Document:

Exhibit 10.38

 

THERAVANCE, INC.

 

2012 EQUITY INCENTIVE PLAN

 

(AS ADOPTED EFFECTIVE MAY 16, 2012)

 

 

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
    	
4
    
	
5.1
    	
Stock Option Agreement
    	
4
    
	
5.2
    	
Number of Shares
    	
4
    
	
5.3
    	
Exercise Price
    	
4
    
	
5.4
    	
Exercisability and Term
    	
4
    
	
5.5
    	
Modification or Assumption of Options
    	
4
    
	
5.6
    	
Buyout Provisions
    	
5
    
	
 
    	
 
    	
 
    
	
ARTICLE VI.
    	
PAYMENT FOR OPTION SHARES
    	
5
    
	
6.1
    	
General Rule
    	
5
    
	
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
    	
6
    
	
 
    	
 
    	
 
    
	
ARTICLE VII.
    	
STOCK APPRECIATION RIGHTS
    	
6
    
	
7.1
    	
SAR Agreement
    	
6
    
	
7.2
    	
Number of Shares
    	
6
    
	
7.3
    	
Exercise Price
    	
6
    
	
7.4
    	
Exercisability and Term
    	
6
    
	
7.5
    	
Exercise of SARs
    	
6
    
	
7.6
    	
Modification or Assumption of SARs
    	
7
    
	
7.7
    	
Buyout Provisions
    	
7
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII.
    	
RESTRICTED SHARES
    	
7
    
	
8.1
    	
Restricted Stock Agreement
    	
7
    
	
8.2
    	
Payment for Awards
    	
7
    
	
8.3
    	
Vesting Conditions
    	
7
    
	
8.4
    	
Voting and Dividend Rights
    	
8
    

 

 

	
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
    	
9
    
	
9.5
    	
Form and Time of Settlement of Stock Units
    	
9
    
	
9.6
    	
Death of Recipient
    	
9
    
	
9.7
    	
Modification or Assumption of Stock Units
    	
10
    
	
9.8
    	
Creditors’ Rights
    	
10
    
	
9.9
    	
Performance Cash Awards
    	
10
    
	
 
    	
 
    	
 
    
	
ARTICLE X.
    	
CHANGE IN CONTROL
    	
10
    
	
10.1
    	
Effect of Change in Control
    	
10
    
	
10.2
    	
Acceleration
    	
11
    
	
 
    	
 
    	
 
    
	
ARTICLE XI.
    	
PROTECTION AGAINST DILUTION
    	
11
    
	
11.1
    	
Adjustments
    	
11
    
	
11.2
    	
Dissolution or Liquidation
    	
11
    
	
11.3
    	
Reorganizations
    	
11
    
	
 
    	
 
    	
 
    
	
ARTICLE XII.
    	
DEFERRAL OF AWARDS
    	
12
    
	
 
    	
 
    	
 
    
	
ARTICLE XIII.
    	
AWARDS UNDER OTHER PLANS
    	
13
    
	
 
    	
 
    	
 
    
	
ARTICLE XIV.
    	
PAYMENT OF FEES IN SECURITIES
    	
13
    
	
14.1
    	
Effective Date
    	
13
    
	
14.2
    	
Elections to Receive NSOs, Restricted Shares or Stock Units
    	
13
    
	
14.3
    	
Number and Terms of NSOs, Restricted Shares or Stock Units
    	
13
    
	
 
    	
 
    	
 
    
	
ARTICLE XV.
    	
LIMITATION ON RIGHTS
    	
13
    
	
15.1
    	
No Retention Rights
    	
13
    
	
15.2
    	
Stockholders’ Rights
    	
14
    
	
15.3
    	
Regulatory Requirements
    	
14
    
	
15.4
    	
Transferability of Awards
    	
14
    
	
15.5
    	
Recoupment of Awards
    	
14
    
	
 
    	
 
    	
 
    
	
ARTICLE XVI.
    	
WITHHOLDING TAXES
    	
14
    
	
16.1
    	
General
    	
14
    
	
16.2
    	
Share Withholding
    	
15
    
	
 
    	
 
    	
 
    
	
ARTICLE XVII.
    	
FUTURE OF THE PLAN
    	
15
    
	
17.1
    	
Term of the Plan
    	
15
    
	
17.2
    	
Amendment or Termination
    	
15
    
	
17.3
    	
Stockholder Approval
    	
15
    
	
 
    	
 
    	
 
    
	
ARTICLE XVIII.
    	
DEFINITIONS
    	
15
    

 

 

THERAVANCE, INC.
 2012 EQUITY INCENTIVE PLAN

 

ARTICLE I.                 INTRODUCTION.

 

The Plan was adopted by the Board on February 8, 2012 to be effective on the day after the Corporation’s 2012 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 or the Committee may also appoint a secondary committee of the Board or the Committee, 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 issued pursuant to Stock Awards granted under the Plan shall not exceed (a) 6,500,000 shares 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 issued pursuant to ISOs granted under the Plan shall not exceed 6,500,000 shares.  The number of shares of Common Stock that may be issued under the Plan shall be reduced by (a) one share for every option and stock appreciation right granted under the Plan or granted under the Corporation’s 2004 Equity Incentive Plan on or after January 1, 2012 and (b) 1.45 shares for every stock award other than an option or stock appreciation right granted under the Plan or granted under the Corporation’s 2004 Equity Incentive Plan on or after January 1, 2012.  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 Corporation’s 2004 Equity Incentive Plan after the date specified in Section 17.1.

 

3.2          Additional Shares.  If (i) restricted shares or shares of Common Stock issued upon the exercise of options under this Plan are forfeited or repurchased or (ii) on or after January 1, 2012 restricted shares or shares of Common Stock issued upon the exercise of options under the Predecessor Plans are forfeited or repurchased, then such shares of Common Stock shall again become available for issuance under this Plan.  If (i) stock units, options or stock appreciation rights under this Plan are forfeited, settled in cash (in whole or in part) or terminate for any other reason before being exercised or (ii) on or after January 1, 2012 stock units, options or stock appreciation rights granted under 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 issuance under this Plan.  Notwithstanding anything to the contrary contained herein, the following shares of

 

(1)  Up to 12,667,411 additional shares (applying the ratios set forth in Section 3.2) subject to stock awards outstanding under the Predecessor Plans on December 31, 2011 could be added to the Plan’s share reserve pursuant to Section 3.2.

 

 

Common Stock shall not be added back to the number of shares available for issuance 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.  Any shares that again become available for issuance 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.  Additionally, to the extent permitted by Nasdaq Marketplace Rule 5635(c) or any successor thereto, in the event that a company acquired by the Corporation or any Affiliate or with which the Corporation or any Affiliate combines has shares available for awards or grants under one or more pre-existing plans not adopted in contemplation of such acquisition or combination and previously approved by the acquired entity’s shareholders, then, to the extent determined by the Board of Directors or Committee, the shares available for award or grant pursuant to the terms of such pre-existing plan(s) (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to holders of the securities of the entities that are parties to such acquisition or combination) may be used for Stock Awards under the Plan and shall not reduce the number of shares of Common Stock that may be issued under Section 3.1; provided however, that Stock Awards using such shares shall not be made after the date awards or grants could have been made under the terms of such pre-existing plan(s), absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing service to the Corporation or its Affiliates immediately prior to such acquisition or combination.

 

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)(5) 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 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 that is a Substitute Award granted in a manner that would satisfy the requirements of Section 409A of the Code and, if applicable, Section 424(a) of the Code.

 

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.  A Stock Option Agreement may provide for the automatic exercise of the Option.  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.  In no event will such payment be greater than the difference between (i) the Fair Market Value of the shares of Common Stock subject to such Option as of the date of such event over (ii) their Exercise Price.

 

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 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.

 

 

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 which shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant.  The preceding sentence shall not apply to an SAR that is a Substitute Award granted in a manner that would satisfy the requirements of Section 409A of the Code.  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).

 

7.7          Buyout Provisions.  Except to the extent prohibited by Section 7.6, the Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents an SAR previously granted or (b) authorize an Optionee to elect to cash out an SAR previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.  In no event will such payment be greater than the difference between (i) the Fair Market Value of the shares of Common Stock to which such SAR pertains as of the date of such event over (ii) their Exercise Price.

 

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 sentence, 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, future services and such other methods of payment as are permitted by applicable laws, regulations and rules.  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 or, to the extent an Award is not intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, such other criteria selected by the Committee.  To the extent an Award is intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, 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 that are 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 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.

 

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 or, to the extent an Award is not intended

 

 

to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, such other criteria selected by the Committee.  To the extent an Award is intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, 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 2,000,000 Stock Units that are 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 as an Employee 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 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          Modification or Assumption of Stock Units.  Within the limitations of the Plan, the Administrator may modify or assume outstanding stock units or may accept the cancellation of outstanding stock units (whether granted by the Company or by another issuer) in return for the grant of new stock units for the same or a different number of shares or in return for the grant of a different type of Award.  The foregoing notwithstanding, no modification of a Stock Unit shall, without the consent of the Participant, impair his or her rights or obligations under such Stock Unit.

 

9.8          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.

 

9.9          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 or, to the extent a Performance Cash Award is not intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, such other criteria selected by the Committee.  To the extent a Performance Cash Award is intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, 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 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 effect 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 shares of Common Stock available for issuance 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).

 

(b)           The assumption of such outstanding Stock Awards by the surviving corporation or its parent (with respect to Options and SARs, in a manner that complies with applicable tax requirements).

 

 

(c)           The substitution by the surviving corporation or its parent of new awards for such outstanding Stock Awards (with respect to Options and SARs, in a manner that complies with applicable tax requirements).

 

(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;

 

(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.

 

ARTICLE XV.            LIMITATION ON RIGHTS.

 

15.1        No 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.

 

15.5        Recoupment of Awards.  All Awards granted under the Plan, all amounts paid under the Plan and all shares of Common Stock issued under the Plan shall be subject to recoupment in accordance with The Dodd—Frank Wall Street Reform and Consumer Protection Act and any implementing regulations and/or listing standards thereunder, any compensation recovery policy adopted by the Corporation or as otherwise required by applicable law.

 

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 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 awards shall be made under the Corporation’s 2004 Equity Incentive Plan after the date of the Corporation’s 2012 Annual Meeting of Stockholders, assuming this Plan is approved by the stockholders at such meeting.  All awards outstanding under the 2004 Equity Incentive Plan as of such date shall, immediately upon effectiveness of the Plan, remain outstanding in accordance with their terms.  Each outstanding award under the 2004 Equity Incentive Plan 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.

 

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 without such holder’s consent.

 

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 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.

 

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

 

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

 

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

 

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

 

18.18      “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.

 

18.19      “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.

 

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

 

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

 

18.22      “Plan” means this Theravance, Inc. 2012 Equity Incentive Plan, as amended from time to time.

 

18.23      “Predecessor Plans” means the Corporation’s 1997 Stock Plan, Long-Term Stock Option Plan, 2004 Equity Incentive Plan and 2008 New Employee Equity Incentive 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 Award” means any award of an Option, an SAR, a Restricted Share or a Stock Unit under the Plan.

 

18.29      “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.

 

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

 

18.31      “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.

 

18.32      “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.

 

 

18.33      “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.

 

 

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 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.  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, provided, however that if an Award is intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, such adjustment(s) shall only be made to the extent consistent with Section 162(m) of the Code.

 

 

Form of Notice of Stock Option Grant and Stock Option Agreement under 2012 Equity Incentive Plan

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN

 

NOTICE OF STOCK OPTION GRANT

 

You have been granted the following option to purchase shares of the Common Stock of Theravance, Inc. (the “Company”):

 

	
Name of Optionee:
    	
 
    	
«First» «Last»
    
	
 
    	
 
    	
 
    
	
ID Number:
    	
 
    	
«ID»
    
	
 
    	
 
    	
 
    
	
Total   Number of Shares:
    	
 
    	
«Shares»
    
	
 
    	
 
    	
 
    
	
Type   of Option:
    	
 
    	
Nonstatutory   Stock Option
    
	
 
    	
 
    	
 
    
	
Grant   Number:
    	
 
    	
«Number»
    
	
 
    	
 
    	
 
    
	
Exercise   Price Per Share:
    	
 
    	
«Price»
    
	
 
    	
 
    	
 
    
	
Date of Grant:
    	
 
    	
«Grant_Date»
    
	
 
    	
 
    	
 
    
	
Vesting Schedule:
    	
 
    	
This   option shall vest and become exercisable with respect to the first «InitalVestPercentage»% of the Shares subject   to this option when you complete 12 months of continuous service as an   Employee or Consultant (“Service”) following the Date of Grant. This option   shall vest and become exercisable with respect to an additional «Fraction» of the Shares subject to this   option when you complete each month of continuous Service thereafter.    The option shall be fully vested and exercisable on the «#»-year anniversary of the Date of Grant   provided you have remained in continuous Service through such date.
    
	
 
    	
 
    	
 
    
	
Expiration   Date:
    	
 
    	
«Expiration_Date». This option expires   earlier if your Service terminates earlier, as described in the Stock Option   Agreement, and may be terminated sooner in connection with certain corporate   transactions as provided in Article XI of the Plan.
    

 

You and the Company agree that this option is granted under and governed by the terms and conditions of the Stock Option Agreement, which is attached to and made a part of this document, and the 2012 Equity Incentive Plan (the “Plan”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Plan.

 

You further agree that the Company may deliver by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

 

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN

 

STOCK OPTION AGREEMENT

 

	
Tax   Treatment
    	
 
    	
This   option is intended to be a nonstatutory stock option, as provided in the   Notice of Stock Option Grant.
    
	
 
    	
 
    	
 
    
	
Vesting
    	
 
    	
This   option vests and becomes exercisable as shown in the Notice of Stock Option   Grant.

 

This   option shall vest and become exercisable in full if the Company is subject to   a “Change in Control” (as defined in the   Plan) before your Service terminates and this option is not assumed or   replaced with a new award as set forth in Section 10.1 of the Plan. In   addition, this option shall vest and become exercisable in full if the   Company is subject to a Change in Control before your Service terminates, and   you are subject to an Involuntary Termination (as defined below) within 24   months after the Change in Control.

 

For   purposes of this Agreement, “Cause” shall   mean (i) the unauthorized use or disclosure of the confidential   information or trade secrets of the Company, a Parent, a Subsidiary or an   Affiliate, which use causes material harm to the Company, a Parent, a   Subsidiary or an Affiliate, (ii) conviction of a felony under the laws   of the United States or any state thereof, (iii) gross negligence or   (iv) repeated failure to perform lawful assigned duties for thirty days   after receiving written notification from the Board of Directors.

 

For   purposes of this Agreement, “Involuntary Termination”   means the termination of your Service by reason of:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
(a)
    	
an   involuntary dismissal or discharge by the Company (or Parent, Subsidiary or   Affiliate employing you) for reasons other than for Cause; or
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
(b)
    	
your   voluntary resignation following one of the following that is effected by the   Company (or the Parent, Subsidiary or Affiliate employing you) without your   consent (i) a change in your position with the Company (or Parent,   Subsidiary or Affiliate employing you) which materially reduces your level of   responsibility, (ii) a material reduction in your base compensation or   (iii) a relocation of your workplace by more than fifty miles from your   workplace immediately prior to the Change in Control that also materially   increases your one-way commute. In order for your resignation under clause   (b) to constitute an “Involuntary Termination,” all of the following   requirements must be satisfied: (1) you must provide notice to 
    

 

 

	
 
    	
 
    	
 
    	
 
    	
the   Company of your intent to resign and assert an Involuntary Termination   pursuant to clause (b) within 90 days of the initial existence of one or   more of the conditions set forth in subclauses (i) through (iii),   (2) the Company (or the Parent, Subsidiary or Affiliate employing you)   will have 30 days from the date of such notice to remedy the condition and,   if it does so, you may withdraw your resignation or resign without any   vesting acceleration, and (3) any termination of Service under clause   (b) must occur within two years of the initial existence of one or more   of the conditions set forth in subclauses (i) through (iii). Should the   Company (or the Parent, Subsidiary or Affiliate employing you) remedy the   condition as set forth above and then one or more of the conditions arises   again within two years following the occurrence of a Change in Control, you   may assert clause (b) again subject to all of the conditions set forth   herein. 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
For   purposes of this Agreement, “Service”   means your service as an Employee or Consultant.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
If   the option is eligible for vesting acceleration under the Company’s Change in   Control Severance Plan or the Company’s 2009 Change in Control Severance Plan   (each, a “Severance Plan”), then the   vesting acceleration provisions in the applicable Severance Plan shall apply   instead of those contained herein.

 

No   additional shares will vest or become exercisable after your Service has   terminated for any reason, except as set forth in the applicable Severance   Plan to the extent you are eligible for benefits thereunder.
    
	
 
    	
 
    	
 
    
	
Term
    	
 
    	
This   option expires in any event at the close of business at Company headquarters   on the day before the 10th anniversary of the Date of   Grant, as shown in the Notice of Stock Option Grant. (This option will expire   earlier if your Service terminates, as described below, and this option may   be terminated sooner as provided in Article XI of the Plan.) 

 

You   may exercise this option, to the extent vested and exercisable, at any time   before its expiration or termination pursuant to this Agreement or the Plan.
    
	
 
    	
 
    	
 
    
	
Termination   of Service
    	
 
    	
If   your Service terminates for any reason, this option will expire to the extent   it is unvested as of your termination date and does not vest as a result of   your termination of Service. The Company determines when your Service   terminates for all purposes of this option.
    
	
 
    	
 
    	
 
    
	
Regular   Termination
    	
 
    	
If   your Service terminates for any reason except death or total and permanent   disability, then this option, to the extent vested as of your termination   date, will expire at the close of business at Company headquarters on the date   three months after your termination date.
    

 

3

 

	
Death/Disability
    	
 
    	
If   your Service terminates because of your death or due to your total and   permanent disability, then this option, to the extent vested as of your   termination date, will expire at the close of business at Company   headquarters on the date 12 months after your termination date. 

 

For   all purposes under this Agreement, “total and permanent disability” means   that you are unable to engage in any substantial gainful activity by reason   of any medically determinable physical or mental impairment which can be   expected to result in death or which has lasted, or can be expected to last,   for a continuous period of not less than one year.
    
	
 
    	
 
    	
 
    
	
Leaves   of Absence and Part-Time Work
    	
 
    	
For   purposes of this option, your Service does not terminate when you go on a   military leave, a sick leave or another bona fide   leave of absence, if the leave was approved by the Company (or Parent,   Subsidiary or Affiliate employing you) in writing. But your Service   terminates when the approved leave ends, unless you immediately return to   active work. 

 

If   you go on a leave of absence, then the vesting schedule specified in the   Notice of Stock Option Grant may be adjusted in accordance with the Company’s   leave of absence policy or the terms of your leave. If you and the Company   (or Parent, Subsidiary or Affiliate employing you) agree to a reduction in   your scheduled work hours, then the Company reserves the right to modify the   rate at which this option vests, so that the rate of vesting is commensurate   with your reduced work schedule. 

 

The   Company shall not be required to adjust any vesting schedule pursuant to this   subsection.
    
	
 
    	
 
    	
 
    
	
Restrictions   on Exercise
    	
 
    	
The   Company will not permit you to exercise this option if the issuance of shares   at that time would violate any law or regulation.
    
	
 
    	
 
    	
 
    
	
Notice   of Exercise
    	
 
    	
When   you wish to exercise this option, you must notify the Company by filing the   proper “Notice of Exercise” form at the address given on the form. Your   notice must specify how many shares you wish to purchase. Your notice must   also specify how your shares should be registered. The notice will be   effective when the Company receives it. 

 

However,   if you wish to exercise this option by executing a same-day sale (as   described below), you must follow the instructions of the Company and the   broker who will execute the sale. 

 

If   someone else wants to exercise this option after your death, that person must   prove to the Company’s satisfaction that he or she is entitled to do so. 

 

In   no event may this option be exercised for any fractional shares.
    
	
 
    	
 
    	
 
    
	
Form of   Payment
    	
 
    	
When   you submit your notice of exercise, you must include payment of the option   exercise price for the shares that you are purchasing. To the extent   permitted by applicable law, payment may be made in one (or a combination of   two or more) of the following forms: 
    

 

4

 

	
 
    	
 
    	
·
    	
Your   personal check, a cashier’s check, a money order or by wire transfer.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
·
    	
Shares   of Company stock that you own, along with any forms needed to effect a   transfer of those shares to the Company. The value of the shares, determined   as of the effective date of the option exercise, will be applied to the   option exercise price. Instead of surrendering shares of Company stock, you   may attest to the ownership of those shares on a form provided by the Company   and have the same number of shares subtracted from the option shares issued   to you. However, you may not surrender, or attest to the ownership of, shares   of Company stock in payment of the exercise price if your action would cause   the Company to recognize compensation expense (or additional compensation   expense) with respect to this option for financial reporting purposes.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
·
    	
Irrevocable   directions to a securities broker approved by the Company to sell all or part   of your option shares and to deliver to the Company from the sale proceeds an   amount sufficient to pay the option exercise price and any withholding taxes.   (The balance of the sale proceeds, if any, will be delivered to you.) The   directions must be given in accordance with the instructions of the Company   and the broker. This exercise method is sometimes called a “same-day sale.”
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
·
    	
With   the Company’s consent (which may be granted by the Company’s Securities   Compliance Officer), irrevocable directions to a securities broker or lender   approved by the Company to pledge option shares as security for a loan and to   deliver to the Company from the loan proceeds an amount sufficient to pay the   option exercise price and any withholding taxes. The directions must be given   in accordance with the instructions of the Company and the broker or lender.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
·
    	
With   the Company’s consent (which may be granted by the Compensation Committee of   the Board of Directors or, if applicable, by the Stock Option Committee of   the Board of Directors), by having the Company withhold shares of Common   Stock that would otherwise be issued on exercise of the option. The value of   the withheld shares, determined as of the effective date of the option   exercise, will be applied to the option exercise price. This exercise method   is sometimes referred to as a “net exercise”.
    
