Avigen 10-K 2009
Documents found in this filing:
Amendment No. 1
For the fiscal year ended December 31, 2008
For the transition period from __________ to ___________
Commission file number 0-28272
1301 Harbor Bay Parkway
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2008, was approximately $85,900,000 based upon the closing sale price of the registrants Common Stock as reported on the NASDAQ Global Market on such date. Shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates of the registrant. Shares held by all other stockholders have not been excluded, as no other stockholder held a percentage of the registrants outstanding Common Stock that the registrant believes is necessary to exercise control over the registrant, nor has any other stockholder otherwise exhibited any ability to exercise control over the registrant.
The number of outstanding shares of the registrants Common Stock as of March 6, 2009, was 29,769,115 shares.
Portions of the registrants definitive Proxy Statement for the Special Meeting of Stockholders filed with the Securities and Exchange Commission pursuant to Regulation 14A on March 9, 2009, are incorporated by reference in Part III, Items 10-14 of this Form 10-K.
We are filing this amendment to our Annual Report on Form 10-K, originally filed with the Securities and Exchange Commission on March 16, 2009, solely for the purpose of amending and supplementing Part III of the Annual Report on Form 10-K. This amendment changes our Annual Report only by including information required by Part III (Items 10, 11, 12, 13 and 14). In addition, we are also including Exhibits 31.1 and 31.2 required by the filing of this amendment.
The information required by this Item with respect to Executive Officers as of April 28, 2009 is as follows:
All of our officers are elected annually by the Board of Directors. There is no family relationship between or among any of the officers or directors.
Andrew A. Sauter was appointed our Chief Executive Officer and President in March 2009, and as our Chief Financial Officer in February 2008 after having served as Vice President, Finance since January 2006. Mr. Sauter joined Avigen as Controller in November 1999. Mr. Sauter oversees the entire operations of the company, including the proposed dissolution of the company and sale of Avigens assets, as well as the financial reporting obligations of Avigen and its information technology needs. From 1992 to 1999, Mr. Sauter worked for BankAmerica Corporation in a variety of positions, including most recently as a vice president in the Capital Markets Finance organization. From 1989 to 1992, he worked for Ernst & Young LLP. Mr. Sauter is a certified public accountant and holds a B.A. degree in economics from Claremont McKenna College.
Kirk Johnson, Ph.D., was appointed Vice President, Research and Development in December 2006, and Secretary in March 2009. Dr. Johnson joined Avigen in January 2004 and was appointed Vice President, Preclinical Development in June 2004. Prior to joining Avigen, Dr. Johnson was Senior Director, Pharmacology & Preclinical Development and a member of the executive management team of Genesoft Pharmaceuticals, a pharmaceutical company, from 2001 to 2004. From 1991 to 2001, Dr. Johnson was employed in both protein and small molecule therapeutic research and development at Chiron Corporation, a biopharmaceutical company, and eventually served as Director, Pharmacology and Preclinical Research. Dr. Johnson was involved in leading IND-enabling programs, supporting clinical development, and contributing to successful IND and NDA filings at Chiron and Genesoft. In addition to general pharmacology and other preclinical development responsibilities, he has led research and clinical development projects for diverse indications including neuropathic pain, hemophilia, antibacterials, diabetes, obesity, acute inflammation and cardiovascular disease and has published more than 50 manuscripts and holds 4 U.S. patents. Dr. Johnson earned a B.S. in toxicology from U.C. Davis, and a Ph.D. in pharmacology and toxicology from the Medical College of Virginia. He completed postdoctoral fellowships studying the mechanism of action of IL-2 from 1986-1989 with Dr. Kendall Smith at Dartmouth College and from 1990-1991 with Dr. Marian Koshland at the University of California, Berkeley.
The information required by this Item with respect to Directors, including information with respect to our audit committee, audit committee financial experts and procedures for Board nominations, is incorporated herein by reference from the information under the captions, Current Directors of Avigen, Inc. and Information Regarding the Board of Directors and Corporate Governance appearing in the definitive Proxy Statement delivered to Avigens stockholders in connection with the solicitation of proxies for Avigens Special Meeting of Stockholders (the Proxy Statement).
Section 16(a) Beneficial Ownership Reporting Compliance
The information required by this Item with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from the section captioned Section 16(a) Beneficial Ownership Reporting Compliance contained in the Proxy Statement.
