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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
KOSAN BIOSCIENCES INCORPORATED
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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KOSAN BIOSCIENCES INCORPORATED
3832 BAY CENTER PLACE
HAYWARD, CA 94545
------------------------
APRIL 17, 2001
To Our Stockholders:
I am pleased to invite you to attend the first annual meeting of
stockholders of Kosan Biosciences to be held at 3832 Bay Center Place, Hayward,
CA 94545, on Friday, June 1, 2001, at 10:00 a.m. local time.
The matters expected to be acted upon at the meeting are described in
detail in the following Notice of Annual Meeting of Stockholders and Proxy
Statement.
The Board of Directors appreciates and encourages stockholder participation
in the Company's affairs and invites you to attend the meeting in person. It is
important, however, that your shares be represented at the annual meeting in any
event and for that reason we ask that whether or not you expect to attend the
meeting, you take a moment to complete, date, sign and return the accompanying
proxy in the enclosed postage-paid envelope.
Returning the proxy does not deprive you of your right to attend the
meeting and to vote your shares in person.
We thank you for your support and look forward to seeing you at the
meeting.
Sincerely,
Daniel V. Santi, M.D., Ph.D.
Chairman and Chief Executive Officer
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[KOSAN BIOSCIENCES LOGO]
3832 BAY CENTER PLACE
HAYWARD, CA 94545
------------------------
NOTICE OF THE 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, JUNE 1, 2001
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of Kosan
Biosciences Incorporated, a Delaware corporation (the "Company"), will be held
at 3832 Bay Center Place, Hayward, CA 94545, on Friday, June 1, 2001, at 10:00
a.m. for the following purposes:
(1) to elect one director of the Company, to serve until the 2004
annual meeting of stockholders and until his successor has been elected and
qualified or until his earlier resignation or removal.
(2) to amend the Company's Amended and Restated Certificate of
Incorporation to decrease the authorized number of shares of common stock
by 100,000,000 shares, to a total of 100,000,000 shares of authorized
common stock.
(3) to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 3, 2001, as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the meeting or any adjournment thereof.
By Order of the Board of Directors
Blair W. Stewart, Jr.
Secretary
Hayward, California
April 17, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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KOSAN BIOSCIENCES INCORPORATED
3832 BAY CENTER PLACE
HAYWARD, CA 94545
------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 2001
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Kosan Biosciences Incorporated, a Delaware corporation (the "Company"), for use
at the annual meeting of stockholders of the Company to be held on June 1, 2001
at 10:00 a.m. local time, or at any adjournment or postponement of the meeting,
for the purposes set forth in this Proxy Statement and in the accompanying
Notice of Annual Meeting. The annual meeting will be held at 3832 Bay Center
Place, Hayward, California 94545. The Company's telephone number is (510)
732-8400.
These proxy solicitation materials, together with the Company's 2000 Annual
Report, are being mailed on or about April 17, 2001, to all stockholders of
record on April 3, 2001.
SOLICITATION
The cost of soliciting proxies will be borne by the Company. Proxies may
also be solicited by certain of the Company's directors, officers and employees,
without additional compensation, personally or by telephone, facsimile or
letter.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of common stock at the close of business on April 3,
2001 (the "Record Date") are entitled to notice of, and to vote at, the annual
meeting. At the Record Date, 25,181,645 shares of the Company's common stock
were issued and outstanding. Each holder of record of common stock on the Record
Date will be entitled to one vote for each share held on all matters to be voted
upon at the annual meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a date later than the date
of the proxy being revoked, or by attending the meeting and voting in person.
Attending the meeting will not, by itself, revoke the proxy.
GENERAL INFORMATION FOR ALL SHARES VOTED VIA THE INTERNET OR BY TELEPHONE
Votes submitted via the Internet or by telephone must be received by 4
p.m., EST on May 31, 2001. Submitting your proxy via the Internet or by
telephone will not affect your right to vote in person should you decide to
attend the meeting.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. Stockholders voting via the Internet should understand that there may
be costs associated with electronic access, such as usage charges from Internet
access providers and telephone companies, that must be borne by the
stockholders.
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QUORUM, ABSTENTIONS, AND BROKER NON-VOTES
The required quorum for the transaction of business at the annual meeting
is a majority of the shares of common stock outstanding on the Record Date.
Abstentions are included in the determination of shares present for quorum
purposes. Because abstentions represent shares entitled to vote, the effect of
an abstention will be the same as a vote against a proposal. If shares are held
in "street name" through a broker or other nominee, the broker or nominee may
not be permitted to exercise voting discretion with respect to certain matters
to be acted upon. If the broker or nominee is not given specific instructions,
shares held in the name of such broker or nominee may not be voted on those
matters and will not be considered as present and entitled to vote with respect
to those matters. Shares represented by such "broker non-votes" will, however,
be counted in determining whether there is a quorum.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2002 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission (the "Commission") is December 27, 2001. Stockholders wishing to
submit proposals or director nominations that are not to be included in such
proxy statement and proxy must do so in accordance with our bylaws. Stockholders
are also advised to review the Company's bylaws, which contain additional
requirements with respect to advance notice of stockholder proposals and
director nominations, including a requirement that the Company receive notice of
any proposal or nomination at least 120 days before the date of the first
anniversary of the 2001 annual meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our restated certificate of incorporation and bylaws provide that our board
of directors shall be divided into three classes, each class consisting, as
nearly as possible, of one-third of the total number of directors, with each
class having a three-year term. Vacancies on the board may be filled only by
persons elected by a majority of the remaining directors. A director elected by
the board to fill a vacancy (including a vacancy created by an increase in size
of our board of directors) shall serve for the remainder of the full term of the
class of directors in which the vacancy occurred and until such director's
successor is elected and qualified.
Our board of directors is presently composed of six members. There is one
director in the class whose term of office expires in 2001 who is standing for
re-election. The nominee for election to this class, Chaitan Khosla, Ph.D., is
currently a member of our board of directors. If elected at the annual meeting,
Dr. Khosla would serve until the 2004 annual meeting and until his successor is
elected and qualified, or until his earlier death, resignation or removal.
Raymond Whitaker, Ph.D., a class A director, whose term of office expires in
2001, has chosen not to stand for reelection.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of Dr. Khosla. In the event that the nominee should be unavailable for
election as a result of an unexpected occurrence, such shares will be voted for
the election of such substitute nominee as management may propose. Dr. Khosla
has agreed to serve if elected, and we have no reason to believe that he will be
unable to serve.
Presented below is biographical information for the nominee and each person
whose term of office as a director will continue after the annual meeting.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2004 ANNUAL MEETING
Chaitan Khosla, Ph.D., is one of our co-founders and has served as our
director since our inception. Dr. Khosla has been Professor of chemical
engineering, chemistry and biochemistry at Stanford University since 2001, and
has been a faculty member since 1992. Dr. Khosla is co-chairman of our
Scientific Advisory
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Board. Dr. Khosla is the inventor of the combinatorial biosynthesis technology
that we licensed from Stanford University. He is the recipient of several
awards, including the 1999 Alan T. Waterman award by the National Science
Foundation, the 1999 Eli Lilly Award in biological chemistry, and the 2000 ACS
Award in pure science. Dr. Khosla is the author of over 100 publications and is
an inventor on numerous patents. Dr. Khosla received his B.Tech. from the Indian
Institute of Technology, Bombay, India and his Ph.D. from the California
Institute of Technology.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
Peter Davis, Ph.D., has served as our director since April 1998. Dr. Davis
has been a member of the Executive Committee of Pulsar International, S.A., an
affiliate of A.G. Biotech Capital since 1993. Dr. Davis was a faculty member at
the Wharton School of the University of Pennsylvania, where he was a director of
the Applied Research Center and Director of Executive Education. He is a Board
member of several Pulsar companies including Bionova Holdings, Inc. and Seminis,
Inc. He is also a Board member of Lutron Electronics, Inc., Instromedix, Inc.,
C.H. Werfen and Celsa S.A. Dr. Davis received his B.A. in physics from Cambridge
University, his Masters Degree in operations research from the London School of
Economics and his Ph.D. in operations research from the Wharton School.