	
 
    	
 
    	
 
    
	
Withholding   Taxes and Stock Withholding
    	
 
    	
You   will not be allowed to exercise this option unless you make arrangements   acceptable to the Company (and/or the Parent, Subsidiary or Affiliate   employing you) to pay any withholding taxes that may be due as a result of   the option exercise. With the Company’s consent (which may be granted by the   Compensation Committee of the Board of Directors or, if applicable, by the   Stock Option Committee of the Board of Directors), these arrangements may   include withholding shares of Company stock
    

 

5

 

	
 
    	
 
    	
that   otherwise would be issued to you when you exercise this option. The value of   these shares, determined as of the effective date of the option exercise,   will be applied to the withholding taxes.
    
	
 
    	
 
    	
 
    
	
Restrictions   on Resale
    	
 
    	
You   agree not to sell any option shares at a time when applicable laws, Company   policies (including the Company’s Insider Trading Policy, a copy of which can   be found on the Company’s intranet) or an agreement between the Company and   its underwriters prohibit a sale. This restriction will apply as long as your   Service continues and for such period of time after the termination of your   Service as the Company may specify.
    
	
 
    	
 
    	
 
    
	
Transfer   of Option
    	
 
    	
Prior   to your death, only you may exercise this option. You cannot transfer or   assign this option. For instance, you may not sell this option or use it as   security for a loan. If you attempt to do any of these things, this option   will immediately become invalid. You may, however, dispose of this option in   your will or a beneficiary designation. A beneficiary designation must be   filed with the Company on the proper form.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Regardless   of any marital property settlement agreement, the Company is not obligated to   honor a notice of exercise from your former spouse, nor is the Company   obligated to recognize your former spouse’s interest in your option in any   other way.
    
	
 
    	
 
    	
 
    
	
No   Retention Rights
    	
 
    	
Your   option or this Agreement does not give you the right to be retained by the   Company, a Parent, Subsidiary or Affiliate in any capacity. The Company and   its Parents, Subsidiaries and Affiliates reserve the right to terminate your   Service at any time, with or without cause.
    
	
 
    	
 
    	
 
    
	
Stockholder   Rights
    	
 
    	
You,   or your estate or heirs, have no rights as a stockholder of the Company until   this option has been exercised by giving the required notice to the Company   and paying the exercise price. No adjustments are made for dividends or other   rights if the applicable record date occurs before exercise of this option,   except as described in the Plan.
    
	
 
    	
 
    	
 
    
	
Recoupment   Policy
    	
 
    	
This   option, and the shares acquired upon exercise of this option, shall be   subject to any Company recoupment policy in effect from time to time.
    
	
 
    	
 
    	
 
    
	
Adjustments
    	
 
    	
In   the event of a stock split, a stock dividend or a similar change in Common   Stock, the number of shares covered by this option and the exercise price per   share may be adjusted pursuant to the Plan.
    
	
 
    	
 
    	
 
    
	
Applicable   Law
    	
 
    	
This   Agreement will be interpreted and enforced under the laws of the State of   Delaware (without regard to its choice-of-law provisions).
    
	
 
    	
 
    	
 
    
	
The   Plan and Other Agreements
    	
 
    	
The   text of the Plan is incorporated in this Agreement by reference. A copy of   the Plan is available on the Company’s intranet or by request to the Finance   Department. Capitalized terms not otherwise defined herein 
    

 

6

 

	
 
    	
 
    	
shall   have the meanings ascribed to such terms in the Plan.

 

This   Agreement, the Notice of Stock Option Grant, and the Plan constitute the   entire understanding between you and the Company regarding this option. Any   prior agreements, commitments or negotiations concerning this option are   superseded. This Agreement may be amended only by another written agreement   between the parties.
    

 

BY ACCEPTING THIS STOCK OPTION GRANT, YOU AGREE TO ALL OF THE TERMS AND
 CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

7

 

Form of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2012 Equity Incentive Plan

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN

 

NOTICE OF RESTRICTED STOCK UNIT AWARD

 

You have been granted the number of restricted stock units indicated below by Theravance, Inc. (the “Company”) on the following terms:

 

	
Name:
    	
«Name»
    

 

Restricted Stock Unit Award Details:

 

	
Date   of Grant:
    	
«DateGrant»
    
	
Restricted   Stock Units:
    	
«TotalShares»
    

 

Each restricted stock unit (the “restricted stock unit”) represents the right to receive one share of the Company’s Common Stock subject to the terms and conditions contained in the Restricted Stock Unit Agreement (the “Agreement”).

 

Vesting Schedule:

 

Vesting is dependent upon continuous service as an Employee or Consultant (“Service”) throughout the vesting period.  The restricted stock units will vest as follows:  «InitialVestPercentage»% on «InitialVestDate»; «SubsequentVestPercentage»% on «SecondVestDate»; and an additional «SubsequentVestPercentage»% on the final day of each 3-month period thereafter, provided that you remain in continuous Service through each such date.

 

You and the Company agree that your right to receive the restricted stock units is granted under and governed by the terms and conditions of the Plan and of the Agreement that is attached to and made a part of this document.  Capitalized terms not defined herein have the meaning ascribed to such terms in the Plan.

 

You agree that the Company may deliver by email all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

 

You agree to cover the applicable withholding taxes as set forth more fully herein.  In connection with your receipt of the restricted stock units, you are simultaneously entering into a trading arrangement that complies with the requirements of Rule 10b5-1(c)(1) under the Securities Exchange Act of 1934 (a “10b5-1 Plan”).  As of the date of the Agreement, you are not aware of any material nonpublic information concerning the Company or its securities, or, as of the date any sales are effected pursuant to the 10b5-1 Plan, you will not effect such sales on the basis of material nonpublic information about the securities or the Company of which you were aware at the time you entered into the Agreement.

 

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN:
 RESTRICTED STOCK UNIT AGREEMENT

 

	
Payment   for Units
    	
 
    	
No   payment is required for the restricted stock units you are receiving.
    
	
 
    	
 
    	
 
    
	
Nature of Units
    	
 
    	
Your restricted stock units are bookkeeping entries.  They represent only the Company’s unfunded   and unsecured promise to issue shares of Common Stock on a future date.  As a holder of restricted stock units, you   have no rights other than the rights of a general creditor of the Company.
    
	
 
    	
 
    	
 
    
	
Settlement of Units
    	
 
    	
Each of your restricted stock units will be settled when it vests   (unless you and the Company have agreed to a later settlement date pursuant   to procedures that the Company may prescribe at its discretion).

 

At the time of settlement, you will receive one share of the   Company’s Common Stock for each vested restricted stock unit. 
    
	
 
    	
 
    	
 
    
	
Vesting
    	
 
    	
The restricted stock units that you are receiving will vest as shown   in the Notice of Restricted Stock Unit Award.

 

In addition, the restricted stock units will vest in full if the   Company is subject to a Change in Control (as defined in the Plan) before   your Service terminates and you are subject to an Involuntary Termination (as   defined below) within 24 months after the Change in Control.

 

For purposes of this Agreement, “Service” means your continuous service   as an Employee or Consultant.

 

“Involuntary   Termination” means a termination of your Service by reason of (i) an   involuntary dismissal or discharge by the Company (or Parent, Subsidiary or   Affiliate employing you) for reasons other than Cause or (ii) your   voluntary resignation following one of the following that is effected by the   Company (or the Parent, Subsidiary or Affiliate employing you) without your   consent (A) a change in your position with the Company (or the Parent,   Subsidiary or Affiliate employing you) which materially reduces your level of   responsibility, (B) a material reduction in your base compensation, or   (C) a relocation of your workplace by more than fifty miles from your   workplace immediately prior to the Change in Control that also materially   increases your one-way commute, provided that in either case a “separation   from service” (as defined in the regulations under Code Section 409A)   occurs.  In order for your resignation   under clause (ii) to constitute an “Involuntary Termination,” all of the   following requirements must be satisfied: (1) you must provide notice to   the Company of your intent to resign and assert an Involuntary Termination   pursuant to clause (ii) within 90 days of the initial
    

 

 

	
 
    	
 
    	
existence of one or more of the conditions set forth in subclauses   (A) through (C), (2) the Company (or the Parent, Subsidiary or   Affiliate employing you) will have 30 days from the date of such notice to   remedy the condition and, if it does so, you may withdraw your resignation or   resign without any vesting acceleration, and (3) any termination of   Service under clause (ii) must occur within two years of the initial   existence of one or more of the conditions set forth in subclauses   (A) through (C).  Should the   Company remedy the condition as set forth above and then one or more of the   conditions arises again within two years following the occurrence of a Change   in Control, you may assert clause (ii) again subject to all of the   conditions set forth herein.

 

“Cause” means (i) the unauthorized use or disclosure of the   confidential information or trade secrets of the Company, a Parent, a   Subsidiary or an Affiliate, which use causes material harm to the Company, a   Parent, a Subsidiary or an Affiliate, (ii) conviction of a felony under   the laws of the United States or any state thereof, (iii) gross   negligence or (iv) repeated failure to perform lawful assigned duties   for thirty days after receiving written notification from the Board of   Directors.

 

Nothwithstanding the foregoing, if you become eligible to participate   in the Company’s 2009 Change in Control Severance Plan (the “2009 Severance   Plan”), the vesting acceleration provisions in the 2009 Severance Plan shall   apply instead of those contained herein.    In addition, the restricted stock units shall be treated as “shares”   for purposes of acceleration of vesting under the 2009 Severance Plan.

 

If   the Company is subject to a Change in Control before your Service terminates,   the restricted stock units will vest in full if not assumed or replaced with   a new award as set forth in Section 10.1 of the Plan.

 

No additional restricted stock units vest after your Service has   terminated for any reason, except as set forth in the 2009 Severance Plan to   the extent you are eligible for benefits thereunder.  It is intended that vesting in the   restricted stock units is commensurate with a full-time work schedule.  For possible adjustments that may be made   by the Company, see the Section below entitled “Leaves of Absence and   Part-Time Work.”
    
	
 
    	
 
    	
 
    
	
Forfeiture
    	
 
    	
If   your Service terminates for any reason, then your restricted stock units that   have not vested before the termination date and do not vest as a result of   the termination pursuant to this Agreement or as set forth on the Notice of   Restricted Stock Unit Award will be forfeited.  This means that the restricted stock units   will revert to the Company.  You   receive no payment for restricted stock units that are forfeited.  The Company determines when your Service   terminates for all purposes of your restricted stock units.
    

 

2

 

	
Leaves   of Absence and Part-Time Work
    	
 
    	
For   purposes of this award, your Service does not terminate when you go on a   military leave, a sick leave or another bona fide   leave of absence, if the leave was approved by the Company (or the Parent,   Subsidiary or Affiliate employing you) in writing.  If your leave of absence (other than a   military leave) lasts for more than 6 months, then vesting will be suspended   on the day that is 6 months and 1 day after the leave of absence began.  Vesting will resume effective as of the   second vesting date after you return from leave of absence provided you have   worked at least one day during that vesting period.

 

In   the case of all leaves, your Service terminates when the approved leave ends,   unless you immediately return to active work.

 

If you and the Company (or the Parent, Subsidiary or Affiliate   employing you) agree to a reduction in your scheduled work hours, then the   Company reserves the right to modify the rate at which the restricted stock   units vest, so that the rate of vesting is commensurate with your reduced   work schedule.

 

The   Company shall not be required to adjust any vesting schedule pursuant to this   subsection.
    
	
 
    	
 
    	
 
    
	
Stock   Certificates
    	
 
    	
No   shares of Common Stock shall be issued to you prior to the date on which the   restricted stock units vest.  After any   restricted stock units vest pursuant to this Agreement, the Company shall   promptly cause to be issued in book-entry form, registered in your name or in   the name of your legal representatives, beneficiaries or heirs, as the case   may be, the number of shares of Common Stock representing your vested   restricted stock units.  No fractional   shares shall be issued.
    
	
 
    	
 
    	
 
    
	
Section 409A
    	
 
    	
Unless   you and the Company have agreed to a deferred settlement date (pursuant to   procedures that the Company may prescribe at its discretion), settlement of   these restricted stock units is intended to be exempt from the application of   Code Section 409A pursuant to the “short-term deferral exemption” in   Treasury Regulation 1.409A-1(b)(4) and shall be administrated and   interpreted in a manner that complies with such exemption.

 

Notwithstanding   the foregoing, to the extent it is determined that settlement of these   restricted stock units is not exempt from Code Section 409A as a   short-term deferral or otherwise and the Company determines that you are a   “specified employee,” as defined in the regulations under Code Section 409A,   at the time of your “separation from service,” as defined in those   regulations, then any restricted stock units that otherwise would have been   settled during the first six months following your separation from service   will instead be settled on the first business day following the earlier of   the six-month anniversary of your separation from service or your death,   unless the event triggering vesting is an event other than your separation   from
    

 

3

 

	
 
    	
 
    	
service.
    
	
 
    	
 
    	
 
    
	
No   Stockholder Rights
    	
 
    	
The   restricted stock units do not entitle you to any of the rights of a   stockholder of Common Stock.  Upon   settlement of the restricted stock units into shares of Common Stock, you   will obtain full voting and other rights as a stockholder of the Company.
    
	
 
    	
 
    	
 
    
	
Units   Restricted
    	
 
    	
You   may not sell, transfer, pledge or otherwise dispose of any restricted stock   units or rights under this Agreement other than by will or by the laws of   descent and distribution.    Notwithstanding the foregoing, you may designate a beneficiary or   beneficiaries to receive any property distributable with respect to the   restricted stock units upon your death. A beneficiary designation must be   filed with the Company on the proper form.
    
	
 
    	
 
    	
 
    
	
Withholding   Taxes
    	
 
    	
No   shares will be distributed to you unless you have made arrangements   acceptable to the Company (and/or the Parent, Subsidiary or Affiliate   employing you) to pay any withholding taxes that may be due as a result of   the vesting and/or settlement of this award.    Prior to the relevant taxable event, you shall pay or make adequate   arrangements satisfactory to the Company (and/or the Parent, Subsidiary or   Affiliate employing you) to satisfy all withholding obligations for   applicable taxes.

 

You   authorize the Company to instruct the broker whom it has selected for this   purpose to sell a number of shares of Common Stock to be issued upon the   vesting of your restricted stock units or a lesser number necessary to meet   tax withholding obligations.  Such   sales shall be effected at a market price following the date that the   restricted stock units vest (unless you and the Company have agreed to a   later settlement date pursuant to procedures that the Company may prescribe   at its discretion).

 

You   acknowledge that the proceeds of any such sale may not be sufficient to   satisfy your withholding obligations.    To the extent the proceeds from such sale are insufficient to cover   the taxes due, the Company (or the Parent, Subsidiary or Affiliate employing   you) may in its discretion (a) withhold the balance of all applicable   taxes legally payable by you from your wages or other cash compensation paid   to you by the Company (or the Parent, Subsidiary or Affiliate employing you)   and/or (b) withhold in shares of Common Stock, provided that the Company   only withholds an amount of shares not in excess of the amount necessary to   satisfy the minimum withholding amount.    The fair market value of withheld shares, determined as of the date   taxes otherwise would have been withheld in cash, will be applied against the   withholding taxes.  If the Company   satisfies the obligation for taxes by withholding a number of shares of   Common Stock as described above, you are deemed to have been issued the full   number of shares subject to the award of restricted stock units.
    

 

4

 

	
Rule 10b5-1   Plan
    	
 
    	
You acknowledge that the instruction to the broker to sell in the   foregoing section is intended to comply with the requirements of   Rule 10b5-1(c)(1)(i)(B) under the Securities Exchange Act of 1934   (the “Exchange Act”), and to be interpreted to comply with the requirements   of Rule 10b5-1(c)(1) under the Exchange Act (a “10b5-1 Plan”).  This 10b5-1 Plan is adopted to be effective   as of the first date on which the restricted stock units vest.  This 10b5-1 Plan is being adopted to permit   you to sell a number of shares awarded upon the vesting of restricted stock   units sufficient to pay withholding taxes that become due as a result of this   award or the vesting of the restricted stock units or, if you elect within   thirty days following notification via the broker whom the Company has   selected for this purpose of your restricted stock unit award, to permit you   to sell all of the vested restricted stock units.  You hereby appoint the Company as your   agent and attorney-in-fact to instruct the broker with respect to the number   of shares to be sold under this 10b5-1 Plan.

 

You hereby authorize the broker to sell the number of shares of   Common Stock determined as set forth above and acknowledge that the broker is   under no obligation to arrange for such sale at any particular price. You   acknowledge that the broker may aggregate your sales with sales occurring on   the same day that are effected on behalf of other Company employees pursuant   to sales of shares vesting under Company options or restricted stock unit   awards and your proceeds will be based on a blended price for all such sales.   You acknowledge that you will be responsible for all brokerage fees and other   costs of sale, and you agree to indemnify and hold the Company harmless from   any losses, costs, damages, or expenses relating to any such sale.  You acknowledge that it may not be possible   to sell Common Stock during the term of this 10b5-1 Plan due to (a) a   legal or contractual restriction applicable to you or to the broker,   (b) a market disruption, (c) rules governing order execution   priority on the Nasdaq Global Market, (d) a sale effected pursuant to   this 10b5-1 Plan that fails to comply (or in the reasonable opinion of the   broker’s counsel is likely not to comply) with Rule 144 under the   Securities Act of 1933, if applicable, or (e) if the Company determines   that sales may not be effected under this 10b5-1 Plan.  You acknowledge that this 10b5-1 Plan is   subject to the terms of any policy adopted now or hereafter by the Company   governing the adoption of 10b5-1 plans.

 
    
	
 
    	
 
    	
 
    
	
Restrictions   on Issuance
    	
 
    	
The Company will not issue shares to you if the issuance of shares at   that time would violate any law or regulation.
    
	
 
    	
 
    	
 
    
	
Restrictions   on Resale
    	
 
    	
You   agree not to sell any shares of Common Stock you receive under this Agreement   at a time when applicable laws, regulations, Company trading policies   (including the Company’s Insider Trading Policy, a copy of which can be found   on the Company’s intranet) or an 
    

 

5

 

	
 
    	
 
    	
agreement   between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your   Service continues and for such period of time after the termination of your   Service as the Company may specify.
    
	
 
    	
 
    	
 
    
	
No   Retention Rights
    	
 
    	
Your   award or this Agreement does not give you the right to be employed or   retained by the Company (or a Parent, Subsidiary or Affiliate) in any   capacity.  The Company and its Parents,   Subsidiaries and Affiliates reserve the right to terminate your Service at   any time, with or without cause. 
    
	
 
    	
 
    	
 
    
	
Recoupment   Policy
    	
 
    	
This   award, and the shares acquired upon settlement of this award, shall be   subject to any Company recoupment policy in effect from time to time.
    
	
 
    	
 
    	
 
    
	
Adjustments
    	
 
    	
In   the event of a stock split, a stock dividend or a similar change in Common   Stock, the number of restricted stock units may be adjusted pursuant to the   Plan.
    
	
 
    	
 
    	
 
    
	
Applicable   Law
    	
 
    	
This   Agreement will be interpreted and enforced with respect to issues of contract   law under the laws of the State of Delaware (without regard to its   choice-of-law provisions).
    
	
 
    	
 
    	
 
    
	
The   Plan and Other Agreements
    	
 
    	
The   text of the Plan is incorporated in this Agreement by reference. A copy of   the Plan is available on the Company’s intranet or by request to the Finance   Department. Capitalized terms not otherwise defined herein shall have the   meanings ascribed to such terms in the Plan.

 

This   Agreement, the Notice of Restricted Stock Unit Award, and the Plan constitute   the entire understanding between you and the Company regarding this   award.  Any prior agreements,   commitments or negotiations concerning this award are superseded.  This Agreement may be amended only by   another written agreement between the parties.
    

