Exhibit 10.3

 

TAX MATTERS AGREEMENT

 

by and between

 

THERAVANCE, INC.

 

and

 

THERAVANCE BIOPHARMA, INC.

 

Dated as of June 2, 2014

 

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TABLE OF CONTENTS

 

 

 

Page

 

 

 

Article I DEFINITIONS

 

1

 

 

 

Article II PREPARATION AND FILING OF TAX RETURNS

 

5

 

 

 

Section 2.1

 

Theravance’s Responsibility

 

5

Section 2.2

 

Biopharma’s Responsibility

 

5

Section 2.3

 

Agent

 

5

Section 2.4

 

Manner of Tax Return Preparation

 

5

Section 2.5

 

Tax Services

 

6

 

 

 

 

 

Article III LIABILITY FOR TAXES

 

6

 

 

 

 

 

Section 3.1

 

Theravance’s Liability

 

6

Section 3.2

 

Biopharma’s Liability

 

6

 

 

 

 

 

Article IV DISTRIBUTION TAXES AND ALLOCATION

 

6

 

 

 

 

 

Section 4.1

 

Distribution Taxes

 

6

Section 4.2

 

Private Letter Rulings; Tax Opinion

 

6

Section 4.3

 

Allocation of Tax Assets

 

6

 

 

 

 

 

Article V INDEMNIFICATION

 

7

 

 

 

 

 

Section 5.1

 

Generally

 

7

Section 5.2

 

Inaccurate, Incomplete or Untimely Information

 

7

Section 5.3

 

Adjustments to Payments

 

7

Section 5.4

 

Reporting of Indemnifiable Loss

 

8

Section 5.5

 

No Indemnification for Tax Items

 

8

Section 5.6

 

Double Recovery

 

8

 

 

 

 

 

Article VI PAYMENTS

 

8

 

 

 

 

 

Section 6.1

 

In General

 

8

Section 6.2

 

Treatment of Payments

 

8

Section 6.3

 

Prompt Performance

 

9

Section 6.4

 

After Tax Amounts

 

9

Section 6.5

 

Interest

 

9

 

 

 

 

 

Article VII TAX PROCEEDINGS

 

9

 

 

 

 

 

Section 7.1

 

Audits

 

9

Section 7.2

 

Notice

 

9

Section 7.3

 

Control of Distribution Tax Proceedings

 

9

 

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Article VIII MISCELLANEOUS PROVISIONS

 

9

 

 

 

 

 

Section 8.1

 

Effectiveness

 

9

Section 8.2

 

Cooperation and Exchange of Information

 

10

Section 8.3

 

Dispute Resolution

 

10

Section 8.4

 

Changes in Law

 

11

Section 8.5

 

Confidentiality

 

11

Section 8.6

 

Affiliates

 

11

Section 8.7

 

Authority

 

12

Section 8.8

 

Setoff

 

12

Section 8.9

 

Amendments and Waivers

 

13

Section 8.10

 

Entire Agreement

 

13

Section 8.11

 

Third-Party Beneficiaries

 

13

Section 8.12

 

Notices

 

13

Section 8.13

 

Counterparts; Electronic Delivery

 

13

Section 8.14

 

Severability

 

13

Section 8.15

 

Assignability; Binding Effect

 

13

Section 8.16

 

Governing Law

 

14

Section 8.17

 

Construction

 

14

Section 8.18

 

Titles and Headings

 

14

Section 8.19

 

Coordination with Employee Matters Agreement

 

14

Section 8.20

 

Conflict or Inconsistency Between Agreements

 

14

 

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TAX MATTERS AGREEMENT

 

THIS TAX MATTERS AGREEMENT (as the same may be amended or supplemented from time
to time, this “Agreement”)  is entered into as of June 2, 2014, by and between
Theravance, Inc., a Delaware corporation (“Theravance”), and Theravance
Biopharma, Inc., a Cayman corporation (“Biopharma”).  Theravance and Biopharma
are sometimes referred to herein individually as a “Party,” and collectively as
the “Parties.”  Capitalized terms used herein and not otherwise defined have the
respective meanings set forth in Article I.

 

RECITALS

 

WHEREAS, Theravance and Biopharma have entered into a Separation and
Distribution Agreement, dated as of June 1, 2014 (the “Separation Agreement”),
pursuant to which Theravance will be separated into two independent
publicly-traded companies:  (a) Biopharma, which, following consummation of the
transactions contemplated by the Separation Agreement, will own and conduct the
Biopharma Business, and (b) Theravance, which, following the consummation of the
transactions contemplated by the Separation Agreement, will own and conduct the
Theravance Business;

 

WHEREAS, on July 29, 2013, Theravance formed Biopharma as a wholly-owned
subsidiary;

 

WHEREAS, as set forth in the Separation Agreement, and subject to the terms and
conditions thereof, the Parties currently intend to effect (i) the transfer by
Theravance to Biopharma of certain assets and liabilities related to the
Biopharma Business (the “Contribution”); and (ii) the distribution by Theravance
to the holders of outstanding shares of common stock, par value $0.01 per share,
of Theravance, on a pro rata basis, of all of the outstanding shares of common
stock, par value $0.00001 per share, of Biopharma, owned by Theravance as of the
Distribution Date (which shall represent 100% of the issued and outstanding
shares of Biopharma common stock) (the “Distribution”); and

 

WHEREAS, the Parties desire to set forth their agreement on the rights and
obligations, following the Distribution, of the members of the Theravance Group,
on the one hand, and the members of the Biopharma Group, on the other hand, with
respect to (a) handling and allocating United States federal, state and local
and foreign Taxes in periods both before and after the Distribution Date,
(b) Taxes resulting from transactions effectuated in connection with the
Distribution, and (c) various other Tax matters.

