Item 1.01 Entry into a Material Definitive Agreement
1. Change in Control and Severance Benefit Agreements
On February 1, 2006, the Compensation Committee of the Board of Directors of Kosan Biosciences Incorporated (the “Company”) approved two forms of Change in Control and Severance Benefit Agreements, one of which applies to executive officers of the Company (the “Level I Agreement”), and the other of which applies to Senior Vice Presidents and Vice Presidents of the Company who are not executive officers (the “Level II Agreement” and collectively with the Level I Agreement, the “Change in Control Agreements”). The Change in Control Agreements provide for the payment of certain benefits to the Company’s senior management, if at any time within one month prior to, or 18 months following, a Change in Control (as defined in the Change in Control Agreements), the employee’s employment with the Company is terminated by means of either a Constructive Termination or an Involuntary Termination Without Cause (as such terms are defined in the Change in Control Agreements).
Level I Agreement – Executive Officers
The Level I Agreement provides for payment to the employee of a lump sum cash payment equal to (a) two times the employee’s Base Salary (as defined in the Level I Agreement), plus (b) two times the greatest of (i) the cash bonus paid to the employee in the year prior to termination, (ii) the target cash bonus to be paid to the employee in the year in which the termination occurs and (iii) the target cash bonus as in effect immediately prior to the Change in Control.
In addition, under the terms of the Level I Agreement, (i) the vesting and exercisability of all outstanding options to purchase the Company’s common stock held by the employee on the date of termination will be accelerated in full and (ii) any reacquisition or repurchase rights held by the Company in respect of common stock issued pursuant to any other stock award granted to the employee by the Company will lapse. In the event of a termination, the exercise period of any outstanding option held by the employee on the date of termination will be extended, if necessary, such that the exercise period will not terminate prior to the later of (a) 12 months after the effective date of termination and (b) the post-termination exercise period provided for in such option, subject to certain exceptions.
In the event the employee timely elects continued coverage of a health, dental or vision plan sponsored by the Company under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company will pay the full amount of the employee’s COBRA premiums, including coverage for the employee’s eligible dependants, for a period equal to the earlier of (a) 24 months or (b) the employee’s death or effective date of the employee’s coverage by a medical, dental or vision insurance plan of a subsequent employer. All other benefits (such as life insurance, disability coverage and 401(k) plan coverage) will terminate as of the employee’s termination date (except to the extent that a conversion privilege may be available thereunder). Under the terms of the Level I Agreement, if the payments to any employee result in the imposition of any excise taxes, the Company is required to make an additional payment to the employee to cover such taxes (including any taxes on such additional payment).
Level II Agreement – Senior Vice Presidents and Vice Presidents
The Level II Agreement provides for payment to the employee of a lump sum cash payment equal to (a) the employee’s Base Salary (as defined in the Level II Agreement), plus (b) the greatest of (i) the cash bonus paid to the employee in the year prior to termination, (ii) the target cash bonus to be paid to the employee in the year in which the termination occurs and (iii) the target cash bonus as in effect immediately prior to the Change in Control, provided that the employee has been employed by the Company for at least two years. In the event that the employee has been employed by the Company for less than two years, the lump sum cash payments described above will be reduced to 25% of the applicable amounts plus 6.82% for each one month of the employee’s employment with the Company, not to exceed the applicable amounts described above.
In addition, under the terms of the Level II Agreement, provided that the employee has been employed by the Company for at least two years, (i) the vesting and exercisability of all outstanding options to purchase the Company’s common stock held by the employee on the date of termination will be accelerated such that any shares subject to such outstanding options that would have become vested as of the two year anniversary of the date of the employee’s termination shall become fully vested and (ii) any reacquisition or repurchase rights held by the Company in respect of common stock issued pursuant to any other stock award granted to the employee by the
Company that would have become vested as of the two year anniversary of the date of the employee’s termination will lapse. In the event that the employee has been employed by the Company for less than two years, the number of shares subject to outstanding options to purchase the Company’s common stock for which vesting and exercisability will be accelerated, and the number of shares for which the Company’s reacquisition or repurchase rights will lapse, will be reduced to 25% of the applicable number of shares described above, plus 6.82% for each one month of the employee’s employment with the Company, not to exceed the number of shares described above. The exercise period of any outstanding option held by the employee on the date of termination will be extended, if necessary, such that the exercise period will not terminate prior to the later of (a) 12 months after the effective date of termination and (b) the post-termination exercise period provided for in such option, subject to certain exceptions.
If the employee has been employed by the Company for a period of at least two years and timely elects continued coverage of a health, dental or vision plan sponsored by the Company under COBRA, the Company will pay the full amount of the employee’s COBRA premiums, including coverage for the employee’s eligible dependants, for a period equal to the earlier of (a) 12 months or (b) the employee’s death or effective date of the employee’s coverage by a medical, dental or vision insurance plan of a subsequent employer. In the event the employee has been employed by the Company for less than two years, the period of time in which the Company will be required to pay the employee’s COBRA premiums will equal three months plus one additional month for each one month of the employee’s employment with the Company, not to exceed twelve months. All other benefits (such as life insurance, disability coverage and 401(k) plan coverage) will terminate as of the employee’s termination date (except to the extent that a conversion privilege may be available thereunder).
The foregoing summary of the Change in Control Agreements is qualified in its entirety by reference to the complete text of the Change in Control Agreements, which will be filed as exhibits to the Company’s annual report on Form 10-K for the year ended December 31, 2005. |
