AVGN Avigen (MM)

Audit Committee

      The Audit Committee of the Board of Directors oversees Avigen’s corporate accounting and financial reporting process and has the direct responsibility for the appointment, compensation, retention and oversight of the work of Avigen’s independent registered public accounting firm, which reports directly and is accountable to the Audit Committee. For this purpose, the Audit Committee performs several functions. The Audit Committee met eight times during the fiscal year. The Audit Committee: has the sole authority to select, evaluate, replace and determine the compensation for Avigen’s independent registered public accounting firm; evaluates the independent registered public accounting firm’s performance and assesses its qualifications; has the sole authority to approve audit and permissible non-audit services to be performed by Avigen’s independent registered public accounting firm; oversees the independence of Avigen’s independent registered public accounting firm and is responsible for receiving written statements from Avigen’s independent registered public accounting firm delineating all relationships between Avigen’s independent registered public accounting firm and Avigen consistent with Independence Standards Board Standard No. 1; establishes and maintains procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by Avigen regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviews with Avigen’s independent registered public accounting firm the adequacy and effectiveness of Avigen’s internal control over financial reporting; meets to review Avigen’s annual audited financial statements and quarterly financial statements with management and the independent registered public accounting firm, including reviewing Avigen’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” and has the specific responsibilities and authority necessary to comply with the Nasdaq listing standards applicable to audit committees. The Audit Committee is governed by a written Audit Committee Charter. A current copy is available on our website at www.avigen.com.

      The Board of Directors annually reviews the Nasdaq listing standards’ definition of independence for audit committee members and has determined that all members of Avigen’s Audit Committee are independent (as independence is currently defined in Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing standards). Pursuant to applicable SEC rules, Avigen is required to disclose whether it has an “audit committee financial expert” serving on its Audit Committee. Although each member of the Audit Committee has been selected by the Board of Directors based on the Board of Directors’ determination that they are fully qualified to monitor the performance of management, the public disclosures by Avigen of its financial condition and results of operations, Avigen’s internal control over financing reporting and the performance of Avigen’s independent registered public accounting firm, as well as to analyze and evaluate Avigen’s financial statements, the Board of Directors has determined that none of the members of the Audit Committee meet all of the criteria set forth in such rules qualifying them as an “audit committee financial expert.” The Board of Directors has determined that it is not inappropriate for the Audit Committee not to have an “audit committee financial expert” because Avigen’s financial statements are not overly complex, given the current stage of Avigen’s development, and the fact that Avigen does not currently have any regular revenue from operations, such that, in the judgment of the Board of Directors, the financial sophistication of the current members of the Audit Committee, as proven by their service on the Audit Committee over the years as well as in their occupations outside of Avigen, is sufficient for the Audit Committee to ensure the integrity of Avigen’s financial statements and to fully and completely fulfill its role under its charter. In addition, the Audit Committee has the ability on its own to retain and determine the compensation for, at Avigen’s expense, special legal, accounting or other advisors or consultants whenever it deems necessary or appropriate.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS ¹

      The Audit Committee of the Board of Directors for the fiscal year ended December 31, 2008 consisted of Drs. Horovitz, Öhrström and Prendergast. All members of Avigen’s Audit Committee are independent (as independence is defined in Rules 4200(a)(15) and 4350(d)(2) of the Nasdaq listing standards). The Audit Committee is governed by a written Audit Committee Charter adopted by the Board of Directors.

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¹ The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of Avigen under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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      The Audit Committee oversees Avigen’s financial reporting process on behalf of the Board of Directors. Management has primary responsibility for the financial statements and the reporting process including the systems of internal controls and disclosure controls and procedures. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in Avigen’s Annual Report on Form 10-K with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

      The Audit Committee is responsible for reviewing, approving and managing the engagement of Avigen’s independent registered public accounting firm, including the scope, extent and procedures of the annual audit and compensation to be paid therefor, and all other matters the Audit Committee deems appropriate, including the independent registered public accounting firm’s accountability to the Board of Directors and the Audit Committee. The Audit Committee reviewed with Avigen’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles in the United States, its judgments as to the quality, not just the acceptability, of Avigen’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards and those matters required to be discussed by the Statement on Auditing Standards No. 114, The Auditor’s Communication with those charged with Governance, which superseded the Statement on Auditing Standards No. 61. In addition, the Audit Committee has discussed with Avigen’s independent registered public accounting firm its independence from management and Avigen, including the matters in the written disclosures and letter received by the Audit Committee from Avigen’s independent registered public accounting firm as required by the Independence Standards Board Standard No. 1, and has considered the compatibility of non-audit services, if any, with the independence of Avigen’s independent registered public accounting firm.