Code of Business Conduct and Ethics
The information required by this Item with respect to our code of ethics is incorporated herein by reference from the section captioned Information Regarding the Board of Directors and Corporate Governance Code of Business Conduct and Ethics contained in the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item, except for the Compensation Committee Report, Compensation Discussion and Analysis, and Summary Compensation Table, each of which is set forth below, is set forth in the Proxy Statement under the captions, Executive Compensation, Compensation Committee, Compensation Committee Processes and Procedures and Compensation Committee Interlocks and Insider Participation. Such information is incorporated herein by reference.
Compensation Committee Report1
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Annual Report on Form 10-K/A for the fiscal year ended 2008. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K/A for the fiscal year ended 2008.
K. A. PRENDERGAST, PH.D. (CHAIR)
COMPENSATION DISCUSSION AND ANALYSIS
Our compensation approach is designed to reward the achievement of corporate objectives and individual performances that contribute toward building a sustainable business that develops differentiated products to improve the health and quality of life of patients and creates value for our stockholders. To this end, the Board of Directors and management establish annual and long-term corporate goals that reflect the priorities of our product and business development plans. Our Board of Directors and management review these goals on a regular basis and our Compensation Committee (the Committee) uses these objectives to determine levels of compensation for executive officers to ensure management incentives are aligned with the interests of stockholders.
Avigens compensation practice is designed to provide remuneration packages that are commensurate with the marketplace in which we compete to attract and motivate our executive officers, management and staff to achieve our strategic objectives. Specifically, we review base salaries annually and, along with a comprehensive array of medical, health, life insurance and disability plans generally available to all our employees, set salaries at levels that are intended to attract, engage and retain executive officers whose abilities are critical to our long-term success and competitiveness. We vary bonus payments annually based on a performance structure designed to reward results and balance individual accountability with team-oriented collaboration that fosters integrity and a high-performance culture. Historically, we also issue equity-based compensation annually in varying amounts that are intended to represent a significant portion of each executives total compensation package because we believe it promotes innovation and calculated assessment and management of risk designed to achieve Avigens long-term objectives.
Drug development is slow, costly and associated with a high failure rate. Therefore, successful drug development can extend over many years and requires our executives to employ their judgment in developing long-term operating plans that:
The Committee believes that in determining compensation, management performance should be evaluated against specific strategic objectives that create shareholder value. Complete achievement of these strategic objectives may extend beyond a given compensation period; therefore, the Committee must use its discretionary judgment based on the experience and knowledge within the industry of its members, in assessing the quality of managements performance within an established framework of general parameters for annual compensation.
The Committee draws on a number of reference sources to assist in the evaluation of the various components of executive compensation. One source is industry data compiled in the Radford Biotechnology Survey which represents a nationally-based assessment of executive compensation widely used within the pharmaceutical and biotechnology industry sectors. The Committee generally focuses on regional data from companies in the San Francisco Bay Area and targets compensation levels that fall within the 50th and 70th percentiles reported for comparable positions based on the Committees subjective determination as to the appropriate range to attract and retain our executives given the size of our company. In addition, the Committee examines performance compensation packages of a number of selected companies that develop products for similar neurological indications or that are at a similar employee size and development stage. In 2007, this group consisted of Acorda Therapeutics, Inc., XenoPort, Inc., Renovis, Inc., Pain Therapeutics, and Palatin Technologies, Inc., however, in 2008, given the companys immediate efforts to preserve cash in response to the termination of the AV650 program, the Committee, with the support of management, determined not to take any immediate actions on compensation for fiscal 2008, and so the Committee did not conduct a competitive analysis of compensation packages from other companies.
To establish the relationship between executive compensation and the creation of stockholder value, the Committee subjectively evaluates the success of the management team as a whole and each individual executives performance in contributing to achieving the companys strategic objectives. The Committee applies its assessment within the framework of our compensation program which defines a discretionary range in which to determine individual compensation adjustments for each executive officer. Our compensation program consists of three principal components: salary, short-term incentive compensation consisting of incentive bonus payments, and long-term incentive compensation consisting of equity grants. Each year, the Committee reviews executive officer compensation using summary tally sheets that show for each of the executive officers the following: (a) summary of total compensation; (b) each element of current compensation; and (c) cumulative amount of all previously issued equity awards.
Base Salary. The Committee reviews each executives base salary annually. Among the factors taken into consideration are (1) individual performance, (2) corporate performance measured against strategic objectives, (3) levels of responsibility, (4) prior experience, (5) breadth of knowledge of the industry, and (6) competitive pay practices examined from industry source material discussed above. The Committee does not assign any specific weighting to these various factors when determining base salary.
