Exhibit 10.5


 


THERAVANCE,
INC.

AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE PLAN

AND SUMMARY PLAN DESCRIPTION


 


(As amended July 27, 2007)


 


The Theravance, Inc.
Amended and Restated Change in Control Severance Plan (the “Plan”) is primarily
designed to provide separation pay and other benefits to Theravance, Inc.
(the “Corporation”) executives who meet the eligibility requirements as set
forth below (an “Eligible Executive”) and whose employment is involuntarily
terminated in connection with a change in control occurring after an initial
public offering (“IPO”).


 


This Plan is designed to
be an “employee welfare benefit plan,” as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  This Plan is governed by ERISA and, to the
extent applicable, the laws of the State of California.  This document constitutes both the official
plan document and the required summary plan description under ERISA.


 


I.              ELIGIBILITY


 


You will be an Eligible
Executive for severance benefits under the Plan if:


 


·                  you are an
officer of the Corporation;


 


·                  your active
employment is Involuntarily Terminated other than for Misconduct within the
designated period following a Change in Control;


 


·                  you execute a waiver
and general release of all claims in a form provided by and acceptable to the
Corporation as provided for in the section entitled “Release and Waiver of
Claims,” within the prescribed number of days following your date of
termination, as set forth in such release; and


 


·                  you are not in
one of the excluded categories listed below.


 


You will not be an
Eligible Executive for severance benefits under this Plan if:


 


·                  you are an
independent contractor, a temporary employee, part-time employee working fewer
than 32 hours per week, probationary employee or student employee;


 


·                  you are employed
with a successor employer following a Change in Control.  However, you would be eligible for severance
benefits pursuant to the terms of the Plan upon a subsequent Involuntary
Termination other than for Misconduct within the designated period following a
Change in Control; or


 


·                  you are
dismissed for Misconduct.


 

















 


II.            HOW
THE PLAN WORKS


 


1.             Severance
Guidelines


 


If you are an Eligible Executive
and your employment is Involuntarily Terminated within three (3) months
before or twenty-four (24) months after a Change in Control, you will be paid a
Severance Payment calculated as follows:


 


If you were an officer of
the Corporation immediately before the Change in Control:


 


·                  100% of your
combined Annual Base Pay and Target Bonus, plus


 


·                  A pro-rata
portion of your current target bonus based on the number of full months of
employment completed in the applicable period on the date of termination in
such year of termination.


 


If you were senior vice
president of the Corporation immediately before the Change in Control:


 


·                  150% of your
combined Annual Base Pay and Target Bonus, plus


 


·                  A pro-rata
portion of your current target bonus based on the number of full months of
employment completed in the applicable period on the date of termination in
such year of termination.


 


If you were the chief
executive officer or an executive vice president of the Corporation immediately
before the Change in Control:


 


·                  200% of your
combined Annual Base Pay and Target Bonus, plus


 


·                  A pro-rata
portion of your current target bonus based on the number of full months of
employment completed in the applicable period on the date of termination in
such year of termination.


 


Payments made under this
Plan shall not be treated as “compensation” for purposes of the Theravance, Inc.
401(k) Profit Sharing Plan.  An
Eligible Executive will also receive his unpaid salary through his termination
date and a lump sum payment for all accrued and unused vacation (through the
termination date) in a final paycheck provided on his last day of work.


 


The full amount of any
balance and accrued interest remaining on any outstanding loans owed by the
Eligible Executive to the Corporation as of the date of termination shall be
forgiven in full immediately upon the Eligible Executive’s Involuntary
Termination.


 


The Severance Payment under
this subsection 1 shall be paid in one lump sum from the general assets of the
Corporation on the first scheduled payroll date of the Corporation following
the latest of the following dates:  the
Eligible Executive’s last day of employment, the date the Corporation receives
the Eligible Executive’s signed release, or the date the revocation period (if
any) specified in the release expires. 
If the release has not been signed by the Eligible Executive and become
effective by the date that is two and one-half months after the end of the year
in 


 


2

















 


which employment ceases,
then the Eligible Executive will cease to be eligible for benefits under this
Plan.