 

NOW, THEREFORE, in consideration of the foregoing and the terms, conditions,
covenants and provisions of this Agreement, the Parties mutually covenant and
agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

“Affiliate” has the meaning set forth in the Separation Agreement.

 

“After Tax Amount” means any additional amount necessary to reflect (through a
gross-up mechanism) the hypothetical Tax consequences of the receipt or accrual
of any payment required to be made under this Agreement (including payment of an
additional amount or amounts hereunder and the effect of the deductions
available for interest paid or accrued and for Taxes such as state and local
Income

 

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Taxes), determined by using the highest marginal corporate Tax rate (or rates,
in the case of an item that affects more than one Tax) for the relevant Taxable
Period (or portion thereof).

 

“Agreement” means this Tax Matters Agreement.

 

“Ancillary Agreements” has the meaning set forth in the Separation Agreement.

 

“Audit” means any audit, assessment of Taxes, or other examination by any Taxing
Authority, proceeding, or appeal of such a proceeding relating to Taxes, whether
administrative or judicial, including proceedings relating to competent
authority determinations.

 

“Biopharma” has the meaning set forth in the first sentence of this Agreement.

 

“Biopharma Affiliate” means any previous, current or future Affiliate of
Biopharma and/or one or more of its Affiliates.

 

“Biopharma Business” has the meaning given to the term “SpinCo Business” in the
Separation Agreement.

 

“Biopharma Group” means Biopharma and each Biopharma Affiliate.

 

“Biopharma Group Member” means Biopharma, each Person that is or was an
Biopharma Affiliate and each Person that becomes an Biopharma Affiliate after
the Distribution.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any successor
thereto.

 

“Collaboration Agreement” has the meaning set forth in the Separation Agreement.

 

“Contribution” has the meaning set forth in the recitals to this Agreement.

 

“Dispute Resolution Commencement Date” has the meaning set forth in Section 8.3.

 

“Dispute” has the meaning set forth in Section 8.3.

 

“Distribution” has the meaning set forth in the recitals to this Agreement.

 

“Distribution Date” means the date on which the Distribution occurs, such date
to be determined by, or under the authority of, the Board of Directors of
Theravance, in its sole and absolute discretion.

 

“Employee Matters Agreement” means the Employee Matters Agreement entered into
between Theravance and Biopharma as of the date hereof.

 

“Final Determination” means the final resolution of liability for any Tax for
any Taxable Period, by or as a result of: (i) a final and unappealable decision,
judgment, decree or other order by any court of competent jurisdiction; (ii)  a
final settlement with the IRS, a closing agreement or accepted offer in
compromise under Code section 7121 or 7122, or a comparable agreement under the
laws of other jurisdictions, which resolves the entire liability for such Tax
for any Taxable Period; (iii) any allowance of a refund or credit in respect of
an overpayment of Tax, but only after the expiration of all periods during which
such refund may be recovered by the jurisdiction imposing the Tax; or (iv) any
other final disposition, including by reason of the expiration of the applicable
statute of limitations.

 

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“GSK” has the meaning set forth in the Collaboration Agreement.

 

“Income Tax” means any federal, state, local or foreign Tax based upon, measured
by or calculated by reference to net income or profits, net receipts or gross
receipts (regardless of whether denominated as an “income tax,” a “franchise
tax” or otherwise).

 

“Indemnifiable Loss Deduction” has the meaning set forth in Section 5.3.

 

“Indemnified Loss” has the meaning set forth in Section 5.3.

 

“Indemnifying Party” has the meaning set forth in Section 5.3.

 

“Indemnitee” has the meaning set forth in Section 5.3.

 

“IRS” means the United States Internal Revenue Service or any successor thereto,
including, but not limited to its agents, representatives, and attorneys.

 

“LLC Agreement” means the Limited Liability Company Agreement of Theravance
Respiratory Company, LLC, as the same may be amended and restated from time to
time.

 

“Owed Party” has the meaning set forth in Section 6.1.

 

“Owing Party” has the meaning set forth in Section 6.1.

 

“Party” has the meaning set forth in the second sentence of this Agreement.

 

“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.

 

“Post-Distribution Period” means a Taxable Period (or portion thereof) beginning
after the Distribution Date.

 

“Refund” means any refund (or credit in lieu thereof) of Taxes (including any
overpayment of Taxes that can be refunded or, alternatively, applied to other
Taxes payable), including any interest paid on or with respect to such refund of
Taxes; provided that for purposes of this Agreement, the amount of any Refund
required to be paid to another Party shall be reduced by the net amount of any
Income Taxes imposed on, related to, or attributable to, the receipt or accrual
of such Refund.

 

“Restated Tax Saving Amount” has the meaning set forth in Section 5.4.

 

“Representatives” has the meaning set forth in Section 8.7.

 

“Separation Agreement” has the meaning set forth in the recitals to this
Agreement.

 

“Straddle Period” means a Taxable Period that begins on or before and ends after
the Distribution Date.

 

“Strategic Alliance Agreement” has the meaning set forth in the Separation
Agreement.

 

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“Tax” and “Taxes” include all taxes, charges, fees, duties, levies, imposts or
other assessments imposed by any federal, state, local or foreign Taxing
Authority, including, but not limited to, income, gross receipts, excise,
property, sales, use, license, capital stock, transfer, franchise, payroll,
withholding, social security, value added and other taxes, and any interest,
penalties or additions attributable thereto.

