Inspire Pharmaceuticals, Inc. Executive Change in Control Severance Benefit Plan

Exhibit 10.1

Inspire Pharmaceuticals, Inc.

Executive Change in Control

Severance Benefit Plan

Effective March 29, 2008

(amended and restated as of July 8, 2009)

Preamble

Inspire Pharmaceuticals, Inc. (the “Company”) established the Inspire Pharmaceuticals, Inc. Executive Change in Control Severance Benefit Plan (this “Plan”) for the purpose of providing severance benefits to certain Executives whose employment terminates following a Change in Control of the Company as provided herein. This Plan constitutes a formal employee welfare benefit plan under the Executive Retirement Income Security Act of 1974, as amended (“ERISA”).

This Plan, as set forth herein, is intended to help retain qualified executives, maintain a stable work environment, and alleviate in part or in full financial hardships that may be experienced by certain of those Executives of the Company and its U.S. affiliated companies, whose employment is terminated for certain reasons. In essence, benefits under this Plan are intended to be supplemental unemployment benefits. This Plan is not intended to be included in the definitions of “employee pension benefit plan” and “pension plan” set forth under Section 3(2) of ERISA as a “severance pay arrangement” within the meaning of Section 3(2)(b)(i) of ERISA. Rather, this Plan is intended to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations , Section 2510.3-2(b).

This Plan shall continue until such time as it is amended or terminated in accordance with Article VI.

TABLE OF CONTENTS

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ARTICLE I

DEFINITIONS

When used herein, the following terms shall have the meanings set forth below.

Section 1.01 “Administrative Committee” means the Compensation Committee of the Board of Directors of the Company or its designee.

Section 1.02 “Annual Base Rate of Pay” means the Executive’s highest annual base rate of pay for the calendar year.

Section 1.03 “Benefits” means the cash and in kind benefits that a Participant is eligible to receive pursuant to Article III of this Plan.

Section 1.04 “Board” means the Board of Directors of Inspire.

Section 1.05 “Cause” means (i) the deliberate and continued failure by the Executive to devote substantially all the Executive’s business time and best efforts to the performance of the Executive’s duties after a demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Executive has not substantially performed such duties; (ii) the deliberate engaging by the Executive in gross misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including but not limited to fraud or embezzlement by the Executive; or (iii) the Executive’s conviction (or entering into a plea bargain admitting guilt) of any felony. For the purposes of this Plan, no act, or failure to act, on the part of the Executive shall be considered “deliberate” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that such action or omission was in the best interests of the Company. In the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Administrative Committee by clear and convincing evidence that Cause exists.

Section 1.06 “Change in Control” means the determination (which may be made effective as of a particular date specified by the Board) by the Board, made by a majority vote that a change in control has occurred, or is about to occur. Such a change shall not include, however, a restructuring, reorganization, merger or other change in capitalization in which the Persons who own an interest in Inspire on the date hereof (the “Current Owners”) (or any individual or entity which receives from a Current Owner an interest in the Company through will or the laws of descent and distribution) maintain more than a fifty percent (50%) interest in the resultant entity. Regardless of the vote of the Board or whether or not the Board votes, a Change in Control will be deemed to have occurred as of the first day any one (1) or more of the following subsections shall have been satisfied:

(a) Any Person becomes the beneficial owner, directly or indirectly, of securities of Inspire representing more than:

(i) Thirty-five percent (35%) of the combined voting power of Inspire’s then outstanding securities, with respect to all outstanding options and awards issued under any Company-sponsored equity compensation plan on or prior to July 8, 2009;

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(ii) Fifty percent (50%) of the combined voting power of Inspire’s then outstanding securities, with respect to all options and awards issued under any Company-sponsored equity compensation plan following July 8, 2009; provided, however, in the event there is a Change in Control during the period from July 8, 2009 through July 8, 2010, the thirty-five percent (35%) threshold set forth in subsection 1.06(a)(i) above shall apply to the grants issued during the period from July 8, 2009 through July 8, 2010; or

(b) The stockholders of Inspire approve:

(i) A plan of complete liquidation of Inspire;

(ii) An agreement for the sale or disposition of all or substantially all of Inspire’s assets; or

(iii) A merger, consolidation or reorganization of Inspire with or involving any other entity, other than a merger, consolidation or reorganization that would result in the voting securities of Inspire outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of Inspire (or such surviving entity) outstanding immediately after such merger, consolidation or reorganization.

However, in no event shall a Change in Control be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group which consummates the Change in Control transaction. The Executive shall be deemed “part of the purchasing group” for purposes of the preceding sentence if the Executive is an equity participant or has agreed to become an equity participant in the purchasing entity or group (except for (i) passive ownership of less than five percent (5%) of the voting securities of the purchasing entity; or (ii) ownership of equity participation in the purchasing entity or group which is otherwise deemed not to be significant, as determined prior to the Change in Control by a majority of the non-employee continuing Directors of the Board).

Section 1.07 “Company” means Inspire Pharmaceuticals, Inc. and its successors and its or their U.S. affiliated companies.

Section 1.08 “Disability” means a total and permanent disability as defined in the Company’s long-term disability plan.

Section 1.09 “Executive” means any officer of the Company who is subject to Section 16 of the Securities Exchange Act of 1934, as amended, immediately prior to a Change in Control of the Company.

