UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the
Registrant
þ
Filed by a Party other than the
Registrant
o
Check the appropriate box:
o
Preliminary
Proxy Statement
o
Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ
Definitive
Proxy Statement
o
Definitive
Additional Materials
o
Soliciting
Material Pursuant to
§240.14a-12
Avalon Pharmaceuticals, Inc.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ
No
fee required.
o
Fee
computed on table below per Exchange Act
Rules 14a-6(i)
(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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Fee
paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT
April 29, 2008
Dear Avalon Stockholder:
You are cordially invited to attend our Annual Meeting of
Stockholders to be held at our headquarters at 20358 Seneca
Meadows Parkway, Germantown, Maryland 20876, on Wednesday,
June 4, 2008 at 9:30 a.m. (Eastern Time). Information
about the meeting, the nominees for directors and the proposals
to be considered are presented in the Notice of Annual Meeting
of Stockholders and the Proxy Statement on the following pages.
In addition to the formal items of business to be brought before
the meeting, I will report on our operations during 2007. This
will be followed by a question and answer period.
Your participation in Avalons affairs is important,
regardless of the number of shares you hold. To ensure your
representation, even if you cannot attend the meeting, please
sign, date and return the enclosed proxy promptly.
We look forward to seeing you on June 4th.
Sincerely,
Chief Executive Officer and President
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To be Held on June 4,
2008
The Annual Meeting of Stockholders (Annual Meeting)
of Avalon Pharmaceuticals, Inc. (we,
our, us, Avalon or the
Company) will be held at the Companys
headquarters at 20358 Seneca Meadows Parkway, Germantown,
Maryland 20876 on Wednesday, June 4, 2008 at 9:30 a.m.
(Eastern Time), for the following purposes:
1. To elect six (6) directors to serve on the
Companys Board of Directors for a term of one year and
until their successors are elected and qualified;
2. To ratify the appointment of Ernst & Young LLP
as the Companys independent registered public accounting
firm for the fiscal year ending December 31, 2008; and
3. To transact such other business as may properly come
before the meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on
April 18, 2008 as the record date for determination of
stockholders entitled to receive notice of, and to vote at, the
Annual Meeting and any adjournment thereof. A list of
stockholders as of the record date will be open for examination
during the Annual Meeting.
Your attention is directed to the Proxy Statement submitted with
this Notice. This Notice is being given at the direction of the
Board of Directors.
By Order of the Board of Directors,
Thomas G. David
Corporate Secretary
Germantown, Maryland 20876
April 29, 2008
Whether or not you expect to attend the Annual Meeting,
please complete, sign and date the enclosed proxy and return it
promptly in the enclosed envelope. If you attend the meeting,
you may revoke the proxy and vote in person if you wish, even if
you have previously returned your proxy.
AVALON
PHARMACEUTICALS, INC.
20358 Seneca Meadows Parkway
Germantown, Maryland 20876
PROXY
STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 2008
PROXIES
AND VOTING AT THE ANNUAL MEETING
This Proxy Statement is furnished in connection with the
solicitation by our Board of Directors of proxies to be voted at
the Annual Meeting. This Proxy Statement, the accompanying proxy
card and Avalons Annual Report on
Form 10-K
are being mailed to stockholders on or about May 3, 2008.
Business at the Annual Meeting is conducted in accordance with
the procedures determined by the presiding officer and is
generally limited to matters properly brought before the meeting
by or at the suggestion of the Board of Directors or by a
stockholder pursuant to provisions requiring advance notice and
disclosure of relevant information.
Purpose
of the Annual Meeting
The specific proposals to be considered and acted upon at the
Annual Meeting are summarized in the accompanying Notice of
Annual Meeting of Stockholders. Each proposal is described in
more detail in this Proxy Statement.
Recommendations
of the Board of Directors
Avalons Board of Directors recommends that you vote
FOR
each of the nominees of the Board of
Directors and
FOR
the ratification of the
appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm for the fiscal
year ending December 31, 2008.
Stockholders
Entitled to Vote
Only stockholders of record at the close of business on
April 18, 2008 (the record date) are entitled
to receive notice of the Annual Meeting and to vote their shares
at the Annual Meeting. On the record date, there were 17,033,441
outstanding shares of Avalon common stock, $0.01 par value
per share. Each share is entitled to one vote. Stockholders do
not have cumulative voting rights.
Quorum
Requirement
The holders of a majority of the issued and outstanding shares
of stock of the Company entitled to vote at the meeting must be
represented in person or by proxy at the Annual Meeting for the
meeting to be held. Abstentions will be treated as shares that
are present and entitled to vote for purposes of determining
whether a quorum is present. Shares held by nominees for
beneficial owners will be counted for purposes of determining
whether a quorum is present if the nominee has the discretion to
vote on at least one of the matters presented even if the
nominee may not exercise discretionary voting power with respect
to other matters and voting instructions have not been received
from the beneficial owner (a broker non-vote).
Voting of
Proxies and Vote Required
Since many Avalon stockholders are unable to attend the
Companys Annual Meeting, our Board of Directors is
soliciting proxies to be voted at the Annual Meeting to give
each stockholder an opportunity to vote on all matters scheduled
to come before the meeting and set forth in this Proxy
Statement. In addition to the use of the mail, we may solicit
proxies in person, by telephone, facsimile, wire or other
electronic means. We will bear the cost of soliciting these
proxies. We will request brokerage houses, banks and other
custodians or nominees holding stock in their names for others
to forward proxy materials to their customers or principals who
are the beneficial owners of shares and will reimburse them for
their expenses in doing so. We are asking you to designate
Dr. Kenneth C. Carter (Chief Executive Officer and
President) and Mr. Thomas G. David (Senior Vice President
of Operations, General Counsel and Corporate Secretary), and/ or
either of them, as your proxies.
1
Stockholders are urged to read carefully the material in this
Proxy Statement, specify their choice on each matter by marking
the appropriate boxes on the enclosed proxy card, then sign,
date and return the card in the enclosed, stamped envelope.
When the enclosed form of proxy is properly executed and
returned, the shares it represents will be voted at the Annual
Meeting and any adjournment thereof as directed by the
stockholder. If no direction is indicated by the stockholder,
such shares will be voted FOR the election of
directors and FOR the ratification of the
appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm for the fiscal
year ending December 31, 2008. The proxies will be voted
FOR or AGAINST such other matters as may
properly come before the meeting at the discretion of the proxy
holders.
Any stockholder giving a proxy has the power to revoke it at any
time before it is voted. All proxies delivered pursuant to this
solicitation are revocable at any time at the option of the
persons executing them by giving written notice to the Corporate
Secretary of the Company, by delivering a later-dated proxy or
by voting in person at the Annual Meeting. If common stock owned
by a stockholder is registered in the name of more than one
person, each such person should sign the enclosed proxy. If the
proxy is signed by an attorney, executor, administrator,
trustee, guardian or by any other person in a representative
capacity, the full title of the person signing the proxy should
be given and a certificate should be furnished showing evidence
of appointment. Any beneficial owner of shares of common stock
as of the record date who intends to vote such shares in person
at the Annual Meeting must obtain a legal proxy from the record
owner and present such proxy at the Annual Meeting in order to
vote such shares.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspector of elections appointed for the
meeting who will also determine whether a quorum is present for
the transaction of business. The affirmative vote of a plurality
of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote at the Annual Meeting is
required to elect the directors. The affirmative vote of a
majority of the shares present in person or by proxy at the
Annual Meeting and voting on the matter is required with respect
to the appointment of Ernst & Young LLP as the
Companys independent registered public accounting firm.
With respect to the ratification of the appointment of
Ernst & Young LLP as the Companys independent
registered public accounting firm, abstentions will have no
effect on the proposals and will be counted only for purposes of
determining whether there is a quorum. Broker non-votes will not
be counted as votes for or against matters presented for
stockholder consideration.
Attendance
at Annual Meeting
To ensure the availability of adequate space for Avalon
stockholders wishing to attend the meeting, priority seating
will be given to stockholders of record, beneficial owners of
the Companys stock having evidence of such ownership, or
their authorized representatives, and invited guests of
management. In addition, a stockholder may bring one guest. In
order that seating may be equitably allocated, a stockholder
wishing to bring more than one guest must write to the Corporate
Secretary of the Company in advance of the meeting and receive
written concurrence. Those unable to attend may request a copy
of the report of the proceedings of the meeting from the
Corporate Secretary.
ELECTION
OF DIRECTORS
Our Board of Directors currently consists of eight directors,
each with a term expiring at the Annual Meeting. A Board of six
directors is to be elected at the Annual Meeting, each director
so elected to hold office until his successor is duly elected
and qualified. Each of the nominees is currently a director of
the Company, and each of the nominees has informed the Board
that he is seeking re-election.
The Board of Directors recommends that you vote
FOR each of the nominees for director.
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Board of
Directors
The table below shows the name and age (as of the date of the
Annual Meeting) of each of the nominees for director, any
positions and offices held by each with the Company, and the
period during which each has served as a director of the Company.
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Served as
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Name
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Age
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Position Held
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Director Since
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Kenneth C. Carter, Ph.D.
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48
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Chief Executive Officer, President and Director
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1999
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David S. Kabakoff, Ph.D.
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60
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Director
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2006
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Michael R. Kurman, M.D.
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56
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Director
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2002
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Bradley G. Lorimier
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62
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Director
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1999
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Philip Frost, M.D., Ph.D.
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67
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Director
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2008
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William H. Washecka
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60
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Director
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2006
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Kenneth C. Carter, Ph.D.
is a co-founder
of Avalon and has served as Chief Executive Officer, President,
and as a member of our Board of Directors since Avalons
inception in November 1999. Prior to joining Avalon, he was a
Senior Scientist at Human Genome Sciences, Inc., where he
directed the companys gene mapping initiative from 1993 to
1999. Dr. Carter was a member of a team of scientists that
identified genes involved in colon cancer that was named
Discovery of the Year by Science Magazine in 1994.
Dr. Carter holds a Ph.D. in Human Genetics from the
University of Texas Medical Branch and a B.S. from Abilene
Christian University.
Philip Frost, M.D., Ph.D.
has served
as a member of our Board of Directors since March of 2008.
Dr. Frost is currently the President of Calesca
Pharmaceuticals, Inc. Prior to Calesca, Dr. Frost was
Executive Vice President and Chief Scientific Officer at ImClone
Systems, Inc. from 2005 to 2007 where he oversaw the
companys research, clinical and regulatory departments. He
also served as Interim Chief Executive Officer at ImClone in
2006. Prior to ImClone Systems, Dr. Frost served as Vice
President of Oncology and
Co-Director
of the Oncology Therapeutic Area Leadership Team at Wyeth where
he was responsible for the development of various oncology
compounds. Dr. Frost has also held the positions of Adjunct
Professor of Cell Biology and Adjunct Professor of Medicine at
The University of Texas M.D. Anderson Cancer Center since 1992.
Additionally, Dr. Frost has held other academic positions
at the University of Texas and University of California, Irvine.
He is currently a member of the Board of Directors of Innovive
Pharmaceuticals. Dr. Frost earned his Medical Degree at
State University of New York at Buffalo and his Ph.D. at the
Clinical Research Center in London, England.
David S. Kabakoff, Ph.D.
has served as a
member of our Board of Directors since October 2006.
