Exhibit 10.3


 


THERAVANCE, INC.



2004 EQUITY INCENTIVE PLAN



(AS AMENDED AND RESTATED FEBRUARY 10, 2010)


 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I.

  	
  INTRODUCTION

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II.

  	
  ADMINISTRATION

  	
  1

  
	
  2.1

  	
  Committee Composition

  	
  1

  
	
  2.2

  	
  Committee Responsibilities

  	
  1

  
	
  2.3

  	
  Committee for
  Non-Officer Grants

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE III.

  	
  SHARES AVAILABLE FOR
  GRANTS

  	
  2

  
	
  3.1

  	
  Basic Limitation

  	
  2

  
	
  3.2

  	
  Additional Shares

  	
  2

  
	
  3.3

  	
  Shares Subject to
  Substituted Awards

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV.

  	
  ELIGIBILITY

  	
  3

  
	
  4.1

  	
  Incentive Stock Options

  	
  3

  
	
  4.2

  	
  Other Grants

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE V.

  	
  OPTIONS

  	
  3

  
	
  5.1

  	
  Stock Option Agreement

  	
  3

  
	
  5.2

  	
  Number of Shares

  	
  3

  
	
  5.3

  	
  Exercise Price

  	
  4

  
	
  5.4

  	
  Exercisability and Term

  	
  4

  
	
  5.5

  	
  Modification or
  Assumption of Options

  	
  4

  
	
  5.6

  	
  Buyout Provisions

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI.

  	
  PAYMENT FOR OPTION SHARES

  	
  4

  
	
  6.1

  	
  General Rule

  	
  4

  
	
  6.2

  	
  Surrender of Stock

  	
  5

  
	
  6.3

  	
  Exercise/Sale

  	
  5

  
	
  6.4

  	
  Exercise/Pledge

  	
  5

  
	
  6.5

  	
  Promissory Note

  	
  5

  
	
  6.6

  	
  Other Forms of Payment

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII.

  	
  STOCK APPRECIATION
  RIGHTS

  	
  5

  
	
  7.1

  	
  SAR Agreement

  	
  5

  
	
  7.2

  	
  Number of Shares

  	
  5

  
	
  7.3

  	
  Exercise Price

  	
  6

  
	
  7.4

  	
  Exercisability and Term

  	
  6

  
	
  7.5

  	
  Exercise of SARs

  	
  6

  
	
  7.6

  	
  Modification or
  Assumption of SARs

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII.

  	
  RESTRICTED SHARES

  	
  7

  
	
  8.1

  	
  Restricted Stock
  Agreement

  	
  7

  
	
  8.2

  	
  Payment for Awards

  	
  7

  
	
  8.3

  	
  Vesting Conditions

  	
  7

  



 


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  8.4

  	
  Voting and Dividend
  Rights

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX.

  	
  STOCK UNITS AND
  PERFORMANCE CASH AWARDS

  	
  8

  
	
  9.1

  	
  Stock Unit Agreement

  	
  8

  
	
  9.2

  	
  Payment for Awards

  	
  8

  
	
  9.3

  	
  Vesting Conditions

  	
  8

  
	
  9.4

  	
  Voting and Dividend
  Rights

  	
  8

  
	
  9.5

  	
  Form and Time of
  Settlement of Stock Units

  	
  8

  
	
  9.6

  	
  Death of Recipient

  	
  9

  
	
  9.7

  	
  Creditors’ Rights

  	
  9

  
	
  9.8

  	
  Performance Cash Awards

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE X.

  	
  CHANGE IN CONTROL

  	
  9

  
	
  10.1

  	
  Effect of Change in
  Control

  	
  9

  
	
  10.2

  	
  Acceleration

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI.

  	
  PROTECTION AGAINST
  DILUTION

  	
  10

  
	
  11.1

  	
  Adjustments

  	
  10

  
	
  11.2

  	
  Dissolution or
  Liquidation

  	
  10

  
	
  11.3

  	
  Reorganizations

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII.

  	
  DEFERRAL OF AWARDS

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII.

  	
  AWARDS UNDER OTHER
  PLANS

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV.

  	
  PAYMENT OF FEES IN
  SECURITIES

  	
  12

  
	
  14.1

  	
  Effective Date

  	
  12

  
	
  14.2

  	
  Elections to Receive
  NSOs, Restricted Shares or Stock Units

  	
  12

  
	
  14.3

  	
  Number and Terms of
  NSOs, Restricted Shares or Stock Units

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE XV.

  	
  LIMITATION ON RIGHTS

  	
  13

  
	
  15.1

  	
  Retention Rights

  	
  13

  
	
  15.2

  	
  Stockholders’ Rights

  	
  13

  
	
  15.3

  	
  Regulatory Requirements

  	
  13

  
	
  15.4

  	
  Transferability of
  Awards

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVI.

  	
  WITHHOLDING TAXES

  	
  13

  
	
  16.1

  	
  General

  	
  13

  
	
  16.2

  	
  Share Withholding

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVII.

  	
  FUTURE OF THE PLAN

  	
  14

  
	
  17.1

  	
  Term of the Plan

  	
  14

  
	
  17.2

  	
  Amendment or
  Termination

  	
  14

  
	
  17.3

  	
  Stockholder Approval

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVIII.

  	
  DEFINITIONS

  	
  15

  



 


ii

















 


THERAVANCE, INC.

2004 EQUITY INCENTIVE PLAN


 


ARTICLE
I.                                                        INTRODUCTION.


 


The Plan was adopted by
the Board on May 27, 2004 to be effective at the IPO, and the amendment
and restatement of the Plan was approved by the Board and the Compensation
Committee of the Board on February 10, 2010 to be effective on the date of
the Corporation’s 2010 Annual Meeting of Stockholders assuming the Plan is
approved by the Corporation’s stockholders at such meeting. The purpose of the
Plan is to promote the long-term success of the Corporation and the creation of
stockholder value by (a) encouraging Employees, Outside Directors and
Consultants to focus on critical long-range objectives, (b) encouraging
the attraction and retention of Employees, Outside Directors and Consultants
with exceptional qualifications, and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership.  The Plan seeks to achieve
this purpose by providing for the following Awards:  (i) Options (which may constitute
incentive stock options or nonstatutory stock options), (ii) stock
appreciation rights, (iii) Restricted Shares, (iv) Stock Units and (v) Performance
Cash Awards.


 


The Plan shall be
governed by, and construed in accordance with, the laws of the State of
Delaware (except their choice-of-law provisions).


 


ARTICLE
II.                                                    ADMINISTRATION.


