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Exhibit 10.3    
    


 
 

THERAVANCE, INC.
  
    2004 EQUITY INCENTIVE PLAN
  
    (AS ADOPTED MAY 27, 2004)    
    







 
 
 

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	 	1
	

ARTICLE III. SHARES AVAILABLE FOR GRANTS	
 	

1
	 	3.1 Basic Limitation	 	1
	 	3.2 Additional Shares	 	2
	 	3.3 Dividend Equivalents	 	2
	 	3.4 Shares Subject to Substituted Options	 	2
	

ARTICLE IV. ELIGIBILITY	
 	

2
	 	4.1 Incentive Stock Options	 	2
	 	4.2 Other Grants	 	2
	

ARTICLE V. OPTIONS	
 	

2
	 	5.1 Stock Option Agreement	 	2
	 	5.2 Number of Shares	 	3
	 	5.3 Exercise Price	 	3
	 	5.4 Exercisability and Term	 	3
	 	5.5 Modification or Assumption of Options	 	3
	 	5.6 Buyout Provisions	 	3
	

ARTICLE VI. PAYMENT FOR OPTION SHARES	
 	

3
	 	6.1 General Rule	 	3
	 	6.2 Surrender of Stock	 	3
	 	6.3 Exercise/Sale	 	3
	 	6.4 Exercise/Pledge	 	4
	 	6.5 Promissory Note	 	4
	 	6.6 Other Forms of Payment	 	4
	

ARTICLE VII. STOCK APPRECIATION RIGHTS	
 	

4
	 	7.1 SAR Agreement	 	4
	 	7.2 Number of Shares	 	4
	 	7.3 Exercise Price	 	4
	 	7.4 Exercisability and Term	 	4
	 	7.5 Exercise of SARs	 	4
	 	7.6 Modification or Assumption of SARs	 	5
	

ARTICLE VIII. RESTRICTED SHARES	
 	

5
	 	8.1 Restricted Stock Agreement	 	5
	 	8.2 Payment for Awards	 	5
	 	8.3 Vesting Conditions	 	5
	 	8.4 Voting and Dividend Rights	 	5
	 	 	 






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ARTICLE IX. STOCK UNITS	
 	

6
	 	9.1 Stock Unit Agreement	 	6
	 	9.2 Payment for Awards	 	6
	 	9.3 Vesting Conditions	 	6
	 	9.4 Voting and Dividend Rights	 	6
	 	9.5 Form and Time of Settlement of Stock Units	 	6
	 	9.6 Death of Recipient	 	7
	 	9.7 Creditors' Rights	 	7
	

ARTICLE X. CHANGE IN CONTROL	
 	

7
	 	10.1 Effect of Change in Control	 	7
	 	10.2 Acceleration	 	7
	

ARTICLE XI. PROTECTION AGAINST DILUTION	
 	

7
	 	11.1 Adjustments	 	7
	 	11.2 Dissolution or Liquidation	 	8
	 	11.3 Reorganizations	 	8
	

ARTICLE XII. DEFERRAL OF AWARDS	
 	

8
	

ARTICLE XIII. AWARDS UNDER OTHER PLANS	
 	

9
	

ARTICLE XIV. PAYMENT OF FEES IN SECURITIES	
 	

9
	 	14.1 Effective Date	 	9
	 	14.2 Elections to Receive NSOs, Restricted Shares or Stock Units	 	9
	 	14.3 Number and Terms of NSOs, Restricted Shares or Stock Units	 	9
	

ARTICLE XV. LIMITATION ON RIGHTS	
 	

9
	 	15.1 Retention Rights	 	9
	 	15.2 Stockholders' Rights	 	9
	 	15.3 Regulatory Requirements	 	10
	

ARTICLE XVI. WITHHOLDING TAXES	
 	

10
	 	16.1 General	 	10
	 	16.2 Share Withholding	 	10
	

ARTICLE XVII. FUTURE OF THE PLAN	
 	

10
	 	17.1 Term of the Plan	 	10
	 	17.2 Amendment or Termination	 	10
	 	17.3 Stockholder Approval	 	11
	

ARTICLE XVIII. DEFINITIONS	
 	

11




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THERAVANCE, INC.
  2004 EQUITY INCENTIVE PLAN    
    


 
  ARTICLE I. INTRODUCTION.    
    


        The Plan was adopted by the Board to be effective at the IPO. 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 Awards in the form of Restricted Shares, Stock Units, Options (which may constitute incentive stock options or
nonstatutory stock options) or stock appreciation rights. 