 


2.             Group
Insurance Coverage


 


If an Eligible Executive
becomes entitled to a Severance Payment under this Plan, then the Corporation
shall continue to provide all welfare benefits provided on the date of
termination to the Eligible Executive and, if applicable, to the Eligible
Executive’s dependents for the following periods:


 


·                  12 months if you
were an officer of the Corporation immediately before the Change in Control


 


·                  18 months if you
were a senior vice president of the Corporation immediately before the Change
in Control


 


·                  24 months if you
were the chief executive officer or an executive vice president of the
Corporation immediately before the Change in Control


 


The Corporation’s
obligation to pay premiums or make contributions shall cease when the Eligible
Executive obtains new employment offering comparable welfare benefits.  All welfare benefits, other than pursuant to
COBRA, shall cease on the last day of the second calendar year following the
year in which the separation from service occurs. The Corporation will pay the
monthly premium under COBRA for the Eligible Executive and, if applicable, his
or her dependents until the earliest of (a) the end of the period of 12,
18 or 24 months (as applicable based on the formula set forth above) following
the month in which the Eligible Executive’s employment terminates or (b) the
expiration of the Eligible Executive’s continuation coverage under COBRA.


 


3.             Equity


 


If an Eligible Executive becomes entitled
to a Severance Payment under this Plan, then the Corporation shall fully vest
the officer in all of his unvested shares and options, and such options shall
become fully exercisable, as of the date of termination.  To the extent that the foregoing results in
acceleration of exercisability on or before September 1, 2007 as to
options which otherwise would not have been exercisable on that date, then such
accelerated options shall be treated as vested and exercisable as of September 1,
2007.  To the extent necessary to
effectuate the intent of the foregoing, each such option shall have an extended
period of time to exercise following a cessation of service which shall not
expire earlier than October 1, 2007.


 


4.             Definitions


 


Annual
Base Pay shall mean the Eligible Executive’s base salary
at the highest rate in effect at any regularly scheduled payroll period
preceding the occurrence of the Change in Control and does not include,
for example, bonuses, overtime compensation, incentive pay, sales commissions
or expense allowances.


 


3

















 


Target
Bonus shall mean the normal bonus amount that would
be paid for achieving 100% of goals or MBOs as used in the applicable annual
bonus plan.


 


Involuntary
Termination shall mean the termination of the service
of the Eligible Executive which occurs by reason of:


 


A.            such individual’s involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or


 


B.            such individual’s voluntary resignation following (i) a
material diminution in the Eligible Executive’s authority, duties or
responsibilities, (ii) a material reduction in his or her base
compensation, (iii) a material change in the geographic location at which
he or she must perform services for the Corporation or (iv) any other
action or inaction that constitutes a material breach by the Corporation of the
agreement under which the Eligible Executive provides services.  For the Eligible Executive to receive the
benefits under this Plan as a result of a voluntary resignation under this
clause B, all of the following requirements must be satisfied:  (1) the Eligible Executive must provide
notice to the Corporation of his or her intent to assert this clause B within
90 days of the initial existence of one or more of the conditions set forth in subclauses
(i) through (iv); (2) the Corporation will have 30 days from the date
of such notice to remedy the condition and, if it does so, the Eligible
Executive may withdraw his or her resignation or may resign with no Plan
benefits; and (3) any termination of employment under this clause B must
occur within two years of the initial existence of one or more of the
conditions set forth in subclauses (i) through (iv).  Should the Corporation remedy the condition
as set forth above and then one or more of the conditions arises again within
two years following the occurrence of a Change in Control, the Eligible
Executive may assert this clause B again subject to all of the conditions set
forth herein.


 


Misconduct
shall mean the commission of any material act of fraud, embezzlement or
dishonesty by an individual, any material unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional material misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary).


 


Change
in Control shall mean:


 


A.            The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate reorganization,
if persons who were not stockholders of the Corporation immediately prior to
such merger, consolidation or other reorganization own immediately after such
merger, consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (i) the continuing or surviving
entity and (ii) any direct or indirect parent corporation of such
continuing or surviving entity;


 


B.            The sale, transfer or other disposition of all or
substantially all of the Corporation’s assets;


 


C.            A change in the composition of the Board, as a result of
which fewer than 50% of the incumbent directors are directors who either:


 


4

















 


	
  (i)

  	
   

  	
  had been directors of
  the Corporation on the date 24 months prior to the date of such change in the
  composition of the Board (the “Original Directors”) or

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  were appointed to the
  Board, or nominated for election to the Board, with the affirmative votes of
  at least a majority of the aggregate of (A) the Original Directors who
  were in office at the time of their appointment or nomination and
  (B) the directors whose appointment or nomination was previously
  approved in a manner consistent with this clause (ii); or

  



 


D.            Any transaction as a result of which any person is the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing at least 50% of the
total voting power represented by the Corporation’s then outstanding voting
securities.  For purposes of this
Paragraph (d), the term “person” shall have the same meaning as when used
in sections 13(d) and 14(d) of the Exchange Act but shall
exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or of a Parent or Subsidiary and (ii) a
corporation owned directly or indirectly by the stockholders of the Corporation
in substantially the same proportions as their ownership of the common stock of
the Corporation.