 


2.1                                 Committee Composition. 
The Committee shall administer the Plan. 
The Committee shall consist exclusively of two or more directors of the
Corporation, who shall be appointed by the Board.  In addition, each member of the Committee
shall meet the following requirements:


 


(a)                                  Any listing standards prescribed by the
principal securities market on which the Corporation’s equity securities are
traded;


 


(b)                                 Such requirements as the Internal Revenue
Service may establish for outside directors acting under plans intended to
qualify for exemption under section 162(m)(4)(C) of the Code;


 


(c)                                  Such requirements as the Securities and
Exchange Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its successor)
under the Exchange Act; and


 


(d)                                 Any other requirements imposed by
applicable law, regulations or rules.


 


2.2                                 Committee Responsibilities. 
The Committee shall (a) select the Employees, Outside Directors and
Consultants who are to receive Awards under the Plan, (b) determine the
type, number, vesting requirements and other features and conditions of such
Awards, (c) interpret the Plan, (d) make all other decisions relating
to the operation of the Plan and


 

















 


(e) carry out
any other duties delegated to it by the Board. 
The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan.  The Committee’s
determinations under the Plan shall be final and binding on all persons.


 


2.3                                 Committee for Non-Officer Grants. 
The Board may also appoint a secondary committee of the Board, which
shall be composed of one or more directors of the Corporation who need not
satisfy the requirements of Section 2.1. 
Such secondary committee may administer the Plan with respect to
Employees and Consultants who are not Outside Directors and are not considered
executive officers of the Corporation under section 16 of the Exchange
Act, may grant Awards under the Plan to such Employees and Consultants and may
determine all features and conditions of such Awards.  Within the limitations of this Section 2.3,
any reference in the Plan to the Committee shall include such secondary
committee.


 


ARTICLE
III.                                                SHARES AVAILABLE FOR GRANTS.


 


3.1                                 Basic Limitation. 
Shares of Common Stock issued pursuant to the Plan may be authorized but
unissued shares or treasury shares.  The
aggregate number of shares of Common Stock that may be awarded pursuant to
Stock Awards granted under the Plan on or after January 1, 2010 shall not
exceed (a) 7,600,000 shares (which includes 1,541,428 shares remaining
available for issuance under the Plan as of January 1, 2010) and (b) the
additional shares of Common Stock described in Sections 3.2 and
3.3(1).  The number of shares of Common
Stock that may be awarded pursuant to ISOs granted under the Plan on or after January 1,
2010 shall not exceed 7,600,000 shares. 
The number of shares of Common Stock that may be awarded under the Plan
on or after January 1, 2010 shall be reduced by (a) one share for
every option and stock appreciation right granted under the Plan or the
Corporation’s 2008 New Employee Equity Incentive Plan on or after January 1,
2010 and (b) 1.45 shares for every stock award other than an option or
stock appreciation right granted under the Plan or the Corporation’s 2008 New
Employee Equity Incentive Plan on or after January 1, 2010.  The limitations of this Section 3.1
shall be subject to adjustment pursuant to Article 11.  The number of shares of Common Stock that are
subject to Options or other rights outstanding at any time under the Plan shall
not exceed the number of shares of Common Stock that then remain available for
issuance under the Plan.   No further
awards shall be granted under the Predecessor Plans after the dates specified
in Section 17.1.


 


3.2                                 Additional Shares. 
If restricted shares or shares of Common Stock issued upon the exercise
of options under this Plan or the Predecessor Plans are forfeited or
repurchased, then such shares of Common Stock shall again become available for
Stock Awards under this Plan.  If stock
units, options or stock appreciation rights under this Plan or the Predecessor
Plans are forfeited, settled in cash (in whole or in part) or terminate for any
other reason before being exercised, then the corresponding shares of Common
Stock shall again become available for


 






(1) The history of the Plan’s share reserve prior to January 1, 2010
includes the following: (i) an initial share reserve of 13,034,369 shares
(consisting of 3,700,000 shares plus 9,334,369 shares remaining available for
issuance under the Pre-IPO Plans on the date of effectiveness of the IPO) and
(ii) an increase of 3,500,000 shares approved by the Compensation Committee of
the Board of Directors on November 29, 2006 and the Board of Directors on
December 6, 2006 (all  share numbers in
clause (i) reflect the reverse stock split approved in connection with the
Corporation’s IPO).


 


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Stock Awards under
this Plan.  Notwithstanding anything to
the contrary contained herein, on or after January 1, 2010, the following
shares of Common Stock shall not be added back to the number of shares
available for Stock Awards under Section 3.1:  (i) shares tendered by a Participant or
withheld by the Corporation in payment of the exercise price of an option
granted under this Plan or the Predecessor Plans, or to satisfy any tax
withholding obligation with respect to a stock award granted under this Plan or
the Predecessor Plans, (ii) shares subject to a stock appreciation right
issued under this Plan or the Predecessor Plans that are not issued in
connection with the stock settlement of the stock appreciation right on
exercise thereof and (iii) shares reacquired by the Corporation on the
open market or otherwise using cash proceeds from the exercise of an option
granted under this Plan or the Predecessor Plans.  On or after January 1, 2010, any shares
that again become available for Stock Awards under this Section 3.2 shall
be added back as (i) one share if such shares were subject to options or
stock appreciation rights granted under this Plan or the Predecessor Plans and (ii) 1.45
shares if such shares were subject to stock awards other than options or stock
appreciation rights that were granted under this Plan or the Predecessor Plans.


 


3.3                                 Shares Subject to Substituted
Awards.  The number of shares of Common Stock subject to
Substitute Awards granted by the Corporation shall not reduce the number of
shares of Common Stock that may be issued under Section 3.1, nor shall
shares subject to Substitute Awards again be available for Awards under the
Plan to the extent of any forfeiture, expiration or cash settlement as provided
under Section 3.2.


 


ARTICLE
IV.                                               ELIGIBILITY.


 


4.1                                 Incentive Stock Options. 
Only Employees who are common-law employees of the Corporation, a Parent
or a Subsidiary shall be eligible for the grant of ISOs.  In addition, an Employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Corporation or any of its Parents or Subsidiaries shall not be eligible for
the grant of an ISO unless the requirements set forth in section 422(c)(6) of
the Code are satisfied.


 


4.2                                 Other Grants. 
Awards other than ISOs may only be granted to Employees, Outside
Directors and Consultants.


 


ARTICLE
V.                                                   OPTIONS.


 


5.1                                 Stock Option Agreement. 
Each grant of an Option under the Plan shall be evidenced by a Stock
Option Agreement between the Optionee and the Corporation.  Such Option shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan.  The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO.  The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.  Options may be granted in consideration of a
reduction in the Optionee’s other compensation.