Dr. Kabakoff is an Executive in Residence at Sofinova
Ventures. He is also the current President and Chief Executive
Officer of Strategy Advisors LLC, which he established in 2001
to provide business and strategic advisory services to life
sciences companies. Prior to its acquisition by Cephalon, Inc.
in June 2005, Dr. Kabakoff served as Chairman and Chief
Executive Officer of Salmedix, Inc., a company he co-founded in
2001 to develop novel oncology drugs. From 1996 to September
2000, Dr. Kabakoff held executive management positions with
Dura Pharmaceuticals, a specialty pharmaceutical company,
acquired by Elan Pharmaceuticals. Prior to joining Dura,
Dr. Kabakoff was Chairman and Chief Executive Officer of
Corvas International, a biopharmaceutical firm focused on
cardiovascular and inflammatory diseases, and held senior
management positions with Hybritech, Inc., a pioneer in the
field of monoclonal antibodies, which was acquired by Eli
Lilly & Co. in 1986. Dr. Kabakoff received his
Ph.D. in Chemistry from Yale University and his B.A. in
Chemistry from Case Western Reserve University.
Dr. Kabakoff serves on the Board of Directors of
Amplimmune, Inc., Intermune, Inc., Trius Therapeutics,(formerly
Rx 3 Pharmaceuticals) and Allylix, Inc.
Michael R. Kurman, M.D.
has served as a
member of our Board of Directors since December 2002. Since
March 2000, Dr. Kurman has been an independent consultant
to the pharmaceutical, biotechnology and healthcare industries
specializing in oncology and oncology drug development.
Dr. Kurman has held management roles in several global
oncology drug development programs, including: Director of
Clinical Research, Oncology and Allergy for Janssen Research
Foundation; Vice President, Clinical Research for
U.S. Biosciences Inc.; and Vice
3
President, Clinical and Scientific Operations with Quintiles
Transnational Corp.s Oncology Therapeutics Division.
Dr. Kurman holds an M.D. from Cornell University Medical
College and a B.S. from Syracuse University.
Bradley G. Lorimier
is a co-founder of Avalon and has
served as a member of our Board of Directors since December 1999
and as Chairman since July 2007. Since 1999, Mr. Lorimier
has been an independent consultant to the pharmaceutical and
biotechnology industries. Mr. Lorimier has served in
leadership positions in both the pharmaceutical and
biotechnology industries, including as Vice President of
Licensing and Vice President of Corporate Development at
Johnson & Johnson and as Senior Vice President and
Director of Human Genome Sciences, Inc. He is currently on the
Board of Directors for Invitrogen Corporation and was a director
of Matrix Pharmaceutical, Inc. from December 1997 to March 2002.
Mr. Lorimier received a B.S. from the University of
Illinois.
William H. Washecka
has served as a member of our Board
of Directors since March 2006. From 2004 to December of 2006,
Mr. Washecka had served as the Chief Financial Officer of
Prestwick Pharmaceuticals, Inc., a manufacturer of drugs for
disorders of the central nervous system. In
2001-2002,
he served as Senior Vice President and Chief Financial Officer
of USinternetworking, Inc. USinternetworking, Inc. filed a
voluntary bankruptcy petition under Chapter 11 of the
Federal bankruptcy laws in January 2002. From
1972-2001
he
served in various capacities at Ernst & Young LLP
including as Partner from
1986-2001.
At Ernst & Young LLP he established and managed the
high technology and emerging business practice in the
Mid-Atlantic area from
1986-1999.
Additionally, Mr. Washecka was a co-founder of the
Mid-Atlantic Venture Capital Conference. He currently is a
director and member of the audit committee of Online Resources
Corporation and Audible, Inc. Mr. Washecka holds a BS in
accounting from Bernard Baruch College of New York and
participated in Kellogg Advanced Management Program. He is a CPA
in Maryland, Virginia, the District of Columbia and New York.
MANAGEMENT
OF THE COMPANY
Board of
Directors
Our Board of Directors currently consists of eight members. Each
director serves until the next annual meeting of stockholders or
until he is succeeded by another qualified director who has been
elected. Vacancies on our Board of Directors and newly created
directorships may be filled by candidates appointed by the then
current members of our Board of Directors, with each new
director standing for election at the next annual meeting of
stockholders. A Board of six directors is to be elected at the
Annual Meeting.
Our Board held 12 meetings during 2007. All of our incumbent
directors attended at least 75% of the total of these meetings
and the meetings of the committees on which they serve. The
Company encourages, but does not require, members of our Board
of Directors to attend annual stockholder meetings. Of the 8
members of our Board of Directors in office as of last
years annual meeting, 4 were in attendance at that meeting.
Under the listing standards of The NASDAQ Stock Market, Inc.
(NASDAQ), a majority of the members of our Board
must qualify as independent directors as defined by
the NASDAQ. Our Board consults with our legal counsel to ensure
that its determinations of director independence are consistent
with all relevant securities and other laws and regulations,
including those set forth in pertinent listing standards of the
NASDAQ. Consistent with these considerations, our Board reviews
all relevant transactions and relationships between each
director and any of his or her family members and Avalon, our
executive officers and our independent registered public
accounting firm. As part of this process, our Board evaluated
for each of Drs. Kurman and Scott and Mr. Lorimier the
annual amount of compensation received by these directors under
consulting or similar arrangements with the Company during each
of the three completed fiscal years prior to the evaluation of
their independence and determined that these amounts were
immaterial for Drs. Kurman and Scott. Following its review,
our Board has affirmatively determined that the following
directors, constituting a majority of our Board of Directors,
are independent directors as defined by the NASDAQ:
Dr. Philip Frost, Dr. Michael R. Kurman,
Dr. David S. Kabakoff, Dr. Ivor Royston,
Dr. William A. Scott and Mr. William H. Washecka.
Furthermore, our Board of Directors has determined that the
following nominees for election to our Board of Directors are
independent directors as defined by the NASDAQ, and should the
slate of director nominees proposed by our Board receive the
requisite amount of votes for election, would constitute a
majority of our Board of Directors: Dr. Philip Frost,
Dr. David S. Kabakoff, Dr. Michael R.
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Kurman and Mr. William H. Washecka. Our Board of Directors
has determined that Dr. Kenneth C. Carter is not an
independent director because of his employment as President and
Chief Executive Officer of the Company and that
Mr. Lorimier is not an independent director because of
compensation he received under a consulting agreement with us
during 2005 and 2006. See Certain Relationships and
Related Transactions for a detailed description of
Mr. Lorimiers consulting agreement.
Our Nominating and Corporate Governance Committee is responsible
for conducting an annual self-assessment of the performance of
our Board of Directors. The Nominating and Corporate Governance
Committee uses written questions to evaluate the Board as a
whole. Additionally, each committee of the Board of Directors is
responsible for conducting an annual self-evaluation as provided
for in the committees respective charter.
Our annual meeting of stockholders provides an opportunity each
year for stockholders to ask questions of, or otherwise
communicate directly with, members of the Board on appropriate
matters. In addition, the Board welcomes communications from
stockholders and has adopted the following procedure for
receiving and addressing them. Stockholders may send written
communications to the entire Board or to individual members,
addressing them to our Corporate Secretary, Thomas G. David, at
20358 Seneca Meadows Parkway Germantown, Maryland 20876.
Communications by
e-mail
should be sent to
board@avalonrx.com
and marked
Attention: Corporate Secretary in the
Subject field.
Copies of such written or email
communications will be provided to the Board or relevant
director unless such communications are considered, in the
reasonable judgment of our Corporate Secretary, to be
inappropriate for submission to the intended recipient(s).
Examples of stockholder communications that would be considered
inappropriate for submission to the Board include, without
limitation, solicitations, communications that do not relate
directly or indirectly to our business or communications that
relate to improper or irrelevant topics.
Board
Committees
Our Board of Directors has established an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee. The members of each committee are appointed by our
Board of Directors. The Board has determined that each director
who serves on these committees is an independent director within
the meaning of the rules of the NASDAQ and that all members of
the Audit Committee are also independent within the meaning of
the independence standards of
Rule 10A-3(b)
under Securities Exchange Act of 1934, as amended (the
Exchange Act). All of these committees operate under
a written charter, which sets the functions and responsibilities
of that committee. A copy of the charter for each committee can
be found on our website at
http://www.avalonrx.com
.
More information concerning each of the committees is set forth
below.
Audit
Committee.
We have an Audit Committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act consisting of
Mr. Washecka (Chairman), Dr. Kabakoff and
Dr. Royston. The Audit Committee assists our Board of
Directors in its oversight of:
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the integrity of our financial statements;
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the adequacy of our system of internal controls;
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our compliance with legal and regulatory requirements;
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our Independent Registered Public Accounting Firms
qualifications and independence; and
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the performance of our Independent Registered Public Accounting
Firm.
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The Audit Committee has direct responsibility for the
appointment, compensation, retention and oversight of the work
of our Independent Registered Public Accounting Firm,
Ernst & Young LLP. In addition, the Audit Committee is
responsible for reviewing and approving any related party
transaction entered into by us in accordance with standards and
procedures we have adopted in the Audit Committees
charter. See Related Person Transaction Policy
and Procedures. Our Board of Directors has determined that
Mr. Washecka is an audit committee financial
expert as defined by the Securities and Exchange
Commission (the SEC) and is an independent director
as defined by the NASDAQ.
5
During 2007, the Audit Committee met six times.
Compensation
Committee.
We have a Compensation Committee consisting of Dr. Kurman
(Chairman) and Mr. Washecka. The Compensation Committee is
responsible for:
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considering, recommending, overseeing, implementing and
administering the Companys incentive compensation plans
and equity-based plans in which directors, the Chief Executive
Officer, other executive officers and other employees of the
Company and its subsidiaries may be participants;
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annually reviewing and approving corporate goals and objectives
relevant to Chief Executive Officer compensation, evaluating the
Chief Executive Officers performance in light of those
goals and objectives, and setting the Chief Executive
Officers compensation level based on this evaluation;
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evaluating and approving compensation for the Companys
other executive officers.
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In addition, the Compensation Committee reviews and approves:
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employment arrangements for our executive officers;
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our company-wide compensation and benefits programs; and
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our succession, retention and management training programs.
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During 2007, the Compensation Committee met seven times.
Nominating
and Corporate Governance Committee.
We have a Nominating and Corporate Governance Committee
consisting of Dr. Kabakoff (Chairman), Dr. Scott and
Dr. Royston. The purpose of the Nominating and Corporate
Governance Committee is to:
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identify for, and recommend to, the Board of Directors nominees
for membership on the Board of Directors;
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develop and recommend to the Board of Directors a set of
corporate governance principles;
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recommend to the Board of Directors nominees for each Board
committee; and
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receive comments from all directors and report annually to the
Board of Directors on an assessment of the Boards
performance.
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During 2007, the Nominating and Corporate Governance Committee
met four times.
The Nominating and Corporate Governance Committee utilizes a
variety of methods for identifying and evaluating potential
nominees to the Board of Directors. Recommendations may come
from current Board members, professional search firms, members
of management, stockholders or other persons.
In assessing the qualifications of potential nominees, the
Nominating and Corporate Governance Committee may rely on
personal interviews or discussions with the candidate and others
familiar with the candidates professional background, on
third-party background and reference checks and on such other
due diligence information as is reasonably available. The
Nominating and Corporate Governance Committee must be satisfied
that the candidate possess the highest professional and personal
ethics and values and has broad experience at the policy-making
level in business, government, education or public interest
before the Nominating and Corporate Governance Committee would
recommend a candidate as a nominee to the Board of Directors. In
particular, the Nominating and Corporate Governance Committee
identifies and recommends qualified candidates for Board
membership based primarily on the following criteria:
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director candidates shall have the highest personal and
professional integrity;
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director candidates shall have a record of exceptional ability
and judgment;
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director candidates shall have skills and knowledge useful to
the oversight of the Company;
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director candidates must be able and willing to devote the
required amount of time to the Companys affairs, including
attendance at Board and committee meetings;
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director candidates should have the interest, capacity and
willingness, in conjunction with the members of the Board, to
serve the long-term interests of the Companys stockholders;
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to the extent considered appropriate by the Board, a director
candidate may be required to be a financial expert
as defined in Item 401 of
Regulation S-K; and
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director candidates shall be free of any personal or
professional relationships that would adversely affect their
ability to serve the best interests of the Company and its
stockholders.