        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 Awards granted under the Plan shall not exceed (a)
                         shares plus the number of
shares remaining available for issuance under the 1997 Stock Plan and the Long-Term Stock 







 

Option
Plan and (b) the additional shares of Common Stock described in Sections 3.2 and 3.4. Not more
than                        shares may be issued in the aggregate pursuant to SARs, Stock Units,
and Restricted Share Awards. 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. 



        3.2   Additional Shares.    If Restricted Shares or shares of Common Stock issued upon the exercise of Options under
this Plan, the 1997 Stock Plan, or the Long-Term Stock Option Plan are forfeited or repurchased, then such shares of Common Stock shall again become available for Awards under this Plan.
If Stock Units, Options or SARs under this Plan, the 1997 Stock Plan, or the Long-Term Stock Option Plan are forfeited or terminate for any other reason before being exercised, then the
corresponding shares of Common Stock shall again become available for Awards under this Plan. If Stock Units are settled, then only the number of shares of Common Stock (if any) actually issued in
settlement of such Stock Units shall reduce the number available under Section 3.1 and the balance shall again become available for Awards under the Plan. If SARs are exercised, then only the
number of shares of Common Stock (if any) actually issued in settlement of such SARs shall reduce the number available under Section 3.1 and the balance shall again become available for Awards
under the Plan. 


        3.3   Dividend Equivalents.    Any dividend equivalents paid or credited under the Plan shall not be applied against
the number of Restricted Shares, Stock Units, Options or SARs available for Awards, whether or not such dividend equivalents are converted into Stock Units. 



        3.4   Shares Subject to Substituted Options.    The number of shares or Common Stock subject to Options granted by
the Corporation shall not reduce the number of shares of Common Stock that may be issued under Section 3.1 if (a) the Corporation or a Subsidiary is a party to a transaction with another
corporation described in section 424(a) of the Code, (b) employees or independent contractors of such corporation hold options to purchase shares of such corporation's stock that are
cancelled as part of such transaction and (c) the Corporation grants Options under the Plan to such employees or independent contractors to replace the cancelled options in accordance with
section 424(a) of the Code (whether or not such Options are ISOs). 


 
 

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.    Only Employees, Outside Directors and Consultants shall be eligible for the grant of
Restricted Shares, Stock Units, NSOs or SARs. 


 
 

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. 


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        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 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. 


        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 ISO 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 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,
reprice or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Corporation or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise price. 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. 


        5.6   Buyout Provisions.    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 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 


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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.    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 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. 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. An SAR Agreement may provide for accelerated exercisability in the event of 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 


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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 or may accept the cancellation of outstanding SARs (whether granted by the Corporation or by another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. 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. 


 
 

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. A Restricted Stock Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. 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 Corporation's independent auditors shall determine such performance.
Such target shall be based on one or more of the criteria set forth in Section 9.2. 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 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. 


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ARTICLE IX. STOCK UNITS.    
    


        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.
Stock Units granted to a recipient may in no event pertain to more than $10,000,000 in a single fiscal year. 


        9.d2 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. Except in cases of certain terminations of employment or an extraordinary event, each grant of Stock Units shall be earned and vest over a
period defined by the Committee at the time of grant and governed by such conditions, restrictions and contingencies as the Committee shall determine. These may include continuous service and/or the
achievement of performance goals. The performance goals that may be used by the Committee for such awards shall consist of: operating profits (including EBITDA), net profits, earnings per share,
profit returns and margins, revenues, shareholder return and/or value, stock price and working capital. Performance goals may be measured solely on a corporate, subsidiary or business unit basis, or a
combination thereof. Further, performance criteria may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group of entities or other
external measure of the selected performance criteria. Profit, earnings and revenues used for any performance goal measurement shall exclude: gains or losses on operating asset sales or dispositions;
asset write-downs; litigation or claim judgments or settlements; accruals for historic environmental obligations; effect of changes in tax law or rate on deferred tax liabilities; accruals for
reorganization and restructuring programs; uninsured catastrophic property losses; the cumulative effect of changes in accounting principles; and any extraordinary non-recurring items as
described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial performance appearing in the Corporation's annual report to shareholders for
the applicable year. 


        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. A Stock Unit Agreement may provide for accelerated vesting in the event of 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. 



        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 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 


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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. 


 
 

ARTICLE X. CHANGE IN CONTROL.    
    