Christopher Walsh, Ph.D., has served as our director since April 1996. Dr.
Walsh has been the Hamilton Kuhn Professor of biological chemistry and molecular
pharmacology at Harvard Medical School since 1991 and formerly was President of
the Dana-Farber Cancer Institute and Chairman of the Department of Biological
Chemistry and Molecular Pharmacology at Harvard Medical School. He has performed
extensive research in enzyme sterochemistry, reaction mechanisms and the
mechanisms of action and anti-infective and immunosuppressive agents. He is
co-chairman of our Scientific Advisory Board. Dr. Walsh is also a member of the
board of directors of Versicor Inc. Dr. Walsh received his A.B. in biology from
Harvard University and Ph.D. in life sciences from The Rockefeller University,
New York.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING
Daniel V. Santi, M.D., Ph.D., is one of our co-founders, and has served as
Chairman of the Board of Directors since our inception. In November 1998, Dr.
Santi was appointed as our Chief Executive Officer. Until his retirement in
January 2001, Dr. Santi was on leave of absence from his position as Professor
of Biochemistry and Biophysics, and of Pharmaceutical Chemistry at University of
California, San Francisco, a position that he held from 1974. Dr. Santi was one
of the original members of the Scientific Advisory Boards of Chiron Corporation
and Mitotix, Inc., and has served as a consultant to several large
pharmaceutical companies. In 1988, Dr. Santi founded and served as Chairman of
the Board of Directors of the biotechnology firm Protos, a subsidiary of Chiron
Corporation, which was merged with Chiron in 1992. Dr. Santi was also founder
and Chairman of Parnassus Pharmaceuticals. Dr. Santi has published over 275
scientific papers and is inventor on many patents in combinatorial chemistry and
other areas. Dr. Santi received a Ph.D. in medicinal chemistry from the State
University of New York, his M.D. from the University of California, San
Francisco, and his B.S. in pharmacy from the State University of New York.
Jean Deleage, Ph.D., has served as our director since April 1996. He is a
founder and managing director of Alta Partners, a venture capital firm that was
formed in 1996. In 1979, Dr. Deleage was a managing partner of Burr, Egan,
Deleage & Co., a major venture capital firm in San Francisco and Boston. He was
a member of Sofinnova initial team in Paris, and in 1976 formed Sofinnova, Inc.
(the U.S. subsidiary of Sofinnova.). Dr. Deleage is presently a director of
Aclara BioSciences, Inc., Crucell, N.V., Flamel Technologies, Rigel
Pharmaceuticals and Telik, Inc. Dr. Deleage received an MA in electrical
engineering from the Ecole Superieure d'Electricite in 1962 and a Ph.D. in
economics from the Sorbonne in 1964.
BOARD COMMITTEES AND MEETINGS
The Board currently consists of six members. During the year ended December
31, 2000, the Board met nine times, including telephone conference meetings. No
director attended fewer than 89% of the aggregate of
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the total number of meetings of the Board (held during the period for which he
was a director and the total number of meetings held by all committees of the
Board on which he served), except Christopher Walsh who attended approximately
67% of the meetings held by the Board.
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Company has no nominating committee.
Peter Davis, Jean Deleage and Raymond Whitaker are the current members of
the Company's Audit Committee. The members of the Audit Committee are
independent (as defined in Rule 4200(a)(15) of the National Association of
Securities Dealers' listing standards. The Board has adopted a written charter
for the Audit Committee. The Audit Committee met three times in 2000. The Audit
Committee makes recommendations to the Board regarding the selection of
independent auditors, reviews the scope of audit and other services by our
independent auditors, reviews the accounting principles and auditing practices
and procedures to be used for our financial statements and reviews the results
of those audits.
Peter Davis, Jean Deleage and Christopher Walsh are the current members of
the Company's Compensation Committee. The Compensation Committee met two times
during 2000. The Compensation Committee makes recommendations to the Board
regarding our stock and compensation plans and approves compensation of
executive officers.
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EXECUTIVE MANAGEMENT
Executive officers are appointed annually by the Board and serve at the
discretion of the Board. Set forth below are the names of and certain
biographical information concerning the executive officers of the Company,
except that biographical information for Dr. Santi has not been repeated below.
NAME AGE POSITION
---- --- --------
Daniel V. Santi, M.D., Ph.D. ................ 59 Chairman and Chief Executive Officer
Michael S. Ostrach........................... 49 Sr. Vice President and Chief Operating Officer
Brian W. Metcalf, Ph.D. ..................... 55 Sr. Vice President and Chief Scientific Officer
Robert G. Johnson, Jr., M.D., Ph.D. ......... 49 Vice President, Medical Affairs and Corporate
Development
Susan M. Kanaya.............................. 38 Vice President, Finance and Chief Financial
Officer
Kevin R. Kaster.............................. 41 Vice President, Intellectual Property
Michael S. Ostrach has served as our Chief Operating Officer since October
1998. Prior to joining Kosan as Vice President, Corporate Development in October
1997, Mr. Ostrach worked as an independent consultant for biotechnology
companies from October 1996 to October 1997. Mr. Ostrach was Executive Vice
President and Chief Operating Officer of Neurobiological Technologies, Inc., a
publicly-held biotechnology company from 1994 to 1996. From 1981 to 1991, he was
a Senior Vice President at Cetus Corporation. In 1991, Cetus Corporation merged
into Chiron Corporation and during 1992 Mr. Ostrach was a Vice President of
Chiron Corporation and a founder and the President of Chiron Technologies, a
Chiron business unit. Mr. Ostrach received his B.A. from Brown University and
his J.D. from Stanford Law School.
Brian W. Metcalf, Ph.D., has served as our Senior Vice President and Chief
Scientific Officer since March 2000. From 1983 to 2000, Dr. Metcalf held a
number of executive management positions with SmithKline Beecham, most recently
as Senior Vice President, Discovery Chemistry & Platform Technologies worldwide.
Prior to joining SmithKline Beecham, Dr. Metcalf held positions with Merrell
Research Center from 1973-1983. Dr. Metcalf is a director of Argonaut
Technologies, Inc. Dr. Metcalf received his B.S. and Ph.D. in organic chemistry
from the University of Western Australia.
Robert G. Johnson, Jr., M.D., Ph.D., has served as our Vice President,
Medical Affairs and Corporate Development since September 2000. From 1998 to
September 2000, Dr. Johnson was employed by Chiron Corporation, a biotechnology
company, serving as Vice President, Pharmacology and Preclinical Affairs through
1999 and most recently as Vice President, Corporate Development. From 1991 to
1998, Dr. Johnson was Director of Pharmacology at Merck & Co., Inc., a
pharmaceutical company. In addition, Dr. Johnson was a member of the faculty at
the University of Pennsylvania from 1987 to 1991 and at Harvard Medical School
from 1985 to 1987. Dr. Johnson received his B.A. and Ph.D in biophysics and his
M.D. from the University of Pennsylvania.