      The Audit Committee discussed with Avigen’s independent registered public accounting firm the overall scope and plans for its audits. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of its examinations, its evaluation of Avigen’s internal control over financial reporting, and the overall quality of Avigen’s financial reporting.

      As of the date of this proxy statement, Avigen’s financial statements for 2008 had not been completed.

      The Audit Committee has retained, subject to stockholder ratification at the 2009 Annual Meeting of Stockholders, Odenberg, Ullakko, Muranishi & Co. LLP as Avigen’s independent registered public accounting firm for the fiscal year ending December 31, 2009.

AUDIT COMMITTEE

      J OHN K. A. P RENDERGAST , P H .D. ( C HAIR ) 
      Z OLA H OROVITZ , P H .D. 
      J AN K. Ö HRSTRÖM , M.D.

Compensation Committee

      The Compensation Committee of the Board of Directors for the fiscal year ended December 31, 2008 consisted of Dr. Prendergast and Mr. Wallace, and Dr. Iwaki prior to his resignation from the Board of Directors effective May 19, 2008. Dr. Dilly joined the Compensation Committee effective February 6, 2009. All members of Avigen’s Compensation Committee are independent (as independence is currently defined in Rule 4200(a)(15) of the Nasdaq listing standards. The Compensation Committee met six times during the 2008 fiscal year. The Compensation Committee has adopted a written charter. A current copy is available to stockholders on our website at www.avigen.com.

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      The Compensation Committee of the Board of Directors acts on behalf of the Board of Directors to review, approve and oversee Avigen’s compensation strategy, policies, plans and programs, including:

• establishment of corporate and individual performance objectives relevant to the compensation of Avigen’s executive officers and other senior management and evaluation of performance in light of these stated objectives;

• review and recommendation to the Board of Directors for approval of the compensation and other terms of employment or service, including severance and change-in-control arrangements, of Avigen’s Chief Executive Officer and other senior management;

• administration of Avigen’s equity compensation plans, pension and profit-sharing plans, deferred compensation plans and other similar plan and programs; and

• review of Avigen’s Compensation Discussion and Analysis with management and consideration of whether to recommend that it be included in proxy statements and other filings.

Compensation Committee Processes and Procedures

      Typically, the Compensation Committee meets quarterly and with greater frequency if necessary. The agenda for each meeting is usually developed by the Committee Chair, in consultation with the Chief Executive Officer. The Compensation Committee meets regularly in executive session. However, from time to time, various members of management may be invited by the Compensation Committee to make presentations, provide financial or other background information or advice or otherwise participate in Compensation Committee meetings. The Chief Executive Officer reviews the performance of each executive officer, other than his own, with the Compensation Committee and makes compensation recommendations, which the Compensation Committee considers in its final determination. The Chief Executive Officer may not participate in or be present during any deliberations or determinations of the Compensation Committee regarding his compensation or individual performance objectives. The charter of the Compensation Committee grants the Compensation Committee full access to all books, records, facilities and personnel of Avigen, as well as authority to obtain, at the expense of Avigen, advice and assistance from internal and external legal, accounting or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties. In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

      Historically, the Committee evaluates management’s and each individual’s performance based on the achievement of corporate goals set by the Chief Executive Officer and the Board of Directors. During 2008, the Compensation Committee met in session several times and discussed Avigen’s performance toward achieving its established operating objectives, as well as the performance of individual members of senior management. However, given the company’s immediate efforts to preserve cash in response to the termination of the AV650 program, the Committee, with the support of management, determined not to take any immediate actions on compensation for fiscal 2008.

      The specific determinations of the Compensation Committee with respect to executive compensation for fiscal 2008 are described in greater detail in the Compensation Discussion and Analysis section of this proxy statement.

Compensation Committee Interlocks and Insider Participation

      Dr. Prendergast, Mr. Wallace and Dr. Iwaki served as members of the Compensation Committee during the fiscal year ended December 31, 2008. Dr. Dilly joined the Compensation Committee effective February 6, 2009. No member of the Committee was, at any time during fiscal 2008, an officer or employee of Avigen. Dr. Prendergast was an executive officer of Avigen from December 1992 to March 1996. There are no Compensation Committee interlocks between Avigen and any other entities involving our executive officers and Board members who serve as executive officers or Board members of such entities.