        10.1 Effect of Change in Control.    In the event of any Change in Control, each outstanding Award shall
automatically accelerate so that each such 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 Award and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding Award shall  not so accelerate if and to the extent such 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 Award for shares of the capital stock of the successor corporation (or parent 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 Award is granted
or at any time while the Award remains outstanding, to provide for the automatic acceleration of vesting upon the occurrence of a Change in Control, whether or not the 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, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of: 



        (a)   The
number of Options, SARs, Restricted Shares and Stock Units available for future Awards under Article 3; 


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


        (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 


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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
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 Awards by the Corporation (if the Corporation is the surviving corporation). 


        (b)   The
assumption of such outstanding 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 Awards (in a manner that complies with section 424(a) of the Code
with respect to Options). 


        (d)   Full
exercisability of such outstanding Awards and full vesting of the shares of Common Stock subject to such Awards, followed by the cancellation of such Awards. The
full exercisability of such Awards and full vesting of the shares of Common Stock subject to such Awards may be contingent on the closing of such merger or consolidation. The Participants shall be
able to exercise such 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 Awards. Any exercise of such Awards
during such period may be contingent on the closing of such merger or consolidation. 



        (e)   The
cancellation of such outstanding 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 Awards (whether or not such 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 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 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 Awards exceeds the Fair Market Value of such shares of Common Stock, then such 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; 



        (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 



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        (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. 


 
 

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. 


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        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. 


 
 

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. 


        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, as set forth herein, shall become effective on the date of effectiveness of the
IPO. 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 10thanniversary 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. The Plan shall serve as the successor to the Predecessor Plans, and no further option grants shall be made under the Predecessor Plans after the Plan effective date. All
options outstanding under the Predecessor Plans as of such date shall, immediately upon effectiveness of the Plan, remain outstanding in accordance with their terms. Each outstanding option under the
Predecessor Plans shall continue to be governed solely by the terms of the documents evidencing such option, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such options 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 Predecessor 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, provided
that no options accelerated pursuant to the foregoing provision may become exercisable prior to September 1, 2007. 



        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. 


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        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, 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 


        (b)   The
performance criteria set forth in Article 9.2 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 an Option, an SAR, a Restricted Share or a Stock Unit 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 35% 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. 




Notwithstanding
anything to the contrary herein, any stock purchase by SmithKline Beecham Corporation, a Pennsylvania corporation ("GSK"), pursuant to the Class A Common Stock Purchase 


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Agreement
dated as of March 30, 2004 or (ii) the exercise by GSK of any of its rights under the Governance Agreement dated as of May 11, 2004 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) 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. 


        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 market price of one share of Common Stock, 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. 


        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. 


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        18.22 "Plan" means this Theravance, Inc. 2004 Equity Incentive Plan, as amended from time to time. 


        18.23 "Predecessor Plans" means the Corporation's existing 1997 Stock Plan and Long-Term Stock Option Plan. 



        18.24 "Restricted Share" means a share of Common Stock awarded under Article 8 of the Plan. 


        18.25 "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. 


        18.26 "SAR" means a stock appreciation right granted under the Plan. 



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


        18.28 "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. 


        18.29 "Stock Unit" means a bookkeeping entry representing the equivalent of one share of Common Stock, as awarded under the
Plan. 


        18.30 "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. 


        18.31 "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. 


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QuickLinks



Exhibit 10.3


THERAVANCE, INC. 2004 EQUITY INCENTIVE PLAN (AS ADOPTED MAY 27, 2004)

TABLE OF CONTENTS



THERAVANCE, INC. 2004 EQUITY INCENTIVE PLAN


ARTICLE I. INTRODUCTION.

ARTICLE II. ADMINISTRATION.

ARTICLE III. SHARES AVAILABLE FOR GRANTS.

ARTICLE IV. ELIGIBILITY.

ARTICLE V. OPTIONS.

ARTICLE VI. PAYMENT FOR OPTION SHARES.

ARTICLE VII. STOCK APPRECIATION RIGHTS.

ARTICLE VIII. RESTRICTED SHARES.

ARTICLE IX. STOCK UNITS.

ARTICLE X. CHANGE IN CONTROL.

ARTICLE XI. PROTECTION AGAINST DILUTION.

ARTICLE XII. DEFERRAL OF AWARDS.

ARTICLE XIII. AWARDS UNDER OTHER PLANS.

ARTICLE XIV. PAYMENT OF FEES IN SECURITIES.

ARTICLE XV. LIMITATION ON RIGHTS.

ARTICLE XVI. WITHHOLDING TAXES.

ARTICLE XVII. FUTURE OF THE PLAN.

ARTICLE XVIII. DEFINITIONS.