8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 1, 2005

Kosan Biosciences Incorporated

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

000-31633	94-3217016
(Commission File Number)	(IRS Employer Identification No.)

3832 Bay Center Place, Hayward, CA 94545

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (510) 732-8400

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

1. Offer Letter with Senior Vice President and General Counsel

On December 1, 2005, Kosan Biosciences Incorporated (the “Company”) entered into an offer letter (the “Offer Letter”) with Margaret A. Horn, pursuant to which Ms. Horn will serve as the Company’s Senior Vice President and General Counsel.

Pursuant to the terms of the Offer Letter, Ms. Horn will receive an annual base salary of $300,000. Ms. Horn will also be eligible to participate in the Company’s executive officer cash bonus plan, pursuant to which she can earn up to 25% of her annual base salary. On December 2, 2005, Ms. Horn was granted an incentive stock option under the Company’s 1996 Stock Option Plan to purchase 150,000 shares of Company common stock, with an exercise price per share equal to the closing price as reported on the Nasdaq National Market on December 1, 2005. The option is subject to a four year vesting schedule, with one-fourth of the shares vesting after one year of employment and the remainder vesting in equal monthly increments over the remaining three years. In the event that Ms. Horn’s employment with the Company is terminated involuntarily (or voluntarily with Good Reason (as defined in the Offer Letter)) within the first year of employment for any reason other than Cause (as defined in the Offer Letter), one-eighth of the shares subject to the option will vest as of the date of such termination. The Offer Letter further provides for six months of severance in the form of salary continuation, subject to certain exceptions, if Ms. Horn’s employment with the Company is terminated involuntarily (or voluntarily with Good Reason) within the first year of employment for any reason other than Cause.

The foregoing description is subject to, and qualified in its entirety by, the Offer Letter, which is attached hereto as Exhibit 10.36.

2. Compensation for Lead Independent Director

On December 2, 2005, the “independent” (as defined under applicable Nasdaq rules) members of the Board of Directors of the Company appointed Peter Davis, Ph.D., as lead independent director on the Board of Directors of the Company, and the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) and the Board of Directors of the Company approved the payment of an annual cash retainer of $5,000 to Dr. Davis, effective January 1, 2006, as compensation for his service as lead independent director. This retainer does not affect any other compensatory arrangements currently in effect between the Company and Dr. Davis.

3. Payment of 2005 Bonuses and Grant of Stock Options to Named Executive Officers; 2006 Salary and Bonus Information for Named Executive Officers

On December 2, 2005, the Compensation Committee approved cash bonus payments and stock options to be granted to the Company’s “named executive officers” (as defined under applicable securities laws). The cash bonus payments and option grants for the named executive officers who served as executive officers during 2005 were based on the Compensation Committee’s evaluation of certain corporate and individual performance objectives achieved during 2005. The Compensation Committee also approved annual salaries for 2006 and cash bonus targets for 2006 for the named executive officers. 2005 cash bonus and option grant information and 2006 salary and cash bonus target information for the named executive officers are set forth on Exhibit 10.37 to this Current Report on Form 8-K, which is incorporated herein by reference.

4. 2006 Executive Officer Cash Bonus Plan

On December 2, 2005, the Compensation Committee approved a 2006 Executive Officer Cash Bonus Plan (the “2006 Bonus Plan”). Pursuant to the 2006 Bonus Plan, the Compensation Committee designated for each of the Company’s named executive officers a target cash bonus amount, expressed as a percentage of such named executive officer’s 2006 annual salary.

A summary of the 2006 Bonus Plan is set forth on Exhibit 10.38 to this Current Report on Form 8-K, which is incorporated herein by reference. The target cash bonus amount for 2006 for the named executive officers is set forth on Exhibit 10.37 to this Current Report on Form 8-K, which is incorporated herein by reference.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

On December 5, 2005, Susan M. Kanaya resigned as Senior Vice President, Finance and Chief Financial Officer of the Company, effective January 1, 2006. The Company intends to commence an immediate search for a chief financial officer of the Company.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits.

Exhibit No.	Description
10.36	Offer Letter by and between the Company and Margaret A. Horn, dated December 1, 2005
10.37	Compensation information for named executive officers
10.38	Summary of 2006 Executive Officer Cash Bonus Plan

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Kosan Biosciences Incorporated
Dated: December 7, 2005	By:	/s/ Susan M. Kanaya Susan M. Kanaya, Senior Vice President, Finance and Chief Financial Officer

EX-10.36

Exhibit 10.36

3832 Bay Center Place Hayward, CA 94545 Tel: 510-732-8400 Fax: 510-732-8401 www.kosan.com

12/1/2005

Margaret A. Horn

Dear Peg,

On behalf of Kosan Biosciences Incorporated, I am pleased to extend to you an offer of employment for the position of Senior Vice President/General Counsel. In this position you will report to the Chief Executive Officer. This letter sets forth the terms and conditions of your employment with Kosan.