 

“Tax Asset” means any Tax Item that has accrued for Tax purposes, but has not
been used during a Taxable Period, and that could reduce a Tax in another
Taxable Period, including, but not limited to, a net operating loss, net capital
loss, investment tax credit, foreign tax credit, charitable deduction, credit
related to alternative minimum tax and any other Tax credit.

 

“Tax Benefit” means a reduction in the Tax liability of a taxpayer for any
Taxable Period.  A Tax Benefit shall be deemed to have been realized or received
from a Tax Item in a Taxable Period only if and to the extent that the Tax
liability of the taxpayer for such period, after taking into account the effect
of the Tax Item on the Tax liability of such taxpayer in the current period and
all prior periods, is less than it would have been if such Tax liability were
determined without regard to such Tax Item.

 

“Tax Item” means any item of income, gain, loss, deduction, credit, recapture of
credit or any other attribute or item (including the adjusted basis of property)
that may have the effect of increasing or decreasing any Tax.

 

“Tax Return” means any return, report, certificate, form or similar statement or
document (including any related or supporting information or schedule attached
thereto and any information return, amended tax return, claim for refund or
declaration of estimated tax) supplied or required to be supplied to, or filed
or required to be filed with, a Taxing Authority in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax.

 

“Tax Saving Amount” has the meaning set forth in Section 5.3.

 

“Tax Services” has the meaning set forth in Section 2.5(a).

 

“Taxable Period” means any period for which a liability for Tax is determined.

 

“Taxing Authority” means any governmental authority or any subdivision, agency,
commission or authority thereof or any quasi-governmental or private body having
jurisdiction over the assessment, determination, collection or imposition of any
Tax (including the IRS).

 

“Theravance” has the meaning set forth in the first sentence of this Agreement.

 

“Theravance Affiliate” means any previous, current or future Affiliate of
Theravance and/or one or more of its Affiliates, but excluding Biopharma and any
Biopharma Affiliate.

 

“Theravance Business” has the meaning given to the term “ParentCo Business” in
the Separation Agreement.

 

“Theravance Group” means Theravance and each Theravance Affiliate, but excluding
any Biopharma Group Member.

 

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“Theravance Group Member” means Theravance, each Person that is or was a
Theravance Affiliate, and each Person that becomes a Theravance Affiliate after
the Distribution, but excluding any Biopharma Group Member.

 

“Transition Services Agreement” means the Transition Services Agreement by and
between Theravance and Biopharma dated as of the date hereof.

 

“Treasury Regulations” means the final and temporary (but not proposed) income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).

 

ARTICLE II

 

PREPARATION AND FILING OF TAX RETURNS

 

Section 2.1                                    Theravance’s Responsibility. 
Except as may be provided in the LLC Agreement, Theravance shall have sole and
exclusive responsibility for the preparation and filing of:

 

(a)                       all Tax Returns that include only Theravance and/or
any Theravance Affiliate; and

 

(b)                       any Tax Returns required to be filed for a Taxable
Period ending on or before, or that includes, the Distribution Date that are not
otherwise described in Section 2.1 or Section 2.2.

 

Section 2.2                                    Biopharma’s Responsibility. 
Except as may be provided in the LLC Agreement, Biopharma shall have sole and
exclusive responsibility for the preparation and filing of all Tax Returns that
include only Biopharma and/or any Biopharma Affiliate.

 

Section 2.3                                    Agent.  Subject to the other
applicable provisions of this Agreement, Biopharma hereby irrevocably
designates, and agrees to cause each Biopharma Affiliate to so designate,
Theravance as its sole and exclusive agent and attorney-in-fact to take such
actions (including execution of documents) as are appropriate in any and all
matters (including Audits) relating to any Tax Return described in
Section 2.1(b).  Notwithstanding the foregoing, Biopharma may participate at its
own expense in any such Audit, and Theravance shall keep Biopharma updated as to
any developments with respect to any such Audit in a timely manner.

 

Section 2.4                                    Manner of Tax Return
Preparation.  Unless otherwise required by a Taxing Authority or by applicable
law, the Parties shall prepare and file all Tax Returns, and take all other
actions, in a manner consistent with this Agreement, the Separation Agreement
and past practice.  All Tax Returns shall be filed on a timely basis (taking
into account applicable extensions) by the Party responsible for filing such Tax
Returns under this Agreement.  For the avoidance of doubt, the Parties shall
prepare and file all Tax Returns in a manner consistent with the
characterization of the Distribution as a taxable transaction for U.S. federal
income tax purposes, and not as a transaction governed by Section 355 of the
Code.

 

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Section 2.5                                    Tax Services.

 

(a)                       In General.  It is the intention of the Parties that
except as specifically provided herein, the Transition Services Agreement shall
govern the provision of tax services by Biopharma to Theravance and the other
members of the Theravance Group (the “Tax Services”).

 

(b)                       Right to Review.  Theravance shall provide or cause to
be provided any Tax Return (or portion or excerpt thereof relating exclusively
to Biopharma or Biopharma Affiliates) to be filed by Theravance on behalf of
Biopharma pursuant to this Agreement at least ten (10) business days prior to
the due date of such Tax Return, including extensions.  Biopharma shall have the
right to comment on any such Tax Return (or portion or excerpt thereof, as
applicable), and Theravance shall reasonably consider Biopharma’s comments.

 

(c)                        Information.  Theravance shall provide or cause to be
provided to Biopharma copies of all Tax Returns (or portions or excerpts thereof
relating exclusively to Biopharma or Biopharma Affiliates) filed on behalf of
Biopharma, in each case within fifteen (15) days of filing pursuant to this
Agreement, and shall promptly provide any notices or communications from any
Taxing Authority relating to any Tax or Tax Return of Biopharma or an Biopharma
Affiliate covered by the Tax Services.