 

BY ACCEPTING THIS RESTRICTED STOCK UNIT AWARD, YOU AGREE TO

 

ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

6

 

Form of Notice of Restricted Stock Award and Restricted Stock Agreement under 2012 Equity Incentive Plan

(Executive Officers)

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN
 NOTICE OF RESTRICTED STOCK AWARD

 

You have been granted restricted shares of Common Stock of Theravance, Inc. (the “Company”) on the following terms:

 

	
Name   of Recipient:
    	
 
    	
«Name»
    
	
 
    	
 
    	
 
    
	
Total   Number of Shares Granted:
    	
 
    	
«TotalShares»
    
	
 
    	
 
    	
 
    
	
Date   of Grant:
    	
 
    	
«DateGrant»
    

 

Vesting Schedule:

 

Vesting of the shares is dependent upon continuous service as an Employee or Consultant (“Service”) throughout the vesting period.  The shares will vest as follows:  «InitialVestPercentage»% on «InitialVestDate»; «SubsequentVestPercentage»% on «SecondVestDate»; and an additional «SubsequentVest Percentage»% on the final day of each 3-month period thereafter, provided that you remain in continuous Service through such date.

 

You and the Company agree that these shares are granted under and governed by the terms and conditions of the Theravance, Inc. 2012 Equity Incentive Plan (the “Plan”) and of the Agreement that is attached to and made a part of this document.  Capitalized terms not defined herein have the meaning ascribed to such terms in the Plan.

 

You further agree that the Company may deliver by email all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

 

You agree to cover the applicable withholding taxes as set forth more fully herein.

 

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN:
 RESTRICTED STOCK AGREEMENT

 

	
Payment   for Shares
    	
 
    	
The shares have been awarded to you in consideration of your past   service to the Company and no payment is required for the shares that you are   receiving, except for satisfying any withholding taxes that may be due as a   result of the grant of this award or the vesting or transfer of the shares. 
    
	
 
    	
 
    	
 
    
	
Transfer
    	
 
    	
On the terms and conditions set forth in the Notice of Restricted   Stock Award and this Agreement, the Company agrees to transfer to you the   number of shares of its Common Stock set forth in the Notice of Restricted   Stock Award.  
    
	
 
    	
 
    	
 
    
	
Vesting
    	
 
    	
The shares will vest as shown in the Notice of Restricted Stock   Award.

 

The shares are eligible for vesting acceleration under the Company’s   Change in Control Severance Plan and 2009 Change in Control Severance Plan   (each, a “Severance Plan”) to the extent you are eligible to participate in   either such Severance Plan.

 

No additional shares vest after your Service has terminated for any   reason, except as set forth in the Notice of Restricted Stock Award, in this   Agreement or, to the extent you are eligible to participate in a Severance   Plan, in a Severance Plan.

 

It is intended that vesting in the shares is commensurate with a   full-time work schedule.  For possible   adjustments that may be made by the Company, see the Section below   entitled “Leaves of Absence and Part-Time Work.”
    
	
 
    	
 
    	
 
    
	
Shares   Restricted
    	
 
    	
Unvested shares will be considered “Restricted   Shares.”

 

You may not sell, transfer, pledge or otherwise dispose of any   Restricted Shares without the written consent of the Company, except as   provided in the next sentence.  You may   transfer Restricted Shares to your spouse, children or grandchildren or to a   trust established by you for the benefit of yourself or your spouse, children   or grandchildren.  However, a   transferee of Restricted Shares must agree in writing on a form prescribed by   the Company to be bound by all provisions of this Agreement.  
    
	
 
    	
 
    	
 
    
	
Forfeiture
    	
 
    	
If   your Service terminates for any reason, then your shares will be forfeited to   the extent that they have not vested before the termination date and do not   vest as a result of the termination.    This means that the 
    

 

 

	
 
    	
 
    	
Restricted   Shares will revert to the Company.  You   receive no payment for Restricted Shares that are forfeited. The Company   determines when your Service terminates for all purposes of this award.
    
	
 
    	
 
    	
 
    
	
Leaves   of Absence and Part-Time Work
    	
 
    	
For   purposes of this award, your Service does not terminate when you go on a   military leave, a sick leave or another bona fide   leave of absence, if the leave was approved by the Company (or the Parent,   Subsidiary or Affiliate employing you) in writing.  If your leave of absence (other than a   military leave) lasts for more than 6 months, then vesting will be suspended   on the day that is 6 months and 1 day after the leave of absence began.  Vesting will resume effective as of the   second vesting date after you return from leave of absence provided you have   worked at least one day during that vesting period.

 

In   the case of all leaves, your Service terminates when the approved leave ends,   unless you immediately return to active work. 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
If   you and the Company (or the Parent, Subsidiary or Affiliate employing you)   agree to a reduction in your scheduled work hours, then the Company reserves   the right to modify the rate at which the shares vest, so that the rate of   vesting is commensurate with your reduced work schedule.

 

The   Company shall not be required to adjust any vesting schedule pursuant to this   subsection.
    
	
 
    	
 
    	
 
    
	
Stock   Certificates
    	
 
    	
The   Restricted Shares are issued in book-entry form, registered in your name, and   held in escrow at the Company’s designated brokerage pending the date on   which shares vest.  After shares vest,   the Company will release from escrow the number of shares of Common Stock   representing your vested shares, registered in your name or in the name of   your legal representatives, beneficiaries or heirs, as the case may be.  
    
	
 
    	
 
    	
 
    
	
Voting   Rights
    	
 
    	
You   may vote your shares even before they vest.
    
	
 
    	
 
    	
 
    
	
Dividend   Rights
    	
 
    	
Any   cash dividends distributed with respect to Restricted Shares shall be subject   to the same terms and conditions as apply to the Restricted Shares to which   they relate and shall be paid to you (less all applicable withholding taxes)   promptly upon vesting. 
    
	
 
    	
 
    	
 
    
	
Withholding   Taxes
    	
 
    	
No   shares will be released to you unless you have made arrangements acceptable   to the Company (and/or the Parent, Subsidiary or Affiliate employing you) to   pay any withholding taxes that may be due as a result of this award or the   vesting of the shares.  Prior to the   relevant taxable event, you shall pay or make adequate arrangements   satisfactory to the Company (and/or the Parent, Subsidiary or Affiliate 
    

 

2

 

	
 
    	
 
    	
employing   you) to satisfy all withholding obligations for applicable taxes.

 

At   your discretion, these arrangements may include (a) payment in cash,   (b) payment from the proceeds of the sale of shares through a   Company-approved broker or (c) withholding shares of Company stock that   otherwise would be released to you upon vesting with a fair market value not   in excess of the amount necessary to satisfy the minimum withholding amount,   provided that the Company, acting through the Board of Directors or   Compensation Committee, may provide prospectively that it no longer   authorizes (c) withholding of shares.

 

If   the Company satisfies the obligation for taxes by withholding a number of   shares of Common Stock as described above, you will be deemed to have   received the full number of shares released from restrictions, including the   number of shares withheld to satisfy tax withholding obligations, and the   fair market value of these shares, determined as of the date when taxes   otherwise would have been withheld in cash, will be applied to the   withholding taxes.

 

You   acknowledge that the proceeds of a sale pursuant to (b) above or   withholding pursuant to (c) above may not be sufficient to satisfy your   withholding obligations.  To the extent   the proceeds from such sale are insufficient to cover the taxes due, the   Company may in its discretion withhold the balance of all applicable taxes   legally payable by you from your wages or other cash compensation paid to you   by the Company. 
    
	
 
    	
 
    	
 
    
	
Restrictions   on Resale
    	
 
    	
You agree not to sell any shares at a time when applicable laws,   regulations, Company policies (including the Company’s Insider Trading   Policy, a copy of which can be found on the Company’s intranet) or an   agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your   Service continues and for such period of time after the termination of your   Service as the Company may specify.
    
	
 
    	
 
    	
 
    
	
No   Retention Rights
    	
 
    	
Your award or this Agreement does not give you the right to be   employed or retained by the Company, a Parent, a Subsidiary or an Affiliate   in any capacity.  The Company and its   Parent, Subsidiaries and Affiliates reserve the right to terminate your   Service at any time, with or without cause.
    
	
 
    	
 
    	
 
    
	
Additional   or Exchanged Securities and Property
    	
 
    	
In the event of a merger or consolidation of the Company with or into   another entity, any other corporate reorganization, a stock split, the   declaration of a stock dividend, the declaration of an extraordinary dividend   payable in a form other than stock, a spin-off, a recapitalization or a   similar transaction affecting the Company’s outstanding Common Stock, any   securities or other property (including cash or cash equivalents) that are by   reason of such 
    

 

3

 

	
 
    	
 
    	
transaction exchanged for, or distributed with respect to, any   Restricted Shares shall be subject to the same terms and conditions   (including, without limitation, vesting and forfeiture) as are applicable to   the Restricted Shares under this Agreement and the Plan.  Appropriate adjustments to reflect the   exchange or distribution of such securities or property shall be made to the   number and/or class of the Restricted Shares.    
    
	
 
    	
 
    	
 
    
	
Recoupment   Policy
    	
 
    	
The shares issued pursuant to this award shall be subject to any   Company recoupment policy in effect from time to time.
    
	
 
    	
 
    	
 
    
	
Applicable   Law
    	
 
    	
This   Agreement will be interpreted and enforced under the laws of the State of   Delaware (without regard to their choice-of-law provisions).
    
	
 
    	
 
    	
 
    
	
The   Plan and Other Agreements
    	
 
    	
The   text of the Plan is incorporated in this Agreement by reference.

 

This   Agreement and the Plan constitute the entire understanding between you and   the Company regarding this award.  Any   prior agreements, commitments or negotiations concerning this award are   superseded.  This Agreement may be   amended only by another written agreement between the parties.
    

 

BY ACCEPTING THIS RESTRICTED STOCK AWARD, YOU AGREE TO ALL OF THE
 TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

4

 

Form of Notice of Restricted Stock Award and Restricted Stock Agreement under 2012 Equity Incentive Plan

(Officers, other than Executive Officers)

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN
 NOTICE OF RESTRICTED STOCK AWARD

 

You have been granted restricted shares of Common Stock of Theravance, Inc. (the “Company”) on the following terms:

 

	
Name   of Recipient:
    	
 
    	
«Name»
    
	
 
    	
 
    	
 
    
	
Total   Number of Shares Granted:
    	
 
    	
«TotalShares»
    
	
 
    	
 
    	
 
    
	
Date   of Grant:
    	
 
    	
«DateGrant»
    

 

Vesting Schedule:

 

Vesting of the shares is dependent upon continuous service as an Employee or Consultant (“Service”) throughout the vesting period.  The shares will vest as follows:  «InitialVestPercentage»% on «InitialVestDate»; «SubsequentVestPercentage»% on «SecondVestDate»; and an additional «SubsequentVestPercentage »% on the final day of each 3-month period thereafter, provided that you remain in continuous Service through such date.

 

You and the Company agree that these shares are granted under and governed by the terms and conditions of the Theravance, Inc. 2012 Equity Incentive Plan (the “Plan”) and of the Agreement that is attached to and made a part of this document.  Capitalized terms not defined herein have the meaning ascribed to such terms in the Plan.

 

You further agree that the Company may deliver by email all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

 

You agree to cover the applicable withholding taxes as set forth more fully herein.  In connection with your receipt of these shares, you are simultaneously entering into a trading arrangement that complies with the requirements of Rule 10b5-1(c)(1) under the Securities Exchange Act of 1934 (a “10b5-1 Plan”).  As of the date of the Agreement, you are not aware of any material nonpublic information concerning the Company or its securities, or, as of the date any sales are effected pursuant to the 10b5-1 Plan, you will not effect such sales on the basis of material nonpublic information about the securities or the Company of which you were aware at the time you entered into the Agreement.

 

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN:
 RESTRICTED STOCK AGREEMENT

 

	
Payment   for Shares
    	
 
    	
The   shares have been awarded to you in consideration of your past service to the   Company and no payment is required for the shares that you are receiving,   except for satisfying any withholding taxes that may be due as a result of   the grant of this award or the vesting or transfer of the shares.
    
	
 
    	
 
    	
 
    
	
Transfer
    	
 
    	
On   the terms and conditions set forth in the Notice of Restricted Stock Award   and this Agreement, the Company agrees to transfer to you the number of   shares of its Common Stock set forth in the Notice of Restricted Stock Award.
    
	
 
    	
 
    	
 
    
	
Vesting
    	
 
    	
The   shares will vest as shown in the Notice of Restricted Stock Award.

 

The   shares are eligible for vesting acceleration under the Company’s Change in   Control Severance Plan and 2009 Change in Control Severance Plan (each, a   “Severance Plan”) to the extent you are eligible to participate in either   such Severance Plan.

 

No   additional shares vest after your Service has terminated for any reason,   except as set forth in the Notice of Restricted Stock Award, in this   Agreement or, to the extent you are eligible to participate in a Severance   Plan, in a Severance Plan.

 

It   is intended that vesting in the shares is commensurate with a full-time work   schedule. For possible adjustments that may be made by the Company, see the   Section below entitled “Leaves of Absence and Part-Time Work.”
    
	
 
    	
 
    	
 
    
	
Shares   Restricted
    	
 
    	
Unvested   shares will be considered “Restricted Shares.”

 

You   may not sell, transfer, pledge or otherwise dispose of any Restricted Shares   without the written consent of the Company, except as provided in the next   sentence. You may transfer Restricted Shares to your spouse, children or   grandchildren or to a trust established by you for the benefit of yourself or   your spouse, children or grandchildren. However, a transferee of Restricted   Shares must agree in writing on a form prescribed by the Company to be bound   by all provisions of this Agreement.
    
	
 
    	
 
    	
 
    
	
Forfeiture
    	
 
    	
If   your Service terminates for any reason, then your shares will be forfeited to   the extent that they have not vested before the termination date and do not   vest as a result of the termination. This means that the Restricted Shares   will revert to the Company. You receive no
    

 

 

	
 
    	
 
    	
payment   for Restricted Shares that are forfeited. The Company determines when your   Service terminates for all purposes of this award.
    
	
 
    	
 
    	
 
    
	
Leaves   of Absence and Part-Time Work
    	
 
    	
For   purposes of this award, your Service does not terminate when you go on a military   leave, a sick leave or another bona fide   leave of absence, if the leave was approved by the Company (or the Parent,   Subsidiary or Affiliate employing you) in writing. If your leave of absence   (other than a military leave) lasts for more than 6 months, then vesting will   be suspended on the day that is 6 months and 1 day after the leave of absence   began. Vesting will resume effective as of the second vesting date after you   return from leave of absence provided you have worked at least one day during   that vesting period.

 

In   the case of all leaves, your Service terminates when the approved leave ends,   unless you immediately return to active work.

 

If   you and the Company (or the Parent, Subsidiary or Affiliate employing you)   agree to a reduction in your scheduled work hours, then the Company reserves   the right to modify the rate at which the shares vest, so that the rate of   vesting is commensurate with your reduced work schedule.

 

The   Company shall not be required to adjust any vesting schedule pursuant to this   subsection.
    
	
 
    	
 
    	
 
    
	
Stock   Certificates
    	
 
    	
The   Restricted Shares are issued in book-entry form, registered in your name, and   held in escrow at the Company’s designated brokerage pending the date on   which shares vest. After shares vest, the Company will release from escrow   the number of shares of Common Stock representing your vested shares,   registered in your name or in the name of your legal representatives,   beneficiaries or heirs, as the case may be.
    
	
 
    	
 
    	
 
    
	
Voting   Rights
    	
 
    	
You   may vote your shares even before they vest.
    
	
 
    	
 
    	
 
    
	
Dividend   Rights
    	
 
    	
Any   cash dividends distributed with respect to Restricted Shares shall be subject   to the same terms and conditions as apply to the Restricted Shares to which   they relate and shall be paid to you (less all applicable withholding taxes)   promptly upon vesting.
    
	
 
    	
 
    	
 
    
	
Withholding   Taxes
    	
 
    	
No   shares will be released to you unless you have made arrangements acceptable   to the Company (and/or the Parent, Subsidiary or Affiliate employing you) to   pay any withholding taxes that may be due as a result of this award or the   vesting of the shares. Prior to the relevant taxable event, you shall pay or   make adequate arrangements satisfactory to the Company (and/or the Parent,   Subsidiary or Affiliate employing you) to satisfy all withholding obligations   for applicable
    

 

2

 

	
 
    	
 
    	
taxes.

 

You   authorize the Company to instruct the broker whom it has selected for this   purpose to sell a number of shares of Common Stock to be released to you upon   the vesting of your Restricted Shares or a lesser number necessary to meet   tax withholding obligations. Such sales shall be effected at a market price   following the date that the Restricted Shares vest.

 

You   acknowledge that the proceeds of any such sale may not be sufficient to   satisfy your withholding obligations. To the extent the proceeds from such   sale are insufficient to cover the taxes due, the Company (or the Parent,   Subsidiary or Affiliate employing you) may in its discretion   (a) withhold the balance of all applicable taxes legally payable by you   from your wages or other cash compensation paid to you by the Company (or the   Parent, Subsidiary or Affiliate employing you) and/or (b) withhold in   shares of Common Stock, provided that the Company only withholds an amount of   shares not in excess of the amount necessary to satisfy the minimum   withholding amount. The fair market value of withheld shares, determined as   of the date taxes otherwise would have been withheld in cash, will be applied   against the withholding taxes. Even if the Company satisfies the obligation   for taxes by withholding a number of shares of Common Stock as described   above, you will be deemed to have received the full number of shares released   from restrictions, including the number of shares sold or withheld to satisfy   tax withholding obligations.
    

 

3

 

	
Rule 10b5-1   Plan
    	
 
    	
You   acknowledge that the instruction to the broker to sell in the foregoing   section is intended to comply with the requirements of   Rule 10b5-1(c)(1)(i)(B) under the Securities Exchange Act of 1934   (the “Exchange Act”), and to be interpreted to comply with the requirements   of Rule 10b5-1(c)(1) under the Exchange Act (a “10b5-1 Plan”). This   10b5-1 Plan is adopted to be effective as of the first date on which   Restricted Shares vest. This 10b5-1 Plan is being adopted to permit you to   sell a number of shares to be released to you upon the vesting of Restricted   Shares sufficient to pay withholding taxes that become due as a result of   this award or the vesting of the Restricted Shares or, if you elect within   thirty days following notification via the broker whom the Company has   selected for this purpose of your restricted stock award, to permit you to   sell all of the vested Restricted Shares. You hereby appoint the Company as   your agent and attorney-in-fact to instruct the broker with respect to the   number of shares to be sold under this 10b5-1 Plan.

 

You   hereby authorize the broker to sell the number of shares of Common Stock   determined as set forth above and acknowledge that the broker is under no   obligation to arrange for such sale at any particular price. You acknowledge   that the broker may aggregate your sales with sales occurring on the same day   that are effected on behalf of other Company employees pursuant to sales of   shares vesting under Company options, restricted stock awards or restricted   stock unit awards and your proceeds will be based on a blended price for all   such sales. You acknowledge that you will be responsible for all brokerage   fees and other costs of sale, and you agree to indemnify and hold the Company   harmless from any losses, costs, damages, or expenses relating to any such   sale. You acknowledge that it may not be possible to sell Common Stock during   the term of this 10b5-1 Plan due to (a) a legal or contractual   restriction applicable to you or to the broker, (b) a market disruption,   (c) rules governing order execution priority on the Nasdaq Global   Market, (d) a sale effected pursuant to this 10b5-1 Plan that fails to   comply (or in the reasonable opinion of the broker’s counsel is likely not to   comply) with Rule 144 under the Securities Act of 1933, if applicable,   or (e) if the Company determines that sales may not be effected under   this 10b5-1 Plan. You acknowledge that this 10b5-1 Plan is subject to the   terms of any policy adopted now or hereafter by the Company governing the   adoption or administration of 10b5-1 plans.
    

 

4

 

	
Restrictions   on Resale
    	
 
    	
You   agree not to sell any shares at a time when applicable laws, regulations,   Company policies (including the Company’s Insider Trading Policy, a copy of   which can be found on the Company’s intranet) or an agreement between the   Company and its underwriters prohibit a sale. This restriction will apply as   long as your Service continues and for such period of time after the   termination of your Service as the Company may specify.
    
	
 
    	
 
    	
 
    
	
No   Retention Rights
    	
 
    	
Your   award or this Agreement does not give you the right to be employed or   retained by the Company, a Parent, a Subsidiary or an Affiliate in any   capacity. The Company and its Parent, Subsidiaries and Affiliates reserve the   right to terminate your Service at any time, with or without cause.
    
	
 
    	
 
    	
 
    
	
Additional   or Exchanged Securities and Property
    	
 
    	
In   the event of a merger or consolidation of the Company with or into another   entity, any other corporate reorganization, a stock split, the declaration of   a stock dividend, the declaration of an extraordinary dividend payable in a   form other than stock, a spin-off, a recapitalization or a similar   transaction affecting the Company’s outstanding Common Stock, any securities   or other property (including cash or cash equivalents) that are by reason of   such transaction exchanged for, or distributed with respect to, any   Restricted Shares shall be subject to the same terms and conditions   (including, without limitation, vesting and forfeiture) as are applicable to   the Restricted Shares under this Agreement and the Plan. Appropriate   adjustments to reflect the exchange or distribution of such securities or   property shall be made to the number and/or class of the Restricted Shares.
    
