days after the end of
each Calendar Quarter, royalty payments for each such Alliance Product based on
Net Sales in such Calendar Quarter on a Country by Country basis, as follows:

 

[*]

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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6.3.4 [*] Royalty on Single-Agent Alliance Products from Discovery Programs for
Which GSK Exercised its Opt-In Right [*] for the First Theravance Compound in
Such Discovery Program. As further consideration for the acquisition of license
rights under the Theravance Patents under this Agreement, and in those Countries
of the Territory in which there is a Valid Claim of a Theravance Patent covering
the Alliance Product in the Country of sale at the time such Net Sales occur,
GSK shall pay Theravance, within twenty (20) days after the end of each Calendar
Quarter, royalty payments for each such Alliance Product based on Net Sales in
such Calendar Quarter on a Country by Country basis, as follows:

 

[*]

 

6.3.5 [*] Royalty on Single-Agent Alliance Products from Discovery Programs for
Which GSK Exercised its Opt-In Right [*] for the First Theravance Compound in
Such Discovery Program. As further consideration for the acquisition of license
rights under the Theravance Patents under this Agreement, and in those Countries
of the Territory where an obligation to pay royalties under Section 6.3.4 has
applied during the Term but is no longer applicable (as a result of subsequent
expiration or termination of the last Valid Claim of a Theravance Patent
covering the Alliance Product in the Country of sale at the time such Net Sales
occur), GSK shall pay Theravance, within twenty (20) days after the end of each
Calendar Quarter, royalty payments for each such Alliance Product based on Net
Sales in such Calendar Quarter on a Country by Country basis, as follows:

 

[*]

 

6.3.6 [*] Royalty on Single-Agent Alliance Products from Discovery Programs for
Which GSK Exercised its Opt-In Right [*] for the First Theravance Compound in
Such Discovery Program. As further consideration for the acquisition of
Theravance Know-How by GSK under this Agreement, and in those countries which
are not subject to the royalty obligation referred to in either Sections 6.3.4
or 6.3.5, GSK shall pay Theravance, within twenty (20) days after the end of
each Calendar Quarter, royalty payments for each such Alliance Product based on
Net Sales in such Calendar Quarter on a Country by Country basis, as follows:

 

[*]

 

6.3.7 Royalty on Combination Products. For the purpose of determining royalty
payments, then if the Combination Product is commercialized but the Theravance
single agent is not sold separately in finished form, seventy percent (70%) of
the royalty rates referred to in Sections 6.3.1 - 6.3.6 inclusive (whichever is
applicable) shall apply. If the Combination Product is commercialized and the
relevant Theravance single agent in such Combination Product is also separately
commercialized for which Theravance is receiving separate royalty payments then,
if there are [*] active ingredients in such Combination Product and one such
active ingredient is such Theravance single agent, [*] of the royalty rates
referred to in Sections 6.3.1 - 6.3.6 inclusive (whichever is applicable) shall
apply; and if there are [*] active ingredients in such Combination Product and
one such active ingredient is the Theravance single agent, [*] of the royalty
rates referred to in Sections 6.3.1 - 6.3.6 inclusive (whichever is applicable)
shall apply.

 

6.3.8 Estimates. The quarterly royalty payments made hereunder may be based on
estimated Net Sales. Within thirty (30) days after the end of each Calendar
Quarter, GSK shall calculate the actual amount of Net Sales for the previous
Calendar Quarter and either credit or debit the difference between such actual
and projected amount on the succeeding Calendar Quarter’s royalty payment to
Theravance. GSK will also provide Theravance with those estimates of future Net
Sales as it provides in accordance with its own internal procedures.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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6.3.9 Duration of Royalty Payments

 

(a) Commencement All royalties payable hereunder shall be paid on a
Country-by-Country basis from the date of first commercial sale of each Alliance
Product in a particular Country and additionally, in the case of Sections 6.3.1
and 6.3.4, at such time as there is a Valid Claim of a Theravance Patent
covering the Alliance Product sold.

 

(b) Duration of [*] Royalties Royalty obligations under Sections 6.3.1 and 6.3.4
in each Country of the Territory shall remain until the expiration or
termination of the last Valid Claim of a Theravance Patent covering the Alliance
Product in such Country.

 

(c) Duration of [*] Royalties Royalty obligations under Sections 6.3.2 and 6.3.5
in each Country of the Territory shall apply for a maximum period of fifteen
(15) years from First Commercial Sale of the relevant Alliance Product in each
such Country (where, for the avoidance of doubt, such period would include, and
not be additional to, the time for which a full patent royalty was previously
payable under either Section 6.3.1 or Section 6.3.4, as applicable).

 

(d) Duration of [*] Royalties Royalty obligations under Sections 6.3.3 and 6.3.6
in each Country of the Territory shall apply for a maximum period of ten
(10) years from First Commercial Sale of the relevant Alliance Product in each
such country.

 

6.4 Royalty Responsibilities; Net Sales Reports.

 

6.4.1 Payments to Third Parties.

 

(a) If, as a result of a settlement approved by both Parties or as a result of a
final non-appealable judgment, GSK is required to pay any amounts to a Third
Party directly because using or selling a Theravance Compound is found to
infringe the rights of such Third Party, GSK shall deduct [*] of any such amount
paid to such Third Party from the royalties otherwise due Theravance for the
Alliance Product containing such Theravance Compound, provided in no event shall
the aggregate of any such reduction(s) reduce the royalties otherwise payable to
Theravance during any Calendar Year by more than [*]; provided, further, that
any excess deduction shall be carried over into subsequent years of this
Agreement until the full deduction is taken. In the event that at the time GSK
elects to exercise its Opt-In Right with respect to a Discovery Program, either
(a) the formulation containing the relevant Theravance Compound or (b) the
process used to prepare the relevant Theravance Compound that has been used or
will be used for clinical trial material or commercial supply, requires a
license from a Third Party, the same reduction in royalties payable to
Theravance as set forth hereinabove shall apply.

 

(b) GSK shall pay any amounts owed to a Third Party as a result of the use of
GSK Patents or GSK Know-How or for any other reason other than in connection
with 6.4.1 (a) with respect to sales of Alliance Products and shall not deduct
any of such amounts from the royalties due Theravance.

 

6.4.2 Net Sales Report. Within thirty (30) days after the end of each Calendar
Quarter, GSK shall submit to Theravance a written report setting forth Net Sales
in the Territory on a Country-by-Country and Alliance Product-by-Alliance
Product basis during such Calendar Quarter, total royalty payments due
Theravance, relevant market share data and any payments made to any Third Party
pursuant to Section 6.4.1(a) (each a “Net Sales Report”).

 

6.5 IFRS. All financial terms and standards defined or used in this Agreement
for sales or activities occurring in the Territory shall be governed by and
determined in accordance with the generally accepted accounting principles as
referred to in the International Financial Reporting Standards (“IFRS”).

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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6.6 Currencies. Monetary conversion from the currency of a foreign country in
which Alliance Product is sold into US Dollars shall be calculated in accordance
with the methodology referred to in GSK’s then current Corporate Finance
Reporting Policy. The following summarizes GSK’s current methodology applied in
accordance with its current Corporate Finance Reporting System: the cumulative
year-to-date Average Rates are calculated by determining the average of (i) the
preceding 31st December Spot Rate plus (ii) the Closing Spot Rates of the
relevant months to date using the exact figures provided by the Reuters 2000
download. (By way of example, the Average Rate for the five months from January,
2005 to May, 2005 would be computed by taking the sum of the Spot Rates for the
preceding 31st December, 2004, plus the month-end Spot Rates for the five months
to May, 2005, divided by six).

 

6.7 Manner of Payments. All sums due under this Article 6 shall be payable in
United States Dollars by bank wire transfer in immediately available funds to
such bank account(s) as Theravance shall designate. GSK shall notify Theravance
as to the date and amount of any such wire transfer to Theravance at least five
(5) Business Days prior to such transfer.

 

6.8 Interest on Late Payments. If GSK shall fail to make a timely payment
pursuant to this Article 6, any such payment that is not paid on or before the
date such payment is due under this Agreement shall bear interest, to the extent
permitted by applicable law, at the average one-month London Inter-Bank Offering
Rate (LIBOR) for the United States Dollar as reported from time to time in The
Wall Street Journal, effective for the first date on which payment was
delinquent and calculated on the number of days such payment is overdue or, if
such rate is not regularly published, as published in such source as the Joint
Steering Committee agrees.

 

6.9 Tax Withholding.

 

6.9.1 Any taxes, levies or other duties (“Taxes”) paid or required to be
withheld under the appropriate local tax laws by one of the Parties
(“Withholding Party”) on account of monies payable to the other Party under this
Agreement shall, subject to Sections 6.9.2 and 6.9.3, be deducted from the
amount of monies otherwise payable to the other Party under this Agreement. The
Withholding Party shall secure and send to the other Party within a reasonable
period of time proof of any such Taxes paid or required to be withheld by
Withholding Party for the benefit of the other Party.

 

6.9.2 If GSK or any GSK Affiliate is or becomes liable to withhold any taxes
from payments made to Theravance under Sections 6.1 and/or 6.2, then GSK shall
pay to Theravance an amount equal to the amount GSK or the applicable GSK
Affiliate owes to the relevant tax authority provided always that if Theravance
is able to obtain credit for any taxes withheld (“Creditable Taxes”) against any
liability to tax either in the year in which the receipt is taxable or any
preceding years, Theravance shall reimburse to GSK an amount equivalent to the
Creditable Taxes. Theravance shall provide GSK with such reasonable evidence as
GSK may reasonably request to determine whether the taxes are creditable against
taxes payable by Theravance.

 

6.9.3 If GSK or any GSK Affiliate is or becomes liable to withhold any taxes
from payments made to Theravance under Section 6.3, then such taxes may be
withheld by GSK or the applicable GSK Affiliate up to a limit of [*] of the
relevant payment. GSK shall pay to Theravance an amount equal to the amount GSK
owes to the relevant tax authority in excess of such [*] provided always that if
Theravance is able to obtain any Creditable Taxes against any liability to tax
either in the year in which the receipt is taxable or any preceding years,
Theravance shall reimburse to GSK an amount equivalent to the Creditable Taxes.
Theravance shall provide GSK with such reasonable evidence as GSK may reasonably
request to determine whether the taxes are creditable against taxes payable by
Theravance.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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6.10 Financial Records; Audits. GSK shall keep, and shall cause its Affiliates
and sublicensees to keep, such accurate and complete records of Net Sales as are
necessary to determine the amounts due to Theravance under this Agreement and
such records shall be retained by GSK or any of its Affiliates or sublicensees
(in such capacity, the “Recording Party”) for at least the three subsequent
Calendar Years to which the Net Sales relate. During normal business hours and
with reasonable advance notice to the Recording Party, such records shall be
made available for inspection, review and audit, at the request and expense of
Theravance, by an independent certified public accountant, or the local
equivalent, appointed by Theravance and reasonably acceptable to the Recording
Party for the sole purpose of verifying the accuracy of the Recording Party’s
accounting reports and payments made or to be made pursuant to this Agreement;
provided, however that such audits may not be performed by Theravance more than
once per Calendar Year. Such accountants shall be instructed not to reveal to
Theravance the details of its review, except for (i) such information as is
required to be disclosed under this Agreement and (ii) such information
presented in a summary fashion as is necessary to report the accountants’
conclusions to Theravance, and all such information shall be deemed Confidential
Information of the Recording Party; provided, however, that in any event such
information may be presented to Theravance in a summary fashion as is necessary
to report the accountants’ conclusions. All costs and expenses incurred in
connection with performing any such audit shall be paid by Theravance unless the
audit discloses at least a [*] shortfall, in which case the Recording Party will
bear the full cost of the audit for such Calendar Year. Theravance will be
entitled to recover any shortfall in payments due to it as determined by such
audit, plus interest thereon calculated in accordance with Section 6.8, or
alternatively shall have the right to offset and deduct any such shortfall in
payments due to it against payments Theravance is otherwise required to make to
the Reporting Party under this Agreement. The documents from which were
calculated the sums due under this Article 6 shall be retained by the relevant
Party during the Term.

 

ARTICLE 7
COMMUNICATIONS, PROMOTIONAL MATERIALS AND SAMPLES

 

7.1 Communications and Promotional Materials.

 

7.1.1 Housemark Exposure. To the extent allowed by applicable Law, and further
to the extent reasonably practicable, all communications and Promotional
Materials will indicate the contribution of the license from Theravance for the
Alliance Products. Subject to the foregoing, the Theravance Housemark and the
GSK Housemark shall both be given exposure and prominence on all communications
and promotional materials, labeling, package inserts or outserts and packaging
for the Alliance Products.

 

7.1.2 Review of Core Promotional Materials. Subject to applicable Law, in
accordance with the direction of the Joint Program Committee and only in the
event of a co-promotion under Section 5.3.2, (i) the Parties will jointly,
through consultation and with the assistance of each other, review the core
Promotional Materials, and (ii) the relevant legal or regulatory personnel of
each Party shall have the opportunity to review and comment on all such core
Promotional Materials prior to use and such comments shall be considered by the
Joint Program Committee in the review of such core Promotional Materials.

 

7.2 Samples. Packaging, package inserts and outserts, Sample labels and labeling
shall each contain reference to Theravance and GSK indicating, in the case of
Theravance, the contribution of the license from Theravance for the Alliance
Products, if appropriate, and as may be required under applicable FDA rules and
regulations.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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7.3 Statements Consistent with Labeling. GSK shall ensure that its sales
representatives detail the Alliance Products in a fair and balanced manner and
consistent with the requirements of the Federal Food, Drug and Cosmetic Act of
the United States, as amended, including, but not limited to, the regulations at
21 C.F.R. (S) 202 in the United States.

 

7.4 Implications of Change in Control in Theravance. In the event that there is
a Change in Control of Theravance that does not involve GSK or its Affiliates
and the references contemplated in Sections 7.1.2 and 7.2 are no longer made to
“Theravance,” then other than to the extent required by applicable Law, GSK
shall have the right, not to be unreasonably exercised, to terminate its
obligations under Sections 7.1 and 7.2.

 

ARTICLE 8
REGULATORY MATTERS

 

8.1 Governmental Authorities. GSK shall be solely responsible for communicating
with Governmental Authorities in connection with the Development and
Commercialization of an Alliance Product and will keep Theravance informed,
through the Joint Program Committee and Joint Steering Committee, of any
significant issue or issues arising therefrom.

 

8.2 Filings. Subject to any necessary transitional arrangements that may be
identified and agreed by the Parties under Section 4.2, and which would then
form part of the Specific Alliance Product Development & Commercialization
Appendix for same, GSK shall also be solely responsible for filing drug approval
applications for Alliance Products and will use Diligent Efforts in seeking
appropriate approvals in those Countries of the Territory for Alliance Products
as GSK reasonably determines and sees fit. Such regulatory documents for each
filing shall be centralized and held at the offices of GSK. Theravance shall
provide such reasonable assistance as may be required by GSK where liaison
between the Parties is, or may be, necessary to enable GSK to fulfill its
responsibilities hereunder. GSK shall be responsible for maintaining the
Approvals obtained under this Section 8.2 and shall solely own all such
Approvals in the Territory. GSK shall be fully responsible for bearing all costs
and expense associated with undertaking and completing said registration
activities in the Territory, including but not limited to the costs of preparing
and prosecuting applications for such Approvals and fees payable to regulatory
agencies in obtaining and maintaining same.

 

8.3 Exchange of Drug Safety Information. Subject to and upon completion of
appropriate Safety Exchange requirements and/or transfer of all appropriate
safety data identified and agreed by the Parties under Section 4.2 (and which
would then form part of the Specific Alliance Product Development &
Commercialization Appendix for same), at the time a Theravance Compound becomes
an Alliance Product under this Agreement GSK shall be responsible for recording,
investigating, summarizing, notifying, reporting and reviewing all Adverse Drug
Experiences in relation to Alliance Products in accordance with Law and shall
require that its Affiliates (i) adhere to all requirements of applicable Laws
which relate to the reporting and investigation of Adverse Drug Experiences, and
(ii) keep the Joint Program Committee apprised on a regular basis of such
matters arising therefrom.

 

8.4 Recalls or Other Corrective Action. Each Party shall, as soon as
practicable, notify the other Party of any recall information received by it in
sufficient detail to allow the Parties to comply with any and all applicable
Laws. GSK shall promptly notify Theravance of any material actions to be taken
by GSK with respect to any recall or market withdrawal or other corrective
action related to an Alliance Product prior to such action to permit Theravance
a reasonable opportunity to consult with GSK with respect thereto. All costs and
expenses with respect to a recall, market withdrawal or other corrective action
shall be borne by GSK unless such recall, market withdrawal or other corrective
action was due solely to the negligence, willful misconduct or breach of this
Agreement by Theravance. GSK shall have sole responsibility for and shall make
all decisions with respect to any recall, market withdrawals or any other
corrective action related to the Alliance Products.

 

8.5 Events Affecting Integrity or Reputation. During the Term, the Parties shall
notify each other immediately of any circumstances of which they are aware and
which could impair the integrity and reputation of the Alliance Products or if a
Party is threatened by the unlawful activity of any Third Party in relation to
the Alliance Products, which circumstances shall include, by way of
illustration, deliberate tampering with or contamination of the Alliance
Products by any Third Party as a means of extorting payment from the Parties or
another Third Party. In any such circumstances, the Parties shall use Diligent
Efforts to limit any damage to the Parties and/or to the Alliance Products. The
Parties shall promptly call a Joint Steering Committee meeting to discuss and
resolve such circumstances.

 

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ARTICLE 9
ORDERS; SUPPLY AND RETURNS

 

9.1 Orders and Terms of Sale. Except as otherwise expressly stated in this
Agreement, GSK shall have the sole right to (i) receive, accept and fill orders
for the Alliance Products, (ii) control invoicing, order processing and
collection of accounts receivable for the Alliance Products sales, (iii) record
the Alliance Products sales in its books of account, and (iv) establish and
modify the commercial terms and conditions with respect to the sale and
distribution of the Alliance Products, including without limitation matters such
as the price at which the Alliance Products will be sold and whether any
discounts, rebates or other deductions should be made, paid or allowed.

 

9.2 Supply of API Compound and Formulated Alliance Product for Development.

 

9.2.1 Supply of API Compound for Development. Subject to the terms and
conditions of this Agreement, GSK shall conduct or have conducted any chemical
process development required to develop a commercially acceptable process for
making API Compound and obtain supply for worldwide requirements of API
Compound. Notwithstanding the foregoing, Theravance shall transfer on or after
the Effective Date of GSK’s Exercise of its Opt-In Right, at cost, all
reasonable quantities of API supply it has on hand of a Theravance Compound for
which GSK has exercised its Opt-In Right and/or intermediate materials for API
manufacture and provided also that such API supplies shall always be in
conformity with GSK’s own requirements. API Compound requirements for
Development activities shall be set forth in the relevant Development Plan and
shall be periodically updated by the Joint Program Committee. For the purposes
of this Section 9.2.1, “at cost” means Theravance’s fully allocated cost of
manufacturing, comprising all direct costs (including but not limited to, labor,
materials, energy, utilities, quality control and costs of third party
manufacture) and indirect costs (including but not limited to administrative
labor costs, manufacturing facility and equipment maintenance, relevant
insurance and depreciation of manufacturing equipment and manufacturing
facilities) specifically allocable to the production and delivery of API and/or
Alliance Product, as applicable, to GSK; such calculation being based upon
accepted contract manufacturing industry standards or generally accepted
accounting principles.

 

9.2.2 Supply of Formulated Alliance Products for Development. Subject to the
terms and conditions of this Agreement, GSK shall be solely responsible for
manufacture and supply for worldwide requirements of formulated Alliance
Products. Notwithstanding the foregoing, Theravance agrees to transfer to GSK on
or after the Effective Date of GSK’s Exercise of its Opt-In Right, at cost, all
reasonable quantities of formulated Alliance Product for which GSK has exercised
its Opt-In Right and provided also that such formulated Alliance Product shall
always be in conformity with GSK’s own requirements. Formulated Alliance Product
requirements for Development activities shall be set forth in the relevant
Development Plan and shall be periodically updated by the Joint Project
Committee (in the form and at the times the Joint Project Committee determines).

 

9.2.3 At Cost. For the purposes of this Section 9.2, “at cost” means
Theravance’s fully allocated cost of manufacturing, comprising all direct costs
(including but not limited to, labor, materials, energy, utilities, quality
control and costs of third party manufacture) and indirect costs (including but
not limited to administrative labor costs, manufacturing facility and equipment
maintenance, relevant insurance and depreciation of manufacturing equipment and
manufacturing facilities) specifically allocable to the production and delivery
of API and/or Alliance Product, as applicable, to GSK; such calculation being
based upon accepted contract manufacturing industry standards or generally
accepted accounting principles.

 

9.3 Supply of API Compound for Commercial Requirements. Subject to the terms and
conditions of this Agreement, GSK shall be solely responsible for the
manufacture and supply of API Compound. A forecast for API Compound requirements
for Commercialization of the Alliance Products shall be prepared and
periodically updated by the Joint Program Committee (in the form and at the
times the Joint Program Committee determines), and coordinated with the
applicable Marketing Plans for Alliance Products.

 

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9.4 Supply of Alliance Products for Commercialization. Subject to the terms and
conditions of this Agreement, GSK shall be solely responsible for the
manufacture and supply of commercial requirements of formulated, packaged and
labeled Alliance Products. Such formulated, packaged and labeled Alliance
Products shall be manufactured and supplied in accordance with all applicable
Laws and current Good Manufacturing Practices. GSK shall be solely responsible
for secondary manufacture (formulation of finished drug product), packaging and
labeling of the Alliance Product.

 

9.5 Inventories. GSK and its Product Suppliers shall maintain an inventory of
API Compound and Alliance Products in accordance with their normal practices and
so as to ensure fulfillment of its respective supply obligations herein.

 

9.6 Potential Differences in Supply/Manufacturing Needs on an Alliance Product
by Alliance Product Basis. The provisions of Sections 9.2-9.5 inclusive shall
apply in respect of each Alliance Product save where the Parties mutually agree
otherwise to amend and/or supplement such terms for any Alliance Product. Any
such mutually agreed terms would then form part of the Specific Alliance Product
Development & Commercialization Appendix for such Alliance Product.

 

ARTICLE 10
CONFIDENTIAL INFORMATION

 

10.1 Confidential Information. Each of GSK and Theravance shall keep all
Confidential Information received from the other Party with the same degree of
care it maintains the confidentiality of its own Confidential Information.
Neither Party shall use such Confidential Information for any purpose other than
in performance of this Agreement or disclose the same to any other Person other
than to such of its agents who have a need to know such Confidential Information
to implement the terms of this Agreement or enforce its rights under this
Agreement. A Receiving Party shall advise any agent who receives such
Confidential Information of the confidential nature thereof and of the
obligations contained in this Agreement relating thereto, and the Receiving
Party shall ensure that all such agents comply with such obligations as if they
had been a Party hereto. Upon termination of this Agreement, the Receiving Party
shall return or destroy all documents, tapes or other media containing
Confidential Information of the Disclosing Party that remain in the Receiving
Party’s or its agents’ possession, except that the Receiving Party may keep one
copy of the Confidential Information in the legal department files of the
Receiving Party, solely for archival purposes. Such archival copy shall be
deemed to be the property of the Disclosing Party, and shall continue to be
subject to the provisions of this Article 10. Notwithstanding anything to the
contrary in this Agreement, the Receiving Party shall have the right to disclose
this Agreement or Confidential Information provided hereunder if, in the
reasonable opinion of the Receiving Party’s legal counsel, such disclosure is
necessary to comply with the terms of this Agreement, or the requirements of any
Law. Where possible, the Receiving Party shall notify the Disclosing Party of
the Receiving Party’s intent to make such disclosure pursuant to the provision
of the preceding sentence sufficiently prior to making such disclosure so as to
allow the Disclosing Party adequate time to take whatever action the Disclosing
Party may deem to be appropriate to protect the confidentiality of the
information. The Receiving Party will cooperate reasonably with the Disclosing
Party’s efforts to protect the confidentiality of the information. Each Party
will be liable for breach of this Article 10 by any of its Affiliates or agents.

 

10.2 Permitted Disclosure and Use. Notwithstanding Section 10.1, a Party may
disclose Confidential Information belonging to the other Party only to the
extent such disclosure is reasonably necessary to: (a) obtain Marketing
Authorization of an Alliance Product; (b) enforce the provisions of this
Agreement; or (c) comply with Laws. If a Party deems it necessary to disclose
Confidential Information of the other Party pursuant to this Section 10.2, such
Party shall give reasonable advance notice of such disclosure to the other Party
to permit such other Party sufficient opportunity to object to such disclosure
or to take measures to ensure confidential treatment of such information. The
Receiving Party will cooperate reasonably with the Disclosing Party’s efforts to
protect the confidentiality of the information.

 

10.3 Publications. Subject to any Third Party rights existing as of the
Effective Date, each Party shall submit to the Joint Program Committee for
review and approval all proposed academic, scientific and medical publications
and public presentations relating to an Alliance Product or any Development

 

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activities under this Agreement for review in connection with preservation of
related patent rights, and trade secrets and/or to determine whether
Confidential Information should be modified or deleted from the proposed
publication or public presentation. Written copies of such proposed publications
and presentations shall be submitted to the Joint Program Committee no later
than sixty (60) days before submission for publication or presentation and the
Joint Program Committee shall provide its comments with respect to such
publications and presentations within ten (10) Business Days of its receipt of
such written copy. The review period may be extended for an additional sixty
(60) days if a representative of the non-publishing Party on the Joint Program
Committee can demonstrate a reasonable need for such extension including, but
not limited to, the preparation and filing of patent applications. By mutual
agreement of the Parties, this period may be further extended. The Parties will
each comply with standard academic practice regarding authorship of scientific
publications and recognition of contribution of other Parties in any
publications relating to the Alliance Products or any Development activities
under this Agreement.