Susan M. Kanaya has served as our Vice President, Finance and Chief
Financial Officer since November 1999. From 1994 to November 1999, Ms. Kanaya
was employed by SUGEN, Inc., a biotechnology company that was acquired by
Pharmacia, most recently serving as Vice President, Finance and Treasurer.
Before joining SUGEN, Ms. Kanaya was the Controller at 50/50 Micro Electronics,
Inc. and at Power Up Software Corporation. Ms. Kanaya received her B.S. in
business administration from the University of California, Berkeley.
Kevin Kaster has served as our Vice President, Intellectual Property since
August 1998. Prior to joining Kosan, he was Vice President, Intellectual
Property at Geron Corporation. Prior to joining Geron in 1994, Mr. Kaster was
Director, Intellectual Properties at Affymax N.V. between 1991 and 1994. Between
1988 and 1991, he was a Patent Attorney at Cetus Corporation. After receiving a
B.S., magna cum laude, in chemistry and molecular biology from Vanderbilt
University, Mr. Kaster joined Eli Lilly and Co. as an Associate Biologist, later
becoming a patent technician. Mr. Kaster received his J.D. from Indiana
University, Indianapolis.
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In April 1998, Mr. Ostrach consented, without admitting or denying the
Securities and Exchange Commission's allegations and conclusions, to the entry
of a Commission administrative order requiring future compliance with Rule 102
of the Commission's Regulation M, a regulation which prohibits participants in a
public stock offering from purchasing securities for their own account until the
public distribution is complete. The administrative order resulted from Mr.
Ostrach's purchase of 600 shares of Neurobiological Technologies, Inc., or NTI,
common stock during a restricted period preceding a 1996 stock offering by NTI.
PROPOSAL NO. 2
AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
At the annual meeting, the stockholders are being asked to approve an
amendment to the Company's Amended and Restated Certificate of Incorporation to
decrease the number of authorized shares of common stock by 100,000,000 shares
to a total of 100,000,000 shares of authorized common stock (the "Amendment").
The Company's Amended and Restated Certificate of Incorporation currently
authorizes the issuance 200,000,000 shares of common stock, with a par value of
$0.001 per share, and 10,000,000 shares of preferred stock with a par value of
$0.001 per share. The Board adopted a resolution approving an amendment to the
Amended and Restated Certificate of Incorporation to decrease the authorized
number of shares of common stock to 100,000,000, subject to stockholder
approval. Because the Company's Amended and Restated Certificate of
Incorporation also authorizes 10,000,000 shares of preferred stock, the
Amendment will have the effect of decreasing the total number of shares of
capital stock authorized for issuance from 210,000,000 to 110,000,000 shares.
Stockholders are invited to read the Certificate of Amendment to the Amended and
Restated Certificate of Incorporation (the "Certificate"), a copy of which can
be obtained from the Company by contacting the Company at its corporate
headquarters, Attention: Chief Financial Officer.
PURPOSE AND EFFECT OF THE PROPOSED AMENDMENT
As of March 31, 2001, the Company had 25,181,645 shares of common stock
outstanding and no shares of preferred stock outstanding, and as of that date,
the Company had approximately 1,140,266 shares of common stock reserved for
issuance under options granted pursuant to the Company's stock option plans. The
Company also had, as of such date, 275,466 shares of common stock reserved for
future issuance under the Company's employee stock purchase plan. The reduction
in the number of authorized shares is estimated to result in a reduction of
state franchise taxes in excess of $125,000 over a two-year period. The Board
considers the reduced number of authorized, but unissued shares of common stock
available would still allow the Company to act promptly with respect to possible
future financings, possible acquisitions, additional issuances under the
Company's employee benefit plans, stock splits and for other corporate purposes
approved by the Board.
REQUIRED VOTE
Approval of the amendment to the Amended and Restated Certificate of
Incorporation will require the affirmative vote of a majority of the outstanding
shares of common stock entitled to vote at the meeting.
If shares are held in "street name" through a broker or other nominee who
are not permitted to exercise voting discretion with respect to this Proposal
No. 2, such "broker non-votes" will not be considered as present and entitled to
vote. However, such shares represented by such "broker non-votes" will be
counted in determining whether there is a quorum. Abstentions will have the same
effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The Board of Directors selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ended December 31, 2001.
Representatives of Ernst & Young LLP are expected to be present at the
annual meeting and will have the opportunity to make a statement if they desire
to do so. The representatives of Ernst & Young LLP also will be available to
respond to questions raised during the meeting.
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Audit Fees. Audit fees billed to the Company by Ernst & Young LLP during
the 2000 fiscal year totaled $76,900 for the independent audit of the Company's
annual financial statements.
Audit Related Fees. Audit related fees of $350,000 include amounts billed
related to the review of the financial statements contained in the Company's
initial public offering registration statement.
Financial Information Systems Design and Implementation Fees. The Company
did not engage Ernst & Young LLP to provide advice to the Company regarding
financial information systems design and implementation during the 2000 fiscal
year.
Other Fees. Fees billed to the Company by Ernst & Young LLP during the 2000
fiscal year for all other non-audit services rendered to the Company, including
tax-related services, totaled $7,169.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
common stock as of March 31, 2001 by: (i) each person who is known by the
Company to beneficially own more than 5% of the common stock; (ii) each of the
executive officers and (iii) each director and all executive officers and
directors as a group.
Percentage of ownership is based on 25,181,645 shares outstanding as of
March 31, 2001. Beneficial ownership is calculated based on Commission
requirements. All shares of the common stock subject to options currently
exercisable or exercisable within 60 days after March 31, 2001 are deemed to be
outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed to be outstanding for computing
the percentage of ownership of any other person. Unless otherwise indicated
below, each stockholder named in the table has sole or shared voting and
investment power with respect to all shares beneficially owned, subject to
applicable community property laws. Unless otherwise indicated in the table, the
address of each individual listed in the table is Kosan Biosciences, 3832 Bay
Center Place, Hayward, California 94545.
AMOUNT OF SHARES BENEFICIALLY OWNED
AS OF MARCH 31, 2001
-----------------------------------------
PERCENTAGE OF TOTAL
NUMBER OF SHARES OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------ ------------------ -------------------
Daniel V. Santi, M.D., Ph.D.(1)............................ 3,649,009 14.5%
Jean Deleage, Ph.D.(2)..................................... 2,389,875 9.5%
Alta Partners
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Peter Davis, Ph.D.(3)...................................... 1,506,931 6.0%
AG Biotech Capital, LLC
c/o Viridian Management, LLC
686 N. DuPont Boulevard #220
Milford, DE 19963
Lombard Odier & Cie(4)..................................... 1,590,908 6.3%
Sihlstrasse 20
8021 Zurich, Switzerland
Raymond Whitaker, Ph.D.(5)................................. 967,477 3.8%
S.R. One, Limited
Four Tower Bridge
West Conshohoken, PA 19428
Chaitan Khosla, Ph.D.(6)................................... 1,785,000 7.1%
Christopher Walsh, Ph.D. (7)............................... 79,500 *
Michael S. Ostrach(8)...................................... 405,000 1.6%
Brian W. Metcalf, Ph.D.(9)................................. 300,941 1.2%
Robert G. Johnson, Jr., M.D., Ph.D.(10).................... 194,352 *
Susan M. Kanaya(11)........................................ 165,000 *
Kevin R. Kaster(12)........................................ 256,478 1.0%
All current directors and executive officers as a group
(11 persons)(13)......................................... 11,699,563 45.7%
- ---------------
* Less than one percent (1%)
(1) Includes 281,250 shares that are subject to our right of repurchase as of
March 31, 2001 if Dr. Santi is no longer an employee, director or
consultant with us.