	
 
    	
 
    	
 
    
	
Recoupment   Policy
    	
 
    	
The   shares issued pursuant to this award shall be subject to any Company   recoupment policy in effect from time to time.
    
	
 
    	
 
    	
 
    
	
Applicable   Law
    	
 
    	
This   Agreement will be interpreted and enforced under the laws of the State of   Delaware (without regard to their choice-of-law provisions).
    
	
 
    	
 
    	
 
    
	
The   Plan and Other Agreements
    	
 
    	
The   text of the Plan is incorporated in this Agreement by reference.

 

This   Agreement and the Plan constitute the entire understanding between you and   the Company regarding this award. Any prior agreements, commitments or   negotiations concerning this award are superseded. This Agreement may be   amended only by another written agreement between the parties.
    

 

BY ACCEPTING THIS RESTRICTED STOCK AWARD, YOU AGREE TO ALL OF THE
 TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

5

 

Form of Notice of Stock Option Grant and Stock Option Agreement under 2012 Equity Incentive Plan

(Director Auto Grant)

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT

 

You have been granted the following option to purchase shares of the Common Stock of Theravance, Inc. (the “Company”):

 

	
Name of Optionee:
    	
 
    	
«FirstName» «LastName»
    
	
 
    	
 
    	
 
    
	
Total   Number of Shares:
    	
 
    	
«Shares»
    
	
 
    	
 
    	
 
    
	
Type   of Option:
    	
 
    	
Nonstatutory   Stock Option
    
	
 
    	
 
    	
 
    
	
Exercise   Price Per Share:
    	
 
    	
$«Price»
    
	
 
    	
 
    	
 
    
	
Date of Grant:
    	
 
    	
«GrantDate»
    
	
 
    	
 
    	
 
    
	
Vesting Schedule:
    	
 
    	
This   option shall vest and become exercisable as to <<fraction>>   of the Shares subject to this option when you complete each month of   continuous service as an Outside Director (“Service”)  following the   Grant Date. In addition, this option shall vest and become exercisable in   full on the date of the Company’s 20     Annual Meeting   of Stockholders, provided you remain in continuous Service through such date.
    
	
 
    	
 
    	
 
    
	
Expiration   Date:
    	
 
    	
«ExpirationDate». This option expires   earlier if your Service terminates earlier, as described in the Stock Option   Agreement, and may be terminated sooner in connection with certain corporate   transactions as provided in Article XI of the Plan.
    

 

You and the Company agree that this option is granted under and governed by the terms and conditions of the 2012 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to and made a part of this document.  Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Plan.

 

You further agree that the Company may deliver by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

 

	
OPTIONEE:
    	
 
    	
THERAVANCE, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
«FirstName» «LastName»
    	
 
    	
Title:
    	
 
    

 

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN

 

STOCK OPTION AGREEMENT

 

	
Tax   Treatment
    	
 
    	
This   option is intended to be a nonstatutory stock option, as provided in the   Notice of Stock Option Grant.
    
	
 
    	
 
    	
 
    
	
Vesting
    	
 
    	
This   option vests and becomes exercisable as shown in the Notice of Stock Option   Grant.

 

This   option shall vest and become exercisable in full if the Company is subject to   a “Change in Control” (as defined in the   Plan) before your Service terminates or upon your death.

 

For   purposes of this Agreement, “Service”   means your service as an Outside Director.

 

This   option will in no event become exercisable for additional shares after your   Service has terminated for any reason except as set forth above.
    
	
 
    	
 
    	
 
    
	
Term
    	
 
    	
This   option expires in any event at the close of business at Company headquarters   on the day before the 10th anniversary of the Date of   Grant, as shown in the Notice of Stock Option Grant. (This option will expire   earlier if your Service terminates, as described below, and this option may   be terminated sooner as provided in Article XI of the Plan.)

 

You   may exercise this option, to the extent vested and exercisable, at any time   before its expiration or termination pursuant to this Agreement or the Plan.
    
	
 
    	
 
    	
 
    
	
Termination   of Service
    	
 
    	
If   your Service terminates for any reason, this option will expire immediately   to the extent it is unvested as of your termination date and does not vest as   a result of your termination of Service. The Company determines when your   Service terminates for all purposes of this option.

 

If   your Service terminates for any reason except a termination for Cause, then   this option, to the extent vested as of your termination date, will expire at   the close of business at Company headquarters on the date 36 months after   your termination date. If your Service terminates for Cause, then this option   will expire on your termination date.

 

For   purposes of this Agreement, “Cause” shall   mean (i) the unauthorized use or disclosure of the confidential   information or trade secrets of the Company, a Parent, a Subsidiary or an   Affiliate, which use causes material harm to the Company, a Parent, a   Subsidiary or an Affiliate, (ii)
    

 

2

 

	
 
    	
 
    	
conviction   of a felony under the laws of the United States or any state thereof,   (iii) gross negligence or (iv) repeated failure to perform lawful   assigned duties for thirty days after receiving written notification from the   Board.
    
	
 
    	
 
    	
 
    
	
Restrictions   on Exercise
    	
 
    	
The   Company will not permit you to exercise this option if the issuance of shares   at that time would violate any law or regulation.
    
	
 
    	
 
    	
 
    
	
Notice   of Exercise
    	
 
    	
When   you wish to exercise this option, you must notify the Company by filing the   proper “Notice of Exercise” form at the address given on the form. Your   notice must specify how many shares you wish to purchase. Your notice must   also specify how your shares should be registered. The notice will be   effective when the Company receives it.

 

However,   if you wish to exercise this option by executing a same-day sale (as   described below), you must follow the instructions of the Company and the   broker who will execute the sale.

 

If   someone else wants to exercise this option after your death, that person must   prove to the Company’s satisfaction that he or she is entitled to do so.

 

In   no event may this option be exercised for any fractional shares.
    
	
 
    	
 
    	
 
    
	
Form of   Payment
    	
 
    	
When   you submit your notice of exercise, you must include payment of the option   exercise price for the shares that you are purchasing. To the extent   permitted by applicable law, payment may be made in one (or a combination of   two or more) of the following forms:

 

·                  Your personal check, a   cashier’s check, a money order, or by wire transfer.

 

·                  Shares of Company stock   that you own, along with any forms needed to effect a transfer of those   shares to the Company. The value of the shares, determined as of the   effective date of the option exercise, will be applied to the option exercise   price. Instead of surrendering shares of Company stock, you may attest to the   ownership of those shares on a form provided by the Company and have the same   number of shares subtracted from the option shares issued to you. However,   you may not surrender, or attest to the ownership of, shares of Company stock   in payment of the exercise price if your action would cause the Company to   recognize compensation expense (or additional compensation expense) with   respect to this option for financial reporting purposes.

 

·                  Irrevocable directions to   a securities broker approved by the Company
    

 

3

 

	
 
    	
 
    	
to   sell all or part of your option shares and to deliver to the Company from the   sale proceeds an amount sufficient to pay the option exercise price and any   withholding taxes. (The balance of the sale proceeds, if any, will be   delivered to you.) The directions must be given in accordance with the   instructions of the Company and the broker. This exercise method is sometimes   called a “same-day sale.”

 

·                  With the Company’s consent   (which may be granted by the Board of Directors or the Compensation Committee   of the Board of Directors), by having the Company withhold shares of Common   Stock that would otherwise be issued on exercise of the option. The value of   the withheld shares, determined as of the effective date of the option   exercise, will be applied to the option exercise price. This exercise method   is sometimes referred to as a “net exercise”.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Withholding   Taxes and Stock Withholding
    	
 
    	
You   will not be allowed to exercise this option unless you make arrangements   acceptable to the Company to pay any withholding taxes that may be due as a   result of the option exercise.
    
	
 
    	
 
    	
 
    
	
Restrictions   on Resale
    	
 
    	
You   agree not to sell any option shares at a time when applicable laws, Company   policies (including the Company’s Insider Trading Policy, a copy of which can   be found on the Company’s Intranet) or an agreement between the Company and   its underwriters prohibit a sale. This restriction will apply as long as your   Service continues and for such period of time after the termination of your   Service as the Company may specify.
    
	
 
    	
 
    	
 
    
	
Transfer   of Option
    	
 
    	
Prior   to your death, only you may exercise this option. You cannot transfer or   assign this option. For instance, you may not sell this option or use it as   security for a loan. If you attempt to do any of these things, this option   will immediately become invalid. You may, however, dispose of this option in   your will or a beneficiary designation. A beneficiary designation must be   filed with the Company on the proper form.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Regardless   of any marital property settlement agreement, the Company is not obligated to   honor a notice of exercise from your former spouse, nor is the Company   obligated to recognize your former spouse’s interest in your option in any   other way.
    
	
 
    	
 
    	
 
    
	
No   Retention Rights
    	
 
    	
Your   option or this Agreement does not give you the right to be retained by the   Company, a Parent, a Subsidiary or an Affiliate in any capacity. The Company   and its Parents, Subsidiaries and Affiliates reserve the right to terminate   your Service at any time, with or without cause. Nor shall this Agreement in   any way be construed or interpreted so as to affect adversely or otherwise   impair the right of the Company or the stockholders to remove you from the Board   at any time in accordance
    

 

4

 

	
 
    	
 
    	
with   the provisions of applicable law.
    
	
 
    	
 
    	
 
    
	
Stockholder   Rights
    	
 
    	
You,   or your estate or heirs, have no rights as a stockholder of the Company until   this option has been exercised by giving the required notice to the Company   and paying the exercise price. No adjustments are made for dividends or other   rights if the applicable record date occurs before exercise of this option,   except as described in the Plan.
    
	
 
    	
 
    	
 
    
	
Recoupment   Policy
    	
 
    	
This   option, and the shares acquired upon exercise of this option, shall be   subject to any Company recoupment policy in effect from time to time.
    
	
 
    	
 
    	
 
    
	
Adjustments
    	
 
    	
In   the event of a stock split, a stock dividend or a similar change in Common   Stock, the number of shares covered by this option and the exercise price per   share may be adjusted pursuant to the Plan.
    
	
 
    	
 
    	
 
    
	
Applicable   Law
    	
 
    	
This   Agreement will be interpreted and enforced under the laws of the State of   Delaware (without regard to its choice-of-law provisions).
    
	
 
    	
 
    	
 
    
	
The   Plan and Other Agreements
    	
 
    	
The   text of the Plan is incorporated in this Agreement by reference. A copy of   the Plan is available on the Company’s intranet or by request to the Finance   Department. Capitalized terms not otherwise defined herein shall have the   meanings ascribed to such terms in the Plan.

 

This   Agreement, the Notice of Stock Option Grant and the Plan constitute the   entire understanding between you and the Company regarding this option. Any   prior agreements, commitments or negotiations concerning this option are   superseded. This Agreement may be amended only by another written agreement   between the parties.
    

 

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE
 TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

5

 

Form of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2012 Equity Incentive Plan (Director Auto Grant)

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN

 

NOTICE OF RESTRICTED STOCK UNIT AWARD

 

You have been granted the number of restricted stock units indicated below by Theravance, Inc. (the “Company”) on the following terms:

 

	
Name:
    	
«Name»
    

 

Restricted Stock Unit Award Details:

 

	
Date   of Grant:
    	
«DateGrant»
    
	
Restricted   Stock Units:
    	
6,000
    

 

Each restricted stock unit (the “restricted stock unit”) represents the right to receive one share of the Company’s Common Stock subject to the terms and conditions contained in the Restricted Stock Unit Agreement.

 

Vesting Schedule:

 

Vesting is dependent upon continuous service as an Outside Director (“Service”) throughout the vesting period.  The restricted stock units will vest in twelve (12) equal monthly installments following the Date of Grant, provided that you remain in continuous Service through each such date. In addition, all of the restricted stock units subject to this award will vest immediately if the Company is subject to a Change in Control (as defined in the Plan) before your continuous Service terminates and upon your death.  Finally, any remaining unvested units will vest on the date of the Company’s 20     Annual Meeting of Stockholders, provided you remain in continuous Service through such date.

 

You and the Company agree that your right to receive the restricted stock units is granted under and governed by the terms and conditions of the Plan and of the Restricted Stock Unit Agreement that is attached to and made a part of this document.  Capitalized terms not defined herein have the meaning ascribed to such terms in the Plan.

 

You agree that the Company may deliver by email all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

 

 

	
RECIPIENT:
    	
THERAVANCE, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
Print   Name
    	
 
    	
 
    	
 
    
					

 

 

THERAVANCE, INC. 2012 EQUITY INCENTIVE PLAN:
 RESTRICTED STOCK UNIT AGREEMENT

 

	
Payment   for Units
    	
 
    	
No   payment is required for the restricted stock units you are receiving.
    
	
 
    	
 
    	
 
    
	
Nature of Units
    	
 
    	
Your restricted stock units are bookkeeping entries.  They represent only the Company’s unfunded   and unsecured promise to issue shares of Common Stock on a future date.  As a holder of restricted stock units, you   have no rights other than the rights of a general creditor of the Company.
    
	
 
    	
 
    	
 
    
	
Vesting
    	
 
    	
The restricted stock units that you are receiving will vest as shown   in the Notice of Restricted Stock Unit Award.

 

No   additional restricted stock units vest after your Service has terminated for   any reason, except as set forth on the Notice of Restricted Stock Unit Award.

 

For   purposes of this Agreement, “Service” means your continuous service as an   Outside Director.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Regardless of when the restricted stock units vest, settlement of the   units will only occur at the time specified below under “Time of Settlement”.
    
	
 
    	
 
    	
 
    
	
Time of Settlement
    	
 
    	
A vested restricted stock unit will be settled on the fourth   anniversary of the Date of Grant or, if earlier, 60 days following your   “separation from service” (within the meaning of Section 409A of the   Internal Revenue Code of 1986, as amended (the “Code”)) or your death.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
In the event of a Change in Control that also constitutes a “change   in control event” under Treasury Regulation 1.409A-3(a)(5) (a “409A   CiC”), all vested restricted stock units will be settled immediately prior to   the closing of the transaction that constitutes a Change in Control.  In the event of a Change in Control that is   not a 409A CiC, the vested restricted stock units will be settled as   described in the rest of this section or, if sooner, immediately prior to a   409A CiC after such Change in Control. 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Notwithstanding anything to the contrary in the Plan, the Notice of   Restricted Stock Unit Award or any other section of this Agreement, the   Company may accelerate settlement of these restricted stock units from the   time specified in this section only in accordance with Treasury Regulation   1.409A-3(j)(4).  
    
	
 
    	
 
    	
 
    
	
Form of Settlement
    	
 
    	
At the time of settlement, you will receive one share of the   Company’s 
    

 

 

Form of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2012 Equity Incentive Plan (Director Auto Grant)

 

	
 
    	
 
    	
Common Stock for each vested restricted stock unit. 
    
	
 
    	
 
    	
 
    
	
Forfeiture
    	
 
    	
If   your Service terminates for any reason, then your restricted stock units that   have not vested before the termination date and do not vest as a result of   the termination pursuant to this Agreement or as set forth on the Notice of   Restricted Stock Unit Award will be forfeited immediately.  This means that the restricted stock units   will immediately revert to the Company.    You receive no payment for restricted stock units that are   forfeited.  The Company determines when   your Service terminates for all purposes of your restricted stock units.
    
	
 
    	
 
    	
 
    
	
Stock   Certificates
    	
 
    	
No   shares of Common Stock shall be issued to you prior to the date on which the   restricted stock units are settled.  At   the time of settlement, a stock certificate for the shares representing your   vested restricted stock units shall be released to you or the Company shall   cause to be issued in book-entry form, registered in your name or in the name   of your legal representatives, beneficiaries or heirs, as the case may be,   the number of shares of Common Stock representing your vested restricted   stock units.  No fractional shares   shall be issued.
    
	
 
    	
 
    	
 
    
	
No   Stockholder Rights
    	
 
    	
The   restricted stock units do not entitle you to any of the rights of a   stockholder of Common Stock.  Upon   settlement of the restricted stock units into shares of Common Stock, you   will obtain full voting and other rights as a stockholder of the Company.
    
	
 
    	
 
    	
 
    
	
Units   Restricted
    	
 
    	
You   may not sell, transfer, pledge or otherwise dispose of any restricted stock   units or rights under this Agreement other than by will or by the laws of   descent and distribution.    Notwithstanding the foregoing, you may designate a beneficiary or   beneficiaries to receive any property distributable with respect to the   restricted stock units upon your death.    A beneficiary designation must be filed with the Company on the proper   form.
    
	
 
    	
 
    	
 
    
	
Taxes
    	
 
    	
No   shares will be distributed to you unless you have made arrangements   acceptable to the Company to pay any withholding taxes that may be due as a   result of the vesting and/or settlement of this award.

 

These   restricted stock units are subject to Code Section 409A.  The Company has attempted in good faith to   structure this award in a manner that conforms to the requirements of Code   Sections 409A(a)(2), (3) and (4), and any ambiguities herein will be   interpreted to so comply to the maximum extent permissible.  However, you acknowledge and agree that the   Company has made no representations or warranties to you with respect to   whether this award in fact complies with Code Sections 409A(a)(2),   (3) and (4) or the income tax consequences related to this   award.  
    

 

2

 

	
Restrictions   on Issuance
    	
 
    	
The Company will not issue shares to you if the issuance of shares at   that time would violate any law or regulation.
    
	
 
    	
 
    	
 
    
	
Restrictions   on Resale
    	
 
    	
You   agree not to sell any shares of Common Stock you receive under this Agreement   at a time when applicable laws, regulations, Company trading policies   (including the Company’s Insider Trading Policy, a copy of which can be found   on the Company’s intranet) or an agreement between the Company and its   underwriters prohibit a sale.  This   restriction will apply as long as your Service continues and for such period   of time after the termination of your Service as the Company may specify.
    
	
 
    	
 
    	
 
    
	
No   Retention Rights
    	
 
    	
Your   award or this Agreement does not give you the right to be retained by the   Company (or a Parent, Subsidiary or Affiliate) in any capacity.  The Company and its Parents, Subsidiaries   and Affiliates reserve the right to terminate your Service at any time, with   or without cause. Nor shall this Agreement in any way be construed or   interpreted so as to affect adversely or otherwise impair the right of the   Company or the stockholders to remove you from the Board at any time in   accordance with the provisions of applicable law.
    
	
 
    	
 
    	
 
    
	
Recoupment   Policy
    	
 
    	
This   award, and the shares acquired upon settlement of this award, shall be   subject to any Company recoupment policy in effect from time to time.
    
	
 
    	
 
    	
 
    
	
Adjustments
    	
 
    	
In   the event of a stock split, a stock dividend or a similar change in Common   Stock, the number of restricted stock units may be adjusted pursuant to the   Plan.
    
	
 
    	
 
    	
 
    
	
Applicable   Law
    	
 
    	
This   Agreement will be interpreted and enforced with respect to issues of contract   law under the laws of the State of Delaware (without regard to its   choice-of-law provisions).
    
	
 
    	
 
    	
 
    
	
The   Plan and Other Agreements
    	
 
    	
The   text of the Plan is incorporated in this Agreement by reference. A copy of the   Plan is available on the Company’s intranet or by request to the Finance   Department.  Capitalized terms not   otherwise defined herein shall have the meanings ascribed to such terms in   the Plan.

 

This   Agreement, the Notice of Restricted Stock Unit Award, and the Plan constitute   the entire understanding between you and the Company regarding this   award.  Any prior agreements,   commitments or negotiations concerning this award are superseded.  This Agreement may be amended only by   another written agreement between the parties.
    

 

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE
 TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

3Exhibit 10.39

 

TECHNOLOGY TRANSFER AND SUPPLY AGREEMENT

 

THIS TECHNOLOGY TRANSFER AND SUPPLY AGREEMENT (this “Agreement”) is made as of this 22nd day of May, 2012 (the “Effective Date”) by and between Theravance, Inc., a Delaware Corporation having its principal place of business at 901 Gateway Blvd., South San Francisco, California, 94080 (“Theravance”) and Hospira Worldwide, Inc., a Delaware Corporation having its principal place of business at 275 North Field Drive, Lake Forest, Illinois, 60045 (“Hospira”).

 

WITNESSETH:

 

WHEREAS, Theravance owns the rights to the human pharmaceutical compound, telavancin that is marketed and sold under the name, VIBATIV® (“Product”);

 

WHEREAS, Theravance desires to engage Hospira to perform manufacture, fill, and finish services with respect to the Product; and

 

WHEREAS, Hospira desires to perform such services for Theravance with respect to the Product;

 

NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, Theravance and Hospira hereby agree as follows:

 

ARTICLE 1.          DEFINITIONS

 

The following words and phrases when used herein with capital letters shall have the meanings set forth or referenced below:

 

1.1           “Act” shall mean the United States Federal Food, Drug and Cosmetic Act (21 U.S.C. 301), as amended from time to time.

 

1.2           “Active Pharmaceutical Ingredient” or “API” means the active pharmaceutical substance of the Drug in bulk form prior to incorporation into the Product.

