kod-pre14a_20210930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Amendment No.____)

 

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Soliciting Material Pursuant to §240.14a-12

KODIAK SCIENCES INC.

(Name of Registrant as Specified In Its Charter)

 

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Dear Kodiak Stockholders,

Since its founding in 2009, Kodiak Sciences Inc. (“Kodiak” or the “Company”) has developed a new technology platform for retinal medicines. It has progressed its lead investigational therapy, KSI-301, into six registrational clinical trials. The comprehensive clinical program targets high prevalence anti-VEGF dependent retinal diseases with studies designed as a package to support a broad product label, which we hope will include the key diseases and the longest dosing intervals. KSI-301 is being developed as a first line therapy for use in any patient who may benefit from anti-VEGF therapy.

At the same time, Kodiak is investing in commercial scale manufacturing with a capacity goal to supply 100% of today’s branded anti-VEGF market. We hope to be able to provide a pre-filled syringe early in commercialization, with a stretch goal of having this available at launch. Combining these ambitious clinical and manufacturing efforts sets the stage for early market share capture when and if KSI-301 is approved.

In addition, Kodiak is investing in its pipeline. The Company is progressing its Antibody Biopolymer Conjugate (or ABC) Platform towards suboptimal anti-VEGF responder patients, a group as large as 30% of treated patients, with its bispecific conjugate KSI-501. And beyond today’s anti-VEGF market, Kodiak’s new triplet medicines are being designed on its ABC Platform in an effort to bring new capabilities to treat the retina in the even higher prevalence diseases of dry AMD and glaucoma.

Notably, up to this point, Kodiak has retained all global rights to make, use and sell its products, preserving future value and allowing for agile decision-making.

While engaged in these research and development efforts, the Company has also demonstrated a disciplined and creative approach to building and financing the company. Kodiak’s Initial Public Offering (IPO) was completed in 2018 at a price of $10.00 per share. And since IPO, Kodiak’s Total Shareholder Return (TSR) is over 770%, outpacing the Russell 2000 Index’s TSR of 34% over the same period. During this time, the Company completed two secondary offerings and a capped royalty transaction so Kodiak today is well capitalized with more than $880 million in cash as of June 30, 2021.

Following from these efforts, we believe Kodiak has the potential to become a significant incumbent retinal development and commercialization franchise on a global basis.

Innovative medicines development is challenging and, if successful, Kodiak can achieve its societal mission to prevent and treat the leading causes of blindness in the developed world while at the same time generating significant stockholder value. There are a number of public biotech companies with market capitalization values in the $4.5 billion range of Kodiak today. But there are few with market capitalizations over $25 billion.

At the direction of the Board, the Compensation Committee worked with outside consultants and management over the past year to design a performance-based compensation framework to better align the incentives of employees and stockholders. We are bringing key components of this framework forward to stockholders for approval at this time to ensure that stockholders support our approach.

Kodiak is seeking stockholder approval for a long-term performance incentive plan, or LTPIP, to help align management incentives to significant value creation. The plan covers the next seven years and is open to a significant number of our existing employees – not just senior management.  Employees can “opt-in” to the plan by agreeing to forego up to 75% of their annual equity incentive compensation for the next seven years via a one-time election. Shares can be earned based on significant stock price appreciation over the seven-year performance period, with the possibility to earn up to 35% of the award based on achieving substantive operational goals. Earned awards begin vesting once earned and vest through the remainder of the seven-year period in equal monthly increments, ensuring a true long-term incentive program.

The maximum number of options available to each employee under the long-term performance incentive plan was determined by a detailed analysis that took into account the number of options that we estimated would have been granted to the employee over the seven-year period covered by the performance plan, based on our historical option grant guidelines and methodology (generally, value is targeted at the 60th percentile of our peer group), and assuming our stock price appreciated to $800 per share over that same seven-year period with straight line appreciation – and then multiplying this number of options by three. Some of these options can be earned based on operational milestones, but for the employee to realize significant outperformance under this plan significant share price appreciation is required.


Options are earned based on stock price appreciation between $200 and $800 per share (a projected market capitalization range of approximately $12 to $50 billion). The LTPIP is designed with a “break-even” point of approximately $400 per share, meaning that unless Kodiak stock maintains a price at or above $400 per share for ninety consecutive trading days, it is estimated that participating employees would do worse financially by participating in the LTPIP than they would have done under the existing equity plan with the more or less average awards peer companies provide their management teams. A $400 per share price corresponds to an implied market capitalization of about $25 billion. In so doing, we believe that the plan provides strong incentives to participating employees to drive stockholder value.

Under the LTPIP, up to 35% of the options can be earned through the achievement of operational milestones to the extent that number of options has not yet been earned through stock appreciation. This LTPIP feature ties performance to receipt of U.S. Food and Drug Administration approval for KSI-301 in the three major anti-VEGF indications (wet AMD, DME, and RVO) and generating sales of at least $2.5 billion in a fiscal year.

We believe the key design elements of the LTPIP strongly align Kodiak management to ambitious near-, medium- and long-term value creation for the benefit of patients and stockholders. We ask that you please take time to review the proposal in more detail as described in the accompanying proxy statement.

Kodiak stockholders of record as of the September 1, 2021 Record Date will be entitled to vote. In order to approve the LTPIP, the Board is requiring that, in addition to the vote required under Kodiak’s bylaws (a majority of the shares present and entitled to vote), we receive the affirmative majority of the votes cast, excluding votes cast by any participant in the Plan, including Dr. Perlroth, who beneficially owns 6,179,847 of our outstanding shares (4,062,038 of which are entitled to vote), as of August 1, 2021.

We recommend that you vote FOR the proposed Kodiak Sciences Inc. 2021 Long-Term Performance Incentive Plan.

 

Sincerely,

 

Felix Baker, Ph.D. (Chair of the Compensation Committee)

Charles Bancroft (Member of the Compensation Committee)

Robert Profusek (Lead Independent Director and Member of the Compensation Committee)

 


 


 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On October ____, 2021

Dear Kodiak Stockholders:

You are cordially invited to attend a Special Meeting of Stockholders (the “Special Meeting”) of Kodiak Sciences Inc., a Delaware corporation (the “Company” or “Kodiak”), which will be held virtually via live webcast on, October ____, 2021 at 10:00 a.m. Pacific Daylight Time.

The only purpose of the meeting will be to consider and vote on a proposal to approve the Kodiak Sciences Inc. 2021 Long-Term Performance Incentive Plan (the “LTPIP”) to help align management incentives to significant value creation, as more fully described in the accompanying proxy statement.

The Board of Directors of Kodiak (the “Board”), with our Cofounder, Chairman and Chief Executive Officer Victor Perlroth, M.D., recusing himself, determined that the LTPIP is in the best interests of Kodiak and its stockholders, and approved the LTPIP. The Board also resolved to recommend that Kodiak stockholders vote for the approval of the LTPIP.

The Board recommends that Kodiak stockholders vote FOR the Kodiak 2021 Long-Term Performance Incentive Plan.

Kodiak will transact no other business at the Special Meeting except such business as may properly be brought before the Special Meeting or any adjournment or postponement thereof.

Pursuant to Kodiak’s amended and restated bylaws, approval of the LTPIP requires the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the Special Meeting and entitled to vote on the proposal.

In addition, while not required under our amended and restated bylaws or the rules of The Nasdaq Stock Market LLC, pursuant to resolutions of the Board, approval of the LTPIP requires the affirmative vote of a majority of the votes cast, excluding votes cast by any participant in the Plan, including Dr. Perlroth.

The Board fixed the close of business on September 1, 2021 as the record date for the meeting. Only stockholders of record of our common stock on September 1, 2021 are entitled to notice of and to vote at the meeting. Further information regarding voting rights and the matters to be voted upon is presented in our proxy statement.

Important Notice Regarding the Availability of Proxy Materials for the Stockholders’ Meeting
to Be Held on October ____, 2021 at 10:00 a.m., Pacific Time via live webcast at
https://www.proxydocs.com/KOD.

The proxy statement and annual report to stockholders are available at www.proxydocs.com/KOD.

The Special Meeting will be a completely virtual meeting. There will be no physical meeting location. The meeting will only be conducted via live webcast. In order to attend via webcast, you must register in advance at www.proxydocs.com/KOD prior to the deadline of __________, 2021 at 2:00 p.m. Pacific Daylight Time. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and you will have the ability to submit questions. Please be sure to follow the instructions on the enclosed proxy card and/or voting instruction form and subsequent instructions that will be delivered to you via email. If you attend via webcast the Special Meeting virtually, you may submit an electronic ballot during the meeting.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend via webcast the Special Meeting, we encourage you to read the proxy statement and vote as soon as possible.

We appreciate your continued support of Kodiak Sciences Inc. and look forward to you joining our meeting or receiving your proxy.

By Order of the Board of Directors,

 

/s/ VICTOR PERLROTH

Victor Perlroth, M.D.

Cofounder, Chief Executive Officer and Chairman of the Board

Palo Alto, California

September ____, 2021

 


TABLE OF CONTENTS

Page

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

1

PROPOSAL NO. 1 APPROVAL OF KODIAK SCIENCES INC. 2021 KSO PLAN (LTPIP)

 

2

Executive Summary

 

2

Background

 

3

Summary of the LTPIP

 

4

Material Terms of the LTPIP

 

6

Other Details Regarding the LTPIP

 

8

New Plan Benefits

 

9

Potential Value That Could Be Realized Under the LTPIP

 

10

Potential Ownership of Securities as a Result of the LTPIP

 

11

Reduction of Annual LTI Award for 2021 Based on Participant’s Election to Participate in Long-Term Performance Incentive Program

 

11

Certain U.S. Federal Income Tax Effects

 

12

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

 

13

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

19

NON-EMPLOYEE DIRECTOR COMPENSATION

 

19

Director Compensation Program

 

20

EXECUTIVE COMPENSATION

 

21

Compensation Discussion and Analysis

 

21

2020 Summary Compensation Table

 

35

2020 Grants of Plan-Based Awards

 

36

2020 Outstanding Equity Awards at Fiscal Year-end

 

37

2020 Option Exercises and Stock Vested

 

38

Executive Employment Contracts and Change in Control Arrangements

 

38

Potential Payments upon Termination or Change in Control

 

40

CEO Pay Ratio

 

41

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

42

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

44

OTHER MATTERS

 

45

APPENDIX A. KODIAK SCIENCES INC. 2021 LONG-TERM PERFORMANCE INCENTIVE PLAN (LTPIP)

 

A-1

 

 

 

 

 


 

 

KODIAK SCIENCES INC.
1200 Page Mill Road
Palo Alto, CA 94304

PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
to be held on October ____, 2021 at 10:00 a.m. Pacific Daylight Time

This proxy statement and the enclosed form of proxy are furnished in connection with the solicitation of proxies by our board of directors for use at a special meeting of stockholders (the “Special Meeting”) to be held on October ____, 2021 and any postponements, adjournments or continuations thereof. The Special Meeting will be held virtually via webcast on October ____, 2021 at 10:00 a.m. Pacific Daylight Time. On or about __________, 2021, we intend to mail these proxy materials to all stockholders of record entitled to vote at the Special Meeting.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this proxy statement that are not historical facts are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Exchange Act, and Section 27A of the Securities Act. These forward-looking statements, including, without limitation, those relating to Kodiak’s technology platform, lead investigational therapy and related clinical program, plans for commercial scale manufacturing and pipeline, as well as possible future market prices and market capitalization levels for Kodiak common stock, compensation achievable under the LTPIP and comparisons to typical equity grants, wherever they occur in this proxy statement, are necessarily estimates reflecting the best judgment of the management of Kodiak and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement.

Words such as estimate, project, plan, intend, hope, expect, estimate, anticipate, believe, would, should, could and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include those set forth in Kodiak’s filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2021.

Kodiak undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. In the event that Kodiak does update any forward-looking statement, no inference should be made that Kodiak will make additional updates with respect to that statement, related matters or any other forward-looking statements.

 

1


 

APPROVAL OF THE KODIAK SCIENCES INC.

2021 LONG-TERM PERFORMANCE INCENTIVE PLAN (LTPIP)

Executive Summary

At the Special Meeting, stockholders will be asked to approve the LTPIP. The LTPIP was approved by the Board, subject to approval by our stockholders at the Special Meeting, as part of a broader long-term performance incentive program that was approved by the Board upon the recommendation of its Compensation Committee (the “Compensation Committee”). The following description of the LTPIP is a summary only and is qualified in its entirety by the full text of the LTPIP, which is attached to this proxy statement as Appendix 1.

The Board’s and the Compensation Committee’s primary objective in designing the LTPIP and the broader long-term performance incentive program is to help the Company continue to grow and achieve its mission, which would facilitate the creation of significant stockholder value. The LTPIP and the broader long-term performance incentive program are designed to align employee incentives with the Company’s mission and its potential for tremendous value creation.

The Compensation Committee engaged various advisors to assist in designing, modeling, and drafting the LTPIP and the broader long-term performance incentive program. There are three main reasons why the Board recommends that stockholders approve the LTPIP. Specifically, the Board believes that the LTPIP:

 

1.

Strengthens management’s incentives and further aligns their interests with those of the Company’s stockholders.

 

 

2.

Aids in ensuring management’s continued leadership of the Company and innovation over the long-term.

 

 

3.

Aids in ensuring management’s dedication to the Company’s strategic and financial objectives.