 

10.4 Public Announcements. Except as may be expressly permitted under
Section 10.3 or required by applicable Laws and subject to the final two
sentences of this Section 10.4, neither Party will make any public announcement
of any information regarding this Agreement, the Alliance Products or any
Development activities under this Agreement without the prior written approval
of the other Party, which approval shall not be withheld unreasonably. Once any
statement is approved for disclosure by the Parties or information is otherwise
made public in accordance with the preceding sentence, either Party may make a
subsequent public disclosure of the contents of such statement without further
approval of the other Party. Notwithstanding the foregoing, within sixty (60)
days following the Effective Date, appropriate representatives of the Parties
will meet and agree upon a process and principles for reaching timely consensus
on how the Parties will make public disclosure concerning this Agreement, the
Alliance Products or any Development activities under this Agreement.

 

10.5 Confidentiality of This Agreement. The terms of this Agreement shall be
Confidential Information of each Party and, as such, shall be subject to the
provisions of this Article 10. Either Party may disclose the terms of this
Agreement if, in the opinion of its counsel, such disclosure is required by Law.
In such event, the Disclosing Party will seek appropriate confidentiality of
those portions of the Agreement for which confidential treatment is typically
permitted by the relevant Governmental Authority.

 

10.6 Further Agreements Concerning Confidentiality. In connection with any due
diligence activities conducted by GSK prior to making a decision on exercising
GSK’s Opt-In Right under Article 4, GSK shall execute confidentiality
agreement(s) relating to Theravance’s intellectual property and the chemistry
being reviewed, such confidentiality agreements to be substantially similar to
those executed by GSK in connection with its review of Theravance’s intellectual
property in connection with the LABA Collaboration Agreement.

 

10.7 Survival. The obligations and prohibitions contained in this Article 10
shall survive the expiration or termination of this Agreement for a period of
ten (10) years.

 

ARTICLE 11
REPRESENTATIONS AND WARRANTIES; COVENANTS

 

11.1 Mutual Representations and Warranties. Theravance and GSK each represents
and warrants to the other as of the Effective Date that:

 

11.1.1 Such Party (a) is a company duly organized, validly existing, and in good
standing under the Laws of its incorporation; (b) is duly qualified as a
corporation and in good standing under the Laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, where the failure to be so qualified would have a material
adverse effect on its financial condition or its ability to perform its
obligations hereunder; (c) has the requisite corporate power and authority and
the legal right to conduct its business as now conducted and hereafter
contemplated to be conducted; (d) has or will obtain all necessary licenses,
permits, consents, or approvals from or by, and has made or will make all
necessary notices to, all Governmental Authorities having jurisdiction over such
Party, to the extent required

 

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for the ownership and operation of its business, where the failure to obtain
such licenses, permits, consents or approvals, or to make such notices, would
have a material adverse effect on its financial condition or its ability to
perform its obligations hereunder; and (e) is in compliance with its charter
documents;

 

11.1.2 The execution, delivery and performance of this Agreement by such Party
and all instruments and documents to be delivered by such Party hereunder (a)
are within the corporate power of such Party; (b) have been duly authorized by
all necessary or proper corporate action; (c) do not conflict with any provision
of the charter documents of such Party; (d) will not, to the best of such
Party’s knowledge, violate any law or regulation or any order or decree of any
court of governmental instrumentality; (e) will not violate or conflict with any
terms of any indenture, mortgage, deed of trust, lease, agreement, or other
instrument to which such Party is a Party, or by which such Party or any of its
property is bound, which violation would have a material adverse effect on its
financial condition or on its ability to perform its obligations hereunder;

 

11.1.3 This Agreement has been duly executed and delivered by such Party and
constitutes a legal, valid and binding obligation of such Party, enforceable
against such Party in accordance with its terms, except as such enforceability
may be limited by applicable insolvency and other Laws affecting creditors’
rights generally, or by the availability of equitable remedies; and

 

11.1.4 All of its employees, officers, and consultants have executed agreements
or have existing obligations under law requiring assignment to such Party of all
Inventions made by such individuals during the course of and as the result of
their association with such Party, and obligating such individuals to maintain
as confidential such Party’s Confidential Information.

 

11.1.5 Nothing contained in this Agreement shall give a Party the right to use
the Confidential Information received from the other Party in connection with
any activity other than Development and Commercialization of an Alliance Product
consistent with this Agreement.

 

11.2 Additional GSK Representations and Warranties. GSK further represents,
warrants and covenants to Theravance that neither GSK nor any of its Affiliates
is a Party to or otherwise bound by any oral or written contract or agreement
that will result in any Person obtaining any interest in, or that would give to
any Person any right to assert any claim in or with respect to, any of GSK’s
rights granted under this Agreement.

 

11.3 Additional Theravance Representations and Warranties. Theravance further
represents and warrants to GSK as of the Effective Date that:

 

11.3.1 In the normal course of business in connection with each Discovery
Program, Theravance carries out diligent literature searches in relation to the
Theravance Patents, and will disclose to GSK’s counsel any conflict or likely
future conflict of which Theravance is aware with the intellectual property
rights of any Third Party with respect to Theravance Patents for the relevant
Theravance Compounds in the Discovery Program during the course of any due
diligence by GSK in connection with GSK’s Opt-In Right decision under Article 4.

 

11.3.2 Theravance has not received notice from any Third Party of a claim that
an issued patent of such Third Party would be infringed by the manufacture,
distribution, marketing or sale of the potential Alliance Products existing as
of the date of signature of this Agreement;

 

11.3.3 To Theravance’s knowledge, none of Theravance’s current patent rights are
subject to any pending or any threatened re-examination, opposition,
interference or litigation proceedings;

 

11.3.4 Theravance has not received notice from any Third Party of a claim
asserting the invalidity, misuse, unregisterability or unenforceability of any
of Theravance’s current patent rights, or challenging its right to use or
ownership of any of Theravance’s current patent rights or Theravance’s know-how,
or making any adverse claim of ownership thereof; and

 

11.3.5 Theravance has not received notice from any Third Party that any trade
secrets or other intellectual property rights of such Third Party would be
misappropriated by the development and reduction to practice of Theravance’s
current patent rights and Theravance’s know-how.

 

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11.3.6 Theravance will not at any time during the Term disclose to any Third
Party(ies) and/or publish in the public domain any proprietary and secret
Theravance Know-How that is proprietary and secret as of the date this Agreement
is signed by the Parties.

 

11.4 Covenants. Each Party hereby covenants and agrees during the Term that it
shall carry out its obligations or activities hereunder in accordance with (i)
the terms of this Agreement and (ii) all applicable Laws.

 

11.5 Disclaimer of Warranty. Subject to the specific warranties and
representations given under Sections 11.1 through and including 11.3, nothing in
this Agreement shall be construed as a warranty or representation by either
Party (i) that any Alliance Product made, used, sold or otherwise disposed of
under this Agreement is or will be free from infringement of patents,
copyrights, trademarks, industrial design or other intellectual property rights
of any Third Party, (ii) regarding the effectiveness, value, safety,
non-toxicity, patentability, or non-infringement of any patent technology, the
Alliance Products or any information or results provided by either Party
pursuant to this Agreement or (iii) that any Alliance Product will obtain
Marketing Authorization or appropriate pricing approval. Each Party explicitly
accepts all of the same as experimental and for development purposes, and
without any express or implied warranty from the other Party. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY EXPRESSLY DISCLAIMS,
WAIVES, RELEASES, AND RENOUNCES ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.

 

ARTICLE 12
INDEMNIFICATION

 

12.1 Indemnification by GSK. Subject to Sections 12.3, 12.4 and 13.2, GSK shall
defend, indemnify and hold harmless Theravance and its Affiliates and each of
their officers, directors, shareholders, employees, successors and assigns from
and against all Claims of Third Parties, and all associated Losses, to the
extent arising out of (a) GSK’s negligence or willful misconduct in performing
any of its obligations under this Agreement, (b) a breach by GSK of any of its
representations, warranties, covenants or agreements under this Agreement, or
(c) the manufacture, use, handling, storage, marketing, sale, distribution or
other disposition of Alliance Products by GSK, its Affiliates, agents or
sublicensees, except to the extent such losses result from the negligence or
willful misconduct of Theravance.

 

12.2 Indemnification by Theravance. Subject to Sections 12.3, 12.4 and 13.2,
Theravance shall defend, indemnify and hold harmless GSK and its Affiliates and
each of their officers, directors, shareholders, employees, successors and
assigns from and against all Claims of Third Parties, and all associated Losses,
to the extent arising out of (a) Theravance’s negligence or willful misconduct
in performing any of its obligations under this Agreement, (b) a breach by
Theravance of any of its representations, warranties, covenants or agreements
under this Agreement, or (c) any API Compound or Formulated Alliance Product
transferred from Theravance to GSK pursuant to Section 9.2.1 or 9.2.2,
respectively, which is not in compliance with GSK’s own requirements, except to
the extent such losses result from the negligence or willful misconduct of GSK.

 

12.3 Procedure for Indemnification.

 

12.3.1 Notice. Each Party will notify promptly the other in writing if it
becomes aware of a Claim (actual or potential) by any Third Party (a “Third
Party Claim”) for which indemnification may be sought by that Party and will
give such information with respect thereto as the other Party shall reasonably
request. If any proceeding (including any governmental investigation) is
instituted involving any Party for which such Party may seek an indemnity under
Section 12.1 or 12.2, as the case may be (the “Indemnified Party”), the
Indemnified Party shall not make any admission or statement concerning such
Third Party Claim, but shall promptly notify the other Party (the “Indemnifying
Party”) orally and in writing and the Indemnifying Party and Indemnified Party
shall meet to discuss how to respond to any Third Party Claims that are the
subject matter of such proceeding. The Indemnifying Party shall not be obligated
to indemnify the Indemnified Party to the extent any admission or statement made
by the Indemnified Party or any failure by such Party to notify the Indemnifying
Party of the claim materially prejudices the defense of such claim.

 

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12.3.2 Defense of Claim. If the Indemnifying Party elects to defend or, if local
procedural rules or laws do not permit the same, elects to control the defense
of a Third Party Claim, it shall be entitled to do so provided it gives notice
to the Indemnified Party of its intention to do so within forty-five (45) days
after the receipt of the written notice from the Indemnified Party of the
potentially indemnifiable Third Party Claim (the “Litigation Condition”). The
Indemnifying Party expressly agrees the Indemnifying Party shall be responsible
for satisfying and discharging any award made to or settlement reached with the
Third Party pursuant to the terms of this Agreement without prejudice to any
provision in this Agreement or right at law which will allow the Indemnifying
Party subsequently to recover any amount from the Indemnified Party to the
extent the liability under such settlement or award was attributable to the
Indemnified Party. Subject to compliance with the Litigation Condition, the
Indemnifying Party shall retain counsel reasonably acceptable to the Indemnified
Party (such acceptance not to be unreasonably withheld, refused, conditioned or
delayed) to represent the Indemnified Party and shall pay the reasonable fees
and expenses of such counsel related to such proceeding. In any such proceeding,
the Indemnified Party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of the Indemnified
Party. The Indemnified Party shall not settle any claim for which it is seeking
indemnification without the prior written consent of the Indemnifying Party
which consent shall not be unreasonably withheld, refused, conditioned or
delayed. The Indemnified Party shall, if requested by the Indemnifying Party,
cooperate in all reasonable respects in the defense of such claim that is being
managed and/or controlled by the Indemnifying Party. The Indemnifying Party
shall not, without the written consent of the Indemnified Party (which consent
shall not be unreasonably withheld, refused, conditioned or delayed), effect any
settlement of any pending or threatened proceeding in which the Indemnified
Party is, or based on the same set of facts could have been, a Party and
indemnity could have been sought hereunder by the Indemnified Party, unless such
settlement includes an unconditional release of the Indemnified Party from all
liability on claims that are the subject matter of such proceeding. If the
Litigation Condition is not met, then neither Party shall have the right to
control the defense of such Third Party Claim and the Parties shall cooperate in
and be consulted on the material aspects of such defense at each Party’s own
expense; provided that if the Indemnifying Party does not satisfy the Litigation
Condition, the Indemnifying Party may at any subsequent time during the pendency
of the relevant Third Party Claim irrevocably elect, if permitted by local
procedural rules or laws, to defend and/or to control the defense of the
relevant Third Party Claim so long as the Indemnifying Party also agrees to pay
the reasonable fees and costs incurred by the Indemnified Party in relation to
the defense of such Third Party Claim from the inception of the Third Party
Claim until the date the Indemnifying Party assumes the defense or control
thereof.

 

12.4 Assumption of Defense. Notwithstanding anything to the contrary contained
herein, an Indemnified Party shall be entitled to assume the defense of any
Third Party Claim with respect to the Indemnified Party, upon written notice to
the Indemnifying Party pursuant to this Section 12.4, in which case the
Indemnifying Party shall be relieved of liability under Section 12.1 or 12.2, as
applicable, solely for such Third Party Claim and related Losses.

 

12.5 Insurance. During the Term of this Agreement and for a period of [*] after
the termination or expiration of this Agreement, GSK shall obtain and/or
maintain at its sole cost and expense, product liability insurance (including
any self-insured arrangements) in amounts which are reasonable and customary in
the U.S. pharmaceutical industry for companies of comparable size and
activities. Such product liability insurance or self-insured arrangements shall
insure against all liability, including without limitation personal injury,
physical injury, or property damage arising out of the manufacture, sale,
distribution, or marketing of the Alliance Products. GSK shall provide written
proof of the existence of such insurance to Theravance upon request. Theravance
represents and covenants to GSK that Theravance shall, for the period of the
Term and for a period of [*] thereafter maintain at its sole cost and expense
general liability insurance and product liability insurance (as it relates to
Theravance’s early stage clinical development activities) which is reasonable
and customary in the U.S. pharmaceutical industry for a company of comparable
size and activity provided always that such levels of insurance will not be
lower than [*]. Theravance shall provide written proof of the existence of such
insurance to GSK upon request.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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ARTICLE 13
PATENTS and INVENTIONS

 

13.1 Prosecution and Maintenance of Patents.

 

13.1.1 Prosecution and Maintenance of Theravance Patents. Theravance shall have
the exclusive right and the obligation to (subject to Theravance’s election not
to file, prosecute, or maintain pursuant to Section 13.1.4) or to cause its
licensors to, prepare, file, prosecute in a diligent manner (including without
limitation by conducting interferences, oppositions and reexaminations or other
similar proceedings), maintain (by timely paying all maintenance fees, renewal
fees, and other such fees and costs required under applicable Laws) and extend
all Theravance Patents and related applications. Following the Effective Date of
Exercise by GSK of its Opt-In Right with respect to a particular Alliance
Program hereunder (the “Alliance Program Acceptance Date”), Theravance shall
regularly advise GSK of the status of all pending applications relating to such
Alliance Program, including with respect to any hearings or other proceedings
before any Governmental Authority, and, at GSK’s request, shall provide GSK with
copies of all documentation concerning such applications, including all
correspondence to and from any Governmental Authority. Theravance shall consult
with GSK prior to abandoning any Theravance Patents or related applications that
are material to such Alliance Program. Subject to Section 13.6, Theravance shall
solicit GSK’s advice and review of the nature and text of such patent
applications and important prosecution matters related thereto in reasonably
sufficient time prior to filing thereof, and Theravance shall take into account
GSK’s reasonable comments related thereto; provided, however, Theravance shall
have the final decision authority with respect to any action relating to any
Theravance Patent. If the Alliance Program Acceptance Date is within the
priority period for a particular Theravance Patent, Theravance shall agree with
GSK regarding the countries outside the United States in which corresponding
applications should be filed (“OUS Filings”). It is presumed that a
corresponding Patent Cooperation Treaty (“PCT”) application will be filed unless
otherwise agreed by the Parties. Theravance shall effect filing of all such OUS
applications within the priority period. The Parties may, if mutually agreed
during the Term of this Agreement, agree to lists of countries that are relevant
for particular Inventions in which Theravance Patents will be filed within the
priority period.

 

Subject to Section 13.1.4, Theravance shall be responsible for all costs
incurred in the United States in connection with procuring Theravance Patents,
including applications preparation, filing fees, prosecution, maintenance and
costs associated with reexamination and interference proceedings in the United
States Patent and Trademark Office and United States Courts. GSK shall be
responsible for all out-of-pocket costs and expenses incurred by Theravance
after the relevant Alliance Program Acceptance Date which such costs and
expenses are associated with procuring OUS patents corresponding to the relevant
Theravance Patents related to such Alliance Program, including without
limitation PCT and individual country filing fees, translations, maintenance,
annuities, and protest proceedings. For all such OUS patent applications,
Theravance will invoice GSK on a quarterly basis beginning with the Alliance
Program Acceptance Date, setting forth all such expenses incurred since the
Alliance Program Acceptance Date. Notwithstanding the foregoing, if GSK
exercises its Opt-In Right in relation to a Respiratory Discovery Program, GSK
shall also reimburse Theravance for all reasonable expenses incurred from the
Effective Date to the Alliance Program Acceptance Date in connection with OUS
patent applications corresponding to the relevant Theravance Patents related to
such Alliance Program. Reimbursement will be made to Theravance in United States
Dollars within thirty (30) days of receipt of such invoice by GSK. GSK will
within thirty (30) days following the Effective Date identify the GSK
representative that should receive such invoices from Theravance. GSK’s
obligations hereunder are in addition to any obligations of GSK under Section
13.1.2(b).

 

13.1.2 Prosecution and Maintenance of Patents Covering Joint Inventions.

 

(a) For Patents covering Joint Inventions, the Parties shall agree, without
prejudice to ownership, which Party shall have the right to prepare and file a
priority patent application, and prosecute such application(s) and maintain any
patents derived therefrom, with the Parties equally sharing the reasonable
out-of-pocket costs for the preparation, filing, prosecution and maintenance

 

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of such priority patent application. The Parties will reasonably cooperate to
obtain any export licenses that might be required for such activities. Should
the agreed upon Party elect not to prepare and/or file any such priority patent
application, it shall (i) provide the other Party with written notice as soon as
reasonably possible after making such election but in any event no later than
sixty (60) days before the other Party would be faced with a possible loss of
rights, (ii) give the other Party the right, at the other Party’s discretion and
sole expense, to prepare and file the priority application(s), and (iii) offer
reasonable assistance in connection with such preparation and filing at no cost
to the other Party except for reimbursement of reasonable out-of-pocket expenses
incurred by the agreed upon Party in rendering such assistance. The other Party,
at its discretion and cost, shall prosecute such application(s) and maintain
sole ownership of any patents derived therefrom.

 

(b) Within nine (9) months after the filing date of a priority application
directed to an Invention, the Party filing the priority application shall
request that the other Party identify those non-priority, non-PCT (“foreign”)
Countries in which the other Party desires that the Party filing the priority
application file corresponding patent applications. Within thirty (30) days
after receipt by the other Party of such request from the Party filing the
priority application, the other Party shall provide to the Party filing the
priority application a written list of such foreign countries in which the other
Party wishes to effect corresponding foreign patent applications filings. The
Parties will then agree on the particular countries in which such applications
will be filed, provided that in the event agreement is not reached, the
application will be filed in the disputed as well as the non-disputed countries
(all such filings referred to hereinafter as “Designated Foreign Filings”).
Thereafter, within twelve (12) months after the filing date of the priority
application, the Party filing the priority application shall effect all such
Designated Foreign Filings. It is presumed unless otherwise agreed in writing by
the Parties, that a corresponding PCT application will be filed designating all
PCT member countries. As to each Designated Foreign Filing and PCT application,
GSK shall bear the costs for the filing and prosecutions of such Designated
Foreign Filing and PCT application (including entering national phase in all
agreed countries). Should the Party filing the priority application not agree to
file or cause to be filed a Designated Foreign Filing, the other Party will have
the right to effect such Designated Foreign Filing.

 

(c) Should the filing Party pursuant to Section 13.1.2(a) or 13.1.2(b) no longer
wish to prosecute and/or maintain any patent application or patent resulting
from such application, the filing Party shall (i) provide the non-filing Party
with written notice of its wish no later than sixty (60) days before the patent
or patent applications would otherwise become abandoned, (ii) give the
non-filing Party the right, at the non-filing Party’s election and sole expense,
to prosecute and/or maintain such patent or patent application, and (iii) offer
reasonable assistance to the non-filing Party in connection with such
prosecution and/or maintenance at no cost to the non-filing Party except for
reimbursement of the filing Party’s reasonable out-of-pocket expenses incurred
by the filing Party in rendering such assistance.

 

(d) Should the non-filing Party pursuant to Section 13.1.2(c) not wish to incur
its share of preparation, filing, prosecution and/or maintenance costs for a
patent application filed pursuant to Section 13.1.2(a) or 13.1.2(b) or patents
derived therefrom, it shall (i) provide the filing Party with written notice of
its wish, and (ii) continue to offer reasonable assistance to the filing Party
in connection with such prosecution or post-grant matters at no cost to the
filing Party except for reimbursement of the non-filing Party’s reasonable
out-of-pocket expenses incurred by the non-filing Party in rendering such
assistance.

 

(e) The Parties agree to cooperate in the preparation and prosecution of all
patent applications filed under Section 13.1.2(a) and 13.1.2(b), including
obtaining and executing necessary powers of attorney and assignments by the
named inventors, providing relevant technical reports to the filing Party
concerning the invention disclosed in such patent application, obtaining
execution of such other documents which shall be needed in the filing and
prosecution of such patent applications, and, as requested, updating each other
regarding the status of such patent applications.

 

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13.1.3 Prosecution and Maintenance of GSK Patents. GSK shall have the exclusive
right and obligation to (subject to GSK’s election not to file, prosecute or
maintain pursuant to Section 13.1.5) or to cause its licensors to, prepare, file
and prosecute in a diligent manner (including without limitation by conducting
interferences, oppositions and reexaminations or other similar proceedings),
maintain (by timely paying all maintenance fees, renewal fees, and other such
fees and costs required under applicable Laws) and extend all GSK Patents and
related applications. Consistent with Section 13.6, GSK will consult with
Theravance within the priority period for any patent application that is
material to this Agreement concerning Countries in which corresponding
applications will be filed provided always that GSK shall not be required to
consult with Theravance under this Section 13.1.3 in relation to patent
applications that GSK reasonably considers significant to activities beyond the
scope of this Agreement, such as devices, delivery technology and/or any other
proprietary GSK technology(ies). In the event the Parties cannot agree, GSK
shall make the final decision. GSK shall consult with Theravance prior to
abandoning any GSK Patents or related applications that are material to the
matters contemplated in this Agreement. GSK shall regularly advise Theravance of
the status of all pending applications, including with respect to any hearings
or other proceedings before any Governmental Authority, and, at Theravance’s
request, shall provide Theravance with copies of documentation relating to such
applications, including all correspondence to and from any Governmental
Authority. Subject to Section 13.6, GSK shall solicit Theravance’s advice and
review of the nature and text of such patent applications and important
prosecution matters related thereto in reasonably sufficient time prior to
filing thereof, and GSK shall take into account Theravance’s reasonable comments
relating thereto; provided that GSK shall have the final decision authority with
respect to any action relating to a GSK Patent.

 

13.1.4 GSK Step-In Rights. If Theravance elects not to file, prosecute or
maintain the Theravance Patents or claims encompassed by such Theravance Patents
necessary for GSK to exercise its rights hereunder in any Country, Theravance
shall give GSK notice thereof within a reasonable period prior to allowing such
Theravance Patents, or such claims encompassed by such Theravance Patents, to
lapse or become abandoned or unenforceable, and GSK shall thereafter have the
right, at its sole expense, to prepare, file, prosecute and maintain such
Theravance Patents in such Country.

 

13.1.5 Theravance Step-In Rights. If GSK elects not to file, prosecute or
maintain the GSK Patents or claims encompassed by such GSK Patents necessary for
Theravance to exercise its license rights hereunder in any Country, GSK shall
give Theravance notice thereof within a reasonable period prior to allowing such
GSK Patents, or such claims encompassed by such GSK Patents, to lapse or become
abandoned or unenforceable, and Theravance shall thereafter have the right, at
its sole expense, to prepare, file, prosecute and maintain such GSK Patents in
such Country; provided always that nothing herein shall give Theravance any
Step-In Rights in respect of any proprietary Diskus technology(ies).

 

13.1.6 Execution of Documents by Agents. Each of the Parties shall execute or
have executed by its appropriate agents such documents as may be necessary to
obtain, perfect or maintain any Patent Rights filed or to be filed pursuant to
this Agreement, and shall cooperate with the other Party so far as reasonably
necessary with respect to furnishing all information and data in its possession
reasonably necessary to obtain or maintain such Patent Rights.

 

13.1.7 Patent Term Extensions. The Parties shall cooperate with each other in
gaining patent term extension where applicable to an Alliance Product. The Joint
Steering Committee shall determine which patents relating to a particular
Alliance Product the Parties shall endeavor to have extended. All filings for
such extension will be made by the Party to whom the patent is assigned after
consultation with the other Party. In the event the Joint Steering Committee can
not agree, the Party Commercializing the Theravance Compound will make the
decision.

 

13.2 Patent Infringement.

 

13.2.1 Infringement Claims. With respect to any and all Claims instituted by
Third Parties against Theravance or GSK or any of their respective Affiliates
for patent infringement involving

 

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the manufacture, use, license, marketing or sale of an Alliance Product in the
United States during the Term (each, a “Patent Infringement Claim”) as
applicable, Theravance and GSK will assist one another and cooperate in the
defense and settlement of such Patent Infringement Claims at the other Party’s
request.