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Compensation Committee Report ²

      The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended 2008.

COMPENSATION COMMITTEE

      J OHN K. A. P RENDERGAST , P H .D. ( C HAIR )
      R ICHARD W ALLACE , B.C OM . (H ONS )
      S TEPHEN D ILLY , M.B.B.S., P H .D.

Corporate Governance and Nominating Committee

      The Corporate Governance and Nominating Committee of the Board of Directors, in consultation with the Chief Executive Officer, has the primary responsibility for establishing criteria for Board membership and identifying, evaluating, reviewing and recommending qualified candidates to serve as directors of Avigen. The Corporate Governance and Nominating Committee also has the primary responsibility for evaluating, reviewing and considering the recommendation for nomination of current directors for election to the Board of Directors as well as monitoring the size of the Board of Directors, has the power and authority to consider Board nominees and proposals submitted by Avigen’s stockholders and to establish any procedures to facilitate stockholder communication with the Board of Directors. In this regard, the Corporate Governance and Nominating Committee recommended to the Board of Directors that each director be nominated in his class at the Annual Meeting of Stockholders. The Corporate Governance and Nominating Committee also periodically reviews, discusses and assesses the performance of the Board of Directors and Board committees; annually recommends to the Board of Directors the chairmanship and membership of each Board committee; develops corporate governance principles and periodically reviews and assesses these principles and their application; oversees and reviews the processes and procedures used by Avigen to provide information to the Board of Directors and its committees; and periodically reviews the compensation paid to non-employee directors for their service on the Board of Directors and its committees, and recommends any changes to the full Board of Directors for its approval. Avigen’s Corporate Governance and Nominating Committee charter is available on our website at www.avigen.com. All members of the Corporate Governance and Nominating Committee are independent (as independence is currently defined in Rule 4200(a)(15) of the Nasdaq listing standards).

      The Corporate Governance and Nominating Committee believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Corporate Governance and Nominating Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of Avigen, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of Avigen’s stockholders. However, the Corporate Governance and Nominating Committee retains the right to modify these qualifications from time to time. Candidates for director nominees are evaluated by the Corporate Governance and Nominating Committee in the context of the current composition of the Board of Directors, the operating requirements of Avigen and the long-term interests of Avigen’s stockholders. In conducting this assessment, the Corporate Governance and Nominating Committee considers the criteria for director qualifications set by the Board of Directors, as well as diversity, age, skills, and such other factors as it deems appropriate given the current needs of the Board of Directors and Avigen to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Corporate Governance and Nominating Committee reviews such directors’ overall service to Avigen during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence.

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² The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of Avigen under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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In the case of new director candidates, the Corporate Governance and Nominating Committee will also determine whether the nominee must be independent for Nasdaq purposes, which determination is based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Corporate Governance and Nominating Committee may also use its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Corporate Governance and Nominating Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board of Directors. The Corporate Governance and Nominating Committee meets to discuss and consider such candidates’ qualifications and then selects, by majority vote, a nominee for recommendation to the Board of Directors.

      The Corporate Governance and Nominating Committee will consider director candidates recommended by stockholders. The Corporate Governance and Nominating Committee does not intend to alter the manner in which it evaluates candidates based on whether the candidate was recommended by a stockholder. Stockholders who wish to recommend individuals for consideration by the Corporate Governance and Nominating Committee to become nominees for election to the Board of Directors may do so by delivering a written recommendation to the Corporate Governance and Nominating Committee at the following address: 1301 Harbor Bay Parkway, Alameda, California 94502, not less than six months prior to any meeting at which directors are to be elected. Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record owner of Avigen’s stock. Any such submission must be accompanied by the written proxy of the proposed nominee to be named as a nominee and to serve as a director if elected. To date, the Corporate Governance and Nominating Committee has not received a timely director nominee from a stockholder of Avigen.

STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS

      Avigen’s Board of Directors has adopted a formal process by which stockholders may communicate with the Board of Directors or any of its directors. Stockholders who wish to communicate with the Board of Directors or an individual director may send a written communication addressed as follows: Avigen Board Communication, 1301 Harbor Bay Parkway, Alameda, California 94502. Communications may also be sent by e-mail to the following address: board@avigen.com. Each communication sent must state the number of shares owned by the stockholder making the communication. Each communication will be reviewed by the Corporate Secretary of Avigen who will forward such communication to the Board of Directors or to any individual director to whom the communication is addressed unless the communication is unduly frivolous, hostile, threatening or similarly inappropriate, in which case, the Corporate Secretary will discard the communication.