(2) Includes 2,389,875 shares beneficially owned by Alta Partners including
2,327,682 shares held directly by Alta California Partners, L.P. and 62,193
shares held directly by Alta Embarcadero Partners, LLC. Dr. Deleage, one of
our directors, is the managing general partner of Alta Partners and
disclaims beneficial ownership of such shares except to the extent of his
proportionate pecuniary interest therein.
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(3) Includes 1,502,931 shares held directly by AG Biotech Capital LLC. Dr.
Davis, one of our directors, is a member of the Executive Committee of
Pulsar International, S.A., an affiliate of AG Biotech Capital. Dr. Davis
disclaims beneficial ownership of the shares held by AG Biotech Capital
except to the extent of his proportionate pecuniary interest therein.
(4) Lombard Odier & Cie is a private Swiss banking institution. The shares
consist of shares held by Lombard Odier for the benefit of certain Swiss
publicly traded mutual funds and private and institutional clients over
which Lombard Odier has sole voting and dispositive power through its asset
managers. No single person exercises voting and dispositive control over
the shares held by Lombard Odier.
(5) Includes 957,477 shares held directly by S.R. One, Limited. Dr. Whitaker,
one of our directors, is Vice President of S.R. One, Limited, the
investment affiliate of GlaxoSmithKline. Dr. Whitaker disclaims beneficial
ownership of the shares held by S.R. One, Limited except to the extent of
his proportionate pecuniary interest therein.
(6) Includes 85,313 shares that are subject to our right of repurchase as of
March 31, 2001 in the event of exercise if Dr. Khosla is no longer an
employee, director or consultant with us.
(7) Includes 19,500 shares that are subject to option as of March 31, 2001, of
which 10,625 would be subject to our right of repurchase in the event of
exercise if Dr. Walsh is no longer an employee, director or consultant with
us.
(8) Includes the following:
(i) 76,251 shares that are subject to our right of repurchase as of March
31, 2001; and
(ii) 75,000 shares that are subject to option as of March 31, 2001, of
which 51,563 would be subject to our right of repurchase in the event
of exercise if Mr. Ostrach is no longer an employee, director or
consultant with us.
(9) Includes 300,000 shares that are subject to option at of March 31, 2001, of
which 212,500 would be subject to our right of repurchase in the event of
exercise if Dr. Metcalf is no longer an employee, director or consultant
with us.
(10) Includes 192,000 shares that are subject to our right of repurchase as of
March 31, 2001.
(11) Includes 100,625 shares that are subject to our right of repurchase as of
March 31, 2001.
(12) Includes the following:
(i) 86,407 shares that are subject to our right of repurchase as of March
31, 2001; and
(ii) 37,500 shares that are subject to option as of March 31, 2001, of
which 25,782 would be subject to our right of repurchase in the event
of exercise if Mr. Kaster is no longer an employee, director or
consultant with us.
(13) Includes shares included pursuant to notes (1) through (3) and (5) through
(12) above.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements were met during
the Company's most recent fiscal year.
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EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
We reimburse our non-employee directors for expenses incurred in connection
with attending board and committee meetings but do not compensate them for their
services as board or committee members. We have in the past granted non-employee
directors options to purchase our common stock pursuant to the terms of our
stock option plans, and our board continues to have the discretion to grant
options to new non-employee directors. On March 14, 2000, we granted an option
to purchase 15,000 shares of common stock to director Dr. Christopher Walsh.
Non-employee directors are entitled to participate in our 2000 non-employee
director stock option plan, or the director option plan. The director option
plan was adopted by our board of directors in March 2000 and approved by our
stockholders in August 2000, and was effective upon the closing of our initial
public offering. The director option plan has a term of ten years, unless
terminated sooner by our board of directors. A total of 300,000 shares of our
common stock have been reserved for issuance under the director option plan. As
of March 31, 2001, options to purchase 37,500 shares of common stock had been
granted under the director's plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation that we
paid during 2000 to our Chief Executive Officer and to our four other most
highly compensated executive officers who received salary and bonus compensation
of more that $100,000 during 2000. All option grants were made under our 1996
stock option plan.
SUMMARY COMPENSATION TABLE
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
----------------- ---- -------- ------- ------------ ---------- ---------------
Daniel V. Santi, M.D.,
Ph.D.(2)..................... 2000 $267,292 $50,000 $ -- -- $929
Chairman, Chief Executive 1999 250,812 -- -- -- --
Officer and Director 1998 41,667 -- 11,842(3) 750,000 --
Michael S. Ostrach............. 2000 223,333 40,000 -- 75,000 414
Senior Vice President and 1999 191,667 -- -- -- --
Chief Operating Officer 1998 161,250 -- -- 330,000 --
Brian Metcalf, Ph.D. .......... 2000 220,590 100,000 87,273(5) 300,000 723
Senior Vice President and 1999 -- -- -- -- --
Chief Scientific Officer(4) 1998 -- -- -- -- --
Susan M. Kanaya(6)............. 2000 182,708 20,000 -- 15,000 194
Vice President, Finance and 1999 26,870 20,000 -- 150,000 --
Chief Financial Officer 1998 -- -- -- -- --
Kevin R. Kaster(7)............. 2000 210,833 20,000 -- 37,500 276
Vice President, 1999 190,559 -- -- 37,500 --
Intellectual Property 1998 71,654 -- -- 180,000 --
- ---------------
(1) Includes term life insurance premiums paid by Kosan on behalf of the listed
individual.
(2) Dr. Santi was appointed Chief Executive Officer in November 1998.
(3) Includes consulting fees.
(4) Dr. Metcalf joined Kosan in March 2000. Dr. Metcalf's annualized salary was
$280,000 and bonus paid in 2000 represented a sign-on bonus.
(5) Includes $33,264 in the form of a housing allowance and $54,009 for
reimbursement of relocation expenses.
(6) Ms. Kanaya joined Kosan in November 1999.
(7) Mr. Kaster joined Kosan in August 1998.
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STOCK OPTION GRANTS
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and four of our other executive
officers whose salary and bonus was in excess of $100,000 during 2000. Options
granted to purchase shares of our common stock under our 1996 stock option plan
are generally immediately exercisable by the optionee but are subject to a right
of repurchase pursuant to the vesting schedule of each specific grant. In the
event that a purchaser ceases to provide service to us, we have the right to
repurchase any of that person's unvested shares of common stock at the original
option exercise price. The purchase price per share is equal to the deemed fair
value of our common stock on the date of grant as determined by our board of
directors. The percentage of total options was calculated based on options to
purchase an aggregate of 1,340,850 shares of common stock granted under our 1996
stock option plan in 2000. The potential realizable value was calculated based
on the ten-year term of the options and assumed rates of stock appreciation of
5% and 10%, compounded annually from the date the options were granted to their
expiration date based on the fair value of the common stock on the date of
grant. These assumed rates of appreciation comply with the rules of the
Commission and do not represent our estimate of our future stock price. For our
employees and officers, 25% of the option grant generally vests on the one-year
anniversary of employment, and the remainder vest in a series of equal monthly
installments beginning on the one-year anniversary of employment and continuing
over the next three years of service.