Under the LTPIP, options are earned based on stock price appreciation between $200 per share and $800 per share, based on predefined pay for performance criteria. The criteria are designed with a “break-even” point of approximately $400 per share, meaning that unless Kodiak’s stock price gets above $400 per share and stays there for a 90 consecutive trading day period, we estimate that participating employees would do worse financially by participating in the long-term performance incentive plan, than they would have done had the Board instead continued to provide annual equity grants targeting more or less the average rewards peer companies give their management. A $400 per share price for Kodiak corresponds roughly to a $25 billion market capitalization as shown in the illustrative table below. The table below only takes into account estimated dilution as a result of potential exercises from the existing employee equity pool, and assumes that employees do not exercise any stock options in LTPIP until the end of the seven-year performance period.

Under the LTPIP, a maximum of 35% of the options can also be earned by achieving operational milestones, to the extent that amount has not yet been earned through stock price appreciation alone.

2


The inclusion of operational milestones: (i) focuses employees on the key operational deliverables in front of the Company today, (ii) is responsive to what we believe our key stockholders desire in a ‘pay for performance’ incentive plan, and (iii) supports the long-term performance incentive plan in the event the stock price fails to reflect strong progress on execution. Further, the design is such that if the stock price is appreciating, then the operational milestones are expected to be superseded by the stock price milestones.

We believe the long-term performance incentive plan and its performance-based goals are very ambitious and difficult to achieve. By remembering where we came from and where we want to go, and by establishing a new and thoughtful pay-for-performance plan, we believe we can deliver on our mission while also generating tremendous stockholder value.

Background; LTPIP and Broader Long-Term Performance Incentive Program

The LTPIP and the broader long-term performance incentive program were designed for senior managers who believe in Kodiak’s potential to meaningfully impact patient outcomes and want to be part of the Kodiak journey for the long-term benefit of patients and stockholders.

Kodiak NEOs and eligible employees were provided a one-time opportunity to “opt-in” or “buy-in” to the program, via a one-time election, and, if they so elect, agree to forgo up to 75% of their annual equity incentive awards for the next seven years, and instead receive a one-time grant of performance-based stock options that can potentially provide three times more value than the forgone annual equity incentive compensation. For our NEOs and other members of senior management at or above grade level 10, these performance-based stock options would be granted under the LTPIP that is being presented to our stockholders for approval at the Special Meeting. Performance-based stock options granted to eligible employees below grade level 10 under the broader long-term performance incentive program would be granted from the existing share reserve under the Kodiak Sciences Inc. 2018 Equity Incentive Plan (the “2018 Plan”) and not pursuant to the LTPIP. However, the awards to be granted under the 2018 Plan are contingent on approval of the LTPIP by the Company’s stockholders. To the extent that the LTPIP is not approved by the Company’s stockholders, the performance-based stock options to be granted under the 2018 Plan would be forfeited and each applicable employee would receive 100% of his or her annual long-term incentive award for fiscal year 2021.

 

Eligible employees included first-line entry level managers up through Kodiak NEOs, with approximately 75% of Kodiak employees being eligible to participate based on their compensation grade level at the time of the August 12, 2021 grant. Of the eligible employees, approximately 90% chose to forgo at least 25% of their annual equity incentive award compensation in favor of receiving a performance-based stock option under the LTPIP or 2018 Plan, as applicable. Senior leadership, representing Senior Vice Presidents and above, all elected to opt-in to the program and agreed to forgo at least 50% of their annual equity incentive awards for the next seven years.

In designing the LTPIP and the broader long-term performance incentive program in consultation with its advisors, members of the Compensation Committee, all of whom are independent directors, discussed various considerations that were involved in deciding to recommend the program, including:

 

1.

The desire to incentivize and motivate employees of the Company to continue to create significant stockholder value;

 

 

2.

How to structure awards to management and other eligible employees in a way that would further align their interests with other Kodiak stockholders; and

 

 

3.

What performance milestones should be used in an award of stock options.

The Board adopted the LTPIP in order to augment Kodiak’s current executive compensation program and to further incentivize Kodiak NEOs and other eligible Kodiak employees to contribute maximum effort toward supporting the Company’s long-term transformational performance and growth. The Company’s current executive compensation program provides Kodiak NEOs and other eligible Kodiak employees with equity awards that vest based solely on the passage of time, or that vest based on the achievement of relatively near-term performance goals. The LTPIP is designed to be a long-term, pay-for-performance, incentive plan that will further align the interests of management and other eligible employees with the creation of substantial long-term value for the Company’s stockholders.

3


Summary of the LTPIP

 

Overview

Below is an overview of the LTPIP, which is intended as a summary only and is qualified in its entirety by the full text of the LTPIP attached to this proxy statement as Appendix 1.

 

Plan Terms

 

Details

Eligible Employees

 

Employees at Grade Level 10 and above who elect to participate in the Plan and agree to forgo a portion of their annual long-term incentive awards over the seven-year performance period

Authorized Shares

 

5,502,334 Shares

Award Type

 

Nonstatutory stock options

Exercise Price

 

$88.21, which is the fair market value per share of Company common stock as of August 12, 2021, the date of approval by the Compensation Committee and the Board

Term of Award

 

10 years

Performance Period

The performance period will commence on the date of grant and end on August 11, 2028, subject to extension for up to an additional 90 trading days under certain circumstances.

Award Vesting / Milestones

Shares underlying options granted under the LTPIP are earned based on the achievement of the performance-based requirement and/or certain operational milestones, as described below; after being earned, the shares then generally vest based on continued service with the Company following the date earned and through the end of the seven-year performance period.

 

Performance-Based Requirement

 

a.    7 tranches of stock price goals, as indicated in the table below

 

b.    First tranche requirement is for the Company’s common stock price per share to meet or exceed $200; each tranche thereafter requires the stock price to increase by $100, up to $800 for the last tranche

 

c.    A percentage of the shares underlying the option will be earned based on the stock price meeting or exceeding the corresponding stock price goal for a period of 90 consecutive trading days, as follows:

 

 

Option

Tranche

Stock Price

Goal

Tranche Earning

Percentage

Cumulative Earning

Percentage

 

Tranche 1

$200

7.5%

7.5%

 

Tranche 2

$300

12.5%

20%

 

Tranche 3

$400

25.0%

45%

 

Tranche 4

$500

25.0%

70%

 

Tranche 5

$600

20.0%

90%

 

Tranche 6

$700

5.0%

95%

 

Tranche 7

$800

5.0%

100%

 

 

Service-Based Requirement

 

a.    Shares earned under each of the 7 tranches will then vest in substantially equal monthly installments over the period of time remaining in the seven-year performance period, on the first day of each complete calendar month following the date on which the applicable stock price goal was attained

 

Operational Milestones

 

a.    A percentage of the shares underlying the option also may be earned based on attainment of certain operational milestones.

 

     Three of the operational milestones require approval by the U.S. Food and Drug Administration of a Biologics License Application in respect of a first, second, and third major indication (RVO, DME and/or wAMD).

 

     An additional operational milestone requires the Company to generate sales of at least $2.5 billion in a completed fiscal year.

 

The maximum percentage of shares that can be earned based on the attainment of the operational milestones is as follows:

 

 

4


 

Operational

Milestone

Operational Milestone

Earning Percentage

 

First BLA Approval

15%

 

Second BLA Approval

5%

 

Third BLA Approval

5%

 

Sales > $2.5 billion in a Fiscal Year

10%

 

 

 

 

b.    Shares earned upon achievement of an operational milestone then vest in substantially equal monthly installments over the period of time remaining in the seven-year performance period, on the first day of each complete calendar month following the date on which the applicable milestone was achieved

 

c.    The shares earned upon attainment of an operational milestone is inclusive of, and not in addition to, any portion of the shares that are earned based on attainment of the performance-based requirement

 

Employment Requirement for Continued Vesting

 

Except in the case of retirement, vesting eligibility is contingent upon continued employment through each applicable vesting date

Termination of Employment

 

a.    For Cause or upon Voluntary Resignation (other than for Good Reason): No acceleration of vesting; i.e. unearned and unvested portion of award terminates and is forfeited without consideration

 

b.    Without Cause or for Good Reason: Acceleration of vesting as to a pro-rata portion of the Option that has been earned as of the date of termination, based on a fraction, the numerator of which is the number of completed months of employment with the Company between the grant date and the date of such termination, and the denominator of which is eighty four (84)

 

c.    Retirement: Earned but unvested portion of the award continues to vest according to the service-based requirement

 

d.    Death or Severe Disability: Acceleration of vesting

 

Change in Control

 

Achievement of performance-based requirement is determined based on the per share consideration received by the Company’s stockholders in any change in control transaction meeting or exceeding the applicable corresponding stock price goal, with pro-rata vesting between stock price goals based on linear interpolation

 

Up to 35% of the shares underlying the option subject to the operational milestones remains eligible to be earned.

5


 

Material Terms of the LTPIP

 

Eligible Employees

Eligible employees include employees at Grade Level 10 and above who elect to participate in the LTPIP and agree to forgo a portion of each annual long term incentive award that may be granted to the employee during the seven-year performance period under the LTPIP.

Employees below Grade Level 10 who agree to forgo a portion of each annual long term incentive award that may be granted during the LTPIP’s seven-year performance period are eligible to receive awards granted under the 2018 Plan with terms and conditions substantially similar to the awards granted under the LTPIP.

As of August 12, 2021, there were 13 employees who were eligible to participate in the LTPIP, and 49 additional employees who were eligible to participate in the broader long-term performance incentive program and receive similar performance-based options under the 2018 Plan.

In addition, newly-hired employees will be eligible to receive awards under the 2018 Plan containing terms and conditions substantially similar to the awards granted under the LTPIP. Awards granted to new hires will be pro-rated based on (1) the remaining portion of the seven-year performance period as of the date of grant and (2) the performance-based milestones and operational milestones that have not yet been achieved as of such date.

Authorized Shares

We have reserved a total of 5,502,334 shares of our common stock for issuance pursuant to the LTPIP. The shares may be authorized, but unissued, or reacquired shares of common stock.

Exercising an award in any manner will decrease the number of shares thereafter available, both for purposes of the LTPIP and for sale under the award, by the number of shares as to which the award is exercised. The expiration of all or a portion of an award, without exercise, will also decrease the number of shares thereafter available under the LTPIP, by the number of shares underlying the portion of the award that expired.

 

Award Type

Each award granted under the LTPIP will be a nonstatutory stock option.

 

Exercise Price

The per share exercise price of each award granted under the LTPIP will be equal to the fair market value per share of Company common stock on the date of the grant.

As of August 12, 2021, the price per share of Company common stock was $88.21.

 

Award Vesting/Milestones

Shares underlying options granted under the LTPIP will be earned, vest and become exercisable based on the attainment of a performance-based requirement and service-based requirement. Awards may also be earned based on the attainment of certain operational milestones.

The performance-based requirement consists of seven tranches of stock price goals. The first tranche requires the Company common stock price per share to meet or exceed $200, with each tranche thereafter requiring a $100 incremental increase up to $800 for the last tranche. A percentage of the shares underlying the option will be earned based on the stock price meeting or exceeding the corresponding stock price goal for a period of 90 consecutive trading days during the seven-year performance period.

Up to 35% of the shares underlying an option may also be earned based on the Company’s achievement of certain operational milestones during the seven-year performance period. A participant may earn up to 25% of their award based on approval by the U.S. Food and Drug Administration of a Biologics License Application in respect of a first, second, and third major indication (RVO, DME and/or wAMD). A participant may earn up to ten percent of his or her award based on attainment of sales of at least $2.5 billion in a completed fiscal year.

6


The portion of the award that may be earned based on attainment of an operational milestone is inclusive of, and not in addition to, any portion of the award that may be earned based on the attainment of the performance-based requirement. Therefore, to the extent a portion of the award is earned based on the attainment of an operational milestone, the subsequent tranche(s) of the award that is eligible to be earned based on the performance-based requirement will be reduced by the excess, if any, of the number of shares earned over the cumulative earning percentage provided for in the performance-based requirement.  

Shares earned based on attainment of the performance-based requirement, or upon achieving an operational milestone, are subject to additional time-based vesting and will vest in substantially equal monthly installments over the period of time remaining in the seven-year performance period, on the first day of each complete calendar month following the date on which the applicable stock price goal, or operational milestone, was attained.

 

Termination of Employment

Subject to certain exceptions as described below, awards granted under the LTPIP vest only if the participant is employed with the Company through each applicable vesting date.

If the participant’s employment is terminated by us for cause, or the participant voluntarily resigns (without good reason), the participant’s unvested portion of the award immediately terminates and is forfeited without consideration. If the participant’s employment is terminated by us without cause, or by the participant with good reason, subject to the participant’s timely execution and delivery of a release and waiver of claims agreement, a pro-rata portion of the participant’s award that has been earned as of the date of termination, based on a fraction the numerator of which is the number of completed months of employment with the Company between the grant date and the date of such termination and the denominator of which is 84, will immediately vest and become exercisable effective as of the date the release becomes effective. If participant’s employment is terminated due to the participant’s retirement, the portion of the participant’s award that has been earned as of the date of such termination will continue to vest in accordance with the service-based requirement as if such termination had not occurred. If the participant’s employment is terminated due to the participant’s death or severe disability, the portion of the award that has been earned as of the date of such termination will immediately vest and become exercisable as of the date of such termination.