CODE OF BUSINESS CONDUCT AND ETHICS

      Avigen has adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available on our website at www.avigen.com. The Code of Business Conduct and Ethics may be found as follows:

• From our main Web page, first click on “Investors.”

• Next, click on “Corporate Governance.”

• Next, click on “Conduct.”

• Finally, click on “Code of Business Conduct and Ethics.”

      Avigen intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics by posting such information on its website at the address and the location specified above.

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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information regarding the ownership of Avigen’s common stock as of January 31, 2009 by: (1) each director and nominee for director; (2) each of the executive officers named in the Summary Compensation Table; (3) all executive officers and directors of Avigen as a group; and (4) all those known by Avigen to be beneficial owners of more than five percent of its common stock. Percentage ownership amounts are based on 29,769,115 outstanding shares as of January 31, 2009.

		Beneficial Ownership (1)
		Number of			Percent of
Beneficial Owner		Shares		Total
Kenneth Chahine, J.D., Ph.D. (2)		743,155				2.44	%
Andrew Sauter (3)		277,955				*
Michael Coffee (2)		348,997				1.16	%
Kirk Johnson, Ph.D. (2)		333,859				1.11	%
M. Christina Thomson, J.D.(2)		350,344				1.16	%
Stephen Dilly, M.B.B.S., Ph.D. (2)		22,300				*
Zola Horovitz, Ph.D.(4)		147,500				*
Jan Öhrström, M.D. (2)		22,300				*
John Prendergast, Ph.D.(5)		141,608				*
Richard Wallace (2)		39,950				*
All executive officers and directors as a group (10 persons)(6)		2,427,968				7.55	%
5% Stockholders
BVF, Inc. (7)		8,819,600				29.6	%
900 North Michigan Avenue, Suite 1100
Chicago, IL 60611
HealthCor Management, L.P. (8)		1,950,000				6.55	%
Carnegie Hall Tower
152 West 57th Street, 47th Floor
New York, NY 10019

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*		Less than one percent.
(1)		This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, Avigen believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 29,769,115 shares outstanding on January 31, 2009, adjusted as required by rules promulgated by the SEC. Unless otherwise indicated, the address of each of the individuals and entities listed in this table is c/o Avigen at the address on the first page of this proxy statement.
(2)		Consists solely of shares issuable upon the exercise of options that are exercisable within 60 days of the date of this table.
(3)		Includes 273,830 shares issuable upon the exercise of options held by Mr. Sauter that are exercisable within 60 days of the date of this table.
(4)		Includes 142,500 shares issuable upon the exercise of options held by Dr. Horovitz that are exercisable within 60 days of the date of this table.

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(5)		Includes 102,500 shares issuable upon the exercise of options held by Dr. Prendergast that are exercisable within 60 days of the date of this table.
(6)		Includes an aggregate of 2,379,735 shares issuable upon exercise of options which executive officers and directors of Avigen have the right to acquire within 60 days of the date of this table.
(7)		Based upon a Schedule 13D/A filed with the SEC on January 12, 2009 by Biotechnology Value Fund, L.P. and includes shares owned by the following affiliated entities: (a) Biotechnology Value Fund, L.P. (“Fund I”) 1,975,340 shares; (b) Biotechnology Value Fund II, L.P. (“Fund II”) 1,364,911 shares; (c) BVF Investments, L.L.C. (“Investments”) 4,969,764 shares; and (d) Investment 10, L.L.C. (“Investment 10”) 509,585 shares. BVF, Inc. (“BVF”) and BVF Partners (“Partners” and, together with Fund I, Fund II, Investments and BVF, the “BVF Entities”) beneficially own 8,819,600 aggregate shares.
(8)		Based upon a Schedule 13G filed with the SEC on May 14, 2008. Collectively, HealthCor, L.P., Healthcor Offshore, Ltd. and HealthCor Hybrid Offshore, Ltd. (each a “Fund” and together, the “Funds”) are the beneficial owners of a total of 1,950,000 shares of Avigen common stock. By virtue of its position as the investment manager of the Funds, HealthCor Management, L.P. may be deemed a beneficial owner of all the shares of common stock owned by the Funds. HealthCor Associates, LLC is the general partner of HealthCor Management, L.P. and thus may also be deemed to beneficially own the shares of Common Stock that are beneficially owned by the Funds. HealthCor Group LLC is the general partner of HealthCor Capital, L.P., which is in turn the general partner of HealthCor, L.P. Accordingly, each of HealthCor Capital L.P. and HealthCor Group, LLC may be deemed to beneficially own the shares of common stock that are beneficially owned by HealthCor, L.P. As the Managers of HealthCor Associates, LLC, Arthur Cohen and Joseph Healey exercise both voting and investment power with respect to the shares of common stock, and therefore each may be deemed a beneficial owner of such common stock. Each of the reporting persons disclaims any beneficial ownership of any such shares in excess of their actual pecuniary interest therein. The address for all entities other than Arthur Cohen is set forth in the table, and the address of Arthur Cohen is 12 South Main Street, #203 Norwalk, CT 06854.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934 (the “ 1934 Act ”) requires Avigen’s directors and executive officers, and persons who own more than ten percent of a registered class of Avigen’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Avigen. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish Avigen with copies of all Section 16(a) forms they file.