PERCENTAGE OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
---- ---------- ------------- ----------- ---------- ----------- -----------
Daniel V. Santi, M.D.,
Ph.D. .................... -- -- -- -- -- --
Michael S. Ostrach.......... 75,000 5.6% $0.42 02/23/10 $ 19,653 $ 49,804
Brian Metcalf, Ph.D. ....... 300,000 22.4% 1.00 03/20/10 188,668 478,123
Susan M. Kanaya............. 15,000 1.1% 1.00 03/14/10 9,433 23,906
Kevin R. Kaster............. 37,500 2.8% 0.42 02/23/10 9,826 24,902
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our Chief
Executive Officer and four of our other most highly compensated executive
officers whose salary and bonus was in excess of $100,000 during 2000. Options
granted to purchase shares of our common stock under our 1996 stock option plan
are generally immediately exercisable by optionees but are subject to a right of
repurchase pursuant to the vesting schedule of each specific grant. The
repurchase option generally lapses over a four-year period with 25% lapsing
after the one-year anniversary of employment and the remainder in equal monthly
installments thereafter over a three-year period. In the event that a purchaser
ceases to provide service to us, we have the right to repurchase any of that
person's unvested shares of common stock at the original option exercise price.
Amounts shown in the value realized column were calculated based on the
difference between the option exercise price and the fair
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value of the common stock on the date of exercise, without taking into account
any taxes that may be payable in connection with the transaction, multiplied by
the number of shares of common stock underlying the option.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2000 DECEMBER 31, 2000(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Daniel V. Santi, M.D.,
Ph.D. ...................... -- -- -- -- -- --
Michael S. Ostrach............ 330,000 $35,750 75,000 -- 756,250 --
Brian Metcalf, Ph.D. ......... -- -- 300,000 -- 2,850,000 --
Susan M. Kanaya............... 165,000 45,000 -- -- -- --
Kevin R. Kaster............... 217,500 -- 37,500 -- 378,125 --
- ---------------
(1) The value of unexercised in-the-money options is calculated based on the
difference between closing price of our common stock ($10.50) on December
29, 2000, the last date of trading of the year, as reported on the Nasdaq
Stock Market and the exercise price for these shares, multiplied by the
number of shares underlying the option.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The compensation committee of the board of directors in 2000 was composed
of Drs. Davis, Deleage and Walsh, none of whom have ever been officers or
employees of Kosan. The committee is responsible for establishing our
compensation programs for all employees, including our executive officers. For
executive officers, the committee evaluates performance and determines
compensation policies and levels.
COMPENSATION PHILOSOPHY
The goals of our compensation program are to align compensation with
business objectives and performance and to enable us to attract, retain and
reward executive officers and other key employees who contribute to our
long-term success and to motivate them to enhance long-term stockholder value.
Key elements of this philosophy are:
- We pay competitively with other biotechnology companies with which we
compete for talent. To ensure that our pay is competitive, we compare our
pay practices with these companies and set our pay parameters based on
this review. The Compensation Committee believes compensation for the
Company's executive officers is within the range of compensation paid to
executives with comparable qualifications, experience and
responsibilities who are with companies that are in the same or similar
business and of comparable size and success as the Company. The
Compensation Committee also strives to achieve equitable relationships
both among the compensation of individual officers and between the
compensation of officers and other employees throughout the Company.
- We provide significant equity-based incentives for executives and other
key employees to ensure that they are motivated over the long term to
respond to our business challenges and opportunities as owners and not
just as employees.
EXECUTIVE COMPENSATION
Salary. The committee annually reviews each executive officer's salary.
When reviewing salaries, the committee considers individual and corporate
performance, levels of responsibility, prior experience, breadth of knowledge
and competitive pay practices. The committee's objective is to set executive
compensation at the market average when compared to leading companies in the
biotechnology industry. The primary components of executive compensation are
base salary, cash incentives and long-term equity incentives.
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Cash Bonus. The committee annually reviews the appropriateness of executive
officer bonuses. Payment of cash bonuses is tied to the accomplishment of
specific corporate milestones set at the beginning of the year and to each
individual officer's year-end performance review.
Equity Incentives. Our equity incentive program includes the 1996 Stock
Option Plan and the 2000 Employee Stock Purchase Plan. Our option program
utilizes vesting periods (generally four years) to encourage employees to
continue in our employ. Through option grants, executives receive significant
equity incentives to build long-term stockholder value. Under the incentive
plan, grants are made at 100% of fair market value on the date of grant.
Executives receive value from these grants only if our common stock appreciates
over the long term. The size of option grants is determined based on competitive
practices in the biotechnology industry and our philosophy of significantly
linking executive compensation with stockholder interests. The committee
believes this approach creates an appropriate focus on longer term objectives
and promotes executive retention. The Board granted options to purchase an
aggregate of 619,500 shares of our common stock to our executive officers in
2000 at a weighted average exercise price of $1.82 per share.
We established the employee stock purchase plan both to encourage employees
to continue in our employ and to motivate employees through ownership interest.
Under the purchase plan, employees, including officers other than Dr. Santi, may
have up to 15% of their earnings withheld for purchases of our common stock on
certain dates specified by our board. The price of common stock purchased will
be equal to 85% of the lower of the fair market value of the common stock on the
relevant purchase date or commencement date of the relevant offering period. The
initial offering period under the purchase plan commenced on October 5, 2000 and
there were no purchases during the 2000 fiscal year.
FEDERAL TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code limits Kosan to a deduction for
federal income tax purposes of no more than $1 million of compensation paid to
certain executive officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of the
code.
The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for
pre-existing compensation plans, arrangements and binding contracts. As a
result, the committee believes that at the present time it is quite unlikely
that the compensation paid to any executive officer in a taxable year that is
subject to the deduction limit will exceed $1 million. Therefore, the committee
has not yet established a policy for determining which forms of incentive
compensation awarded to its executive officers shall be designed to qualify as
"performance-based compensation." The committee intends to continue to evaluate
the effects of the statute and any applicable Treasury regulations and to comply
with code section 162(m) in the future to the extent consistent with Kosan's
best interests.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Santi's salary and bonus for the 2000 fiscal year are consistent with
the criteria described above and with the compensation committee's evaluation of
his overall leadership and management of Kosan. The committee considered, among
other achievements, that 2000 was a year of significant change and growth for
Kosan. Our anti-infective collaboration with The RW Johnson Pharmaceutical
Research Institute, a Johnson & Johnson company, was extended another year until
December 2001 with candidates advancing into preclinical evaluation. In
oncology, we entered into a collaboration and license agreement with the Sloan-
Kettering Institute for Cancer Research relating to epothilones,
well-positioning Kosan to enter the clinic in 2001. In addition, we closed our
Series C financing and initial public offering in 2000, raising gross proceeds
of $105.4 million. Dr. Santi's compensation for 2000 is set forth in the Summary
Compensation Table. The committee has set Dr. Santi's annual salary at $275,000,
which was last adjusted on June 1, 2000.