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In March 2008, the Board, on the recommendation of the
Nominating and Corporate Governance Committee, appointed
Dr. Philip Frost, a former Executive Vice President, Chief
Scientific Officer and Interim Chief Executive Officer of
Imclone Systems, Inc., former Vice President of Oncology at
Wyeth Pharmaceuticals, Inc. and. currently President of Calesca
Pharmaceuticals, Inc., as a new director. Dr. Frost was
originally recommended to the Nominating and Corporate
Governance Committee as a director candidate by an independent
search firm retained by the Committee. In forming its
recommendations, the Nominating and Corporate Governance
Committee considered the criteria described above and, based on
its review, it was the Nominating and Corporate Governance
Committees recommendation that Dr. Frost be appointed
as a director.
The Nominating and Corporate Governance Committee considers
recommendations from any reasonable source, including director
nominees recommended by stockholders, in discharging its
responsibilities to identify for, and recommend to, the Board of
Directors nominees for membership on the Board of Directors.
Stockholders who wish to suggest potential nominees may address
their suggestions in writing to Avalon Pharmaceuticals, Inc.,
20358 Seneca Meadows Parkway, Germantown, Maryland 20876,
Attention: Corporate Secretary.
In addition to submitting suggestions for director nominees to
the Nominating and Corporate Governance Committee, any
stockholder entitled to vote in the election of directors may
nominate one or more persons for election as directors at a
meeting of the Companys stockholders if written notice of
such stockholders intent to make such nomination or
nominations has been delivered to or mailed and received by the
Corporate Secretary of the Company at the Companys
principal executive offices not later than (i) with respect
to an election of directors to be held at an annual meeting of
stockholders, the ninetieth day prior to the anniversary date of
the preceding annual meeting, and (ii) with respect to an
election of directors to be held at a special meeting, the close
of business on the tenth day following the date on which notice
of such meeting is first given to stockholders.
Any stockholder wishing to nominate a candidate for election as
a director should submit the following written information to
our Corporate Secretary:
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the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated;
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a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
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a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination
or nominations are to be made by the stockholder;
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such other information regarding each nominee proposed by such
stockholder as would be required to be disclosed in a proxy
statement or other filings required to be made in connection
with the election of such director pursuant to
Regulation 14A under the Exchange Act; and
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the consent of each nominee to serve as a director of the
corporation if so elected.
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The presiding officer of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the
foregoing procedure.
7
Corporate
Governance
We maintain a Corporate Governance page on our
website that includes key information about our corporate
governance policies, including:
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our Code of Ethics for Senior Financial Officers, a code of
ethics that applies to our Chief Executive Officer, Chief
Financial Officer and Corporate Controller;
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our Standards of Business Conduct, a set of business conduct
standards that applies to all of our directors, officers and
employees;
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our Corporate Governance Guidelines, a set of corporate
governance guidelines designed to assist our Board of Directors
in fulfilling its responsibilities to the Companys
stockholders to oversee the work of management and the
Companys business results; and
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a current copy of the written charters of our Audit Committee,
Compensation Committee and Nominating and Corporate Governance
Committee.
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These materials may be accessed and reviewed through our
website,
http://www.avalonrx.com
,
by going to our Investors page and clicking on
Corporate Governance. We intend to satisfy any
disclosure requirement under Item 5.05 of
Form 8-K
regarding an amendment to, or waiver from, a provision of the
Code of Ethics for Senior Financial Officers, by posting such
information on our website at the address above.
Related
Party Transaction Policy and Procedures
The Audit Committee is responsible for reviewing and approving
any related party transaction entered into by us in accordance
with standards and procedures we have adopted in the Audit
Committees charter. In particular, the Audit
Committees charter provides that the Audit Committee shall
review all related party transactions and similar matters to the
extent required to be approved by an audit committee or
comparable body by the stock exchanges or stock quotation
systems on which the Companys securities are listed.
Additionally, the Audit Committees charter provides that
the Audit Committee shall review the Companys policies and
procedures with respect to Company transactions in which
officers or directors have an interest, including, where
appropriate and when requested by the Companys management
or independent auditors, policies and procedures with regard to
officer use of corporate assets.
Compensation
of Directors
The following table presents information relating to total
compensation of our directors for the year ended
December 31, 2007, other than Dr. Carter, our Chief
Executive Officer and President, who did not receive additional
compensation as a director and whose compensation is included in
the Summary Compensation Table elsewhere in this Proxy Statement.
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Change in Pension
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Value and
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Fees
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Nonqualified
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Earned or
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Non-Equity
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Deferred
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Paid in
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Cash
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Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name
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($)
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($)(1)(2)
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($)(1)
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($)
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($)
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($)
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($)
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David S. Kabakoff, PH.D.
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35,125
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0
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20,076
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0
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0
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0
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55,201
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Michael R. Kurman, M.D.
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33,812
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0
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13,335
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0
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0
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0
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47,147
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Bradley G. Lorimier
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65,625
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0
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32,857
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0
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0
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92,917
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(3)
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191,399
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Ivor Royston, M.D.
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0
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33,813
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13,335
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0
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0
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0
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47,148
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William A. Scott, Ph.D.
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33,687
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0
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14,587
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0
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0
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0
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48,274
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Patrick Van Beneden(4)
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14,688
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0
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0
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0
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0
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0
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14,688
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Alan G. Walton, Ph.D.
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0
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44,375
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24,658
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0
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0
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0
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69,033
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William H. Washecka
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43,750
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0
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16,690
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0
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0
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0
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60,440
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Raymond J. Whitaker, Ph.D.(5)
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0
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16,406
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9,094
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0
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0
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0
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25,500
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8
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(1)
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Amounts reflected in these columns represent the compensation
cost recognized by Avalon during 2007 for stock option awards
and awards of unrestricted shares of our common stock made in
2007 and in prior years, are calculated in accordance with the
provisions of Statement of Financial Accounting Standards
No. 123R Share-Based Payment
(SFAS 123(R)), and exclude the impact of
estimated forfeitures related to service based vesting
conditions. See Note 8 of the consolidated financial
statements of the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007 regarding assumptions
underlying the valuation of equity awards.
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(2)
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Represents the directors election to receive all of their
annual cash retainer fees in awards of unrestricted shares of
our common stock under the Incentive Plan.
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(3)
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Represents consulting fees paid to Mr. Lorimier for
services rendered to us in support of our business development
efforts.
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(4)
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Mr. Van Beneden did not stand for re-election at
Avalons 2007 annual meeting.
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(5)
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Dr. Whitaker did not stand for re-election at Avalons
2007 annual meeting.
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Each non-employee director received an annual fee of $30,000
during 2007 for service on our Board of Directors (pro rated for
directors serving less than the full year). The Chairman of our
Board of Directors receives additional cash compensation, which
was increased from $25,000 per year to $40,000 per year,
effective August 1, 2007. Non-employee directors also
receive $2,500 annually for each committee membership, with the
Chairman of the Audit Committee receiving an additional $7,500
annually, and the Chairman of the Compensation Committee and the
Chairman of the Nominating and Corporate Governance Committee
each receiving an additional $2,500 annually. Non-employee
directors may elect annually to receive all of their annual cash
retainer fees in awards of unrestricted shares of our common
stock under the Incentive Plan. Annual fees are paid quarterly
in arrears in four equal installments on the first business day
of each fiscal quarter.
Non-employee directors who join our Board of Directors in the
future also are entitled to receive an initial grant of options
to purchase 10,000 shares of our common stock, and a
non-employee director that becomes Chairman of our Board of
Directors in the future is entitled to receive an additional
grant of options to purchase 6,000 shares of our common
stock. In addition, each non-employee director is entitled to
receive an annual grant of options to purchase 2,500 shares
of our common stock and a non-employee Chairman of our Board of
Directors receives an additional annual grant of options to
purchase 4,200 shares of our common stock. Option grants to
non-employee directors are made pursuant to the Incentive Plan.
Initial option grants to non-employee directors vest monthly
over a two-year period. Options granted to non-employee
directors on an annual basis vest monthly over a one-year period.
No director who is an employee receives separate compensation
for services rendered as a director. Members of our Board of
Directors also are reimbursed for their out-of-pocket expenses
in attending meetings.
Two of our directors received compensation from us during 2007,
in addition to their compensation as directors. See
Certain Relationships and Related Transactions
Consulting Agreements.
Executive
Officers
Biographical information for each executive officer (including
their age as of the date of the Annual Meeting), other than for
Dr. Carter (which is provided above), is set forth below:
C. Eric Winzer
, age 51, has served as Executive
Vice President and Chief Financial Officer since July of 2007.
Prior to joining Avalon, Mr. Winzer was with Invitrogen
Corporation (Nasdaq: IVGN), a provider of life science
technologies for disease research and drug discovery, from 2000
to 2006, where he served as Senior VP and Chief Financial
Officer, Executive Sponsor for Invitrogens ERP
implementation and VP, Finance. From 1986 to 2000,
Mr. Winzer held various positions of increasing
responsibilities at Life Technologies where he was the Chief
Financial Officer, Secretary and Treasurer, Corporate
Controller, Accounting Manager and Budget Manager. From 1980
until 1986 he held various financial positions at Genex
Corporation. Mr. Winzer received his B.A. in Economics and
Business Administration from McDaniel College and an M.B.A. from
Mount Saint Marys University.
9
Thomas G. David
, age 61, is a co-founder of Avalon
and has served as Senior Vice President of Operations and
General Counsel since January 2002. Mr. David has been
employed by us since our inception in November 1999. For ten
years prior to joining Avalon, he served as senior attorney for
the Federal Communications Commission. Mr. David holds a
J.D. from the University of Utah Law School, an M.B.A. from the
Wharton School of Finance at the University of Pennsylvania and
a B.S. from the University of Utah.
David K. Bol, Ph.D.
, age 42, has served as
Senior Vice President of Product and Pharmaceutical Development
since December 2006. Dr. Bol joined Avalon in September
2002 as a Senior Scientific Director. Prior to joining Avalon,
Dr. Bol worked at Bristol-Myers Squibb since 1996 and was
Group Leader and Principal Scientist at Bristol-Myers Squibb
since 2001. Prior to Bristol-Myers Squibb, Dr. Bol was a
Faculty Research Associate in the Department of Carcinogenesis
at the M.D. Anderson Cancer Center in Houston, Texas.
Dr. Bol holds a Ph.D. in Molecular and Cell Biology from
University of Maryland and a B.S. from The University of
Rochester, New York.
J. Michael Hamilton, M.D.
, age 59, serves
as Chief Medical Officer. He joined Avalon in this position in
August 2006. Prior to joining Avalon, from 2000 to 2005, he
served as Group Director of Oncology, MDC and led a portfolio of
U.S. clinical trials for oncology for GlaxoSmithKline.
Prior to his work at GlaxoSmithKline, from 1999 to 2000
Dr. Hamilton held the positions of Section Chief of
Clinical Investigations and Program Director for the National
Cancer Institute (NCI). Dr. Hamilton received his
Bachelors degree from the University of Connecticut and
his M.D. from the George Washington University. He completed his
residency at the Washington Hospital Center in
Washington, D.C. He is a licensed M.D. in Maryland and
board certified in Internal Medicine and Medical Oncology.
