TPTX » Topics » Compensation Committee Report on Executive Compensation

This excerpt taken from the TPTX DEF 14A filed May 17, 2005.

Compensation Committee Report on Executive Compensation

                The Compensation Committee of the Board of Directors, which is composed of outside directors, is responsible for setting and administering the policies and programs that govern compensation. The Compensation Committee was originally formed in January 1999. Prior to that time no executive compensation, other than limited consultant fees, was paid. For 2004, the Company’s executive compensation consisted of two components: (1) an annual component, i.e., salaries, and the potential for year end bonuses, and (2) a long-term component, i.e., stock options. The Compensation Committee bases its decisions on executive compensation based on individual assessments of the amount of compensation required to attract individuals to fill positions in the Company and motivate those individuals to focus on achieving the objectives of the Company. The Compensation Committee seeks to reward the management team if the Company achieves its corporate objectives, and it also recognizes meaningful differences in individual performance and offers the opportunity for executives to earn rewards when merited by individual performance.

                Annual Component.   Salaries for executive officers are determined by the Committee with reference to the job description and a general assessment of the executive’s performance, experience and potential. Year-end bonuses may be granted subject to an assessment of an executive’s performance against established objectives. The Committee establishes these salaries annually or semi-annually, depending upon the individual.

                Long-Term Component.  The Compensation Committee awarded stock options or contingent stock options to its executive officers in December 2004 based on the Committee’s assessment of the accomplishment of corporate and individual objectives. These options provide the opportunity to buy a number of shares of the Company’s Common Stock at a price equal to the market price of the stock on the date of Committee approval of the grant. These options are generally subject to a three-year vesting schedule, so that they become exercisable in annual installments during the participant’s period of service with the Company. The Committee believes that, because these options gain value only to the extent that the price of the Company’s Common Stock increases above the option exercise price during the term of the optionee’s service, management’s equity participation offers a significant incentive and helps to create


a long-term partnership between management/owners and other stockholders. The Committee believes that the grant of stock options should reflect the Company’s success in meeting objectives established by the Board, each individual officer’s ability to attain such objectives and such officer’s contribution towards the attainment of past objectives.

                Compliance with Internal Revenue Code Section 162(m). As a result of Section 162(m) of the Internal Revenue Code of 1986, as amended, the Company will not be allowed a federal income tax deduction for compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in any one calendar year. This limitation will apply to all compensation which is not considered to be performance-based. Compensation which does qualify as performance-based compensation will not have to be taken into account for purposes of this limitation. The Amended and Restated 2000 Stock Option Plan (as well as the Second Amended and Restated 2000 Stock Option Plan), contains certain provisions which permit the Company, on a grant-by-grant basis, to make awards of stock options (with an exercise price equal to or greater than fair market value of the Common Stock on the date of grant) that will qualify as performance-based compensation so that any compensation deemed paid in connection with those options will be excluded from the 162(m) limitation. The Company’s 1998 Stock Option Plan does not contain provisions to qualify stock options under that plan as performance-based compensation. The Compensation Committee considers this among all factors taken into account when setting compensation policy and making individual compensation decisions.

                The Compensation Committee does not expect that the compensation to be paid to any of the Company’s executive officers for 2004 will exceed the $1 million limit per officer; however, it is possible that in the future the deductibility of compensation may be limited by Internal Revenue Code Section 162(m).

                The Compensation Committee of the Board of Directors:

  Louis G. Cornacchia, Chairman
  Steven H. Ferris, Ph.D
  Gerard J. Vlak, Ph.D.


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