      To Avigen’s knowledge, based solely on a review of the copies of such reports furnished to Avigen and written representations that no other reports were required, during the fiscal year ended December 31, 2008, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.

CHANGE IN CONTROL OF AVIGEN, INC.

      Since January 1, 2008, based on Form 4s filed with the SEC starting in October 2008, BVF has increased the number of shares it beneficially owns from 1,596,837 aggregate shares, or 5.4%, to 8,819,600 aggregate shares, or 29.6% -- an increase in BVF’s ownership of 24.3%. Such shares are owned by the following entities affiliated with BVF and BVF Partners, L.P.: (a) Fund I - 1,975,340 shares; (b) Fund II - 1,364,911 shares; (c) Investments - 4,969,764 shares; and (d) Investment 10 - 509,585 shares.

      Based on a Schedule 13D/A filed on January 12, 2009 by Biotechnology Value Fund, L.P., on January 9, 2009, the BVF Entities, Mark N. Lampert, Matthew D. Perry, Oleg Nodelman Robert M. Coppedge entered into a Joint Filing and Solicitation Agreement (the “Joint Filing and Solicitation Agreement”) in which, among other things, (a) the parties agreed to the joint filing and solicitation on behalf of each of them of statements on Schedule 13D with respect to Avigen’s securities to the extent required under applicable securities laws and (b) the parties agreed to form a group for the purpose of soliciting proxies or written consents in support of the election of Messrs. Lampert, Nodelman, Perry and Coppedge and certain other proposals at the Special Meeting and for the purpose of taking all other actions incidental to the foregoing. Additionally, pursuant to a letter agreement, BVF has agreed to indemnify Mr. Coppedge against claims arising from the solicitation of proxies from Avigen’s stockholders at the Special Meeting and any related transactions.  

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EXECUTIVE OFFICERS

      Our executive officers and their respective ages and positions as of January 31, 2009, are as follows:

Name		Age		Position
Kenneth G. Chahine, J.D., Ph.D.		43		President, Chief Executive Officer and Director
Michael D. Coffee		63		Chief Business Officer
Kirk Johnson, Ph.D.		49		Vice President, Research and Development
Andrew A. Sauter		41		Chief Financial Officer
M. Christina Thomson, J.D.		37		Vice President, General Counsel and Secretary

      All of our officers are elected annually by the Board of Directors. There is no family relationship between or among any of the officers or directors.

      Kenneth G. Chahine, J.D., Ph.D., was appointed President, Chief Executive Officer and director of Avigen in March 2004. Dr. Chahine had previously served as Avigen’s Chief Operating Officer since July 2002 and as Vice President, Business Development and Intellectual Property since 1998. Prior to joining Avigen, Dr. Chahine worked at the patent law firm of Madson & Metcalf, P.C. in Salt Lake City, Utah from 1994 to 1998. From 1992 to 1993, he worked as a research scientist at Parke-Davis Pharmaceuticals, a pharmaceutical company, and held another research scientist post at the University of Utah Department of Human Genetics from 1994 to 1996. Dr. Chahine served as western regional news and legal correspondent for Nature Biotechnology from 1996 to 2002. Dr. Chahine holds a J.D. from the University of Utah and a Ph.D. in biochemistry and molecular biology from the University of Michigan .