Incentive Bonus. The Committee sets target incentive levels annually for each executive officer in consultation and discussion with our chief executive officer, other than for his own target incentive level. Ordinarily, the Committee considers industry data compiled by Radford and determines the appropriate level of target incentive bonus award for our chief executive officer and for our other executive officers as a percentage of their respective base salaries based on the Committees subjective determination as to the appropriate range to attract and retain our executive officers given the size of the company, assigning the actual percentage within this range based upon the level of each executive officers responsibility and experience. The Committee determines actual bonus payments based on subjective assessments of the performance of management and individual officers in achieving the companys strategic objectives, applied to these target incentive levels. As a function of this process, the Committee met several times throughout the year with Dr. Chahine to review the status of the management teams individual contributions. The 2008 strategic objectives against which corporate performance was intended to be measured are discussed below under 2008 Performance.
The Committee establishes the companys strategic objectives in discussions with our chief executive officer at the beginning of the compensation period to ensure that its performance evaluations at the end of the compensation period reflect the strategic priorities of the company to create value for our stockholders. Ordinarily, our chief executive officer reviews the performance of the company and of each executive officer, other than his own, with the Committee at the end of the compensation period and makes recommendations to the Committee for its review and final determination.
Equity Incentives. The Committee is responsible for making stock option grants under Avigens 2006 Equity Incentive Plan (the 2006 Plan), and believes that long-term stockholder value is best achieved through an ownership culture among all our employees, particularly our executives, through grants of stock-based awards.
The Committee grants stock-based awards under the 2006 Plan with multi-year vesting periods designed as incentives to retain key employees to continue in the employ of Avigen. Through option grants, executives receive significant equity incentives to build long-term stockholder value. The exercise price of options granted under the 2006 Plan is 100% of fair market value of the underlying stock on the date of grant. Employees receive value from these grants only if Avigens common stock appreciates over the long-term. The size of option grants is determined based primarily on Avigens philosophy of significantly linking executive compensation with stockholder interests, the individual criteria set forth below, and the Committees use of industry sources in order to be knowledgeable of compensation practices for companies of a similar size and development stage in the biotechnology and pharmaceutical industries. Historically, the Committee does not target any specific level as compared to industry average in determining stock option grants.
Change in Control Arrangements. The Board of Directors, upon the recommendation of the Committee, established a Management Transition Plan (Transition Plan) in 1998, which was amended in March 2005 and again in October 2008. The Transition Plan is intended to retain key employees and enable executive officers to represent stockholder interests during periods involving a possible change in control of Avigen, and to provide severance benefits in the event of termination of employment without cause. The Transition Plan is designed to protect the earned benefits of key employees, including executive officers, against adverse changes that may result from a change in control of Avigen or termination without cause. The level of payments provided under the agreement for executives reflects the Committees subjective view, based upon its experience, of comparable benefits offered to executives under change of control arrangements at other companies within the industry in a similar development stage. Each of our named executive officers are participants in the plan and will receive the following benefits if their employment is involuntarily terminated, or they resign as a result of a constructive termination, as defined under the Plan:
In October 2008, the Board amended the Transition Plan to comply with certain changes in federal tax regulations that were required to be made before December 31, 2008, and at the same time, the Committee reviewed benefit levels offered by other companies within the industry similar to Avigen. Based on this review, the Committee adjusted the benefits included in the Transition Plan by adding an additional three months of severance benefits for each executive officer and extending those benefits to circumstances in which an executive officer was terminated without cause. The amendments were adopted to make the Transition Plan comparable to benefits offered by companies similar to Avigen, as without this security, we were at risk of losing executive talent necessary to preserve the value of the companys assets.
In March 2009, Avigens Board announced its intention to develop a plan to maximize Avigens liquidation value. The Board determined that Avigen no longer needed to retain the services of a majority of its employees, including three executive officers, Dr. Chahine, Mr. Coffee and Ms. Thomson, and reduced Avigens headcount accordingly. As a result of these actions, Dr. Chahine, Mr. Coffee and Ms. Thomson were terminated without cause, triggering their respective benefits under the Transition Plan.
At the beginning of the year, the Committee determined to base its assessment of Avigens overall performance for the fiscal year ended December 31, 2008 on the following strategic objectives:
Historically, the Committee applies its discretion in determining a subjective evaluation of Avigens overall performance. For fiscal 2008, the Committee took into consideration the performance of management against all the 2008 strategic objectives, including the quality execution of the AV650 Phase II clinical trial, responsible management of finances, development progress of AV411, and the successful sale of Avigens early-stage AV513 program for $7 million, and authorized the accrual of $250,000 for bonus payments to executive officers. In April 2009, the Committee allocated the bonus pool to Avigens current and former executive officers.