 


5.2                                 Number of Shares. 
Each Stock Option Agreement shall specify the number of shares of Common
Stock subject to the Option and shall provide for the adjustment of such number
in accordance with Article 11. 
Options granted to any Optionee in a single fiscal year of


 


3

















 


the Corporation
shall not cover more than 1,500,000 shares of Common Stock, except that Options
granted to a new Employee in the fiscal year of the Corporation in which his or
her service as an Employee first commences shall not cover more than 2,000,000
shares of Common Stock.  The limitations
set forth in the preceding sentence shall be subject to adjustment in
accordance with Article 11.


 


5.3                                 Exercise Price. 
Each Stock Option Agreement shall specify the Exercise Price; provided
that the Exercise Price shall in no event be less than 100% of the Fair Market
Value of a share of Common Stock on the date of grant.   This Section 5.3 shall not apply to an
Option granted pursuant to an assumption of, or substitution for, another
option in a manner that complies with Section 424(a) of the Code
(whether or not the Option is an ISO).


 


5.4                                 Exercisability and Term. 
Each Stock Option Agreement shall specify the date or event when all or
any installment of the Option is to become exercisable.  The Stock Option Agreement shall also specify
the term of the Option; provided that the term of an Option shall in no event
exceed 10 years from the date of grant. 
A Stock Option Agreement may provide for accelerated exercisability in
the event of  a Change in Control, the
Optionee’s death, disability or retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee’s service.  Options may be awarded
in combination with SARs, and such an Award may provide that the Options will
not be exercisable unless the related SARs are forfeited.


 


5.5                                 Modification or Assumption of
Options.  Within the limitations of the Plan, the
Committee may modify, extend, or assume outstanding options.  The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee,
alter or impair his or her rights or obligations under such Option.  Notwithstanding anything in this Plan to the
contrary, and except for the adjustments provided in Articles 10 and 11,
neither the Committee nor any other person may (a) decrease the exercise
price for any outstanding Option after the date of grant, (b) cancel or
allow an optionee to surrender an outstanding Option to the Corporation in
exchange for cash or as consideration for the grant of a new Option with a
lower exercise price or the grant of another type of Award the effect of which
is to reduce the exercise price of any outstanding Option or (c) take any
other action with respect to an Option that would be treated as a repricing
under the rules and regulations of the NASDAQ Stock Market (or such other
principal U.S. national securities exchange on which the Corporation’s Common
Stock is traded).


 


5.6                                 Buyout Provisions. 
Except to the extent prohibited by Section 5.5, the Committee may
at any time (a) offer to buy out for a payment in cash or cash equivalents
an Option previously granted or (b) authorize an Optionee to elect to cash
out an Option previously granted, in either case at such time and based upon
such terms and conditions as the Committee shall establish.


 


ARTICLE VI.                                               PAYMENT FOR OPTION SHARES.


 


6.1                                 General Rule. 
The entire Exercise Price of shares of Common Stock issued upon exercise
of Options shall be payable in cash or cash equivalents at the time such shares
of Common Stock are purchased, except that the Committee at its sole discretion
may accept


 


4

















 


payment of the
Exercise Price in any other form(s) described in this Article 6.  However, if the Optionee is an Outside
Director or executive officer of the Corporation, he or she may pay the
Exercise Price in a form other than cash or cash equivalents only to the extent
permitted by section 13(k) of the Exchange Act.


 


6.2                                 Surrender of Stock. 
With the Committee’s consent, all or any part of the Exercise Price may
be paid by surrendering, or attesting to the ownership of, shares of Common
Stock that are already owned by the Optionee. 
Such shares of Common Stock shall be valued at their Fair Market Value
on the date the new shares of Common Stock are purchased under the Plan.  The Optionee shall not surrender, or attest
to the ownership of, shares of Common Stock in payment of the Exercise Price if
such action would cause the Corporation to recognize compensation expense (or
additional compensation expense) with respect to the Option for financial
reporting purposes.


 


6.3                                 Exercise/Sale. 
With the Committee’s consent, all or any part of the Exercise Price and
any withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to a securities broker approved by the
Corporation to sell all or part of the shares of Common Stock being purchased
under the Plan and to deliver all or part of the sales proceeds to the
Corporation.


 


6.4                                 Exercise/Pledge. 
With the Committee’s consent, all or any part of the Exercise Price and
any withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to pledge all or part of the shares of
Common Stock being purchased under the Plan to a securities broker or lender
approved by the Corporation, as security for a loan, and to deliver all or part
of the loan proceeds to the Corporation.


 


6.5                                 Promissory Note. 
To the extent permitted by Section 13(k) of the Exchange Act,
with the Committee’s consent, all or any part of the Exercise Price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) a full-recourse promissory note. 
However, the par value of the shares of Common Stock being purchased
under the Plan, if newly issued, shall be paid in cash or cash equivalents.


 


6.6                                 Other Forms of Payment. 
With the Committee’s consent, all or any part of the Exercise Price and
any withholding taxes may be paid in any other form that is consistent with
applicable laws, regulations and rules.


 


ARTICLE
VII.                                           STOCK APPRECIATION RIGHTS.


 


7.1                                 SAR Agreement. 
Each grant of an SAR under the Plan shall be evidenced by an SAR
Agreement between the Optionee and the Corporation.  Such SAR shall be subject to all applicable
terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan.  The
provisions of the various SAR Agreements entered into under the Plan need not
be identical.  SARs may be granted in
consideration of a reduction in the Optionee’s other compensation.


 


7.2                                 Number of Shares. 
Each SAR Agreement shall specify the number of shares of Common Stock to
which the SAR pertains and shall provide for the adjustment of such number in
accordance with Article 11.  SARs
granted to any Optionee in a single fiscal year shall in no


 


5
















 


event pertain to
more than 1,500,000 shares of Common Stock, except that SARs granted to a new
Employee in the fiscal year of the Corporation in which his or her service as
an Employee first commences shall not pertain to more than 2,000,000 shares of
Common Stock.  The limitations set forth
in the preceding sentence shall be subject to adjustment in accordance with Article 11.


 


7.3                                 Exercise Price. 
Each SAR Agreement shall specify the Exercise Price which, except with
respect to Substitute Awards, shall not be less than Fair Market Value.  An SAR Agreement may specify an Exercise
Price that varies in accordance with a predetermined formula while the SAR is
outstanding.