 

Term of Award / Post-Termination of Employment Exercise Period

The term of the award is ten years from the date of the grant, unless the participant’s employment terminates prior to that date. After the termination of service of a participant due to the participant’s death, or if the participant dies within three months following termination of their employment, the participant’s estate, or a person who acquired the right to exercise the option by bequest or inheritance, may exercise the option within nine months following the date of death or, if earlier, the date the participant’s employment terminated. After the termination of service of a participant as a result of the participant’s severe disability, the option will remain exercisable for six months following the date of termination. After termination of service of a participant due to the participant’s retirement, the option may be exercised any time prior to the first anniversary of the end of the seven-year performance period. In all other cases, the option will remain exercisable for three months following the date of termination. An option may not be exercised later than the expiration of its term.

 

Change in Control

The LTPIP provides that in the event of a merger or change in control, as defined under the LTPIP’s Stock Option Agreement, each outstanding award will be earned as to an applicable percentage of the award based on the per share consideration received by the Company’s stockholders in such change in control transaction meeting or exceeding the corresponding stock price goal, in accordance with the performance-based vesting requirement, with pro-rata vesting between stock price goals. To the extent less than 35% of the award has vested upon a change in control based on the performance-based requirement, then the award remains eligible to be earned based on the attainment of the operational milestones. The earned award then vests and becomes exercisable in accordance with the service-based requirement; provided, however, that, subject to the participant’s timely execution and delivery of a release and waiver of claims agreement, if (1) on the date 24 months immediately following a change in control, the participant is providing services to the acquiring company as either an employee or a consultant or (2) within 24 months following a change in control, the participant’s employment is terminated without cause, or by the participant for good reason, then in either case, 100% of the portion of the award that has been earned but remains unvested based on the service-based requirement will vest and become exercisable in full, effective as of the date the release becomes effective.

7


In addition, in the event that a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest and the participant will have the right to exercise the portion of the award that has been earned as of the date of such change in control. If an award is not assumed or substituted, the administrator will notify the participant in writing or electronically that such award will be exercisable for a period of time determined by the administrator in its sole discretion and the award will terminate upon the expiration of such period.

 

Exercise Methods/Requirements

The Administrator will determine the methods of payment of the exercise price of an award, which may include, cash, check, consideration received by the Company under a formal cashless exercise program, or, if the participant is a U.S. employee, surrender of other shares which have a fair market value on the date of surrender equal to the aggregate exercise price of the shares for which the award is exercised.

Other Details Regarding the LTPIP

 

Plan Administration

Our Board and Compensation Committee have full but non-exclusive authority to administer the LTPIP. In addition, if desirable, we may structure transactions under the LTPIP to be exempt under Rule 16b-3 of the Exchange Act. Subject to the provisions of the LTPIP, the administrator has the power to administer the LTPIP and make all determinations deemed necessary or advisable for administering the LTPIP, including, but not limited to, the power to:

 

interpret the terms of the LTPIP and awards granted under it;

 

select the eligible employees who receive awards;

 

approve the forms of award agreements for use under the LTPIP;

 

determine the terms of awards, including the exercise price, the number of shares subject to an award, the exercisability of awards, any vesting acceleration or waiver of forfeiture restrictions, and the form of consideration, if any, payable upon exercise;

 

modify or amend existing awards;

 

authorize any person to execute on behalf of the Company any instrument required to effect awards granted under the LTPIP; and,

 

make all other determinations necessary or advisable for administering the LTPIP.

The administrator’s decisions, interpretations, and other actions will be final and binding on all participants.

 

Certain Adjustments

In the event of any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of our shares or other securities, or other change in our corporate structure affecting our shares, in order to prevent diminution or enlargement of the benefits or potential benefits available under the LTPIP, the administrator will adjust the number and class of shares that may be delivered under the LTPIP or the number, class and price of shares covered by each outstanding award, and any numerical share limits set forth in the LTPIP.

 

Liquidation or Dissolution

In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards that have not been previously exercised will terminate immediately prior to the consummation of such proposed transaction.

 

8


 

Amendment or Termination

The administrator will have the authority to amend, suspend or terminate the LTPIP provided such action does not impair the existing rights of any participant. The LTPIP automatically will terminate in 2031, unless we terminate it sooner.

 

Tax Withholding

The administrator in its sole discretion may permit a participant to satisfy tax withholding obligations relating to awards granted under the LTPIP by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or shares having a fair market value equal to the maximum statutory amount required to be withheld, or (iii) delivering to the Company already-owned shares having a fair market value equal to the maximum statutory amount required to be withheld.

New Plan Benefits

 

Name and Position

 

Number of Shares Underlying Options

 

 

Preliminary Aggregate Fair Value Estimate

of Options(1)

 

 

Election %

 

Victor Perlroth, M.D

 

 

 

 

 

 

 

 

 

 

 

 

Chief Executive Officer and Chairman of the Board

 

 

2,177,334

 

 

$

76,891,850

 

 

 

75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

John A. Borgeson

 

 

 

 

 

 

 

 

 

 

 

 

Senior Vice President and Chief Financial Officer

 

 

500,000

 

 

 

17,657,339

 

 

 

50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Jason Ehrlich, M.D., Ph.D.

 

 

 

 

 

 

 

 

 

 

 

 

Chief Medical Officer and Chief Development Officer

 

 

500,000

 

 

 

17,657,339

 

 

 

50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officers as a group

 

 

3,177,334

 

 

 

 

 

 

 

 

 

Employees Grade Level 10 and up to Executive Officers

 

 

2,325,000

 

 

 

 

 

 

 

 

 

All participants under LTPIP

 

 

5,502,334

 

 

 

 

 

 

 

 

 

Employees below Grade Level 10 under 2018 Plan (2)

 

 

1,970,625

 

 

 

 

 

 

 

 

 

 

(1)

Pursuant to FASB Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“ASC Topic 718”), the grant date fair value determines the compensation expense for equity awards to be recognized over the required service period. The grant date for accounting purposes will be on the date that the LTPIP is approved by our stockholders. The grant date fair value cannot be calculated until such date.

For illustrative purposes, the preliminary aggregate fair value estimate has been calculated in accordance with ASC Topic 718 assuming the grant date for accounting purposes to be on the date that the LTPIP was approved by the Board. The assumptions as of the date of grant by the Board used in the Monte Carlo option pricing model to calculate the preliminary estimate of the options are set forth below:

 

Risk-free interest rate

 

 

1.36

%

Expected volatility

 

 

60.66

%

Dividend yield

 

 

0.00

%

 

The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the ten-year contractual term of the options.

 

The expected term assumes that the exercise will occur at the midpoint between the date the stock options vest and the end of the full ten-year contractual term.

 

The expected volatility is derived from the historical volatility of our common stock and supplemented by the average historical volatility of the common stock of a peer group of publicly traded companies to determine a single volatility over a period equivalent to the ten-year contractual term of the options.

 

9


 

The dividend yield is 0.00% because we do not currently issue dividends.

 

These assumptions may not be representative of the assumptions that would apply at the time the LTPIP is approved by stockholders and calculated under ASC Topic 718. An increase in the assumptions for stock price, expected volatility and/or risk-free interest rate (assuming all other assumptions remain constant) will generally result in a higher value than the preliminary aggregate fair value estimate of the options reported in this table. A decrease in the assumed values for stock price, expected term, expected volatility and/or risk-free interest rate (assuming all other assumptions remain constant) will generally result in a lower value than the preliminary aggregate fair value estimate of the options reported in this table.

 

The preliminary aggregate fair value estimate does not necessarily reflect the actual value of the options received if any one or more tranche vested because the calculation depends significantly on unknown variables

 

ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an employee is required to render service in exchange for the option or other award. Accordingly, the LTPIP would result in the recognition of additional stock-based compensation expense over the period over which the options are expected to vest as determined by the Administrator pursuant to ASC Topic 718.

 

(2)

Non-Executive Officer Employees of the Company who are below Grade Level 10 are eligible to receive awards (“Non-LTPIP Awards”) containing substantially similar terms and conditions as the awards granted to employees at Grade Level 10 and above under the LTPIP. However, the Non-LTPIP Awards would be granted pursuant to the 2018 Plan and not pursuant to the LTPIP. Nonetheless, the Non-LTPIP Awards to be made under the 2018 Plan are contingent on approval of the LTPIP by the Company’s stockholders. To the extent that the LTPIP is not approved by the Company’s stockholders, the Non-LTPIP Awards would be forfeited and each applicable employee would receive 100% of the employee’s annual long-term equity incentive award for fiscal year 2021.

Potential Value that Could be Realized Under the LTPIP

The table below depicts the maximum theoretical value, both in dollar value and as a percentage of total value created, that could be realized by Kodiak management and eligible employees under the LTPIP over various milestone scenarios. The table only takes into account estimated dilution as a result of potential exercises from the existing employee equity pool and assumes that employees do not exercise any stock options in LTPIP until the end of the seven-year term which results in a significantly larger value being attributed to management and eligible employees than would be the case if they were to exercise as soon as the stock options vest. Accordingly, this table should only be used for illustration purposes, recognizing that future dilutive events or earlier exercises would significantly decrease the maximum value that would be realized from the awards over the various vesting scenarios.

Tranches Target Stock Price CEO Value Realized ($m) All Participant Value Realized (including CEO) ($m) Shareholder Value Realized ($m) % of Value Realized By CEO % of value Realized by All Participants (including CEO) % of Value Realized by Shareholders TRANCHE ONE $200 $18 $46 $7,647 0.2% 0.6% 99.4% TRANCHE TWO $300 $92 $233 $12,576 0.7% 1.7% 98.3% TRANCHE THREE $400 $305 $772 $19,153 1.5% 3.9% 96.1% TRANCHE FOUR $500 $628 $1,586 $24,455 2.4% 6.1% 93.9% TRANCHE FIVE $600 $1,003 $2,534 $29,623 3.1% 7.9% 92.1% TRANCHE SIX $700 $1,265 $3,198 $35,075 3.3% 6.1% 91.6% TRANCHE SEVEN $800 $1,550 $3,917 $40,472 3.5% 8.8% 91.2%

 

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Potential Ownership of Securities as a Result of the LTPIP

For illustrative purposes only, if (1) all 2,177,334 shares of common stock subject to the stock option granted to Dr. Perlroth under the LTPIP were to become fully vested and the option was exercised in full, (2) all shares of common stock subject to the other options held by Dr. Perlroth that are currently vested and exercisable were outstanding, and (3) estimated dilution as a result of potential exercises or conversions from the 2018 Plan were to be considered, Dr. Perlroth would beneficially own approximately 12.6% of the outstanding shares of Kodiak common stock, based on the number of shares of common stock outstanding as of August 1, 2021, and not taking into account future dilution due to additional issuances of equity from activities such as capital-raising.

Reduction of Annual LTI Award for 2021 Based on Participant’s Election to Participate in Long-Term Performance Incentive Program

As described below under “Executive Compensation — Compensation Discussion and Analysis — 2021 Executive Compensation Program”, the Board (in the case of Dr. Perlroth) and the Compensation Committee (in the case of our other NEOs) granted annual equity awards in the form of stock options (for Dr. Perlroth) and stock options and RSUs (for our other NEOs). Pursuant to the LTPIP, each NEO had the ability to “opt-in” to the LTPIP, via a one-time election, and agree to forgo up to 75% of their annual equity incentive awards for the next seven years. As a result, if the LTPIP is approved by our stockholders, the 2021 annual equity incentive awards granted to our NEOs would be reduced as described below:

 

Name and Position

 

Number of

Shares

Underlying

Full 2021

Annual LTI

Award

 

 

Percentage of

Full 2021

Annual LTI

Award Waived

 

 

Number of

Shares

Underlying

Reduced 2021

Annual LTI

Award

 

Victor Perlroth, M.D

 

 

 

 

 

 

 

 

 

 

 

 

Chief Executive Officer and Chairman of the Board

 

 

341,000

 

 

 

75

%

 

 

85,250

 

John A. Borgeson

 

 

 

 

 

 

 

 

 

 

 

 

Senior Vice President and Chief Financial Officer

 

 

115,000

 

 

 

50

%

 

 

57,500

 

Jason Ehrlich, M.D., Ph.D.

 

 

 

 

 

 

 

 

 

 

 

 

Chief Medical Officer and Chief Development Officer

 

 

115,000

 

 

 

50

%

 

 

57,500

 

Named Executive Officers as a group

 

 

571,000

 

 

50% - 75%

 

 

 

200,250

 

 

Similarly, other participants in the LTPIP, and other employees eligible to participate in the broader long-term performance incentive program under the 2018 Plan, were also granted annual equity incentive awards, a portion of which participants agreed to forgo and instead receive performance-based options pursuant to the LTPIP or the 2018 Plan, as applicable. As a result, if the LTPIP is approved by our stockholders, the 2021 annual equity incentive awards granted to the following groups of eligible employees would be reduced as described below:

 

Name and Principal

Position

 

Number of

Shares

Underlying

Full 2021

Annual LTI

Award

 

 

Percentage of

Full 2021

Annual LTI

Award Waived

 

Number of

Shares

Underlying

Reduced 2021

Annual LTI

Award

 

Employees Grade Level 10 and up to Executive Officers

 

 

288,500

 

 

25% - 75%

 

 

102,000

 

Employees below Grade Level 10

 

 

294,850

 

 

25% - 50%

 

 

190,350

 

 

 

11


 

Certain U.S. Federal Income Tax Effects

The following is a brief summary of the United States federal income tax treatment generally applicable to awards under the LTPIP. The description is based on current federal tax laws, rules and regulations, which are subject to change, and does not purport to be a complete description of the federal income tax aspects of the LTPIP. A participant may also be subject to state and local taxes.