 

13.2.2 Infringement of Theravance Patents. In the event that Theravance or GSK
becomes aware of actual or threatened infringement of a Theravance Patent during
the Term, that Party will promptly notify the other Party in writing (a “Patent
Infringement Notice”). Theravance will have the right but not the obligation to
bring an infringement action against any Third Party. If Theravance elects to
pursue such infringement action, Theravance shall be solely responsible for the
costs and expenses associated with such action and retain all recoveries. During
the Term, in the event that Theravance does not undertake such an infringement
action, upon Theravance’s written consent, which shall not be unreasonably
withheld, refused, conditioned or delayed, GSK shall be permitted to do so in
Theravance’s or the relevant Theravance Affiliate’s name and on Theravance’s or
the relevant Theravance Affiliate’s behalf. If Theravance has consented to an
infringement action but GSK is not recognized by the applicable court or other
relevant body as having the requisite standing to pursue such action, then GSK
may join Theravance as party-plaintiff. If GSK elects to pursue such
infringement action, Theravance may be represented in such action by attorneys
of its own choice and its own expense with GSK taking the lead in such action.
If Theravance recommends not to pursue an infringement action, and GSK elects to
pursue such infringement action by joining Theravance as a party plaintiff, then
GSK agrees to indemnify and hold harmless Theravance for all losses and damages
arising from said infringement action.

 

13.2.3 Infringement of GSK Patents. In the event that GSK or Theravance becomes
aware of actual or threatened infringement of a GSK Patent during the Term, that
Party will promptly notify the other Party in writing. GSK will have the right
but not the obligation to bring an infringement action against any Third Party.
If GSK elects to pursue such infringement action, GSK shall be solely
responsible for the costs and expenses associated with such action and retain
all recoveries. During the Term, in the event that GSK does not undertake such
an infringement action, upon GSK’s written consent, which shall not be
unreasonably withheld, refused, conditioned or delayed, Theravance shall be
permitted to do so in GSK’s or the relevant GSK Affiliate’s name and on GSK’s or
the relevant GSK Affiliate’s behalf. If GSK has consented to an infringement
action but Theravance is not recognized by the applicable court or other
relevant body as having the requisite standing to pursue such action, then
Theravance may join GSK as a party-plaintiff. If Theravance elects to pursue
such infringement action, GSK may be represented in such action by attorneys of
its own choice and at its own expense, with Theravance taking the lead in such
action. If GSK recommends not to pursue an infringement action, and Theravance
elects to pursue such infringement action by joining GSK as a party plaintiff,
then Theravance agrees to indemnify and hold harmless GSK for all losses and
damages arising from said infringement action.

 

13.2.4 Notice and Cooperation. In the event that GSK or Theravance becomes aware
of actual or threatened infringement of a Joint Patent, that Party will promptly
notify the other Party in writing. In such event the matter will be handled the
same as provided for GSK Patents in Section 13.2.3 and Theravance will cooperate
as reasonably required by GSK in connection with such enforcement.

 

13.3 Notice of Certification. GSK and Theravance each shall immediately give
notice to the other of any certification filed under the “U.S. Drug Price
Competition and Patent Term Restoration Act of 1984” (or its foreign equivalent)
claiming that a GSK Patent or a Theravance Patent is invalid or that
infringement will not arise from the manufacture, use or sale of any Alliance
Product by a Third Party (“Hatch-Waxman Certification”).

 

13.3.1 Notice. If a Party decides not to bring infringement proceedings against
the entity making such a certification, such Party shall give notice to the
other Party of its decision not to bring suit within twenty-one (21) days after
receipt of notice of such certification.

 

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13.3.2 Option. Such other Party then may, but is not required to, bring suit
against the entity that filed the certification. If the other Party decides to
bring suit, the provisions of Section 13.2.2 or Section 13.2.3 shall apply as
appropriate.

 

13.3.3 Name of Party. Any suit by Theravance or GSK shall either be in the name
of Theravance or in the name of GSK, (or any Affiliate) or jointly in the name
of Theravance and GSK (or any Affiliate), as may be required by law.

 

13.4 Assistance. For purposes of this Article 13, the Party not bringing suit
shall execute such legal papers necessary for the prosecution of such suit as
may be reasonably requested by the Party bringing suit. The out-of-pocket costs
and expenses of the Party bringing suit shall be reimbursed first out of any
damages or other monetary awards recovered in favor of GSK or Theravance. The
documented out-of-pocket costs and expenses of the other Party shall then be
reimbursed out of any remaining damages or other monetary awards. The Party
initiating and prosecuting the action to completion will retain any remaining
damages or other monetary awards following such reimbursements.

 

13.5 Settlement. No settlement or consent judgment or other voluntary final
disposition of a suit under this Article may be entered into without the joint
written consent of GSK and Theravance (which consent will not be withheld
unreasonably).

 

13.6 Ownership of Inventions. Each Party shall promptly disclose to the other
Party all Inventions made by it during the Term; provided that GSK will be
allowed a reasonable time to file patent applications covering GSK Inventions
prior to disclosing the GSK Invention to Theravance, and Theravance will be
allowed a reasonable time to file patent applications covering Theravance
Inventions prior to disclosing the Theravance Invention to GSK. Theravance shall
own all Theravance Inventions and GSK shall own all GSK Inventions. All Joint
Inventions shall be owned jointly by Theravance and GSK, and each Party hereby
consents (without granting any license) to the exercise, assignment or license
or other disposition by the other Party of its joint interests in Joint
Inventions without accounting or the need to seek the consent of the other Party
to such assignment or license or other disposition; provided that any such
assignment, license or other disposition shall at all times be subject to the
grant of rights and accompanying conditions under Sections 2.1 and 2.2 and
Article 14. The determination of inventorship for Inventions shall be made in
accordance with applicable laws relating to inventorship set forth in the patent
laws of the United States (Title 35, United States Code).

 

ARTICLE 14
TERM AND TERMINATION

 

14.1 Term and Expiration of Term. Except as otherwise mutually agreed to by the
Parties, this Agreement shall commence on the Effective Date and shall end upon
expiration of the Term, unless terminated early as contemplated hereunder.
Unless terminated early under this Article 14, the licenses granted by
Theravance to GSK pursuant to Section 2.1 with respect to the Alliance Products
shall be considered fully-paid and shall become non-exclusive upon expiration of
the Term.

 

14.2 Termination for Material Breach. Either Party may, without prejudice to any
other remedies available to it at law or in equity, terminate only that portion
of the Agreement as such relates to the relevant Alliance Program (and not, for
the avoidance of doubt any other Alliance Program) in the event that the other
Party (as used in this subsection, the “Breaching Party”) shall have materially
breached or defaulted in the performance of any of its obligations in relation
to such Alliance Program (the “Breaching Alliance Program”). The Breaching Party
shall, if such breach can be cured, have sixty (60) days after written notice
thereof was provided to the Breaching Party by the non-breaching Party to remedy
such default (or, if such default cannot be cured within such 60-day period, the
Breaching Party must commence and diligently continue actions to cure such
default during such 60-day period). Any such termination shall become effective
at the end of such 60-day period unless the Breaching Party has cured any such
breach or default prior to the expiration of such 60-day period (or, if such
default is capable of being cured but cannot be cured within such 60-day period,
the Breaching Party has commenced and diligently continued actions to cure such
default provided always that, in such instance, such cure must have occurred
within one hundred twenty (120) days after written notice thereof was provided
to the Breaching Party by the non-breaching Party to remedy such default).

 

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14.3 GSK Right to Terminate Development of an Alliance Product. On an Alliance
Product-by-Alliance Product basis, and at any time during Development and prior
to First Commercial Sale of the applicable Alliance Product, GSK shall have the
right to terminate Development of such Alliance Product (upon the provision of
ninety (90) days written notice) for reasons of Technical Failure or Commercial
Failure following communication to, and assessment of such proposed termination
by, the Joint Program Committee and Joint Steering Committee (in which case such
Alliance Product shall be referred to as a “Terminated Development Alliance
Product”).

 

14.4 GSK Right to Terminate Commercialization of an Alliance Product Following
First Commercial Sale. On an Alliance Product-by-Alliance Product basis, and on
a Country-by-Country basis, at any time after First Commercial Sale of the
applicable Alliance Product in such country, GSK shall have the right to
terminate Commercialization of such Alliance Product (upon the provision of one
hundred and eighty (180) days written notice) for reasons of Commercial Failure
or Technical Failure and following communication to, and assessment of such
proposed termination by, the Joint Program Committee and Joint Steering
Committee (in which case, such Alliance Product shall be referred to as a
“Terminated Commercialized Alliance Product”).

 

14.5 Effects of Termination.

 

14.5.1 Effect of Termination for Material Breach.

 

(a) Material Breach by Theravance. In the event that the Breaching Alliance
Program is terminated by GSK pursuant to Section 14.2 for material breach by
Theravance, all licenses in respect of such Breaching Alliance Program granted
by Theravance to GSK under this Agreement shall survive, subject to GSK’s
continued obligation to pay royalties to Theravance hereunder. In such event,
GSK shall be entitled to set-off against any monies payable to Theravance
hereunder all amounts GSK reasonably believes constitute its damages incurred by
such breach, subject to final judicial resolution or settlement, without
prejudice to any and all of GSK’s rights to bring an action against Theravance
for damages and any other available remedies in law or equity. Also, Theravance
shall, at its sole expense, promptly return to GSK or destroy at GSK’s request
all relevant records and materials in its possession or control containing
Confidential Information of GSK (provided that Theravance may keep one copy of
such Confidential Information of GSK for archival purposes only in accordance
with Section 10.1).

 

(b) Material Breach by GSK. In the event that the Breaching Alliance Program is
terminated by Theravance for material breach by GSK pursuant to Section 14.2,
the provisions of Section 14.5.2 or Section 14.5.3 shall apply to such Breaching
Alliance Program depending upon the Development or Commercialization status of
same. In addition, Theravance shall be entitled to set-off against any monies
payable to GSK hereunder all amounts Theravance reasonably believes constitute
its damages incurred by such breach, subject to final judicial resolution or
settlement, without prejudice to any and all of Theravance’s rights to bring an
action against GSK for damages and any other available remedies in law or
equity.

 

14.5.2 Effect of Termination of Development of an Alliance Product.

 

(a) Non-Respiratory Alliance Products. In the event that GSK terminates
Development of an Alliance Product under Section 14.3 and such Alliance Product
is a Non-Respiratory Alliance Product (hereinafter “Terminated Non-Respiratory
Development Alliance Product”), and provided that such Terminated
Non-Respiratory Development Alliance Product is not being or has not been
replaced by an alternative Non-Respiratory Development Alliance Product, the
following shall occur in respect of such Terminated Non-Respiratory Development
Alliance Product:

 

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(i) Return of Materials. GSK shall [*] transfer to Theravance copies of all
material data, reports, records and materials in its possession or control that
relate to the Terminated Non-Respiratory Development Alliance Product and/or
destroy at Theravance’s request, all relevant records and materials in its
possession or control containing Confidential Information of Theravance
(provided that GSK may keep one copy of such Confidential Information of
Theravance for archival purposes only in accordance with Section 10.1).

 

(ii) Transfer of Regulatory Filings. GSK shall [*] transfer to Theravance, or
shall cause its designee(s) to transfer to Theravance, ownership of all
regulatory filings made or filed for any such Terminated Non-Respiratory
Development Alliance Product (to the extent that any are held in GSK’s or such
designee(s)’s name), and such transfer to be as permitted by applicable Laws and
regulations. GSK shall cooperate as reasonably necessary to permit Theravance to
exercise its rights hereunder; provided, however, that if such transfer cannot
be effected by GSK in a particular Country within [*] days of the effective date
of termination for such Terminated Non-Respiratory Development Alliance Product
(for example, as a result of Theravance not having the appropriate entity in any
such Country to whom ownership of such regulatory filing(s) would be required to
be transferred) then GSK, after the expiration of such aforesaid period, shall
forthwith be entitled to surrender ownership of such regulatory filing(s) and/or
applications for cancellation in respect of such Country.

 

(iii) Return of License Rights to Theravance. All licenses granted by Theravance
to GSK with respect to the Terminated Non-Respiratory Development Alliance
Product under this Agreement shall terminate.

 

(iv) Grant of License Rights. GSK shall grant to Theravance appropriate licenses
(as the Parties reasonably determine) to such intellectual property rights as
GSK owns and is legally able to grant to enable Theravance and/or any Third
Party designee to continue development and commercialization of and to produce
such Terminated Non-Respiratory Development Alliance Product provided always
that if any such GSK right(s) has an applicability to other GSK owned or
licensed-in products then any such license will be granted to Theravance on a
non-exclusive basis but if such right(s) are specific to the Terminated
Non-Respiratory Development Alliance Product and have no applicability to other
GSK owned or licensed-in products then such license will be granted to
Theravance on an exclusive basis. For the avoidance of doubt, any such licenses
granted by GSK shall assure that GSK shall retain no right to Develop or
Commercialize, or to license a Third Party to Develop or Commercialize, such
Terminated Non-Respiratory Development Alliance Product.

 

(v) Trademark Assignment. Upon the request of Theravance, GSK shall prepare a
global assignment to Theravance of any Trademark extensively and publicly used
by GSK and Theravance in connection with the Terminated Non-Respiratory
Development Alliance Product. If Theravance elects to record the Assignment,
Theravance shall undertake such recordal tasks and shall bear the costs and fees
associated with the recordal, including but not limited to all filing fees,
agent fees, and costs of notarization and legalizations. GSK shall cooperate
with Theravance as reasonably necessary. Notwithstanding the foregoing, in the
event that any Trademark is used by GSK on any other product, GSK shall not
assign such Trademark as contemplated in the preceding sentence but shall
license such Trademark to Theravance on a non-exclusive basis and subject to any
further license terms to be agreed by the Parties in good faith at the time.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(vi) Stock Return and Supply. GSK shall return to Theravance all available
formulated and API stocks (if such stocks exist) of the Terminated
Non-Respiratory Development Alliance Product and which are then held by GSK or
cause such API stocks to be provided to Theravance if held by a vendor or other
Third Party on behalf of GSK. The parties shall also consider the
appropriateness of entering into any interim supply arrangements to facilitate
the transfer contemplated herein and if appropriate, the continued development
of the Terminated Non-Respiratory Development Alliance Product by Theravance for
an interim period.

 

(b) Respiratory Alliance Products. In the event that GSK terminates Development
of an Alliance Product under Section 14.3 and such Alliance Product is a
Respiratory Alliance Product (hereinafter “Terminated Respiratory Development
Alliance Product”), and provided that such Terminated Respiratory Development
Alliance Product is not being or has not been replaced by an alternative
Respiratory Development Alliance Product the following shall occur in respect of
such Terminated Respiratory Development Alliance Product:

 

(i) Return of Materials. GSK shall [*] transfer to Theravance copies of all
material data, reports, records and materials in its possession or control that
relate to the Terminated Respiratory Development Alliance Product, but only
insofar as the Terminated Respiratory Development Alliance Product is a single
agent product and contains the Theravance Compound as a single agent, and/or
destroy at Theravance’s request, all relevant records and materials in its
possession or control containing Confidential Information of Theravance
(provided that GSK may keep one copy of such Confidential Information of
Theravance for archival purposes only in accordance with Section 10.1).

 

(ii) Transfer of Regulatory Filings. GSK shall [*] transfer to Theravance, or
shall cause its designee(s) to transfer to Theravance, ownership of all
regulatory filings made or filed for any Terminated Respiratory Development
Alliance Product (to the extent that any are held in GSK’s or such designee(s)’s
name), but only where the Terminated Respiratory Development Alliance Product is
a single agent product and contains the Theravance Compound as the single agent,
and such transfer to be as permitted by applicable Laws and regulations. GSK
shall cooperate as reasonably necessary to permit Theravance to exercise its
rights hereunder; provided, however, that if such transfer cannot be effected by
GSK in a particular Country within one hundred fifty (150) days of the effective
date of termination for such Terminated Respiratory Development Alliance Product
(for example, as a result of Theravance not having the appropriate entity in any
such Country to whom ownership of such regulatory filing(s) would be required to
be transferred) then GSK, after the expiration of such aforesaid period, shall
forthwith be entitled to surrender ownership of such regulatory filing(s) and/or
applications for cancellation in respect of such Country.

 

(iii) Return of License Rights to Theravance. All licenses granted by Theravance
to GSK with respect to the Terminated Respiratory Development Alliance Product
under this Agreement shall terminate.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(iv) Grant of License Rights to Theravance. GSK shall grant to Theravance the
appropriate licenses (as the Parties reasonably determine) to such intellectual
property rights as GSK owns and is legally able to grant [*], to enable
Theravance and/or any Third Party designee in the Territory (or in the case of a
Country-by-Country termination, in the relevant Countries) to continue
development and commercialization of and to produce such Terminated Respiratory
Development Alliance Product but only where the Terminated Respiratory
Development Alliance Product is a single agent product and contains the
Theravance Compound as the single agent and provided always that if any such GSK
right(s) has an applicability to other GSK owned or licensed-in products then
any such license will be granted to Theravance on a non-exclusive basis but if
such right(s) are specific to the Terminated Respiratory Development Alliance
Product and have no applicability to other GSK owned or licensed-in products
then such license will be granted to Theravance on an exclusive basis. For the
avoidance of doubt, any such licenses granted by GSK shall assure that GSK shall
retain no right to Develop or Commercialize, or to license a Third Party to
Develop or Commercialize, such Terminated Respiratory Commercialized Alliance
Product (insofar as same is a single agent product and contains the Theravance
Compound as the single agent).

 

(v) Trademark Assignment. Upon the request of Theravance, GSK shall prepare a
global assignment to Theravance of any Trademark extensively and publicly used
by GSK and Theravance in connection with the Terminated Respiratory Development
Alliance Product. If Theravance elects to record the Assignment, Theravance
shall undertake such recordal tasks and shall bear the costs and fees associated
with the recordal, including but not limited to all filing fees, agent fees, and
costs of notarization and legalizations. GSK shall cooperate with Theravance as
reasonably necessary. Notwithstanding the foregoing, in the event that any
Trademark is used by GSK on any other product, GSK shall not assign such
Trademark as contemplated in the preceding sentence but shall license such
Trademark to Theravance on a non-exclusive basis and subject to any further
license terms to be agreed by the Parties in good faith at the time.

 

(vi) Stock Return. GSK shall return to Theravance all available formulated and
API stocks (if such stocks exist) of the Terminated Respiratory Development
Alliance Product (but only insofar as the Terminated Respiratory Development
Alliance Product is a single agent product and contains the Theravance Compound
as a single agent) and which are then held by GSK or cause such API stocks to be
provided to Theravance if held by a vendor or other Third Party on behalf of
GSK. The Parties shall also consider the appropriateness of entering into any
interim supply arrangements to facilitate the transfer contemplated herein.

 

(vii) Compensation to Theravance

 

(aa) Subject to sub-paragraph (bb) below, any GSK termination of a Terminated
Respiratory Development Alliance Product will result in GSK paying to Theravance
compensation as follows: [*], payable by GSK to Theravance in two equal
installments [*], the first such payment of [*] to be made by GSK within ninety
(90) days of the date GSK’s termination of such Terminated Respiratory
Development Alliance Product Alliance hereunder becomes effective (“the
effective date of termination”) and the second such payment of [*] to be made by
GSK within thirty (30) days of the first twelve (12) month anniversary of the
effective date of termination.

 

(bb) The provisions of sub-paragraph (aa) shall not apply (and thereby no
compensation as comtemplated thereunder shall be paid by GSK to Theravance) if
any of the following apply in respect of the Terminated Respiratory Development
Alliance Product:

 

(xx) A Technical Failure has occurred (either in respect of the relevant Lead
Theravance Compound and/or any back-up within the relevant Alliance Program); or

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(yy) As of the effective date of termination, GSK has not commenced any clinical
study or studies related to and/or directed at the Terminated Respiratory
Development Alliance Product in any proprietary GSK device(s), including Diskus;
or

 

(zz) The Theravance Compound contained in the Terminated Respiratory Development
Alliance Product is contained in another Alliance Product being Developed
hereunder.

 

14.5.3 Effect of Termination by GSK of a Terminated Commercialized Alliance
Product.

 

(a) Non-Respiratory Alliance Products. In the event that GSK terminates
Commercialization of an Alliance Product under Section 14.4 and such Alliance
Product is a Non-Respiratory Alliance Product (hereinafter “Terminated
Non-Respiratory Commercialized Alliance Product”), and provided that such
Terminated Non-Respiratory Commercialized Alliance Product is not being or has
not been replaced by an alternative Non-Respiratory Alliance Product, the
following shall occur:

 

(i) Theravance Rights to Commercialize. If GSK terminates a Non-Respiratory
Commercialized Alliance Product after First Commercial Sale of such Alliance
Product in one or more of the Major Market Countries, Theravance shall have the
right in its sole discretion and at its sole expense, for its own benefit or
together with a Third Party, to commercialize such Terminated Commercialized
Alliance Product in any of such Major Market Countries where it has been
terminated. If GSK terminates a Non-Respiratory Commercialized Alliance Product
in all Countries of the Territory following the first commercial sale in any
Country of the Territory, Theravance shall have the right in its sole discretion
and at it sole expense, for its own benefit or together with a Third Party, to
Commercialize such Terminated Non-Respiratory Commercialized Alliance Product in
the Territory. In either case, GSK will use reasonable efforts to assist
Theravance in locating a mutually acceptable Third Party to carry out the rights
and activities contemplated herein.

 

(ii) Return of Materials. GSK shall [*] transfer to Theravance copies of all
data, reports, records and materials in its possession or control that relate to
the Terminated Non-Respiratory Commercialized Alliance Product or destroy at
Theravance’s request, all relevant records and materials in its possession or
control containing Confidential Information of Theravance (provided that GSK may
keep one copy of such Confidential Information of Theravance for archival
purposes only in accordance with Section 10.1).

 

(iii) Transfer of Regulatory Filings. GSK shall [*] transfer to Theravance, or
shall cause its designee(s) to transfer to Theravance, ownership of all
regulatory filings made or filed for any Terminated Non-Respiratory
Commercialized Alliance Product (to the extent that any are held in GSK’s or
such designee(s)’s name) and such transfer to be as permitted by applicable Laws
and regulations. GSK shall cooperate as reasonably necessary to permit
Theravance to exercise its rights hereunder; provided, however, that if such
transfer cannot be effected by GSK in a particular Country [*] days of the
effective date of termination for such Terminated Non-Respiratory Commercialized
Alliance Product (for example, as a result of Theravance not having the
appropriate entity in any such Country to whom ownership of such regulatory
filing(s) would be required to be transferred) then GSK, after the expiration of
such aforesaid period, shall forthwith be entitled to surrender ownership of
such regulatory filing(s) and/or applications for cancellation in respect of
such Country.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(iv) Return of License Rights to Theravance. All licenses granted by Theravance
to GSK with respect to the Terminated Non-Respiratory Commercialized Alliance
Product under this Agreement shall terminate.

 

(v) Grant of License Rights to Theravance. Subject to the first paragraph of
Section 14.5.3(b), GSK shall grant to Theravance the appropriate licenses in the
Territory (or in the case of a Country-by-Country termination, in the relevant
Countries) under the GSK Patents, GSK Inventions and GSK Know-How to enable
Theravance by itself and/or through one or more Third Party sublicensees, to
Commercialize the Terminated Respiratory Commercialized Alliance Product
provided always that if any such GSK right(s) has an applicability to other GSK
owned or licensed-in products then any such license will be granted to
Theravance on a non-exclusive basis but if such right(s) are specific to the
Terminated Respiratory Commercialized Alliance Product and have no applicability
to other GSK owned or licensed-in products then such license will be granted to
Theravance on an exclusive basis. For the avoidance of doubt, any such licenses
granted by GSK shall assure that GSK shall retain no right to Develop or
Commercialize, or to license a Third Party to Develop or Commercialize, such
Terminated Respiratory Commercialized Alliance Product. GSK shall also provide
Theravance with all such information and data which GSK, or its sublicensees
reasonably have available in such Country, for example access to drug master
file, clinical data and the like, and shall execute such instruments as
Theravance reasonably requests, to enable Theravance to obtain the appropriate
regulatory approvals to market such Terminated Respiratory Commercialized
Alliance Product in such Country and for any other lawful purpose related to
Commercialization of such Terminated Respiratory Commercialized Alliance Product
in such Country.

 

(vi) Trademark Assignment. Upon the request of Theravance, GSK shall prepare a
global assignment to Theravance of any Trademark extensively and publicly used
by GSK and Theravance in connection with the Terminated Non-Respiratory
Commercialized Alliance Product. If Theravance elects to record the Assignment,
Theravance shall undertake such recordal tasks and shall bear the costs and fees
associated with the recordal, including but not limited to all filing fees,
agent fees, and costs of notarization and legalizations. GSK shall cooperate
with Theravance as reasonably necessary. Notwithstanding the foregoing, in the
event that any Trademark is used by GSK on any other product, GSK shall not
assign such Trademark as contemplated in the preceding sentence but shall
license such Trademark to Theravance on a non-exclusive basis and subject to any
further license terms to be agreed by the Parties in good faith at the time.

 

(vii) Supply. If requested by Theravance, the Parties shall negotiate and agree
in good faith to a separate commercialization and supply agreement for any
Terminated Respiratory Commercialized Alliance Product which shall ensure that,
based on commercially reasonable terms (recognizing the Commercialized status of
such product), Theravance has a continuous and uninterrupted supply of such
Terminated Respiratory Commercialized Alliance Product, for a suitable period of
time to enable Theravance to secure Third Party supply provided always that such
period of time shall not exceed a period of [*] months from the effective date
of termination.