 


7.4                                 Exercisability and Term. 
Each SAR Agreement shall specify the date all or any installment of the
SAR is to become exercisable.  The SAR
Agreement shall also specify the term of the SAR; provided that the term of a
SAR shall in no event exceed 10 years from the date of grant.  An SAR Agreement may provide for accelerated
exercisability in the event of a Change in Control, the Optionee’s death,
disability or retirement or other events and may provide for expiration prior
to the end of its term in the event of the termination of the Optionee’s
service.  SARs may be awarded in
combination with Options, and such an Award may provide that the SARs will not
be exercisable unless the related Options are forfeited.  An SAR may be included in an ISO only at the
time of grant but may be included in an NSO at the time of grant or
thereafter.  An SAR granted under the
Plan may provide that it will be exercisable only in the event of a Change in
Control.


 


7.5                                 Exercise of SARs. 
Upon exercise of an SAR, the Optionee (or any person having the right to
exercise the SAR after his or her death) shall receive from the Corporation (a) shares
of Common Stock, (b) cash or (c) a combination of shares of Common
Stock and cash, as the Committee shall determine.  The amount of cash and/or the Fair Market
Value of shares of Common Stock received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on the date
of surrender) of the shares of Common Stock subject to the SARs exceeds the
Exercise Price.  If, on the date an SAR
expires, the Exercise Price under such SAR is less than the Fair Market Value
on such date but any portion of such SAR has not been exercised or surrendered,
then such SAR shall automatically be deemed to be exercised as of such date
with respect to such portion.


 


7.6                                 Modification or Assumption of
SARs.  Within the limitations of the Plan, the
Committee may modify, extend or assume outstanding SARs.  The foregoing notwithstanding, no
modification of an SAR shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such SAR.  Notwithstanding anything in
this Plan to the contrary, and except for the adjustments provided in Articles
10 and 11, neither the Committee nor any other person may (a) decrease the
exercise price for any outstanding SAR after the date of grant, (b) cancel
or allow an Optionee to surrender an outstanding SAR to the Corporation in
exchange for cash or as consideration for the grant of a new SAR with a lower
exercise price or the grant of another type of Award the effect of which is to
reduce the exercise price of any outstanding SAR or (c) take any other
action with respect to a SAR that would be treated as a repricing under the rules and
regulations of the NASDAQ Stock Market (or such other principal U.S. national
securities exchange on which the Corporation’s Common Stock is traded).


 


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ARTICLE
VIII.                                       RESTRICTED SHARES.


 


8.1                                 Restricted Stock Agreement. 
Each grant of Restricted Shares under the Plan shall be evidenced by a
Restricted Stock Agreement between the recipient and the Corporation.  Such Restricted Shares shall be subject to
all applicable terms of the Plan and may be subject to any other terms that are
not inconsistent with the Plan.  The
provisions of the various Restricted Stock Agreements entered into under the
Plan need not be identical.


 


8.2                                 Payment for Awards. 
Subject to the following two sentences, Restricted Shares may be sold or
awarded under the Plan for such consideration as the Committee may determine,
including (without limitation) cash, cash equivalents, property, full-recourse
promissory notes, past services and future services.  To the extent that an Award consists of newly
issued Restricted Shares, the consideration shall consist exclusively of cash,
cash equivalents, property or past services rendered to the Corporation (or a
Parent or Subsidiary) or, for the amount in excess of the par value of such
newly issued Restricted Shares, full-recourse promissory notes.  If the Participant is an Outside Director or
executive officer of the Corporation, he or she may pay for Restricted Shares
with a promissory note only to the extent permitted by section 13(k) of
the Exchange Act.  Within the limitations
of the Plan, the Committee may accept the cancellation of outstanding options
in return for the grant of Restricted Shares.


 


8.3                                 Vesting Conditions. 
Each Award of Restricted Shares may or may not be subject to
vesting.  Vesting shall occur, in full or
in installments, upon satisfaction of the conditions specified in the Restricted
Stock Agreement.  The Committee may
include among such conditions the requirement that the performance of the
Corporation or a business unit of the Corporation for a specified period of one
or more fiscal years equal or exceed a target determined in advance by the
Committee.  The Committee shall determine
such performance.  Such target shall be
based on one or more of the criteria set forth in Appendix A.  The Committee shall identify such target not
later than the 90th day of such period.  Subject to adjustment in accordance with Article 11,
in no event shall more than 1,500,000 Restricted Shares that are subject to
performance-based vesting conditions be granted to any Participant in a single
fiscal year of the Corporation, except that 2,000,000 Restricted Shares may be
granted to a new Employee in the fiscal year of the Corporation in which his or
her service as an Employee first commences. 
A Restricted Stock Agreement may provide for accelerated vesting in the
event of a Change in Control, the Participant’s death, disability or retirement
or other events.


 


8.4                                 Voting and Dividend Rights. 
The holders of Restricted Shares awarded under the Plan shall have the
same voting, dividend and other rights as the Corporation’s other
stockholders.  A Restricted Stock
Agreement, however, may require that the holders of Restricted Shares invest
any cash dividends received in additional Restricted Shares.  Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.  Cash
dividends with respect to any Restricted Shares and any other property (other
than cash) distributed as a dividend or otherwise with respect to Restricted
Shares that vest based on the achievement of performance goals shall be
accumulated, shall be subject to restrictions and risk of forfeiture to the
same extent as the Restricted Shares with respect to which such cash, shares or
other property has been distributed and shall be paid at the time such
restrictions and risk of forfeiture lapse.


 


7

















 


ARTICLE
IX.                                               STOCK UNITS AND PERFORMANCE CASH
AWARDS.


 


9.1                                 Stock Unit Agreement. 
Each grant of Stock Units under the Plan shall be evidenced by a Stock
Unit Agreement between the recipient and the Corporation.  Such Stock Units shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan.  The
provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical.  Stock Units may
be granted in consideration of a reduction in the recipient’s other
compensation.


 


9.2                                 Payment for Awards. 
To the extent that an Award is granted in the form of Stock Units, no
cash consideration shall be required of the Award recipients.


 


9.3                                 Vesting Conditions. 
Each Award of Stock Units may or may not be subject to vesting.  Vesting shall occur, in full or in
installments, upon satisfaction of the conditions specified in the Stock Unit
Agreement.  The Committee may include
among such conditions the requirement that the performance of the Corporation
or a business unit of the Corporation for a specified period of one or more
fiscal years equal or exceed a target determined in advance by the Committee.  The Committee shall determine such
performance.  Such target shall be based
on one or more of the criteria set forth in Appendix A.  The Committee shall identify such target not
later than the 90th day of such period.  Subject to adjustment in accordance with Article 11,
in no event shall more than 1,500,000 Stock Units that are subject to
performance-based vesting conditions be granted to any Participant in a single
fiscal year of the Corporation, except that up to 2,000,000 Stock Units subject
to performance-based vesting conditions may be granted to a new Employee in the
fiscal year of the Corporation in which his or her Service first
commences.  A Stock Unit Agreement may
provide for accelerated vesting in the event of a Change in Control, the
Participant’s death, disability or retirement or other events.