Nonstatutory Stock Options. An optionee subject to United States federal income tax will generally not recognize taxable income for United States federal income tax purposes upon the grant of a nonstatutory stock option. Rather, at the time of exercise of the nonstatutory stock option, the optionee will recognize ordinary income, and the Company will be entitled to a deduction, in an amount equal to the excess of the fair market value of the shares of common stock on the date of exercise over the exercise price. If the shares of common stock acquired upon the exercise of a nonstatutory stock option are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of such exercise will generally be taxable as long-term or short-term capital gain or loss (if the shares are a capital asset of the optionee), depending upon the length of time such shares were held by the optionee.

Deductibility Limit on Compensation in Excess of $1 Million. Section 162(m) of the Code generally limits the deductible amount of total annual compensation paid by a public company to each “covered employee” to no more than $1 million.

Vote Required

Approval of the LTPIP requires the affirmative vote of a majority of the shares present online at the Special Meeting, or represented by proxy at the meeting, and entitled to vote thereon to be approved. Abstentions are considered votes cast and will have the same effect as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

In addition, while not required under our amended and restated bylaws or the rules of The Nasdaq Stock Market LLC, pursuant to resolutions of the Board, approval of the LTPIP requires the affirmative vote of a majority of the votes cast, excluding votes cast by any participant in the Plan, including Dr. Perlroth. Consequently, any shares voted by participants in the Plan will have no impact on whether this separate voting threshold is met, although any of their shares present online at the Special Meeting or represented by proxy at the meeting, will be included for the purposes of determining whether a quorum is present at the Special Meeting. Abstentions and broker non-votes will have no effect on whether this separate voting threshold is met.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE APPROVAL OF THE LTPIP.


12


 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

The information provided in the “question and answer” format below is for your convenience only and is merely a summary of the information contained in this proxy statement. You should read this entire proxy statement carefully. Information contained on, or that can be accessed through, our website is not intended to be incorporated by reference into this proxy statement and references to our website address in this proxy statement are inactive textual references only.

What matters am I voting on?

You will be voting on:

 

a single proposal to approve the Company’s 2021 Long-Term Performance Incentive Plan, or the “LTPIP”. We also refer to this proposal as the “Plan Proposal”.

How does the board of directors recommend I vote on the sole proposal?

The board of directors recommends a vote:

 

FOR the approval of the Plan Proposal.

Who pays the cost for soliciting proxies?

We will pay the entire cost of soliciting proxies. In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We will also reimburse brokers, banks, custodians, other nominees and fiduciaries for forwarding these materials to their principals to obtain the authorization for the execution of proxies.

In addition, we have engaged Alliance Advisors to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $25,000 in total.

Who is entitled to vote?

Holders of our common stock as of the close of business on September 1, 2021, the record date, may vote at the Special Meeting. As of the record date, we had ____ shares of common stock outstanding. A list of the stockholders of record will be available at the Special Meeting. For ten calendar days prior to the Special Meeting, a list of our stockholders of record will be available for viewing during ordinary business hours at our corporate offices located at 1200 Page Mill Road, Palo Alto, CA 94304. Due to the ongoing COVID-19 pandemic and related government restrictions and business impact, our corporate offices may be subject to limited business hours and temporary closures; if the Company’s corporate offices are not open during regular hours, stockholders can call and leave a voice message request at (650) 281-0850 to make alternate arrangements for access to the list of stockholders of record. In deciding all matters at the Special Meeting, each stockholder will be entitled to one vote for each share of common stock held on the record date.

Registered Stockholders. If your shares are registered directly in your name with our transfer agent, you are considered the stockholder of record with respect to those shares, and these proxy materials were provided to you directly by us. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote at the Special Meeting.

Street Name Stockholders. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials were forwarded to you by your broker or nominee, who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares. Beneficial owners are also invited to attend via webcast the Special Meeting. However, since a beneficial owner is not the stockholder of record, you may not vote your shares directly at the Special Meeting unless you follow your broker’s procedures for obtaining a legal proxy. If you request a printed copy of the proxy materials by mail, your broker or nominee will provide a voting instruction card for you to use.

13


How do I vote?

Stockholder of Record: Shares Registered in Your Name

For a stockholder of record, there are four ways to vote:

 

by internet at https://www.proxypush.com/KOD, 24 hours a day, seven days a week, until 11:59 p.m. Eastern Time, on __________, 2021 (have your proxy card in hand when you visit the website);

 

by toll-free telephone at (866) 230-6348 (have your proxy card in hand when you call), until 11:59 p.m. Eastern Time, on __________, 2021;

 

by completing and mailing your proxy card (if you received printed proxy materials); or

 

by attending and voting at the Special Meeting via webcast. In order to attend via webcast, you must register in advance at www.proxydocs.com/KOD prior to the deadline of __________, 2021 at 2:00 p.m. Pacific Daylight Time. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and you will have the ability to submit questions. Please be sure to follow the instructions on the enclosed proxy card and/or voting instruction form and subsequent instructions that will be delivered to you via email. If you attend via webcast the Special Meeting virtually, you may submit an electronic ballot during the meeting.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If you are a beneficial owner of shares registered in the name of your brokerage firm, bank, dealer or other agent, you should have received a voting instruction form with these proxy materials from that organization rather than from us. Simply complete and mail the voting instruction form to ensure that your vote is counted. Alternatively, you may vote by telephone or over the internet as instructed by your broker or bank. To vote online during the Special Meeting, you must obtain a valid proxy from your brokerage firm, bank, dealer or other agent. Follow the instructions from your broker, bank or other agent, or contact that organization to request a proxy form.

If you are a beneficial owner of shares held in street name, in order to ensure your shares are voted in the way you would prefer, you must provide voting instructions to your broker, bank or other agent by the deadline provided in the materials you receive from your broker, bank or other agent.

How many votes do I have?

On each matter to be voted upon, you have one vote for each share of common stock you own as of September 1, 2021.

Can I change my vote?

Stockholder of Record: Shares Registered in Your Name

Yes. You can change your vote or revoke your proxy any time before the final vote at the Special Meeting by:

 

entering a new vote by internet or by telephone;

 

returning a later-dated proxy card;

 

notifying the Corporate Secretary of Kodiak Sciences Inc., in writing, at the address listed on the front page; or

 

voting at the Special Meeting.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If your shares are held by your brokerage firm, bank, dealer or other agent as a nominee, you should follow the instructions provided by your broker, bank or other agent.

14


What is the effect of giving a proxy?

Proxies are solicited by and on behalf of our board of directors. The persons named in the proxy have been designated as proxies by our board of directors. When proxies are properly dated, executed and returned, the shares represented by such proxies will be voted at the Special Meeting in accordance with the instruction of the stockholder. If no specific instructions are given, however, the shares will be voted in accordance with the recommendations of our board of directors as described above. If any matters not described in the proxy statement are properly presented at the Special Meeting, the proxy holders will use their own judgment to determine how to vote your shares. If the Special Meeting is adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have properly revoked your proxy instructions, as described above.

What is a quorum?

A quorum is the minimum number of shares required to be present at the Special Meeting for the meeting to be properly held under our bylaws and Delaware law. The presence, online at the Special Meeting or represented by proxy, of a majority of all issued and outstanding shares of common stock entitled to vote at the meeting will constitute a quorum at the meeting. A broker may not be permitted to vote stock (“broker non-vote”) held in street name on a particular matter in the absence of instructions from the beneficial owner of the stock. See the section of this proxy statement captioned “How may my brokerage firm or other intermediary vote my shares if I fail to provide timely directions?” The shares subject to a proxy that are not being voted on a particular matter because of a broker non-vote will count for purposes of determining the presence of a quorum but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal as to which that broker non-vote occurs. Abstentions are also counted in the determination of a quorum.

How many votes are needed for approval?

Approval of the LTPIP requires the affirmative vote of a majority of the shares present online at the Special Meeting, or represented by proxy at the meeting, and entitled to vote thereon to be approved. Abstentions are considered votes cast and will have the same effect as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

In addition, while not required under our amended and restated bylaws or the rules of The Nasdaq Stock Market LLC, pursuant to resolutions of the Board, approval of the LTPIP requires the affirmative vote of a majority of the votes cast, excluding votes cast by any participant in the Plan, including Dr. Perlroth. Consequently, any shares voted by participants in the Plan will have no impact on whether this separate voting threshold is met, although any of their shares present online at the Special Meeting, or represented by proxy at the meeting, will be included for the purposes of determining whether a quorum is present at the Special Meeting. Abstentions and broker non-votes will have no effect on whether this separate voting threshold is met.

How are proxies solicited for the Special Meeting?

The board of directors is soliciting proxies for use at the Special Meeting. All expenses associated with this solicitation will be borne by us. We will reimburse brokers or other nominees for reasonable expenses that they incur in sending these proxy materials to you if a broker or other nominee holds your shares. In addition, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Our directors and employees will not be paid any additional compensation for soliciting proxies.

In addition, we have engaged Alliance Advisors to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $25,000 in total.

How may my brokerage firm or other intermediary vote my shares if I fail to provide timely directions?

Brokerage firms and other intermediaries holding shares of common stock in street name for customers are generally required to vote such shares in the manner directed by their customers. In the absence of timely directions, your broker will have discretion to vote your shares only on “routine” matters. As a result, absent direction from you, your broker will not have discretion to vote on the Plan Proposal.

15


Where can I find the voting results of the Special Meeting?

We will announce preliminary voting results at the Special Meeting via webcast. We will also disclose voting results on a Current Report on Form 8-K that we will file with the SEC within four business days after the Special Meeting. If final voting results are not available to us in time to file a Current Report on Form 8-K, we will file a Current Report on Form 8-K to publish preliminary results and will provide the final results in an amendment to the Form 8-K as soon as they become available.

I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?

We have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, we deliver a single copy of these proxy materials to multiple stockholders who share the same address unless we received contrary instructions from one or more of the stockholders. This procedure reduces our printing costs, mailing costs, and fees. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, we will deliver promptly a separate copy of these proxy materials to any stockholder at a shared address to which we delivered a single copy of any of these documents. To receive a separate copy, or, if you are receiving multiple copies, to request that Kodiak Sciences Inc. only send a single copy, of these proxy materials, stockholders may contact us as follows:

Kodiak Sciences Inc.
Attention: Corporate Secretary
1200 Page Mill Road
Palo Alto, CA 94304
(866) 648-8133

Stockholders who hold shares in street name should contact their brokerage firm, bank, broker-dealer or other similar organization to request information about householding.

What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors?

Stockholder Proposals

Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our Corporate Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2022 annual meeting of stockholders, our Corporate Secretary must receive the written proposal at our principal executive offices not later than December 29, 2021. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:

Kodiak Sciences Inc.
Attention: Corporate Secretary
1200 Page Mill Road
Palo Alto, CA 94304

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Our bylaws also establish an advance notice procedure for stockholders who wish to present a proposal before an annual meeting of stockholders but do not intend for the proposal to be included in our proxy statement. Our bylaws provide that the only business that may be conducted at an annual meeting is business that is (i) specified in our proxy materials with respect to such meeting, (ii) otherwise properly brought before the meeting by or at the direction of our board of directors, or (iii) properly brought before the meeting by a stockholder of record entitled to vote at the annual meeting who has delivered timely written notice to our Corporate Secretary, which notice must contain the information specified in our bylaws. To be timely for our 2022 annual meeting of stockholders, our Corporate Secretary must receive the written notice at our principal executive offices:

 

not earlier than February 7, 2022; and

 

not later than the close of business on March 9, 2022.

In the event that we hold our 2022 annual meeting of stockholders more than 30 days before or more than 60 days after the one-year anniversary date of the 2021 annual meeting, then notice of a stockholder proposal that is not intended to be included in our proxy statement must be received no earlier than the close of business on the 120th day before such annual meeting and no later than the close of business on the later of the following two dates:

 

the 90th day prior to such annual meeting; or

 

the 10th day following the day on which public announcement of the date of such meeting is first made.

If, after complying with the provisions above, a stockholder, or such stockholder’s qualified representative, does not attend the annual meeting to present the stockholder’s proposal, we are not required to present the proposal for a vote at such meeting.

Nomination of Director Candidates

You may propose director candidates for consideration by our nominating and corporate governance committee. Any such recommendations should include the nominee’s name and qualifications for membership on our board of directors and should be directed to the Corporate Secretary of Kodiak Sciences Inc. at the address set forth above.

In addition, our bylaws permit stockholders to nominate directors for election at an annual meeting of stockholders. To nominate a director, the stockholder must provide the information required by our bylaws. In addition, the stockholder must give timely notice to our Corporate Secretary in accordance with our bylaws, which, in general, require that the notice be received by our Corporate Secretary within the time period described above under “Stockholder Proposals” for stockholder proposals that are not intended to be included in our proxy statement.

Availability of Bylaws

A copy of our bylaws may be obtained by accessing our filings on the SEC’s website at www.sec.gov. You may also contact our Corporate Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.

Can I attend the Special Meeting?

The Special Meeting will be held virtually via live webcast on October ____, 2021, at 10:00 a.m. Pacific Daylight Time. There will be no physical meeting location. You will not be able to attend the Special Meeting in person. In order to attend via webcast, you must register in advance at www.proxydocs.com/KOD prior to the deadline of __________, 2021 at 2:00 p.m. Pacific Daylight Time. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and you will have the ability to submit questions. Please be sure to follow the instructions on the enclosed proxy card and/or voting instruction form and subsequent instructions that will be delivered to you via email. If you attend via webcast the Special Meeting virtually, you may submit an electronic ballot during the meeting.