Bonus payments for the year ended December 31, 2008 were determined for each individual executive officer based on target bonus payments that represented a percent of base salary between 35% and 45%. Target bonus payments were subsequently weighted so that the bonus payments received were based on the assessments of the achievement of corporate performance objectives as well as the subjective determination by the Committee of the executive officers achievement of individual performance objectives.
The Committee, with the support of management, has determined (given the current business environment) not to adjust base salaries for 2009, other than in connection with the promotion of Ms. Thomson to Vice President, General Counsel. Effective January 1, 2009. Ms. Thomsons base salary was increased to $267,931. The Committee has not yet finalized or determined the relative weighting of strategic objectives to be used as the basis for its evaluation of managements performance for fiscal 2009.
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended December 31, 2008, 2007 and 2006, compensation awarded to or paid to, or earned by, Avigens Chief Executive Officer, Chief Financial Officer and its three other most highly compensated executive officers at December 31, 2008 (the Named Executive Officers).
Summary Compensation Table
(1) In 2008, the Compensation Committee authorized the accrual of $250,000 for bonus payouts to executive officers for 2008. In April 2009, the Compensation Committee authorized bonus payments from that pool for the year ended December 31, 2008.
(2) The amounts shown in this column represent the dollar amounts recognized for financial statement reporting purposes for each fiscal year ended December 31, in accordance with FAS 123(R), excluding an estimate of forfeitures related to service-based vesting conditions, and thus include amounts from awards granted in and prior to 2008. Assumptions used in the calculation of these amounts are described in the notes to Avigens audited financial statements for the fiscal year ended December 31, 2008, which will be included in Avigens Annual Report on Form 10-K expected to be filed with the SEC on March 16, 2009. All grants were made subject to individual award agreements, the form of which was previously filed with the SEC.
(3) Except as otherwise indicated, represents insurance premiums paid by Avigen with respect to supplemental long-term care insurance for the benefit of the Named Executive Officer and up to $2,500 of matching contributions to Avigens 401(k) savings plan.
(4) Avigen terminated the employment of each of Dr. Chahine, Mr. Coffee and Ms. Thomson on March 26, 2009 without cause.
(5) On March 26, 2009, Avigen appointed Mr. Sauter as President and Chief Executive Officer, in addition to his remaining Chief Financial Officer.
(6) On March 26, 2009, Avigen appointed Dr. Johnson to be Secretary, in addition to his other functions.
The information required by this Item with respect to security ownership of certain beneficial owners and management is set forth in the Proxy Statement under the caption, Security Ownership of Certain Beneficial Owners and Management. Such information is incorporated herein by reference.
In November 2008, Biotechnology Fund, L.P. and certain of its affiliates (collectively, BVF), purchased approximately 29% of our outstanding shares of common stock. In January 2009, BVF gave notice to Avigen that it was calling a special meeting of our stockholders for the purpose of removing our entire Board of Directors, without cause, and replacing it with four nominees selected by BVF. Also in January 2009, BVF launched a tender offer to acquire the remaining outstanding shares of our common stock for $1.00 per share, contingent on BVF being successful in removing our entire Board of Directors, without cause, and replacing it with their four nominees, and the redemption of the preferred stock purchase rights under our shareholder rights agreement. On March 27, 2009, we held a special meeting of our stockholders where BVF failed to garner enough votes to remove our entire Board of Directors. As a result, BVFs nominees were not elected and BVF withdrew its tender offer.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information with respect to all of Avigens equity compensation plans in effect as of December 31, 2008:
(1) Our 2000 Equity Incentive Plan (the 2000 Plan) was adopted in 2000 without stockholder approval. The 2000 Plan was amended and restated as our 2006 Equity Incentive Plan (the 2006 Plan), which amendment and restatement was approved by our stockholders on May 31, 2006. The number of shares subject to options outstanding under plans not approved by our stockholders reflects options granted pursuant to the 2000 Plan prior to May 31, 2006, which number of shares is not reflected as outstanding under compensation plans approved by our stockholders.
(2) Reflects shares available for grant under our 2006 Plan.