 

(b) Respiratory Alliance Products. In the event that GSK terminates
Commercialization of an Alliance Product under Section 14.4 and such Alliance
Product is a Respiratory Alliance Product (hereinafter “Terminated Respiratory
Commercialized Alliance Product”), and provided that such Terminated Respiratory
Commercialized Alliance Product is not being or has not been replaced by an
alternative Respiratory Alliance Product and provided further that, in GSK’s
good faith reasonable judgment, the exercise by Theravance alone or with a Third
Party of any of the rights or activities contemplated by this
Section 14.5.3(b) will not materially damage GSK’s continued development,
regulatory or commercial use of GSK Property the following shall occur:

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(i) Theravance Rights to Commercialize. If GSK terminates a Respiratory
Commercialized Alliance Product after First Commercial Sale of such Alliance
Product in one or more of the Major Market Countries, Theravance shall have the
right in its sole discretion and at its sole expense, for its own benefit or
together with a Third Party, to commercialize such Terminated Respiratory
Commercialized Alliance Product in any of such Major Market Countries where it
has been terminated. If GSK terminates a Respiratory Commercialized Alliance
Product in all Countries of the Territory following the first commercial sale in
any Country of the Territory, Theravance shall have the right in its sole
discretion and at it sole expense, for its own benefit or together with a Third
Party, to Commercialize such Terminated Respiratory Commercialized Alliance
Product in the Territory. In either case, GSK will use reasonable efforts to
assist Theravance in locating a mutually acceptable Third Party to carry out the
rights and activities contemplated herein.

 

(ii) Return of Materials. GSK shall [*] transfer to Theravance copies of all
material data, reports, records and materials in its possession or control that
relate to the Terminated Respiratory Commercialized Alliance Product but only
insofar as the Terminated Respiratory Commercialized Alliance Product is a
single agent product and contains the Theravance Compound as a single agent,
and/or destroy at Theravance’s request, all relevant records and materials in
its possession or control containing Confidential Information of Theravance
(provided that GSK may keep one copy of such Confidential Information of
Theravance for archival purposes only in accordance with Section 10.1).

 

(iii) Transfer of Regulatory Filings. GSK shall [*] transfer to Theravance, or
shall cause its designee(s) to transfer to Theravance, ownership of all
regulatory filings made or filed for any Terminated Respiratory Commercialized
Alliance Product (to the extent that any are held in GSK’s or such designee(s)’s
name) but only where the Terminated Respiratory Commercialized Alliance Product
is a single agent product and contains the Theravance Compound as a single
agent, and such transfer to be as permitted by applicable Laws and regulations.
GSK shall cooperate as reasonably necessary to permit Theravance to exercise its
rights hereunder; provided, however, that if such transfer cannot be effected by
GSK in a particular Country [*] days of the effective date of termination for
such Terminated Respiratory Commercialized Alliance Product (for example., as a
result of Theravance not having the appropriate entity in any such Country to
whom ownership of such regulatory filing(s) would be required to be transferred)
then GSK, after the expiration of such aforesaid period, shall forthwith be
entitled to surrender ownership of such regulatory filing(s) and/or applications
for cancellation in respect of such Country.

 

(iv) Return of License Rights to Theravance. All licenses granted by Theravance
to GSK with respect to the Terminated Respiratory Commercialized Alliance
Product under this Agreement shall terminate.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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(v) Grant of License Rights to Theravance. Subject to the first paragraph of
Section 14.5.3(b), GSK shall grant to Theravance the appropriate licenses in the
Territory (or in the case of a Country-by-Country termination, in the relevant
Countries) under the GSK Patents, GSK Inventions and GSK Know-How to enable
Theravance by itself and/or through one or more Third Party sublicensees, to
Commercialize the Terminated Respiratory Commercialized Alliance Product
provided always that if any such GSK right(s) has an applicability to other GSK
owned or licensed-in products then any such license will be granted to
Theravance on a non-exclusive basis but if such right(s) are specific to the
Terminated Respiratory Commercialized Alliance Product and have no applicability
to other GSK owned or licensed-in products then such license will be granted to
Theravance on an exclusive basis. For the avoidance of doubt, any such licenses
granted by GSK shall assure that GSK shall retain no right to Develop or
Commercialize, or to license a Third Party to Develop or Commercialize, such
Terminated Respiratory Commercialized Alliance Product. GSK shall also provide
Theravance with all such information and data which GSK, or its sublicensees
reasonably have available in such Country, for example access to drug master
file, clinical data and the like, and shall execute such instruments as
Theravance reasonably requests, to enable Theravance to obtain the appropriate
regulatory approvals to market such Terminated Respiratory Commercialized
Alliance Product in such Country and for any other lawful purpose related to
Commercialization of such Terminated Respiratory Commercialized Alliance Product
in such Country.

 

(vi) Trademark Assignment. Upon the request of Theravance, GSK shall prepare a
global assignment to Theravance of any Trademark extensively and publicly used
by GSK and Theravance in connection with the Terminated Respiratory
Commercialized Alliance Product. If Theravance elects to record the Assignment,
Theravance shall undertake such recordal tasks and shall bear the costs and fees
associated with the recordal, including but not limited to all filing fees,
agent fees, and costs of notarization and legalizations. GSK shall cooperate
with Theravance as reasonably necessary. Notwithstanding the foregoing, in the
event that any Trademark is used by GSK on any other product, GSK shall not
assign such Trademark as contemplated in the preceding sentence but shall
license such Trademark to Theravance on a non-exclusive basis and subject to any
further license terms to be agreed by the Parties in good faith at the time.

 

(vii) Supply. If requested by Theravance, the Parties shall negotiate and agree
in good faith to a separate commercialization and supply agreement for any
Terminated Respiratory Commercialized Alliance Product which shall ensure that,
based on commercially reasonable terms (recognizing the Commercialized status of
such product), Theravance has a continuous and uninterrupted supply of such
Terminated Respiratory Commercialized Alliance Product, for a suitable period of
time to enable Theravance to secure Third Party supply provided always that such
period of time shall not exceed a period of [*] months from the effective date
of termination.

 

14.6 Effect of Post-Termination Provisions on a Change in Control in Theravance.
In the event of a Change in Control of Theravance prior to termination by GSK
under Section 14.4 (other than a Change in Control of Theravance involving GSK
or a GSK Affiliate) none of the provisions under Section 14.5.3 shall survive as
they pertain to any Alliance Product other than to an Alliance Product that
contains a Theravance Compound as a single agent or a Combination Product
containing another agent that is not GSK Property and the Parties will meet in
good faith to explore other potential commercial options, e.g. use of one or
more Third Parties for possible continued Commercialization of such Terminated
Commercialized Alliance Product.

 

14.7 Milestone Payments. GSK shall not be obligated to make a Development
Milestone payment under Section 6.2 which is triggered by an event occurring
after the effective date of termination of this Agreement with respect to an
Alliance Product or after the effective date of termination of Development or
Commercialization of such Alliance Product, as applicable.

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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14.8 Accrued Rights; Surviving Obligations. Termination, relinquishment or
expiration of this Agreement for any reason shall be without prejudice to any
rights that shall have accrued to the benefit of any Party prior to such
termination, relinquishment or expiration. Such termination, relinquishment or
expiration shall not relieve any Party from obligations which are expressly or
by implication intended to survive termination, relinquishment or expiration of
this Agreement, including without limitation Article 10, and shall not affect or
prejudice any provision of this Agreement which is expressly or by implication
provided to come into effect on, or continue in effect after, such termination,
relinquishment or expiration.

 

ARTICLE 15
MISCELLANEOUS

 

15.1 Relationship of the Parties. Each Party shall bear its own costs incurred
in the performance of its obligations hereunder without charge or expense to the
other except as expressly provided in this Agreement. Neither Party shall have
any responsibility for the hiring, termination or compensation of the other
Party’s employees or for any employee benefits of such employee. No employee or
representative of a Party shall have any authority to bind or obligate the other
Party to this Agreement for any sum or in any manner whatsoever, or to create or
impose any contractual or other liability on the other Party without said
Party’s approval. For all purposes, and notwithstanding any other provision of
this Agreement to the contrary, GSK’s legal relationship under this Agreement to
Theravance shall be that of independent contractor. This Agreement is not a
partnership agreement and nothing in this Agreement shall be construed to
establish a relationship of co-partners or joint venturers between the Parties.

 

15.2 Registration and Filing of This Agreement. To the extent, if any, that
either Party concludes in good faith that it or the other Party is required to
file or register this Agreement or a notification thereof with any Governmental
Authority, including without limitation the U.S. Securities and Exchange
Commission, the Competition Directorate of the Commission of the European
Communities or the U.S. Federal Trade Commission, in accordance with Law, such
Party shall inform the other Party thereof. Should both Parties jointly agree
that either of them is required to submit or obtain any such filing,
registration or notification, they shall cooperate, each at its own expense, in
such filing, registration or notification and shall execute all documents
reasonably required in connection therewith. In such filing, registration or
notification, the Parties shall request confidential treatment of sensitive
provisions of this Agreement, to the extent permitted by Law. The Parties shall
promptly inform each other as to the activities or inquiries of any such
Governmental Authority relating to this Agreement, and shall reasonably
cooperate to respond to any request for further information there from on a
timely basis.

 

15.3 Force Majeure. The occurrence of an event which materially interferes with
the ability of a Party to perform its obligations or duties hereunder which is
not within the reasonable control of the Party affected or any of its
Affiliates, not due to malfeasance by such Party or its Affiliates, and which
could not with the exercise of due diligence have been avoided (each, a “Force
Majeure Event”), including, but not limited to, an injunction, order or action
by a Governmental Authority, fire, accident, labor difficulty, strike, riot,
civil commotion, act of God, inability to obtain raw materials, delay or errors
by shipping companies or change in law, shall not excuse such Party from the
performance of its obligations or duties under this Agreement, but shall merely
suspend such performance during the continuation of the Force Majeure. The Party
prevented from performing its obligations or duties because of a Force Majeure
Event shall promptly notify the other Party of the occurrence and particulars of
such Force Majeure and shall provide the other Party, from time to time, with
its best estimate of the duration of such Force Majeure Event and with notice of
the termination thereof. The Party so affected shall use Diligent Efforts to
avoid or remove such causes of nonperformance as soon as is reasonably
practicable. Upon termination of the Force Majeure Event, the performance of any

 

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suspended obligation or duty shall promptly recommence. The Party subject to the
Force Majeure Event shall not be liable to the other Party for any direct,
indirect, consequential, incidental, special, punitive, exemplary or other
damages arising out of or relating to the suspension or termination of any of
its obligations or duties under this Agreement by reason of the occurrence of a
Force Majeure Event, provided such Party complies in all material respects with
its obligations under this Section 15.3.

 

15.4 Governing Law. This Agreement shall be construed, and the respective rights
of the Parties determined, according to the substantive law of the State of
Delaware notwithstanding the provisions governing conflict of laws under such
Delaware law to the contrary, except matters of intellectual property law which
shall be determined in accordance with the intellectual property laws relevant
to the intellectual property in question.

 

15.5 Attorneys’ Fees and Related Costs. In the event that any legal proceeding
is brought to enforce or interpret any of the provisions of this Agreement, the
prevailing Party shall be entitled to recover its reasonable attorneys’ fees,
court costs and expenses of litigation whether or not the action or proceeding
proceeds to final judgment.

 

15.6 Assignment. This Agreement may not be assigned by either Party without the
prior written consent of the other Party; provided, however that either Party
may assign this Agreement, in whole or in part, to any of its Affiliates if such
Party guarantees the performance of this Agreement by such Affiliate; and
provided further that either Party may assign this Agreement to a successor to
all or substantially all of the assets of such Party whether by merger, sale of
stock, sale of assets or other similar transaction. This Agreement shall be
binding upon, and subject to the terms of the foregoing sentence, inure to the
benefit of the Parties hereto, their permitted successors, legal representatives
and assigns.

 

15.7 Notices. All demands, notices, consents, approvals, reports, requests and
other communications hereunder must be in writing and will be deemed to have
been duly given only if delivered personally, by facsimile with confirmation of
receipt, by mail (first class, postage prepaid), or by overnight delivery using
a globally-recognized carrier, to the Parties at the following addresses:

 

 

Theravance:

Theravance, Inc.
901 Gateway Boulevard
South San Francisco, CA 94080
Facsimile: 650-827-8683
Attn: Senior Vice President, Commercial Development

 

 

 

 

GSK:

Glaxo Group Limited
980 Great West Road
Brentford
Middlesex
TW8 9GS
United Kingdom
Attn: Company Secretary
Facsimile: 011 44 208-047-6912

 

 

 

 

With a copy to:

GlaxoSmithKline plc
980 Great West Road
Brentford
Middlesex
TW8 9GS
United Kingdom
Attn: Corporate Law
Facsimile: 011 44 208-047-6912

 

60

--------------------------------------------------------------------------------

 

 

and with a copy to:

GlaxoSmithKline Research & Development
Greenford Road
Greenford
Middlesex UB6 0HE
United Kingdom
Attn: Vice President, Worldwide Business Development
Facsimile: 011 44 208 966 5371

 

or to such other address as the addressee shall have last furnished in writing
in accord with this provision to the addressor. All notices shall be deemed
effective upon receipt by the addressee.

 

15.8 Severability. In the event of the invalidity of any provisions of this
Agreement or if this Agreement contains any gaps, the Parties agree that such
invalidity or gap shall not affect the validity of the remaining provisions of
this Agreement. The Parties will replace an invalid provision or fill any gap
with valid provisions which most closely approximate the purpose and economic
effect of the invalid provision or, in case of a gap, the Parties’ presumed
intentions. In the event that the terms and conditions of this Agreement are
materially altered as a result of the preceding sentences, the Parties shall
renegotiate the terms and conditions of this Agreement in order to resolve any
inequities. Nothing in this Agreement shall be interpreted so as to require
either Party to violate any applicable laws, rules or regulations.

 

15.9 Waiver. Any term or condition of this Agreement may be waived at any time
by the Party that is entitled to the benefit thereof, but no such waiver shall
be effective unless set forth in a written instrument duly executed by or on
behalf of the Party waiving such term or condition. No waiver by any Party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. Except as expressly set forth in this
Agreement, all rights and remedies available to a Party, whether under this
Agreement or afforded by law or otherwise, will be cumulative and not in the
alternative to any other rights or remedies that may be available to such Party.

 

15.10 Entire Agreement. This Agreement (including the exhibits and schedules
hereto) constitutes the entire agreement between the Parties hereto with respect
to the within subject matter and supersedes all previous agreements and
understandings between the Parties, whether written or oral. This Agreement may
be altered, amended or changed only in writing and by making specific reference
to this Agreement and signed by duly authorized representatives of Theravance
and GSK.

 

15.11 No License. Nothing in this Agreement shall be deemed to constitute the
grant of any license or other right in either Party, to or in respect of any
Alliance Product, patent, trademark, Confidential Information, trade secret or
other data or any other intellectual property of the other Party, except as
expressly set forth herein.

 

15.12 Third Party Beneficiaries. None of the provisions of this Agreement shall
be for the benefit of or enforceable by any Third Party, including without
limitation any creditor of either Party hereto. No such Third Party shall obtain
any right under any provision of this Agreement or shall by reasons of any such
provision make any Claim in respect of any debt, liability or obligation (or
otherwise) against either Party hereto.

 

15.13 Counterparts. This Agreement may be executed in any two counterparts, each
of which, when executed, shall be deemed to be an original and both of which
together shall constitute one and the same document.

 

15.14 Agreement Closing Condition. The obligation of each Party to consummate
the transaction contemplated hereby is subject to the satisfaction of the
following condition (the “Closing Condition”): All filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any other similar laws
that are necessary in any jurisdiction with respect to the transaction
contemplated hereby shall have

 

61

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been made and any required waiting period under such laws shall have expired or
been terminated and any Governmental Authority in a jurisdiction with an
applicable mandatory pre-closing waiting period that has power under or
authority to enforce such laws shall have, if applicable, approved, cleared or
decided neither to initiate proceedings or otherwise intervene in respect of the
transaction contemplated hereby nor to refer the transaction to any other
competent Governmental Authority. Each Party shall use good faith efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other Party in doing, all things necessary, proper
or advisable to consummate and make effective the transaction contemplated by
this Agreement, including, but not limited to satisfaction of the Closing
Condition and each Party shall keep the other Party reasonably apprised of the
status of matters relating to the completion of same. In connection with the
foregoing, the Parties hereby agree to negotiate in good faith to make as soon
as practicable any modification or amendment to this Agreement or any agreement
related hereto that is required by the United States Federal Trade Commission,
Department of Justice or equivalent Governmental Authority, provided that no
Party shall be required to agree to any modification or amendment that, in the
reasonable opinion of such Party’s external legal or financial counsel, would be
adverse to such Party. This Agreement may be terminated by either Party upon
written notice any time after September 30, 2004 if the transactions
contemplated by this Agreement shall not have been consummated by September 30,
2004 due to failure to satisfy the Closing Condition; provided, however, that
the terminating Party shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have been the
proximate cause of, or resulted in, the failure to satisfy the Closing Condition
or otherwise to consummate the transactions contemplated by this Agreement by
such date.

 

15.15 Alliance Program Closing Condition.

 

(a) If GSK notifies Theravance in writing of its wish to exercise its Opt-In
Right in respect of a particular Discovery Program pursuant to Section 4.2.1(a),
Section 4.2.2(a) or Section 4.2.2(b), such notice of exercise shall not take
effect until satisfaction of the condition set forth in Section 15.15 (b) below,
if applicable (the “Alliance Program Closing Condition”).

 

(b) All filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and any other similar laws that are necessary in any jurisdiction with respect
to the exercise of such Opt-In Right contemplated hereby shall have been made
and any required waiting period under such laws shall have expired or been
terminated and any Governmental Authority in a jurisdiction with an applicable
mandatory pre-closing waiting period that has power under or authority to
enforce such laws shall have, if applicable, approved, cleared or decided
neither to initiate proceedings or otherwise intervene in respect of the
exercise of such Opt-In Right contemplated hereby nor to refer same to any other
competent Governmental Authority. Each Party shall use good faith efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other Party in doing, all things necessary, proper
or advisable to consummate and make effective the exercise of any such Opt-In
Right contemplated by this Agreement, including, but not limited to satisfaction
of the Alliance Program Closing Condition and each Party shall keep the other
Party reasonably apprised of the status of matters relating to the completion of
same. In connection with the foregoing, the Parties shall use all reasonable
efforts to make any such filing(s), if applicable, within five (5) business days
of the date GSK notifies Theravance in writing of its wish to exercise its
Opt-In Right in respect of a particular Discovery Program pursuant to
Section 4.2.1(a), Section 4.2.2(a) or Section 4.2.2(b). Further, the Parties
hereby agree to negotiate in good faith to make as soon as practicable any
modification or amendment to this Agreement or any agreement related hereto that
is required by the United States Federal Trade Commission, Department of Justice
or equivalent Governmental Authority, provided that no Party shall be required
to agree to any modification or amendment that, in the reasonable opinion of
such Party’s external legal or financial counsel, would be adverse to such
Party. GSK’s rights to

 

62

--------------------------------------------------------------------------------

 

exercise any such Opt-In Right in respect of a particular Discovery Program
under this Agreement may be terminated by either Party upon written notice any
time after 180 days (one hundred and eighty days) from the relevant Initial Due
Diligence Commencement Date if the exercise of such Opt-In Right contemplated
hereby shall not have been consummated by the aforesaid 180 days (one hundred
and eighty days) due to failure to satisfy the Alliance Program Closing
Condition; provided, however, that the terminating Party shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have been the proximate cause of, or resulted in, the failure to satisfy
the Alliance Program Closing Condition or otherwise to consummate the exercise
of such Opt-In Right contemplated by this Agreement by such date.

 

63

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, Theravance and GSK, by their duly authorized officers, have
executed this Agreement on March 30, 2004.

 

THERAVANCE, INC.

GLAXO GROUP LIMITED

 

 

By:

 

/s/ RICK E WINNINGHAM

 

By:

/s/ JEAN-PIERRE GARNIER

 

Rick E Winningham

 

Jean-Pierre Garnier

 

Chief Executive Officer

 

Chief Executive Officer

 

64

--------------------------------------------------------------------------------

 

Schedule 1.36

 

Existing Discovery Programs

 

Non-Respiratory

 

Modified Glycopeptide

 

—Antibiotic for Treatment of Gram Positive Bacteria

 

 

 

Overactive Bladder

 

—M2 Muscarinic Antagonist for OAB

 

 

 

5-HT4

 

—Agonist for GI Motility Disorders

 

 

 

SASH

 

—Short Acting Sedative Hypnotic

 

Respiratory

 

LAMA—Long Acting Muscarinic Antagonist for Treatment of Respiratory Disease

 

MABA—Pan-Muscarinic Antagonist and Beta Agonist for use in Respiratory Disease

 

--------------------------------------------------------------------------------

 

Schedule 1.66

 

Long Acting Muscarinic Antagonist Respiratory Discovery Criteria

 

· Chemical and Pharmaceutical development

 

Structure

 

· Spectroscopic evidence of [*].

 

Synthetic Process

 

· Existing synthetic route [*].

 

Physical Properties/stability

 

· Crystalline API should be [*].

· Solubility [*].

· Drug Substance exists in [*].

· Can be [*]. Particle size [*]. No marked shift [*].

· Moisture sorption-non hydroscopic

· Mass change [*].

· Does not [*].

· No significant changes [*].

 

· In Vitro Pharmacology:

· [*].

· Not significantly [*].

· The compound must [*].

· General in vitro pharmacology [*].

 

· In Vivo Pharmacology:

· Projected human dose estimated from [*].

· [*].

· Functional lung selectivity [*]. Full dose response curves [*].

· Onset of action [*].

 

· Pharmacokinetics:

· Oral bioavailability [*].

· Limited permeability in [*].

· Dose related exposure [*].

· No significant [*].

· [*].

 

· Safety:

· Less than [*].

· No irritation to the respiratory tract [*].

· Negative in a [*].

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

--------------------------------------------------------------------------------

 

List of Protocols:

 

1. Theravance [*] assay

2. Theravance [*] assay

3. [*]

4. Theravance [*]

5. Theravance [*] Assay

6. Theravance [*] Assay

7. Theravance [*] assay

8. Theravance [*]

9. Theravance [*] assay

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

--------------------------------------------------------------------------------

 

Schedule 1.72

 

Muscarinic Antagonist-Beta Agonist Respiratory Discovery Criteria

 

· Chemical and Pharmaceutical development

 

Structure

 

· Spectroscopic evidence of [*].

 

Synthetic Process

 

· Existing synthetic route [*]. Synthesis [*] with no insurmountable safety,
health or environmental issues.

 

Physical Properties/stability

 

· Crystalline API should be [*].

· Solubility [*].

· Drug Substance exists in [*].

· Can be [*]. Particle size [*]. No marked shift [*].

· Moisture sorption-non hydroscopic

· Mass change [*].

· Does not [*].

· No significant changes [*].

 

· In Vitro Pharmacology:

 

· [*].

· Not significantly [*].

· The compound must [*].

· The ratio of [*].

· The potency at [*].

· The selectivity [*].

· [*].

· General in vitro pharmacology [*].

 

· In Vivo Pharmacology:

 

· [*].

· Significant [*]. Ratio of [*].

· [*]. There should be no [*].

 

· Pharmacokinetics:

 

· Oral bioavailability [*].

· Limited permeability in [*].

· Dose related exposure [*].

· No significant [*].

· [*].

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

--------------------------------------------------------------------------------

 

· Safety:

 

· Less than [*].

· No irritation to the respiratory tract [*].

· Negative in a [*].

 

List of Protocols:

 

1. Theravance [*] Assay

2. Theravance [*] Assay

3. Theravance [*] Assay

4. Theravance [*] Assay

5. Theravance [*] Assay

6. Theravance [*] Assay

7. Theravance [*]

8. Theravance [*]

9. Theravance [*]

10. Theravance [*]

11. Theravance [*]

12. Theravance [*] assay

 

[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

--------------------------------------------------------------------------------

 

Schedule 6.1.2(A)

 

Class A Common Stock Purchase Agreement

 

--------------------------------------------------------------------------------

 

THERAVANCE, INC.

 

CLASS A COMMON

 

STOCK PURCHASE AGREEMENT

 

March 30, 2004

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

 

 

 

 

Page

1. Purchase and Sale of Stock

 

3

 

 

1.1 Sale and Issuance of Class A Common Stock

 

3

 

 

1.2 Closing

 

3

 

 

1.3 Share Exchange

 

4

2. Representations and Warranties of the Company

 

4

 

 

2.1 Organization, Good Standing and Qualification

 

4

 

 

2.2 Capitalization and Voting Rights

 

4

 

 

2.3 Subsidiaries

 

5

 

 

2.4 Authorization

 

5

 

 

2.5 Valid issuance of Preferred and Common Stock

 

6

 

 

2.6 Governmental Consents

 

6

 

 

2.7 Offering

 

6

 

 

2.8 Litigation

 

6

 

 

2.9 Patents and Trademarks

 

7

 

 

2.10 Compliance with Other Instruments

 

7

 

 

2.11 Agreements; Action

 

8

 

 

2.12 Related-Party Transactions

 

8

 

 

2.13 Permits

 

9

 

 

2.14 Disclosure

 

9

 

 

2.15 Corporate Documents

 

9

 

 

2.16 Title to Property and Assets

 

9

 

 

2.17 Tax Returns, Payments and Elections

 

9

 

 

2.18 Environmental Law

 

9

 

 

2.19 Proprietary Information and Employment Agreements

 

9

 

 

2.20 Financial Statements

 

9

 

 

2.21 Changes

 

10

 

 

2.22 Registration Rights

 

11

 

 

2.23 Real Property Holding Corporation

 

11

 

 

2.24 Labor Agreements

 

11

 

 

2.25 Insurance

 

11

 

 

2.26 Directors and Senior Management

 

11

 

 

2.27 Officer and Key Employee Incentive Plan

 

11

3. Representations and Warranties of the Investor

 

11

 

 

3.1 Authorization

 

11

 

 

3.2 Purchase Entirely for Own Account

 

12

 

 

3.3 Disclosure of Information

 

12

 

 

3.4 Investment Experience

 

12

 

 

3.5 Accredited Investor

 

12

 

 

3.6 Restricted Securities

 

12

4. Conditions of Investor’s Obligations at Closing

 

12

 

 

4.1 Performance

 

12

 

 

4.2 Compliance Certificate

 

12

 

 

4.3 Qualifications

 

13

 

 

4.4 Proceedings and Documents

 

13

 

 

4.5 Opinion of Company Counsel

 

13

 

 

4.6 Investors’ Rights Agreement

 

13

 

 

4.7 Approval and Filing of the Restated Certificate

 

13

 

 

4.8 Conversion of Existing Preferred Stock

 

13

 

 

4.9 Governance Agreement

 

13

 

--------------------------------------------------------------------------------

 

 

 

4.10 Strategic Alliance Agreement

 

13

 

 

4.11 HSR Act

 

13

 

 

4.12 Executive Lock-Up Agreements

 

13

 

 

4.13 Conduct of the Company Business

 

13

5. Conditions of the Company’s Obligations at Closing

 

 13

 

 

5.1 Representations and Warranties

 

13

 

 

5.2 Qualifications

 

14

 

 

5.3 Investors’ Rights Agreement

 

14

 

 

5.4 Restated Certificate

 

14

 

 

5.5 Governance Agreement

 

14

 

 

5.6 Strategic Alliance Agreement

 

14

 

 

5.7 HSR Act

 

14

 

 

5.8 Delivery of Common Stock

 

14

6. Miscellaneous

 

14

 

 

6.1 Survival of Warranties

 

14

 

 

6.2 Successors and Assigns

 

14

 

 

6.3 Governing Law

 

14

 

 

6.4 Counterparts

 

15

 

 

6.5 Titles and Subtitles

 

15

 

 

6.6 Notices

 

15

 

 

6.7 Finder’s Fee

 

15

 

 

6.8 Expenses

 

15

 

 

6.9 Amendments and Waivers

 

15

 

 

6.10 Termination

 

15

 

 

6.11 Severability

 

16

 

 

6.12 Confidentiality

 

16

 

 

6.13 Publicity

 

16

 

 

6.14 Entire Agreement

 

16

 

 

6.15 Legends

 

16

 

 

6.16 Conduct of Business of the Company

 

17

 

SCHEDULE A

 

Schedule of Exceptions

EXHIBIT A

 

Restated Certificate of Incorporation

EXHIBIT B

 

Amended and Restated Investors’ Rights Agreement

EXHIBIT C

 

Governance Agreement

EXHIBIT D

 

Opinion of Counsel for the Company

EXHIBIT E

 

Form of Executive Lock-Up Agreement

EXHIBIT F

 

Summary of Terms of the Officer and Key Employee Incentive Plan

 

2

--------------------------------------------------------------------------------

 

THERAVANCE, INC.