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CONCLUSION
Through the plans described above, a significant portion of our
compensation program and Dr. Santi's compensation are contingent on Kosan
performance, and realization of benefits is closely linked to increases in
long-term stockholder value. We remain committed to this philosophy of pay for
performance, recognizing that the competitive market for talented executives and
the volatility of our business may result in highly variable compensation for a
particular time period.
Compensation Committee
Peter Davis, Ph.D., Chairman
Jean Deleage, Ph.D.
Christopher Walsh, Ph.D.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee is currently, or has ever
been at any time since our formation, one of our officers or employees, nor has
served as a member of the board of directors or compensation committee or any
entity that has one or more officers serving as a member of our board of
directors or compensation committee.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board is comprised of three directors, none of
whom are officers or employees of the Company. The members of the Audit
Committee are: Raymond Whitaker, Ph.D., Chairman; Peter Davis, Ph.D. and Jean
Deleage, Ph.D. The Board adopted a written charter for the Audit Committee on
June 2, 2000, and it is included as an Appendix to this Proxy Statement. The
Audit Committee recommends the selection of the Company's independent auditors
for approval by the Board.
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board. Management has the primary responsibility for the financial
statements and the reporting process, including the system of internal controls.
The independent auditors are responsible for performing an independent audit of
the consolidated financial statements to ensure that those statements were
prepared in accordance with generally accepted accounting principles and report
thereon to the Audit Committee. The Audit Committee reviews and monitors these
processes.
Within this framework, the Audit Committee has reviewed and discussed the
audited financial statements with management and the independent auditors.
Management of the Company has affirmed to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles. The Audit Committee has discussed with the
independent auditors those matters required to be discussed by Statement of
Auditing Standards No. 61.
In addition, the Audit Committee has received the written disclosures and
the letter from the independent auditors required by Independence Standards
Board Standard No. 1, and has also discussed with the independent auditors the
auditor's independence from management and the Company. The Audit Committee has
considered whether the provision of any non-audit services (such as internal
audit assistance and tax-related services) by the Company's independent auditors
is compatible with maintaining the independence of the independent auditors when
the independent auditors are also engaged to provide non-audit services.
The Audit Committee also discussed with the Company's independent auditors
the overall scope and plans for their respective audits, their evaluation of the
Company's internal controls and the overall quality of the Company's financial
reporting.
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Based on these reviews and discussions, the Audit Committee has recommended
to the Board that the audited consolidated financial statements be included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Audit Committee
Raymond Whitaker, Ph.D., Chairman
Peter Davis, Ph.D.
Jean Deleage, Ph.D.
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COMPANY STOCK PRICE PERFORMANCE
The following graph shows the total stockholder return of an investment of
$100 in cash on October 5, 2000, the date the Company's common stock began to
trade on the Nasdaq National Market, through December 29, 2000, the last date of
trading of the 2000 fiscal year for (i) the Company's common stock, (ii) the
Nasdaq Stock Market (U.S.) Index, and (iii) the Nasdaq Biotechnology Index. All
values assume reinvestment of the full amount of all dividends.
COMPARISON OF 3 MONTH CUMULATIVE TOTAL RETURN*
AMONG KOSAN BIOSCIENCES INCORPORATED, THE NASDAQ STOCK MARKET (U.S.) INDEX AND
THE NASDAQ BIOTECHNOLOGY INDEX
[PERFORMANCE GRAPH]
- -------------------------------------------------------------------------------------
October 5, October 31, November 30, December 31,
2000 2000 2000 2000
- -------------------------------------------------------------------------------------
Kosan 100.00 107.59 91.07 75.00
Nasdaq 100.00 97.05 74.82 71.15
Nasdaq Biotechnology 100.00 99.17 86.10 89.02
- -------------------------------------------------------------------------------------
- ---------------
* $100 invested on October 5, 2000 in stock or index -- including reinvestment
of dividends. Fiscal year ended December 31, 2000. Starting point for the
Company's Common Stock represents normalized price at first trade. Actual
initial public offering price was $14 per share.
THIS SECTION IS NOT "SOLICITING MATERIAL," IS NOT DEEMED "FILED" WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS NOT TO BE INCORPORATED BY REFERENCE IN
ANY FILING OF THE COMPANY UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHETHER MADE BEFORE OR AFTER THE
DATE HEREOF AND IRRESPECTIVE OF ANY GENERAL INCORPORATION LANGUAGE IN ANY SUCH
FILING.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 2000, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000 and in which any
current director, executive officer or holder of more than 5% of the Company's
common stock had or will have a direct or indirect interest other than (1)
compensation arrangements, which are described where required under "Management"
and (2) the transactions described below.
SALES OF SECURITIES
In March 2000, we issued 804,196 shares of our Series C convertible
preferred stock at a per share purchase price of $31.00 for aggregate proceeds
of approximately $24.9 million, that converted into 2,412,588 shares of common
stock upon the closing of our initial public offering.
The following executive officers, directors and holders of more than five
percent of our voting securities purchased securities in the amounts as of the
dates shown below.
SHARES OF
CONVERTIBLE
COMMON PREFERRED STOCK
STOCK SERIES C
---------------- ---------------
DIRECTORS AND EXECUTIVE OFFICERS
Michael S. Ostrach.................................. 330,000 --
Robert G. Johnson, Jr., M.D., Ph.D. ................ 192,000 --
Susan M. Kanaya..................................... 165,000 --
Kevin R. Kaster..................................... 217,500 --
5% STOCKHOLDERS
AG Biotech Capital LLC(1)........................... -- 16,129
Alta California Partners, L.P.(2)................... -- 23,654
Alta Embarcadero Partners, LLC(2)................... -- 540
Lombard Odier & Cie(3).............................. -- 58,065
S.R. One, Limited(4)................................ -- 16,129
Price per share..................................... $0.15 to $4.00 $31.00
Date(s) of Issuance................................. Jan 00 - Sep 00 Mar 00
- ---------------
(1) Peter Davis, one of our directors, is a member of the Executive Committee of
Pulsar International, S.A., an affiliate of AG Biotech Capital LLC. Shares
of Series C convertible preferred stock owned by AG Biotech Capital LLC
converted into 48,387 shares of common stock upon the closing of our initial
public offering.
(2) Jean Deleage, one of our directors, is a general partner of Alta Partners,
an affiliate of Alta California Partners and Alta Embarcadero Partners.
Shares of Series C convertible preferred stock owned by Alta California
Partners, L.P. and Alta Embarcadero Partners, LLC converted into 72,582
shares of common stock upon the closing of our initial public offering.
(3) Shares of Series C convertible preferred stock owned by Lombard Odier & Cie
converted into 174,195 shares of common stock upon the closing of our
initial public offering.
(4) Raymond Whitaker, one of our directors, is Vice President of S.R. One,
Limited, the investment affiliate of GlaxoSmithKline. Shares of Series C
convertible preferred stock owned by S.R. One, Limited converted into 48,387
shares of common stock upon the closing of our initial public offering.
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OTHER TRANSACTIONS
Promissory Notes. Stock options granted under our 1996 Stock Option Plan
are immediately exercisable as to both vested and unvested shares, with unvested
shares being subject to a right of repurchase in our favor in the event of
termination of employment or consultancy prior to vesting of all shares. These
individuals pay the exercise price for their outstanding options pursuant to
full recourse promissory notes secured in part by the common stock underlying
the options. The notes bear interest at the Applicable Mid Term Federal Rate at
the time of exercise. Principal and interest is due on the earlier of the
employee's or consultant's termination date or three years after the date of the
promissory note. As of December 31, 2000, the original and outstanding principal
amounts of each promissory note by a director or executive officer are set forth
below.