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What do I need in order to be able to participate in the Special Meeting?

In order to attend the Special Meeting via webcast, you must register in advance at www.proxydocs.com/KOD prior to the deadline of September 27, 2021 at 2:00 p.m. Pacific Daylight Time. You will need the control number included on your Notice or your proxy card or voting instruction form (if you received a printed copy of the proxy materials) or included in the email to you if you received the proxy materials by email in order to register. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and you will have the ability to submit questions.

We will have technicians ready to assist you with any technical difficulties you may have registering in advance or accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting within one hour prior to the meeting time, please call the technical support number that will be included in the meeting access email that pre-registered stockholders will receive one hour prior to the meeting.

How do I ask questions at the Special Meeting?

You may submit questions before the meeting by visiting www.proxydocs.com/KOD. During the Special Meeting, you may only submit questions by following the instructions in the meeting access email that pre-registered stockholders will receive one hour prior to the meeting. We will respond to as many appropriate inquiries at the Special Meeting as time allows.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of our compensation committee are Dr. Baker and Mr. Bancroft and Mr. Profusek. None of the members of our compensation committee is or has been an officer or employee of ours. None of our executive officers currently serves, or in the past year has served, as a member of our board of directors or compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our board of directors or compensation committee.

 

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis (“CD&A”) contained in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the CD&A be included in this proxy statement.

Felix J. Baker, Ph.D.

Charles Bancroft

Robert A. Profusek

 

NON-EMPLOYEE DIRECTOR COMPENSATION

The following table provides information regarding compensation paid by us to our non-employee directors during 2020. Directors who are also our employees receive no additional compensation for their service as a director. During 2020 one director, Dr. Perlroth, our Chief Executive Officer and Chairman, was an employee. Dr. Perlroth’s compensation is discussed under the caption “Executive Compensation.”

 

Name

 

Fees

Earned or

paid in

Cash (1)

 

 

Option

Awards(2)

 

 

Total

 

Felix J. Baker, Ph.D.(3)

 

$

 

 

$

361,662

 

 

$

361,662

 

Charles Bancroft(4)

 

 

48,571

 

 

 

464,134

 

 

 

512,705

 

Bassil I. Dahiyat, Ph.D.(5)

 

 

59,544

 

 

 

361,662

 

 

 

421,206

 

Richard S. Levy, M.D.(6)

 

 

47,275

 

 

 

361,662

 

 

 

408,937

 

Robert A. Profusek, J.D.(7)

 

 

79,500

 

 

 

361,662

 

 

 

441,162

 

Taiyin Yang, Ph.D.(8)

 

 

49,000

 

 

 

164,908

 

 

 

213,908

 

 

(1)

Represents fees earned during 2020.

(2)

Represents the aggregate grant date fair value of stock option awards granted in 2020. These amounts have been computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, without regard to estimated forfeitures. For a discussion of valuation assumptions, see Note 11 to our Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on March 16, 2020.

(3)

As of December 31, 2020, Dr. Baker held options for the purchase of 35,988 shares of common stock, 24,747 of which were vested as of such date.

(4)

As of December 31, 2020, Mr. Bancroft held options for the purchase of 16,397 shares of common stock, none of which were vested as of such date.

(5)

As of December 31, 2020, Dr. Dahiyat held options for the purchase of 60,988 shares of common stock, 45,580 of which were vested as of such date.

(6)

As of December 31, 2020, Dr. Levy held options for the purchase of 85,988 shares of common stock, 66,413 of which were vested as of such date.

(7)

As of December 31, 2020, Dr. Profusek held options for the purchase of 85,988 shares of common stock, 66,413 of which were vested as of such date.

(8)

As of December 31, 2020, Dr. Yang held options for the purchase of 14,272 shares of common stock, 2,951 of which were vested as of such date.

 

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Director Compensation Program

Outside Director Compensation Policy

The compensation committee retained Compensia, Inc. (“Compensia”), an independent compensation advisory firm, to provide recommendations on director compensation following our initial public offering based on an analysis of market data compiled from the same peer group used to determine executive compensation. Compensia provided the Compensation Committee with competitive data, analysis and recommendations regarding non-employee director compensation. After careful consideration of this information, the scope of the duties and responsibilities of our non-employee directors, and Compensia’s recommendation, in September 2018, our board of directors approved a director compensation policy for our non-employee directors (the “Outside Director Compensation Policy”) that became effective following our initial public offering. For purposes of the policy, our board of directors classified each director into one of the two following categories: (1) an “employee director,” is a director who is employed by us; and (2) a “non-employee director,” is a director who is not an employee director. Only non-employee directors receive compensation under the Outside Director Compensation Policy. Non-employee directors receive compensation in the form of equity and cash under the Outside Director Compensation Policy, as described below. We believe our Outside Director Compensation Policy provides reasonable compensation to our non-employee directors that is appropriately aligned with our peers and is commensurate with the services and contributions of our non-employee directors. All directors will be reimbursed for expenses in their capacities as directors in accordance with our standard expense reimbursement policy.

In June 2020, our board of directors approved the amendment and restatement of the Company’s Outside Director Compensation Policy (the “Restated Director Compensation Policy”).

Equity Compensation

Initial Options. Subject to the limits in our 2018 Plan, each person who first becomes a non-employee director (other than a person that ceases to be an employee of ours but remains a director of ours) will be granted an initial option to purchase shares of our common stock with a grant date fair value of approximately $780,000, which option will be effective on the first trading date on or after the date on which such person first becomes a non-employee director, whether through election by our stockholders or appointment by our board of directors to fill a vacancy. Each initial option will vest as to 1/3rd of the shares subject to the initial option on the one-year anniversary of the date of grant and as to 1/36th of the shares subject to the initial option each month thereafter, in each case, subject to continued service through each applicable vesting date.

Annual Options. Subject to the limits in the 2018 Plan, under the Restated Director Compensation Policy, each non-employee director is granted an annual option on June 30th of each year (or the preceding trading day, if June 30th is not a trading day) to purchase shares of our common stock with a grant date fair value of approximately $390,000, provided that such director has served on our board of directors for at least the preceding 12 months as of the grant date. Each non-employee director who has served on our board of directors for less than 12 months as of the grant date will receive a prorated award based on the number of days during the prior 12 months such director has served on our board of directors. Each annual option will fully vest on the earlier of (1) the one-year anniversary of the date of grant of the annual option and (2) the day prior to the date of the annual meeting of our stockholders that occurs in the fiscal year following the grant of such annual option, in each case, subject to continued service through the applicable vesting date.

In the event of a change in control of the Company, and unless otherwise agreed, each non-employee director will fully vest in his or her outstanding equity awards, including any initial option or annual option, provided that he or she continues to be a non-employee director through such date.

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Cash Compensation

Under the Outside Director Compensation Policy, our non-employee directors receive annual cash compensation for service on our board of directors and committees of our board of directors as follows, subject to the limits in the 2018 Plan. All cash payments to non-employee directors are paid quarterly in arrears on a prorated basis.

 

 

 

 

Member

 

 

 

Chairperson

 

Board of Directors

 

$

40,000

(1)

 

$

30,000

(2)

Audit Committee

 

$

9,000

 

 

$

20,000

 

Compensation Committee

 

$

6,500

 

 

$

13,000

 

Nominating and Corporate Governance Committee

 

$

5,000

 

 

$

9,000

 

 

(1)

For service as a non-employee director.

(2)

For service as non-executive chairperson of the board of directors. Cash compensation is $24,000 for service as lead independent director.

 

 

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

We are biopharmaceutical company committed to researching, developing and commercializing transformative therapeutics to treat high prevalence retinal diseases. Founded in 2009, we are focused on bringing new science to the design and manufacture of next generation retinal medicines to prevent and treat the leading causes of blindness globally. Based on our proprietary antibody biopolymer conjugate platform, (the “ABC Platform”), our lead product candidate, KSI-301, is currently in Phase 3 clinical development for the treatment of retinal vascular diseases including age-related macular degeneration (“AMD”), retinal vein occlusion (“RVO”) and diabetic eye diseases. In addition, we have an active pipeline of drug candidates, including KSI-501, our bispecific anti-IL-6/VEGF biopolymer conjugate for the treatment of neovascular retinal diseases with an inflammatory component, and we are expanding our early research pipeline to include ABC Platform based triplet inhibitors for multifactorial retinal diseases such as dry AMD and glaucoma.

We became a public company in October 2018, and we filed our 2019 and 2020 proxy statements under the scaled reporting system applicable to emerging growth companies. As of the close of calendar year 2020, we ceased to be an emerging growth company and, therefore, this Proxy Statement includes additional detail regarding executive compensation that was previously not required, including: this Compensation Discussion and Analysis, additional compensation tables for “Grants of Plan-Based Awards,” “Option Exercises and Stock Vested,” and “Potential Payments upon Termination or Change in Control.”

This Compensation Discussion and Analysis discusses our executive compensation program and policies and how and why our compensation committee arrived at specific compensation decisions for our “named executive officers” consisting of the following individuals, who were the only individuals serving as our executive officers at the end of 2020:

 

Victor Perlroth, M.D., our Chief Executive Officer and Chairman of the Board;

 

John A. Borgeson, our Senior Vice President and Chief Financial Officer; and

 

Jason Ehrlich, M.D., Ph.D., our Chief Medical Officer and Chief Development Officer;

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Executive Summary

In 2020, we made significant progress towards our “2022 Vision” of a single Biologics License Application (“BLA”) submission and initial FDA approval for KSI-301 in wet AMD, diabetic macular edema (“DME”) and RVO in 2022 with a total of four pivotal studies - two Phase 3 studies in DME (the GLEAM and GLIMMER studies), one Phase 2b/3 study in wet AMD (the DAZZLE study) and one Phase 3 study in RVO (the BEACON study). We completed global patient recruitment for our DAZZLE pivotal study in November 2020, and we initiated the GLEAM, GLIMMER and BEACON pivotal studies in the third quarter of 2020. After completing a follow-on equity offering in November 2020 that resulted in net proceeds of $612 million, we are now well positioned to advance the KSI-301 program towards achieving our “2022 Vision”, including the manufacturing activities necessary for BLA submission, and also to advance our pipeline of drug candidates, including KSI-501 and our triplet inhibitor drug candidates, and for working capital and general corporate purposes. Our stock performance during 2020 as measured by compounded annual growth return (“CAGR”) was 106.8%, and for the two-year period beginning January 1, 2019 and ending December 31, 2020, the CAGR was 325.6%, reflecting the Company’s extraordinary performance against its corporate objectives.

The important features of our executive compensation program include the following:

 

A substantial portion of executive compensation is delivered through variable incentives that are at risk. We structure a significant portion of our named executive officers’ compensation to be variable, at risk and tied directly to our measurable performance. For 2020, approximately 93% of our Chief Executive Officer’s total reported compensation and , on average, approximately 85% of our other named executive officers’ total reported compensation was at risk, consisting of annual bonuses and equity incentives granted, as reported in the “2020 Summary Compensation Table.”

 

 

 

Our executive bonuses are entirely dependent on meeting corporate objectives. Our named executive officers’ annual bonus opportunities are entirely dependent upon our achievement of annual corporate objectives established each year. For 2020, our named executive officers received annual bonuses equal to 150% of their target bonus opportunity based on our performance as measured against the pre-established corporate goals for 2020. We emphasize long-term equity incentives. Equity awards are an integral part of our executive compensation program and comprise the primary “at-risk” portion of each named executive officer’s compensation package. We have historically granted equity awards primarily in the form of stock options. These awards strongly align our named executive officers’ interests with those of our stockholders by providing a continuing financial incentive to maximize long-term value for our stockholders and by encouraging our named executive officers to remain in our long-term employ. Stock options are also the predominant vehicle among biopharmaceutical companies at our stage of development, and the most prevalent type of equity award used by our peer companies. The Company also grants restricted stock units (“RSUs”) as part of the equity award mix from time to time, which we believe improves the balance and risk profile of our executive compensation program, in addition to further incentivizing retention and aligning our named executive officers’ interest with those of our stockholders.

22


 

Change in control benefits are limited to double-trigger payments which require termination other than for cause or resignation for good reason in connection with a change of control to trigger payments.

 

We do not provide our named executive officers with any excise tax reimbursement (including “gross up”) payments in connection with any payments or benefits received upon a change in control of the Company.

 

We do not provide our named executive officers with any special health or welfare benefits. Our named executive officers participate in broad-based Company-sponsored health and welfare benefits programs on the same basis as our other full-time, salaried employees.

 

Our compensation committee has retained an independent third-party compensation consultant for guidance in analyzing our executive compensation program and making compensation decisions, including market practices, so that our compensation committee can regularly assess the Company’s individual and total compensation programs against our peer companies, the general marketplace and other relevant industry data points.

 

The equity awards granted to our named executive officers have multiple-year vesting requirements, consistent with our retention objectives.

Overview of Our Executive Compensation Program

Objectives, Philosophy and Elements of Compensation

The overall objectives of our executive compensation program and policies are to:

 

attract, retain and motivate superior executive talent;

 

provide incentives that reward the achievement of performance goals that directly correlate to the enhancement of stockholder value, as well as to facilitate executive retention; and

 

align our executives’ interests with those of our stockholders through long-term incentives linked to specific performance.