 

1.3           “Active Pharmaceutical Ingredient Specifications” means the detailed description and parameters of the API set forth on Exhibit 1.3.

 

1.4           “Adverse Drug Experience(s)” has the meaning as set forth in 21 CFR 310.305.

 

1.5           “Affiliate” means, with respect to a party, any corporation, partnership, joint venture and/or firm which controls, is controlled by or is under common control with such party.  As used in this Section 1.5, “control” means:  (a) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares having the right to vote for the election of directors; and (b) in the case of non-corporate entities, the direct or indirect power to manage, direct or cause the direction of the management and policies of the non-corporate entity or the power to elect at least fifty percent (50%) of the members of the governing body of such non-corporate entity.

 

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

 

 

1.6           “Applicable Law” means all laws applicable to the manufacture, processing, packaging, distribution, sale and use of the Product as may be amended and in effect from time to time, including the Act and the regulations promulgated thereunder; the Canadian Food and Drugs Act (R.S., chapter F-27) and related regulations; European Directive 2003/94/EC and 2001/83/EC, and related legislation; all applicable cGMP; and all corresponding laws, ordinances, rules and regulations of any other applicable jurisdiction.

 

1.7           “Business Day” shall mean a day which is not a Saturday or Sunday or a bank or public holiday in San Francisco, California, Chicago, Illinois or McPherson, Kansas.

 

1.8           “Certificate of Analysis” means a document, signed by an authorized representative of Hospira, describing the Product Specifications of and testing methods applied to the Product, and the results thereof.

 

1.9           “Certificate of Compliance” means a document, signed by an authorized representative of Hospira, attesting that a particular lot, batch or run was manufactured in accordance with cGMP, Applicable Law, and the Product Specifications.  The Certificate of Compliance may be included within the Certificate of Analysis, or separately, if required by Theravance for regulatory purposes or Applicable Law.

 

1.10         “cGMP”  means those principles and guidelines of good manufacturing practices as set forth in 21 C.F.R. Parts 210 and Part 211; EU Directive 2003/94/EC - guidelines of good manufacturing practices for medicinal products for human use (EudraLex Vol. 4); Canadian Good Manufacturing Practices as contained in Canada Food & Drug Regulations C.R.C., c. 870, C.02- C.04; the ICH Guideline on Good Manufacturing Practice for Active Pharmaceutical Ingredients (ICH Q7A), as adopted by EU Directive 2004/27; and the corresponding requirements, of any other applicable jurisdiction.

 

1.11         “Commercial Year” means each period of twelve (12) consecutive calendar months during this Agreement beginning on January 1st and ending December 31st, except for the first Commercial Year, which shall commence on the first day of the month after the month of Theravance’s first bona fide sale of Product manufactured by Hospira to a non-Affiliate customer after the Product has received Regulatory Approval for manufacturing at Hospira’s McPherson, Kansas site and ends on December 31st thereafter.

 

1.12         “Components” means all those vials or component parts of the vials into which the Drug will be filled, and the labeling, packaging, ancillary goods, shipping materials and other items to be supplied by Hospira or its Components supplier(s) to manufacture the Product in accordance with the Product Specifications.

 

CONFIDENTIAL

 

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

 

2

 

1.13         “Confidential Information” means all information, data, and know how, whether commercial, financial, technical, operational, or otherwise in any format, disclosed hereunder by one party or any of its Affiliates to the other party or any of its Affiliates in connection with this agreement which by its nature is clearly confidential, or is otherwise marked or designated as confidential or proprietary, whether disclosed orally in documentary form, by documentation or otherwise and including the terms of this Agreement, except any portion thereof which:

 

(a)           is known to the recipient at the time of the disclosure, as evidenced by its written records or other competent evidence;

 

(b)           is disclosed to the recipient by a Third Party lawfully in possession of such information and not under an obligation of nondisclosure;

 

(c)           is or becomes patented, published or otherwise part of the public domain through no fault of the recipient; or

 

(d)           is developed by or for the recipient independently of Confidential Information disclosed hereunder as evidenced by the recipient’s written records or other competent evidence;

 

Notwithstanding the forgoing, specific aspects of Confidential Information shall not be deemed to be within the forgoing exceptions when such exceptions only apply to more general knowledge or when the relevant specific aspects are identified using Confidential Information disclosed under this Agreement.

 

1.14         “Drug” means the human pharmaceutical compound, telavancin, a lipoglycopeptide used for the treatment of Gram-positive pathogens.

 

1.15         “EMA” means the European Medicines Agency and any successor entity.

 

1.16         “Excipient” means [***].

 

1.17         “Excipient Specifications” means the detailed description and parameters of the Excipient set forth in Exhibit 1.3.

 

1.18         “Facility” means Hospira’s pharmaceutical manufacturing plant at McPherson, Kansas, or such other manufacturing facility agreed by the parties in writing.

 

1.19         “FDA” means the United States Food and Drug Administration or any successor entity.

 

CONFIDENTIAL

 

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

 

3

 

1.20         “Health Canada” means the Therapeutic Products Inspectorate of the Canadian Health Products and Food Branch and any successor entity.

 

1.21         “Manufacturing Process” means any and all processes (or any step in any process) that is provided to Hospira by Theravance and that will be used to manufacture the Product, as evidenced in the batch documentation and/or technology transfer reports.

 

1.22         “Master Batch Record” shall mean the document that defines the manufacturing methods, materials, and other procedures, directions and controls associated with the manufacture and testing of the Product, which may be amended in writing from time to time by mutual agreement of the parties.

 

1.23         “MSDS” means the Material Data Safety Sheet for the Product or the API containing such information as may be required by applicable government agencies.

 

1.24         “Product” means VIBATIV® in a 750mg dosage form, filled, finished and packaged in accordance with the Product Specifications.

 

1.25         “Product Specifications” means those manufacturing, materials, packaging, labeling, testing, and performance specifications for the Product filed with the relevant Regulatory Authority, required for the manufacture of the Product that is to be purchased and supplied under this Agreement, as such are set forth on Exhibit 1.25 which specifications may be amended by the parties from time to time in accordance with this Agreement.

 

1.26         “QP” shall mean a qualified person who is entrusted to perform “QP Testing/ Release” of the Product in the European Union, in accordance with European Directive 2001/83/EC relating to Medicinal Products for Human Use.

 

1.27         “Regulatory Approval” means any licenses and permits for the manufacture of the Product at the Facility and all other approvals (including supplements, amendments, pre- and post-marketing approvals, and pricing and reimbursement approvals), licenses, registrations or authorizations of a relevant Regulatory Authority necessary for the distribution, sale or use of the Product in the Territory.

 

1.28         “Regulatory Authority” means the FDA and/or the EMA or any other federal, state or local or other regulatory agency, department, bureau or other governmental entity, which is responsible for issuing Regulatory Approvals of the Product in the Territory.

 

1.29         “Specially Regulated Waste” means any hazardous waste, toxic waste, medical waste, nuclear waste, mixed waste, or other waste materials or by-products, including waste water, which may be subject to or require special handling, treatment, storage, or disposal under any federal, state or local laws or regulations intended to address such types of waste materials that arise from the manufacture of the Product.

 

CONFIDENTIAL

 

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

 

4

 

1.30         “Term” means, individually the Initial Term of this Agreement, or collectively the Initial Term and any Renewal Term, as those defined terms are used herein.

 

1.31         “Territory” means:  (i) the United States of America, including the District of Columbia, the Commonwealth of Puerto Rico, all territories and possessions of the United States of America, United States military bases, and any other location over which the FDA has jurisdiction to regulate medicinal products intended for human use; (ii) Canada; and (iii) the European Union (“EU 27”) and any other countries that are later admitted to the European Union by acceding to the treaties of the European Union.

 

1.32         “Third Party” shall mean a party other than Hospira or Theravance and their respective Affiliates.

 

1.33         “Waste” shall mean all rejects, improper goods, garbage, refuse, remainder, residue, waste water or other discarded material, including solid, liquid, semisolid, or contained gaseous material that arises from the manufacture of the Product, including rejected, excess or unsuitable materials, API and Products.  The term Waste shall not include any Specially Regulated Waste.

 

ARTICLE 2.          TECHNOLOGY TRANSFER PROJECT

 

2.1           General.  The parties shall undertake a technology transfer project (“Project”) consisting of the activities set forth in Exhibit 2.1 (“Statement of Work”).  Under the Project, Hospira shall assist Theravance in the technology transfer related to the Manufacturing Process and to obtain the required sNDA or equivalent approval(s) in the jurisdictions in the Territory.  Hospira then shall manufacture and deliver Product to Theravance for sale by Theravance as a human pharmaceutical product.

 

2.2           Commercially Reasonable Efforts.  Each party shall use all commercially reasonable efforts successfully to complete the Project.  However, the parties understand and agree that neither of them can guarantee that the Project will be successful, nor warrants that a marketable product will result from the Project.

 

ARTICLE 3.          TECHNOLOGY TRANSFER FEES; PROJECT MANAGEMENT

 

3.1           Technical Transfer Fee.  Theravance shall pay to Hospira a technical transfer fee (“Technical Transfer Fee”) for its work under the Project in accordance with the payment schedule set forth in Exhibit 2.1.

 

3.2           Stability Studies.  If so requested by Theravance, Hospira will perform stability studies on the Product separate and apart from the Project.  Hospira will invoice Theravance for any such stability studies at the prices set forth in Exhibit 3.2.

 

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3.3           Changes in Project Scope.

 

(a)           If Theravance requests changes in the Project or the Product Specifications, or if technical difficulties require that Hospira perform either additional work or repeat work, and such additional work is required not because of Hospira’s fault or negligence, Hospira shall within [***] Business Days provide Theravance with a new or revised proposal with cost estimates for such changes or additional work, based on its customary per/hour, per/person rates relative to the work to be performed, including costs for reasonable travel and sustenance, materials and supplies. If Theravance approves such costs, the mutually agreeable changes will be documented in writing and signed by both parties as a change order, and Hospira shall perform such agreed-upon new or additional work.  Theravance shall pay Hospira’s costs for such additional work or repeat work performance as set forth in this Agreement.

 

(b)           In the event that Theravance decides to pursue marketing and sales activities for the Product in countries or geographic regions outside of the Territory, Hospira shall provide Theravance with all reasonable additional technical/developmental and regulatory support, including, for example, regulatory support for Theravance’s supplemental regulatory filings, packaging and product development, labeling, and Regulatory Authority inspections. Any additional technical/developmental and regulatory support for such other countries or geographic regions shall be considered a change in Project scope and the Parties will agree to the reasonable incremental costs of such additional support in accordance with Section 3.3(a).  Any additional pre-approval inspections of the Facility that may be required by relevant Regulatory Authorities as a result shall be reimbursed in accordance with Section 7.3(c).

 

3.4           Project Manager.  Each party will appoint an authorized individual who will have primary responsibility for day-to-day interactions with the other party for the activities under the Project (“Project Manager”).  Each party will use all reasonable efforts to provide the other party with at least [***] days prior written notice of any change in its Project Manager.  All communications between Hospira and Theravance regarding the conduct of the activities under the Project will be addressed to its Project Manager.

 

3.5           Technology Transfer Supplies.  Based on Theravance’s Product Specifications, Hospira will manufacture the Product in compliance with cGMP for production and regulatory purposes as follows: [***] (“Technology Transfer Supplies”) at the prices set forth in Exhibit 2.1.  In accordance with a schedule to be mutually agreed by the parties, Theravance shall issue its purchase order(s) for such Technology Transfer Supplies at least [***] days before any requested manufacturing date.  For the sake of clarity, all relevant provisions of Articles 5, 7, 8 and 9 shall apply to the manufacture and delivery of the Technology Transfer Supplies.

 

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ARTICLE 4.          THERAVANCE’S REGULATORY SUBMISSIONS

 

4.1           Regulatory Review.

 

(a)           Upon Theravance’s request, Hospira shall review those portions of Theravance’s proposed submissions for Regulatory Approval as related to Hospira’s manufacturing, packaging and quality control procedures before the submissions are filed with relevant Regulatory Authorities.  Hospira shall complete its review of any English-language submissions within [***] Business Days after receipt. For any non English-language submissions, Theravance shall provide Hospira with a submission translated into English and the parties will agree on a reasonable period of time that Hospira may require for review of such submissions.

 

(b)           Upon Theravance’s request, Hospira shall consult with and advise Theravance in responding to questions from Regulatory Authorities regarding Theravance’s regulatory submission(s) for the Products, provided, however, that Theravance shall have the final control over such submissions.  In the event that any additional review and consultation is required by a Regulatory Authority (for example, for technical responses to a Regulatory Authority finding of deficiency, should one arise), Hospira shall provide Theravance with cost estimates (which shall include a professional services fee at its customary per/hour, per/person rates relative to the work to be performed, consistent with its charges to other similarly-situated customers).  If Theravance approves such costs in writing, Theravance shall reimburse Hospira for such approved costs upon completion of the work and within [***] days of receipt of Hospira’s invoice.

 

4.2           User Fees.  Theravance shall pay any Regulatory Authority user fees which may become payable for the Product.

 

4.3           Ownership of Regulatory Approvals.  The parties agree that Theravance shall be the sole and exclusive owner of all right, title and interest in and to all Regulatory Approvals related to the Product and any submissions for such Regulatory Approvals.  Hospira shall reasonably assist Theravance in the preparation of all documents necessary to effect Theravance’s rights in such Regulatory Approval applications and submissions.  Theravance shall provide to Hospira for its files a final copy of the CMC section of any such applications and/or submissions for Regulatory Approval.

 

4.4           Qualification of and Purchases from Alternate Sites.  Theravance shall have the right, in its sole discretion, to qualify manufacturing site(s) with Third Parties to manufacture and supply the Product during the Term (each, an “Alternate Supplier”). Theravance may obtain [***] of its requirements of Product in the Territory from such Alternate Supplier(s) during the Term; provided, however, that if Hospira is unable to fulfill any of its manufacturing and supply obligations hereunder then Theravance may obtain such amount of its requirements of Product that Hospira is unable to supply from such Alternate Suppliers and for such period of time that Hospira is unable to supply.

 

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ARTICLE 5.          MANUFACTURE AND SUPPLY OF PRODUCT

 

5.1           Purchase and Sale of Product.  Upon obtaining the first of the Regulatory Approvals required for manufacturing Product at the Facility, pursuant to the terms and conditions of this Agreement and during each Commercial Year, and subject to the exceptions of Section 4.4, Hospira shall manufacture, sell and deliver Product to Theravance, and Theravance shall purchase and take delivery of [***] of its requirements for Product in those jurisdictions within the Territory where Regulatory Approval(s) have been obtained.  Notwithstanding any of the foregoing, Theravance shall be entitled to [***] for purposes of [***] and such batches shall [***] to purchase and take delivery of Product from [***] under this Section 5.1.

 

5.2           Manufacturing Standards.  Hospira will manufacture, package, and label the Product in accordance with the Product Specifications, cGMP and all Applicable Laws, as then in effect.  The parties agree that, should Theravance wish to implement any amendment to the Product Specifications, Theravance shall provide written notice thereof to Hospira for Hospira’s review and approval, which approval shall not be unreasonably withheld.  Each party further agrees promptly to notify the other of any new instructions or changes to the Product Specifications required by the FDA or Applicable Laws and shall confer with each other with respect to the best means to comply with such instructions or change requirements.

 

5.3           Government Approvals.  Hospira agrees to manufacture and supply those quantities of Product requested in Purchase Orders by Theravance that are necessary to validate the Facility, obtain Regulatory Approval(s) and build Theravance’s inventory in anticipation of the commercial sale of the Products and Theravance shall be required to pay for such Product in accordance with the terms of this Agreement irrespective of whether the Product ultimately receives any Regulatory Approvals in the Territory.  Notwithstanding the forgoing or anything else in this Agreement to the contrary, Theravance shall be entitled to designate the intended jurisdiction or market within the Territory (e.g. the United States, Canada or EU 27) for which any Product is to be manufactured, tested, packaged, labeled and released.

 

5.4           Active Pharmaceutical Ingredient; Excipient

 

(a)           Supply.

 

(i)            Hospira shall manufacture Product for Theravance from quantities of API and Excipient that Theravance shall supply to Hospira at no cost.  Theravance shall supply API and Excipient to Hospira in quantities sufficient to satisfy Hospira’s gross manufacturing requirements of the Product no later than [***] prior to the scheduled start of API/Excipient compounding.  Hospira shall use the API and Excipient received from Theravance only for the technology transfer activities contemplated by this Agreement and the manufacture of Product for Theravance hereunder.  Theravance shall deliver or arrange for the delivery of API and the Excipient, [***] pursuant to no-cost purchase orders that Hospira issues to Theravance.

 

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(ii)           With each delivery of API/Excipient, Theravance will include a certificate of analysis, signed by an authorized individual of Theravance (or its designee) containing basic information regarding the API/Excipient, including:  (A) the manufacturing date of the batch/lot delivered; (B) the batch/lot number; and (C) the quantity of API/Excipient in such batch/lot as shipped to Hospira.  Theravance shall also supply a separate sample (“tailgate sample”; “satellite sample”) for each container of API/Excipient supplied.

 

(iii)          Within [***] days of Hospira’s receipt of any API or Excipient supplied by or on behalf of Theravance hereunder, Hospira shall:  (A) perform an identification test on the API and Excipient and confirm the shipment quantity; (B) perform any other tests mutually agreed upon in writing; and (C) notify Theravance of any inaccuracies with respect to quantity or of any claim that any portion of the shipment fails the identification or other test.  In the event Hospira notifies Theravance of any deficiency in the quantity or quality of API and/or Excipient received, Theravance shall promptly ship to Hospira, at Theravance’s own expense, the quantity of API and/or Excipient necessary to complete the shipment.  In the event Hospira notifies Theravance that the API and/or Excipient shipment does not conform to the API Specifications and/or Excipient Specifications, Theravance shall have the right to confirm such findings at the Facility.

 

(iv)          If Theravance determines that such shipment of API and/or Excipient conforms to the API Specifications and/or Excipient Specifications, the parties shall submit samples of such shipment to a mutually acceptable independent expert for testing.  If such independent expert determines that the shipment conforms to the API Specifications and/or Excipient Specifications, Hospira shall bear all expenses of shipping and testing such shipment samples.  If Theravance or such independent expert determines that such shipment does not meet the API Specifications and/or Excipient Specifications, Theravance shall replace, at no cost to Hospira, the portion of the API and/or Excipient shipment which does not conform to the API Specifications and/or Excipient Specifications and bear all expenses of shipping and testing the shipment samples.  Notwithstanding the foregoing, the independent expert may also determine that additional sample testing by an independent laboratory is necessary Hospira shall dispose of any nonconforming portion of any API and/or Excipient shipment as directed by Theravance, at Theravance’s expense.

 

(b)           Title.  Notwithstanding the [***] terms of Section 5.4(a)(i), [***] to the API and Excipient while they are in the Facility.  Subject to the limitation in Section 5.4(c), Hospira shall assume responsibility and risk for the safekeeping, storage and handling for all shipments of API and Excipient delivered hereunder and accepted by Hospira.

 

(c)           Loss and Replacement of API and Excipient.  In the event of loss or damage of any API and/or Excipient delivered hereunder or the failure of Product to meet Product Specifications, Theravance shall supply to Hospira replacement API and/or Excipient according to the terms set forth in Section 5.4(a), except as otherwise provided herein.  If the replacement of such API and/or Excipient results from a negligent act or omission or the willful 

 

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misconduct by Hospira in the manufacture, handling or storage of Product or API and/or Excipient, Theravance shall supply to Hospira replacement API and/or Excipient and Hospira shall be responsible for the cost of the replacement API and/or Excipient equal to Theravance’s purchase cost/kg (as evidenced by Theravance’s invoices).

 

(d)           Maximum Liability.  Notwithstanding any of the foregoing, in no event shall Hospira’s liability for such replacement costs of API and/or Excipient exceed: (i) [***]; (ii) [***]; or (iii) in the event of loss during the handling and storage of API and/or Excipient (x) prior to the start of compounding operations; or (y) during storage of the Product after completion of filling operations and prior to delivery, [***]. For greater clarity, Hospira’s liability under (iii), above, explicitly excludes loss of API during any and all aspects of compounding, filling and finishing the API, the Excipient and/or Product. Theravance expressly acknowledges and agrees that this Section 5.4(d) states Theravance’s sole remedy, and Hospira’s sole liability, with respect to any claim arising hereunder for any such loss, damage, or misuse of API and/or Excipient by Hospira.

 

5.5           Facility; Dedicated Equipment.

 

(a)           Maintenance of Facility.  Hospira shall secure and maintain in good order, at its sole cost and expense, such current governmental registrations, licenses and permits as are required by Regulatory Authorities in order for Hospira to perform all of its obligations under this Agreement.  Hospira further agrees that at all times during the Term, that it shall maintain the Facility, and all equipment, machinery, systems, intangibles and contract rights in use at the Facility in the ordinary course of business, in compliance with cGMP and Applicable Laws.