 

(d)                       List of Tax Returns.  As soon as practicable after the
Distribution Date, but in any event within sixty (60) days, Theravance shall
provide to Biopharma a list of all Tax Returns, if any, to be filed by
Theravance on behalf of Biopharma or Biopharma Affiliates pursuant to
Section 2.1(b).

 

ARTICLE III

 

LIABILITY FOR TAXES

 

Section 3.1                                    Theravance’s Liability.

 

(a)                       Theravance shall be liable for all Taxes due with
respect to all Tax Returns described in Section 2.1(a) or Section 2.1(b). 
Theravance shall be entitled to receive and retain all Refunds of Taxes
previously paid by Theravance or any Theravance Affiliates with respect to Taxes
described in this Section 3.1.  For the avoidance of doubt, (i) Theravance shall
be liable for all Taxes imposed on Theravance as result of the characterization
of the Contribution and/or the Distribution as taxable transactions, in whole or
in part, and (ii) Theravance shall not be obligated to make any payment to
Biopharma with respect to the utilization of any Tax Asset created by the
Biopharma Business.

 

Section 3.2                                    Biopharma’s Liability.  Biopharma
shall be liable for all Taxes due with respect to Tax Returns described in
Section 2.2.  Biopharma shall be entitled to receive and retain all Refunds of
Taxes previously paid by Biopharma or any Biopharma Affiliates with respect to
Taxes described in this Section 3.2.

 

ARTICLE IV

 

ALLOCATION

 

Section 4.1                                    Allocation of Tax Assets.

 

(a)                       Theravance and Biopharma shall cooperate, each at its
own expense, in determining the allocation of any Tax Assets or Tax liabilities
among the Parties in accordance with the Code and Treasury Regulations (and any
applicable state, local and foreign laws).  In the absence of

 

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controlling legal authority or unless otherwise provided under this Agreement,
Tax Assets or Tax liabilities shall be allocated to the legal entity that
incurred the cost or burden associated with the creation of such Tax Assets or
Tax liabilities.  Theravance and Biopharma hereby agree to compute all Taxes for
Post-Distribution Periods and Straddle Periods consistently with the
determinations made pursuant to this Section 4.1 unless otherwise required by a
Final Determination.

 

(b)                       To the extent that the amount of any Tax Asset is
later reduced or increased by a Taxing Authority, or as a result of an Audit or
carrybacks of Tax Assets from Post-Distribution Periods of either the Theravance
Group or the Biopharma Group, such reduction or increase shall be allocated to
the Party to which such Tax Attribute was allocated pursuant to Section 4.1(a).

 

ARTICLE V

 

INDEMNIFICATION

 

Section 5.1                                    Generally.  The Theravance Group
shall jointly and severally indemnify Biopharma, each Biopharma Affiliate, and
their respective directors, officers and employees, and hold them harmless from
and against any and all Taxes or Tax deficiencies for which Theravance or any
Theravance Affiliate is liable under this Agreement and any loss, cost, damage
or expense, including reasonable attorneys’ fees and costs, that are
attributable to, or result from the failure of Theravance or any director,
officer or employee to make any payment required to be made under this
Agreement.  The Biopharma Group shall jointly and severally indemnify
Theravance, each Theravance Affiliate, and their respective directors, officers
and employees, and hold them harmless from and against any and all Taxes or Tax
deficiencies for which Biopharma or any Biopharma Affiliate is liable under this
Agreement and any loss, cost, damage or expense, including reasonable attorneys’
fees and costs, that is attributable to, or results from, the failure of
Biopharma, any Biopharma Affiliate or any director, officer or employee to make
any payment required to be made under this Agreement.

 

Section 5.2                                    Inaccurate, Incomplete or
Untimely Information.  The Theravance Group shall jointly and severally
indemnify Biopharma, each Biopharma Affiliate, and their respective directors,
officers and employees, and hold them harmless from and against any loss, cost,
damage, fine, penalty, or other expense of any kind attributable to the
negligence of Theravance or any Theravance Affiliate in supplying Biopharma or
any Biopharma Affiliate with inaccurate, incomplete or untimely information, in
connection with the preparation of any Tax Return.  The Biopharma Group shall
jointly and severally indemnify Theravance, each Theravance Affiliate, and their
respective directors, officers and employees, and hold them harmless from and
against any loss, cost, damage, fine, penalty, or other expense of any kind
attributable to the negligence of Biopharma or any Biopharma Affiliate in
supplying Theravance or any Theravance Affiliate with inaccurate, incomplete or
untimely information, in connection with the preparation of any Tax Return.

 

Section 5.3                                    Adjustments to Payments.  Any
Party that is entitled to receive a payment (the “Indemnitee”) under this
Agreement from another Party (the “Indemnifying Party”) with respect to any
Taxes, losses, costs, damages or expenses suffered or incurred by the Indemnitee
(an “Indemnified Loss”) shall pay to such Indemnifying Party, or the
Indemnifying Party shall pay to the Indemnitee, as applicable, an amount equal
to the difference between any “Tax Saving Amount” actually realized by the
Indemnitee in the year of the payment and the amount of the Indemnified Loss. 
For purposes of this Section 5.3, the “Tax Saving Amount” shall equal the amount
by which the Income Taxes of the Indemnitee or any of its affiliates are reduced
(including, without limitation, through the receipt of a refund, credit or
otherwise), plus any related interest received by the Indemnitee (net of Tax)
from a Taxing Authority, as a result of claiming as a deduction or offset on any
relevant Tax Return amounts attributable to an Indemnified Loss (the
“Indemnifiable Loss Deduction”).