In this position you will serve as the chief legal advisor of the company, counseling management on the legal implications of all company activities, and serving as a Company officer and member of the executive team. You will manage the legal functions of the organization, including but not limited to the following: patent and copyright matters, coordination of legal matters handled by outside counsel, legal defense and prosecution of claims in litigation, pre-litigation dispute resolution and interpretation and preparation of legal documents and reports. In addition, you would have the Business Development group reporting to you, and I would closely work with you to make this endeavor successful.

Your monthly salary will be $25,000 ($300,000 on an annualized basis). You will be eligible to participate in all benefit plans and programs available to executives at your level (including any change in control plan adopted by the board), including 4 weeks of paid vacation per year. Your coverage under Kosan’s current benefit plans will become effective on your first day of full-time work at Kosan (your “start date”). Subject to the provisions of this letter relating to termination other than for Cause, the Company may change your compensation and benefits, as it deems necessary. Normal business hours are from 8:30 a.m. to 5:30 p.m., Monday through Friday. As an exempt salaried employee, you will be expected to work additional hours as required by the nature of your work assignments, and you will not be eligible for overtime pay. You will work at Kosan’s headquarters in Hayward, California. Of course, subject to the provisions of this letter relating to termination other than for Cause, Kosan may change your position, reporting relationship, duties and work location from time to time, as it deems necessary. Your start date will be December 1, 2005.

As soon as you accept this offer, I will recommend to the Board of Directors that you be granted an option to purchase 150,000 shares of Kosan Common Stock under the Kosan Stock Option Plan (the “Plan”). The option shares will vest over four years, with one-fourth vesting after one year of employment and the remainder vesting in equal monthly increments over the remaining three years as provided in the Plan;

provided, however, that if your employment with Kosan is terminated involuntarily (or voluntarily with Good Reason (defined below)) within your first one year of employment for any reason other than Cause (defined below), one-eighth of the option shares will vest as of the date of termination of your employment, provided that you sign the general release of claims described below with respect to severance benefits. This option grant is subject to the approval of the Board and your execution of our standard Stock Option Agreement. The exercise price will be equal to the fair market value of the stock on the date the Board or the Compensation Committee approves the stock option, but no earlier than your first day of employment.

You will also be eligible to participate in our bonus plan under which you can earn up to 25% of your annual salary based on achieving your goals and objectives and subject to the terms of the plan.

As a condition of your employment, you must carefully review, sign, and comply with the enclosed Employee Proprietary Information and Invention Assignment Agreement. Also as a condition of your employment, you agree to abide by the Company’s policies and procedures, as adopted from time to time, and to refrain from any activities that conflict with your obligations to the Company. You represent that you do not have any agreements with any third parties (e.g., former employers), including but not limited to noncompetition or proprietary information agreements, that will conflict with or limit your ability to discharge your duties to Kosan. You agree that, in the course of your work for Kosan, you will not make any unauthorized use or disclosure of any proprietary information or materials of any third party (e.g., a former employer).

Your employment with the Company is for no specified period and constitutes at will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice.

If your employment with Kosan is terminated involuntarily (or voluntarily with Good Reason) within the first one year of employment for any reason other than Cause, you will be provided six (6) months of severance (minus appropriate payroll/tax deductions) in the form of salary continuation, provided that (a) you sign a general release of claims in a form reasonably satisfactory to Kosan, and (b) in the event the Company determines in good faith that such payments would be subject to Section 409A(a)(1) of the Code if paid within the time contemplated by this Agreement, then such payments will be delayed to the minimum extent necessary to avoid the application of Section 409A(a)(1) to such payments. As used in this letter agreement “Cause” shall mean (i) any material breach by you of this agreement or the Employee Proprietary Information and Invention Assignment Agreement which is not cured within 30 days after written notice of breach (if the breach is reasonably susceptible of being cured); (ii) your conviction of a felony or crime involving moral turpitude, (iii) theft, dishonesty, fraud, or willful neglect, misconduct or misrepresentation in connection with, or in the course of, carrying out your duties and responsibilities; or (iv) insubordination or refusal to perform reasonable and lawful directives from your superiors, which you fail to correct within 15 days after written notice if such conduct is reasonably susceptible of being cured). “Good Reason shall mean (i) a reduction in your annual base salary; (ii) a material reduction in your package of benefits and incentives (except for changes which are consistent with changes made for all Company executives); (iii) any substantial diminution of your duties, responsibilities or authority (excluding any change mutually agreed to in reporting structure such that you would report to an Executive Vice President or other more senior officer whose overall responsibilities include, but are not limited to, legal matters and business development activities); (iv) any relocation of your place of employment more than 35 miles from Kosan’s current location; or (v) a material breach of this Agreement by Kosan.

The Immigration Reform and Control Act of 1986 requires that every person present to potential employers proof of identity and eligibility or authorization to accept employment in the United States. In order to comply with this law, and before you can become a Kosan employee, you must provide appropriate documentation to prove both your identity and legal eligibility to be employed by Kosan. Acceptable forms of documentation are described on the attachment to this offer letter. Please be sure to bring this documentation with you on your first day of employment.