 


Except with respect to a
GSK Change In Control (defined below), (i) any stock purchase by
SmithKline Beecham Corporation, a Pennsylvania corporation (“GSK”), pursuant to
the Class A Common Stock Purchase Agreement dated as of March 30,
2004 or (ii) the exercise by GSK of any of its rights under the Amended
and Restated Governance Agreement dated as of June 4, 2004
among the Corporation, GSK, GlaxoSmithKline plc and Glaxo Group Limited (the “Governance
Agreement”) to representation on the Board (and its committees) or (iii) any
acquisition by GSK of securities of the Company (whether by merger, tender
offer, private or market purchases or otherwise) not prohibited by the
Governance Agreement shall not constitute a Change in Control.  A transaction shall not constitute a Change
in Control if its sole purpose is to change the state of the Corporation’s
incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Corporation’s
securities immediately before such transaction. 
A “GSK Change In Control” shall mean the acquisition by GSK of the
Company’s Voting Stock (as defined in the Governance Agreement) that would
bring GSK’s Percentage Interest (as defined in the Governance Agreement) to
100% in compliance with the provisions of the Governance Agreement.


 


5.             Golden
Parachute Tax Limitation


 


The Internal Revenue Code
imposes a 20% excise tax on certain payments and other benefits received by
certain officers and shareholders in connection with a change of control
involving the Corporation.  Such payments
can include severance pay, loan forgiveness and acceleration of option vesting.


 


Gross-Up Payment.


 


In the event that it is
determined that any payment or distribution of any type to or for the benefit
of the Eligible Executive made by the Corporation, by any of its affiliates, by
any person who acquires ownership or effective control of the Corporation or
ownership of a substantial portion 


 


5

















 


of the Corporation’s
assets (within the meaning of section 280G of the Code and the regulations
thereunder) or by any affiliate of such person, whether paid or payable or
distributed or distributable pursuant to the terms of this Plan or under any
other agreement including an Eligible Executive’s stock option agreement and
including loan forgiveness (the “Total Payments”), would be subject to the
excise tax imposed by section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest or penalties, are collectively referred to as the “Excise Tax”),
then the Corporation shall pay Eligible Executive an additional amount (a “Gross-Up
Payment”) equal to the amount that shall fund the payment by the Eligible
Executive of any Excise Tax on the Total Payments as well as all income taxes
imposed on the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment
and any interest or penalties imposed with respect to taxes on the Gross-Up
Payment or any Excise Tax.


 


Determination by
Accountant.


 


All mathematical
determinations and all determinations of whether any of the Total Payments are “parachute
payments” (within the meaning of section 280G of the Code) that are required to
be made under this Section 5, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this section, shall be made by an
independent accounting firm selected by the Corporation (the “Accounting Firm”),
which shall provide its determination (the “Determination”), together with
detailed supporting calculations regarding the amount of any Gross-Up Payment
and any other relevant matters, both to the Corporation and to the Eligible
Executive within seven business days of the Eligible Executive’s termination
date, if applicable, or such earlier time as is requested by the Corporation or
by the Eligible Executive (if the Eligible Executive reasonably believes that
any of the Total Payments may be subject to the Excise Tax).  If the Accounting Firm determines that no
Excise Tax is payable by the Eligible Executive, it shall furnish the Eligible
Executive with a written statement that such Accounting Firm has concluded that
no Excise Tax is payable (including the reasons therefor) and that the Eligible
Executive has substantial authority not to report any Excise Tax on the
Eligible Executive’s federal income tax return. 
If a Gross-Up Payment is determined to be payable, it shall be paid to
the Eligible Executive within five business days after the Determination is
delivered to the Corporation or the Eligible Executive and in no event later
than the close of the calendar year following the calendar year in which the
Eligible Executive pays the Excise Tax. 
Any determination by the Accounting Firm shall be binding upon the
Corporation and the Eligible Executive, absent manifest error.


 


Underpayments and
Overpayments.