 

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Section 5.4                                    Reporting of Indemnifiable Loss. 
In the event that an Indemnitee incurs an Indemnified Loss, such Indemnitee
shall claim as a deduction or offset on any relevant Tax Return (including,
without limitation, any claim for refund) such Indemnified Loss to the extent
such position is more likely than not to be sustained with respect to United
States federal, state and local Tax Returns or has similar appropriate
authoritative support with respect to any Tax Return other than a United States
federal, state or local Tax Return.  Except as otherwise provided in this
Agreement, the Indemnitee shall have primary responsibility for the preparation
of its Tax Returns and reporting thereon such Indemnifiable Loss Deduction;
provided that the Indemnitee shall consult with, and provide the Indemnifying
Party with a reasonable opportunity to review and comment on the portion of the
Indemnitee’s Tax Return relating to the Indemnified Loss.  If a Dispute arises
between the Indemnitee and the Indemnifying Party as to whether a deduction or
tax position with respect to an Indemnified Loss is “more likely than not” (with
respect to United States federal, state and local Tax Returns) to be sustained
or similar appropriate authoritative support (with respect to any Tax Return
other than a United States federal, state or local Tax Return) for the claiming
of an Indemnifiable Loss Deduction, such Dispute shall be resolved in accordance
with the principles and procedures set forth in Section 8.3.  Theravance and
Biopharma shall act in good faith to coordinate their Tax Return filing
positions with respect to the Taxable Periods that include an Indemnifiable Loss
Deduction.  Any Tax Saving Amount calculated under Section 5.3 hereof shall be
adjusted in the event of an Audit which results in a Final Determination that
increases or decreases the amount of the Indemnifiable Loss Deduction reported
on any relevant Tax Return of the Indemnitee.  The Indemnitee shall promptly
inform the Indemnifying Party of any such Audit and shall attempt in good faith
to sustain the Indemnifiable Loss Deduction at issue in the Audit.  Upon
receiving a written notice of a Final Determination in respect of an
Indemnifiable Loss Deduction, the Indemnitee shall redetermine the Tax Saving
Amount attributable to the Indemnifiable Loss Deduction under Section 5.3
hereof, taking into account the Final Determination (the “Restated Tax Saving
Amount”).  If the Restated Tax Saving Amount is greater than the Tax Saving
Amount, the Indemnitee shall promptly pay the Indemnifying Party an amount equal
to the difference between such amounts.  If the Restated Tax Saving Amount is
less than the Tax Saving Amount, then the Indemnifying Party shall pay to the
Indemnitee an amount equal to the difference between such amounts promptly after
receipt of written notice setting forth the amount due and the computation
thereof.

 

Section 5.5                                    No Indemnification for Tax
Items.  Nothing in this Agreement or any other ancillary document shall be
construed as a guarantee of the existence or amount of any loss, credit,
carryforward, basis or other Tax Item, whether past, present or future, of any
Party.

 

Section 5.6                                    Double Recovery.  Notwithstanding
anything herein to the contrary, no Party shall be entitled to indemnification
hereunder for any amount to the extent such Party has otherwise been reimbursed
for such amount.

 

ARTICLE VI

 

PAYMENTS

 

Section 6.1                                    In General.  In the event that
one party (the “Owing Party”) is required to make a payment to another party
(the “Owed Party”) pursuant to this Agreement, then such payments shall be made
according to this Article VI.  All payments shall be made to the Owed Party or
to the appropriate Taxing Authority as specified by the Owed Party within the
time prescribed for payment in this Agreement, or if no period is prescribed,
within twenty (20) days after delivery of written notice of payment owing
together with a computation of the amounts due.

 

Section 6.2                                    Treatment of Payments.  Unless
otherwise required by any Final Determination, the Parties agree that any
payments made by one Party to the other Party (other than

 

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payments of interest pursuant to Section 6.5 and payments of After Tax Amounts
pursuant to Section 6.4) pursuant to this Agreement shall be treated for all Tax
as payments made immediately prior to the Distribution.

 

Section 6.3                                    Prompt Performance.  All actions
required to be taken by any Party under this Agreement shall be performed within
the time prescribed for performance in this Agreement, or if no period is
prescribed, such actions shall be performed promptly.

 

Section 6.4                                    After Tax Amounts.  If pursuant
to a Final Determination it is determined that the receipt or accrual of any
payment made under this Agreement (other than payments of interest pursuant to
Section 6.5) is subject to any Tax, the Party making such payment shall be
liable for (a) the After Tax Amount with respect to such payment and
(b) interest at the rate described in Section 6.5 on the amount of such Tax from
the date such Tax accrues through the date of payment of such After Tax Amount. 
A Party making a demand for a payment pursuant to this Agreement and for a
payment of an After Tax Amount with respect to such payment shall separately
specify and compute such After Tax Amount.  However, a Party may choose not to
specify an After Tax Amount in a demand for payment pursuant to this Agreement
without thereby being deemed to have waived its right subsequently to demand an
After Tax Amount with respect to such payment.

 

Section 6.5                                    Interest.  If an Owing Party
fails to make any payment pursuant to this Agreement within the period
prescribed for such payment in this Agreement, such Owing Party shall be
obligated to pay, in addition to the amount otherwise due, interest on such
amount at a rate per annum equal to five percent (5%).  Such interest shall be
payable at the same time as the payment to which it relates.

 

ARTICLE VII

 

TAX PROCEEDINGS

 

Section 7.1                                    Audits.  Except as otherwise
provided in Section 7.3, the Party responsible for preparing and filing a Tax
Return pursuant to Article II shall have the right to control, contest, and
represent the interests of itself and any of its Affiliates in any Audit
relating to such Tax Return and shall bear all costs related thereto.