Stephen K. Horrigan, Ph.D.,
age 46, serves as
Vice President of Research. He joined Avalon in July of 2000 and
became Vice President of Research in August 2007. During his
tenure at Avalon he has held several positions of increasing
responsibility within the research organization while directing
both internal and external collaborative programs. Prior to
joining Avalon, Dr. Horrigan held the position of Associate
Professor in the Department of Pediatrics and Lombardi Cancer
Center at Georgetown University Medical Center where he led a
research group focused on cancer genomics and diagnostic
biomarkers. Prior to that, he held positions at the University
of Illinois College of Medicine and the University of Chicago
Medical School. Dr. Horrigan holds a Ph.D. and a B.S. in
Biology from Syracuse University.
EXECUTIVE
COMPENSATION
Narrative
Discussion of Executive Compensation
This discussion is intended to provide you with an understanding
of our executive compensation philosophy, plans and practices,
and to give you the context for understanding and evaluating the
more specific compensation information contained in the tables
and related disclosures that follow.
Compensation
Philosophy.
We believe that compensation should be performance-based, and
should vary with the attainment of specific individual and
corporate objectives, as well as being closely aligned with the
interests of our stockholders. Our Compensation Committee (which
we refer to in this section as the Committee) is
composed of two independent directors (as defined by the NASDAQ)
and is responsible for considering, recommending, overseeing and
implementing our compensation policies and procedures and for
discharging our Board of Directors responsibilities
relating to the compensation of our Chief Executive Officer and
other executive officers. The Committees primary objective
is to (i) differentiate and reward executives
individual contributions toward collective corporate goals,
(ii) reward the overall attainment of those collective
corporate goals, and (iii) reflect each executives
level of leadership and corporate responsibility. A complete
description of the Committees role in setting executive
compensation can be found earlier in this Proxy Statement in the
section titled Management of the Company Board
Committees Compensation Committee.
10
The Committee employs the following core principles to guide its
executive compensation decisions.
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Competitive Compensation:
The Committee
believes in positioning executive compensation at levels that
are competitive with other similar biotechnology companies in
order to attract and retain exceptional leadership talent needed
to achieve success in a small life sciences company such as
Avalon.
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Performance-based pay:
The Committee advocates
executive compensation programs that balance annual and
long-term corporate objectives. These programs are structured to
specifically measure the achievement of individual and corporate
goals and operational objectives, with the intent of fostering
stockholder value in the short and long term. Both individual
and corporate level performance affect an executives total
compensation, including any increase to salary, and all annual
awards, including cash bonuses and ongoing equity grants.
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Ownership:
The Committee believes that using
compensation to build an ownership culture effectively aligns
the interest of management and our stockholders. To this end,
the Committee utilizes equity based compensation for our Chief
Executive Officer and our other executive officers, including
performance-contingent stock option grants, to provide
incentives to enhance stockholder value.
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Holistic view of compensation:
The Committee
views all components of compensation together in making
compensation decisions. These components include base salary,
annual incentives, long-term incentives, and fringe benefits and
perquisites.
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The Committee approves long-term incentive awards to our new
hires and existing employees. Our practice has been to price
option grants at the closing price of our common stock on the
NASDAQ as of the date of grant, and to set the date of grant as
the date of final action by our Board in approving the award.
Effective February 2007, the Committee assumed responsibility
for final approval of incentive grants to our executive
officers; prior to that time our Board of Directors had ratified
all option grants to our executive officers since we became a
public company. Additionally, the Committee approves an annual
compensation plan that sets average pay increases, if any, and
the annual bonus plan for our executive officers and other
employees. Within plan guidelines, our Chief Executive Officer
may approve any base salary increases, bonuses, or new-hire
offer packages with the exception of those for officers who are
subject to the requirements of Section 16 of the Exchange
Act.
The Committee reviews its compensation philosophy regularly,
most recently in December 2007. The Committee believes its
compensation philosophy is based on appropriate principles and
did not make any changes to its overall philosophy in 2007.
Benchmarking.
During every second year, the Committee works in consultation
with our outside compensation consultant, Arnosti Consulting,
Inc. (Arnosti), to develop a list of comparable
companies for purposes of benchmarking competitive levels of
executive compensation. Arnosti uses this list of comparable
companies to present to the Committee data about salary, bonus
and equity compensation at the
25
th
,
50
th
and
75
th
percentiles
for executive positions at these comparable companies. The
Committee benchmarks all elements of total direct compensation
(base salary, bonus, total cash compensation, and all forms of
long-term incentives) to the competitive marketplace based on
its analysis of the compensation practices of these comparable
companies. The Committee, in consultation with Arnosti, last
worked on this process during 2006 to develop a comparable peer
group of 46 biotechnology companies from which to conduct a
benchmark comparison of direct compensation. The Committee
considered several factors in developing this 46 company
peer group. In particular, the companies in this peer group:
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exhibit revenue and market capitalization size within
approximately 1/3x to 3x our revenue and market capitalization
(about 50% of the group was larger and 50% was smaller than
Avalon for each measure);
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possess a business model, organization characteristics, growth
potential, and leadership and management requirements that are
similar, though not always identical, to Avalon; and
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are
U.S.-based
public companies, allowing us to obtain appropriate compensation
and firm financial data.
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11
The sources used for comparable data in 2006 were the
U.S. Radford Biotechnology Survey (selected public
companies) and the Equilar Data Service, through which we
obtained specific proxy data from the selected companies. In
2007, the Committee supplemented and confirmed these rankings
with information from the U.S. Radford Biotechnology Survey
(selected public companies) but did not engage a consultant to
do benchmarking.
The Committee targets base salaries of Avalons executive
officers at approximately the
50
th
percentile
of base salaries for similar executive positions at the
companies within the identified peer group. The Committee
similarly targets executive cash bonus levels (and accordingly,
total potential cash compensation) at approximately the
50
th
percentile,
with cash bonus levels (and accordingly, total potential cash
compensation) being targeted somewhat higher than the
50
th
percentile
in years of exceptional corporate performance. Although the
Committee targets cash bonus levels at approximately the
50
th
percentile;
the range of potential payouts to our executive officers
relative to these targets is broad.
The Committee targets the
50
th
percentile
for base salaries because the Committee believes that this
target level allows Avalon to be competitive in the marketplace
for executive talent and to retain and attract management talent
while conserving corporate assets. The Committee further
believes that targeting the
50
th
percentile
for cash bonuses (with the discretion to target cash bonuses at
greater than the
50
th
percentile
in years of exceptional corporate performance) provides
executives with a substantial incentive to achieve individual
and corporate objectives (and to exceed these objectives)
without creating an ongoing commitment to provide compensation
at this level. All cash bonus awards must be earned by executive
officers on an annual basis in order to be paid.
In 2007, executive base salaries and the approved annual cash
bonuses approximated the
50
th
percentile
of base salaries and annual cash bonuses for similar executive
positions at companies identified within the peer group. Total
equity held by our executive officers as a group, including all
of their previous equity awards, approximated the middle of the
market for executives in similar positions within similar
companies.
Corporate
Goals and Objectives.
The Committee uses corporate goals and objectives to determine
an executives total cash compensation, including any
increase to base salary and the amount of any annual cash bonus.
In January 2007, the Committee adopted the following corporate
goals for the purpose of determining total cash compensation for
2007: (1) advance the clinical development AVN944,
(2) unlock value from
AvalonRx
®
,
(3) deliver on our current partnerships, (4) advance
our internal preclinical programs, (5) expand the
preclinical pipeline and (6) complete an infusion of
additional capital. Because we are a small biopharmaceutical
company that has not generated any revenue from sales of
commercial products and do not expect to generate any product
revenue for the foreseeable future, in formulating corporate
goals for 2007, the Committee determined to base the
Companys corporate goals on the attainment of objectives
relating to the advancement of our clinical and pre-clinical
product development programs and the advancement and development
of collaborative and partnership arrangements rather than on the
achievement of specific financial metrics by the Company during
2007.
Throughout 2007, our Chief Executive Officer gave periodic
updates to the Committee and the Board of Directors about the
Companys progress toward achieving the foregoing corporate
goals. In December of 2007, the Committee met and reviewed the
Companys performance against the 2007 goals and
recommended a percentage of achievement to our Board. Our Board,
after additional consideration, made a final determination of
the relative weighting of the various 2007 goals and of the
overall percentage of completion of the 2007 goals to be used
for purposes of determining the level of annual cash bonuses to
our executive officers. The Board determined that management had
achieved an adequate percentage the 2007 goals based on a
detailed evaluation of the Companys progress in specific
program areas that related to corresponding goals. As described
further under Elements of Compensation Annual
Cash Bonus this determination was then used to calculate
individual executives annual cash bonus award.
12
Elements
of Compensation
Compensation
Mix.
Public-company life sciences corporations that have yet to
achieve profitability typically provide sufficient salaries to
attract and retain executive talent, while also providing
significant up-side compensation potential through cash bonus
and equity awards which will have great value in the event of
significant achievements. The Committee has adopted this
approach, believing that it balances risk and reward for
executives, while providing alignment between executive rewards
and stockholder return.
Base
Salary.
Base salaries are the only non-variable element of total
compensation. They reflect each executives
responsibilities, the impact of the job on the Companys
performance, and the contributions each executive is expected to
deliver to Avalon. Base salaries are determined in part by
competitive levels in the market (what companies in the peer
group pay), job scope, and, also, by total relevant experience.
To gauge market conditions, the Committee evaluates competitor
and market data compiled by the Committees compensation
consultant The Committee also relies on its experience with
recruiting for executive and senior management positions.
At the end of each calendar year, the Committee reviews the base
salary of our executive officers and makes adjustments to
reflect market comparables, if necessary. Additionally, our
Chief Executive Officer conducts an annual performance appraisal
of each executive officer, and, within the range established by
the Compensation Committee, recommends the merit increases for
each executive officer. Therefore, increases, if any, are based
on individual performance, market conditions, and internal
comparisons of executive compensation among our executive
officers.
At the Board of Directors December 2007 meeting, the
Committee and our Board of Directors reviewed the salaries for
our Chief Executive Officer and our other executive officers. At
this meeting, the Committee and our Board of Directors approved
an average 4% raise in base salary for both executive and
non-executive employees. The Committee and our Board of
Directors used peer comparable information and relevant salary
surveys to determine this average merit increase for the
employees.
In determining base salary for our Chief Executive Officer, the
Nominating and Governance Committee collects performance
feedback about our Chief Executive Officer from each Board
member and provides this information to the Compensation
Committee. The Compensation Committee then considers this
information, as well as information on the base salaries of
chief executive officers for the Companys peer group of
comparable companies, in determining the base salary of our
Chief Executive Officer. Based on this assessment, the Committee
determined to increase our Chief Executive Officers salary
by four percent, which would put his salary at approximately the
50
th
percentile
for chief executive officers in the Companys comparable
peer group for 2007.
Annual
Cash Bonus.
Annual cash bonuses established for our executive officers are
intended to provide an incentive for advancing our performance
in the short term and to recognize individual contribution to
corporate results. The purpose of our annual cash bonus program
is to directly link executive pay to company performance by
providing rewards for achieving established goals with
additional payout potential, if goals are exceeded. Key
components of the bonus calculation include (i) the
Companys overall performance rating, which reflects
corporate performance against stated corporate goals,
(ii) the executives individual performance factor,
which reflects the executives performance against
individual goals determined by our Chief Executive Officer, and
(iii) the executives potential target bonus amount
(expressed as a percentage of an individual executives
base salary) as set forth in the executives individual
employment agreement and which is derived from competitive data
from the Companys comparator peer group.
The Companys overall performance rating reflects the Board
of Directors and the Compensation Committees
determination of the percentage of achievement of the specified
corporate goals set by the Board of Directors and the Committee
at the beginning of each year. For 2007, the Board of Directors
determined that management had achieved an adequate percentage
of the Companys 2007 goals based on a detailed evaluation
of the Companys progress in specific program areas. Under
the Companys annual cash bonus program, the Committee may
set the
13
Companys overall bonus multiplier from 0.0x to 2.0x of the
target bonus percentage established in each executives
respective employment agreements.