 


As a result of
uncertainty in the application of section 4999 of the Code at the time of the initial
Determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments not made by the Corporation should have been made (“Underpayments”) or
that Gross-Up Payments will have been made by the Corporation which should not
have been made (“Overpayments”).  In
either event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. 
In the case of an Underpayment, the amount of such Underpayment shall
promptly be paid by the Corporation to or for the benefit of the Eligible
Executive.  In the case of an
Overpayment, the Eligible Executive shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established 


 


6

















 


by, the Corporation and
otherwise reasonably cooperate with the Corporation to correct such
Overpayment; provided, however, that (i) the
Eligible Executive shall in no event be obligated to return to the Corporation
an amount greater than the net after-tax portion of the Overpayment that the
Eligible Executive has retained or has recovered as a refund from the
applicable taxing authorities and (ii) this provision shall be interpreted
in a manner consistent with the intent of this section, which is to make the
Eligible Executive whole, on an after-tax basis, for the application of the
Excise Tax, it being understood that the correction of an Overpayment may
result in the Eligible Executive’s repaying to the Corporation an amount which
is less than the Overpayment.


 


6.             Mandatory
Deferral of Payments.


 


This Section 6 shall
only apply if the Corporation determines that the Eligible Executive is a “specified
employee” under Section 409A(a)(2)(B)(i) of the Code and the
regulations thereunder when his or her employment terminates.  If this Section 6 applies, it shall
supersede any contrary provision of this Agreement.  To the extent that no exemption from Section 409A
of the Code is available for the benefits under Section 1, 2 or 5, such
payments shall commence on the earliest practicable date that occurs more than
six months after the Eligible Executive’s employment terminates.  The severance payments or benefits that
otherwise would have been made during the first six months following the
termination date shall be paid in a lump sum on the first day of the seventh
month after the termination date.


 


III.           OTHER
IMPORTANT INFORMATION


 


1.                                      Release
and Waiver of Claims.  Any other
provision of this Plan notwithstanding, an Eligible Executive shall not
be entitled to receive any Severance Payment, other payment, or benefit under
this Plan unless such Eligible Executive has executed a waiver of claims and a
general release of all claims in favor of the Corporation and its
affiliates.  Such release shall be
executed on a form provided by and acceptable to the Corporation.  The Corporation shall complete the form of
release and deliver it to the Eligible Executive within 30 days after his or
her employment terminates.  The form of
the release will specify how much time such Eligible Executive has to sign it
and whether there is a revocation period.


 


2.                                      Plan
Administration.  As the Plan
Administrator, the Corporation has full discretionary authority to administer
and interpret the Plan, including discretionary authority to determine
eligibility for benefits under the Plan and the amount of benefits (if any)
payable per participant. Any determination by the Plan Administrator will be
final and conclusive upon all persons. 
The Plan Administrator hereby delegates to the Chief Financial Officer
all of its administrative duties. 
Accordingly, the Chief Financial Officer, on behalf of the Plan
Administrator, has full discretionary authority to carry out its delegated
duties.  Any determination by the Chief
Financial Officer will be final and conclusive upon all persons.  The Corporation, as the Plan Administrator,
will indemnify and hold harmless the Chief Financial Officer for carrying out
the responsibilities of the Plan Administrator; provided,
however, such person does not act with gross negligence or willful
misconduct.


 


3.                                      Benefits.
 The Corporation is not required
to establish a trust to fund the Plan. 
The benefits provided under this Plan are not assignable and may be
conditioned upon your 


 


7

















 


compliance with any
confidentiality agreement you have entered into with the Corporation.


 


4.                                      Claims
Procedure.  If you believe you
are incorrectly denied a benefit or are entitled to a greater benefit than the
benefit you receive under the Plan, you may submit a signed, written
application to the Plan Administrator within ninety (90) days of your
Termination Date or, in the case of a dispute involving a Gross-Up Payment, the
date on which a Determination is made regarding a Gross-Up Payment.  You will be notified of the approval or
denial of this claim within ninety (90) days of the date that the Plan
Administrator receives the claim, unless special circumstances require an
extension of time for processing the claim. 
If your claim is denied, the notification will state specific reasons
for the denial and you will have sixty (60) days from receipt of the written
notification of the denial of your claim to file a signed, written request for
a review of the denial with the Plan Administrator.  This request should include the reasons you
are requesting a review, facts supporting your request and any other relevant
comments.  Pursuant to its discretionary
authority to administer and interpret the Plan and to determine eligibility for
benefits under the Plan, the Plan Administrator will generally make a final,
written determination of your eligibility for benefits within sixty (60) days
of receipt of your request for review.


 


5.                                      Plan
Terms.  This Plan supersedes any
and all prior separation, severance and salary continuation arrangements,
programs and plans which were previously offered by the Corporation relating to
a Change in Control event, for which you are eligible, but excluding terms of
the Corporation’s stock option plans and individual letter agreements which
address the vesting of stock options or restricted stock.  In no event shall an Eligible Executive
receive cash severance benefits under this Plan following a Change in Control
event and under any other Plan, program or arrangement.