 

Section 7.2                                    Notice.  Within twenty (20)
business days after a Party receives a written notice or other information from
a Taxing Authority of the existence of a Tax issue that may give rise to an
indemnification obligation under this Agreement, such Party shall notify the
other Party of such issue, and thereafter shall promptly forward to the other
Party copies of notices and material communications with any Taxing Authority
relating to such issue.  The failure of one Party to notify the other Party of
any matter relating to a particular Tax for a Taxable Period or to take any
action specified in this Agreement shall not relieve such other Party of any
liability and/or obligation which it may have under this Agreement with respect
to such Tax for such Taxable Period, except to the extent that such other
Party’s rights under this Agreement are materially prejudiced by such failure.

 

ARTICLE VIII

 

MISCELLANEOUS PROVISIONS

 

Section 8.1                                    Effectiveness.  This Agreement
shall become effective on June 2, 2014.

 

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Section 8.2                                    Cooperation and Exchange of
Information.

 

(a)                       Cooperation.  Theravance and Biopharma shall each
cooperate fully (and each shall cause its respective Affiliates to cooperate
fully) with all reasonable requests from another Party hereto, or from an agent,
representative or advisor to such Party, in connection with the preparation and
filing of Tax Returns, claims for refund, and Audits concerning issues or other
matters covered by this Agreement.  Such cooperation shall include, without
limitation:

 

(i)             the retention until the expiration of the applicable statute of
limitations, and the provision upon request, of Tax Returns, books, records
(including information regarding earnings and profits and the ownership and Tax
basis of property), documentation and other information relating to the Tax
Returns, including accompanying schedules, related work papers, and documents
relating to rulings, closing agreements or other determinations by Taxing
Authorities;

 

(ii)          providing Biopharma access to Theravance’s tax software in order
to input relevant data and otherwise prepare and file all Tax Returns for which
Biopharma is responsible pursuant to Section 2.2;

 

(iii)       the execution of any document that may be necessary or reasonably
helpful in connection with any Audit, or the filing of a Tax Return or refund
claim by a member of the Biopharma Group or the Theravance Group, including
certification, to the best of a Party’s knowledge, of the accuracy and
completeness of the information it has supplied or any power of attorney
required by the applicable Taxing Authority to be provided by one Party to
another Party for the performance by such other Party of acts required or
permitted under this Agreement; and

 

(iv)      the use of the Party’s reasonable best efforts to obtain any
documentation that may be necessary or reasonably helpful in connection with any
of the foregoing.

 

Each Party shall use reasonable best efforts to comply in connection with the
foregoing matters within ten (10) business days or such shorter period as may be
required by the applicable Taxing Authority or otherwise in connection with any
Audit.  Each Party shall make its employees and facilities available on a
reasonable and mutually convenient basis in connection with the foregoing
matters, at the expense of the requesting Party.

 

(b)                       Failure to Perform.  If a Party materially fails to
comply with any of its obligations set forth in Section 8.2(a) upon reasonable
request and notice by the other Party, and such failure results in the
imposition of additional Taxes, the non-performing Party shall be liable in full
for such additional Taxes notwithstanding anything to the contrary in this
Agreement.

 

Section 8.3                                    Dispute Resolution.  Unless
otherwise agreed by the Parties, any dispute, controversy or claim arising out
of or relating to this Agreement or the breach, termination or validity hereof
(“Dispute”) which arises between Theravance and Biopharma shall be resolved
pursuant to this Section 8.3.  The Dispute shall first be negotiated between the
appropriate senior executives of Theravance and Biopharma who shall have the
authority to resolve the matter.  Such executives shall meet to attempt in good
faith to negotiate a resolution of the Dispute prior to pursuing other available
remedies, within ten (10) days of receipt by Theravance or Biopharma, as
applicable, of notice of a Dispute, which date of receipt shall be referred to
herein as the “Dispute Resolution Commencement Date.”  If the senior executives
are unable to resolve the Dispute within thirty (30) days from the Dispute

 

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Resolution Commencement Date, then Theravance and Biopharma shall jointly retain
a nationally recognized accounting firm reasonably acceptable to both Parties to
resolve the Dispute.  The accounting firm selected by the Parties shall act as
an arbitrator to resolve all points of disagreement, and its decision shall be
final and binding upon all parties involved.  Following the decision of such
accounting firm, Theravance and Biopharma shall each take or cause to be taken
any action necessary to implement the decision of such accounting firm. 
Theravance and Biopharma shall share equally the administrative costs of the
arbitration and such accounting firm’s fees, disbursements and expenses, and
shall each bear their respective other costs and expenses related to the
arbitration.

 

Section 8.4                                    Changes in Law.

 

(a)                       Any reference to a provision of the Code, Treasury
Regulations, or a law of another jurisdiction shall include a reference to any
applicable successor provision or law.

 

(b)                       If, due to any change in applicable law or regulations
or their interpretation by any court of law or other governing body having
jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated hereby shall become
impracticable or impossible, the Parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such provision.

 

Section 8.5                                    Confidentiality.  Each of the
Parties hereto shall hold and cause its directors, officers, employees, advisors
and consultants to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion of its counsel, by other
requirements of law, all information (other than any such information relating
solely to the business or affairs of such party) concerning the other Party
hereto furnished it by such other Party or its representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(1) in the public domain through no fault of such Party or (2) later lawfully
acquired from other sources not under a duty of confidentiality by the party to
which it was furnished), and no Party shall release or disclose such information
to any other Person, except its directors, officers, employees, auditors,
attorneys, financial advisors, bankers or other consultants who shall be advised
of and agree to be bound by the provisions of this Section 8.5.  Each of the
Parties hereto shall be deemed to have satisfied its obligation to hold
confidential information concerning or supplied by the other Party if it
exercises the same care as it takes to preserve confidentiality for its own
similar information.