ORIGINAL AND
OUTSTANDING INTEREST ACCRUED
DIRECTOR OR EXECUTIVE OFFICER ISSUANCE DATE NOTE AMOUNT RATE INTEREST
----------------------------- -------------- ------------ -------- --------
Daniel V. Santi, M.D., Ph.D. .............. December 1998 $275,000 4.47% $25,720
Michael S. Ostrach......................... February 2000 74,250 6.46% 4,214
Robert G. Johnson, Jr., M.D., Ph.D. ....... September 2000 768,000 6.13% 12,424
Susan M. Kanaya............................ February 2000 50,000 6.46% 2,838
Susan M. Kanaya............................ April 2000 15,000 6.60% 685
Kevin R. Kaster............................ February 2000 72,500 6.46% 4,115
Chaitan Khosla, Ph.D. ..................... September 1999 71,500 5.89% 5,513
EMPLOYMENT AND CONSULTING AGREEMENTS AND EXECUTIVE OFFICER LOANS
We require each of our employees to enter into a confidentiality agreement
prohibiting the employee from disclosing any of our confidential or proprietary
information. At the time of commencement of employment, our employees also
generally sign offer letters specifying basic terms and conditions of
employment.
In September 2000, we entered into an agreement with Robert G. Johnson,
Jr., M.D., Ph.D. in connection with his appointment as Vice President, Medical
Affairs and Corporate Development. Under the agreement, Dr. Johnson's starting
annual salary was $230,000 and he received a $50,000 sign-on bonus and an option
to purchase 192,000 shares of our common stock at fair value. The option was
subsequently granted with an exercise price of $4.00 per share. In addition, Dr.
Johnson received a housing loan of $150,000 which bears interest at 5.92% and is
secured by a deed of trust on Dr. Johnson's residence, 50% of which will be
forgiven on the third anniversary date of his employment and the remainder of
which will be forgiven on the fourth anniversary date. Dr. Johnson is also
entitled to monthly mortgage assistance of $1,000 during the first three years
of employment. Either we or Dr. Johnson may terminate his employment at any time
for any reason. If we terminate Dr. Johnson without cause, he will receive six
months of salary continuation and six additional months of vesting of his stock
options will be accelerated.
In March 2000, we entered into an agreement with Brian Metcalf, Ph.D. in
connection with his appointment as Senior Vice President and Chief Scientific
Officer. Under the agreement, Dr. Metcalf 's starting annual salary was $280,000
and he received a $100,000 sign-on bonus and an option to purchase 300,000
shares of our common stock at fair value. The option was subsequently granted
with an exercise price of $1.00 per share. Dr. Metcalf also received a housing
loan of $400,000, which bears interest at 6.3% and is secured by a deed of trust
on Dr. Metcalf's principal residence. Principal and accrued interest is payable
in full on the earlier of May 30, 2005 or the date on which Dr. Metcalf
voluntarily terminates his employment with us. In addition, Dr. Metcalf is
entitled to five years of monthly mortgage assistance to support up to a
$400,000 mortgage. Either we or Dr. Metcalf may terminate his employment at any
time for any reason. If we terminate Dr. Metcalf without cause during his first
three years of employment, he will receive twelve months of salary continuation.
Further, if such termination occurs after one year from his date of hire, six
additional months of vesting of his stock options will be accelerated.
In October 1999, we entered into an agreement with Susan M. Kanaya in
connection with her appointment as Vice President, Finance and Chief Financial
Officer. Under the agreement, Ms. Kanaya's
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starting annual salary was $172,500 and she received a $20,000 sign-on bonus and
an option to purchase 150,000 shares of our common stock at fair value. The
option was subsequently granted with an exercise price of $0.33 per share. In
addition, Ms. Kanaya received a $52,900 loan which bears interest at 6.35% to
replace an existing loan arrangement with her former employer, which is forgiven
on the third anniversary date of her employment with us. Either we or Ms. Kanaya
may terminate her employment at any time for any reason. If we terminate Ms.
Kanaya's employment without cause during the first two years of employment, she
will receive six months of salary continuation and an additional six months of
vesting on her stock options. If such termination occurs following a change in
control, the period of salary continuation will be twelve months.
In November 1998, we entered into an agreement with Daniel V. Santi, M.D.,
Ph.D. in connection with his appointment as our Chief Executive Officer. Under
the agreement, Dr. Santi's starting annual base salary was $250,000, adjusted
annually by a minimum of a percentage change equal to the annual percentage
change in the Consumer Price Index, and was entitled to purchase 750,000 shares
of our common stock at $0.33 per share. The option was subsequently granted with
an exercise price of $0.37 per share, 110% of fair value, because of a provision
in our 1996 stock option plan. Either we or Dr. Santi may terminate his
employment at any time for any reason. If we terminate Dr. Santi without cause,
he will receive a lump sum severance payment in the amount equal to eighteen
months of his then current base salary, and eighteen months accelerated vesting
of the shares subject to the stock option.
In July 1998, we entered into an agreement with Kevin R. Kaster in
connection with his appointment as Vice President, Intellectual Property. Under
the agreement, Mr. Kaster's starting annual base salary was $180,000 and he
received an option to purchase 180,000 shares of our common stock at fair value.
The option was subsequently granted with an exercise price of $0.33 per share.
Either we or Mr. Kaster may terminate his employment at any time for any reason.
If we terminate Mr. Kaster without cause during the first three and one-half
years of employment, he will receive an amount equal to six months of his then
current base salary and will accelerate the vesting of the lesser of (a) six
months of his original stock option grant and (b) the remainder of his original
stock option grant.
Drs. Santi, Khosla, Metcalf and Johnson, Messrs. Ostrach and Kaster and Ms.
Kanaya each have stock option or stock purchase agreements which contain
acceleration clauses providing for 100% vesting of the unvested shares in the
event of a change in control.
Consulting Agreements. In December 1998, we entered into an amended and
restated consulting agreement with our co-founder and director, Dr. Chaitan
Khosla. Under the terms of this agreement, Dr. Khosla is entitled to receive
consulting fees of not less than $100,000 per year and was granted an option to
purchase 195,000 shares of our common stock at an exercise price of $0.37 per
share which vest over a four year period. Total consulting fees paid to Dr.
Khosla totaled $120,225 in 2000, $104,279 in 1999 and $126,171 in 1998. Either
Kosan or Dr. Khosla may terminate his consultancy at any time for any reason. If
we terminate Dr. Khosla without cause or as a result of a change in control, he
will receive the greater of (i) any compensation payable during the extended
term of his consulting agreement or (ii) an amount equal to two times his
then-current annual compensation. Further, all of Dr. Khosla's stock options and
other similar equity rights will immediately vest in full.
Indemnification Agreements. We have entered into indemnification agreements
with Drs. Davis, Deleage, Khosla, Santi, Walsh and Whitaker, Mr. Ostrach, Ms.
Kanaya and Mr. Kaster. We intend to enter into indemnification agreements with
all of our directors and officers for the indemnification of those persons to
the full extent permitted by law. We also intend to execute these agreements
with our future directors and officers.