 

CLASS A COMMON STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (the “Agreement”) is made as of the 30th day of
March, 2004, by and among Theravance, Inc., a Delaware corporation (the
“Company”), and SmithKline Beecham Corporation, a Pennsylvania corporation (the
“Investor”).

 

WHEREAS, Glaxo Group Limited, a limited liability company organized under the
laws of England and Wales (“GGL”) and the Company have entered into that certain
Strategic Alliance Agreement dated as of the date hereof (the “Alliance
Agreement”), pursuant to which, among other things, the Company has granted GGL
an option to develop and commercialize certain therapeutic compounds on an
exclusive, worldwide basis;

 

WHEREAS, the Investor and the Company are contemporaneously entering into this
Agreement, pursuant to which the Investor shall purchase shares of the Company’s
Class A Common Stock, par value $0.01 (the “Class A Common Stock”);

 

WHEREAS, as a condition to the stock purchase contemplated by this Agreement and
to facilitate an eventual underwritten public offering of the Company’s equity
securities, all outstanding shares of the Company’s Preferred Stock not owned by
GGL must be converted into shares of the Company’s Common Stock; and

 

WHEREAS, in connection with the stock purchase contemplated by this Agreement,
the Company intends to implement a retention plan designed to retain and incent
key employees, which shall include various equity incentives following a
successful underwritten public offering of the Company’s equity securities.

 

THE PARTIES HEREBY AGREE AS FOLLOWS:

 

1. Purchase and Sale of Stock.

 

1.1 Sale and Issuance of Class A Common Stock.

 

(a) On or prior to the Closing (as defined below), (i) all issued and
outstanding shares of preferred stock of the Company shall have converted into
common stock and (ii) the Company shall adopt and file with the Secretary of
State Delaware the Restated Certificate of Incorporation in the form attached
hereto as Exhibit A (the “Restated Certificate”).

 

(b) On or prior to the Closing (as defined below), the Company shall have
authorized the sale and issuance pursuant to this Agreement of 9,900,000 shares
of its Class A Common Stock at a price of $11.00 per share. The Class A Common
Stock shall have the rights, preferences, privileges and restrictions set forth
in the Restated Certificate.

 

(c) Subject to the terms and conditions of this Agreement, the Investor agrees
to purchase at the Closing and the Company agrees to sell and issue to the
Investor at the Closing, 9,900,000 shares of the Company’s Class A Common Stock
for an aggregate purchase price of $108,900,000.

 

1.2 Closing. The purchase and sale of the Class A Common Stock shall take place
at the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
155 Constitution Drive, Menlo Park, CA 94025, at 10:00 A.M., on the date all
conditions to closing set forth in Sections 4 and 5 have been satisfied or
effectively waived, or at such other time and place as the Company and Investor
mutually agree upon orally or in writing (which time and place are designated as
the “Closing”). At the Closing the Company shall deliver to the Investor a
certificate representing the Class A Common Stock that the Investor is
purchasing against payment of the purchase price therefor by check or wire
transfer, or any combination thereof.

 

3

--------------------------------------------------------------------------------

 

1.3 Exchange of Shares of Common Stock for Shares of Class A Common Stock. Upon
the Closing, GGL shall be deemed to have automatically exchanged, as of the date
of the Closing, on a one-for-one basis, each share of Common Stock held by GGL
for one share of Class A Common Stock. The rights, preferences and privileges of
the Common Stock and Class A Common Stock are as set forth in the Restated
Certificate.

 

2. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investor that, as of the date hereof, and except as set
forth on a Schedule of Exceptions (the “Schedule of Exceptions”) furnished to
the Investor, which exceptions shall be deemed to be representations and
warranties as if made hereunder:

 

2.1 Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to (i)
execute, deliver and perform its obligations under this Agreement and the
Amended and Restated Investors’ Rights Agreement, by and among the Company and
the investors who are parties thereto, the form of which is attached hereto as
Exhibit B (the “Investors’ Rights Agreement”), (ii) to issue and sell the Class
A Common Stock hereunder, (iii) to perform its obligations under the Restated
Certificate, and (iv) to carry on its business as now conducted and as proposed
to be conducted. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would have
a material adverse effect on its business or properties.

 

2.2 Capitalization and Voting Rights.

 

(a) As of the date of this Agreement, the authorized capital of the Company
consists of:

 

(i) Preferred Stock. 51,500,000 shares of Preferred Stock (the “Preferred
Stock”), of which (i) 5,020,000 shares have been designated Series A Preferred
Stock (the “Series A Preferred Stock”), 4,988,000 of which are outstanding; (ii)
5,100,000 shares have been designated Series B Preferred Stock (the “Series B
Preferred Stock”), 5,074,000 of which are outstanding; (iii) 18,823,000 shares
have been designated Series C Preferred Stock (the “Series C Preferred Stock”),
18,765,166 of which are outstanding; (iv) 1,666,666 shares have been designated
Series D Preferred Stock (the “Series D Preferred Stock”), 1,666,666 of which
are outstanding (which are initially convertible into 2,777,777 shares of Common
Stock); (v) 13,888,889 shares have been designated Series D-1 Preferred Stock
(the “Series D-1 Preferred Stock”), 13,169,905 of which are outstanding; and
(vi) 4,000,000 shares have been designated Series E Preferred Stock (the “Series
E Preferred Stock”), all of which are outstanding. The rights, privileges and
preferences of the Preferred Stock will be as stated in the Company’s Restated
Certificate of Incorporation on file with the Secretary of State of the State of
Delaware on the date hereof.

 

(ii) Common Stock. 120,000,000 shares of common stock, par value $0.01 (“Common
Stock”), of which 11,413,885 shares are issued and outstanding.

 

(iii) The outstanding shares of Common Stock are all duly and validly authorized
and issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act of 1933, as
amended (the “Act”) and any relevant state securities laws, or pursuant to valid
exemptions therefrom.

 

(iv) Except for (A) the conversion privileges of the Preferred Stock, (B) the
rights provided in Section 2.5 of the Investors’ Rights Agreement, (C) currently
outstanding warrants to purchase 4,000 shares of Series A Preferred Stock, (D)
currently outstanding warrants to purchase 4,000 shares of Series B Preferred
Stock, (E) currently outstanding warrants to purchase 48,611 shares of Series
D-1 Preferred Stock, and (F) currently

 

4

--------------------------------------------------------------------------------

 

outstanding options to purchase 13,630,463 shares of Common Stock granted to
employees, directors, board members, consultants and service providers, there
are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. In addition to the aforementioned
options, the Company has reserved an additional 962,000 shares of its Common
Stock for issuance upon exercise of options to be granted in the future under
the Company’s 1997 Stock Plan. Except for the provisions of the Restated
Certificate, the Investors’ Rights Agreement and of that certain Amended and
Restated Stockholders’ Voting Agreement dated as of January 25, 1999 by and
among the Company and the other parties listed therein, the Company is not a
party or subject to any agreement or understanding, and, to the best of the
Company’s knowledge, there is no agreement or understanding between any persons
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the Company. No stock
plan, stock purchase, stock option or other agreement or understanding between
the Company and any holder of any equity securities or rights to purchase equity
securities provides for acceleration or other changes in the vesting provisions
of such agreement or understanding as the result of any merger, consolidated
sale of stock or assets, change in control or any other similar transaction(s)
by the Company.

 

(b) Immediately prior to the Closing, upon the filing of the Restated
Certificate and assuming between the date hereof and the date of Closing (x) the
exchange of shares of Common Stock held by the Investor for shares of Class A
Common Stock pursuant to Section 1.3 hereof, (y) no issuance by the Company of
its capital stock or any security exercisable for or convertible into capital
stock of the Company pursuant to any employee, director or consultant
compensation plan that has been approved by the majority of the Board of
Directors and (z) no exercise or conversion of any outstanding option, warrant
or other security exercisable for or convertible into the capital stock of the
Company, the authorized capital of the Company shall consist of:

 

(i) Preferred Stock. 5,000,000 shares of Preferred Stock (the “Preferred
Stock”), none of which shall be outstanding.

 

(ii) Common Stock. 175,000,000 shares of Common Stock, par value $0.01 (“Common
Stock”), 56,188,733 of which shall be outstanding

 

(iii) Class A Common Stock. 13,900,000 shares of Class A Common Stock, 4,000,000
of which shall be outstanding and 9,900,000 of which shall be sold pursuant to
this Agreement.

 

2.3 Subsidiaries. The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association or other business
entity, other than Theravance East, Inc., a Delaware corporation and a direct
wholly-owned subsidiary of the Company. The Company is not a participant in any
joint venture, partnership, or similar arrangement.

 

2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Investors’ Rights Agreement and the
Governance Agreement to be entered into by the Company and the Investor (and its
affiliates), in substantially the form attached hereto as Exhibit C (the
“Governance Agreement,” and collectively with this Agreement and the Investors’
Rights Agreement, the “Transaction Documents”), the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Class A Common
Stock being sold hereunder has been taken or will be taken prior to the Closing,
and the Transaction Documents constitute valid and legally binding obligations
of the Company, enforceable in accordance with their respective terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general

 

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application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors’ Rights Agreement may be limited by
applicable federal or state securities laws.

 

2.5 Valid Issuance of Preferred and Common Stock. The Class A Common Stock that
is being purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
the Transaction Documents and under applicable state and federal securities
laws. The Class A Common Stock that is being purchased by the Investor hereunder
will not be subject to preemptive rights or rights of first refusal that have
not been waived or complied with. Prior to the filing of the Restated
Certificate, the outstanding Series A, Series B, Series C, Series D, Series D-1
and Series E Preferred Stock was duly and validly issued, fully paid, and is
nonassessable. Upon the filing of the Restated Certificate, the Common Stock
issuable upon conversion of the outstanding Series A, Series B, Series C, Series
D, Series D-1 and Series E Preferred Stock will be duly and validly reserved for
issuance and, upon issuance, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under the documents executed in connection with the
sale of the Series A, Series B, Series C, Series D, Series D-1 and Series E
Preferred Stock and under applicable state and federal securities laws. The
outstanding Series A, Series B, Series C, Series D, Series D-1 and Series E
Preferred Stock is not subject to preemptive rights or rights of first refusal
that have not been waived or complied with and, upon the execution and delivery
of the Investors’ Rights Agreement by the requisite holders of Company capital
stock necessary to amend and restate the “Prior Agreement” (as such term is
defined in the Investors’ Rights Agreement), the Common Stock and Class A Common
Stock issuable upon conversion of such Preferred Stock will not be subject to
preemptive rights or rights of first refusal that have not been waived or
complied with.

 

2.6 Governmental Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except (i) a filing under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended (the “HSR Act”), (ii) the filing of the
Restated Certificate with the Secretary of State of Delaware; and (iii) certain
post-closing filings as may be required pursuant to federal securities laws and
under the “Blue Sky” laws of the various states.

 

2.7 Offering. Subject in part to the truth and accuracy of the Investor’s
representations set forth in Section 3 of this Agreement, the offer, sale and
issuance of the Class A Common Stock as contemplated by this Agreement are
exempt from the registration requirements of any applicable state and federal
securities laws, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.

 

2.8 Litigation. There is no action, suit, proceeding or investigation pending
or, to the Company’s knowledge, currently threatened against the Company that
questions the validity of the Transaction Documents, or the right of the Company
to enter into such agreements, or to consummate the transactions contemplated
hereby or thereby, or if determined adversely, might result, either individually
or in the aggregate, in (i) any material adverse changes in the assets, business
or prospects of the Company, financially or otherwise or (ii) any change in the
current equity ownership of the Company, nor is the Company aware that there is
any basis for the foregoing. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.

 

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2.9 Patents and Trademarks. The Company owns, or has rights to use pursuant to a
valid license, all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase of “off the shelf” or standard products. The use,
modification, licensing, sublicensing, sale, or any other exercise of rights
involving such intellectual property does not infringe any copyright, trade
secret, trademark, service mark, trade name, firm name, logo, trade dress, mask
work, moral right, other intellectual property right, right of privacy or right
in personal data, or to the knowledge of the Company, any patent, of any person.
No claims (i) challenging the validity, effectiveness, or ownership by the
Company of any of the Company’s intellectual property, or (ii) to the effect
that the use, reproduction, modification, manufacturing, distribution,
licensing, sublicensing, sale or any other exercise of rights in any product,
work, technology, service or process as used, provided or offered at any time,
or as proposed for use, reproduction, modification, distribution, licensing,
sublicensing, sale or any other exercise of rights, by the Company infringes or
will infringe on any intellectual property or other proprietary or personal
right of any person have been asserted or, to the knowledge of the Company, (A)
are threatened by any person nor (B) are there any valid grounds for any bona
fide claim of any such kind. To the knowledge of the Company, there is no
unauthorized use, infringement or misappropriation of any of the Company’s
intellectual property by any third party, employee or former employee. The
Company’s employees are not obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company’s business as proposed to be
conducted. Neither the execution nor delivery of the Transaction Documents, nor
the carrying on of the Company’s business by the employees of the Company, nor
the conduct of the Company’s business as proposed, will, to the best of the
Company’s knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees made prior to their employment by the Company unless such
inventions are properly assigned to the Company.

 

2.10 Compliance with Other Instruments. The Company is not in violation or
default in any material respect of any provision of its Restated Certificate or
Bylaws, or in any material respect of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to the
best of its knowledge, of any provision of any statute, rule or regulation
applicable to the Company. The execution, delivery and performance of the
Transaction Documents, and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event that results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or operations
or any of its assets or properties.

 

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2.11 Agreements; Action.

 

(a) Except for agreements explicitly contemplated by the Transaction Documents,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, or any affiliate
thereof.

 

(b) Except for this Agreement, the Governance Agreement, the Strategic Alliance
Agreement and the Collaboration Agreement dated as of November 14, 2002 by and
between the Company and the Investor (the “Collaboration Agreement”), there are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company is a party or by which
it is bound that may involve (i) provisions restricting or affecting the
development, manufacture or distribution of the Company’s products or services;
(ii) obligations (contingent or otherwise) of, or payments to, the Company in
excess of $100,000 (other than obligations of, or payments to, the Company
arising from agreements entered into in the ordinary course of business); or
(iii) indemnification by the Company with respect to infringements of
proprietary rights (other than indemnification obligations arising from
agreements entered into in the ordinary course of business).

 

(c) The Company has not (i) declared or paid any dividends or authorized or made
any distribution upon or with respect to any class or series of its capital
stock, (ii) incurred any indebtedness for money borrowed or any other
liabilities individually in excess of $1,000,000 or in the aggregate in excess
of $5,000,000, (iii) made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.

 

(d) For the purposes of subsection (c) above, all indebtedness and liabilities
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsection.

 

(e) The Company is not a party to and is not bound by any contract, agreement or
instrument, or subject to any restriction under its Restated Certificate or
Bylaws that adversely affects its business as now conducted or as proposed to be
conducted, its properties or its financial condition.

 

(f) The Company has not engaged in the past three (3) months in any discussion
(i) with any representative of any corporation or corporations regarding the
consolidation or merger of the Company with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company or a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.

 

2.12 Related-Party Transactions. No employee, officer, or director of the
Company or member of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the Company’s knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock in publicly traded companies that may compete with the Company. No
member of the immediate

 

8

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family of any officer or director of the Company is directly or indirectly
interested in any material contract with the Company.

 

2.13 Permits. The Company has all material franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
its franchises, permits, licenses, or other similar authority.

 

2.14 Disclosure. The Company has provided the Investor with all information
requested by the Investor in connection with their decision to purchase the
Class A Common Stock, including all information the Company believes is
reasonably necessary to make such investment decision. To the Company’s
knowledge, neither this Agreement, the Investors’ Rights Agreement, nor any
other statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.

 

2.15 Corporate Documents. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investor), the Restated Certificate and
Bylaws of the Company are in the form previously provided to the Investor.

 

2.16 Title to Property and Assets. The Company owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens that arise in the ordinary course of business and do not
materially impair the Company’s ownership or use of such property or assets, and
has good and marketable title to such property. With respect to the property and
assets it leases, the Company is in compliance with such leases and holds a
valid leasehold interest free of any liens, claims or encumbrances.

 

2.17 Tax Returns, Payments and Elections. The Company has timely filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and assessments
due, except those contested by it in good faith, if any. The Company has not
been advised (a) that any of its federal, state or local returns are being
audited as of the date hereof, or (b) of any deficiency in assessment or
proposed judgment to its federal, state or other taxes. The Company has no
knowledge of any tax liabilities due with respect to the Company or its
properties or assets as of the date of this Agreement that are not adequately
provided for.

 

2.18 Environmental Law. To the Company’s knowledge, the Company is not in
violation of and has no liability or potential liability under any applicable
statute, law, or regulation relating to the environment, and to the best of its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law, or regulation.

 

2.19 Proprietary Information and Employment Agreements. Each current and former
employee, officer and consultant of the Company has executed a standard
Proprietary Information and Inventions Agreement. The Company is not aware that
any of its employees, officers or consultants are in violation thereof, and the
Company will use its best efforts to prevent any such violation. The Company has
not entered into any employment agreements.

 

2.20 Financial Statements. The Company has made available to the Investor its
audited financial statements as of December 31, 2002 and its unaudited
financials as of and for the twelve-month period ended December 31, 2003 (the
“Financial Statements”). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other except that the
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting

 

9

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principles. The Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein, subject in the case of the unaudited Financial Statements to normal
year-end audit adjustments. Except as set forth in the Financial Statements, the
Company has no material liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
date of the Financial Statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.

 

2.21 Changes. Since December 31, 2003 there has not been:

 

(a) any change in the assets, liabilities, financial condition or operating
results of the Company from that reflected in the Financial Statement, except
changes in the ordinary course of business that have not been, in the aggregate,
materially adverse;

 

(b) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial condition,
operating results, prospects or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);

 

(c) any waiver by the Company of a valuable right or of a material debt owed to
it;

 

(d) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company, except in the ordinary course of business and
that is not material to the assets, properties, financial condition, operating
results or business of the Company (as such business is presently conducted and
as it is proposed to be conducted);

 

(e) any material change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject;

 

(f) any material change in any compensation arrangement or agreement with any
employee;

 

(g) any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets;

 

(h) any resignation or termination of employment of any key employee or officer
of the Company; and the Company, to the best of its knowledge, does not know of
the impending resignation or termination of employment of any such employee or
officer;

 

(i) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;

 

(j) any mortgage, pledge, transfer of a security interest in, or lien, created
by the Company, with respect to any of its material properties or assets, except
liens for taxes not yet due or payable;

 

(k) any loans or guarantees made by the Company to or for the benefit of its
employees, officers or directors, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of its
business;

 

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(l) any declaration, setting aside or payment or other distribution in respect
of any of the Company’s capital stock, or any direct or indirect redemption,
purchase or other acquisition of any of such stock by the Company;

 

(m) to the best of the Company’s knowledge, any other event or condition of any
character that might materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted); or

 

(n) any agreement or commitment by the Company to do any of the things described
in this Section 2.21.

 

2.22 Registration Rights. Except as required pursuant to the Investors’ Rights
Agreement, the Company is not presently under any obligation, and has not
granted, any rights to register any of the Company’s presently outstanding
securities or any of its securities that may hereafter be issued.

 

2.23 Real Property Holding Corporation. The Company is not a real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code of 1986 (the “Code”), as amended, and any regulations promulgated
thereunder.

 

2.24 Labor Agreements. The Company is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any written or oral, express
or implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the Company’s knowledge, has sought to
represent any of the employees, representatives or agents of the Company. There
is no strike or other labor dispute involving the Company pending, or to the
Company’s knowledge, threatened, that could have a material adverse effect on
its business or properties, nor is the Company aware of any labor organization
activity involving its employees.

 

2.25 Insurance. The Company maintains in full force and effect such types and
amounts of insurance issued by insurers of recognized responsibility insuring
the Company with respect to its business and properties, in such amounts and
against such losses and risks which are usual and customary in the Company’s
business as to amount and scope.

 

2.26 Directors and Senior Management. No plan currently maintained by the
Company or agreement entered into and currently in effect with any employee of
the Company (each, a “Plan” and, collectively, the “Plans”) provides for the
payment of separation, severance, termination or similar benefits to any person.
None of the Plans obligates the Company to pay any benefits solely or partially
as a result of any transaction contemplated by this Agreement or as a result of
a change in the ownership or effective control of the Company within the meaning
of Section 280G of the Code. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby, either
alone or together with a termination of service, will (i) result in any payment
(including, without limitation, severance, golden parachute, forgiveness of
indebtedness or otherwise) becoming due under any Plan, whether or not such
payment is contingent, (ii) increase any benefits otherwise payable under any
Plan or other arrangement, or (iii) result in the acceleration of the time of
payment, vesting or funding of any benefits including, but not limited to, the
acceleration of the vesting and exercisability of any Company Option, whether or
not contingent.

 

2.27 Officer and Key Employee Incentive Plan. The Board has approved the Officer
and Key Employee Incentive Plan substantially in the form attached hereto as
Exhibit F.

 

3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants that:

 

3.1 Authorization. The Investor has full power and authority to enter into the
Transaction Documents, and each such Agreement constitutes its valid and legally
binding obligation,

 

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enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors’ Rights Agreement may be limited by
applicable federal or state securities laws.

 

3.2 Purchase Entirely for Own Account. This Agreement is made with the Investor
in reliance upon the Investor’s representation to the Company, which by the
Investor’s execution of this Agreement the Investor hereby confirms, that the
Class A Common Stock to be received by the Investor (the “Securities”) will be
acquired for investment for the Investor’s own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same in violation of applicable
securities laws. By executing this Agreement, the Investor further represents
that the Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.

 

3.3 Disclosure of Information. The Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Class A Common Stock and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investor to
rely thereon.

 

3.4 Investment Experience. The Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Class A Common Stock. The Investor
also represents that it has not been organized for the purpose of acquiring the
Class A Common Stock.

 

3.5 Accredited Investor. The Investor is an “accredited investor” within the
meaning of Rule 501 of Regulation D adopted pursuant to the Act, as presently in
effect.

 

3.6 Restricted Securities. The Investor understands that the Securities it is
purchasing are characterized as “restricted securities” under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, the Investor
represents that it is familiar with Rule 144 adopted pursuant to the Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.

 

4. Conditions of Investor’s Obligations at Closing. The obligations of the
Investor under subsection 1.1(c) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against the Investor if it does not
consent thereto:

 

4.1 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.

 

4.2 Compliance Certificate. The Chief Executive Officer of the Company shall
deliver to the Investor at the Closing a certificate stating that the conditions
specified in Sections 4.1 have been fulfilled.

 

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4.3 Qualifications. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.

 

4.4 Proceedings and Documents. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Investor,
and they shall have received all such counterpart original and certified or
other copies of such documents as they may reasonably request.

 

4.5 Opinion of Company Counsel. The Investor shall have received from Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Company, an
opinion, dated as of the Closing, in the form attached hereto as Exhibit D.

 

4.6 Investors’ Rights Agreement. The Company, the Investor and the requisite
holders of Company capital stock necessary to amend and restate the “Prior
Agreement” (as such term is defined in the Investors’ Rights Agreement) shall
have entered into the Investors’ Rights Agreement.

 

4.7 Approval and Filing of the Restated Certificate. The requisite holders of
Company capital stock shall have approved the Restated Certificate and the
Restated Certificate shall have been filed with the Secretary of State of
Delaware, and shall not have been amended or modified since the date of filing.

 

4.8 Conversion of Existing Preferred Stock. All shares of the Company’s Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series D-1 Preferred Stock and Series E Preferred Stock shall
have been converted into shares of Common Stock.