2000 Equity Incentive Plan
Prior to the amendment and restatement of Avigens 2000 Equity Incentive Plan (the 2000 Plan) as the 2006 Equity Incentive Plan, the 2000 Plan provided for the grant of nonqualified stock options, stock bonuses and restricted stock purchase awards (collectively, stock awards). An aggregate of 5,000,000 shares of common stock had been reserved for issuance under the 2000 Plan. Stock awards could be granted under the 2000 Plan to employees (including officers), directors and consultants of Avigen and its affiliates; provided, however, that the aggregate number of shares issued pursuant to stock awards granted to officers and directors under the 2000 Plan could not exceed 40% of the number of shares reserved for issuance under the 2000 Plan, except that stock awards granted to officers prior to their employment by Avigen as an inducement to entering into employment contracts with Avigen were not included in the 40% limitation. The exercise price of options and restricted stock purchase awards could not be less than 85% of the fair market value of the stock on the date of grant. Stock bonuses could be awarded in consideration for past services actually rendered to Avigen or its affiliates.
Vesting. Stock awards granted under the 2000 Plan may become exercisable (in the case of options) or released from a repurchase option in favor of Avigen (in the case of stock bonuses and restricted stock purchase awards) in cumulative increments (vest) as determined by the Board. The Board has the power to accelerate the time during which stock awards may vest or be exercised. In addition, options granted under the 2000 Plan may permit exercise prior to vesting, but in such event the participant may be required to enter into an early exercise stock purchase agreement that allows Avigen to repurchase unvested shares, generally at their exercise price, should the participants service terminate before vesting.
Term. The term of options granted under the 2000 Plan was determined by the Board in its discretion. Options under the 2000 Plan generally terminate three months after termination of the participants service, subject to extension in certain circumstances.
Effect of Certain Corporate Events. The 2000 Plan provides that, in the event of a dissolution, liquidation or sale of substantially all of the assets of Avigen, specified type of merger, or other corporate reorganization (a change in control), any surviving corporation must either assume any stock awards outstanding under the 2000 Plan or substitute similar stock awards for those outstanding under the 2000 Plan, or else the outstanding stock awards will continue in full force and effect. In the event that any surviving corporation declines to assume or continue the stock awards outstanding under the 2000 Plan, or to substitute similar stock awards, then, with respect to stock awards held by persons then performing services as employees, directors, or consultants of Avigen, the vesting and the time during which these stock awards may be exercised will be accelerated in full.
The information required by this Item is set forth in the Proxy Statement under the headings Information Regarding the Board of Directors and Corporate Governance Independence of the Board of Directors and Related Person Transactions Policy and Procedures. Such information is incorporated herein by reference.
The following table is a summary of the fees billed to Avigen by Odenberg, Ullakko, Muranishi & Co. LLP (OUM) for the fiscal years ended December 31, 2008 and 2007 for professional services rendered as Avigens registered public accountant.
Audit Fees. Consists of fees for professional services rendered for the audit of Avigens annual financial statements and services that are normally provided by OUM in connection with regulatory filings or engagements.
Audit-Related Fees. During the fiscal years ended December 31, 2008 and 2007, no audit-related services were performed by OUM.
Tax Fees. Consists of fees for professional services for tax compliance, tax advice and tax planning by OUM for the tax years ended December 31, 2008 and 2007.
All Other Fees. During the fiscal years ended December 31, 2008 and 2007, there were no other fees for services rendered by OUM.
All fees described above were approved by the Audit Committee.
Pre-Approval Policies and Procedures
Avigens Audit Committee pre-approves all audit and permissible non-audit services provided by Avigens independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Prior to engaging Avigens independent registered public accounting firm to render an audit or permissible non-audit service, the Audit Committee specifically approves the engagement of Avigens independent registered public accounting firm to render that service. Accordingly, Avigen does not engage its independent registered public accounting firm to render audit or permissible non-audit services pursuant to pre-approval policies or procedures or otherwise, unless the engagement to provide such services has been approved by the Audit Committee in advance. As such, 100% of the services described in the categories above for which OUM was engaged were approved by the Audit Committee in advance of the rendering of those services. The Audit Committee has determined that the rendering of the services other than audit services by OUM is compatible with maintaining the registered public accounting firms independence, respectively.
Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for listing the non-audit services approved by our Audit Committee to be performed by OUM, our external auditor. Non-audit services are defined as services other than those provided in connection with an audit or a review of our financial statements. Our Audit Committee has approved our recurring engagements of non-audit services of OUM for the preparation of tax returns and tax advice in preparing for and in connection with such filings.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 29, 2009
To Amendment No. 1 to Annual Report on Form 10-K/A