 

Section 8.6                                    Affiliates.

 

(a)                       Theravance shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by any other Theravance Group Member; provided that if it
is contemplated that a Theravance Group Member may cease to be controlled,
directly or indirectly, by Theravance as a result of a transfer of its stock or
other ownership interests to a third party in exchange for consideration in an
amount approximately equal to the fair market value of the stock or other
ownership interests transferred and such consideration is not distributed
outside of the Theravance Group to the shareholders of Theravance, then
Theravance may request in writing no later than thirty (30) days prior to such
cessation that Biopharma execute a release of such Theravance Group Member from
its obligations under this Agreement effective as of such transfer, provided
that Theravance shall succeed to the rights of such Theravance Group Member
under this Agreement and shall have confirmed in writing the obligations of
Theravance and the remaining Theravance Group Members with respect to their own
obligations and the obligations of the departing Theravance Group Member, and
that such departing Theravance Group Member shall have executed a release of any
rights it may have against Biopharma by reason of this Agreement.

 

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(b)                       Biopharma shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by any other member of the Biopharma Group; provided that
if it is contemplated that member of the Biopharma Group may cease to be
controlled, directly or indirectly, by Biopharma as a result of a transfer of
its stock or other ownership interests to a third party in exchange for
consideration in an amount approximately equal to the fair market value of the
stock or other ownership interests transferred and such consideration is not
distributed outside of the Biopharma Group to the shareholders of Biopharma,
then Biopharma may request in writing no later than thirty (30) days prior to
such cessation that Theravance execute a release of such member of the
Biopharma  Group from its obligations under this Agreement effective as of such
transfer, provided that Biopharma shall succeed to the rights of such member of
the Biopharma Group under this Agreement and shall have confirmed in writing the
obligations of Biopharma and the remaining members of the Biopharma Group with
respect to their own obligations and the obligations of the departing member of
the Biopharma Group, and that such departing member of the Biopharma Group shall
have executed a release of any rights it may have against Theravance by reason
of this Agreement.

 

Section 8.7                                    GSK Agreements.  Notwithstanding
any other provision contained herein, Theravance shall not, and shall cause its
Affiliates and its and its Affiliates’ officers, directors, employees, agents
and representatives (collectively, “Representatives”) not to, take (or omit to
take) any action (including, without limitation, the disclosure of any
information to Biopharma or any of its Representatives), that is or would be
reasonably expected to result in a breach or violation of, or be in conflict
with, any Theravance confidentiality obligation to GSK under the Collaboration
Agreement and/or the Strategic Alliance Agreement.  To the extent that Biopharma
or any of its Representatives becomes aware or believes that it has or may have
received from Theravance or any of its Representatives Confidential Information
(as defined in the Collaboration Agreement or the Strategic Alliance Agreement)
of GSK, it will promptly notify Theravance in writing, will follow any
reasonable instructions from Theravance with respect to the return or
destruction of such information, and will not use or disclose such information
unless Theravance confirms that it is not Confidential Information (as defined
in the Collaboration Agreement or the Strategic Alliance Agreement) of GSK. 
Each party agrees and understands that monetary damages would not adequately
compensate the non-breaching party for a breach of this Section 8.7, that this
Section 8.7 shall, to the fullest extent permitted by law, be specifically
enforceable, and that any breach or threatened breach of this Section 8.7 shall
be the proper subject of a temporary or permanent injunction or restraining
order.  Further, Theravance and Biopharma waive, to the fullest extent permitted
by law, any claim or defense that there is an adequate remedy at law for such
breach or threatened breach.  Notwithstanding any other provision contained
herein, Biopharma acknowledges and agrees that it has no rights to any
non-public information under the Collaboration Agreement and/or the Strategic
Alliance Agreement, the disclosure of which by Theravance or any of its
Representatives to Biopharma or any of its Representatives is or would be
reasonably expected to result in a breach or violation of, or be in conflict
with, any Theravance confidentiality obligation to GSK under the Collaboration
Agreement and/or the Strategic Alliance Agreement.  Notwithstanding anything
else to the contrary, in the event of any conflict between this Section 8.7, or
any covenant, right, agreement, obligation or duty of Theravance or Biopharma
(or any of their respective Representatives)under this Section 8.7, on the one
hand, and any other provision of this Agreement, or any attachment hereto or any
covenant, right, agreement, obligation or duty of Theravance or Biopharma (or
any of their respective Representatives)thereunder, on the other hand, this
Section 8.7 shall govern and supersede such other provision, attachment,
covenant, agreement, obligation or duty. Each party will be liable for breach of
this Section 8.7 by any of its Representatives.

 

Section 8.8                                    Authority.  Each of the Parties
hereto represents, on behalf of itself and its affiliates, to the other that
(a) it has the corporate power and authority to execute, deliver and perform
this Agreement, (b) the execution, delivery and performance of this Agreement by
it have been duly authorized by all necessary corporate or other action, (c) it
has duly and validly executed and delivered

 

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this Agreement and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally and general equity principles.

 

Section 8.9                                    Setoff.  All payments to be made
by any Party under this Agreement may be netted against payments due to such
Party under this Agreement, but otherwise shall be made without setoff,
counterclaim or withholding, all of which are hereby expressly waived.