 

4.9 Governance Agreement. The Company and the Investor shall have entered into
the Governance Agreement.

 

4.10 Strategic Alliance Agreement. The Strategic Alliance Agreement shall have
become Effective (as such term is defined in the Strategic Alliance Agreement)
as of the Closing.

 

4.11 HSR Act. The waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of such
transactions shall have been instituted and be pending.

 

4.12 Executive Lock-Up Agreements. Each of P. Roy Vagelos, Rick E Winningham,
Marty Glick and Patrick Humphrey shall have entered into an Executive Lock-Up
Agreement, each substantially in the form attached hereto as Exhibit E.

 

4.13 Conduct of the Company Business. The Company shall not willfully have taken
any affirmative action or willfully omitted to have taken any affirmative action
that would cause any of the representations and warranties contained in Section
2 hereof, applied as of the Closing Date, to be breached.

 

5. Conditions of the Company’s Obligations at Closing. The obligations of the
Company to the Investor under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by the Investor:

 

5.1 Representations and Warranties. The representations and warranties of the
Investor contained in Section 3 shall have been true on and as of the date of
this Agreement and, in all material respects, as of the Closing.

 

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5.2 Qualifications. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.

 

5.3 Investors’ Rights Agreement. The Company, the Investor and the requisite
holders of Company capital stock necessary to amend and restate the “Prior
Agreement” (as such term is defined in the Investors’ Rights Agreement) shall
have entered into the Investors’ Rights Agreement.

 

5.4 Restated Certificate. The Company shall have obtained the requisite
stockholder consent to file the Restated Certificate.

 

5.5 Governance Agreement. The Company and the Investor shall have entered into
the Governance Agreement.

 

5.6 Strategic Alliance Agreement. The Strategic Alliance Agreement shall have
become Effective (as such term is defined in the Strategic Alliance Agreement)
as of the Closing.

 

5.7 HSR Act. The waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated and no action by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of such
transactions shall have been instituted and be pending.

 

5.8 Delivery of Common Stock. GGL shall have delivered to the Company the
certificates representing the shares of Common Stock held by GGL in connection
with the exchange, as described in Section 1.3.

 

6. Miscellaneous.

 

6.1 Survival of Warranties. The warranties, representations and covenants of the
Company and the Investor contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of the Investor or the Company.

 

6.2 Successors and Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Securities). Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.

 

6.3 Governing Law. This Agreement shall be governed by and construed in
accordance with and governed by the law of the State of Delaware, without regard
to the conflicts of laws principles thereof. Any action brought, arising out of,
or relating to this Agreement shall be brought in the Court of Chancery of the
State of Delaware. Each party hereby irrevocably submits to the exclusive
jurisdiction of said Court in respect of any claim relating to the validity,
interpretation and enforcement of this Agreement, and hereby waives, and agrees
not to assert, as a defense in any action, suit or proceeding in which any such
claim is made that it is not subject thereto or that such action suit or
proceeding may not be brought or is not maintainable in such courts, or that the
venue thereof may not be appropriate or that this agreement may not be enforced
in or by such courts. The parties hereby consent to and grant the Court of
Chancery of the State of Delaware jurisdiction over such parties and over the
subject matter of any such claim and agree that mailing of process or other
papers in connection with any such action, suit or proceeding in the manner
provided in Section 6.1, or in such other manner as may be permitted by law,
shall be valid and sufficient thereof.

 

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6.4 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

 

6.5 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

6.6 Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to be
notified, (b) when sent by confirmed electronic mail or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day or
(c) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.
Notwithstanding the foregoing or any provision to the contrary in the Investors’
Rights Agreement or the Restated Certificate, the Company agrees that when any
notice is given to the Investor, whether under this Agreement, the Investors’
Rights Agreement or the Restated Certificate, such notice shall not be deemed to
be effectively given until a copy of such notice is transmitted to the Investor
via facsimile. All notices and certificates will be addressed to the Investor at
the address set forth on the signature page hereto or at such other address as
the Company or the Investor may designate by ten (10) days advance written
notice to the other parties hereto.

 

6.7 Finder’s Fee. The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders’ fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible.

 

The Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finders’ fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.

 

6.8 Expenses. Irrespective of whether the Closing is effected, each party shall
bear their own costs and expenses incurred with respect to the negotiation,
execution, delivery and performance of this Agreement. If any action at law or
in equity is necessary to enforce or interpret the terms of this Agreement, the
Investors’ Rights Agreement or the Restated Certificate, the prevailing party
shall be entitled to reasonable attorney’s fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.

 

6.9 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investor. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding, each
future holder of all such securities, and the Company.

 

6.10 Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the
Closing, notwithstanding any requisite approval and adoption of this Agreement
and the transactions contemplated by this Agreement, as follows:

 

(a) by mutual written consent of the Company and the Investor; or

 

(b) by either the Company or the Investor, if the Closing shall not have
occurred on or before October 1, 2004; provided, however, that the right to
terminate this Agreement under this Section 6.10 (b) shall not be available to
any party whose failure to fulfill any obligation

 

15

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under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur.

 

6.11 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.

 

6.12 Confidentiality. Any confidential information obtained by the Investor
pursuant to this Agreement which is labeled or otherwise identified as
confidential or proprietary shall be treated as confidential and shall not be
disclosed to a third party without the prior written consent of the Company and
shall not be used by the Investor for any purpose other than monitoring the
Investor’s investment in the Company, except that the Investor may disclose such
information (i) to its attorneys, accountants, consultants, and other
professionals to the extent necessary to obtain their services in connection
with monitoring its investment in the Company, (ii) to its affiliates, officers,
directors, shareholders, members and/or partners in the ordinary course of
business or pursuant to disclosure obligation to affiliates, shareholders,
members and/or partners; provided that such information is provided to such
persons and entities with notice that such information is confidential and
should be treated as such, (iii) to any prospective purchaser of the Investor’s
shares of the Company, provided (in the case of disclosure in clause (iii)) the
recipient agrees to keep such information confidential and to use such
information solely for evaluation of such proposed purchase, or (iv) as may
otherwise be required by law. Notwithstanding the foregoing, such information
shall not be deemed confidential for the purpose of enforcement of this
Agreement and said information shall not be deemed confidential after it becomes
publicly known through no fault of the recipient. The provisions of this
Section 6.12 shall be in addition to, and not in substitution for, the
provisions of any separate confidentiality agreement executed by the parties
hereto; provided that if there is any conflict between the provisions of this
Section 6.12 and the more restrictive provisions of such separate
confidentiality agreement, the provisions of such separate confidentiality
agreement shall prevail.

 

6.13 Publicity. No party or any affiliate of a party shall make, or cause to be
made, any publicity, news release or other such general public announcement or
make any other disclosure to any third party in respect of this Agreement or the
transactions contemplated hereby (including, without limitation, disclosure of
Investor’s ownership interest in the Company) without the prior written consent
of the other party; provided however, that the foregoing provision is not
intended to limit communications deemed reasonably necessary or appropriate by a
party or its affiliates to its employees, stockholders, partners, directors,
officers, potential investors, accountants and legal counsel who are under an
obligation to preserve the confidentiality of the foregoing. Notwithstanding the
foregoing provision, the parties and their respective affiliates shall not be
prohibited from making any disclosure or release that is required by law, court
order, or applicable regulation, or is considered necessary by legal counsel to
fulfill an obligation under securities laws or the rules of a national stock
exchange.

 

6.14 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.

 

6.15 Legends. It is understood that the certificates evidencing the Securities
may bear one or all of the following legends:

 

(a) “These securities have not been registered under the Securities Act of 1933,
as amended. They may not be sold, offered for sale, pledged or hypothecated in
the absence of a registration statement in effect with respect to the securities
under such Act or an opinion of

 

16

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counsel satisfactory to the Company that such registration is not required or
unless sold pursuant to Rule 144 of such Act.”

 

(b) Any legend required by the laws of any state.

 

6.16 Conduct of Business of the Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing, the Company agrees (except to the extent that GSK shall
otherwise consent in writing) to carry on its business in the usual, regular and
ordinary course in substantially the same manner as currently conducted, and, to
the extent consistent with such business, to use all commercially reasonable
efforts consistent with past practice and policies to preserve intact its
present business organization and keep available the services of its present
officers and key employees. Solely for the purposes of any post-Closing remedy
for breaches of representations, warranties or covenants by the Company, the
Company shall not take any affirmative action or omit to take any affirmative
action that results in the breach of any of the representations and warranties
contained in Section 2 hereof, applied as of the Closing Date.

 

17

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

THERAVANCE, INC.

 

 

 

 By:

/s/ RICK E WINNINGHAM

 

 

Rick E Winningham
President and Chief Executive Officer

 

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INVESTOR:

 

SMITHKLINE BEECHAM CORPORATION

 

Name of Investor

 

 

 

By:

/s/ JEAN-PIERRE GARNIER

 

 

Signature of Authorized Person

 

Name:

Jean-Pierre Garnier

 

Title:

Chief Executive Officer

 

Address:

GlaxoSmithKline

 

 

 

One Franklin Plaza (FP2355)

 

 

 

Philadelphia, PA 19102

 

 

 

Fax No: 215-751-5349

 

CLASS A COMMON STOCK PURCHASE AGREEMENT

SIGNATURE PAGE

 

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EXHIBIT A

RESTATED CERTIFICATE OF INCORPORATION

 

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EXHIBIT B

AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

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EXHIBIT C

GOVERNANCE AGREEMENT

 

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EXHIBIT D

OPINION OF COUNSEL FOR THE COMPANY

 

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EXHIBIT E

FORM OF EXECUTIVE LOCK-UP AGREEMENT

 

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EXHIBIT F

SUMMARY OF TERMS OF THE OFFICER AND KEY EMPLOYEE INCENTIVE PLAN

 

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Schedule 6.1.3(A)

 

Governance Agreement

 

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GOVERNANCE AGREEMENT

 

This GOVERNANCE AGREEMENT (this “Agreement”) is dated as of May 11, 2004 among
SmithKline Beecham Corporation, a Pennsylvania corporation (“GSK”),
Theravance, Inc., a Delaware corporation (the “Company”), solely with respect to
Articles III, IV and VI hereof, GlaxoSmithKline plc, an English public limited
company (“GlaxoSmithKline”), and, solely with respect to Articles II, IV and VI
hereof, Glaxo Group Limited, a limited liability company organized under the
laws of England and Wales (“GGL”).

 

WHEREAS, GGL and the Company have entered into that certain Strategic Alliance
Agreement dated as of March 30, 2004 (the “Alliance Agreement”), pursuant to
which, among other things, the Company has granted GGL an option to develop and
commercialize certain therapeutic compounds on an exclusive, worldwide basis;

 

WHEREAS, GSK and the Company have entered into that certain Class A Common Stock
Purchase Agreement dated as of March 30, 2004 (the “Class A Stock Purchase
Agreement”), pursuant to which GSK shall purchase shares of the Company’s
Class A Common Stock;

 

WHEREAS, as a condition to the stock purchase contemplated by the Class A Stock
Purchase Agreement and to facilitate an eventual underwritten public offering of
the Company’s equity securities, all outstanding shares of the Company’s
Preferred Stock have been converted into shares of the Company’s Common Stock
(the “Common Stock”);

 

WHEREAS, GGL through a previous stock purchase agreement owns shares of the
Company’s preferred stock that have been converted into common stock and will be
exchanged for shares of the Company’s Class A Common Stock pursuant to Section
1.3 of the Class A Common Stock Purchase Agreement;

 

WHEREAS, GSK and the Company have agreed to establish in this Agreement certain
terms and conditions concerning the corporate governance of the Company;

 

WHEREAS, GSK, GGL and the Company also have agreed to establish in this
Agreement certain terms and conditions concerning the acquisition, disposition
and voting of securities of the Company beneficially owned by GSK and its
Affiliates (as defined herein); and

 

WHEREAS, GSK and the Company have agreed to set forth in this Agreement the
terms and conditions upon which the Company shall redeem the Common Stock.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
agreements contained herein, GSK and the Company hereby agree as follows:

 

ARTICLE I

 

BOARD OF DIRECTORS AND CERTAIN CORPORATE ACTIONS

 

SECTION 1.1. Initial Composition of Board of Directors at the Effective Date.

 

(a) The number of directors comprising the full Board of Directors of the
Company (the “Board”) immediately after the Effective Date shall be 12. The
directors of the Company following the Effective Date shall be the directors of
the Company immediately prior to the Effective Date, and shall serve until their
successors have been duly elected or appointed and qualified or until the
earlier death, resignation or removal in accordance with the Company’s Restated
Certificate of Incorporation (the “Certificate of Incorporation”), the Company’s
Bylaws and this Agreement. GSK shall have the right, but not the obligation, to
nominate an individual to serve as a member of the Board (in which case the size
of the Board will be increased by one) or alternatively to designate an
individual to serve as an observer at Board meetings. Notwithstanding the
foregoing, GSK shall have no right to nominate or designate any individual to
serve as a member or observer of the Board under this Section 1.1 if, (i) GSK’s
Percentage Interest (as defined below) has fallen below 15% or (ii) directly as
a result of any sale or other disposition by GSK of Voting Stock, GSK’s
Percentage Interest has fallen below 19.0%, and the term of any such existing
member or observer shall automatically cease upon such reduction in GSK’s
Percentage Interest. In addition,

 

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GSK’s right to nominate or designate an individual to serve as a member or
observer to the Board under this Section 1.1 shall be suspended for the duration
of any period in which GSK is otherwise entitled to nominate directors pursuant
to Section 1.2 or Section 1.3 below.

 

(b) Any individual designated by GSK pursuant to paragraph (a) of this
Section 1.1 to be an observer to the Board shall have the right to attend all
meetings of its Board in a nonvoting observer capacity and, in this respect, the
Company shall give such observer copies of all notices, minutes, consents and
other materials that it provides to its directors; provided, however, that such
observer shall not be permitted to attend any meeting of the Board unless such
individual signs an agreement to hold such materials in confidence and trust and
to act in a fiduciary manner with respect to the Company with respect to all
information so provided as if such individual was a GSK Director (as defined
below); and, provided further, that the Company reserves the right to withhold
any information and to exclude such observer from any meeting or portion thereof
if access to such information or attendance at such meeting (i) could adversely
affect the attorney-client privilege between the Company and its counsel or
(ii) would result in the disclosure of competitive or other sensitive
information to GSK or its observer in such a manner that any GSK Director would
need to be recused to abide by their fiduciary duties to the Company and its
stockholders.

 

SECTION 1.2. Composition of the Board Following 50.1% or Greater Ownership by
GSK. (a) The Company agrees that after, and so long as, GSK’s Percentage
Interest is 50.1% or greater, the Board shall include (i) such number of
nominees designated by GSK equal to one-third of the then aggregate number of
directors comprising the Board (the “GSK Directors”) and (ii) two officers of
the Company nominated by the nominating committee of the Board. The remaining
directors of the Board shall be composed of Independent Directors. For purposes
of this Agreement, an “Independent Director” shall mean a director who complies
with the independence requirements for directors with respect to the Company
(without reference to any applicable exemptions from such requirements) for
companies listed on the Nasdaq National Market and shall be individuals who have
business or technical experience, stature and character as is commensurate with
service on the board of a publicly traded enterprise. With respect to any GSK
Independent Nominees (as defined below), each such nominee, in addition to
meeting the independence requirements with respect to the Company as described
in the immediately preceding sentence, shall also meet such independence
requirements with respect to GlaxoSmithKline and any of its Affiliates as if
such Independent Director was a director of GlaxoSmithKline or one of its
Affiliates. So long as GSK’s Percentage Interest is 50.1% or greater, the Board
shall be comprised of nine members, or any greater number that is divisible by
three.

 

(b) With respect to the Independent Directors referred to above in paragraph
(a) and so long as GSK’s Percentage Interest is 50.1% or greater, GSK shall,
upon its request, be entitled to designate nominees (the “GSK Independent
Nominees”) for one-half of the total number of Independent Directors. Subject to
the approval of the majority of the members of the Board other than the GSK
Directors and GSK Independent Nominees (the “Non-GSK Directors”), such approval
not to be unreasonably withheld or delayed, the GSK Independent Nominees shall
be included as nominees to be voted upon by the Company’s stockholders. An equal
number of Independent Directors shall be nominated by the Non-GSK Directors.
Subject to the approval of the GSK Directors, such approval not to be
unreasonably withheld or delayed, such nominees shall be included as nominees to
be voted upon by the Company’s stockholders. In the event that approval of any
Independent Director nominee is properly withheld, the nominating directors (the
GSK Directors or the Non-GSK Directors, as the case may be) shall be entitled to
propose an alternate candidate for nomination as an Independent Director in
accordance with this Section 1.2. For purposes of this Agreement, “GSK’s
Percentage Interest” shall mean the percentage of voting power, determined on
the basis of the number of shares of Voting Stock actually outstanding, that is
controlled directly or indirectly by GSK and its Affiliates and held prior to
the date of this

 

2

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Agreement or obtained in accordance with this Agreement, the Class A Stock
Purchase Agreement and the Certificate of Incorporation. Notwithstanding the
foregoing, GSK shall have no right to designate any nominees for directors under
this Section 1.2 at any time after GSK’s Percentage Interest has fallen below
50.1%, and the term of each then existing GSK Director and GSK Independent
Nominees nominated pursuant to this Section 1.2 shall automatically cease upon
such reduction in GSK’s Percentage Interest. (For the avoidance of doubt,
nothing in this section shall limit or affect GSK’s rights pursuant to
Section 1.1(a)).

 

SECTION 1.3. Composition of the Board following 35.1% or Greater Ownership by
GSK. From and after the Call/Put Termination Date and until September 1, 2008
or, if on or after September 1, 2008, GSK commences an offer to purchase
additional shares of Voting Stock as contemplated by Section 2.1(b)(viii), the
expiration date of such offer (which shall not occur later than October 15,
2008) (the “Interim Period”), so long as, during the Interim Period, GSK’s
Percentage Interest is 35.1% or greater and less than 50.1%, the Board shall be
comprised of no less than six members and shall include, (i) one nominee
designated by GSK (who shall be deemed to be a “GSK Director”) and (ii) two
officers of the Company nominated by the nominating committee of the Board. The
remaining members of the Board shall be Independent Directors. GSK, upon its
request, shall be entitled to designate nominees (who shall be deemed to be “GSK
Independent Nominees”) for a number of Independent Directors equal to GSK’s
Percentage Interest at such time times the total number of such Independent
Directors (with such number being rounded to the nearest whole number) and
provided further, that such nominees shall meet the independence requirements
for GSK Independent Nominees as set forth in Section 1.2 above. Such nominees
shall be subject to the approval, not to be unreasonably withheld or delayed, of
the majority of the then existing directors (other than any director nominated
by GSK). In the event that approval of any Independent Director nominee proposed
by GSK is properly withheld by the then existing directors, GSK shall be
entitled to propose an alternate candidate for nomination as an Independent
Director in accordance with this Section 1.3. The rights set forth in this
Section 1.3 shall terminate upon the expiration of the Interim Period, and the
term of each GSK Director and GSK Independent Nominee under this Section 1.3
shall automatically cease on such date; provided however, that the termination
of such rights shall not affect GSK’s right to immediately nominate one or more
directors pursuant to Section 1.1 or 1.2.

 

SECTION 1.4. Other Matters Related to the Board.

 

(a) The Company agrees to increase or decrease, as the case may be, the size of
the Board, and to fill the newly created directorships created by any such
increase, as appropriate in order to achieve the composition required by
Sections 1.1, 1.2 and 1.3. Any directors elected to fill a vacancy shall serve
until the next annual meeting of stockholders. Whenever necessary pursuant to a
decrease in the size of the Board, GSK will cause directors nominated by GSK to
resign from the Board to maintain the composition required by Sections 1.2 and
1.3, and the Company shall cause such number of Non-GSK Directors to resign as
necessary to maintain the composition required by Sections 1.2 and 1.3. To
facilitate compliance with the provisions of this Article I, GSK shall cause
each GSK Director and GSK Independent Nominee, and the Company shall cause each
other director of the Board, to enter into an agreement with the Company that
provides for the resignation of such director upon the occurrence of the events
requiring such resignation as set forth in this Agreement; provided, however,
that this sentence shall only come into effect two weeks prior to the Call/Put
Termination Date.

 

(b) The Company shall always have the right to decrease the size of the Board
without GSK’s consent (and, if desired, and subject to the provisions of
Section 1.2(a), to increase it again without GSK’s consent to no more than 13
seats); provided, however, that in no event will GSK lose its right to designate
or nominate the GSK Director(s) or GSK Independent Nominees pursuant to Sections
1.1, 1.2 or 1.3 of this Agreement.

 

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(c) GSK and the Non-GSK Directors shall have the right to nominate any
replacement for a director nominated by GSK or nominated by the Non-GSK
Directors, respectively, at the termination of such director’s term or upon
death, resignation, retirement, disqualification, removal from office or other
cause, subject to any rights of approval set forth in Sections 1.2 and 1.3. To
the extent permitted by the Certificate of Incorporation or Bylaws of the
Company, the Board shall appoint each person so designated or nominated.

 

(d) No individual nominated by GSK shall serve as a director unless such
individual has such business or technical experience, stature and character as
is commensurate with service on the board of a publicly held enterprise. No such
individual who is an officer, director, partner or principal stockholder of any
competitor of the Company and its subsidiaries (other than GSK and its
Affiliates) shall serve as a director of the Company except by agreement of the
Independent Directors in their sole discretion.

 

(e) So long as GSK’s Percentage Interest is 50.1% or greater, each committee of
the Board (other than any Common Stock committee or committee of Independent
Directors constituted for the purposes of making any determination that is to be
made under the terms of this Agreement or the Certificate of Incorporation or as
expressly prohibited by applicable law, regulation or stock exchange or trading
system listing requirement) shall at all times include at least one GSK Director
and no action by any such committee shall be valid unless taken at a meeting for
which adequate notice has been duly given to or waived by all of the members of
such committee. Such notice shall include a description of the general nature of
the business to be transacted at the meeting and no other business may be
transacted at such committee meeting. Any committee member unable to attend any
committee meeting in person shall be given the opportunity to participate by
telephone. Prior to the Initial Public Offering, the GSK Director designated to
serve on any such committee may designate as his/her alternate another GSK
Director.

 

SECTION 1.5. Director Approval Required for Certain Actions. (a) After, and so
long as GSK’s Percentage Interest is 50.1% or greater, the approval of a
majority of GSK Directors (for clarity, should there be an even number of GSK
Directors, such approval shall mean that more GSK Directors voted for approval
than against) shall be required to approve any of the following:

 

(i) the acquisition by the Company of any business or assets that would
constitute a substantial portion of the business or assets of the Company,
whether such acquisition be by merger or consolidation or the purchase of stock
or assets or otherwise;

 

(ii) the sale, lease, license, transfer or other disposal of a substantial
portion of the business or assets, tangible or intangible, of the Company;
provided, however, that the approval of a majority of the GSK Directors shall
not be required for the sale, license or transfer to another party, in the
ordinary course of business, of any Company asset (regardless of its value or
what portion of the Company’s business or assets it may represent) over which
GSK has no contractual rights in accordance with the provisions of the Alliance
Agreement; or

 

(iii) the repurchase or redemption of any Equity Security or other capital stock
of the Company, other than (A) redemptions required by the terms thereof, (B)
purchases made at fair market value in connection with any deferred compensation
plan maintained by the Company and (C) repurchases of unvested or restricted
stock at or below cost pursuant to any employee, officer, director or consultant
compensation plan. For purposes of this Agreement, “Equity Security” means any
(i) Voting Stock of the Company, (ii) securities of the Company convertible into
or exchangeable for Voting Stock and (iii) options, rights and warrants issued
by the Company to acquire Voting Stock. “Voting Stock” shall mean the
outstanding securities of the Company having the right to vote generally in any
election of directors of the Board.

 

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(b) During the Interim Period, any of the actions described in Section 1.5(a) or
Section 1.6(b) shall require the approval of a majority of the Independent
Directors.

 

SECTION 1.6. GSK Approval for Certain Issuances of Equity Securities.

 

(a) Prior to the Call/Put Termination Date, the Company shall not, without the
prior written consent of GSK, issue any Equity Security other than (i) shares of
Common Stock, (ii) options to acquire Common Stock and (iii) to the extent
constituting an Equity Security, Permitted Indebtedness; provided, however, the
Company shall only issue such Equity Securities if as a consequence of such
issuance, the aggregate number of Callable/Puttable Shares (as defined in
Section 6.10) would not exceed 84,000,000 (such amount to be adjusted for stock
splits, stock dividends, combinations and other recapitalizations); provided
further, that, in determining such aggregate number of Callable/Puttable Shares,
the number of any Callable/Puttable Shares subject to Executive Lock-Up
Agreements entered into pursuant to the Class A Purchase Agreement shall not be
included.

 

(b) If GSK’s Percentage Ownership is 35.1% or greater on the Call/Put
Termination Date, following the Call/Put Termination Date and until the End of
the Equity Limitation Period (as defined below), the Company shall not issue any
Equity Security other than Permitted Equity Issuances. “Permitted Equity
Issuances” shall mean (i) the issuance of Equity Securities pursuant to any
employee, officer, director or consultant compensation plan that has been
approved by the majority of the Board or (ii) issuances by the Company of Equity
Securities to third parties (other than as contemplated by the preceding clause
(i)), including pursuant to the exercise, conversion or exchange of Equity
Securities other than Callable/Puttable Shares issued prior to the Call Date or
the final day of the Put Period, as the case may be, provided that, the
aggregate number of shares of any such Equity Securities issued to such third
parties following the Call/Put Termination Date and until the End of the Equity
Limitation Period shall in no event exceed the equivalent of 25,000,000 shares
of Common Stock (on an as converted basis) (such amount to be adjusted for stock
splits, stock dividends, combinations and other recapitalizations). The “End of
the Equity Limitation Period” shall mean: (x) September 1, 2012, if GSK’s
Percentage Interest is 50.1% or greater on the Call/Put Termination Date or if
GSK’s Percentage Interest is less than 50.1% on the Call/Put Termination Date,
but exceeds 50.1% at any time on or prior to December 31, 2008 and (y) in all
other cases, December 31, 2008.