Our Chief Executive Officers bonus is determined almost
entirely by overall corporate performance, with some minor
adjustments allowed by the Committee to reflect his specific
individual accomplishments.
For executives other than our Chief Executive Officer, annual
cash bonuses are determined based on both the achievement of
corporate level goals, which accounts for a majority of the
bonus calculation, and the achievement of individual level
goals, which account for less than half of the bonus
calculation. This distribution is designed to provide these
executives with an incentive to contribute to the achievement of
corporate level goals. Our Chief Executive Officer determines
the percent of achievement of individual goals for our other
executive officers. Under the Companys annual cash bonus
program, our Chief Executive Officer may recommend to the
Committee that these executives individual bonuses be
awarded at between 0.0x and 2.0x of the target bonus percentage
established in their respective employment agreements.
Target awards are expressed as a percentage of an
executives base salary. Bonus targets for 2007 were 50% of
base salary for our Chief Executive Officer and range between
25% and 40% of base salary for our other executive officers. In
2007, we paid bonuses to our named executive
officers (as defined below) of 34% for Dr. Carter,
33% for Mr. Lessing, 26% for Mr. Muth, and 22% for
Dr. Bol, as a percentage of each executives
respective base salary.
Long-Term
Incentives.
We have designed our long-term incentive plans to align the
interests of our executive officers with those of our
stockholders, to promote personal ownership of Avalon, to retain
and reward high value/high potential employees. We believe that
our long-term incentive plans help to reduce officer and
employee turnover, which helps to retain the knowledge and
skills of our valued officers and employees by providing
significant potential economic benefit for continuing their
employment with us. Although our equity incentive plans allow
for the issuance of a range of equity incentive awards,
including stock options, restricted stock, performance shares,
and other forms of equity compensation, our usual practice has
been to utilize stock option awards as the means for providing
equity-based awards to our executive officers and other
employees. The Committee bases individual grants of stock option
awards on various factors, including:
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company results;
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individual performance;
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individual potential contribution to our success;
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competitor and market data; and
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total equity already awarded and reserved for awards to
executives and employees.
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In structuring the size of awards, the Committee weighs the
dilutive effects of annual stock option awards against the need
to provide attractive and competitive incentive compensation.
We grant non-qualified stock options and incentive stock options
at an exercise price equal to the fair market value of our
common stock on the date of the grant. Our option grants
typically vest in equal monthly installments over four years
from the grant date. We believe that this practice encourages
officers and all of our employees to work with a long-term view
of our performance and to reinforce their long-term affiliation
with Avalon. In selected cases, we will provide option awards
that vest upon the achievement of specific milestones.
During 2007, the Committee reviewed the analyses and
recommendations for executive officer stock option grants
provided by management. In reviewing the recommended grants, the
Committee considered:
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each officers performance and contribution during the
fiscal year;
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the potential value delivered from all existing stock option
awards; and
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competitive practices.
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14
In July 2007, the Committee approved the award of stock options
for 120,000 shares of common stock to a newly hired
executive officer, Mr. Winzer. The option award provided
for vesting in equal monthly installments over four years from
the grant date. The Committee determined to award this option
grant to Mr. Winzer as part of the Committees belief
that executive officers should be provided with long-term
incentives to promote stockholder value through equity incentive
awards.
Personal
Benefits and Perquisites.
The Committee oversees the design, implementation and
administration of all company-wide benefit programs. We offer
very limited additional benefits to our executive management.
Other than the health, dental, short- and long-term disability,
and life insurance offered generally to our employees, the only
benefit specifically offered to executive management is a
supplemental long-term disability insurance policy. The amounts
relating to these perquisites are disclosed in the footnotes to
the Summary Compensation Table in this Proxy Statement. The
Committee, with the assistance of its consultant, periodically
reviews the cost and prevalence of these programs to ensure that
these programs are in line with competitive practices and are
warranted, based upon the business needs and contributions of
the executive team.
Change
of Control and Severance Benefits
We have
change-in-control
and severance provisions in the employment agreements in place
for our Chief Executive Officer and our other executive officers
who are direct reports to the Chief Executive Officer. For a
further discussion of the
change-in-control
and severance provisions applicable to our executive officers
see Employment Agreements below.
Executive
Compensation Tables
The following tables set forth compensation information for our
named executive officers as defined by the
SECs disclosure requirements for executive compensation in
Item 402(m) of
Regulation S-K
for a smaller reporting company.
Summary Compensation Table.
The table below
sets forth for the fiscal years ended December 31, 2007 and
2006, the compensation awarded to, earned by, or paid to our
named executive officers.
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Change in
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Pension Value
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Non-Equity
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and Nonqualified
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Stock
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Option
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Incentive Plan
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Deferred
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All Other
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Salary
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Bonus
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Awards
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Awards
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Compensation
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Compensation
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)
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($)
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($)(1)
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($)
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Earnings
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($)
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($)
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Kenneth C. Carter, Ph.D.
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2007
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385,510
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453,534
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131,978
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17,677
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(2)
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988,699
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President, Chief Executive Officer and Director
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2006
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362,000
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613,218
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130,000
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23,110
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1,128,328
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Gary Lessing
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2007
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151,042
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(3)
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247,853
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94,500
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172,612
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(4)
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666,007
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Executive Vice President and Chief Financial Officer
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2006
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272,000
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289,301
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85,952
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21,856
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(5)
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669,109
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David D. Muth(6)
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2007
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275,831
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129,873
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73,108
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66,940
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(7)
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545,752
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Executive Vice President and Chief Business Officer
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2006
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77,539
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205,500
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20,474
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40,489
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(8)
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344,002
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David K. Bol, Ph.D.
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2007
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275,831
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130,591
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62,099
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15,175
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(9)
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483,696
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Senior Vice President of Product and Pharmaceutical
Development
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2006
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227,750
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148,828
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58,725
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22,390
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(10)
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457,693
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(1)
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Amounts reflected in this column represent the compensation cost
recognized by Avalon during 2007 and 2006 for stock option
awards made in the reporting year and in prior years, are
calculated in accordance with the provisions of SFAS 123(R)
and exclude the impact of estimated forfeitures related to
service based vesting conditions. See Note 8 of the
consolidated financial statements of the Companys Annual
Report on Form
10-K
for the
years ended December 31, 2006 and 2007 regarding
assumptions underlying the valuation of equity awards.
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15
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(2)
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Consists of (i) $15,356 in 2007 and $18,480 in 2006 for
group health and dental insurance premiums and (ii) other
insurance premiums paid for Dr. Carter.
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(3)
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The salary reported for Mr. Lessing for 2007 sets forth his
compensation through July 2, 2007, the date of
Mr. Lessings resignation of employment with the
Company. Mr. Lessings salary for 2007 on an
annualized basis was $290,233.
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(4)
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Represents $145,116 cash payments made under the terms of
Mr. Lessings termination agreement with the Company,
other than $94,500 in cash payments earned under our annual cash
bonus plan listed under the column Non-Equity Incentive
Plan Compensation in the table above. Also consists of
(i) $18,532 in group health and dental insurance premiums
and (ii) other insurance premiums paid for Mr. Lessing.
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(5)
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For 2006, it consisted of (i) $18,480 in group health and
dental insurance premiums, and (ii) other insurance
premiums paid for Mr. Lessing.
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(6)
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Mr. Muth resigned from the Company on February 20,
2008.
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(7)
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Consists of (i) $15,356 in group health and dental
insurance premiums, (ii) other insurance premiums paid for
Mr. Muth and (iii) $47,769 for reimbursement of
relocation expenses.
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(8)
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Consists of (i) $4,620 in group health and dental insurance
premiums, (ii) other insurance premiums paid for
Mr. Muth, and (iii) $30,415 for reimbursement of
relocation expenses.
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(9)
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For 2007, it consists of (i) $14,024 in group health and
dental insurance premiums and (ii) other insurance premiums
paid for Dr. Bol.
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(10)
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For 2006, it consisted of (i) $18,480 in group health and
dental insurance premiums, and (ii) other insurance
premiums paid for Dr. Bol.
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16
Outstanding Equity Awards At Fiscal
Year-End.
The following table sets forth summary
information regarding the outstanding equity awards at
December 31, 2007 granted to each of our named executive
officers.
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Option Awards
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Stock Awards
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Equity
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Incentive
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Equity
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Plan
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Incentive
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Awards:
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Equity
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Plan
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Market or
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Incentive
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Awards:
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Payout
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Plan
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Number of
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Value of
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Awards:
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Market
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Unearned
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Unearned
|
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Number of
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Number of
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Number of
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Value of
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Shares,
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Shares,
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Securities
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Securities
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Securities
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Number of
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Shares or
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Units or
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Units or
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Underlying
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Underlying
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Underlying
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Shares or
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Units of
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Other
|
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Other
|
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Unexercised
|
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Unexercised
|
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Unexercised
|
|
|
Option
|
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Option
|
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Units of Stock
|
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Stock That
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Rights That
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Rights
|
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Options (#)
|
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Options (#)
|
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Unearned
|
|
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Exercise
|
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Expiration
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That Have Not
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Have Not
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Have Not
|
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That Have
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Name
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Exercisable
|
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Unexercisable
|
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Options (#)
|
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Price ($)
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Date
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Vested (#)
|
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Vested ($)
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Vested
|
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Not Vested
|
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Kenneth Carter, Ph.D.
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15,625
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1.60
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04/04/10
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President, Chief Executive
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25,000
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1.60
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12/06/10
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Officer and Director
|
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159,375
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3.20
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05/03/12
|
|
|
|
|
|
|
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|
|
|
|
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146,670
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|
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6.00
|
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|
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10/26/15
|
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56,468
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|
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51,953
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(1)
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5.50
|
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11/30/15
|
|
|
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|
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168,751
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|
|
|
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56,249
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(2)
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|
3.80
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|
|
|
12/06/16
|
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C. Eric Winzer
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12,499
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107,501
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(3)
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4.24
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|
|
07/02/17
|
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Executive Vice President and Chief Financial Officer
|
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Gary Lessing,
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46,875
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3.20
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|
10/23/11
|
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Executive Vice President
|
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12,500
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|
|
|
|
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3.20
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|
|
05/03/12
|
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and Chief Financial Officer
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43,543
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6.00
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10/26/15
|
|
|
|
|
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|
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|
|
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|
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|
58,105
|
|
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5.50
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11/30/15
|
|
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|
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112,500
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|
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|
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3.80
|
|
|
|
12/06/16
|
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|
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Thomas G. David
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12,500
|
|
|
|
|
|
|
|
|
|
|
|
1.60
|
|
|
|
04/04/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President of
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
3.20
|
|
|
|
10/23/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and General
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
3.20
|
|
|
|
05/03/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counsel
|
|
|
34,834
|
|
|
|
|
|
|
|
|
|
|
|
6.00
|
|
|
|
10/26/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,599
|
|
|
|
5,154
|
(4)
|
|
|
|
|
|
|
5.50
|
|
|
|
11/30/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,376
|
|
|
|
|
|
|
|
10,124
|
(2)
|
|
|
3.80
|
|
|
|
12/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David K, Bol, Ph.D.
|
|
|
6,250
|
|
|
|
|
|
|
|
|
|
|
|
3.20
|
|
|
|
10/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President of
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
3.20
|
|
|
|
12/03/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and Pharmaceutical
|
|
|
11,338
|
|
|
|
6,803
|
(5)
|
|
|
|
|
|
|
6.40
|
|
|
|
06/20/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
17,920
|
|
|
|
|
|
|
|
|
|
|
|
6.00
|
|
|
|
10/26/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,261
|
|
|
|
9,442
|
(6)
|
|
|
|
|
|
|
5.50
|
|
|
|
11/30/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,251
|
|
|
|
|
|
|
|
13,929
|
(2)
|
|
|
3.80
|
|
|
|
12/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David D. Muth
|
|
|
37,499
|
|
|
|
82,501
|
(7)
|
|
|
|
|
|
|
2.62
|
|
|
|
09/21/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President Chief Business Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Michael Hamilton, M.D.
|
|
|
16,000
|
|
|
|
44,000
|
(8)
|
|
|
|
|
|
|
2.84
|
|
|
|
08/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Medical Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Remaining unvested options vest in equal monthly installments of
2,259 shares through October 30, 2009.
|
|
(2)
|
|
Remaining unvested options vest upon achievement of performance
criteria.
|
|
(3)
|
|
Remaining unvested options vest in equal monthly installments of
2,500 shares through July 1, 2011
|
|
(4)
|
|
Remaining unvested options vest in equal monthly installments of
224 shares through October 30, 2009.
|
|
(5)
|
|
Remaining unvested options vest in equal quarterly installments
of 1,134 shares through June 20, 2009.
|
|
(6)
|
|
Remaining unvested options vest in equal monthly installments of
410 shares through October 30, 2009.
|
|
(7)
|
|
One-half of Mr. Muths unvested options vested and his
remaining unvested options were terminated on February 20,
2008 in connection with his resignation from the Company.
|
|
(8)
|
|
Remaining unvested options vest in equal monthly installments of
1,000 shares through July 31, 2011.
|
17
Employment
Agreements
We have employment agreements with the following named executive
officers. The following is a description of these agreements.