 


9.4                                 Voting and Dividend Rights. 
The holders of Stock Units shall have no voting rights.  Prior to settlement or forfeiture, any Stock
Unit awarded under the Plan may, at the Committee’s discretion, carry with it a
right to dividend equivalents.  Such
right entitles the holder to be credited with an amount equal to all cash
dividends paid on one share of Common Stock while the Stock Unit is
outstanding.  Dividend equivalents may be
converted into additional Stock Units. 
Settlement of dividend equivalents may be made in the form of cash, in
the form of shares of Common Stock, or in a combination of both.  Prior to distribution, any dividend
equivalents which are not paid shall be subject to the same conditions and
restrictions as the Stock Units to which they attach.  Notwithstanding the foregoing, dividend
equivalents with respect to any Stock Units that vest based on the achievement
of performance goals shall be subject to the same conditions and restrictions
as the Stock Units to which they attach.


 


9.5                                 Form and Time of Settlement
of Stock Units.  Settlement of vested Stock Units may be made
in the form of (a) cash, (b) shares of Common Stock or (c) any
combination of both, as determined by the Committee.  The actual number of Stock Units eligible for
settlement may be larger or smaller than the number included in the original
Award, based on predetermined performance factors.  Methods of converting Stock Units into cash
may include (without limitation) a method based on the average Fair Market
Value of shares of Common Stock over a series of trading days.  Vested Stock Units may be settled in a lump
sum or in installments.  The distribution
may occur or commence when all vesting conditions applicable to


 


8

















 


the Stock Units
have been satisfied or have lapsed, or it may be deferred to any later
date.  The amount of a deferred
distribution may be increased by an interest factor or by dividend equivalents.  Until an Award of Stock Units is settled, the
number of such Stock Units shall be subject to adjustment pursuant to Article 11.


 


9.6                                 Death of Recipient. 
Any Stock Units Award that becomes payable after the recipient’s death
shall be distributed to the recipient’s beneficiary or beneficiaries.  Each recipient of a Stock Units Award under
the Plan shall designate one or more beneficiaries for this purpose by filing
the prescribed form with the Corporation. 
A beneficiary designation may be changed by filing the prescribed form
with the Corporation at any time before the Award recipient’s death.  If no beneficiary was designated or if no
designated beneficiary survives the Award recipient, then any Stock Units Award
that becomes payable after the recipient’s death shall be distributed to the
recipient’s estate.


 


9.7                                 Creditors’ Rights. 
A holder of Stock Units shall have no rights other than those of a
general creditor of the Corporation. 
Stock Units represent an unfunded and unsecured obligation of the Corporation,
subject to the terms and conditions of the applicable Stock Unit Agreement.


 


9.8                                 Performance Cash Awards. 
A Performance Cash Award is a cash award that may be granted upon the
attainment of certain performance goals for a specified performance period of
one or more fiscal years.  The Committee
shall determine such performance.  The
goals applicable to a Performance Cash Award shall be based on one or more of
the criteria set forth in Appendix A. 
The Committee shall determine such goals no later than the 90th day of such
period.  Each Performance Cash Award
shall be set forth in a written agreement or in a resolution duly adopted by
the Committee which shall contain provisions determined by the Committee and
not inconsistent with the Plan.  The
terms of various Performance Cash Awards need not be identical.  The maximum amount that may be paid to any
Participant for each fiscal year of the Corporation in a performance period
attributable to Performance Cash Awards shall not exceed $2,000,000.  The Committee may determine, at the time of
granting a Performance Cash Award or thereafter, that all or part of such
Performance Cash Award shall become earned and payable in the event that the
Corporation is subject to a Change in Control before the Participant’s service
terminates or as otherwise determined by the Committee in special
circumstances.


 


ARTICLE
X.                                                   CHANGE IN CONTROL.


 


10.1                           Effect of Change in Control. 
Unless the Committee provides otherwise in a Stock Option Agreement, SAR
Agreement, Restricted Stock Agreement or Stock Unit Agreement, in the event of
any Change in Control, each outstanding Stock Award shall automatically
accelerate so that each such Stock Award shall, immediately prior to the
effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such Stock Award and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock.  However, an outstanding Stock
Award shall not so accelerate if and to the
extent such Stock Award is, in connection with the Change in Control, either to
be assumed by the successor corporation (or parent thereof) or to be replaced
with a comparable Stock Award for shares of the capital stock of the successor
corporation (or parent


 


9

















 


thereof).  The determination of award comparability
shall be made by the Committee, and its determination shall be final, binding
and conclusive.


 


10.2                           Acceleration.   The Committee shall have the discretion, exercisable
either at the time the Stock Award is granted or at any time while the Stock
Award remains outstanding, to provide for the automatic acceleration of vesting
upon the occurrence of a Change in Control, whether or not the Stock Award is
to be assumed or replaced in the Change in Control.


 


ARTICLE
XI.                                               PROTECTION AGAINST DILUTION.


 


11.1                           Adjustments. 
In the event of a subdivision of the outstanding shares of Common Stock,
a declaration of a dividend payable in shares of Common Stock, a declaration of
a dividend payable in a form other than shares of Common Stock in an amount
that has a material affect on the price of shares of Common Stock, a
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common Stock,
a recapitalization, a spin-off or a similar occurrence, corresponding
adjustments shall automatically be made in each of the following:


 


(a)                                  The number of Options, SARs, Restricted
Shares and Stock Units available for future Stock Awards under Article 3,
including the limitation on the number of ISOs in Section 3.1;


 


(b)                                 The limitations set forth in
Sections 5.2, 7.2, 8.3 and 9.3;


 


(c)                                  The number of shares of Common Stock
covered by each outstanding Option and SAR;


 


(d)                                 The Exercise Price under each outstanding
Option and SAR; or


 


(e)                                  The number of Stock Units included in any
prior Award which has not yet been settled.


 


Except as provided in this Article 11, a
Participant shall have no rights by reason of any issue by the Corporation of
stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.


 


11.2                           Dissolution or Liquidation. 
To the extent not previously exercised or settled, Options, SARs and
Stock Units shall terminate immediately prior to the dissolution or liquidation
of the Corporation.


 


11.3                           Reorganizations. 
In the event that the Corporation is a party to a merger or
consolidation, all outstanding Stock Awards shall be subject to the agreement
of merger or consolidation.  Such
agreement shall provide for one or more of the following:


 


(a)                                  The continuation of such outstanding
Stock Awards by the Corporation (if the Corporation is the surviving
corporation).


 


10

















 


(b)                                 The assumption of such outstanding Stock
Awards by the surviving corporation or its parent (in a manner that complies
with section 424(a) of the Code with respect to Options).