 

(b)           Dedicated Equipment; Costs. The parties anticipate that certain specialized and dedicated equipment (“Dedicated Equipment”) will be required to manufacture the Product for Theravance.  The list of such Dedicated Equipment and Hospira’s estimate of the purchase cost is attached in Exhibit 5.5.  Hospira shall obtain firm quotes from one or more equipment manufacturers and advise Theravance of the overall costs to be incurred in connection with the purchase, installation and validation of such Dedicated Equipment.  After Theravance approves such costs, which approval shall not be unreasonably withheld, Hospira shall install and validate the Dedicated Equipment and bill Theravance for the associated costs.  Theravance shall make payment to Hospira no later than [***] days after Theravance receives Hospira’s invoice for the same.  Title to the Dedicated Equipment shall be in Theravance’s name.  Hospira shall label such Dedicated Equipment as Theravance property and evidencing Theravance’s ownership interests.  Hospira shall use commercially reasonable efforts to maintain the Dedicated Equipment in good condition, normal wear and tear excepted.  The parties shall address all issues involving warranty repairs or replacement with the equipment supplier by mutual accord.  Hospira shall use Dedicated Equipment only in connection with the manufacture the Product; provided, however, that if Hospira wishes to use such Dedicated Equipment for manufacture of any product(s) other than the Product, Hospira and Theravance shall meet and discuss the technical and practical ramifications of such use and appropriate compensation to Theravance.

 

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5.6           Components.  Hospira shall be responsible for the procurement and qualification of the Components required for the manufacture of the Product.  Hospira will source all of the Components from suppliers that have been approved and qualified by Hospira in accordance with Hospira’s internal vendor qualification and approval processes.  The parties understand and agree that Theravance will have reviewed and approved the Components and Component suppliers listed in the Product Specifications.  Under no circumstances shall Hospira have any liability to Theravance, nor shall Hospira be deemed to be in breach of this Agreement, if Hospira is unable to supply the Product to Theravance due to a failure of such suppliers to provide such Components to Hospira.

 

5.7           Product Labeling.

 

(a)           Hospira shall label the Product in accordance with the Product Specifications using content provided by Theravance.  Theravance shall control the content and type of all labeling and packaging (and any changes or supplements thereto) for the Product and shall have the responsibility, at Theravance’s expense, for:  (i) ensuring such content is compliant with Regulatory Approval and all Applicable Law; and (ii) any changes or supplements to such content, including the expense of securing any approvals required by any applicable Regulatory Authority for any such changes or supplements.  Hospira shall be responsible for obtaining such labels (and any changes or supplements thereto) in accordance with content specified by Theravance.

 

(b)           Any changes to the labeling and packaging shall be communicated to Hospira in writing at least [***] days prior to the desired implementation date together with the required documentation specifying the content to be included in the labeling and packaging, including all necessary photo-ready art (or its substantial equivalent).  Theravance shall reimburse Hospira for Hospira’s actual costs of making any changes under this Section 5.7(b) and for the cost of any labeling that Hospira is unable to use due to such changes.

 

5.8           Off-Site Waste.  If necessary, Hospira shall hire, direct and pay all costs for a waste contractor to remove all Waste from Hospira’s manufacturing facility for Product consistent with the Product’s MSDS.  The costs associated with the removal of Specially Regulated Waste shall be borne by Theravance.  Hospira shall only dispose of Specially Regulated Waste at sites and through waste management vendors that have been approved in writing by Theravance, whose approval shall not be withheld unreasonably.  Hospira shall document the destruction of any Specially Regulated Waste in writing and provide copies of such written documentation to an authorized representative of Theravance.  Theravance maintains the right, but not the obligation, to witness the actual disposal of Specially Regulated Waste.  Theravance shall, upon request by Hospira, provide the MSDS for the API and the MSDS for the Product to Hospira.

 

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5.9           Delivery.  Hospira shall deliver the Product to Theravance, [***].  Title to and risk of loss over the Products shall pass to [***].  Hospira shall not deliver any Product until both Hospira and Theravance have released such Product pursuant to the Product Specifications and/or the Quality Agreement in the form attached here as Exhibit 7.2 (“Quality Agreement”).  [***] For any shipments outside the United States, Theravance shall be the exporter of record; provided, however, that Hospira shall assist Theravance in the preparation of any required export documentation.

 

5.10         [***]   Hospira shall use its best efforts to ensure that [***].  Except if caused by events of Force Majeure or other manufacturing, quality control or other issues beyond Hospira’s reasonable ability to control, [***], Theravance shall have the right to [***] that Hospira eventually issues for the Products [***].

 

5.11         Price and Payment.

 

(a)           Price.  Hospira shall invoice Theravance for Product it delivers to Theravance at the price(s) as set forth on Exhibit 5.11.  Each invoice shall reference the price of the Product in effect on the date of Hospira’s invoice.  All pricing is firm through December 31, 2013.  Beginning January 1, 2014 and on each succeeding January 1st thereafter during the Term, Hospira shall have the right to increase the price of the Product once annually.  Price increases shall be effective for deliveries beginning January 1st of each calendar year.  Such increases shall not exceed [***].  Hospira shall use all reasonable efforts to provide written notice to Theravance of any anticipated price increase no later than October 31st of any calendar year.

 

(b)           Payment.  Hospira shall invoice Theravance upon delivery of the Product.  Theravance shall make payment net [***] days from the date of receipt of Hospira’s invoice.  Hospira shall include on all invoices the relevant purchase order number as provided by Theravance.  The currency to be used to invoice and for payment shall be US Dollars.  Hospira shall send invoices by email to AP@Theravance.com.

 

(c)           Taxes.  Theravance shall pay all federal, state, county or municipal sales or use tax, excise, customs charges, duties or similar charge, or any other tax assessment (other than that assessed against income), license, fee or other charge lawfully assessed or charged on the manufacture, sale or transportation of the Product that Hospira manufactures, sells and delivers pursuant to this Agreement.  In particular, Theravance shall be responsible for and pay all Prescription Drug User (PDUFA) annual establishment fees with respect to the Product.  Theravance shall provide Hospira with copies of any state tax exemption form(s) if it intends to claim exemption for sales or use taxes in any state(s) where the Product is to be shipped.

 

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5.12         Inspection; Nonconforming Product.

 

(a)           Documentation; Inspection. Upon completion of the manufacture of each batch of Product, Hospira will provide Theravance with a Certificate of Analysis confirming that the batch was manufactured in conformity with the Product Specifications and all Applicable Laws.  In addition, Hospira will provide Theravance with a copy of the Master Batch Record and all other documents and records as required by the Quality Agreement for Theravance’s release of the batch and such samples of the batch that Theravance may reasonably request.  For purposes of testing and releasing the Product for sale in the European Union, Hospira will make available to Theravance its Qualified Person(s) (“QP”) at one or more of its European Affiliates.

 

(b)           Theravance shall have a period of [***] days from the date of its receipt of all such documentation (and if, applicable, batch samples) to inspect, and accept or reject, the corresponding batch as conforming or non-conforming with the Product Specifications and all Applicable Laws.  If Theravance rejects the batch, it shall promptly so notify Hospira and provide the reason for the rejection.  If the reason for the rejection is non-conformance with Product Specifications and, as a result of further review and testing, Hospira determines that the Batch does conform to the Product Specifications, Hospira shall so notify Theravance and the parties shall then submit samples of such batch to a mutually acceptable independent expert for testing.

 

(c)           Testing. If such independent expert determines that the batch conforms to the Product Specifications, Theravance shall bear all expenses of shipping and testing such batch samples and Theravance shall be responsible for Hospira’s invoice price of the batch.  If such independent expert determines that the batch does not meet the Product Specifications, Hospira shall bear all expenses of shipping and testing the batch samples.  Notwithstanding the foregoing, the independent expert may also determine that additional sample testing by an independent laboratory is necessary. Absent manifest error, the test results of the independent expert (or those of the independent laboratory, if so referred by the expert) shall be binding on the parties.

 

(d)           Replacement; Disposition of Rejected Product.  Hospira shall use all reasonable efforts to replace, at no cost to Theravance, that portion of the batch which does not conform to the Product Specifications or otherwise was not manufactured in accordance with Applicable Laws [***]; provided, however, that Theravance provides sufficient replacement API and Excipient to Hospira in accordance with the provisions of Section 5.4.  Hospira shall dispose of any rejected Product at its own cost and expense.

 

(e)           Deemed Acceptance; Latent Defects.  Any Product that Theravance does not reject pursuant to this Section 5.12 shall be deemed accepted, and all claims with respect to Product not conforming with Product Specifications are waived by Theravance, except as to latent defects which are not discoverable by the exercise of ordinary diligence and reasonable care, render the Product not conforming to Product Specifications, and are solely caused by Hospira.  The parties shall consult to confirm the cause of any latent defect.  If the parties do not 

 

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agree as to whether the Product is non-conforming, they shall submit samples of such Product for independent testing in accordance with Section 5.12(b).  If it is determined that the Product is non-conforming and the cause of the defect is attributable to Hospira, then Hospira will replace at no cost to Theravance all such defective Product with Product that meet the Product Specifications, subject to the limitation of Section 5.4(d).  All other relevant provisions of Section 5.12 shall apply to the manufacture and delivery of such replacement Product.

 

5.13         Miscellaneous.

 

(a)           Approval of Subcontracting.  Hospira shall not subcontract or otherwise delegate to any Third Party any portion of its obligations under this Agreement without Theravance’s prior written approval; provided, however, that the foregoing restriction on subcontracting shall not prohibit Hospira from subcontracting non-essential or routine tasks involving the Facility generally, such as janitorial services or other general infrastructure maintenance or upgrades.

 

(b)           Process Rework.  Process rework created as a result of Theravance’s changes shall be billed separately at a reasonable fee mutually agreed upon in writing.

 

(c)           Sub-Lots.  Should Theravance desire Hospira to split a manufacturing lot of Product into two (2) or more sub-lots during packaging, Hospira will [***].

 

(d)           Storage Fee.  Theravance will use its commercially reasonable efforts to take delivery of all Products from the Facility as soon as reasonably practicable after Hospira’s release of the Product.  A cold storage fee of [***] shall be due and payable to Hospira if Theravance stores Product at the Facility for more than [***] days after the date of Theravance’s Product release.  The cold storage fee can be waived in the event of a discrepancy being investigated for the batch(es) under investigation.

 

(e)           QP Testing/Release. Hospira shall not charge Theravance for any QP Testing/Release performed by its QPs as envisaged in Section 5.12(a), if such QP Testing/Release is performed for a lot or lots of Product destined for the European Union only, and in lieu of testing and release for United States designated Product.  However, if Theravance desires or requires QP Testing/Release of a lot or lots for both the United States and the European Union, then Hospira will [***] QP Testing/Release of such lot(s).

 

ARTICLE 6.          ORDERS AND FORECASTS

 

6.1           [***] Year Product Supply Forecast.  For capacity planning purposes, upon its submission for Regulatory Approval, Theravance shall provide Hospira with a written forecast of its estimated annual requirements of the Product [***] (“Annual Forecast”).  Thereafter, by [***] of each calendar year, Theravance shall [***] for the period commencing [***].

 

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6.2           First Purchase Order.  The parties shall cooperate in estimating and scheduling production for Theravance’s first commercial order of Product approximately [***] in advance of the anticipated date of Regulatory Approval or Theravance’s desired Product availability date.

 

6.3           Rolling Forecast.  Concurrent with the placing of its first commercial order of Product, and during each calendar quarter thereafter, Theravance shall provide to Hospira a good faith, estimated rolling forecast of the quantity of the Product that Theravance expects to order for [***] (each, a “Rolling Forecast”).  [***] shall be considered a binding commitment upon Theravance to purchase quantities described therein and a binding commitment upon Hospira to produce and deliver such quantities on the delivery dates described therein (“Firm Order Period”).  [***] shall be non-binding upon the parties.

 

6.4           Purchase Orders.  Theravance shall submit a purchase order (“Purchase Order”) to Hospira [***] days prior to the requested delivery date of the Product.  All Purchase Orders shall be made on or before the first day of the calendar month by which the [***] days advanced notice period is measured and shall reference this Agreement and shall be governed exclusively by the terms contained herein.  Theravance shall set forth in each Purchase Order:  (i) the quantity of Product ordered; (ii) the amount of API and Excipient required to fill the Purchase Order; (iii) the specified delivery date and delivery instructions; and (iv) the price to be paid for the Product. Work will commence only upon Hospira’s receipt of Theravance’s Purchase Order.

 

6.5           Purchase Order Acceptance.  Hospira will confirm each Purchase order issued in accordance with Section 6.4 within ten (10) Business Days after receipt and shall use all commercially reasonable efforts to meet the delivery dates set forth therein.

 

6.6           Additional Quantities.  Should Theravance order quantities of Product in excess of [***] over the forecasted amount of the latest Firm Order Period, Hospira shall not be obligated to supply said additional quantities; provided, however, that Hospira shall use reasonable commercial efforts to produce and deliver to Theravance said additional quantities within [***] days of issuance of the Purchase Order for such additional quantities.

 

6.7           Format of Forecasts and Purchase Orders.  Theravance shall submit each Rolling Forecast and all Purchase Orders electronically in spreadsheet form and will specify the quantities of Products in units and the Hospira product number (list number/inventory number).

 

6.8           Minimum Purchase Requirement.  Beginning with the Commercial Year during which Hospira manufactures [***] Product pursuant to Theravance’s forecasts, Theravance agrees to purchase from Hospira in such Commercial Year (and in each Commercial Year thereafter) a percentage of its Annual Forecast of the Drug Product in those jurisdictions within the Territory where Regulatory Approval(s) have been obtained in accordance with the provisions of this Section 6.8 (“Minimum Purchase Requirement”).  [***] Theravance’s Minimum Purchase requirements shall be [***], but in no case shall be [***] in any Commercial Year.  In lieu of Theravance taking delivery of all of the Minimum Purchase Requirement,

 

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Theravance shall have the option to pay for the shortfall of the Minimum Purchase Requirement at the prices set forth in Exhibit 5.11 and waive Hospira’s manufacture and delivery obligations for the Product.  In the latter event, Hospira shall invoice Theravance for the amount payable, and Theravance shall pay Hospira such amount within [***] days after receipt of Hospira’s invoice.  Notwithstanding the foregoing, all Product paid for by Theravance shall count towards the Minimum Purchase Requirement.

 

6.9           Purchase Order Changes; Cancellations

 

(a)           Changes.  If Theravance requests that changes be made to any of its Purchase Orders within the Firm Order Period, Hospira shall attempt to accommodate such changes within reasonable manufacturing capabilities and efficiencies.  If Hospira can accommodate such changes, Hospira shall advise Theravance of any costs associated therewith.  If Theravance indicates in writing to Hospira that it should proceed to make the changes, Theravance shall be deemed to have accepted the obligation to pay Hospira for such costs.  If Hospira cannot accommodate such change, Theravance shall nonetheless be bound to its original Purchase Orders.

 

(b)           Cancellations.  If Theravance cancels any Purchase Order within [***] prior to the start of manufacture, Hospira shall be relieved of its manufacturing obligations relating to such order and Theravance will pay Hospira for such canceled order in full.  Notwithstanding the foregoing, Theravance shall not be liable for any cancellation that is due to its inability to supply sufficient API and/or Excipient for such Purchase Order requirements, and such inability is caused by an event of force majeure or other condition not reasonably within the control of Theravance; provided, however, that Theravance provides Hospira with no less than [***] days prior written notice of the impending inability to supply and the date upon which it expects the required quantities of API and/or Excipient to be delivered to Hospira.

 

6.10         Shortage of Supply.  In the event that Hospira is unable to manufacture the Product in accordance with Theravance’s Purchase Orders, Hospira shall notify Theravance within [***].  If the inability is not: (a) caused by an event of force majeure; (b) attributable in whole or in part to Theravance’s acts or omissions or breach of its obligations under this Agreement; or (c) attributable in whole or in part to Hospira’s Component suppliers’ acts or omissions, then Hospira shall undertake all commercially reasonable measures to minimize any possible shortage of Product to Theravance as a result of its manufacturing issues.  If Hospira cannot undertake such measures promptly, then either party may request that the Project Managers convene a meeting to discuss possible remedial action.  For any Commercial Year where Hospira is unable to supply Product for a Firm Order Period, Theravance shall have no Minimum Purchase Requirement in that Commercial Year and shall be entitled to source all of its requirements for Product from Alternate Suppliers during the period of time that Hospira remains unable to supply.

 

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ARTICLE 7.          QUALITY

 

7.1           Quality Control.  Hospira shall apply its quality control procedures and in-plant quality control checks on the manufacture, packaging, and labeling of Product in the same manner as Hospira applies such procedures and checks to products of similar nature manufactured for sale by Hospira.  In addition, Hospira will test and release Product in accordance with the test methods described in Exhibit 7.1 to ensure that Product conforms to the Product Specifications.  The parties may change the test methods from time to time by mutual agreement.

 

7.2           Quality Agreement.  The parties shall use all commercially reasonable efforts to negotiate and execute a quality agreement substantially in the form of the Quality Agreement attached hereto as Exhibit 7.2 within [***] days following the Effective Date.

 

7.3           Audit Rights.

 

(a)           General Audit.  Upon [***] days prior written notice to Hospira, Theravance shall have the right to have representatives visit the Facility during normal business hours to review Hospira’s manufacturing operations relating to the Product and assess its compliance with cGMP and quality assurance standards and to discuss any related issues with Hospira’s manufacturing and management personnel.  Hospira shall provide Theravance with copies of Hospira’s manufacturing records (including the Master Batch Record) and other relevant documentation relating to the Products for the purposes of assuring Product quality and compliance with agreed-upon manufacturing procedures. Such general audits shall: (i) be limited to not more than [***] auditors designated by or representing Theravance; (ii) last for not more than [***]; and (iii) may be conducted not more than [***] per calendar year.

 

(b)           For Cause Audits.  Theravance shall also have the right to conduct “for-cause” audits to address significant product or safety concerns as discovered through Product failures related to Hospira’s manufacture of the Product.  Product failures would include issues related to stability out of specification, sterility, labeling or container integrity.  Theravance shall notify Hospira in writing in advance of the audit and thereafter, Theravance and Hospira shall mutually determine the timing of the audit.  Each for-cause audit shall be limited to two (2) auditors for no more than two (2) days, except if the parties mutually agree that a longer for-cause audit period is necessary.

 

(c)           Regulatory Authority Inspections.  Hospira also agrees to allow any Regulatory Authority to conduct any inspection of the Facility related to the manufacture of the Product which such Regulatory Authority may require and Hospira agrees to reasonably cooperate with the Regulatory Authority in connection with such inspection. Hospira will provide Theravance with notice of any such inspection as soon as practicable. In the event that a Regulatory Authority other than the FDA, Health Canada and the EMA requests or requires an audit of the Facility related to pre-approval inspection (“PAI”), Hospira shall be entitled to charge a fee of [***].  This fee shall include PAI preparation activities and support of the audit.

 

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(d)           Confidential Information in Audits.  Audits by Theravance or its designees may involve the disclosure of Confidential Information of Hospira or other customers of Hospira, and any such Confidential Information shall be subject to the terms of Article 11 hereof.  The results of such audits and inspections shall be considered Confidential Information under Article 11 and shall not be disclosed to Third Parties, [***], unless required by law and only then upon prior written notice to Hospira or to Theravance as the case may be.

 

7.4           [***]  Notwithstanding the general audit rights in Section 7.3(a), Hospira will permit [***].  Theravance will provide Hospira with sufficient advance notice [***] that Hospira may make appropriate arrangements.

 

7.5           Change in Product Specifications; Manufacturing Process.  Each of Theravance and Hospira agrees that it will not change the Product Specifications or any aspect of the manufacturing process (including changes to the Components, equipment, processes or procedures used to manufacture Product) without the prior written approval of the other party, which approval shall not be unreasonably withheld, delayed, or conditioned.  Upon agreement, the parties shall implement all such changes in accordance with the change control provisions of the Quality Agreement.

 

7.6           Complaints and Adverse Reactions.  Each party shall promptly advise the other of any complaints, notices of Adverse Drug Experience(s) or event reports, safety issues or toxicity issues relating to the Products of which it becomes aware, and which may be the result of, or have an effect on, the Product manufacturing operations performed by Hospira.  Theravance shall be responsible for all reporting of such information to Regulatory Authorities.  Hospira shall promptly evaluate any complaint or notice of Adverse Drug Experience(s) and reasonably assist Theravance in responding to the same.

 

7.7           Record Keeping.  Hospira shall supply Theravance with such records documenting the technology transfer work as foreseen in the Project Statement of Work or as are otherwise requested by Theravance.  Hospira shall retain all records documenting the technology transfer work and all records relating to the manufacture of each batch of Products for not less than five (5) years or for such other period as required by Applicable Law. Thereafter, Hospira shall not destroy such records without giving Theravance prior written notice and the opportunity further to store such records or to have such records shipped to Theravance, at Theravance’s cost and expense.