 

SECTION 1.7. Limitation on Indebtedness Prior to Call/Put Termination Date.
Except with respect to Permitted Indebtedness (as defined in Section 6.10),
prior to the Call/Put Termination Date, the Company shall not borrow money or
otherwise incur Indebtedness to the extent that the Company on a consolidated
basis has financial Indebtedness that exceeds cash and cash equivalents under US
generally accepted accounting principles at any time prior to the Call/Put
Termination Date.

 

SECTION 1.8. Directors and Officers Liability Insurance. From and after the date
that GSK nominates one or more directors to serve on the Board, the Company
shall maintain directors and officers liability insurance coverage to the extent
and in the amounts common to comparable companies. To the extent that such
insurance coverage is in place, the GSK nominees shall be named as designated
insureds under such policy.

 

SECTION 1.9. Consolidation with GlaxoSmithKline. At such time as GlaxoSmithKline
is required by applicable accounting standards to include the Company’s results
in the consolidated financial results for GlaxoSmithKline, the Company (i) shall
provide such information based on or derived from the Company’s U.S. GAAP
financial reporting and (ii) shall provide such additional information and take
such steps that are reasonably requested by GlaxoSmithKline to comply with
applicable law or to prepare its consolidated financial statements on such time
schedule as GlaxoSmithKline may reasonably request for purposes of preparation
of GlaxoSmithKline’s consolidated financial results; provided, however, that GSK
or any of its affiliates shall be required to pay all incremental documented
expenses

 

5

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(personnel or otherwise) arising out of the Company’s obligations pursuant to
subsection (ii) of this Section 1.9. The Company shall take all such steps
necessary in order to comply with its obligations (if any) under the
Sarbanes-Oxley Act of 2002 and the rules and regulations adopted pursuant
thereto.

 

ARTICLE II

 

LIMITATIONS RELATING TO COMPANY EQUITY SECURITIES

 

SECTION 2.1. Acquisition of Company Equity Securities.

 

(a) Acquisition of Equity Securities. Except as contemplated by this Agreement,
as permitted by Section 2.1(b), (c) or (d) or as otherwise agreed in writing by
the Company (following approval of a majority of the Independent Directors), GSK
and its Affiliates will not (and will not assist or encourage others to)
directly or indirectly in any manner:

 

(i) acquire, or agree to acquire, directly or indirectly, alone or in concert
with others, by purchase, gift or otherwise, any direct or indirect beneficial
ownership (within the meaning of Rule l3d-3 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) or interest in any securities or direct
or indirect rights, warrants or options to acquire, or securities convertible
into or exchangeable for, any Equity Securities;

 

(ii) make, or in any way participate in, directly or indirectly, alone or in
concert with others, any “solicitation” of “proxies” to vote (as such terms are
used in the proxy rules of the Securities and Exchange Commission (the “SEC”)
promulgated pursuant to Section 14 of the Exchange Act); provided, however, that
the prohibition in this Section 2.1(a)(ii) shall not apply to solicitations
exempted from the proxy solicitation rules by Rule 14a-2 under the Exchange Act
or any successor provision;

 

(iii) form, join or in any way participate in a “group” within the meaning of
Section 13(d)(3) of the Exchange Act with any person not bound by the terms of
this Agreement (other than persons deemed to be a member of such group solely by
virtue of being an Affiliate of GSK) with respect to any Voting Stock;

 

(iv) acquire or agree to acquire, directly or indirectly, alone or in concert
with others, by purchase, exchange or otherwise, (A) any of the assets, tangible
or intangible, of the Company or (B) direct or indirect rights, warrants or
options to acquire any assets of the Company, except for (X) such assets as are
then being offered for sale by the Company or (Y) acquisitions of assets of the
Company pursuant to or as contemplated by the Alliance Agreement or the
Collaboration Agreement between GSK and the Company dated as of November 14,
2002 (the “Collaboration Agreement”);

 

(v) enter into any arrangement or understanding with others to do any of the
actions restricted or prohibited under Sections 2.1 (a) (i), (ii), (iii) or
(iv);

 

(vi) otherwise act in concert with others, to seek to offer to the Company or
any of its stockholders any business combination, restructuring,
recapitalization or similar transaction to or with the Company or otherwise seek
in concert with others, to control, change or influence the management, board of
directors or policies of the Company or nominate any person as a director of the
Company who is not nominated by the then incumbent directors, or propose any
matter to be voted upon by the stockholders of the Company; or

 

(vii) prior to August 31, 2007, request that the Company (or the Board) amend or
waive any provisions of this Section 2.1.

 

(b) Exceptions for Certain Acquisitions of Equity Securities of the Company.
Nothing herein shall prevent GSK or its Affiliates (or in the case of Section
2.1(b)(v), their employees) from:

 

(i) purchasing the Class A Stock of the Company on the Effective Date;

 

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(ii) purchasing additional Equity Securities of the Company pursuant to the
provisions of Article III of this Agreement and Article IV of the Certificate of
Incorporation;

 

(iii) purchasing additional Equity Securities of the Company after the Effective
Date to maintain GSK’s Percentage Interest in accordance with Section 2.1(d)
hereof;

 

(iv) acquiring securities of the Company issued in connection with stock splits
or recapitalizations or pursuant to Section 2.5 of that certain Investors’
Rights Agreement dated as of May 11, 2004 (the “Investors’ Rights Agreement”);

 

(v) following the Company’s initial public offering of Voting Stock (the
“Initial Offering”), purchasing securities of the Company for (A) a pension plan
established for the benefit of GSK’s employees, (B) any employee benefit plan of
GSK, (C) any stock portfolios not controlled by GSK or any of its Affiliates
that invest in the Company among other companies, or (D) any account of a GSK
employee in such employee’s personal capacity;

 

(vi) acquiring securities of another biotechnology or pharmaceutical company
that beneficially owns any of the Equity Securities, provided that any Equity
Securities so acquired shall be subject to the provisions of Sections 2.1(a),
2.2 and 2.3 of this Agreement on the same basis as the Class A Common Stock
purchased pursuant to the Class A Stock Purchase Agreement;

 

(vii) in the event that GSK’s Percentage Interest is 50.1% or greater at any
time on or after the Call/Put Termination Date, on or after September 1, 2012,
GSK and/or its Affiliates may make an offer that does not include any condition
as to financing to the Company’s stockholders to merge the Company or otherwise
to acquire outstanding Voting Stock that would bring GSK’s Percentage Interest
to 100%, provided that such offer is approved by a majority of the Independent
Directors and includes a condition to consummation of the transaction that a
majority of the shares of the then outstanding Voting Stock not owned by GSK or
any of its Affiliates shall have accepted the offer by tendering such shares or
voting such shares in favor thereof;

 

(viii) in the event that GSK’s Percentage Interest is less than 50.1% on the
Call/Put Termination Date, on or after September 1, 2008, GSK and/or its
Affiliates may make an offer that does not include any condition as to financing
to the Company’s stockholders to acquire outstanding Voting Stock that would
bring GSK’s Percentage Interest to no greater than 60%, provided that such offer
is approved by a majority of the Independent Directors and includes a condition
to consummation of the transaction that a majority of the shares of the then
outstanding Voting Stock not owned by GSK or any of its Affiliates shall have
accepted the offer by tendering such shares in the offer; provided, further,
that, any Equity Securities so acquired shall be subject to the provisions of
Sections 2.1(a), 2.2 and 2.3 of this Agreement on the same basis as the Class A
Common Stock purchased pursuant to the Class A Stock Purchase Agreement (for the
avoidance of doubt, the parties acknowledge that, if the GSK Percentage Interest
is less than 50.1% on the Call/Put Termination Date, GSK shall not, prior to
September 1, 2012, be permitted to make an offer to acquire additional
outstanding Equity Securities of the Company except as expressly permitted in
this Section 2.1(b) or Sections 2.1(c) or (d));

 

(ix) at any time following the Call/Put Termination Date and prior to September
1, 2012 that the GSK Percentage Interest is 50.1% or greater, GSK and/or its
Affiliates may make an offer that does not include any condition as to financing
to acquire outstanding Voting Stock that would bring GSK’s Percentage Interest
to 100%; provided that, any such offer shall be approved by a majority of the
Independent Directors and includes a condition to consummation of the
transaction that a majority of the shares of the then outstanding Voting

 

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Stock not owned by GSK or any of its Affiliates shall have accepted the offer by
tendering such shares or voting such shares in favor thereof and that such offer
be for not less than the greater of (i) the Fair Market Value Per Share (as
defined in Section 6.10) on the date immediately preceding the date of the first
public announcement of such offer or (ii) $105 per share of Common Stock or
Common Stock equivalent (appropriately adjusted to take into account stock
dividends, stock splits, recapitalizations and the like);

 

(x) only after, and so long as, GSK’s Percentage Interest is 50.1% or greater,
with such Voting Stock acquired in accordance with the terms of this Agreement
and the Certificate of Incorporation, purchasing additional Equity Securities of
the Company if the Company has otherwise determined to sell Equity Securities to
pay all or any portion of the milestones that it may owe to GSK pursuant to
Section 6.2.3 of the Collaboration Agreement. In this event, GSK shall have the
first right to purchase such additional Equity Securities on the terms under
which the Company intends to sell such Equity Securities.

 

(c) Third Party Offers. Nothing herein shall prevent GSK or its Affiliates from,
in the event that (A) the Board formally acts to cause the Company to (i) enter
into a written agreement pursuant to which a Change in Control transaction with
a third party is provided for, (ii) amend the Rights Plan (as defined in Section
6.10) in order to render the Rights Plan inapplicable with respect to any third
party or (iii) render inapplicable to any third party the restrictions contained
in Section 203 of the DGCL or any similar anti-takeover provision or (B) a
person or group (within the meaning of 13(d)(3) of the Exchange Act and not
including and underwriter in connection with a public offering) (each, a “Third
Party Acquiror”) acquires 20% or more of the then outstanding Voting Stock (a
“Significant Third Party Acquisition”), making an offer to acquire, and
acquiring, Equity Securities pursuant to the terms of GSK’s offer; provided that
GSK’s offer must be an offer for 100% of the Voting Stock of the Company that
does not include any condition as to financing and includes a condition to
consummation of the transaction that a majority of the shares of the then
outstanding Voting Stock not owned by GSK or any of its Affiliates or by any
such Third Party Acquiror (or its or their Affiliates) shall have accepted the
offer by tendering such shares or voting such shares in favor of thereof.

 

(d) Exceptions for Acquisitions to Maintain GSK’s Percentage Interest.

 

(i) In the event that the Company issues Equity Securities (other than pursuant
to exercise of options or vesting of restricted shares issued as compensation to
directors, officers, employees or consultants of the Company) GSK shall have the
right to purchase such Equity Securities at the same price (where the
consideration does not consist solely of cash, the fair market value of the
non-cash consideration as determined in good faith by the Independent Directors)
up to such amount as required to maintain GSK’s Percentage Interest at the same
level as immediately prior to such issuance to the third party.

 

(ii) With respect to exercise of stock options or vesting of restricted stock,
on a quarterly basis, GSK shall be afforded the opportunity by the Company to
purchase comparable Equity Securities sufficient to maintain GSK’s Percentage
Interest at the same level as prior to the exercises and vestings during such
quarter. GSK or its Affiliates shall acquire such Equity Securities referred to
in the immediately preceding sentence either from the Company at the then Fair
Market Value Per Share or, at the discretion of the Company, through open market
purchases.

 

(iii) If GSK’s Percentage Interest is 50.1% or greater on the Call/Put
Termination Date solely as a result of the exercise of the Put, if at any time
following the Call/Put Termination Date and until September 1, 2012, the Company
issues Equity Securities (other than pursuant to exercise of options or vesting
of restricted shares issued as compensation to directors, officers, employees or
consultants of the Company) and GSK declines to purchase additional

 

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Equity Securities in such offering, GSK, for a period of six months following
such issuance of Equity Securities by the Company, shall, nonetheless, have the
right to cause the Company to issue Equity Securities to GSK in such amount as
required to maintain GSK’s Percentage Interest at the same level as GSK’s
Percentage Interest on the Call/Put Termination Date and at a price equal to the
greater of (i) the Fair Market Value Per Share of Equity Securities at the time
of purchase by GSK or (ii) the price per share of the Equity Securities issued
by the Company in the transaction that resulted in GSK’s rights pursuant to this
subsection (iii).

 

(iv) If GSK’s Percentage Interest is 50.1% or greater on the Call/Put
Termination Date solely as a result of the exercise of the Call, if at any time
following the Call/Put Termination Date and until September 1, 2012, the Company
issues Equity Securities (other than pursuant to exercise of options or vesting
of restricted shares issued as compensation to directors, officers, employees or
consultants of the Company) GSK, for so long as the GSK Percentage Interest is
50.1% or greater, shall have the right to purchase such Equity Securities at the
same price (where the consideration does not consist solely of cash, the fair
market value of the non-cash consideration as determined in good faith by the
Independent Directors) in such amount as required to maintain GSK’s Percentage
Interest at the same level as GSK’s Percentage Interest on the Call/Put
Termination Date.

 

(v) Notwithstanding anything contained in this Section 2.1(d)(i), (ii), (iii)
and (iv), if the Company shall issue Permitted Indebtedness consisting of
securities exchangeable or convertible into Voting Stock, the Company shall
provide written notice to GSK of the conversion or exchange of any such
Permitted Indebtedness within ten days following any such conversion or
exchange. GSK shall notify the Company promptly following the receipt of such
notice if it intends to purchase that number of Equity Securities from the
Company required to maintain GSK’s Percentage Interest as measured immediately
prior to the date of such conversion or exchange of Permitted Indebtedness at a
price per Equity Security equal to the greater of (x) the conversion or exchange
price of such Permitted Indebtedness or (y) the Fair Market Value Per Share on
the date of such purchase by GSK. If GSK notifies the Company of such intention,
the Company shall issue such number of Equity Securities upon payment of such
price.

 

(vi) In the event that GSK’s Percentage Interest falls below 50.1% (or, in the
case of Sections 1.3, 1.6 and 2.3, 35.1%, or in the case of Section 1.1(a),
19.0%) solely as a consequence of any issuance of Equity Securities with respect
to which GSK has the right to acquire further Equity Securities under this
Section 2.1(d), GSK’s Percentage Interest shall be deemed to be greater than
50.1% for purposes of Articles I and II, 35.1% for purposes of Sections 1.3, 1.6
and 2.3, and 19.0% for purposes of Section 1.1(a), unless and until GSK declines
to purchase the Equity Securities it is entitled to purchase under this Section
2.1(d) (GSK shall respond within a reasonable time with respect to its decision
to accept or decline its opportunity to purchase additional Equity Securities).

 

(e) Rights Plan. The Company will, subject to the Board’s exercise of its
fiduciary duties, implement a Rights Plan on or before the Initial Offering. The
Company shall take all necessary action to render inapplicable to GSK the Rights
Plan, Section 203 of the Delaware General Corporation Law (the “DGCL”) and any
other applicable similar anti-takeover provision.

 

SECTION 2.2. Disposition of Equity Securities.

 

(a) Prior to the Call/Put Termination Date. Prior to the Call/Put Termination
Date (as defined in Section 6.10), neither GSK nor any of its Affiliates shall
dispose of beneficial ownership of any Voting Stock held by them without the
prior approval of a majority of the Board other than any director nominated by
GSK, except: (A) to any other Affiliate of GSK who agrees in writing to be bound
hereunder; or (B) pursuant to a Change in Control transaction of the Company
approved

 

9

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by a majority of the Board other than any director nominated by GSK and
consummated prior to August 1, 2007.

 

(b) Following the Call/Put Termination Date.

 

(i) Following the Call/Put Termination Date, neither GSK nor any of its
Affiliates shall dispose of beneficial ownership of Voting Stock without the
prior approval of a majority of the Independent Directors prior to (A) September
1, 2008 if GSK’s Percentage Interest is less than 50.1% on the Call/Put
Termination Date, or (B) September 1, 2012 if GSK’s Percentage Interest is 50.1%
or more on the Call/Put Termination Date. If GSK’s Percentage Interest is less
than 50.1% on the Call/Put Termination Date but is increased to 50.1% or more at
any time prior to September 1, 2012 neither GSK nor any of its Affiliates shall
dispose of any beneficial ownership of Voting Stock from and after the date
GSK’s Percentage Interest first equals or exceeds 50.1% until September 1, 2012.
In the event that GSK’s Percentage Interest is 50.1% or greater and GSK breaches
its obligation not to dispose of beneficial ownership of Voting Stock prior to
September 1, 2012 pursuant to Section 2.2(b)(i)(B), the “Research Term” under
the Alliance Agreement shall lapse simultaneously with such breach and in
accordance with Section 3.1.1 of the Alliance Agreement, GSK’s future opt-in
rights to the Company’s Discovery Programs on or after the date of such breach
shall terminate.

 

(ii) In the event that the prohibition on disposition of Voting Stock set forth
in Subsection 2.2(b)(i) expires on September 1, 2008, neither GSK nor any of its
Affiliates shall dispose of beneficial ownership of Voting Stock prior to
September 1, 2012 except (A) pursuant to a public offering registered under the
Securities Act of 1933, as amended (the “Securities Act”) of either Company
Voting Stock or securities exchangeable or exercisable for Voting Stock (in
which public offering the securities are broadly distributed and neither GSK nor
any of its Affiliates selects the purchasers); or (B) pursuant to Rule 144 under
the Securities Act (provided that if Rule 144(k) is available, such disposition
nevertheless is within the volume limits and manner of sale requirements
applicable to non-144(k) transfers under Rule 144).

 

(iii) In the event that the prohibition on disposition of Voting Stock set forth
in Section 2.2(b)(i) expires on September 1, 2012, if GSK or any of its
Affiliates disposes of Voting Stock after that date, neither GSK nor any of its
Affiliates may purchase any Voting Securities without the prior approval of a
majority of Independent Directors for one year after the date of any such
disposition.

 

(iv) Neither GSK nor any of its Affiliates may make any public disclosure of any
holdings of or disposition of beneficial ownership of the Voting Stock unless
such disclosure is approved in advance in writing by the Company, such approval
not to be unreasonably withheld or delayed. Notwithstanding the foregoing, no
consent of the Company shall be required for any filing that GSK or any of its
Affiliates is required to make under applicable Law in any jurisdiction,
including without limitation any Form 144 under the Securities Act, any Form 4
under the Exchange Act, or any Schedule 13D or 13G or any amendments thereto
under the Exchange Act; provided that, prior to making any such filings, GSK
shall use reasonable efforts to (A) to provide the Company notice and a copy of
such proposed filings and (B) consult with the Company on the content of such
filings.

 

(v) Notwithstanding the foregoing, GSK shall be permitted to dispose of
beneficial ownership of any Voting Stock pursuant to a Change in Control
transaction of the Company approved by a majority of Independent Directors.

 

(c) Required Dispositions. Notwithstanding anything to the contrary contained
herein, GSK shall be permitted to dispose of beneficial ownership of Voting
Stock as and to the extent (but

 

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only to the extent) GSK reasonably determines such disposition to be necessary
in order for it to comply with its obligations under Section 3.5.

 

SECTION 2.3. Voting. (a) Except as set forth in Sections 2.3(b) and 2.3(c),
prior to the Initial Offering, GSK shall ensure that all Voting Stock
beneficially owned by GSK and/or any GSK Affiliate is voted (i) for Company
nominees to the Board in accordance with Article I and (ii) on all other matters
to be voted on by stockholders, in accordance with the recommendation of a
majority of the Board other than any GSK Director. Except as set forth in
Sections 2.3(b) and 2.3(c), following the Initial Offering, GSK shall ensure
that all Voting Stock beneficially owned by GSK and/or any GSK Affiliate shall
be voted on all matters, at the election of GSK, either (i) in accordance with
the recommendation of the Independent Directors of the Board or (ii) in
proportion to the votes cast by the other holders of the Company’s Voting Stock.

 

(b) Subject to paragraph (c) below with respect to the Interim Period, so long
as GSK’s Percentage Interest is less than 50.1%, GSK shall ensure that all
Voting Stock beneficially owned by GSK and/or any GSK Affiliate is voted as set
forth in Section 2.3(a), unless the matter being voted upon involves any of the
following:

 

(i) any proposal to amend the provisions in the Certificate of Incorporation
related to the Put and Call;

 

(ii) any proposal to issue Equity Securities to one or more parties in one
transaction or a series of transactions that result in any person or group
(within the meaning Section 13(d)(3) of the Exchange Act) owning or having the
right to acquire or intent to acquire beneficial ownership of Equity Securities
with aggregate voting power of greater than 20% or more of the aggregate voting
power of all outstanding Equity Securities (for the avoidance of doubt, in no
event shall any such proposed issuance covered by this clause (ii) include a
sale of the Company’s securities in a public offering); or

 

(iii) any Change in Control.

 

(c) (A) After, and so long as, GSK’s Percentage Interest is 50.1% or greater and
(B) during the Interim Period so long as the GSK Percentage Interest is 35.1% or
greater, GSK shall ensure that all Voting Stock beneficially owned by GSK and/or
any GSK Affiliate is voted as set forth in this Section 2.3(a), unless the
matter being voted upon involves any of the following:

 

(i) any Change in Control;

 

(ii) the acquisition by the Company of any business or assets that would
constitute a substantial portion of the business or assets of the Company,
whether such acquisition be by merger or consolidation or the purchase of stock
or assets or otherwise;

 

(iii) the sale, lease, license, transfer or other disposal of all or a
substantial portion of the business or assets of the Company; provided, however
that the sale, license or transfer to another party, in the ordinary course of
business, of any Company asset (regardless of its value or what portion of the
Company’s business or assets it may represent) over which GSK has no contractual
rights in accordance with the provisions of the Alliance Agreement shall be
considered an ordinary matter pursuant to which GSK must vote its shares in
accordance with the recommendation of the Independent Directors of the Board;

 

(iv) any proposal to issue Equity Securities to one or more parties in one
transaction or a series of transactions that result in any person or group
(within the meaning Section 13(d)(3) of the Exchange Act) owning or having the
right to acquire or intent to acquire beneficial ownership of Equity Securities
with aggregate voting power of greater than 20% or more of the aggregate voting
power of all outstanding Equity Securities (for the avoidance of doubt, in

 

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no event shall any such proposed issuance covered by this clause (iv) include a
sale of the Company’s securities in a public offering); or

 

(v) any proposal to amend the provisions in the Certificate of Incorporation
related to the Put and Call.

 

(d) Notwithstanding anything to the contrary herein, following a Significant
Third Party Acquisition, GSK shall be entitled to vote its Voting Stock without
any restrictions.

 

(e) GSK hereby grants to the Board, and appoints the Board as, its irrevocable
proxy to vote, or execute and deliver written consents or otherwise act with
respect to all Voting Stock now owned or hereafter acquired by GSK in the manner
in which GSK is obligated to vote, consent or act pursuant to this Section 2.3.
Such proxy shall be irrevocable until this Agreement terminates pursuant to its
terms or this Section 2.3 is amended to remove such grant of proxy in accordance
with Section 6.2 hereof, and is coupled with an interest in all voting stock
owned by GSK. This Agreement shall constitute the proxy granted pursuant hereto.

 

SECTION 2.4. Prior Agreement. The provisions of this Article II shall apply to
all Equity Securities beneficially owned by GSK and/or its Affiliates and
supersedes in its entirety Article 15 of the Collaboration Agreement.

 

ARTICLE III

 

REDEMPTION AND REPURCHASE OF

COMMON STOCK

 

SECTION 3.1. Redemption and Repurchase of Common Stock.

 

(a) GSK shall, in the period between June 1, 2007 and July 1, 2007, inform the
Company in writing whether or not it desires to request the redemption of
certain Common Stock pursuant to Section C.4 of Article IV of the Certificate of
Incorporation. If GSK does request the redemption, it shall provide the desired
date for redemption of such Common Stock (the “Call Date”) in such notice.
Subject to Section 3.1(c), the Company shall, promptly upon receipt of such
written request from GSK for the redemption of certain Common Stock, designate a
depositary (the “Depositary”) for such redemption in accordance with Section
C.6(a) of Article IV of the Certificate of Incorporation and notify GSK of such
designation. The Company shall give, or cause to be given, the Call Notification
(as defined in Section C.4(b) of Article IV of the Certificate of Incorporation)
in accordance with such Section C.4(b) of Article IV of the Certificate of
Incorporation. The Company shall set as the date of redemption the Call Date;
provided that such date shall be consistent with the notice requirements of such
paragraph (b). The calculation of the Call Price per share of Common Stock,
which shall be made in accordance with paragraphs (a) and (c) of Section C.4 of
Article IV of the Certificate of Incorporation, shall be verified with GSK prior
to the mailing of such notice. GSK or GlaxoSmithKline shall deposit with the
Company at least one business day prior to the Call Price Deposit Date (as
defined in Section C.6(a)(i) of Article IV of the Certificate of Incorporation)
sufficient funds to pay the Call Amount (as defined in Section C.4(d) of Article
IV of the Certificate of Incorporation) and the Company shall deposit those
funds with the Depositary in accordance with Section C.6(a)(i) of Article IV of
the Certificate of Incorporation. The Company shall only use the funds received
from GSK, Glaxo or their Affiliates to fund the Depositary for the purposes of
effecting the Call pursuant to this Article III. In exchange for such payment,
the Company will issue to GSK (or to its designated Affiliate), on the Call Date
as specified in the Call Notification, a number of duly authorized and validly
issued shares of Class A Common Stock equal to the number of shares of Common
Stock acquired thereby by the Company upon cancellation of the Common Stock
subject to the Call pursuant to Section C.6(a) of Article IV of the Certificate
of Incorporation.