 


(c)                                  The substitution by the surviving
corporation or its parent of new awards for such outstanding Stock Awards (in a
manner that complies with section 424(a) of the Code with respect to
Options).


 


(d)                                 Full exercisability of such outstanding
Stock Awards and full vesting of the shares of Common Stock subject to such
Stock Awards, followed by the cancellation of such Stock Awards.  The full exercisability of such Stock Awards
and full vesting of the shares of Common Stock subject to such Stock Awards may
be contingent on the closing of such merger or consolidation.  The Participants shall be able to exercise
such Stock Awards during a period of not less than five full business days
preceding the closing date of such merger or consolidation, unless (i) a
shorter period is required to permit a timely closing of such merger or
consolidation and (ii) such shorter period still offers the Participants a
reasonable opportunity to exercise such Stock Awards.  Any exercise of such Stock Awards during such
period may be contingent on the closing of such merger or consolidation.


 


(e)                                  The cancellation of such outstanding
Stock Awards and a payment to the Participants equal to the excess of (i) the
Fair Market Value of the shares of Common Stock subject to such Stock Awards
(whether or not such Stock Awards are then exercisable or such shares of Common
Stock are then vested) as of the closing date of such merger or consolidation
over (ii) their Exercise Price.  Such payment shall be made in the form of
cash, cash equivalents, or securities of the surviving corporation or its
parent with a Fair Market Value equal to the required amount.  Such payment may be made in installments and
may be deferred until the date or dates when such Stock Awards would have
become exercisable or such shares of Common Stock would have vested.  Such payment may be subject to vesting based
on the Optionee’s continuing service, provided that the vesting schedule shall
not be less favorable to the Participants than the schedule under which such
Stock Awards would have become exercisable or such shares of Common Stock would
have vested.  If the Exercise Price of
the shares of Common Stock subject to such Stock Awards exceeds the Fair Market
Value of such shares of Common Stock, then such Stock Awards may be cancelled
without making a payment to the Participants. 
For purposes of this Subsection (e), the Fair Market Value of any
security shall be determined without regard to any vesting conditions that may
apply to such security.


 


ARTICLE
XII.                                           DEFERRAL OF AWARDS.


 


The Committee (in its sole discretion) may permit or
require a Participant to:


 


(a)                                  Have cash that otherwise would be paid to
such Participant as a result of the exercise of an SAR or the settlement of
Stock Units credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Corporation’s books;


 


11

















 


(b)                                 Have shares of Common Stock that otherwise
would be delivered to such Participant as a result of the exercise of an Option
or SAR converted into an equal number of Stock Units; or


 


(c)                                  Have shares of Common Stock that
otherwise would be delivered to such Participant as a result of the exercise of
an Option or SAR or the settlement of Stock Units converted into amounts
credited to a deferred compensation account established for such Participant by
the Committee as an entry on the Corporation’s books.  Such amounts shall be determined by reference
to the Fair Market Value of such shares of Common Stock as of the date they
otherwise would have been delivered to such Participant.


 


A deferred compensation account established under this
Article 12 may be credited with interest or other forms of investment
return, as determined by the Committee. 
A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Corporation.  Such an account shall represent an unfunded
and unsecured obligation of the Corporation and shall be subject to the terms
and conditions of the applicable agreement between such Participant and the
Corporation.  If the deferral or
conversion of Awards is permitted or required, the Committee (in its sole
discretion) may establish rules, procedures and forms pertaining to such
Awards, including (without limitation) the settlement of deferred compensation
accounts established under this Article 12.


 


ARTICLE
XIII.                                       AWARDS UNDER OTHER PLANS.


 


The Corporation may grant awards under other plans or
programs.  Such awards may be settled in
the form of shares of Common Stock issued under this Plan.  Such shares of Common Stock shall be treated
for all purposes under the Plan like shares of Common Stock issued in
settlement of Stock Units and shall, when issued, reduce the number of shares
of Common Stock available under Article 3.


 


ARTICLE
XIV.                                      PAYMENT OF FEES IN SECURITIES.


 


14.1                           Effective Date. 
No provision of this Article 14 shall be effective unless and until
the Board has determined to implement such provision.


 


14.2                           Elections to Receive NSOs,
Restricted Shares or Stock Units.  An Outside
Director may elect to receive his or her annual retainer payments or meeting
fees from the Corporation in the form of cash, NSOs, Restricted Shares or Stock
Units, or a combination thereof, as determined by the Board.  Such NSOs, Restricted Shares and Stock Units
shall be issued under the Plan.  An
election under this Article 14 shall be filed with the Corporation on the
prescribed form.


 


14.3                           Number and Terms of NSOs,
Restricted Shares or Stock Units.  The number of
NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in
lieu of annual retainers or meeting fees that would otherwise be paid in cash
shall be calculated in a manner determined by the Board.  The Board shall also determine the terms of
such NSOs, Restricted Shares or Stock Units.


 


12

















 


ARTICLE
XV.                                          LIMITATION ON RIGHTS.


 


15.1                           Retention Rights. 
Neither the Plan nor any Award granted under the Plan shall be deemed to
give any individual a right to remain an Employee, Outside Director or
Consultant.  The Corporation and its
Parents, Subsidiaries and Affiliates reserve the right to terminate the service
of any Employee, Outside Director or Consultant at any time, with or without
cause, subject to applicable laws, the Corporation’s certificate of
incorporation and by-laws and a written employment agreement (if any).


 


15.2                           Stockholders’ Rights. 
A Participant shall have no dividend rights, voting rights or other
rights as a stockholder with respect to any shares of Common Stock covered by
his or her Award prior to the time a stock certificate for such shares of
Common Stock is issued or, if applicable, the time he or she becomes entitled
to receive such shares of Common Stock by filing any required notice of
exercise and paying any required Exercise Price.  No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.


 


15.3                           Regulatory Requirements. 
Any other provision of the Plan notwithstanding, the obligation of the
Corporation to issue shares of Common Stock under the Plan shall be subject to
all applicable laws, rules and regulations and such approval by any
regulatory body as may be required.  The
Corporation reserves the right to restrict, in whole or in part, the delivery
of shares of Common Stock pursuant to any Award prior to the satisfaction of
all legal requirements relating to the issuance of such shares of Common Stock,
to their registration, qualification or listing or to an exemption from
registration, qualification or listing.