 

Section 8.10                             Amendments and Waivers.

 

(a)                       This Agreement may not be amended except by an
agreement in writing signed by both Parties.

 

(b)                       Any term or provision of this Agreement may be waived,
or the time for its performance may be extended, by the Party entitled to the
benefit thereof and any such waiver shall be validly and sufficiently given for
the purposes of this Agreement if it is in writing signed by an authorized
representative of such Party.  No delay or failure in exercising any right,
power or remedy hereunder shall affect or operate as a waiver thereof; nor shall
any single or partial exercise thereof or any abandonment or discontinuance of
steps to enforce such a right, power or remedy preclude any further exercise
thereof or of any other right, power or remedy.  The rights and remedies
hereunder are cumulative and not exclusive of any rights or remedies that either
Party would otherwise have.

 

Section 8.11                             Entire Agreement.  This Agreement, the
Separation Agreement, the other Ancillary Agreements and the Exhibits and
Schedules attached thereto, constitute the entire agreement between the Parties
with respect to the subject matter hereof and shall supersede all prior written
and oral and all contemporaneous oral agreements and understandings with respect
to the subject matter hereof.

 

Section 8.12                             Third-Party Beneficiaries.  Except as
provided in Article V relating to Indemnitees, this Agreement is solely for the
benefit of Theravance, the Theravance Affiliates, Biopharma and the Biopharma
Affiliates, and shall not be deemed to confer upon any other third parties any
remedy, claim, liability, reimbursement, cause of action or other right in
excess of those existing without reference to this Agreement.

 

Section 8.13                             Notices.  All notices, requests,
permissions, waivers and other communications hereunder shall be provided in
accordance with the provisions of Section 12.4 of the Separation Agreement.

 

Section 8.14                             Counterparts; Electronic Delivery. 
This Agreement may be executed in multiple counterparts, each of which when
executed shall be deemed to be an original, but all of which together shall
constitute one and the same agreement.  Execution and delivery of this Agreement
or any other documents pursuant to this Agreement by facsimile or other
electronic means shall be deemed to be, and shall have the same legal effect as,
execution by an original signature and delivery in person.

 

Section 8.15                             Severability.  If any term or other
provision of this Agreement is determined by a nonappealable decision by a
court, administrative agency or arbitrator to be invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to either Party.  Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the court, administrative agency or arbitrator
shall interpret this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that

 

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transactions contemplated hereby are fulfilled to the fullest extent possible. 
If any provision in this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only as broad as is enforceable.

 

Section 8.16                             Assignability; Binding Effect.  Except
as otherwise expressly provided in this Agreement, neither Party may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other Party, and any attempt to assign this Agreement without
such consent shall be void and of no effect.  This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors and
permitted assigns. This Agreement may be enforced separately by each member of
the Theravance Group and each member of the Biopharma Group.

 

Section 8.17                             Governing Law  This Agreement shall be
governed by, and construed and enforced in accordance with, the substantive laws
of the State of Delaware, without regard to any conflicts of law provisions
thereof that would result in the application of the laws of any other
jurisdiction.

 

Section 8.18                             Construction.  This Agreement shall be
construed as if jointly drafted by the Parties, and no rule of construction or
strict interpretation shall be applied against either Party.  The Parties
represent that this Agreement is entered into with full consideration of any and
all rights which the Parties may have.  The Parties have relied upon their own
knowledge and judgment and upon the advice of the attorneys of their choosing. 
The Parties have had access to independent legal advice, have conducted such
investigations they and their counsel thought appropriate, and have consulted
with such other independent advisors as they and their counsel deemed
appropriate regarding this Agreement and their rights and asserted rights in
connection therewith.  The Parties are not relying upon any representations or
statements made by the other Party, or such other Party’s employees, agents,
representatives or attorneys, regarding this Agreement, except to the extent
such representations are expressly set forth or incorporated in this Agreement. 
The Parties are not relying upon a legal duty, if one exists, on the part of the
other Party (or such other Party’s employees, agents, representatives or
attorneys) to disclose any information in connection with the execution of this
Agreement or its preparation, it being expressly understood that neither Party
shall ever assert any failure to disclose information on the part of the other
Party as a ground for challenging this Agreement.

 

Section 8.19                             Titles and Headings.  Titles and
headings to Sections and Articles herein are inserted for the convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.

 

Section 8.20                             Coordination with Employee Matters
Agreement.  To the extent any covenants or agreements between the Parties with
respect to employment Taxes are set forth in the Employee Matters Agreement,
such matters shall be governed exclusively by the Employee Matters Agreement and
not by this Agreement.

 

Section 8.21                             Conflict or Inconsistency Between
Agreements.  Except as provided in Section 8.20, in the event of any conflict or
inconsistency between any provision of this Agreement and any provision of
either the Separation Agreement or any of the other Ancillary Agreements, the
applicable provisions of this Agreement shall prevail.

 

[Signature Page Follows]

 

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WHEREFORE, the Parties have signed this Tax Matters Agreement effective as of
the date first set forth above.

 

 

THERAVANCE, INC., on behalf of itself and the Theravance Affiliates

 

 

 

 

 

 

 

By:

/s/ Michael W. Aguiar

 

 

Name:  Michael W. Aguiar

 

 

Title:    Chief Financial Officer

 

 

 

 

 

 

 

THERAVANCE BIOPHARMA, INC., on behalf of itself and the Biopharma Affiliates

 

 

 

 

 

 

 

By:

/s/ Rick E Winningham

 

 

Name:  Rick E Winningham

 

 

Title:    Chief Executive Officer

 

[Signature Page to Tax Matters Agreement]

 

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