 

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(b) At least ten, but not more than thirty, days prior to the commencement of
the Put Period (as defined in Section C.11(e) of Article IV of the Certificate
of Incorporation), or, in the event of an acceleration of the Put in accordance
with the terms of Section C.7 of Article IV of the Certificate of Incorporation,
as soon as practicable following the date of the occurrence of the Insolvency
Event (as defined in Section C.7 of Article IV of the Certificate of
Incorporation) giving rise to such acceleration (but in no event later than the
tenth day following such date), the Company shall (i) designate the Depositary
for making payments to, and receiving shares from, holders of Common Stock in
connection with exercises of the Put (as defined in Section C.5 of Article IV of
the Certificate of Incorporation) in accordance with Section C.5 of Article IV
of the Certificate of Incorporation and notify GSK and GlaxoSmithKline of such
designation and (ii) give, or cause to be given, the Put Notification (as
defined in Section C.11 of Article IV of the Certificate of Incorporation) in
accordance with Section C.5(b) of Article IV of the Certificate of Incorporation
or Section C.7 thereof, as the case may be. The Company shall set as the Put
Period the period required to be set pursuant such Section C.5 or Section C.7,
as the case may be.

 

(c) The Company’s obligations under Sections 3.1(a) and 3.1(b) hereof shall be
suspended during any period when, in the good faith judgment of the majority of
the Company’s Independent Directors, the redemption of the Common Stock would be
prohibited under the DGCL or other applicable Laws.

 

(d) Subject to the provisions of Section 3.1(c), the Company hereby irrevocably
appoints GSK and GlaxoSmithKline its attorneys-in-fact for purposes of redeeming
the Common Stock in accordance with the terms of Sections 3.1(a) and 3.1(b)
hereof and the Certificate of Incorporation.

 

(e) Any Depositary selected by the Company shall have at the time of its
selection short-term credit ratings of not less than A-1 from Standard & Poor’s
Rating Services (“S&P”) and not less than P-1 from Moody’s Investors Service,
Inc. (“Moody’s”), and shall have at the time of its selection long-term credit
ratings of not less than AA from S&P and not less than Aa2 from Moody’s.

 

SECTION 3.2. Indemnification. GSK and GlaxoSmithKline shall indemnify the
Company and its directors, officers, employees and agents against all losses,
claims, damages, liabilities and expenses (including attorneys’ fees) arising
out of the redemption (pursuant to the Call or the Put (each as defined in the
Certificate of Incorporation) of the Common Stock in accordance with the
provisions of this Agreement (including, without limitation, in the event of the
Company’s consummation of the redemption of Common Stock in contravention of
Section 160 of the DGCL or any other law for the protection of creditors), other
than any such losses, claims, damages, liabilities and expenses that result
primarily from actions taken or omitted in bad faith by the indemnified person
or from the indemnified person’s gross negligence or willful misconduct.

 

SECTION 3.3. Options, Warrants and Other Convertible Securities. GSK and the
Company will make appropriate provisions to assure that any options, warrants,
rights or securities issued by the Company, convertible into or exercisable or
exchangeable for shares of Common Stock that constitute Callable/Puttable
Shares, become convertible into or exercisable or exchangeable for consideration
of the same type and amount as the holders thereof would have received had they
converted, exercised or exchanged such options, warrants, rights or securities
prior to the Call Date. If the Call is exercised by GSK, the consideration
payable to a holder of options, warrants, rights or securities issued by the
Company, convertible into or exercisable or exchangeable for shares of Common
Stock that constitute Callable/Puttable Shares shall be paid upon the date of
conversion, exercise or exchange of such option, warrant, right or security.
Nothing herein shall be deemed or construed as a waiver of any other rights that
a holder of any such securities may have.

 

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SECTION 3.4. Capital Contribution and Assumption of Put Obligations.

 

(a) GSK or GlaxoSmithKline agree to, or to cause one or more of their Affiliates
to, contribute to the Company, immediately prior to the time that any amounts
become due and payable to the holders of Common Stock pursuant to Section C.5 of
Article IV of the Certificate of Incorporation, (i) funds in an amount equal to
the product of the number of Callable/Puttable Shares with respect to which the
Put has been properly exercised multiplied by the Put Price (as defined in
Section C.5 of Article IV of the Certificate of Incorporation) plus (ii) such
additional funds, if any, sufficient to permit the Company to redeem the
Callable/Puttable Shares with respect to which the Put has been properly
exercised without violating Section 160 of the DGCL, any bankruptcy or
insolvency law or other law or regulation for the protection of creditors. In
exchange for such payment, the Company will issue to GSK (or to its designated
Affiliate), within five business days following the end of the Put Period, a
number of duly authorized and validly issued shares of Class A Common Stock
equal to the number of shares of Common Stock acquired thereby by the Company.
Notwithstanding the foregoing, in the event that GSK or GlaxoSmithKline is
required to make any contributions under clause (ii) of the first sentence of
this paragraph (a), GSK’s or GlaxoSmithKline’s obligation to make any such
payment to the Company under this Section 3.4 shall be void and of no further
force and effect if, in lieu thereof, GSK or GlaxoSmithKline shall (or shall
cause one of its Affiliates to) elect to purchase, and make all arrangements
necessary (including compliance by GSK or GlaxoSmithKline, or any such Affiliate
or Affiliates, with the Exchange Act, the Securities Act (each as hereinafter
defined) and any other applicable Federal or state securities laws) to purchase,
at the expiration of the Put Period, directly from each holder of Common Stock,
the Callable/Puttable Shares which such holders elect to have purchased (up to
50% of all Callable/Puttable Shares owned by such holder) at a price per share
equal to the Put Price. Notwithstanding anything to the contrary contained
herein or in the Certificate of Incorporation, unless otherwise agreed to in
writing by GSK, in no event shall the amount required to be paid by GSK or
GlaxoSmithKline to the Company and/or to holders of Common Stock in connection
with the Put exceed $525,000,000.

 

(b) Notwithstanding any other term or provision hereof or of the Alliance
Agreement, Section C of Article IV of the Certificate of Incorporation or any
other agreement, GSK or GlaxoSmithKline agree that they shall either (i) make
(or cause one or more of its Affiliates to make) the aggregate payments required
to be made under the first sentence of Section 3.4(a) hereof or (ii) if such
payments are not made for any reason, make (or cause one of its Affiliates to
make) the election to purchase referred to in the third sentence of
Section 3.4(a) hereof and comply (or cause one of its Affiliates to comply)
fully with such sentence; provided, however, that if an Insolvency Event (as
defined in Section C.7 of Article IV of the Certificate of Incorporation)
occurs, GSK or GlaxoSmithKline shall, within 10 days after the occurrence of
such Insolvency Event, either (x) contribute (or cause one or more of its
Affiliates to contribute) to the Company an amount equal to the aggregate amount
that would be required to be contributed to the Company under the first sentence
of Section 3.4(a) hereof assuming (for purposes of clause (i) of such sentence)
that the holders of all Callable/Puttable Shares were to exercise the Put with
respect to 50% of the Callable/Puttable Shares owned by such holder or (y) elect
(or cause one of its Affiliates to elect) to purchase, and make all arrangements
necessary (including compliance by GSK or GlaxoSmithKline, or any such
Affiliate, with the Exchange Act, the Securities Act and any other Federal or
state securities laws) to purchase, at the expiration of the Put Period,
directly from the holders of Common Stock at the Put Price the shares of
Callable/Puttable Shares which such stockholders elect to have purchased (up to
50% of all Callable/Puttable Shares owned by such holder). In exchange for the
payment by GSK or GlaxoSmithKline of the amount specified in clause (x) of the
immediately preceding sentence (which amount shall be invested by the Company in
a money market fund which holds primarily U.S. government obligations until such
time as any amounts are paid to creditors or stockholders (it being specified
that the returns on such

 

14

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investment shall be paid to GSK or GlaxoSmithKline upon demand)), the Company
will issue to GSK (or its designated Affiliate) a number of duly authorized and
validly issued shares of Class A Common Stock equal to 50% the number of
Callable/Puttable Shares. Immediately following the expiration of the Put
Period, if the Put has not been exercised with respect to 50% of the then
Callable/Puttable Shares and if GSK or GlaxoSmithKline shall have complied with
clause (x) of the first sentence of this Section 3.4(b), (1) the Company shall
refund to GSK or GlaxoSmithKline, as the case may be, (or their designated
Affiliate) an amount (together with any interest actually earned thereon) equal
to the product of the Put Price times the number of Callable/Puttable Shares
with respect to which the Put has not been exercised and (2) GSK (or by its
designated Affiliate) shall, in exchange for such payment by the Company,
contribute to the Company a number of shares of Class A Common Stock equal to
the number of Callable/Puttable Shares with respect to which the Put has not
been exercised. In the event that GSK or GlaxoSmithKline pays the amount
specified in clause (x) of the first sentence of this Section 3.4(b), GSK or
GlaxoSmithKline and any of their Affiliates shall not be entitled to any
payments or other distributions on or in respect of any Equity Security unless
and until the Company has redeemed all of the shares of Common Stock with
respect to which the Put has been properly exercised.

 

(c) It is understood and agreed that, if GSK so elects, the obligation of GSK or
GlaxoSmithKline to purchase shares of Common Stock pursuant to any of the
provisions in this Section 3.4 may, at the election of GSK, be assigned by GSK
to any Affiliate of GSK (other than the Company). No assignment pursuant to this
Section 3.4(c) shall relieve GSK or GlaxoSmithKline of any of its obligations
under this Section 3.4 or otherwise.

 

(d) The Company shall take (and shall have no corporate power or capacity to
refuse to take) such actions as may be necessary to enforce the obligations of
GSK and GlaxoSmithKline under this Section 3.4 directly against GSK and
GlaxoSmithKline, or in the event of assignment by GSK, against GSK and any
Affiliate of GSK to which any assignment is made.

 

(e) The Company shall only use the funds received from GSK, Glaxo or their
Affiliates to fund the Depositary for the purposes of effecting the Put pursuant
to this Article III.

 

SECTION 3.5. Required Regulatory Filings. GSK, GlaxoSmithKline and the Company
agree to take all actions necessary to make all required filings and thereafter
make any other required submissions with respect to the transactions
contemplated under this Agreement under any applicable law, including, without
limitation, any applicable federal or state securities Law, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) and foreign
antitrust regulations. With respect to the transactions contemplated by the Put
and Call, in furtherance of the foregoing, GSK, GlaxoSmithKline and the Company
agree to take all necessary actions to make any required filings under the HSR
Act and any applicable foreign antitrust regulations prior to February 1, 2007.
GSK, GlaxoSmithKline and the Company shall respond as promptly as practicable to
all inquiries or requests received from any such antitrust regulator. The
parties shall cooperate with each other in connection with the making of all
such filings or requests. GSK, GlaxoSmithKline and the Company shall take all
required action to cause any waiting period (and any extension thereof)
applicable to the transactions contemplated hereunder to expire or be terminated
under the HSR Act and any waiting period (and any extension thereof) applicable
to the transactions contemplated hereunder under any foreign antitrust Law (or
any approval thereunder) to expire or be terminated or be obtained prior to
June 1, 2007.

 

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ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

SECTION 4.1. Representations of the Company.

 

(a) The execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated hereby are
within the Company’s corporate powers and have been duly authorized by all
necessary corporate action. This Agreement constitutes a valid and binding
agreement of the Company.

 

(b) The execution, delivery and performance by the Company of this Agreement
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority.

 

(c) The execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated hereby do not
and will not (i) contravene or conflict with the Certificate of Incorporation or
Bylaws of the Company, and (ii) contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company.

 

SECTION 4.2. Representations of GSK, GlaxoSmithKline and GGL.

 

Each of GSK, GlaxoSmithKline and GGL represent that:

 

(a) The execution, delivery and performance by it of this Agreement and the
consummation by it of the transactions contemplated hereby are within its
corporate powers and have been duly authorized by all necessary corporate
action. This Agreement constitutes its valid and binding agreement.

 

(b) The execution, delivery and performance by it of this Agreement require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority.

 

(c) The execution, delivery and performance by it of this Agreement and the
consummation by it of the transactions contemplated hereby do not and will not
(i) contravene or conflict with its charter or Bylaws, and (ii) contravene or
conflict with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to it.

 

ARTICLE V

 

SEVERANCE ARRANGEMENTS

 

SECTION 5.1. Severance Arrangements. The Company will not and will not permit
any of its subsidiaries to, (i) enter into any contract, agreement, plan or
arrangement covering any director, officer or employee of the Company or any
subsidiary that provides for the making of any payments, the acceleration of
vesting of any benefit or right or any other entitlement contingent upon (A) the
stock purchase by GSK pursuant to the Class A Stock Purchase Agreement or the
exercise by GSK of any of its rights under this Agreement to representation on
the Board (and its committees) or any acquisition by GSK of securities of the
Company (whether by merger, tender offer, private or market purchases or
otherwise) not prohibited by this Agreement or (B) the termination of employment
after the occurrence of any such contingency if such payment, acceleration or
entitlement would not otherwise have been provided but for such contingency or
(ii) amend any existing contract, agreement, plan or arrangement to so provide.

 

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ARTICLE VI

 

MISCELLANEOUS

 

SECTION 6.1. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile or similar writing) and
shall be given:

 

If to the Company:

 

Theravance, Inc.

901 Gateway Boulevard

South San Francisco, CA 94080

Facsimile: 650-808-6095

Attn: General Counsel

 

With a copy to:

 

Gunderson Dettmer et al.

155 Contitution Drive

Menlo Park, CA 94025

Facsimile: 650-321-2800

Attn: Christopher D. Dillon

Jay K. Hachigian

 

If to GSK:

 

SmithKline Beecham Corporation

One Franklin Plaza (FP2355)

200 N. 16th Street

Philadelphia, PA 19102

Attn: Company Secretary

Facsimile: 215-751-5349

 

With a copy to:

 

GlaxoSmithKline

One Franklin Plaza (FP2355)

200 N. 16th Street

Philadelphia, PA 19102

Facsimile: 215-751-5349

Attn: Corporate Law

 

and with a copy to:

 

GlaxoSmithKline

Greenford Road

Greenford

Middlesex

UB6 0HE

United Kingdom

Attn: Vice President, Worldwide Business Development

Facsimile: 011 44 208-966-5371

 

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and with a copy to:

 

Glaxo Group Limited

Glaxo Wellcome House

Berkeley Avenue

Greenford

Middlesex UB6 0NN

United Kingdom

Attn: Company Secretary

Facsimile: 011 44 208-047-6904

 

or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication shall be effective (i) if given by facsimile when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate answerback is received or (ii) if given by any other means, when
delivered at the address specified in this Section 6.1.

 

SECTION 6.2. Amendments; Waivers.

 

(a) Any provision of this Agreement may be amended or waived if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by GSK and the Company, or in the case of a waiver, by the party against whom
the waiver is to be effective; provided that, in the case of the Company, no
such amendment or waiver shall be effective without the approval of a majority
of the Independent Directors.

 

(b) No failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.

 

SECTION 6.3. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
written consent of the other party hereto.

 

SECTION 6.4. Governing Law. This Agreement shall be governed by and construed in
accordance with and governed by the law of the State of Delaware, without regard
to the conflicts of laws principles thereof. Any action brought, arising out of,
or relating to this Agreement shall be brought in the Court of Chancery of the
State of Delaware. Each party hereby irrevocably submits to the exclusive
jurisdiction of said Court in respect of any claim relating to the validity,
interpretation and enforcement of this Agreement, and hereby waives, and agrees
not to assert, as a defense in any action, suit or proceeding in which any such
claim is made that it is not subject thereto or that such action suit or
proceeding may not be brought or is not maintainable in such courts, or that the
venue thereof may not be appropriate or that this agreement may not be enforced
in or by such courts. The parties hereby consent to and grant the Court of
Chancery of the State of Delaware jurisdiction over such parties and over the
subject matter of any such claim and agree that mailing of process or other
papers in connection with any such action, suit or proceeding in the manner
provided in Section 6.1, or in such other manner as may be permitted by law,
shall be valid and sufficient thereof.

 

SECTION 6.5. Counterparts; Effectiveness. This Agreement may be executed in any
number of counterparts, each of which, when executed, shall be deemed to be an
original and which together shall constitute one and the same document.

 

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SECTION 6.6. Specific Performance. Each party acknowledges and agrees that their
respective remedies at law for a breach or threatened breach of any of the
provisions of this Agreement would be inadequate and, in recognition of that
fact, agrees that, in the event of a breach or threatened breach by the Company,
on the one hand, or GSK, GGL and GlaxoSmithKline (the “Glaxo Parties”), on the
other hand, of the provisions of this Agreement, in addition to any remedies at
law, the Glaxo Parties and the Company, respectively, without posting any bond
shall be entitled to obtain equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available.

 

SECTION 6.7. Termination. This Agreement (other than Sections 3.2 and 3.3
hereof) shall terminate at the earliest of (i) such time as GSK and its
Affiliates beneficially own 100% of the outstanding Voting Stock, (ii) the
effective time of a Change in Control, and (iii) September 1, 2015.

 

SECTION 6.8. Severability. In the event of the invalidity of any provisions of
this Agreement or if this Agreement contains any gaps, the parties agree that
such invalidity or gap shall not affect the validity of the remaining provisions
of this Agreement. The parties will replace an invalid provision or fill any gap
with valid provisions which most closely approximate the purpose and economic
effect of the invalid provision or, in case of a gap, the parties’ presumed
intentions. In the event that the terms and conditions of this Agreement are
materially altered as a result of the preceding sentences, the parties shall
renegotiate the terms and conditions of this Agreement in order to resolve any
inequities. Nothing in this Agreement shall be interpreted so as to require
either party to violate any applicable laws, rules or regulations.

 

SECTION 6.9. Registration and Filing of This Agreement. To the extent, if any,
that either the Company or the Glaxo Parties concludes in good faith that such
party or the other party is required to file or register this Agreement or a
notification thereof with any governmental authority, including without
limitation the Securities and Exchange Commission, the Competition Directorate
of the Commission of the European Communities or the U.S. Federal Trade
Commission, in accordance with Law, such party shall inform the other party
thereof. Should the Company and the Glaxo Parties jointly agree that either of
them is required to submit or obtain any such filing, registration or
notification, they shall cooperate, each at its own expense, in such filing,
registration or notification and shall execute all documents reasonably required
in connection therewith. In such filing, registration or notification, the
parties shall request confidential treatment of sensitive provisions of this
Agreement, to the extent permitted by Law. The parties shall promptly inform
each other as to the activities or inquiries of any such Governmental Authority
relating to this Agreement, and shall reasonably cooperate to respond to any
request for further information therefrom on a timely basis.

 

SECTION 6.10. Certain Definitions.

 

(a) As used in this Agreement, the following terms shall have the following
meanings:

 

(i) “Affiliate” of a party means any Person, whether de jure or de facto, which
directly or indirectly controls, is controlled by, or is under common control
with such Person for so long as such control exists, where “control” means the
decision-making authority as to such Person and, further, where such control
shall be presumed to exist where a Person owns more than fifty percent (50%) of
the equity (or such lesser percentage which is the maximum allowed to be owned
by a foreign corporation in a particular jurisdiction) having the power to vote
on or direct the affairs of the entity; it being specified that for purposes of
this Agreement, the Company and its direct and indirect subsidiaries, if any,
shall not be deemed to be Affiliates of GSK.

 

(ii) “Call” shall have the meaning set forth in Section 4 of Article IV of the
Certificate of Incorporation.

 

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(iii) “Callable/Puttable Shares” means (i) all outstanding shares of Common
Stock that are not subject to repurchase by the Company pursuant to any
employee, officer, director or consultant compensation plan as of the Call Date
or the final day of the Put Period, as the case may be, (ii) all shares of
Common Stock subject to issuance upon the exercise of options to acquire Common
Stock granted pursuant to any employee, officer, director or consultant
compensation plan that are or will be fully vested as of the Call Date or the
final day of the Put Period, as the case may be, (iii) all shares of Common
Stock subject to issuance upon the exercise, exchange or conversion of warrants,
exchangeable or convertible securities (other than any such options described in
clause (ii)) that are by their terms exercisable, exchangeable or convertible as
of the Call Date or the final day of the Put Period, as the case may be.

 

(iv) “Call/Put Termination Date” shall have the meaning set forth in Section C.8
of Article IV of the Certificate of Incorporation.

 

(v) “Change in Control” means, with respect to (A) the Company, any transaction
or series of related transactions (including mergers, consolidations and other
forms of business consolidations) following which continuing stockholders of the
Company hold less than 50% of the outstanding voting securities of either the
Company, the entity surviving such transaction or any direct or indirect parent
entity of such continuing or surviving entity or (B) the sale, lease, license,
transfer or other disposal of all or substantially all of the business or assets
of the Company (provided, however, that the sale, license or transfer to another
party, in the ordinary course of business, of any Company asset (regardless of
its value or what portion of the Company’s business or assets it may represent)
over which GSK has no contractual rights in accordance with the provisions of
the Alliance Agreement shall not be considered a Change in Control transaction);
it being understood that GSK’s exercise of its rights or performance of its
obligations pursuant to the Put or Call shall not be deemed a Change in Control.

 

(vi) “Effective Date” means the first business day following the date on which
the last of the conditions contained in Section 15.14 of the Alliance Agreement
has been satisfied.

 

(vii) “Fair Market Value Per Share” means, with respect to an Equity Security as
of a particular date, (a) if the Equity Security is traded on a securities
exchange or through the Nasdaq National Market, the closing price of the Equity
Security on such exchange or system on such date or (b) if the Equity Security
is not traded on a securities exchange or through the Nasdaq National Market,
the value on such date as determined in good faith after consultation with a
nationally recognized financial advisor by a majority of the Independent
Directors.

 

(viii) “Indebtedness” of any Person means, without duplication, the following,
(a) all Obligations of such Person for borrowed money, (b) all Obligations of
such Person evidenced by bonds, debentures, notes or similar instruments,
(c) all Obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable or accruals arising in the
ordinary course of business, (d) all Obligations of such Person in respect of
any capital lease, (e) all Obligations of such Person to repurchase or redeem
equity securities, whether or not pursuant to the terms thereof, other than the
Put and except to the extent such Obligations are payable solely in the form of
other equity securities, and (f) all Obligations of such Person with respect to
any financial hedging arrangements. For purposes of this definition,
“Obligations” shall mean any principal, interest, penalties, fees, guarantees,
reimbursements, damages, costs of unwinding and other liabilities payable under
the documentation governing any Indebtedness.

 

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(ix) “Initial Offering” means the closing of the Company’s sale of its
securities pursuant to a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Securities Act.

 

(x) “Law” means any law, statute, rule, regulation, ordinance and other
pronouncement having the binding effect of any court, tribunal, arbitrator,
agency, legislative body, commission, official or other instrumentality of
(x) any government of any country, (y) a federal, state, province, county, city
or other political subdivision thereof or (z) any supranational body.

 

(xi) “Permitted Indebtedness” means any Indebtedness of the Company that is
issued prior to the Call/Put Termination Date and in an amount equal to or less
than $100 million; provided, however, if such indebtedness may be convertible or
exchangeable into Voting Stock, the terms of such indebtedness shall provide
that any such conversion or exchange may not occur prior to the Call/Put
Termination Date.

 

(xii) “Person” means any natural person, corporation, general partnership,
limited partnership, limited liability company, joint venture, proprietorship or
other business organization.

 

(xiii) “Put” shall have the meaning set forth in Section 5 of Article IV of the
Certificate of Incorporation.

 

(xiv) “Rights Plan” means any rights plan adopted by the Company that has the
effect (or similar effect) of providing, upon the acquisition of a specified
percentage of Voting Stock by a third party without the approval of the Board,
stockholders (other than such acquiring party) the right to acquire Voting Stock
of the Company in a manner designed to significantly dilute the ownership stake
of such acquiring party.

 

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(b) The following terms shall have the meanings defined for such terms in the
Sections of this Agreement set forth below:

 

Term

 

Section

Agreement

 

Preamble

Alliance Agreement

 

Recitals

Board

 

1.1(a)

Certificate of Incorporation

 

1.1(a)

Common Stock

 

Recitals

Class A Stock Purchase Agreement

 

Recitals

Collaboration Agreement

 

2.1(a)(iv)

Company

 

Preamble

DGCL

 

2.1(e)

Depositary

 

3.1(a)

End of the Equity Limitation Period

 

1.6(b)

Equity Security

 

1.5(a)(iii)

Exchange Act

 

2.1(a)(i)

Glaxo Parties

 

6.6

GSK

 

Preamble

GSK Directors

 

1.2(a)

GSK Independent Nominees

 

1.2(b)

GSK’s Percentage Interest

 

1.2(b)

HSR Act

 

3.5

Independent Directors

 

1.2(a)

Initial Offering

 

2.1(b)(v)

Investors’ Rights Agreement

 

2.1(b)(iv)

Non-GSK Directors

 

1.2(b)

Call Date

 

3.1(a)

SEC

 

2.1(a)(ii)

Securities Act

 

2.2(b)(ii)

Third Party Acquiror

 

2.1(c)

Voting Stock

 

1.5(a)(iii)

 

SECTION 6.11. Captions. The captions, headings and arrangements used in this
Agreement are for convenience only and do not in any way limit or amplify the
terms and provisions hereof.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

 

THERAVANCE, INC.

 

 

 

By:

/s/ RICK E WINNINGHAM

 

 

 

 

Name:

Rick E Winningham

 

 

 

 

Title:

Chief Executive Officer

 

 

 

SMITHKLINE BEECHAM CORPORATION

 

 

 

By:

/s/ DONALD F. PARMAN

 

 

 

 

Name:

Donald F. Parman

 

 

 

 

Title:

Vice President & Secretary

 

 

 

GLAXOSMITHKLINE plc
[solely with respect to Articles III, IV and VI]

 

 

 

By:

/s/ GLAXOSMITHKLINE PLC

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

GLAXO GROUP LIMITED
[solely with respect to Articles II, IV and VI]

 

 

 

By:

/s/ GLAXO GROUP LIMITED

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

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