Kenneth C.
Carter, Ph.D.
Dr. Carters
employment agreement, as amended, provides for his at-will
employment as our President and Chief Executive Officer. Under
the terms of his agreement, Dr. Carter is entitled to a
minimum starting salary of $165,000 per year and qualifies for
annual bonuses targeted at 50% of his base salary based upon the
achievement of individual
and/or
Company performance criteria established by our Board of
Directors for each fiscal year. Dr. Carters annual
salary is subject to adjustment by our Board of Directors but
may not be less than that provided in his employment agreement.
In addition, Dr. Carters employment agreement
provides that in the event Dr. Carters employment is
terminated by the Company without cause or by
Dr. Carter with good reason (as each term is
defined in his employment agreement), Dr. Carter is
entitled to a lump sum severance payment equal to 18 months
of his then current base salary. Similarly,
Dr. Carters employment agreement provides that
following the termination of his employment by the Company
without cause or by him for good reason he may be paid a
discretionary bonus, including a lump sum payment, as determined
by the Compensation Committee. The agreement also provides that
in the event Dr. Carter is terminated without cause or
terminates his employment for good reason he is entitled to full
accelerated vesting on all of his unvested options.
Dr. Carters employment agreement also provides that
if such termination without cause or for good reason is within
18 months after a change in control of the
Company (as defined in Dr. Carters employment
agreement), Dr. Carter also is entitled to a lump sum
severance bonus payment equal to the product of
(A) 18 months of Dr. Carters base salary as
in effect at the time of termination and (B) the average
bonus award percentage applicable to Dr. Carter during the
3 years preceding the year in which such termination of
employment takes place. Finally, the agreement provides for the
acceleration of vesting upon a change in control of all shares
of stock issuable to Dr. Carter upon exercise of his
outstanding option awards.
Good reason
is defined under
Dr. Carters agreement as (i) termination by the
employee within 18 months of a change in control; or
(ii) termination by the employee within 3 months of a
material diminution in responsibilities as Chief Executive
Officer, no longer reporting to our Board of Directors or the
employees principal workplace changing to more than
50 miles from his current residence at the time of entering
into the employment agreement.
David K. Bol, Ph.D.
Dr. Bols
employment agreement, as amended, provides for his at-will
employment as Vice President of Pharmaceutical Development.
Under the terms of his agreement, Dr. Bol is entitled to a
minimum starting salary of $195,000 per year and qualifies for
annual bonuses based on the attainment of goals set by our
Compensation Committee and approved by our Board of Directors.
Dr. Bols annual salary is subject to adjustment by
our Board of Directors but may not be less than that provided in
his employment agreement. Dr. Bols employment
agreement further provides that in the event Dr. Bols
employment is terminated by the Company without
cause or by Dr. Bol with good
reason (as each term is defined in his employment
agreement) Dr. Bol is entitled to a lump sum severance
payment equal to 6 months (9 months in the event such
termination is without cause or for good reason within
18 months after a change in control (as defined
in his employment agreement)) of his then current base salary.
Additionally, the agreement provides that the Company will
reimburse Dr. Bol for health insurance premiums paid by
Dr. Bol for 6 months following termination of his
employment without cause or for good reason (9 months if
such termination is within 18 months after a change in
control of the Company (as defined in his employment
agreement)). Finally, the agreement provides that should the
Company be subject to a change in control, one-half of the
unvested shares of stock issuable to Dr. Bol upon exercise
of his outstanding option awards shall vest.
Good reason
is defined under
Dr. Bols agreement as (i) termination by the
employee within 18 months of a change in control;
(ii) termination by the employee within 3 months of a
material diminution in responsibilities as Vice President of
Pharmaceutical Development or his principal workplace changing
to more than 50 miles from his current residence at the
time of entering into the employment agreement; or
(iii) the employee dying while our employee.
Each agreement defines change of control as:
(i) any person or group of persons
(as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), becoming the beneficial owner (as
defined in
Rule 13d-3
under
18
the Exchange Act), directly or indirectly, of our securities
representing 50% or more of the combined voting power of our
then outstanding securities; (ii) during any two year
period, individuals who constitute our Board of Directors at the
beginning of such period, together with any new directors
elected or appointed during the period whose election or
appointment resulted from a vacancy on the Board caused by
retirement, death, or disability of a director and whose
election or appointment was approved by a vote of at least a
majority of the directors then still in office who were
directors at the beginning of the period, cease for any reason
to constitute a majority of our Board; (iii) we sell,
assign, convey, transfer, lease or otherwise dispose of all or
substantially all of our assets to any person; (iv) we
consolidate with, or merge with or into another entity, or any
entity consolidates with, or merges with or into, us, in which
the owners of our outstanding voting stock immediately prior to
such merger or consolidation do not represent at least a
majority of the voting power in the surviving entity after the
merger or consolidation; or (v) our stockholders approve a
plan of liquidation or dissolution.
In addition, in connection with the resignations of David D.
Muth as Executive Vice President Business
Development, on February 20, 2008, and Gary Lessing, as
Executive Vice President and Chief Financial Officer, on
July 2, 2007, these former executives received certain
severance benefits under their existing employment agreements or
as otherwise agreed to with the Company. Specifically, in
connection with Mr. Muths resignation, one-half of
his then unvested options vested under the terms of
Mr. Muths employment agreement with the Company, and
the Company agreed to increase from $145,600 to $218,400 the
amount of severance pay to which Mr. Muth was entitled
under the terms of his employment agreement with the Company.
In connection with Mr. Lessing resignation, the
Company entered into a letter agreement with Mr. Lessing
providing the following compensation benefits:
(i) reimbursement for continued health coverage for a
period of one year; (ii) immediate vesting of one-half of
all unvested options held by Mr. Lessing;
(iii) continued eligibility for vesting of performance
based options granted to Mr. Lessing on December 6,
2006, upon the achievement of the specified corporate and
individual goals set forth therein; (iv) extension of the
exercise period of Mr. Lessings options to the
earlier of (A) 39 months following the termination of
his employment, and (B) the unexpired term of such option;
and (v) continued eligibility to receive such bonus for
calendar year 2007 as Mr. Lessing otherwise would have
received under Avalons annual cash incentive compensation
program for 2007 had he remained employed with Avalon for the
entire calendar year. In addition, pursuant to the letter
agreement, the Company agreed to pay Mr. Lessing his
current base salary for a period of six months following the
termination of his employment in exchange for Mr. Lessing
providing the Company with certain consulting services.
Confidentiality, Assignment of Inventions and
Non-Competition.
Each named executive officer has
signed a confidentiality, assignment of inventions and
non-competition agreement providing for the protection of our
confidential information and the ownership of intellectual
property developed by such executive officer. In addition, these
agreements prohibit our executive officers during the term of
their employment and for a period of two years thereafter from
soliciting our employees and consultants to terminate their
employment or consultancy with us and further prohibit our
executive officers from competing with our business during the
term of their employment and for a period of six months
thereafter (12 months in the case of Mr. Lessing).
19
Equity
Compensation Plan Information
The following table sets forth information about securities
available for issuance under our equity compensation plans as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
(a)
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
(b)
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column(a)
|
|
|
Equity compensation plans approved by security holders(1)
|
|
|
2,082,670
|
|
|
$
|
4.12
|
|
|
|
738,803
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,082,670
|
|
|
$
|
4.12
|
|
|
|
738,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of shares of common stock to be issued upon exercise of
outstanding options granted under our 1999 Plan and our
Incentive Plan. Of these plans, the only plan under which
options may be granted in the future is the Incentive Plan.
|
401(k)
Savings Plan
We have adopted a tax-qualified employee savings and retirement
plan, or 401(k) plan, that covers all of our employees who have
completed three months of service and have attained age 21.
Pursuant to our 401(k) plan, participants may elect to
contribute up to 25% of their annual pretax earnings, up to
federally allowed maximum limits, to the 401(k) plan. Commencing
on January 1, 2007, we began matching 50% of the
employees contribution, up to a maximum of 6% of the
employees salary. Any matching contributions vest
immediately.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Participation
in Financing
In January 2007 we completed a private placement of our common
stock to seventeen accredited investors, including Biotechnology
Value Fund and its affiliates (BVF), a holder of
more than 5% of our outstanding common stock at the time of the
private placement. Pursuant to the January 2007 private
placement, BVF purchased 300,000 shares of our common stock
at a per share price of $3.34. Additionally, in May 2007 we
completed a private placement of our common stock to twenty-one
accredited investors, including BVF. Pursuant to the May 2007
private placement, BVF purchased 205,662 shares of our
common stock at a per share price of $5.21 and received warrants
to purchase 51,416 shares of our common stock at a per
share price of $6.00. In connection with these private
placements, we entered into a registration rights agreements
with the investors, including BVF, pursuant to which we agreed
to register the shares of common stock issued (including shares
that are issued upon exercise of their warrants) for resale on
registration statements filed under the Securities Act of 1933
and to provide indemnification and contribution remedies to the
investors in connection with the resale of these shares pursuant
to such registration statements.
Consulting
Agreements
Under a consulting agreement with us, as amended on
August 1, 2007, Mr. Lorimier is entitled to receive
$55,000 per year for business development related services.
Prior to August 1, 2007, Mr. Lorimier was entitled to
receive a consulting fee of $120,000 per year for such services.
Mr. Lorimier received a total of $92,917 in 2007 and
$120,000 in 2006 for services rendered under his consulting
agreement.
20
Under a consulting agreement with Dr. Kurman, he received
$2,100 in consulting fees and options to purchase
1,000 shares of our common stock in 2006 for services
rendered to us in support of our clinical trials. Additionally,
Dr. Scott received in 2007 options to purchase
500 shares of our common stock and in 2006 received options
to purchase 1,101 shares of our common stock in
consideration for his service as a member of our Scientific
Advisory Board.
Employment
Agreements and Indemnification Agreements
Each of our executive officers is a party to an employment
agreement with us. See Executive Compensation
Employment Agreements. In addition, we have entered into
separate indemnification agreements with our directors and
executive officers in addition to the indemnification provided
for in our amended and restated certificate of incorporation and
in our amended and restated bylaws.
REPORT OF
THE AUDIT COMMITTEE
The Board of Directors appoints the Audit Committee each year.