 


6.                                      Plan
Amendment or Termination.  The
Corporation, acting through its Board of Directors or its Compensation
Committee, reserves the right to terminate or amend the Plan at any time and in
any manner.  Any termination or amendment
of the Plan may be made effective immediately with respect to any benefits not
yet paid, whether or not prior notice of such amendment or termination has been
given to affected employees.  However, no
amendment or termination may be approved following the execution of a
definitive agreement to effect any Change in Control involving the Corporation
without the consent of 75% of the then participating Eligible Executives.


 


7.                                      Taxes.  Except as set forth herein, the Corporation
will withhold taxes and other payroll deductions from any severance payment.


 


8.                                      No
Right to Employment.  This Plan
does not provide you with any right to continue employment with the Corporation
or affect the Corporation’s right, which right is hereby expressly reserved, to
terminate the employment of any individual at any time for any reason with or
without cause.


 


8

















 


IV.           STATEMENT
OF ERISA RIGHTS


 


As a participant in the
Plan, you are entitled to certain rights and protections under ERISA.  ERISA provides that all Plan participants
shall be entitled to:


 


1.                                       Examine,
without charge, at the Plan Administrator’s office, all Plan documents,
including all documents filed by the Plan with the U.S. Department of Labor.


 


2.                                       Obtain
copies of all Plan documents and other Plan information upon written request to
the Plan Administrator.  The Plan
Administrator may make a reasonable charge for the copies.


 


3.                                       File
suit in a federal court, if you, as a participant, request materials and do not
receive them within thirty (30) days of your request.  In such a case, the court may require the
Plan Administrator to provide the materials and to pay you a fine of up to $100
for each day’s delay until the materials are received, unless the materials
were not sent because of reasons beyond the control of the Plan Administrator.


 


In addition to creating
rights for certain employees of the Corporation under the Plan, ERISA imposes
obligations upon the people who are responsible for the operation of the
Plan.  The people who operate the Plan
(called “fiduciaries”) have a duty to do so prudently and in the interest of
the Corporation’s employees who are covered by the Plan.


 


No one, including your
employer or any other person, may fire you or otherwise discriminate against
you in any way to prevent you from obtaining a benefit to which you are
entitled under the Plan or from exercising your rights under ERISA.


 


If your claim for a
severance benefit is denied or ignored, in whole or in part, you have a right
to file suit in a federal or a state court. 
If Plan fiduciaries are misusing the Plan’s assets (if any) or if you
are discriminated against for asserting your rights, you may seek assistance
from the U.S. Department of Labor or file suit in a federal court.  The court will decide who will pay court
costs and legal fees.  If you are
successful in your lawsuit, the court may, if it so decides, order the party
you have sued to pay your legal costs, including attorney fees.  However, if you lose, the court may order you
to pay these costs and fees, for example, if it finds that your claim or suit
is frivolous.


 


If you have any questions
about the Plan, this statement or your rights under ERISA, you should contact
the Plan Administrator or the nearest Area Office of the U.S. Labor-Management
Services Administration, Department of Labor.


 


9

















 


ADDITIONAL PLAN INFORMATION


 


	
  Name of Plan:

  	
  Theravance, Inc.
  Amended and Restated Change in Control Severance Plan

  
	
   

  	
   

  
	
  Corporation
  Sponsoring Plan:

  	
  Theravance, Inc.

  901 Gateway
  Boulevard

  South San Francisco, CA  94080

  650-808-6000

  
	
   

  	
   

  
	
  Employer
  Identification Number:

  	
  94-3265960

  
	
   

  	
   

  
	
  Plan Number:

  	
  506

  
	
   

  	
   

  
	
  Plan Year:

  	
  The calendar
  year; the first plan year shall end December 31, 2004

  
	
   

  	
   

  
	
  Plan
  Administrator:

  	
  Theravance, Inc.

  901 Gateway
  Boulevard

  South San Francisco, CA  94080

  650-808-6000

  
	
   

  	
   

  
	
  Agent for
  Service of Legal Process:

  	
  Plan
  Administrator

  
	
   

  	
   

  
	
  Type of Plan:

  	
  Severance
  Plan/Employee Welfare Benefit Plan

  
	
   

  	
   

  
	
  Plan Costs:

  	
  The cost of the
  Plan is paid by Theravance, Inc.

  



 


10