 


15.4                           Transferability of Awards. 
Except as provided below, no Award and no shares subject to Awards that
have not been issued or as to which any applicable restriction, performance or
deferral period has not lapsed, may be sold, assigned, transferred, pledged or
otherwise encumbered, other than by a beneficiary designation, will or the laws
of descent and distribution, and such Award may be exercised during the life of
a Participant only by the Participant or the Participant’s guardian or legal
representative.  To the extent and under
such terms and conditions as determined by the Committee, a Participant may
assign or transfer an Award (each transferee there, a “Permitted Assignee”)
other than an ISO to a “family member” as such term is defined in the General
Instructions to Form S-8 (whether by gift or a domestic relations order);
provided that such Permitted Assignee shall be bound by and subject to all of
the terms and conditions of the Plan and the Award Agreement relating to the
transferred Award and shall execute an agreement satisfactory to the
Corporation evidencing such obligations; and provided further that such
Participant shall remain bound by the terms and conditions of the Plan.


 


ARTICLE
XVI.                                      WITHHOLDING TAXES.


 


16.1                           General. 
To the extent required by applicable federal, state, local or foreign
law, a Participant or his or her successor shall make arrangements satisfactory
to the Corporation for the satisfaction of any withholding tax obligations that
arise in connection with the Plan.  The
Corporation shall not be required to issue any shares of Common Stock or make
any cash payment under the Plan until such obligations are satisfied.


 


13
















 


16.2                           Share Withholding. 
To the extent that applicable law subjects a Participant to tax
withholding obligations, the Committee may permit a Participant to satisfy all
or part of his or her withholding or income tax obligations by having the
Corporation withhold all or a portion of any shares of Common Stock that
otherwise would be issued to him or her or by surrendering all or a portion of
any shares of Common Stock that he or she previously acquired.  Such shares of Common Stock shall be valued
at their Fair Market Value on the date they are withheld or surrendered.


 


ARTICLE
XVII.                                  FUTURE OF THE PLAN.


 


17.1                           Term of the Plan. 
The Plan shall remain in effect until it is terminated under Section 17.2,
except that no ISOs shall be granted on or after the 10th anniversary of the later of (a) the date
the Board adopted the Plan or (b) the date the Board adopted the most
recent increase in the number of shares of Common Stock available under Article 3
which was approved by the Corporation’s stockholders.  No further option grants shall be made under
the Pre-IPO Plans after the Plan effective date.  No further awards shall be made under the
Corporation’s 2008 New Employee Equity Incentive Plan after the date of the
Corporation’s 2010 Annual Meeting of Stockholders, assuming this Plan is
re-approved by the stockholders at such meeting.  All awards outstanding under the Predecessor
Plans as of such dates shall, immediately upon effectiveness of the Plan,
remain outstanding in accordance with their terms.  Each outstanding award under the Predecessor
Plans shall continue to be governed solely by the terms of the documents
evidencing such award, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such awards
with respect to their acquisition of shares of Common Stock, except that the
following vesting acceleration provisions relating to Change in Control shall
be extended to the options outstanding under the Pre-IPO Plans at the IPO: if
the optionee experiences an involuntary termination within three months before
or twenty-four months following a Change in Control, each of such optionee’s
outstanding options shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the termination, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock.


 


17.2                           Amendment or Termination. 
The Board may, at any time and for any reason, amend or terminate the
Plan.  No Awards shall be granted under
the Plan after the termination thereof. 
The termination of the Plan, or any amendment thereof, shall not affect
any Award previously granted under the Plan.


 


17.3                           Stockholder Approval. 
An amendment of the Plan shall be subject to the approval of the
Corporation’s stockholders only to the extent required by applicable laws,
regulations or rules.  However, an
amendment of the last sentence of Section 5.5 or 7.6 is subject to the
approval of the Corporation’s stockholders and section 162(m) of the
Code may require that the Corporation’s stockholders approve:


 


(a)                                  The Plan not later than the first regular
meeting of stockholders that occurs in the fourth calendar year following the
calendar year in which the Corporation’s initial public offering occurred; and


 


14

















 


(b)                                 The performance criteria set forth on
Appendix A not later than the first meeting of stockholders that occurs in the
fifth year following the year in which the Corporation’s stockholders
previously approved such criteria.


 


ARTICLE
XVIII.                              DEFINITIONS.


 


18.1                           “Affiliate”
means any entity other than a Subsidiary, if the Corporation and/or one or more
Subsidiaries own not less than 50% of such entity.


 


18.2                           “Award” means
any award of a Stock Award or a Performance Cash Award under the Plan.


 


18.3                           “Board” means
the Corporation’s Board of Directors, as constituted from time to time.


 


18.4                           “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:


 


(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
Paragraph (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.


 


15

















 


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, as amended (the “Governance Agreement”) to
representation on the Board (and its committees) or (iii) any acquisition
by GSK of securities of the Corporation (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 Corporation’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.


 


18.5                           “Code” means the
Internal Revenue Code of 1986, as amended.


 


18.6                           “Committee”
means a committee of the Board, as described in Article 2.


 


18.7                           “Common Stock”
means the common stock of the Corporation.


 


18.8                           “Corporation”
means Theravance, Inc., a Delaware corporation.


 


18.9                           “Consultant”
means a consultant or adviser who provides bona fide services to the
Corporation, a Parent, a Subsidiary or an Affiliate as an independent
contractor.  Service as a Consultant
shall be considered employment for all purposes of the Plan, except as provided
in Section 4.1.


 


18.10                     “Employee” means
a common-law employee of the Corporation, a Parent, a Subsidiary or an
Affiliate.


 


18.11                     “Exchange Act”
means the Securities Exchange Act of 1934, as amended.


 


18.12                     “Exercise Price,”
in the case of an Option, means the amount for which one share of Common Stock
may be purchased upon exercise of such Option, as specified in the applicable
Stock Option Agreement.  “Exercise Price,”
in the case of an SAR, means an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of one share of
Common Stock in determining the amount payable upon exercise of such SAR.


 


18.13                     “Fair Market Value”
means the closing selling price of one share of Common Stock as reported on
Nasdaq, and if not available, then it shall be determined by the Committee in
good faith on such basis as it deems appropriate.  Whenever possible, the determination of Fair
Market Value by the Committee shall be based on the prices reported in The
Wall Street Journal.  Such
determination shall be conclusive and binding on all persons.


 


18.14                     “IPO” means the
initial public offering of the Corporation’s Common Stock.


 


16

















 


18.15                     “ISO” means an
incentive stock option described in section 422(b) of the Code.


 


18.16                     “NSO” means a
stock option not described in sections 422 or 423 of the Code.


 


18.17                     “Option” means
an ISO or NSO granted under the Plan and entitling the holder to purchase
shares of Common Stock.


 


18.18                     “Optionee” means
an individual who or estate that holds an Option or SAR.