 

Our executive compensation program generally consists of, and is intended to strike a balance among, the following three principal components: base salary, annual bonuses and long-term incentive compensation in the form of equity awards. We also provide our named executive officers with severance and change-in-control payments and benefits, as well as other benefits available to all our employees, including retirement benefits under the Company’s Section 401(k) plan and participation in our employee health and welfare benefit plans. The following chart summarizes the objectives and key features of the three primary elements of compensation.


23


 

Element of Compensation

Objectives

Key Features

Base Salary (fixed cash)

Provides financial stability and security through a fixed amount of cash for performing job responsibilities.

Generally reviewed annually and determined based on a number of factors (including individual performance, internal equity, retention, expected cost of living increases and the overall performance of our Company) and by reference to market data provided by the compensation committee’s independent compensation consultant.

Annual Bonus (at-risk cash)

Motivates and rewards for attaining rigorous annual corporate performance goals that relate to our key business objectives.

Bonus opportunities are entirely dependent upon achievement of specific corporate performance objectives, generally determined by the compensation committee and board of directors and communicated at the beginning of the year. Actual bonus amounts earned are determined after the end of the year, based on achievement of the pre-established corporate performance objectives.

Long-Term Incentive (stock options)

Motivates our executive officers to achieve our business objectives by tying incentives to the appreciation of our common stock over the long term.

 

 

 

Stock options have an exercise price equal to or greater than the fair market value of our common stock on the date of grant. The ultimate value realized, if any, depends on the appreciation of our common stock price and if our stock price does not appreciate, there is no value realized by our executive officers. Stock options may vest based on continued service over a specified period of time and/or achievement of pre-established performance goals.

In determining the aggregate size of equity grants in any given year, the compensation committee (or our board of directors in the case of our Chief Executive Officer) generally considers the same factors described above under “Base Salaries” with respect to performance during the prior fiscal year, as well as the criticality of the executive officer to the long-term achievement of corporate goals. The compensation committee also considers the impact of dilution by reviewing overall share utilization and usage.

24


Long-Term Incentive (“RSUs”))

Motivates executive officers to achieve our corporate objectives by tying compensation to the performance of our common stock over the long term and/or the achievement of business, clinical development and regulatory goals over the long term; motivates our executive officers to remain with the Company by mitigating swings in incentive values during periods when market volatility weighs on our stock price.

RSUs may vest based on continued service over a specified period of time and/or achievement of pre-established performance goals; the ultimate value realized varies with our common stock price.

 

 

 

 

In evaluating our executive compensation policies and programs, as well as the short-term and long-term value of our executive compensation plans, we consider both the performance and skills of each of our executives, as well as the compensation paid to executives in similar companies with similar responsibilities. We focus on providing a competitive compensation package which provides significant short and long-term incentives for the achievement of measurable corporate objectives. We believe that this approach provides an appropriate blend of short-term and long-term incentives to maximize stockholder value.

We do not have any formal policies for allocating compensation among base salary, annual bonus awards and equity awards, short-term and long-term compensation or among cash and non-cash compensation. Instead, the compensation committee uses its judgment to establish a total compensation package for each named executive officer that is a mix of current, short-term and long-term incentive compensation, and cash and non-cash compensation, that it believes appropriate to achieve the goals of our executive compensation program and our corporate objectives. However, a significant portion of the named executive officers’ target total direct compensation is comprised of target bonus opportunities and long-term equity awards, in order to align the named executive officers’ incentives with the interests of our stockholders and our corporate objectives.

In making executive compensation decisions, the compensation committee generally considers each executive officer’s target total direct compensation, which consists of base salary, target bonus opportunity, which together with base salary we refer to as target total cash compensation and long-term equity awards (valued based on an approximation of grant date fair value).

Role of the Compensation Committee and Executive Officers in Setting Executive Compensation

The compensation committee reviews and oversees our executive compensation program, policies and plans, and it reviews and determines the compensation to be paid to our executive officers. In making its executive compensation determinations, the compensation committee considers recommendations from the Chief Executive Officer for our named executive officers other than himself. In making his recommendations, the Chief Executive Officer receives internal input from our management team and has access to various third-party compensation surveys and compensation data provided by the independent compensation consultant to the compensation committee, as described below. While the Chief Executive Officer discusses his recommendations for the other executive officers with the compensation committee, he does not participate in the deliberations concerning, or the determination of, his own compensation. In addition to our Chief Executive Officer, our Chief Financial Officer, as well as members of our management team may also attend compensation committee meetings from time to time and may take part in discussions of executive compensation. The compensation committee discusses and makes final determinations with respect to executive compensation matters without any named executive officers present (other than the Chief Executive Officer as described above).

The compensation committee meets periodically throughout the year to manage and evaluate our executive compensation program, and generally determines the principal components of compensation (base salary, annual bonus and equity awards) for our named executive officers on an annual basis; however, decisions may occur during the year for new hires, promotions or other special circumstances as our compensation committee determines appropriate. The compensation committee does not delegate its authority to approve named executive officer compensation. The compensation committee does not maintain a formal policy for the timing of equity awards to our named executive officers; awards are generally approved at a meeting of the compensation committee approximately midway through each year.

25


Role of Our Compensation Consultant

The compensation committee has the sole authority to retain compensation consultants to assist in its evaluation, analysis and determination of executive compensation, including the authority to approve the consultant’s reasonable fees and other retention terms. For purposes of evaluating 2020 compensation for each of our named executive officers and making 2020 compensation decisions, the compensation committee retained Compensia, a compensation consultant, to assist the compensation committee in reviewing our executive compensation program and to ensure that our compensation programs remain competitive in attracting and retaining talented executives.

During 2020, Compensia assisted the compensation committee in developing a group of peer companies to use as a reference in making compensation decisions, developing the compensation committee’s executive pay philosophy, evaluating current pay practices and considering different compensation programs and compensation and corporate governance best practices. As described further below, Compensia also prepared an analysis of our compensation practices with respect to base salaries, annual bonuses and long-term equity awards against competitive market practices. Compensia reports directly to the compensation committee, which maintains the authority to direct their work and engagement, and advises the compensation committee and our human resources department from time to time. Compensia interacts with management to gain access to Company information that is required to perform its services and to understand the culture and policies of our organization. The compensation committee and Compensia meet in executive session with no members of management present as needed to address various compensation matters, including deliberations regarding the Chief Executive Officer’s compensation.

During 2020, our compensation committee analyzed whether the work of Compensia as a compensation consultant raised any conflict of interest, taking into consideration the following factors: (i) the fact that Compensia and its affiliates do not provide any services directly to Kodiak; (ii) the amount of fees paid to Compensia and its affiliates by Kodiak as a percentage of Compensia and its affiliates’ total revenue; (iii) Compensia’s policies and procedures that are designed to prevent conflicts of interest; (iv) any business or personal relationship of Compensia or the individual compensation advisors employed by Compensia with any executive officer; (v) any business or personal relationship of the individual compensation advisors with any member of our compensation committee; and (vi) any Kodiak stock owned by Compensia or the individual compensation advisors employed by Compensia. Based on its analysis of these factors, our compensation committee determined that the work of Compensia and the individual compensation advisors employed by Compensia does not give rise to any conflict of interest.

Use of Competitive Market Compensation Data

We aim to attract and retain the most highly qualified executive officers in an extremely competitive market. Accordingly, the compensation committee believes that it is important when making its compensation decisions to be informed as to the current practices of comparable public companies with which we compete for top talent. To this end, the compensation committee reviews market data for each named executive officer’s position, compiled by Compensia as described below, including information relating to the compensation for executive officers in the biopharmaceutical industry.

In developing a proposed list of our peer group companies to be used in connection with making compensation decisions for 2020, Compensia examined our compensation philosophy and selected companies that would be appropriate peers based on geography, industry focus, employee size, stockholder base, stage of development and market capitalization. Specifically, companies were selected in May 2020 with the following parameters:

 

Geography: We focused on biopharmaceutical companies listed on a U.S. national securities exchange with preference for companies with a U.S. headquarters.

 

Industry Focus: We focused on biopharmaceutical companies employing platform technologies to develop high complexity drugs and/or treating complex or concentrated diseases.

 

Employee size: We focused on companies with a headcount of roughly between 1/3 to 3 times our headcount at the time of evaluation.

 

Stockholder base: We focused on companies with a strong presence of long-term investors.

26


 

 

Stage of development: We focused on late stage pre-commercial companies conducting at least one pivotal registrational study or early commercial (less than $100 million in revenue) companies.

 

Market Capitalization: We focused on companies with market capitalization representing roughly 1/3 to 3 times our market capitalization at the time of evaluation.

Based on these criteria, for 2020, Compensia recommended, and our compensation committee approved the following peer group for use analyzing 2020 compensation:

 

  Adverum Biotechnologies

  Deciphera Pharmaceuticals

  Alector

  Denali Therapeutics

  Allakos

  Global Blood Therapeutics

  Apellis Pharmaceuticals

  Iovance Biotherapeutics

  Arena Pharmaceuticals

  Kiniksa Pharmaceuticals

  Arrowhead Pharmaceuticals

  Mirati Therapeutics

  bluebird bio

  MyoKardia

  Blueprint Medicines

  Principia Biopharma

  Constellation Pharmaceuticals

  TG Therapeutics

  CRISPR Therapeutics

  Turning Point Therapeutics

 

Using the peer companies listed above, Compensia prepared, and the compensation committee reviewed, a range of market data reference points (generally at the 25th, 50th, 60th and 75th percentiles of the market data) with respect to base salary, annual bonuses, equity awards (valued based on an approximation of grant date fair value and as an ownership percentage), target total cash compensation (including base salary and the annual target bonus) and target total direct compensation (total target cash compensation and equity compensation).

The compensation committee reviews these market data reference points and structures each component of compensation, as well as target total direct compensation to be competitive with the market. However, the market data is only one of the factors that the compensation committee considers in making compensation decisions and therefore individual named executive officer compensation may fall above or below these general guidelines.

Factors Used in Determining Executive Compensation

Our compensation committee sets the compensation of our named executive officers at levels it determines to be competitive and appropriate for each executive officer, using the professional experience and judgment of compensation committee members. Pay decisions are not made by use of a formulaic approach or benchmark; the compensation committee believes executive pay decisions require consideration of a multitude of relevant factors which may vary from year to year. In making executive compensation decisions, the compensation committee generally takes into consideration the following factors:

 

Company performance and existing business needs;

 

Each named executive officer’s individual performance, scope and complexity of job function and the criticality of the skill set of the named executive officer to the Company’s future performance;

 

The need to attract new talent to our executive team and retain existing talent in a highly competitive industry where we compete for top talent;

 

A range of market data reference points, as described above under “Use of Competitive Market Compensation Data”; and

 

The recommendations of its compensation consultants on compensation policy determinations for our executive officers.

27


2021 Executive Compensation Program

Annual Base Salary and Target Bonus Percentage

In August 2021, the compensation committee reviewed the base salaries and target bonus percentages for our named executed officers. The compensation committee considered a competitive market analysis prepared by Compensia using the 50th percentile of market data as a basis and then adjusted the base salaries and target bonus percentages for our named executive officers as deemed appropriate. The base salaries and target bonus percentages are effective July 1, 2021.

 

Named Executive Officer

 

2021 Base

Salary

 

 

2021 Target

Bonus

Percentage

 

Victor Perlroth, M.D.

 

$

679,000

 

 

 

65

%

John A. Borgeson

 

$

465,000

 

 

 

45

%

Jason Ehrlich, M.D., Ph.D.

 

$

489,000

 

 

 

45

%

 

Equity-Based Incentive Awards

For the equity mix for each named executive officer, the compensation committee took into consideration both peer practices and competitive market data and determined that the 2021 equity mix should remain the same as 2020 levels. For Dr. Perlroth, the compensation committee decided to deliver 100% of the value of his annual equity award in the form of stock options. For our named executive officers other than Dr. Perlroth, the compensation committee decided to deliver approximately 65% of the value of each named executive officer’s annual equity award in the form of stock options and 35% of the value in the form of RSUs.

For the value of equity awards, the compensation committee considered a competitive market analysis of long-term incentive compensation prepared by Compensia and other factors using the 50th percentile of market data as a basis then adjusted the annual equity awards for our named executive officers as deemed appropriate. The stock options granted in 2021 vest monthly over a four-year period and the RSUs vest in four equal annual installments, in each case subject to the named executive officer’s continued service with us through the applicable vesting date. The number of shares of our common stock subject to the stock option and RSU awards granted to each named executive officer is reflected in the table below.

 

Named Executive Officer

 

2021 Stock

Option Grant

(# of shares)

 

 

2021 RSU

Grant

(# of shares)

 

Victor Perlroth, M.D.

 

 

241,000

 

 

 

 

John A. Borgeson

 

 

50,000

 

 

 

15,000

 

Jason Ehrlich, M.D., Ph.D.

 

 

50,000

 

 

 

15,000

 

 

Performance Option Awards

In August 2021, the compensation committee approved a special performance-based stock option grant for our named executive officers which represents the delta between the 50th and 75th percentile of market data prepared by Compensia. These performance-based options are linked to metrics that are aligned with our corporate strategy and which are designed to build value for our stockholders. The options will vest over four years if, and only upon the acceptance by the FDA of a Biologics License Application for KSI-301 with the number of stock options earned dependent on the relative total stock return percentage as compared to the Russell 2000 at the end of the three-year performance period.

 

Named Executive Officer

 

2021 Performance

Stock Option

Grant

(# of shares)

 

Victor Perlroth, M.D.

 

 

100,000

 

John A. Borgeson

 

 

50,000

 

Jason Ehrlich, M.D., Ph.D.