Stock Options. Stock option grants to our executive officers and directors
are described herein under the captions "Director Compensation," "Executive
Officers Compensation" and "Option Grants."
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23
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Blair W. Stewart, Jr.
Secretary
April 17, 2001
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, KOSAN BIOSCIENCES
INCORPORATED, 3832 BAY CENTER PLACE, HAYWARD, CA 94545.
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APPENDIX A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
KOSAN BIOSCIENCES INCORPORATED
The purpose of the Audit Committee of the Board of Directors of Kosan
Biosciences Incorporated (the "Company"), shall be to make such examinations as
are necessary to monitor the Company's systems of internal control, to provide
to the Board of Directors the results of its examinations and recommendations
derived therefrom, to outline to the Board of Directors improvements made, or to
be made, in internal accounting controls, to nominate independent auditors, and
to provide to the Board of Directors such additional information and materials
as it may deem necessary to make the Board of Directors aware of significant
financial matters that require the Board of Directors' attention.
In addition, the Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
from time to time prescribe.
MEMBERSHIP
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors and will consist of at least three members
of the Board of Directors, meeting the following criteria:
1. Each member will be able to read and understand fundamental
financial statements, in accordance with the NASDAQ National Market Audit
Committee requirements; and
2. At least one member will have past employment experience in finance
or accounting, requisite professional certification in accounting, or other
comparable experience or background, including a current or past position
as a chief executive or financial officer with financial oversight
responsibilities; and
3. (i) Each member will be an independent director, as defined in
NASDAQ Rule 4200; or (ii) if the Board of Directors determines it to be in
the best interests of the Company and its shareholders to have one (1)
non-independent director, and the Board of Directors discloses the reasons
for the determination, then the Company may appoint one (1) non-independent
director to the Audit Committee if the director is not a current employee
or officer, or an immediate family member of a current employee or officer.
RESPONSIBILITIES
The responsibilities of the Audit Committee shall include:
1. Reviewing on a continuing basis the adequacy of the Company's
systems of internal controls.
2. Reviewing on a continuing basis the activities, organizational
structure and qualifications of the Company's finance department.
3. Recommending the appointment of independent auditors to the Board
of Directors.
4. Reviewing and recommending to the full Board fee arrangements with
the independent auditors.
5. Reviewing and approving the independent auditors' proposed audit
scope, approach, and independence.
6. Reviewing the performance of the independent auditors, who shall be
accountable to the Board and the Audit Committee.
7. Discussing with the Company's independent auditors the financial
statements and audit findings, including discussing with the Company's
independent auditors any significant adjustments, management
A-1
25
judgments and accounting estimates, significant new accounting policies and
disagreements with management and any other matters described in SAS No.
61, as may be modified or supplemented;
8. Reviewing the written disclosures and the letter from the Company's
independent auditors required by ISB Standard No. 1, as may be modified or
supplemented;
9. Conducting a post-audit review of the financial statements and
audit findings, including any significant suggestions for improvements
provided to management by the independent auditors;
10. Reviewing before release the audited financial statements and
Management's Discussion and Analysis in the Company's annual report on Form
10-K;
11. Ensuring that the Company's independent auditors review the
Company's interim financial statements included in quarterly reports on
Form 10-Q, using professional standards and procedures for conducting such
reviews;
12. Reviewing before release the unaudited quarterly operating results
in the Company's quarterly earnings release;
13. Overseeing compliance with the requirements of the Securities and
Exchange Commission for disclosure of independent auditor's services and
audit committee members and activities;
14. Reviewing management's monitoring of compliance with the Company's
Standards of Business Conduct and with the Foreign Corrupt Practices Act;
15. Reviewing, in conjunction with counsel, any legal matters that
could have a significant impact on the Company's financial statements;
16. Providing oversight and review of the Company's asset management
policies, including an annual review of the Company's investment policies
and performance for cash and short-term investments;
17. If necessary, instituting special investigations and, if
appropriate, hiring special counsel or experts to assist;
18. Reviewing related party transactions for potential conflicts of
interest;
19. Providing a report in the Company's proxy statement in accordance
with the requirements of Item 306 of Regulations S-K and Item 7(e)(3) of
Schedule 14A,
20. Reviewing its own structure, processes and membership
requirements; and
21. Performing other oversight functions as requested by the full
Board of Directors.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board of Directors delegates to it, and will
report, at least annually, to the Board regarding the Committee's examinations
and recommendations.
MEETINGS
The Audit Committee will meet at least three times each year. The Audit
Committee may establish its own schedule which it will provide to the Board of
Directors in advance.
The Audit Committee will meet separately with the Chief Executive Officer
and separately with the Chief Financial Officer of the Company at least annually
to review the financial affairs of the Company. The Audit Committee will meet in
executive session with the independent auditors of the Company, at such times as
it deems appropriate, to review the independent auditor's examination and
management report.
MINUTES
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
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26
PROXY
KOSAN BIOSCIENCES INCORPORATED
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
June 1, 2001
This Proxy is Solicited on Behalf of the Board of Directors of
Kosan Biosciences Incorporated
The undersigned hereby appoints Daniel V. Santi, M.D., Ph.D. and Michael S.
Ostrach, and each of them, proxies for the undersigned, with full power of
substitution, to vote all shares of Kosan Biosciences Incorporated capital stock
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Kosan Biosciences Incorporated to be held at 3832 Bay Center
Place, Hayward, CA 94545 on Friday, June 1, 2001 at 10:00 a.m., or at any
adjournment thereof, upon the matters set forth on the reverse side and
described in the accompanying Proxy statement and upon such other business as
may properly come before the meeting or any adjournment thereof.
Please mark this proxy as indicated on the reverse side to vote on any item. If
you wish to vote in accordance with the Board of Directors recommendations,
please sign the reverse side; no boxes need be checked.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENTS/ADDRESS BOX ON REVERSE SIDE
(Continued on other side.)
- -------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
27
Please mark [X]
your vote as
indicated in
this sample
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE NOMINEE AND FOR ITEM 2.
FOR NOMINEE WITHHOLD
(except as listed AUTHORITY
Item 1. To elect one director of the Company, below) to vote for
to serve until the 2004 annual meeting of nominee
stockholders and until his successor has [ ] [ ]
been elected and qualified or until his
earlier resignation or removal.
Nominee: 01 Chaitan Khosla, Ph.D.
WITHHELD FOR:(Write Nominee's names
in the space provided below)
_________________________________
_________________________________
FOR AGAINST ABSTAIN
Item 2. To amend the Company's [ ] [ ] [ ]
Amended and Restated Certificate
of Incorporation to decrease the
number of shares of common stock
authorized by 100,000,000 shares to
a total of 100,000,000 shares of
authorized common stock.
Signature(s)_____________________________________________________Date___________
Please sign exactly as your name appears above. For joint accounts, each owner
should sign. If signing as an administrator, attorney, conservator, executor,
guardian, officer or trustee, please provide full title(s) as well as
signature(s).
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET
http://www.proxyvoting.com/kosn
Use the Internet to vote your proxy. Have your proxy card in hand when you
access the web site. You will be prompted to enter your control number, located
in the box below, to create and submit an electronic ballot.
OR
TELEPHONE
1-800-840-1208
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your control number, located in
the box below, and then follow the directions given.
OR
MAIL
Mark, sign and date your proxy card and return it in the enclosed postage-paid
envelope.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.