 


18.19                     “Outside Director”
shall mean a member of the Board who is not an Employee.  Service as an Outside Director shall be
considered employment for all purposes of the Plan, except as provided in Section 4.1.


 


18.20                     “Parent” means
any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation, if each of the corporations other
than the Corporation owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.  A corporation that attains the
status of a Parent on a date after the adoption of the Plan shall be considered
a Parent commencing as of such date.


 


18.21                     “Participant”
means an individual who or estate that holds an Award.


 


18.22                     “Performance Cash Award”
means an award of cash granted under Section 9.8 of the Plan.


 


18.23                     “Plan” means
this Theravance, Inc. 2004 Equity Incentive Plan, as amended from time to
time.


 


18.24                     “Predecessor Plans” means the Corporation’s 1997 Stock Plan,
Long-Term Stock Option Plan and 2008 New Employee Equity Incentive Plan.


 


18.25                     “Pre-IPO Plans”
means the Corporation’s 1997 Stock Plan and Long-Term Stock Option Plan.


 


18.26                     “Restricted Share”
means a share of Common Stock awarded under Article 8 of the Plan.


 


18.27                     “Restricted Stock Agreement”
means the agreement between the Corporation and the recipient of a Restricted
Share that contains the terms, conditions and restrictions pertaining to such
Restricted Share.


 


18.28                     “SAR” means a
stock appreciation right granted under the Plan.


 


18.29                     “SAR Agreement”
means the agreement between the Corporation and an Optionee which contains the
terms, conditions and restrictions pertaining to his or her SAR.


 


18.30                     “Stock Award” means
any award of an Option, an SAR, a Restricted Share or a Stock Unit under the
Plan.


 


17

















 


18.31                     “Stock Option Agreement”
means the agreement between the Corporation and an Optionee that contains the
terms, conditions and restrictions pertaining to his or her Option.


 


18.32                     “Stock Unit”
means a bookkeeping entry representing the equivalent of one share of Common
Stock, as awarded under the Plan.


 


18.33                     “Stock Unit Agreement”
means the agreement between the Corporation and the recipient of a Stock Unit
which contains the terms, conditions and restrictions pertaining to such Stock
Unit.


 


18.34                     “Subsidiary”
means any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation, if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.  A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.


 


18.35                     “Substitute Awards”
means Awards or shares of Common Stock issued by the Corporation in assumption
of, or substitution or exchange for, Awards previously granted, or the right or
obligation to make future awards, in each case by a corporation acquired by the
Corporation or any Affiliate or with which the Corporation or any Affiliates
combines to the extent permitted by NASDAQ Marketplace Rule 5635 or any
successor thereto.


 


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Appendix A


 


PERFORMANCE CRITERIA


FOR RESTRICTED SHARES, STOCK UNITS AND PERFORMANCE
CASH AWARDS


 


The performance goals
that may be used by the Committee for such awards shall consist of:  stock price; net sales; revenue; revenue
growth or product revenue growth; operating income (before or after taxes);
pre- or after-tax income or loss (before or after allocation of corporate
overhead and bonus); earnings or loss per share; net income or loss (before or
after taxes); return on equity; total stockholder return; return on assets or
net assets; appreciation in and/or maintenance of the price of the Shares or
any other publicly-traded securities of the Corporation; market share; gross
profits; net profits; earnings or losses (including earnings or losses before
taxes, before interest and taxes, or before interest, taxes, depreciation and
amortization); economic value-added models or equivalent metrics; comparisons
with various stock market indices; reductions in costs; cash flow or cash flow
per share (before or after dividends); return on capital (including return on
total capital or return on invested capital); cash flow return on investment;
improvement in or attainment of expense levels or working capital levels,
including cash, inventory and accounts receivable; operating margin; gross
margin; year-end cash; cash margin; debt reduction; stockholders equity;
operating efficiencies; market share; customer satisfaction; customer growth;
employee satisfaction; drug development milestones; regulatory achievements
(including submitting or filing applications or other documents with regulatory
authorities, successfully executing an advisory committee meeting, or receiving
approval of any such applications or other documents and passing pre-approval
inspections (whether of the Corporation or the Corporation’s third-party
manufacturer) and validation of manufacturing processes (whether the
Corporation’s or the Corporation’s third-party manufacturer’s); initiation or
completion of pre-clinical studies; clinical achievements (including initiating
clinical studies; initiating enrollment, completing enrollment or enrolling
particular numbers of subjects in clinical studies; completing phases of a
clinical study (including the treatment phase); or announcing or presenting
preliminary or final data from clinical studies; in each case, whether on
particular timelines or generally); strategic partnerships or transactions
(including in-licensing and out-licensing of intellectual property;
establishing relationships with commercial entities with respect to the
marketing, distribution and sale of the Corporation’s products or development
candidates (including with group purchasing organizations, distributors and
other vendors); supply chain achievements (including establishing relationships
with manufacturers or suppliers of component materials and manufacturers of the
Corporation’s products or development candidates); co-development,
co-marketing, profit sharing, joint venture or other similar arrangements);
financial ratios, including those measuring liquidity, activity, profitability
or leverage; cost of capital or assets under management; financing and other
capital raising transactions (including sales of the Corporation’s equity or
debt securities; factoring transactions; sales or licenses of the Corporation’s
assets, including its intellectual property, whether in a particular
jurisdiction or territory or globally; or through partnering transactions);
implementation, completion or attainment of measurable objectives with respect
to research (including nominating a development candidate or initiating a new
full discovery program), development, manufacturing (including initiating
formulation or device development work or finalizing API or drug product
processes), commercialization, development candidates, products


 


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or projects, safety,
production volume levels, acquisitions and divestitures; factoring
transactions; and recruiting and maintaining personnel.  In the areas of development, regulatory
progress and commercialization, the achievements described above performed by a
third party with which the Corporation has a licensing or collaborative
agreement (a “Partner”) shall apply to the Corporation.  For example, if a Partner accomplishes
development milestones, regulatory achievements, commercialization or sales
targets with an asset within a program that is a subject of the licensing or
collaboration agreement between the Corporation and the Partner, then such
Partner’s accomplishments shall constitute achievements of the
Corporation.  Such performance goals also
may be based solely by reference to the Corporation’s performance or the
performance of a Subsidiary, division, business segment or business unit of the
Corporation, or based upon the relative performance of other companies or upon
comparisons of any of the indicators of performance relative to other
companies.  To the extent consistent with
section 162(m) of the Code, the Committee may adjust the results
under any performance criterion to exclude any of the following events that
occurs during a performance measurement period: (a) asset write-downs, (b) litigation,
claims, judgments or settlements, (c) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (d) accruals for reorganization and restructuring programs and (e) any
extraordinary, unusual or non-recurring items.


 


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