 

 

50,000

 

28


 

As described above under “Proposal 1 - Reduction of Annual LTI Award for 2021 Based on Participant’s Election to Participate in Long-Term Performance Incentive Program”, if the LTPIP is approved by our stockholders, the 2021 annual equity incentive awards granted to our NEOs would be reduced as described below:

 

Name and Position

 

Number of

Shares

Underlying

Full 2021

Annual LTI

Award

 

 

Percentage of

Full 2021

Annual LTI

Award Waived

 

 

Number of

Shares

Underlying

Reduced 2021

Annual LTI

Award

 

Victor Perlroth, M.D

 

 

 

 

 

 

 

 

 

 

 

 

Chief Executive Officer and Chairman of the Board

 

 

341,000

 

 

 

75

%

 

 

85,250

 

John A. Borgeson

 

 

 

 

 

 

 

 

 

 

 

 

Senior Vice President and Chief Financial Officer

 

 

115,000

 

 

 

50

%

 

 

57,500

 

Jason Ehrlich, M.D., Ph.D.

 

 

 

 

 

 

 

 

 

 

 

 

Chief Medical Officer and Chief Development Officer

 

 

115,000

 

 

 

50

%

 

 

57,500

 

Named Executive Officers as a group

 

 

571,000

 

 

50% - 75%

 

 

 

200,250

 

 

2020 Executive Compensation Program

Annual Base Salary

In reviewing and adjusting base salaries in June 2020, the compensation committee first assessed current base salary levels against the competitive market data and determined that certain of our named executive officers trailed the 50th percentile of our 2020 peer group. Given the strong performance of the Company at the time, the compensation committee determined an increase to the market 50th percentile was appropriate for these named executive officers, and necessary to remain competitive with companies with whom we compete and a smaller increase was necessary and appropriate for those named executive officers who were closer to the 50th percentile as a merit increase for their efforts towards our strong performance at the time. Accordingly, the compensation committee increased the base salaries of the named executive officers to the amounts necessary to set their 2020 base salaries at approximately the 50th percentile of the competitive market data.

Named Executive Officer

 

2020 Base

Salary

 

 

Percentage

Increase

in Base

Salary from

December 31,

2019

 

Victor Perlroth, M.D.

 

$

631,000

 

 

 

15

%

John A. Borgeson

 

$

441,000

 

 

 

8

%

Jason Ehrlich, M.D., Ph.D.

 

$

469,000

 

 

 

3

%

 

 

Annual Bonuses

In early 2020, our compensation committee approved our annual bonus program for 2020. The 2020 annual bonus each named executive officer was eligible to receive was based on the individual’s target bonus, calculated as a percentage of base salary, or target bonus percentage, and the extent to which we achieved the corporate objectives that our board of directors established for the year. There is no specified minimum or maximum bonus percentage or amount established for the named executive officers.

29


Specifically, the compensation committee determined that the 2020 target bonus percentage should remain at the same levels as 2019 for all named executive officers other than Dr. Perlroth (i.e., 40% for Mr. Borgeson and Dr. Ehrlich). The compensation committee’s decision regarding 2020 target bonus percentages was based on its assessment that the target bonus percentages previously established were appropriate and continued to align us competitively with our 2020 peer group. A review of a competitive market analysis prepared by Compensia indicated that with a target bonus percentage of 55%, Dr. Perlroth’s target total cash compensation fell below the 50th percentile of the competitive market data. In order to better align his target total cash compensation with those of the chief executive officers of the companies in our 2020 peer group and in recognition of his greater role in determining the course of, and ability to influence the future of the Company, as well as the critical importance of his leadership to the Company’s achievement of its 2020 business and financial objectives, the compensation committee approved an increase to Dr. Perlroth’s 2020 target bonus percentage to 60%.

In connection with establishing the 2020 annual bonus program, the compensation committee approved the corporate goals identified in the table below. In selecting these goals, the compensation committee believed that they were appropriate drivers for our business, as they supported KSI-301 clinical development and advanced our research and discovery pipeline, all while maintaining a solid financial position, which together, would enhance stockholder value. At the time the 2020 corporate goals were set, the compensation committee and management believed that such goals were challenging and achieving them would require not only continued strong research and product development success, as well as prudent fiscal and legal management, but also a high level of effort and execution on the part of our named executive officers.

The compensation committee also applied a performance weighting to each goal relative to the overall performance of the Company to reflect the prioritization of key business objectives in the table below. No specific individual objectives were established for any of our named executive officers for 2020, so our named executive officers’ bonuses were entirely dependent on the achievement of our corporate goals.

During 2020, management reported regularly to the compensation committee on the status of our performance against these goals and in early 2021, the compensation committee evaluated our performance in relation to the 2020 goals. After consideration of such performance, the compensation committee concluded that 2020 was a year of meaningful accomplishments during which the Company largely exceeded each of the goals, as further described in the table below. The table below describes each corporate goal as well as the achievements related to each goal.

 

Corporate Goal

2020 Achievements

Weighting

Advance KSI-301 clinical studies across retinal vascular disease indications

 

 

   Completed enrollment of DAZZLE Phase 2b/3 Pivotal Study of KSI-301 in Patients with Wet Age-Related Macular Degeneration.

   Initiated and randomized first patients in paired Phase 3 DME studies (GLEAM and GLIMMER) and Phase 3 RVO study (BEACON).

   Successful follow-up and reporting on Phase 1b clinical trials for KSI-301

Rating: Exceeded goal

45%

Advance KSI-301 CMC roadmap for BLA filing

 

   Successfully completed manufacturing runs of KSI-301 for clinical supply in support of multiple Phase 3 trials.                                                

   Advanced KSI-301 commercial supply planning including negotiating a long-term agreement with Lonza for manufacture of KSI-301.                                              

Rating: Exceeded goal

15%

Advance KSI-501 development candidate

 

The cGMP master cell bank for KSI-501 has been completed, and KSI-501 is being further advanced towards clinical development.

Rating: Exceeded goal

10%

30


Advance triplet inhibitor development candidate

 

Advanced research of monoclonal antibodies and small molecule inhibitors for triplet inhibitor development candidates.

Rating: Exceeded goal

5%

Build team to support accelerating research and development clinical and pre-commercial activities

Successfully onboarded over thirty new hires with a focus on key functional areas of clinical development, manufacturing, and discovery medicine, including eight new hires with a Ph.D.

Rating: Exceeded goal

20%

   Manage cash in a manner consistent with our strategy.

   Kodiak ended 2020 with $969.0 million of cash, cash equivalents and marketable securities, including the $612.0 million net proceeds from our November 2020 financing.

   Rating: Exceeded goal

5%

Based on our performance relative to the 2020 corporate goals, the compensation committee awarded each of our named executive officers an annual bonus equal to 150% of his target bonus opportunity for 2020, as shown in the table below:

 

Named Executive Officer

 

2020 Target

Bonus(1)

 

 

2020 Actual

Bonus

 

Victor Perlroth, M.D.

 

$

340,758

 

 

$

511,137

 

John A. Borgeson

 

$

170,234

 

 

$

255,351

 

Jason Ehrlich, M.D., Ph.D.

 

$

184,895

 

 

$

277,342

 

 

(1)

These amounts are based on actual base salaries paid during 2020, which reflect the mid-year adjustments to the named executive officers’ respective base salaries.

Equity-Based Incentive Awards

We have historically granted equity compensation to our named executive officers primarily in the form of stock options. The compensation committee believes that stock options are a key tool in serving to align the interests of our named executive officers and our stockholders; stock options are inherently performance based, and automatically link executive pay to stockholder return, as the value realized, if any, by the executive officer from an award of stock options, is dependent upon, and directly proportionate to, appreciation in stock price. Named executive officers will only receive value from the stock option awards if the price of our common stock increases above the price at time of grant and remains above as the stock options continue to vest. Stock options also do not have downside protection, and the awards will not provide value to the holder when the stock price is below the exercise price.

In late 2019, our compensation committee determined that it was advisable to add RSUs to our equity award mix to align with peer company practices. In addition to aligning with market practice, we believe that it improves the balance and risk profile of our executive compensation program to include a form of award that does not rely solely on stock price appreciation in order to provide value.

The equity mix for each named executive officer took into consideration both peer practices and competitive market data, as well as, in the case of Dr. Perlroth, his ability to impact the achievement of key corporate objectives in his position as Chief Executive Officer relative to the rest of the named executive officers. For the 2020 annual equity grant to Dr. Perlroth, the compensation committee decided to deliver 100% of the value of his annual equity award in the form of a stock option and for our named executive officers other than Dr. Perlroth, the compensation committee decided to deliver approximately 65% of the value of each named executive officer’s equity award in the form of stock options and 35% of the value in the form of RSUs.  

31


When determining the appropriate value of equity awards, the compensation committee requested Compensia to provide guidance with respect to implementing a program that would incentivize our named executive officers to drive toward the achievement of key Company priorities and increase stockholder value over the long-term, while maintaining competitive market practices and being mindful of the Company’s equity burn rate. In determining the appropriate amount of each award, the compensation committee considered market data provided by Compensia at the 50th, 60th and 75th percentile levels, reflecting both equity value, based on the approximate grant date fair value, and percentage of our Company delivered annually, based on the number of shares subject to the award as a percentage of total Company shares outstanding. The compensation committee also considered each named executive officer’s current equity holdings, the extent to which such holdings were “in-the-money,” the extent to which such holdings remained unvested and therefore continued to serve as a retention tool, as well as the potential dilution of our share reserves.

Taking these factors into consideration and applying Compensia’s market analysis of long-term incentive compensation of our named executive officers compared to our 2020 peer group, the compensation committee determined that the value of the aggregate equity awards granted to each of our named executive officers should be at approximately the 60th percentile of our 2020 peer group and approved the grants to the named executive officers summarized in the table below. The stock options granted in 2020 vest monthly over a four-year period and the RSUs vest in four equal annual installments, in each case subject to the named executive officer’s continued service with us through the applicable vesting date. The number of shares of our common stock subject to the stock option and RSU awards granted to each named executive officer is reflected in the table below.

 

Named Executive Officer

 

2020 Stock

Option Grant

(# of shares)

 

 

2020 RSU

Grant

(# of shares)

 

Victor Perlroth, M.D.

 

 

247,498

 

 

 

 

John A. Borgeson

 

 

46,163

 

 

 

14,476

 

Jason Ehrlich, M.D., Ph.D.

 

 

46,163

 

 

 

14,476

 

 

Performance Option Awards

In February 2021, the compensation committee approved a special performance-based stock option grant for our named executive officers as a result of the Company’s extraordinary performance in fiscal year 2020. These performance-based options are linked to metrics that are aligned with our corporate strategy and which are designed to build value for our stockholders. Specifically, the linked metrics are focused on performance towards completion of our KSI-301 clinical development. The options will vest over four years if, and only if, the enrollment of the last patient in both of the DME pivotal trials, GLEAM and GLIMMER occurs before December 31, 2022.

Pursuant to FASB ASC Topic 718, these performance equity awards will be reported in their year of grant, i.e. 2021, even though the award relates to service performed within the prior 2020 fiscal year.

 

Named Executive Officer

 

Performance

Stock Option

Grant (#

of shares)

 

Victor Perlroth, M.D.

 

 

60,000

 

John A. Borgeson

 

 

15,000

 

Jason Ehrlich, M.D., Ph.D.

 

 

15,000

 

 

The compensation committee regularly considers, and requests guidance about, various ways to design equity compensation programs to incentivize our named executive officers to drive toward the achievement of key Company priorities and increase stockholder value over the long-term, including in light of evolving market practices. The compensation committee will continue to evaluate and, if appropriate, make changes to our executive compensation program to ensure that the program is appropriate for our stage of development and opportunity and that the program continues to reflect strong pay-for-performance objectives.

32


Timing of Equity Awards

Annual grants of equity awards to our named executive officers, are generally determined and approved at compensation committee meetings, with such meeting date typically serving as the grant date. However, the compensation committee may sometimes approve the grant of equity awards to our named executive officers and other employees in advance of its next scheduled meeting, either at a special meeting or by unanimous written consent, in connection with certain new hires, promotions and other circumstances where the compensation committee deems it appropriate to make such grants. The grant dates for these equity awards are typically the same date that a newly hired officer begins employment or the effective date of an officer’s promotion, as applicable. All stock options are granted with an exercise price that is not less than the closing price of our common stock on the grant date. We have no plan or practice to time option grants in coordination with the release of non-public information, and we do not time the release of non-public information to affect the value of executive compensation.

Other Features of Our Executive Compensation Program

Employment Agreements with Our Named Executive Officers

We entered into employment agreements with each of our named executive officers upon their initial commencement of employment with us. Each of our named executive officers is employed at will and may be terminated at any time for any reason. All of our named executive officers are eligible for severance and change in control payments and benefits pursuant to the terms of their respective employment agreements, the terms of which are described below under “Severance and Change in Control Payments and Benefits” and “Potential Payments upon Termination or Change in Control.”

Severance and Change in Control Payments and Benefits

The employment agreements with our named executive officers provide for certain severance payments and benefits (cash payments, payments for benefits continuation and equity acceleration) upon a termination of employment without cause or resignation for good reason, either alone or within the three months prior to or 24 months following a corporate transaction. We do not provide any excise or other tax reimbursement (including “gross up”) payments in connection with severance or change in control transactions. Our compensation committee periodically reviews the severance payments and benefits that we provide, including by reference to market data, to ensure that the payments and benefits remain appropriately structured and at reasonable levels. The compensation committee believes that that severance protection benefits are necessary to provide stability among our named executive officers, serve to focus our named executive officers on our business operations, and avoid distractions in connection with a potential change in control transaction or period of uncertainty. A more detailed description of the severance payments and benefits for each of our named executive officers is provided below under “Potential Payments upon Termination or Change in Control.”