The mission of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities relating
to the Companys accounting and financial reporting
processes and the audits of the Companys financial
statements, and includes evaluating: the integrity of the
financial statements of the Company; the adequacy of the
Companys system of internal controls; the compliance by
the Company with legal and regulatory requirements; the
qualifications and independence of the Companys
independent auditors; and the performance of the Companys
independent and internal auditors. The Companys management
is responsible for preparing the Companys financial
statements and the independent registered public accountants are
responsible for auditing those financial statements and
expressing an opinion as to their conformity with Generally
Accepted Accounting Principles.
In the performance of its oversight function, the Audit
Committee reviewed and discussed with management and
Ernst & Young LLP, the Companys independent
registered public accountants, the Companys audited
financial statements contained in the Companys 2007 Annual
Report on
Form 10-K.
The Audit Committee also discussed with Ernst & Young
LLP the matters required to be discussed by Statement on
Auditing Standards No. 61,
Communication with Audit
Committees, as amended,
as well as the independence of
Ernst & Young LLP from the Company and its management.
Ernst & Young LLP provided the Audit Committee the
written disclosures required by the Independence Standards Board
Standard No. 1,
Independence Discussions with Audit
Committees.
The Audit Committee also received from
Ernst & Young LLP written confirmations with respect
to the non-audit services provided to the Company by
Ernst & Young LLP and considered whether the provision
of such non-audit services was compatible with maintaining
Ernst & Young LLPs independence.
The members of the Audit Committee are not professional
accountants or auditors and, in performing their oversight role,
rely without independent verification on the information and
representations provided to them by management and
Ernst & Young LLP. Accordingly, the Audit
Committees review does not provide an independent basis to
determine that management has maintained appropriate accounting
and financial reporting principles or appropriate internal
controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations.
Furthermore, the Audit Committees activities do not assure
that the audit of the Companys financial statements has
been carried out in accordance with generally accepted auditing
standards, that the financial statements are presented in
accordance with accounting principals generally accepted in the
United States of America or that the Companys independent
auditors are in fact independent.
Based on its review and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial
statements of the Company be included in the Companys
Annual Report to Stockholders and its Annual Report on
Form 10-K
filed with the SEC and determined, subject to ratification by
the Companys stockholders, to retain Ernst &
Young LLP as independent registered public accountants to
conduct an integrated
21
audit of the Companys 2008 consolidated financial
statements and internal control over financial reporting as of
and for the year ending December 31, 2008.
Mr. William Washecka (Chairman)
Dr. Ivor Royston
Dr. David S. Kabakoff
You should not consider this report to be soliciting
materials or to be filed with the SEC. It also
is not subject to the liabilities of Section 18 of the
Exchange Act. In addition, this report shall not be deemed to be
incorporated by reference into any prior or subsequent filing by
Avalon under the federal securities law, except to the extent
that we specifically incorporate it by reference into a document
filed by Avalon under the federal securities laws.
APPOINTMENT
OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee approved the appointment of
Ernst & Young LLP as independent registered public
accountants for the 2008 fiscal year, subject to stockholder
ratification. The Audit Committee, in making its determination,
reviewed the performance of Ernst & Young LLP in prior
years as well as the firms reputation for integrity and
competence in the fields of accounting and auditing. The Audit
Committee has expressed its satisfaction with Ernst &
Young LLP in these respects.
Ernst & Young LLP has served as the Companys
independent registered public accountant since the
Companys inception. Representatives of Ernst &
Young LLP will be present at the stockholders meeting and
will have the opportunity to make such statements as they may
desire. They will also be available to respond to appropriate
questions from the stockholders present.
The Board of Directors recommends that you vote
FOR ratification of the appointment of
Ernst & Young LLP as the Companys independent
registered public accounting firm for the fiscal year ending
December 31, 2008.
Principal
Accountant Fees and Services
Ernst & Young LLP has been our independent registered
public accounting firm since our inception in 1999. Our Audit
Committee has considered whether the provision of non-audit
services is compatible with maintaining Ernst & Young
LLPs independence.
The following table shows the fees that were billed to Avalon by
Ernst & Young LLP for professional services rendered
for the fiscal years ended December 31, 2007 and
December 31, 2006.
|
|
|
|
|
|
|
|
|
Fee Category
|
|
2007
|
|
|
2006
|
|
|
Audit Fees
|
|
$
|
240,424
|
|
|
$
|
235,572
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
13,536
|
|
|
|
12,305
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
253,960
|
|
|
$
|
247,877
|
|
|
|
|
|
|
|
|
|
|
Audit
Fees
This category includes fees for the audit of our annual
financial statements, review of financial statements included in
our quarterly reports on
Form 10-Q
and services that are normally provided by Ernst &
Young LLP in connection with statutory and regulatory filings or
engagements. Also included in audit fees are fees in connection
with the review of SEC registration statements, issuance of
comfort letters and assistance with accounting guidelines on
completed transactions.
22
Audit-Related
Fees
We did not pay any other audit-related fees to Ernst &
Young LLP in connection with their services in 2007 and 2006.
Tax
Fees
This category includes fees for tax compliance services.
All Other
Fees
We did not pay any other fees to Ernst & Young LLP in
connection with their services in 2007 and 2006.
Pre-Approval
of Services
For audit and non-audit services it is the practice of the Audit
Committee to approve all such services before the independent
auditor is engaged to render such services.
The independent auditor must ensure that all audit and non-audit
services provided to Avalon have been approved by the Audit
Committee. The Chief Financial Officer is responsible for
tracking all independent auditor fees against the budget for
such services and for reporting on such fees at least annually
to the Audit Committee.
23
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information relating to the beneficial
ownership of our common stock as of April 18, 2008, by:
(i) each person known by us to beneficially own more than
5% of our outstanding shares of common stock; (ii) each of
our directors; (iii) our named executive officers; and
(iv) all of our directors and executive officers as a group.
Unless otherwise indicated and subject to community property
laws where applicable, each of the stockholders has sole voting
and investment power with respect to the shares beneficially
owned. Unless otherwise noted in the footnotes, the address for
each principal stockholder is in care of Avalon Pharmaceuticals,
Inc. at 20358 Seneca Meadows Parkway, Germantown, Maryland 20876.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Beneficially Owned
|
|
|
Percentage of Shares
|
|
Name
|
|
as of April 18, 2008
|
|
|
Beneficially Owned(1)(2)
|
|
|
Kenneth C. Carter, Ph.D.(3)
|
|
|
667,056
|
|
|
|
3.9
|
%
|
Gary Lessing(4)
|
|
|
273,523
|
|
|
|
1.6
|
%
|
Thomas G. David(5)
|
|
|
130,553
|
|
|
|
*
|
|
David K. Bol, Ph.D.(6)
|
|
|
104,000
|
|
|
|
*
|
|
David D. Muth(7)
|
|
|
80,000
|
|
|
|
*
|
|
J. Michael Hamilton, M.D.(8)
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|
|
24,700
|
|
|
|
*
|
|
C. Eric Winzer(9)
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|
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27,499
|
|
|
|
*
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|
Bradley G. Lorimier(10)
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|
|
47,483
|
|
|
|
*
|
|
Philip Frost, Ph.D., M.D.(11)
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|
|
1,250
|
|
|
|
*
|
|
David S. Kabakoff, Ph.D.(12)
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|
|
12,319
|
|
|
|
*
|
|
Michael R. Kurman, M.D.(13)
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|
|
21,486
|
|
|
|
*
|
|
Ivor Royston, M.D.(14)
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|
|
630,338
|
|
|
|
3.7
|
%
|
William A. Scott, Ph.D.(15)
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|
|
26,003
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|
|
|
*
|
|
William H. Washecka(16)
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|
|
13,986
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|
|
|
*
|
|
Entities affiliated with Federated Investors, Inc.(17)
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|
|
1,387,500
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|
|
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8.1
|
%
|
Entities affiliated with Biotechnology Value Fund, L.P.(18)
|
|
|
1,313,844
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|
|
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7.7
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%
|
Ironwood Investment Management, LLC(19)
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|
|
1,106,468
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|
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|
6.5
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%
|
Merlin BioMed Group, LLC(20)
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|
|
1,059,846
|
|
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|
6.2
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%
|
Entities affiliated with Great Point Partners, LLC(21)
|
|
|
1,000,000
|
|
|
|
5.9
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%
|
Entities affiliated with AIG(22)
|
|
|
925,253
|
|
|
|
5.4
|
%
|
Entities affiliated with Passport Capital, LLC.(23)
|
|
|
904,922
|
|
|
|
5.3
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%
|
All directors and officers as a group (14 persons)
|
|
|
1,486,640
|
|
|
|
8.7
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%
|
|
|
|
*
|
|
Less than one percent
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|
(1)
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|
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes shares of common stock to
which the person has sole or shared voting or investment power
with respect to shares of common stock including those shares
that the person has the right to acquire within 60 days
after April 18, 2008, through the exercise of any stock
option or other right. Shares of common stock subject to options
or rights currently exercisable or exercisable within
60 days of April 18, 2008 are deemed outstanding for
purposes of computing the percentage ownership of the person
holding such option or right but are not deemed outstanding for
purposes of computing the percentage ownership of any other
person.
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|
(2)
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|
17,033,441 shares of Avalon common stock were outstanding
on April 18, 2008.
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24
|
|
|
(3)
|
|
Includes 639,431 shares of common stock underlying options
currently exercisable or exercisable within 60 days of
April 18, 2008 and 3,750 shares of common stock held
in trust for the benefit of Dr. Carters minor child
for which Dr. Carter disclaims beneficial ownership.
|
|
(4)
|
|
Consists of 273,523 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008.
|
|
(5)
|
|
Includes 129,553 shares of common stock underlying options
currently exercisable or exercisable within 60 days of
April 18, 2008.
|
|
(6)
|
|
Consists of 104,000 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008.
|
|
(7)
|
|
Consists of 80,000 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008.
|
|
(8)
|
|
Consists of 22,000 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008, and (ii) 2,700 shares of
common stock held by Dr. Hamiltons spouse.
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|
(9)
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|
Consists of 27,499 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008.
|
|
(10)
|
|
Includes 38,603 shares of common stock underlying options
currently exercisable or exercisable within 60 days of
April 18, 2008.
|
|
(11)
|
|
Consists of 1,250 shares of common stock underlying options
currently exercisable or exercisable within 60 days of
April 18, 2008.
|
|
(12)
|
|
Consists of 12,319 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008.
|
|
(13)
|
|
Consists of 21,486 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008.
|
|
(14)
|
|
Includes (i) 20,486 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008, (ii) 546,833 shares of common
stock and 3,750 shares of common stock underlying options
currently exercisable or exercisable within 60 days of
April 18, 2008 held by Forward Ventures IV, L.P., and
(iii) 46,358 shares of common stock held by Forward
Ventures IV, B, L.P. Forward Ventures IV Associates, LLC is
the general partner of Forward Ventures IV, L.P. and Forward
Ventures IV, B, L.P. Voting and investment power over these
shares is shared by the managing members of Forward Venture
Associates, including Dr. Ivor Royston. Dr. Royston
disclaims beneficial ownership of the securities held by
entities affiliated with Forward Ventures IV Associates,
LLC except to the extent of his pecuniary interest therein.
Dr. Roystons business address is
c/o Forward
Ventures, 9393 Towne Centre Drive, Suite 200,
San Diego, CA 92121.
|
|
(15)
|
|
Consists of 26,003 shares of common stock underlying
options currently exercisable or exercisable within 60 days
of April 18, 2008.
|
|
(16)
|
|
Includes 13,986 shares of common stock underlying options
currently exercisable or exercisable within 60 days of
April 18, 2008.
|
|
(17)
|
|
Consists of 1,200,000 shares of common stock and 187,500
warrants for common stock held by entities affiliated with
Federated Investors, Inc. Federated Equity Management Company of
Pennsylvania and Federal Global Investment Management Corp. are
wholly-owned subsidiaries of FII Holdings, Inc., and act as
investment advisors to the registered investment companies and
separate accounts that own these shares of our common stock. FII
Holdings, Inc. is a wholly-owned subsidiary of Federated
Investors, Inc. John F. Donahue, Rhodora J. Donahue and J.