 

7.8           Failed Batch.  In accordance with the Quality Agreement, Hospira shall investigate, and cooperate fully with Theravance in investigating, any batch of the Product that fails to comply with cGMP or fails to meet the Product Specifications or any Regulatory Authority requirements.  Hospira shall keep Theravance informed of the status of any investigation and, upon completion of the investigation, shall provide Theravance with a final written report describing the cause of the failure and summarizing the results of the investigation.

 

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7.9           Product Recalls.

 

(a)           In the event: (i) any Regulatory Authority or other national government authority issues a request, directive or order that the Product be recalled; (ii) a court of competent jurisdiction orders such a recall, or (iii) Theravance or Hospira reasonably determines that Product should be recalled, the parties shall take all appropriate corrective actions, and shall cooperate in any governmental investigations surrounding the recall.

 

(b)           In the event that such recall results from a breach of Hospira’s express warranties under Sections 8.2(a) and 8.2(b), Hospira shall be responsible for replacing the quantity of Products that were recalled at no cost to Theravance.  Hospira shall use all commercially reasonable efforts to replace such Product as soon as practicable.  In addition, Hospira agrees that it shall be responsible for the administrative expenses of any recall.  For purposes of this Agreement, the administrative expenses of recall shall include the expenses of notification and destruction or return of the recalled Product, and any costs associated with the delivery of replacement Product, but shall not include lost profits of either party, nor the cost to replace API in excess of the limitations stated in Section 5.4(d).  In the event that the recall does not result from the breach of Hospira’s express warranties under this Agreement, Theravance shall be responsible for the expenses of the recall.

 

ARTICLE 8.          WARRANTIES; COVENANTS AND INDEMNIFICATION

 

8.1           Theravance’s Warranties.  Theravance represents and warrants that:

 

(a)           the API and the Excipient delivered to Hospira pursuant to this Agreement shall, at the time of delivery, not be adulterated or misbranded within the meaning of the Act or within the meaning of any other Applicable Law in which the definitions of adulteration and misbranding are substantially the same as those contained in the Act, as the Act and such laws are constituted and effective at the time of delivery, and will not be an article which, under the provisions of Sections 404 and 505 of the Act, may not be introduced into interstate commerce;

 

(b)           the API and the Excipient supplied to Hospira hereunder shall have been manufactured in accordance with all applicable cGMP (including ICH Q7A) and meet the API Specifications and Excipient Specifications set forth on Exhibit 1.3;

 

(c)           all specifications, including API Specifications, Excipient Specifications and Product Specifications that Theravance provides to Hospira shall conform to the appropriate submissions that  Theravance files with the relevant Regulatory Authorities;

 

(d)           to the best of its knowledge, the Manufacturing Process does not infringe any patents or know-how of a Third Party;

 

(e)           Theravance’s performance of its obligations under this Agreement will not result in a material violation or breach of any agreement, contract, commitment or obligation to which Theravance is a party or by which it is bound and will not conflict with or constitute a default under its corporate charter or bylaws; and

 

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(f)            it will not sell Product into any regulatory jurisdiction unless and until it receives the necessary Regulatory Authority approvals.

 

8.2           Hospira’s Warranties and Covenants.  Hospira represents and warrants to Theravance that:

 

(a)           all Product that Hospira delivers to Theravance pursuant to this Agreement shall, at the time of delivery, not be adulterated or misbranded within the meaning of the Act or within the meaning of any other Applicable Law in which the definitions of adulteration and misbranding are substantially the same as those contained in the Act, as the Act and such laws are constituted and effective at the time of delivery and will not be an article which may not under the provisions of Sections 404 and 505 of the Act be introduced into interstate commerce;

 

(b)           all Product Hospira delivers to Theravance pursuant to this Agreement shall, at the time of delivery, be free from defects in material and workmanship and shall be:  (i) manufactured in accordance and conformity with the Product Specifications; (ii) manufactured in compliance with all Applicable Laws, including those relating to the environment, food or drugs and occupational health and safety, including those enforced or promulgated by the FDA, Health Canada and EMA (including compliance with cGMP) and (iii) at the time of delivery free and clear of any and all encumbrances, liens and other Third Party claims, with good and marketable title thereto transferred to Theravance.

 

(c)           in its performance of its obligations under the Statement of Work and this Agreement, Hospira will not knowingly incorporate into the manufacturing process any patents or know-how of a Third Party for which it does not have a license that permits it to do so and/or to be able to grant to Theravance the licenses and other rights otherwise required to be granted to Theravance hereunder;

 

(d)           Hospira’s performance of its obligations under this Agreement will not result in a material violation or breach of any agreement, contract, commitment or obligation to which Hospira is a party or by which it is bound and will not conflict with or constitute a default under its corporate charter or bylaws;

 

(e)           the foregoing warranties shall not extend to any nonconformity or defect which relates to or is caused by API and/or the Excipient supplied by Theravance to Hospira.  Except for Hospira’s indemnity obligations in Section 8.3, the replacement provisions of Sections 5.4(c) and (d), 5.12(d) and 7.9(b) shall be Theravance’s sole and exclusive remedy for nonconforming or defective Products; and

 

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(f)            HOSPIRA MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO PRODUCT.  ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY HOSPIRA.

 

8.3           Indemnification by Hospira.  Hospira shall indemnify and hold harmless Theravance and its Affiliates and their respective officers, directors, employees, contractors, consultants and agents (each, a “Theravance  Indemnitee”) from and against any and all losses, damages, liabilities, expenses and costs, including reasonable legal expense and attorneys’ fees (“Losses”), to which any Theravance Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party (a “Claim”) against a Theravance Indemnitee arising or resulting, directly or indirectly, from: (a) Hospira’s breach of any representation or warranty set forth in Section 8.2(a-d) and Section 8.2(f); (b) any infringement of any Third Party intellectual property right relating to Hospira’s manufacturing processes used in the manufacture of Product pursuant to this Agreement (excluding infringement due to adherence to the Manufacturing Process, the API Specifications, the Excipient Specifications, the Product Specifications, API, Excipient or Product); or (c) any negligent or wrongful act or omission on the part of Hospira, its employees, agents or representatives and which relates to Hospira’s performance hereunder.  Notwithstanding anything to the contrary herein, the foregoing indemnity shall not apply to the extent such Losses arise out of or result from any material breach of the representations, warranties and covenants made by Theravance under this Agreement, or Theravance’s negligent or wrongful acts or omissions or willful misconduct.

 

8.4           Indemnification by Theravance.  Theravance shall indemnify and hold harmless Hospira and its Affiliates and their respective officers, directors, employees, contractors, consultants and agents (each, an “Hospira Indemnitee”) from and against any and all Losses to which any Hospira Indemnitee may become subject as a result of any Claim against a Hospira Indemnitee arising or resulting directly or indirectly from: (a) Theravance’s breach of any representation or warranty set forth in Section 8.1; (b) any infringement of any Third Party intellectual property right relating to the Manufacturing Process, the API Specifications, the Excipient Specifications, the Product Specifications, API, the Excipient, the Drug or Product (excluding Hospira’s processes used in the manufacture of the Product pursuant to this Agreement); (c) the use of or lack of safety or efficacy, sale, administration, import and/or transport by Theravance or its Affiliates or licensees of the Product manufactured and supplied by Hospira under this Agreement; and (d) any negligent or wrongful act or omission on the part of Theravance, its employees, agents or representatives and which relate to Theravance’s performance hereunder.  Notwithstanding anything to the contrary herein, the foregoing indemnity shall not apply to the extent such Losses arise out of or result from any material breach of the representations, warranties and covenants made by Hospira under this Agreement, or Hospira’s negligent or wrongful acts or omissions or willful misconduct.

 

8.5           Conditions of Indemnification.  If either party seeks indemnification from the other hereunder, it shall promptly give notice to the other party of any Claim and shall cooperate

 

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fully with the other party in the investigation and defense of all such Claim.  The indemnifying party shall have the option to assume the other party’s defense in any such Claim with counsel reasonably satisfactory to the other party.  In the event the indemnifying party assumes such defense, the indemnified party shall have the right, but not the obligation, to be represented by counsel of its own selection and at its own expense.  No settlement or compromise shall be binding on a party hereto without its prior written consent, such consent not to be unreasonably withheld.

 

8.6           No Consequential Damages.  NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES OR LOST PROFITS RESULTING FROM ANY BREACH OF THIS AGREEMENT, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

ARTICLE 9.          INTELLECTUAL PROPERTY RIGHTS

 

9.1           Hospira’s Proprietary Rights.  Hospira has granted no license, express or implied, to Theravance to use Hospira proprietary technology, know-how or other proprietary rights:  (a) existing as of the Effective Date; or (b) developed by or for Hospira on or after the Effective Date outside the scope of any Project undertaken by Hospira pursuant to this Agreement.

 

9.2           Theravance’s Proprietary Rights.  Theravance has granted no license, express or implied, to Hospira to use Theravance’s proprietary technology, know-how or other proprietary rights other than for Hospira’s technology transfer and manufacturing obligations under this Agreement.  Theravance shall be the sole owner of any proprietary technology, know-how or other proprietary rights developed by Hospira pursuant to the Project (“Project Inventions”), and Theravance shall be entitled to apply for patent protection on such Project Inventions at Theravance’s expense and risk.  Hospira agrees to assist Theravance as reasonably necessary to apply for, obtain and maintain patent protection on Project Inventions, including executing any necessary legal papers and furnishing information or data in its possession reasonably necessary to apply for, obtain or maintain such patent protection.  Hospira agrees to assign, and does hereby assign, such Project Inventions to Theravance without further compensation.  Hospira shall have no right to use Project Inventions in the making, having made, using, offering for sale, selling, and/or importing of Drugs and/or Products other than for the purposes of this Agreement.

 

ARTICLE 10.       TERM AND TERMINATION

 

10.1         Term.  This Agreement shall commence on the Effective Date and, unless earlier terminated as provided below, shall expire at the end of the fifth (5th) Commercial Year (“Initial Term”). This Agreement may be extended for additional terms of one (1) year (each, a “Renewal Term”) upon the mutual written consent of the Parties; provided, however, that either party shall have given notice to the other of its intent to renew the Agreement at least [***] prior to the end of the Initial Term and that the parties have commenced good faith negotiations on such renewal.

 

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10.2         Termination of the Project.  Either party wishing to terminate the Project shall request in writing a pre-termination consultation with the other party to review potential concerns and to make reasonable efforts to continue with this Agreement.  Upon [***] days following said consultation, either party may terminate the Project or this Agreement upon [***] days prior written notice to the other party if the terminating party determines in good faith that the technology transfer for the Product is not technically feasible using commercially reasonable efforts.  If the Project or this Agreement is terminated in accordance with this Section 10.2, Hospira shall advise Theravance of Hospira’s actual technology transfer costs on the Project incurred prior to such termination.  Theravance will pay to Hospira that portion of the Technology Transfer Fee that represents: (a) the technology transfer work Hospira has completed and for which payment has not yet been received; and (b) on a pro rata basis, all technology transfer work that Hospira has undertaken but not yet completed as of the date of notice of termination.  In addition, Theravance shall reimburse Hospira for all of its documented out-of-pocket costs related to any non-cancelable commitments for raw materials, Components and services that Hospira has undertaken as part the Project in accordance with the Statement of Work.

 

10.3         General Termination Rights.  Either party may terminate this Agreement as follows:

 

(a)           immediately by providing written notice to the other party:  (i) if proceedings in voluntary or involuntary bankruptcy are initiated by, on behalf of or against the other party (and, in the case of any such involuntary proceeding, not dismissed within ninety (90) days); or (ii) if the other party is adjudicated bankrupt, files a petition under applicable insolvency laws, is dissolved or has a receiver appointed for substantially all of its property; or

 

(b)           by giving to the other party [***] days’ prior written notice upon the breach of any warranty or any other material provision of this Agreement by the other party if the breach is not cured within [***] days after written notice thereof to the party in default; or

 

(c)           upon notice to the other party should the other party continue to be unable to perform its obligations under this Agreement for a period in excess of [***] days by reason of force majeure, in accordance with Section 12.1(a); or

 

(d)           after September 30, 2012, by giving to the other party [***] prior written notice [***].  The provisions of this Section 10.3(d) shall apply only [***] and not to the transfer, sale or divestiture of substantially all of the stock, business and/or assets of Theravance.  In the event Theravance exercises this termination right, Theravance shall be obligated to order, purchase and take delivery of [***] of Product from Hospira prior to the effective date of termination of the Agreement at the then-current prices set forth on Exhibit 5.11.  In lieu of

 

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Theravance ordering and taking delivery of any or all of the [***], Theravance shall have the option to [***] Hospira’s manufacture and delivery obligations for such batches.  This obligation shall not be exclusive of any other obligation owed by or accruing to Theravance prior to the date of termination.

 

10.4         Theravance’s Failure to Purchase Minimums.  If, in any [***] consecutive Commercial Years after the first Commercial Year, Theravance [***], Hospira may terminate this Agreement upon [***] days prior written notice to Theravance.

 

10.5         Accrued Payment Obligations.  Upon termination pursuant to this Article 10, Theravance shall reimburse Hospira for Hospira’s cost of all Components purchased and on hand or on order, if such Components were ordered by Hospira based on Theravance’s Firm Purchase Orders, and such supplies of Components that cannot be reasonably used by Hospira for other purposes.  Hospira shall invoice Theravance for all amounts due hereunder.  Payment shall be made pursuant to Section 5.11(b).  At Theravance’s option and request Hospira shall ship to Theravance any such remaining supply of Component at Theravance’s cost.

 

10.6         Return of Inventory and Dedicated Equipment.  In the event of expiry or earlier termination of this Agreement, Hospira shall return to Theravance at Theravance’s option and request any Dedicated Equipment, remaining inventory of API and/or Excipient and Product at Theravance’s expense, unless termination shall have been as a result of a breach of this Agreement by Hospira, in which case such inventory shall be returned at Hospira’s expense.

 

10.7         Return of Confidential Information.  Upon expiry or termination of this Agreement for any reason, each party shall immediately return to the other all of the other party’s Confidential Information, in any form or medium disclosed by the disclosing Party (or upon a party’s instructions in writing, destroy the same and certify its destruction), provided, however, that each party shall be allowed to retain one (1) copy of the other’s Confidential Information solely for the purpose of ensuring continued compliance with Article 11.  For the avoidance of doubt, any such retained copy shall continue to be protected by the non-use and non-disclosure obligations in Article 11 for as long as it is in the possession of the receiving party notwithstanding any early termination or expiration under Section 11.2 or otherwise.

 

10.8         Survival.  The expiry or earlier termination of this Agreement shall not relieve either party of any obligations that it may have incurred prior to such expiry or earlier termination, and all covenants and agreements contained in this Agreement, which by their terms or context are intended to survive, will continue in full force and effect for a period of three (3) years unless a different time period is indicated in this Agreement.

 

ARTICLE 11.       CONFIDENTIAL INFORMATION

 

11.1         Nondisclosure.  It is contemplated that in the course of the performance of this Agreement each party may, from time to time, disclose Confidential Information to the other.

 

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Hospira agrees that, except as expressly provided herein, it shall not disclose Confidential Information received from Theravance, and shall not use Confidential Information disclosed to it by Theravance, for any purpose other than to fulfill Hospira’s obligations hereunder.  Theravance agrees that, except as expressly provided herein, it shall not disclose Confidential Information received from Hospira, and shall not use Confidential Information disclosed to it by Hospira, for any purpose other than to fulfill Theravance’s obligations hereunder.  Each party shall use reasonable and customary precautions to safeguard the other party’s Confidential Information, including ensuring that it will limit the permitted disclosures of the other’s Confidential Information only to those persons who have a “need to know” such Confidential Information and ensuring that all employees, consultants and agents who are given access to such Confidential Information are informed of the confidential and proprietary nature of such Confidential Information and have contractual or professional confidentiality and non-use obligations that are at least as restrictive as those contained in this Agreement.

 

11.2         Exceptions to Duty of Nondisclosure.

 

(a)           Notwithstanding Section 11.1 or any other provisions of this Agreement, nothing contained in this Agreement shall preclude Theravance from utilizing Confidential Information of Hospira as may be necessary in prosecuting the patent rights of Theravance pursuant to Article 9, obtaining Regulatory Approval(s), manufacturing Product pursuant to the terms and conditions of this Agreement, or complying with Applicable Laws or court orders (provided, however, that Theravance uses reasonable efforts to seek confidential treatment of such information, except as required to file and prosecute such patent applications).

 

(b)           Notwithstanding any other provision of this Agreement, a receiving party may disclose Confidential Information of the disclosing party if such disclosure is required by law to be disclosed; provided, however, that the receiving party gives the disclosing party prompt advance notice of such legal requirement so that the disclosing party has a reasonable opportunity to apply for confidential treatment of such Confidential Information or seek other appropriate equitable relief. The receiving party shall cooperate in good faith with any such effort by the disclosing party. Should Theravance determine that this Agreement or any collateral document needs to be filed with the Securities and Exchange Commission, it will seek customary confidentiality of commercial terms and sensitive information contained herein or therein through a confidential treatment request, and consult with Hospira in advance concerning such request.

 

(c)           The obligations of the parties relating to Confidential Information shall expire [***] years after the termination of this Agreement.

 

11.3         Public Announcements.  Neither party shall make any public announcement concerning the transactions contemplated herein, or make any public statement which includes the name of the other party or any of its Affiliates, or otherwise use the name of the other party or any of its Affiliates in any public statement or document, except as may be required by law or

 

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judicial order, without the written consent of the other party, which consent shall not be unreasonably withheld.  Subject to any legal or judicial disclosure obligation, any such public announcement proposed by a party that names the other party shall first be provided in draft to the other party.

 

11.4         Injunctive Relief. The parties acknowledge that either party’s breach of this Article 11 may cause the other party irreparable injury for which it would not have an adequate remedy at law.  In the event of a breach or threatened breach, the non-breaching party may be entitled to injunctive relief in addition to any other remedies it may have at law or in equity

 

ARTICLE 12.       MISCELLANEOUS

 

12.1         Force Majeure and Failure of Suppliers.

 

(a)           Excusable Delay.  Neither party shall be considered to be in breach of this Agreement if a delay in the performance of any of its duties or obligations hereunder (except the payment of money) has been caused by or is the result of an act of God, acts of a public enemy, insurrections, riots, embargoes, labor disputes, including strikes, lockouts, job actions, boycotts, fires, explosions, floods, shortages of material or energy, or other unforeseeable causes beyond the reasonable control and without the fault or negligence of the party so affected (each an event of “force majeure”).  The performance of the affected party shall be extended for a period equal to the period of such delay; provided, however, that the affected party shall give prompt notice to the other party of such cause, and shall take promptly whatever reasonable steps are necessary to relieve the effect of such cause and resume compliance with this Agreement as soon as possible.  Should the event of force majeure continue for a period longer than [***] days, the party not so affected may terminate this Agreement in accordance with Section 10.3(c).

 

(b)           Transfer of Production.  If Hospira becomes subject to an event of force majeure which interferes with production of Product at the Facility, the parties shall mutually agree on implementation of an agreed-upon action plan to transfer production of Product to another Hospira plant.  The parties shall, after the execution of this Agreement and at the request of either party, meet to discuss and define such an action plan.

 

12.2         Notices.  All notices hereunder shall be delivered as follows: (a) personally; (b) by facsimile and confirmed by first class mail (postage prepaid); (c) by registered or certified mail (postage prepaid); or (d) by overnight courier service, to the following addresses of the respective parties:

 

CONFIDENTIAL

 

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

 

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If to Theravance:

 

Theravance, Inc.

901 Gateway Boulevard

South San Francisco, CA

94080

 

Attention:  [***]

Vice President,

Technical Operations

Facsimile:  [***]

 

If   to Hospira:

 

Hospira, Inc.

275   North Field Drive

Lake   Forest, Illinois 60045

Attention:    V.P.   Contract Manufacturing

Facsimile:    [***]

 
    	
With a copy to:

 

Theravance, Inc.

901 Gateway Boulevard

South San Francisco, CA

94080

 

Attention:  [***]

Senior Vice President,

General Counsel

Facsimile:  [***]

 

With   copy to:

 

Hospira, Inc.

Building H1; Department NLEG

275 N. Field Drive

Lake Forest, IL 60045

Attention:    General   Counsel

Facsimile:    [***]
    

 

Notices shall be effective upon receipt if personally delivered or delivered by facsimile and confirmed by first class mail, on the third business day following the date of registered or certified mailing or on the first business day following the date of or delivery to the overnight courier. A party may change its address listed above by written notice to the other party.

 

12.3         Choice of Law.  This Agreement shall be construed, interpreted and governed by the laws of the State of Delaware, excluding its choice of law provisions. The United Nations Convention on the International Sale of Goods is hereby expressly excluded.

 

12.4         Alternative Dispute Resolution.  The parties recognize that bona fide disputes may arise which relate to the parties’ rights and obligations under this Agreement.  The parties agree that except as provided in Section 11.4, any such dispute shall be resolved by alternative dispute resolution in accordance with the procedures set forth in Exhibit 12.4.

