Theravance (THRX)

For the 2005 fiscal year, the Compensation Committee determined executive officer compensation levels taking into account a variety of factors. The performance metrics against which the executives are measured are clearly communicated, measurable and consistently applied, and include corporate, departmental and individual goals. The Compensation Committee measures the Company’s performance against the Company’s specific performance goals established at the beginning of the fiscal year in determining the cash bonus pool, which is then allocated among the Company’s departments pro rata. The CEO, as the manager of the members of the executive team, assesses the executives’ contribution to their respective departmental goals as well as achievement of their individual goals, and makes a recommendation to the Compensation Committee with respect to any merit increase in salary, cash bonus and stock option replenishment grant for each member of the executive team, other than himself. The Compensation Committee meets to evaluate, discuss and modify or approve these recommendations, and to conduct a similar evaluation of the CEO’s contributions to corporate goals and achievement of individual goals.

General

              The following is a summary of the rights of our common stock and preferred stock and related provisions of our certificate of incorporation, bylaws and governance agreement with GSK. For more detailed information, please see our certificate of incorporation, bylaws, governance agreement and amended and restated investors' rights agreement, which are filed as exhibits to our Registration Statement on Form 8-A (Commission File No. 000-30319), filed on September 27, 2004, and amendments thereto. In this prospectus, this Registration Statement on Form 8-A is referred to as the 2004 Registration Statement.

              Our authorized capital stock consists of 230,230,000 shares, each with a par value of $0.01 per share, of which:

•

200,000,000 shares are designated as common stock;



•

30,000,000 shares are designated as Class A common stock; and



•

230,000 shares are designated as preferred stock.

              At December 31, 2005, we had outstanding 44,537,694 shares of common stock, 9,401,498 shares of Class A common stock and no shares of preferred stock. All of our outstanding Class A common stock is held by GSK and its affiliates. In addition, as of December 31, 2005, 10,032,967 shares of our common stock were subject to outstanding options, and 18,064 shares of our capital stock were subject to outstanding warrants. At December 31, 2005, 62,632 shares of our outstanding common stock held by our employees, consultants and directors were subject to a lapsing right of repurchase in our favor, under which we may repurchase these shares upon the termination of the holder's employment or consulting relationship.

16.2