Christopher Donahue are the trustees of the Voting
Shares Irrevocable Trust, which holds all of the
outstanding voting stock of Federated Investors, Inc. Each
trustee has shared voting and investment power over the shares,
and, therefore, may be deemed to be the beneficial owners of
these shares. These trustees, the Voting Shares Irrevocable
Trust and Federated Investors, Inc. disclaim beneficial
ownership of these shares. The address for entities affiliated
with Federated Investors, Inc. is Federated Investors Tower,
Pittsburgh, PA
15222-3779.
|
25
|
|
|
(18)
|
|
Consists of (i) 704,672 shares of common stock and
28,250 warrants for common stock held by BVF Investments, LLC,
(BVF Investments), (ii) 278,837 shares of
common stock and 11,666 warrants for common stock held by
Biotechnology Value Fund, LP, (BVF),
(iii) 195,113 shares of common stock and 8,000
warrants for common stock held by Biotechnology Value
Fund II, LP (BVF II), and
(iv) 83,806 shares of common stock and 3,500 warrants
for common stock held by Investment 10, LLC (ILL10).
BVF Partners LP and BVF, Inc. share voting and investment power
over shares of the common stock beneficially owned by BVF,
BVFII, BVF Investments and ILL10, on whose behalf BVF Partners
acts as an investment manager and , accordingly, BVF Partners
and BVF, Inc. have beneficial ownership of all the shares of the
common stock and warrants for common stock owned by such
parties. The address for entities affiliated with Biotechnology
Value Fund, LP is One Sansome Street,
39
th
Floor, San Francisco, CA 94104.
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|
(19)
|
|
Consists of 1,106,468 shares of common stock held by
Ironwood Investment Management, LLC. Ironwood Investment
Management, LLC possesses sole power to vote and direct the
disposition of all securities of Avalon. The address for
Ironwood Investment Management, LLC is 21 Custom House Street,
Suite 240, Boston, MA 02110.
|
|
(20)
|
|
Consists of 1,059,846 shares of common stock held by Merlin
BioMed Private Equity Advisors, LLC. Merlin BioMed Private
Equity Advisors, LLC and Dominique Semon share voting and
investment power with respect to all shares of Avalon common
stock held by Merlin BioMed Private Equity Advisors, LLC. The
address for Merlin BioMed Private Equity Advisors, LLC is 230
Park Avenue, Suite 928, New York, New York 10169.
|
|
(21)
|
|
Consists of (i) 432,000 shares of common stock and
108,000 warrants for common stock held by Biomedical Value Fund,
LP, (BMVF), and (ii) 368,000 shares of
common stock and 92,000 warrants for common stock held by
Biomedical Offshore Value Fund, Ltd. (BMOVF). Great
Point Partners, LLC is the investment manager of BMVF and BMOVF,
and, as such, possess sole power to vote and direct the
disposition of all securities of Avalon held by BMVF and BMOVF.
Each of Dr. Jeffrey R. Jay, M.D., as senior managing
member of Great Point, and Mr. David Kroin, as special
managing member of Great Point, has voting and investment power
with respect to the BMVF and BMOVF shares. The address of
entities affiliated with Great Point Partners, LLC is 165 Mason
Street,
3
rd
Floor, Greenwich, Connecticut 06830
|
|
(22)
|
|
Consists of 925,253 shares of common stock held by American
International Group, Inc., AIG Global Asset Management Holdings
Corp., and AIG Global Investment Corp., each of which report to
have beneficial ownership consisting of the shared power to vote
and direct the disposition of these shares of our common stock.
American International Group, Inc. is the sole stockholder of
AIG Global Asset Management Holdings Corp., which is the parent
holding company of AIG Global Investment Corp. The address for
American International Group, Inc. and AIG Global Asset
Management Holdings Corp. is 70 Pine Street, New York, New York
10270. The address for AIG Global Investment Corp. is 175 Water
Street, New York, New York 10038.
|
|
(23)
|
|
Consists of 904,922 shares of common stock, of which
877,619 shares of common stock are held directly by the
Passport Global Master Fund SPC Ltd for and on behalf of
Portfolio A Global Strategy
(Fund I) and 27,303 shares of common stock
are held directly by the Partners Group Alternative Strategies
PCC Limited Gold Iota Cell (Fund II). John
Burbank is the sole managing member of Passport Capital, LLC.
Passport Capital, LLC is the sole managing member of Passport
Holdings, LLC and Passport Management, LLC. Passport Management,
LLC is the investment manager to Fund I and trading advisor
to Fund II. As a result, each of Passport Capital, LLC,
Passport Holdings, LLC, Passport Management, LLC and John
Burbank share the power to vote or direct the vote of, and the
power to dispose or direct the disposition of all these shares
of our common stock owned of record by Fund I and Fund II.
The address for entities affiliated with Passport Capital, LLC
is 30 Hotaling Place, Suite 300, San Francisco, CA
94111.
|
OTHER
MATTERS
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our
executive officers and directors and other persons who
beneficially own more than 10% of a registered class of our
equity securities file with the SEC initial reports of ownership
and reports of changes in ownership of shares and other equity
securities of Avalon. Such executive
26
officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish us with copies of all
Section 16(a) forms filed by such reporting persons.
Based solely on our review of such forms furnished to us, we
believe that all filing requirements applicable to our executive
officers, directors and greater than 10% beneficial owners were
complied with in fiscal 2007, except that a Form 4 was not
timely filed by each of Drs. Kabakoff, Kurman, Royston,
Scott and Walton and Messrs. Lorimier and Washecka, in
respect of the grant of stock option awards to these directors
on June 7, 2007, under our non-employee director
compensation policy.
Other
Proposals
The Board of Directors of the Company knows of no matters to be
presented at the Annual Meeting other than those described in
this Proxy Statement. In the event that other business properly
comes before the meeting, it is the intention of the proxy
holders to vote as recommended by the Board of Directors.
Deadline
for Submission of Stockholder Proposals for Next Years
Annual Meeting
Pursuant to
Rule 14a-8
under the Securities Exchange Act of 1934, some proposals by
stockholders may be eligible for inclusion in our proxy
statement for our 2009 annual meeting. Submitted stockholder
proposals must include proof of ownership of Avalon common stock
in accordance with
Rule 14a-8(b)(2).
These submissions must comply with the rules of the SEC for
inclusion in our proxy statement and must be received no later
than January 3, 2009. Submitting a stockholder proposal
does not guarantee that we will include it in our proxy
statement. We strongly encourage any shareholder interested in
submitting a proposal to contact our Corporate Secretary in
advance of this deadline to discuss the proposal, and
stockholders may want to consult knowledgeable counsel with
regard to the detailed requirements of applicable securities
laws.
If you wish to present a proposal or nomination before our 2009
annual meeting, but you do not intend to have your proposal
included in our 2009 proxy statement, your proposal must be
delivered no earlier than February 4, 2009 and no later
than March 6, 2009. If the date of our 2009 annual meeting
of stockholders is more than 30 days before or more than
70 days after the anniversary date of the Annual Meeting,
your submission must be delivered not earlier than 120 days
prior to such annual meeting and not later than the later of the
90th day prior to such annual meeting or the tenth day
following the public announcement of the date of such meeting.
The relevant bylaw provisions regarding the requirements for
making stockholder proposals and nominating director candidates
are available on the Corporate Governance page of
the Investors portion of our website at
http://www.avalonrx.com
.
To submit a proposal or nomination, stockholders should provide
written notice to Avalon Pharmaceuticals, Inc., 20358 Seneca
Meadows Parkway, Germantown, Maryland 20876, Attention:
Corporate Secretary.
Annual
Report on
Form 10-K
We are providing to each stockholder as of the record date a
copy of our Annual Report on
Form 10-K
concurrently with this Proxy Statement, as filed with the SEC,
except the exhibits to the
Form 10-K.
We will provide copies of these exhibits upon request by
eligible stockholders, and we may impose a reasonable fee for
providing such exhibits. Requests for copies of such exhibits
should be mailed to our Corporate Secretary, Thomas G. David, at
20358 Seneca Meadows Parkway, Germantown, Maryland 20876.
27
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
Thomas G. David
Corporate Secretary
Avalon Pharmaceuticals, Inc.
Germantown, Maryland 20876
April 29, 2008
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|
|
|
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20358 Seneca
Meadows Parkway
|
Germantown, Maryland 20876
|
301-556-9900
|
Fax:
301-556-9910
|
http://www.avalonrx.com
|
28
ANNUAL MEETING OF STOCKHOLDERS OF AVALON PHARMACEUTICALS, INC.
June 4, 2008
Please complete, date, sign and mail your proxy card
in the envelope provided as soon as possible.
(Please detach along perforated line and mail in the envelope provided)
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE:
þ
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1.
|
|
To elect six (6) directors to serve on the Companys Board of
Directors for a term of one year and until their successors are
elected and qualified.
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NOMINEES:
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o
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FOR ALL NOMINEES
|
|
¡
|
|
Kenneth C. Carter, Ph.D.
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¡
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|
Philip Frost, M.D., Ph.D.
|
|
|
o
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WITHHOLD AUTHORITY
|
|
¡
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|
David S. Kabakoff, Ph.D.
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|
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FOR ALL NOMINEES
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|
¡
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|
Michael R. Kurman, M.D.
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¡
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Bradley G. Lorimier
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o
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FOR ALL EXCEPT
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¡
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|
William H. Washecka
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(See instructions below)
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INSTRUCTIONS:
|
|
To withhold authority to vote for any individual nominee(s),
mark FOR ALL EXCEPT and fill in the circle next to each
nominee you wish to withhold, as shown
here:
l
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FOR
|
|
AGAINST
|
|
ABSTAIN
|
2.
|
|
To ratify the appointment of
Ernst & Young LLP as the
Companys independent
registered public accounting
firm for the fiscal year ending
December 31, 2008.
|
|
o
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|
o
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|
o
|
The named proxies may vote in their discretion upon such other matters that may properly come
before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2008.
If this proxy is properly executed and returned, the shares represented thereby will be voted as
directed by the undersigned stockholder. If not otherwise specified, the shares represented by this
proxy will be voted FOR the election of directors and FOR the ratification of the appointment
of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal
year ending December 31, 2008.
The undersigned hereby acknowledges receipt of a copy of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated
April 29, 2008
.
To change the address on your account, please check the box at right and indicate your new address
in the space above. Please note that changes to the registered name(s) on the account may not be
submitted via this method.
o
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Signature of
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Signature of
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Stockholder:
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Stockholder:
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Date:
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Date:
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Note:
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly,
each holder should sign. When signing as executor, administrator, attorney, trustee or guardian,
please give full title as such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
AVALON PHARMACEUTICALS, INC.
20358 Seneca Meadows Parkway
Germantown, MD 20876
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dr. Kenneth C. Carter (Chief Executive Officer and President) and
Mr. Thomas G. David (Senior Vice President of Operations, General Counsel and Secretary) as
proxies, each with full power of substitution, to represent and vote as designated on the reverse
side, all the shares of Common Stock of Avalon Pharmaceuticals, Inc. (the Company) held of record
by the undersigned on April 18, 2008 at the Annual Meeting of Stockholders to be held at the
Companys headquarters located at 20358 Seneca Meadows Parkway, Germantown, MD 20876, on June 4,
2008 at 9:30 a.m. (Eastern Time), or any adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
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