To aid in the rapid and economical resolution of disputes that may arise between us, you and Kosan agree that any and all disputes, claims, or demands in any way arising out of or relating to the terms of this letter agreement, your employment with Kosan, or the termination of your employment with Kosan, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California, conducted before a single arbitrator by JAMS, Inc. (“JAMS”) or its successor, under the then-applicable JAMS rules. You acknowledge that by agreeing to this arbitration procedure, you and Kosan waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding. You will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. Kosan shall pay all JAMS’ arbitration fees. Nothing in this offer letter is intended to prevent either you or Kosan from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any arbitration.

This letter, (together with your Employee Proprietary Information and Inventions Agreement and any stock option grant agreement you receive) constitutes the complete and exclusive statement of your agreement with Kosan concerning the subject matter hereof. It supersedes any other agreements or promises made to you by anyone, whether oral or written, and it cannot be changed except in a written agreement, signed by you and a duly authorized officer of Kosan.

We are very excited at the prospect of your joining Kosan Biosciences and becoming a key contributor to our efforts. Please do not hesitate to contact Human Resources if you have any questions. This offer will remain open until December 1, 2005 at which time it will expire if not previously accepted in writing.

To indicate your acceptance of our offer, please sign and date one copy of this letter and the Employee Proprietary Information and Invention Assignment Agreement and return them to me.

Sincerely,
Kosan Biosciences		UNDERSTOOD AND ACCEPTED:
By:	/s/ Daniel V. Santi	/s/ Margaret A. Horn
	Daniel V. Santi, M.D., Ph.D.	Margaret A. Horn
	Chairman and CEO
		Date: December 1, 2005
cc:	Susan M. Kanaya
	SVP, Finance and CFO	Date employment begins:
	Email: kanaya@kosan.com
		December 1, 2005

EX-10.37

Exhibit 10.37

COMPENSATION INFORMATION FOR NAMED EXECUTIVE OFFICERS

The table below provides information regarding the 2005 cash bonus, December 2, 2005 stock option grant, 2006 annual base salary and 2006 target cash bonus of each named executive officer of Kosan Biosciences Incorporated listed below.

Executive Officer	2005 Cash Bonus		Stock Option Grant* (# shares)	2006 Annual Base Salary		2006 Target Cash Bonus**
Daniel V. Santi, M.D., Ph.D., Chief Executive Officer	$	105,000	78,750	$	445,000	45	%
Robert Johnson Jr., M.D., Ph.D., Executive Vice President, Development and Chief Medical Officer	$	75,000	52,500	$	365,000	30	%
Susan M. Kanaya, Senior Vice President, Finance and Chief Financial Officer	$	57,000	37,500	$	305,000	30	%
Margaret A. Horn Senior Vice President and General Counsel		N/A	150,000	$	300,000	30	%

* Granted by the Compensation Committee of the Board of Directors of the Company on December 2, 2005, with an exercise price per share equal to the closing price as reported on the Nasdaq National Market on December 1, 2005.

** Percentage of each named executive officer’s 2006 annual base salary.

EX-10.38

Exhibit 10.38

Summary of 2006 Executive Officer Cash Bonus Plan

Overview and Purpose

This plan (the “2006 Bonus Plan”) was adopted by the Compensation Committee of the Board of Directors (the “Compensation Committee”) of Kosan Biosciences Incorporated (the “Company”) on December 2, 2005 and is designed to offer incentive compensation to executive officer level employees of the Company by rewarding achievement of specifically measured corporate goals and individual goals.

Administration

The 2006 Bonus Plan will be administered by the Compensation Committee. The Compensation Committee will be responsible for approving, or recommending to the Board of Directors for approval, any incentive awards to executive officers of the Company, including any incentive awards to the Chief Executive Officer.

Eligibility

Each executive officer level employee of the Company is eligible to participate in the 2006 Bonus Plan.

Corporate and Individual Performance

The Compensation Committee has approved the Company’s corporate objectives for 2006, which include the achievement of performance targets with respect to the Company’s clinical affairs, financial metrics and organization related objectives. Each participant will also be subject to key individual performance objectives. The 2006 Bonus Plan provides for the payment of cash bonuses to participants if corporate and individual performance criteria are achieved during 2006. The actual bonuses payable for 2006 (if any) will vary depending on the extent to which actual performance meets, exceeds or falls short of the specified corporate objectives and individual performance objectives approved by the Compensation Committee, as determined by the Compensation Committee in its discretion, and on the level of the Company’s then current or anticipated cash reserves. The Company’s Board of Directors or the Compensation Committee reserves the right to modify the corporate or individual performance objectives at any time based on business changes during the year.

Target Cash Bonus Amount

The 2006 Bonus Plan provides a target cash bonus amount for each executive officer level employee of the Company, expressed as a percentage of 2006 base salary for each participant.