 

12.5         Assignment.  Neither party shall assign this Agreement nor any part thereof without the prior written consent of the other party; provided, however, that:  (a) either party may assign this Agreement to one of its wholly-owned subsidiaries or its parent corporation without such consent; and (b) either party, without such consent, may assign this Agreement in connection with the transfer, sale or divestiture of substantially all of its business to which this Agreement pertains or in the event of its merger or consolidation with another company.  Any 

 

CONFIDENTIAL

 

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

 

27

 

permitted assignee shall assume all obligations of its assignor under this Agreement.  No assignment shall relieve any party of responsibility for the performance of any accrued obligation which such party then has hereunder.  For the avoidance of doubt Theravance may assign this agreement without Hospira’s consent to any Third Party to whom it licenses the right to commercialize the Product.

 

12.6         Entire Agreement.  This Agreement, together with the Exhibits referenced and incorporated herein, constitute the entire agreement between the parties concerning the subject matter hereof and supersede all written or oral prior agreements or understandings with respect thereto.  If there is any conflict, discrepancy, or inconsistency among the terms of the Quality Agreement, any Statement of Work, the Agreement or other form used by the parties, the Quality Agreement will control as regards all issues related to quality assurance; in all other cases, the Agreement will control.

 

12.7         Severability.  This Agreement is subject to the restrictions, limitations, terms and conditions of all applicable governmental regulations, approvals and clearances.  If any term or provision of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other term or provision hereof, and this Agreement shall be interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein.

 

12.8         Waiver-Modification of Agreement.  No waiver or modification of any of the terms of this Agreement shall be valid unless in writing and signed by authorized representatives of both parties.  Failure by either party to enforce any such rights under this Agreement shall not be construed as a waiver of such rights, nor shall a waiver by either party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances.

 

12.9         Insurance.  Each party will procure and maintain, at its own expense, for the duration of the Agreement, and for [***] years thereafter if written on a claims made or occurrence reported form, the types of insurance specified below with carriers rated A- VII or better with A. M. Best or like rating agencies:

 

(a)           Workers’ Compensation accordance with applicable statutory requirements and shall provide a waiver of subrogation in favor of the other party;

 

(b)           Employer’s Liability with a limit of liability in an amount of not less than [***];

 

(c)           Commercial General Liability including premises operations, products & completed operations, blanket contractual liability, personal injury and advertising injury including fire legal liability for bodily injury and property damage in an amount not less than [***] per occurrence and [***] in the aggregate;

 

CONFIDENTIAL

 

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

 

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(d)           Commercial Automobile Liability for owned, hired and non-owned motor vehicles with a combined single limit in an amount not less than [***] each occurrence;

 

(e)           Excess Liability including products liability with a combined single limit in an amount of not less than [***];

 

(f)            Commercial Crime or Fidelity Bond in an amount of not less than [***] per occurrence and in the aggregate including an endorsement for Third Party liability without the requirement of a conviction;

 

(g)           Marine Insurance covering all shipments from warehouse to warehouse as described on the bill of lading at a full replacement cost.

 

Each party shall include the other party and its Affiliates, directors, officers, employees and agents as additional insureds with respect to Commercial General Liability, Commercial Automobile Liability and Excess Liability but only as their interest may appear by written contract.  Prior to commencement of services, and annually thereafter, each party shall furnish to the other party certificates of insurance evidencing the insurance coverages stated above and shall require at least [***] days written notice to the other party prior to any cancellation, non-renewal or material change in said coverage.  In the case of cancellation, non-renewal or material change in said coverage, each party shall promptly provide to the other party a new certificate of insurance evidencing that the coverage meets the requirements in this Section.  Each party agrees that its insurance shall act as primary and noncontributory from any other valid and collectible insurance maintained by the other party.  Each party may, at its option, satisfy, in whole or in part, its obligation under this Section through its self- insurance program.

 

12.10       Exhibits.  All Exhibits referred to herein are hereby incorporated by reference.

 

12.11       Debarment Warranty.  Hospira and Theravance each represent and warrant that it has never been, and it will not employ, contract with, or retain any person or entity directly or indirectly in connection with the services contemplated by this Agreement, if such a person or entity, as applicable, has ever been:  (a) debarred or convicted of a crime for which a person or entity can be debarred under any governmental statute (including 21 USC Section 335a, as amended (“Section 335a”)) or, to such party’s knowledge, threatened to be debarred or indicted for a crime or otherwise engaged in conduct for which a person or entity can be debarred under any governmental statute, including Section 335a; (b) disqualified under 21 CFR 312.70 or, to such party’s knowledge, threatened to be disqualified thereunder; or (c) to such party’s knowledge, threatened to be disqualified or indicted for a crime for which a person can be excluded by the federal government as set forth by the Department of Health and Human Services Office of Inspector General at http://exclusions.oig.hhs.gov and the Excluded Parties List System at http://epls.arnet.gov, which includes the General Services Administration.  If,

 

CONFIDENTIAL

 

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

 

29

 

during the term of this Agreement or within three (3) years thereafter, either Party or any other person or entity directly or indirectly involved in the services performed under this Agreement is so debarred, disqualified, suspended, indicted, excluded or, to either Party’s knowledge, comes under investigation by the FDA or any other Regulatory Authority for debarment, disqualification, suspension, indictment, or exclusion, the Party will immediately notify the other Party of same.  Each Party agrees to provide written certification to the other that it has not used the services of any debarred, disqualified, suspended or excluded person or entity in any capacity related to the services hereunder if such certification is requested in connection with any certification regarding same that the other Party may make to a Regulatory Authority.

 

12.12       Construction. In construing this Agreement, unless expressly specified otherwise; (a) references to Articles, Sections and Exhibits are to articles, sections of, and exhibits to, this Agreement; (b) except where the context otherwise requires, use of either gender includes the other gender, and use of the singular includes the plural and vice versa; (c) headings and titles are for convenience only and do not affect the interpretation of this Agreement; (d) any list or examples following the word “including” shall be interpreted without limitation to the generality of the preceding words; (e) except where the context otherwise requires, the word “or” is used in the inclusive sense; (f) all references to “dollars” or “$” herein shall mean U.S. Dollars; and (g) each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof.  In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption will apply against the Party which drafted such terms and provisions.  Any terms or conditions contained in an invoice that are inconsistent or in conflict with this Agreement shall be deemed not to be a part of such invoice.

 

12.13       Counterparts and Facsimile Signatures.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.  Signatures provided by facsimile transmission or in AdobeTM Portable Document Format (PDF) sent by electronic mail shall be deemed to be original signatures.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE PAGE FOLLOWS

 

CONFIDENTIAL

 

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

 

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IN WITNESS WHEREOF, the parties intending to be bound by the terms and conditions hereof have caused this Agreement to be signed by their duly authorized representatives as of the date first above written.

 

 

	
HOSPIRA   WORLDWIDE, INC.
    	
 
    	
THERAVANCE, INC.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/   Anthony N. Cacich
    	
 
    	
By:
    	
/s/   Junning Lee
    
	
 
    	
(Signature)
    	
 
    	
 
    	
(Signature)
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Anthony   N. Cacich
    	
 
    	
Name:
    	
Junning   Lee
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
Corporate   Vice President
    	
 
    	
Title:
    	
Vice   President, Technical Operations
    
	
 
    	
One   2 One Contract Manufacturing Services
    	
 
    	
 
    	
 
    

 

CONFIDENTIAL

 

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

 

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Note Regarding Exhibits

 

Exhibits 1.3, 1.25, 2.1, 3.2 and 7.1 to this Agreement are subject to further revision and updating to reflect final, mutually agreed upon details concerning, among other things, Active Pharmaceutical Ingredient and Excipient Specifications, Product Specifications, Technology Transfer Activities, Stability Studies and Product Test Methods.

 

Any such revisions will be properly reflected in a writing signed by both parties.

 

CONFIDENTIAL

 

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

 

32

 

EXHIBIT 1.3

 

Active Pharmaceutical Ingredient and Excipient Specifications

 

US/Canada Specification - TLV Drug Substance

 

[***]

 

CONFIDENTIAL

 

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

 

33

 

EXHIBIT 1.3

 

Active Pharmaceutical Ingredient and Excipient Specifications (cont.)

 

EU Manufacturing QC Release Specification - TLV Drug Substance (Same as regulatory spec)

 

[***]

 

CONFIDENTIAL

 

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

 

34

 

EXHIBIT 1.3

 

Active Pharmaceutical Ingredient and Excipient Specifications (cont.)

 

Specification for Excipient ([***])

 

[***]

 

CONFIDENTIAL

 

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

 

35

 

EXHIBIT 1.25

 

Product Specifications

 

EU Specification - TLV Drug Product

 

[***]

 

CONFIDENTIAL

 

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

 

36

 

EXHIBIT 1.25

 

Product Specifications (cont.)

 

US/Canada Specification - TLV Drug Product

 

[***]

 

CONFIDENTIAL

 

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

 

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EXHIBIT 2.1

 

Statement of Work

Technology Transfer Activities

 

MILESTONE I:                                   PROJECT INITIATION

 

	
Start   Date:
    	
[***]
    
	
 
    	
 
    
	
Activities:
    	
· Product and process evaluation
    
	
 
    	
·   Identify filling line requirements
    
	
 
    	
·   Initiate technology transfer
    
	
 
    	
·   Project management
    
	
 
    	
 
    
	
Fees:
    	
[***]
    
	
Payment:
    	
Following   kick-off
    

 

MILESTONE II                                  PRODUCT DEVELOPMENT

 

	
Start   Date:
    	
Upon   receipt of product requirements and agreed methods of transfer documentation   [***]
    
	
 
    	
 
    
	
Activities:
    	
[***]
    
	
 
    	
 
    
	
Fees:
    	
[***]
    
	
Payment:
    	
[***]
    

 

CONFIDENTIAL

 

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

 

38

 

EXHIBIT 2.1

 

Technology Transfer Activities (cont.)

 

MILESTONE III                                 WATER, CLINICAL AND REGISTRATION BATCH PRODUCTION

 

	
Start   Date:
    	
[***]
    
	
 
    	
 
    
	
Activities:
    	
[***]
    
	
 
    	
 
    
	
Fees:
    	
[***]
    
	
 
    	
 
    
	
Payment:
    	
[***]
    

 

MILESTONE IV                                 PROCESS VALIDATION AND REVIEW

 

	
Start   Date:
    	
[***]
    
	
 
    	
 
    
	
Activities:
    	
[***]
    
	
 
    	
 
    
	
Fees:
    	
[***]
    
	
 
    	
 
    
	
Payment:
    	
[***]
    

 

CONFIDENTIAL

 

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

 

39

 

EXHIBIT 2.1

 

Technology Transfer Activities (cont.)

 

MILESTONE V                                   REGULATORY FILING PREPARATION AND SUBMISSION

 

	
Start   Date:
    	
[***]
    
	
Activities:
    	
[***]
    
	
 
    	
 
    
	
Fees:
    	
[***]
    

 

MILESTONE VI                                 COMMERCIALIZATION

 

	
Start   Date:
    	
[***]
    
	
 
    	
 
    
	
Activities:
    	
[***]
    
	
 
    	
 
    
	
Fees:
    	
[***]
    
	
Payment:
    	
[***]
    
	
 
    	
 
    
	
Total Fees:
    	
[***]
    

 

Product Assumptions:

 

[***]

 

CONFIDENTIAL

 

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

 

40

 

EXHIBIT 2.1

 

Technology Transfer Activities (cont.)

 

Product Assumptions (cont’d):

 

[***]

 

Development Fee Assumptions:

 

[***]

 

CONFIDENTIAL

 

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

 

41

 

EXHIBIT 3.2

 

Stability Studies

 

	
Test No.
    	
 
    	
Test
    
	
1
    	
 
    	
[***]
    
	
2
    	
 
    	
[***]
    
	
3
    	
 
    	
[***]
    
	
4
    	
 
    	
[***]
    
	
5
    	
 
    	
[***]
    
	
6
    	
 
    	
[***]
    
	
7
    	
 
    	
[***]
    
	
8
    	
 
    	
[***]
    
	
9
    	
 
    	
[***]
    

 

Development Stability

 

[***]

 

	
Fees:
    	
[***]
    

 

Commercial Stability

 

	
 
    	
 
    	
Test Interval (Test #)
    
	
Storage Condition
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    
	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    

 

	
Fees:
    	
[***]
    
	
 
    	
 
    
	
Payment:
    	
[***]
    

 

CONFIDENTIAL

 

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

 

42

 

Exhibit 5.5

 

Dedicated Equipment

 

	
List:
    	
 
    	
-40C Upright Freezer, 23 ft3
    
	
 
    	
 
    	
 
    
	
Cost:
    	
 
    	
[***]
    
	
 
    	
 
    	
 
    
	
Timing:
    	
 
    	
TBD
    

 

CONFIDENTIAL

 

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

 

43

 

EXHIBIT 5.11

 

Commercial Product Prices

 

	
Presentation
    	
 
    	
Batch size
    	
 
    	
Package Configuration
    	
 
    	
Commercial Year Volume, units
    	
 
    	
Price per Unit
    
	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    	
 
    	
[***]
    

 

Commercial Pricing Assumptions and Terms:

 

	
[***]
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

CONFIDENTIAL

 

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

 

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EXHIBIT 7.1

 

Product Test Methods

 

Telavancin Drug Product Release Testing Method Summary

[***]

 

Telavancin Drug Substance ID Release Testing Method Summary

[***]

 

[***] Release Testing Method Summary

[***]

 

CONFIDENTIAL

 

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

 

45

 

EXHIBIT 7.1

 

Product Test Methods (cont.)

 

[***]

 

CONFIDENTIAL

 

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

 

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EXHIBIT 7.2

 

Form of Quality Agreement

 

Theravance and Hospira agree to consult and use reasonable efforts to prepare and complete the Technical & Quality Agreement no later than [***] days after the Effective Date.  Upon completion, the Technical & Quality Agreement shall be attached to this Exhibit 7.2 and shall be made an integral part of this Agreement.

 

CONFIDENTIAL

 

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

 

47

 

EXHIBIT 12.4

 

Alternative Dispute Resolution

 

The parties recognize that bona fide disputes as to certain matters may arise from time to time during the Term which relate to either party’s rights and/or obligations.  To have such a dispute resolved by this Alternative Dispute Resolution (“ADR”) provision, a party first must send written notice of the dispute to the other party for attempted resolution by good faith negotiations between their respective presidents (or their designee(s), provided any such designee has the authority to act on behalf of such party to effectuate any such resolution) of the affected subsidiaries, divisions, or business units within twenty-eight (28) days after such notice is received (all references to “days” in this ADR provision are to calendar days).

 

If the matter has not been resolved within twenty-eight (28) days of the notice of dispute, or if the parties fail to meet within such twenty-eight (28) days, either party may initiate an ADR proceeding as provided herein.  The parties shall have the right to be represented by counsel in such a proceeding.

 

1.                                       To begin an ADR proceeding, a party shall provide written notice to the other party of the issues to be resolved by ADR.  Within fourteen (14) days after its receipt of such notice, the other party may, by written notice to the party initiating the ADR, add additional issues to be resolved within the same ADR.

 

2.                                       Within twenty-one (21) days following receipt of the original ADR notice, the parties shall select a mutually acceptable neutral having requisite legal and commercial expertise and credentials (including with respect to the substantive law of the State of Delaware) to preside in the resolution of any disputes in this ADR proceeding.  If the parties are unable to agree on a mutually acceptable neutral within such period, either party may request the President of the CPR Institute for Dispute Resolution (“CPR”), 366 Madison Avenue, 14th Floor, New York, New York 10017, to select a neutral pursuant to the following procedures:

 

(a)                                  The CPR shall submit to the parties a list of not less than five (5) candidates within fourteen (14) days after receipt of the request, along with a Curriculum Vita for each candidate.  No candidate shall be an employee, director, or shareholder of either party or any of their subsidiaries or Affiliates.

 

(b)                                 Such list shall include a statement of disclosure by each candidate of any circumstances likely to affect his or her impartiality.

 

(c)                                  Each party shall number the candidates in order of preference (with the number one (1) signifying the greatest preference) and shall deliver the list to the CPR within seven (7) days following receipt of the list of candidates. If a party believes a conflict of interest exists regarding any of the candidates, that party shall provide a written explanation of the conflict to the CPR along with its list showing its order of preference for the candidates.  Any party failing to return a list of preferences on time shall be deemed to have no order of preference.

 

CONFIDENTIAL

 

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

 

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(d)                                 If the parties collectively have identified fewer than three (3) candidates deemed to have conflicts, the CPR immediately shall designate as the neutral the candidate for whom the parties collectively have indicated the greatest preference.  If a tie should result between two candidates, the CPR may designate either candidate.  If the parties collectively have identified three (3) or more candidates deemed to have conflicts, the CPR shall review the explanations regarding conflicts and, in its sole discretion, may either (i) immediately designate as the neutral the candidate for whom the parties collectively have indicated the greatest preference, or (ii) issue a new list of not less than five (5) candidates, in which case the procedures set forth in subparagraphs 2(a)-2(d) shall be repeated.

 

3.                                       No earlier than twenty-eight (28) days or later than fifty-six (56) days after selection, the neutral shall hold a hearing to resolve each of the issues identified by the parties.  Except as otherwise agreed by the parties or as set forth herein, the ADR proceeding shall be governed in accordance with the CPR Rules for Non-Administered Arbitration of International Disputes (the “CPR Rules”).  The ADR proceeding shall take place in San Francisco, California, unless another location is agreed upon by the parties.

 

4.                                       In advance of the ADR proceeding, each party shall submit a proposed ruling on each issue to be resolved, together with a request for a specific damage award or other remedy for each issue. The proposed rulings and remedies shall not contain any recitation of the facts or any legal arguments and shall not exceed one (1) page per issue.

 

5.                                       Except as expressly set forth herein, no discovery shall be required or permitted by any means, including depositions, interrogatories, requests for admissions, or production of documents.  The parties agree that disclosure of documents shall be implemented by the neutral consistent with Mode B in Schedule 1 to the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration which provides for the disclosure of documents that each side will present in support of its case as well as pre-hearing disclosure of documents essential to a matter of import in the proceeding for which the party has demonstrated a substantial need, provided, however, that such documents have been identified with reasonable particularity.

 

6.                                       The hearing shall be conducted expeditiously over two (2) consecutive days.  Each party shall be entitled to five (5) hours of hearing time which may be allocated for opening statements, the presentation of testimony or other evidence, the cross-examination of witnesses, or closing argument.  The neutral may extend the time allotted for the hearing only for good cause or upon agreement of the parties.  The parties agree that the presentation of witnesses and testimony shall be implemented by the neutral consistent with Mode B in Schedule 3 to the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration, which provides for testimony to be presented orally at the hearing, and does not permit testimony to be submitted through written witness statements, depositions, or affidavits.  The neutral shall not be permitted to appoint experts or require the production of evidence that is not offered by the parties.

 

7.                                       The neutral shall rule on each disputed issue within fourteen (14) days following completion of the hearing.  Such ruling shall adopt in its entirety the proposed ruling and remedy of one of the parties on each disputed issue but may adopt one party’s proposed rulings and remedies on some issues and the other party’s proposed rulings and remedies on other issues.  The neutral shall not issue any written opinion or otherwise explain the basis of the neutral’s ruling or award.

 

CONFIDENTIAL

 

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

 

49

 

8.                                       The neutral shall be paid a reasonable fee plus expenses.  These fees and expenses, along with the reasonable legal fees and expenses of the prevailing party (including all expert witness fees and expenses), the fees and expenses of a court reporter, and any expenses for a hearing room, shall be paid as follows:

 

(a)                                  If the neutral rules in favor of one party on all disputed issues in the ADR, the losing party shall pay 100% of such fees and expenses.

 

(b)                                 If the neutral rules in favor of one party on some issues and the other party on other issues, the neutral shall issue with the rulings a written determination as to how such fees and expenses shall be allocated between the parties.  The neutral shall allocate fees and expenses in a way that bears a reasonable relationship to the outcome of the ADR, with the party prevailing on more issues, or on issues of greater value or gravity, recovering a relatively larger share of its legal fees and expenses.

 

9.                                       The rulings of the neutral and the allocation of fees and expenses shall be binding, non-reviewable (except for an alleged act of corruption or fraud on the part of the arbitrator), and non-appealable, and may be entered as a final judgment in any court having jurisdiction.

 

10.                                 Except as provided in paragraph 9 or as required by law, the existence of the dispute, any settlement negotiations, the ADR hearing, any submissions (including exhibits, testimony, proposed rulings, and briefs), and the rulings shall be deemed Confidential Information.  The neutral shall have the authority to impose sanctions for unauthorized disclosure of Confidential Information.

 

11.                                 The neutral may not award any form of damages or relief prohibited by Section 8.6 of the Agreement.  The parties hereby waive the right to punitive damages.

 

12.                                 The neutral shall have the authority to grant injunctive relief and other specific performance.

 

13.                                 The neutral shall, in rendering its decision, apply the substantive law of the State of Delaware, without regard to its conflict of laws provisions.

 

14.                                 The hearings shall be conducted in the English language.

 

CONFIDENTIAL

 

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

 

50

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