Regardless of the manner in which a named executive officer’s service terminates, the named executive officer is entitled to receive amounts earned during his term of service, including base salary earned and unused vacation pay.

401(k)Plan and Health Benefits

We maintain a Section 401(k) retirement plan that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees, including our named executive officers, are able to defer eligible compensation subject to applicable annual limits under the Internal Revenue Code of 1986, as amended (the “Code”). All participants’ interests in their deferrals are 100% vested when contributed. In 2019, we amended the Section 401(k) Plan to provide employer matching contributions of 100% of employee contributions up to a maximum of 50% of the individual maximum contribution limit allowed under the Internal Revenue Service rules. Company matching contributions for the Section 401(k) plan became effective January 1, 2019. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The Section 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, contributions to the Section 401(k) plan and earnings on those contributions are generally not taxable to the employees until distributed from the Section 401(k) plan, and all contributions are deductible by us when made. The Section 401(k) plan also permits contributions to be made on a post-tax basis for those employees participating in the Roth 401(k) plan component.

33


In addition, we provide other benefits to our named executive officers, on the same basis as to all of our full-time employees. These benefits include, but are not limited to, medical, dental, vision, group life, disability and accidental death and dismemberment insurance plans.

Perquisites and Other Personal Benefits

We generally do not offer perquisites or personal benefits to our named executive officer, although we may from time to time provide reasonable relocation, signing bonuses, retention bonuses, or other benefits to our named executive officers as our compensation committee determines appropriate. In 2020, we paid Dr. Ehrlich a monthly housing and travel allowance pursuant to the terms of his employment agreement, as reported in the “2020 Summary Compensation Table.” The Company determined that such benefits were reasonable and necessary in order to induce Dr. Ehrlich to join our Company and they will cease in September 2021.

Accounting and Tax Considerations

Under Financial Accounting Standard Board ASC Topic 718, or ASC 718, the Company is required to estimate and record an expense for each award of equity compensation over the vesting period of the award. We record share-based compensation expense on an ongoing basis according to ASC 718.

Under Section 162(m) of the Code (“Section 162(m)”), compensation paid to each of the Company’s “covered employees” that exceeds $1 million per taxable year is generally non-deductible unless the compensation qualifies for (i) certain grandfathered exceptions (including the “performance-based compensation” exception) for certain compensation paid pursuant to a written binding contract in effect on November 2, 2017 and not materially modified on or after such date or (ii) the reliance period exception for certain compensation paid by corporations that became publicly held on or before December 20, 2019.

Although the compensation committee will continue to consider tax implications as one factor in determining executive compensation, the compensation committee also looks at other factors in making its decisions and retains the flexibility to provide compensation for the Company’s named executive officers in a manner consistent with the goals of our Company’s executive compensation program and the best interests of the Company and its stockholders, which may include providing for compensation that is not deductible by the Company due to the deduction limit under Section 162(m). The compensation committee also retains the flexibility to modify compensation that was initially intended to be exempt from the deduction limit under Section 162(m) if it determines that such modifications are consistent with the Company’s business needs.

Clawback

As a public company, if we are required to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws as a result of misconduct, the Chief Executive Officer and Chief Financial Officer may be legally required to reimburse our Company for any bonus or other incentive-based or equity-based compensation they receive in accordance with the provisions of section 304 of the Sarbanes-Oxley Act of 2002. Additionally, we intend to implement a Dodd-Frank Wall Street Reform and Consumer Protection Act-compliant clawback policy as soon as, and to the extent that, the requirements of such clawbacks are finalized by the SEC.

34


Risk Assessment Concerning Compensation Practices and Policies

With the assistance of the compensation committee’s compensation consultant and the Company’s outside legal counsel, in April 2021, the compensation committee reviewed the Company’s compensation policies and practices to assess whether they encourage employees to take excessive or inappropriate risks. After reviewing and assessing the Company’s compensation philosophy, policies and practices, including the mix of fixed and variable, short and long-term incentives and overall compensation, incentive plan structures, and risk mitigation features, and oversight of, each plan and arrangement, the compensation committee determined that any risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our Company as a whole. The compensation committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive or inappropriate risks; the mix of short-term compensation (in the form of base salary and annual bonus, if any, which is based on the achievement of multiple performance goals), and long-term compensation (in the form of stock options and RSUs) prevents undue focus on short-term results and helps align the interests of the Company’s named executive officers with the interests of our stockholders. In addition, the Company’s insider trading policy and prohibition against hedging and pledging in the Company’s equity securities helps protect against short-term decision making.

2020 Summary Compensation Table

The following table provides information regarding the compensation of our named executive officers during 2020, 2019 and 2018.

 

Name and Position

 

Year

 

Salary

 

 

Bonus(1)

 

 

Stock

Awards(2)

 

 

Option

Awards(2)(7)

 

 

Non-Equity

Incentive Plan

Compensation(3)

 

 

All Other

Compensation

 

 

Total

 

Victor Perlroth, M.D(4)

 

2020

 

$

590,500

 

 

$

 

 

$

 

 

$

7,830,564

 

 

$

511,137

 

 

$

10,560

 

 

$

8,942,761

 

Chief Executive Officer and Chairman of the Board

 

2019

 

 

525,659

 

 

 

 

 

 

 

 

 

16,714,242

 

 

 

392,606

 

 

 

9,500

 

 

 

17,642,007

 

 

 

2018

 

 

427,536

 

 

 

300,000

 

 

 

 

 

 

5,169,207

 

 

 

 

 

 

 

 

 

5,896,743

 

John A. Borgeson(5)

 

2020

 

 

425,500

 

 

 

 

 

783,441

 

 

 

1,460,547

 

 

 

255,351

 

 

 

11,768

 

 

 

2,936,607

 

Senior Vice President and Chief Financial Officer

 

2019

 

 

401,500

 

 

 

 

 

 

889,471

 

 

 

4,697,833

 

 

 

224,879

 

 

 

9,500

 

 

 

6,223,183

 

 

 

2018

 

 

327,218

 

 

 

180,000

 

 

 

 

 

 

1,605,320

 

 

 

 

 

 

 

 

 

2,112,538

 

Jason Ehrlich, M.D., Ph.D.(6)

 

2020

 

 

462,200

 

 

 

 

 

783,441

 

 

 

1,460,547

 

 

 

277,342

 

 

 

72,717

 

 

 

3,056,247

 

Chief Medical Officer and Chief Development Officer

 

2019

 

 

447,700

 

 

 

 

 

 

852,716

 

 

 

6,085,991

 

 

 

250,747

 

 

 

79,011

 

 

 

7,716,165

 

 

 

2018

 

 

146,667

 

 

 

290,000

 

 

 

594,000

 

 

 

2,696,297

 

 

 

 

 

 

18,323

 

 

 

3,745,287

 

 

(1)

For 2018, the amounts in this column represent cash bonuses awarded for Company performance, but which were paid in the subsequent year, and for Dr. Ehrlich, the amount in this column also includes the cash retention bonus described in (6) below.

(2)

The dollar amounts in this column represent the aggregate grant date fair value of RSU awards and stock option awards granted in 2020, 2019 and 2018, respectively, and do not necessarily represent the actual value that may be realized by the named executive officers. These amounts have been computed in accordance with FASB ASC Topic 718. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of valuation assumptions, see Note 11 to our Consolidated Financial Statements included in our Annual Report on Form 10-K. See Equity Awards section below for further details.

(3)

Amounts for 2020 and 2019 represent cash bonuses earned in that year and paid in the subsequent year based on achievement of performance goals and other factors deemed relevant by our Board and compensation committee.

(4)

“All Other Compensation” for Dr. Perlroth includes matching of contributions made under the Company’s Section 401(k) plan as well as term life insurance premiums paid by us on behalf of the named executive officers. All of these benefits are provided to the named executive officers on the same terms as provided to all of our regular full-time employees.

(5)

“All Other Compensation” for Mr. Borgeson includes matching of contributions made under the Company’s Section 401(k) plan as well as term life insurance premiums.

35


(6)

"Bonus" for Dr. Ehrlich in 2018 also consists of (a) a $90,000 cash bonus described in (1) above and (b) a $200,000 cash retention bonus, which will be repayable by him on a pro-rated basis if his employment is terminated by us for "cause" or by him without “good reason" (as such terms are defined in his amended employment agreement) before the second anniversary of the effective date of his original employment agreement. For 2020 and 2019, “All Other Compensation for Dr. Ehrlich includes matching of contributions made under the Company’s Section 401(k) plan, term life insurance premiums and amounts paid to Dr. Ehrlich relating to his housing and travel allowance. For 2018, “All Other Compensation” for Dr. Ehrlich represents amounts paid to Dr. Ehrlich relating to his housing and travel allowance.

(7)

In February 2021, the compensation committee approved a special performance-based stock option grant for our named executive officers as a result of the Company’s extraordinary performance in fiscal year 2020. Pursuant to FASB ASC Topic 718, these performance equity awards granted in 2021 will be reported in their year of grant, i.e. 2021, even though the award relates to service performed within the prior 2020 fiscal year. The aggregate grant fair value of the special performance-based stock option grant to our named executive officers is $4,644,600 for Dr. Perlroth, $1,161,150 for Mr. Borgeson, and $1,161,150 for Dr. Ehrlich.

2020 Grants of Plan-Based Awards

The following table provides information regarding the grants of plan-based awards to our named executive officers for the year ended December 31, 2020.

 

Name

 

Grant

Date

 

Estimated

Future

Payouts

Under

Non-

Equity

Incentive

Plan

Awards(1)

Target ($)

 

 

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)(2)

 

 

All Other

Stock

Awards:

Number of

Shares of

Stock or

Units

(#)(3)

 

 

Exercise

or Base

Price of

Option

Awards

($/Share)

 

 

Grant

Date Fair

Value of

Stock and

Option

Awards (4)

 

Victor Perlroth, M.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity grants

 

6/30/2020

 

 

 

 

 

 

247,498

 

 

 

 

 

$

54.12

 

 

$

7,830,564

 

Annual bonus

 

 

 

 

340,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John Borgeson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option grants

 

6/30/2020

 

 

 

 

 

 

46,163

 

 

 

 

 

 

 

54.12

 

 

 

1,460,547

 

RSU awards

 

 

 

 

 

 

 

 

 

 

 

 

14,476

 

 

 

 

 

 

 

783,441

 

Annual bonus

 

 

 

 

170,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jason Ehrlich, M.D., Ph.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option grants

 

6/30/2020

 

 

 

 

 

 

46,163

 

 

 

 

 

 

$

54.12

 

 

$

1,460,547

 

RSU awards

 

 

 

 

 

 

 

 

 

 

 

 

14,476

 

 

 

 

 

 

$

783,441

 

Annual bonus

 

 

 

 

184,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts shown reflect the target cash incentive award for our named executive officers, which are disclosed in the “2020 Executive Compensation Program Annual Bonuses” section of the Compensation Discussion and Analysis. The actual amounts paid for 2020 are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. There were no threshold or maximum payout levels for the cash incentive compensation.

(2)

All stock option awards were granted under the 2018 Plan and expire ten years from the date of grant or earlier upon termination of service. The option will vest as to 1/48th of the original number of shares subject to the option on each monthly anniversary of the grant date. Vesting is subject to acceleration as described under the caption “Potential Payments Upon Termination or Change in Control” below.

(3)

All RSU awards were granted under the 2018 Plan. The RSU award will vest as to 1/4th of the shares subject to the RSU award on June 15, 2021 and thereafter as to 1/4th of the original number of shares subject to the RSU award on each succeeding June 15th thereafter until fully vested. Vested shares will be delivered to the named executive officer on the vesting date, provided that delivery may be delayed pursuant to the terms of the award agreement. Vesting is subject to acceleration as described under the caption “Potential Payments Upon Termination or Change in Control” below.

(4)

Amounts shown in this column do not reflect compensation actually received or amounts that may be realized in the future by the named executive officers. The amounts shown in this column reflect the aggregate grant date fair value in

36


fiscal year 2020 for the option award or the RSU award as computed in accordance with FASB ASC 718. The assumptions used to calculate the value of the option awards and the RSU awards are set forth in Note 11 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 1, 2021. There can be no assurance that the stock option award will ever be exercised (in which case no value will actually be realized by the executive) or that the value on exercise will be equal to the FASB ASC 718 value shown in this column.

2020 Outstanding Equity Awards at Fiscal Year-End

The following table presents information concerning equity awards held by our named executive officers as of December 31, 2020.

 

 

 

Option Awards

 

 

Stock Awards

 

 

 

 

 

Number of Securities

Underlying Option (#)

 

 

 

 

 

 

 

 

 

 

 

Number

of Shares

or Units

of Stock

 

 

 

Market

Value of

Share or

Units of

Stock That

 

Name

 

Vesting

Commencement

Date

 

Exercisable

(#)

 

 

Unexercisable

(#)

 

 

 

Option

Exercise

Price ($)

 

 

Option

Expiration

Date

 

 

That Have

Not

Vested (#)

 

 

 

Have Not

Vested

($)(8)

 

Victor Perlroth, M.D.

 

6/30/2020

 

 

30,937

 

 

 

216,561

 

(3)(4)

 

 

54.12

 

 

6/29/2030