Section 1.10 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

Section 1.11 “Inspire” means Inspire Pharmaceuticals, Inc.

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Section 1.12 “Participant” means any Executive eligible for Benefits in accordance with Article II.

Section 1.13 “Person” shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Inspire or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Inspire or any of its subsidiaries; (iii) an underwriter temporarily holding securities pursuant to an offering of such securities; (iv) a corporation owned, directly or indirectly, by the shareholders of Inspire in substantially the same proportions as their ownership of stock of the Company; or (v) an entity or entities which are eligible to file and have filed a Schedule 13G under Rule 13d-l(b) of the Securities Exchange Act of 1934, as amended, which Schedule indicates beneficial ownership of fifteen percent (15%) or more of the outstanding shares of common stock of Inspire or the combined voting power of Inspire’s then outstanding securities.

Section 1.14 “Plan” means this Inspire Pharmaceuticals, Inc. Executive Change in Control Severance Benefit Plan, as set forth herein, and as the same may from time to time be amended.

Section 1.15 “Plan Year” means for the first Plan Year, the period commencing on March 29, 2008 and ending on December 31, 2008, and for each subsequent Plan Year, the period commencing on each January 1 during which this Plan is in effect and ending on the subsequent December 31.

Section 1.16 “Target Incentive Bonus” means the target incentive bonus applicable to the Executive under the Company’s primary annual performance incentive plan for any given performance measuring period that is equal to a year.

Section 1.17 “Termination Due to Change in Control” means a termination of an Executive’s employment by the Company (or the Executive’s Voluntary Resignation for Good Reason) within two (2) years following a Change in Control. “Termination Due to Change of Control” shall also include the termination of the Executive by the Company prior to a Change of Control at the direction of, or in concert with, a person or entity that becomes in a position to control at least fifty percent (50%) of the voting power of the Company immediately following the Change of Control.

Section 1.18 “Voluntary Resignation for Good Reason” means the occurrence of any one of the following events:

(a) the assignment to the Executive by the Company of any duties inconsistent with the Executive’s status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities or position from those in effect immediately prior to the Change in Control;

(b) a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time except for (i) across-the-board salary reductions similarly affecting all salaried employees of the Company or (ii)

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across-the-board salary reductions similarly affecting all senior executive officers of the Company and all senior executives of any Person in control of the Company;

(c) the relocation of the Executive’s principal place of employment to a location more than fifty (50) miles from the Executive’s principal place of employment immediately prior to the Change in Control (unless such relocation is closer to the Executive’s principal residence) or the Company’s requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof that is closer to the Executive’s principal residence) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations as they existed immediately prior to the Change in Control;

(d) the failure by the Company, to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due;

(e) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed immediately prior to the Change in Control; or

(f) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company’s savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of the higher of the agreed upon vacation days set forth in the terms and conditions of the Executive’s employment with the Company or the Executive’s years of service with the Company in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control;

Notwithstanding anything herein to the contrary, (i) the Executive’s agreement that any circumstances will not result in a Voluntary Resignation for Good Reason shall not be effective unless it is made in a signed written document that specifically references Section 1.18 of this Plan; and (ii) an alteration of the Executive’s title without any other changes to the Executive’s responsibilities or position, shall not be sufficient to give rise to Voluntary Resignation for Good Reason.

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ARTICLE II

PARTICIPATION AND ELIGIBILITY FOR BENEFITS

Section 2.01 Eligibility .

(a) Except as otherwise provided in this Plan, each Executive who experiences a Termination Due to Change in Control shall be eligible for Benefits under this Plan in accordance with the provisions set forth herein.

(b) Notwithstanding anything herein to the contrary, the Executive shall not be entitled to any Benefit under this Plan, if his or her termination of employment is caused by:

(i) A termination by the Company for Cause;

(ii) Death;

(iii) Disability; or

(iv) The Executive’s voluntary termination that is not a Voluntary Termination for Good Reason.

Section 2.02 Termination of Eligibility for Benefits . A Participant shall cease to participate in this Plan, and all Benefits shall cease (other than those Benefits that have vested or been triggered hereunder) upon the occurrence of the earliest of:

(a) Termination of this Plan more than one (1) year prior to a Change in Control; and

(b) Completion of payment to the Participant of the Benefits for which the Participant is eligible.

Section 2.03 General Release . Notwithstanding anything in this Plan to the contrary, unless determined otherwise by the Administrative Committee in its sole discretion, no Benefits shall be due or paid under this Plan to any Executive, unless the Executive executes (and does not rescind) a written general release, in the form attached hereto as Exhibit A .

Section 2.04 Noncompete, Nonsolicit, and Confidentiality . Notwithstanding anything in this Plan to the Contrary, Executive shall forfeit any and all unpaid Benefits under this Plan if he or she breaches any noncompete, nonsolicit, confidentiality or similar agreement that he or she has entered into with the Company.

ARTICLE III

BENEFITS

Section 3.01 Amount of Severance Pay . The amount of severance pay payable to a Participant shall be equal to the applicable multiplier set forth in the chart below multiplied by the sum of:

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(a) the Executive’s highest of the Annual Base Rate of Pay for the calendar year in which his or her Termination Due to Change in Control oc