      Michael D. Coffee has served as Avigen’s Chief Business Officer since February 2005. Prior to joining Avigen, Mr. Coffee co-founded the Alekta Group, LLC in 2004, a consulting firm, to provide a comprehensive range of pharmaceutical development consulting services to emerging pharmaceutical companies. From 2001 to 2004 Mr. Coffee served as President and Chief Operating Officer of Amarin Pharmaceuticals, Inc., the U.S. drug development and marketing subsidiary of Amarin Corporation PLC. Mr. Coffee also served as President and Chief Operating Officer of Elan Pharmaceuticals, North America from 1998 to 2001 and held marketing and executive management positions, including President and Chief Operating Officer, of Athena Neurosciences, Inc. between 1991 and 1998. Mr. Coffee received a B.S. in biology from Siena College.

      Kirk Johnson, Ph.D., was appointed Vice President, Research and Development in December 2006. Dr. Johnson joined Avigen in January 2004 and was appointed Vice President, Preclinical Development in June 2004 and has played a major role in redirecting the company and establishing the pipeline. Prior to joining Avigen, Dr. Johnson was Senior Director, Pharmacology & Preclinical Development and a member of the executive management team of Genesoft Pharmaceuticals, a pharmaceutical company, from 2001 to 2004. From 1991 to 2001, Dr. Johnson was employed in both protein and small molecule therapeutic research and development at Chiron Corporation, a biopharmaceutical company, and eventually served as Director, Pharmacology and Preclinical Research. Dr. Johnson was involved in leading IND-enabling programs, supporting clinical development, and contributing to successful IND and NDA filings at Chiron and Genesoft. In addition to general pharmacology and other preclinical development responsibilities, he has led research and clinical development projects for diverse indications including neuropathic pain, hemophilia, antibacterials, diabetes, obesity, acute inflammation and cardiovascular disease and has published more than 60 manuscripts and holds 5 U.S. patents. Dr. Johnson earned a B.S. in toxicology from U.C. Davis, and a Ph.D. in pharmacology and toxicology from the Medical College of Virginia. He completed postdoctoral fellowships studying the mechanism of action of IL-2 from 1986-1991 at both Dartmouth Medical School and the University of California, Berkeley.

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      Andrew A. Sauter was appointed Chief Financial Officer in February 2008 after having served as Vice President, Finance since January 2006. Mr. Sauter joined Avigen as Controller in November 1999. Mr. Sauter oversees the financial reporting obligations of Avigen and its information technology needs. From 1992 to 1999, Mr. Sauter worked for BankAmerica Corporation in a variety of positions, including most recently as a vice president in the Capital Markets Finance organization. From 1989 to 1992, he worked for Ernst & Young LLP. Mr. Sauter is a certified public accountant and holds a B.A. degree in economics from Claremont McKenna College.

      M. Christina Thomson, J.D., was appointed Vice President, General Counsel in January 2009. Ms. Thomson joined Avigen in February 2000 and was appointed Vice President, Corporate Counsel in June 2004. She has also served as our Chief Compliance Officer since March 2004 and Corporate Secretary since January 2006. Ms. Thomson is a registered patent attorney, and has managed significant growth in Avigen’s patent portfolio over the last seven years. Ms. Thomson also oversees the company’s litigation and administrative patent proceedings, as well as contract administration. Prior to joining Avigen, Ms. Thomson worked as a patent attorney with the law firm Knobbe Martens Olson & Bear LLP in Newport Beach, California, as a patent agent with Madson & Metcalf, P.C. in Salt Lake City, Utah, and as a scientist for Myriad Genetic Laboratories. Ms. Thomson holds a J.D. from the University of Utah College of Law and an M.S. in biology from the University of Utah.

EXECUTIVE COMPENSATION

C OMPENSATION D ISCUSSION A ND A NALYSIS

Compensation Philosophy

      Our compensation approach is designed to reward the achievement of corporate objectives and individual performances that contribute toward building a sustainable business that develops differentiated products to improve the health and quality of life of patients and creates value for our stockholders. To this end, the Board of Directors and management establish annual and long-term corporate goals that reflect the priorities of our product and business development plans. Our Board of Directors and management review these goals on a regular basis and our Compensation Committee (the “Committee”) uses these objectives to determine levels of compensation for executive officers to ensure management incentives are aligned with the interests of stockholders.

      Avigen’s compensation practice is designed to provide remuneration packages that are commensurate with the marketplace in which we compete to attract and motivate our executive officers, management and staff to achieve our strategic objectives. Specifically, we review base salaries annually and, along with a comprehensive array of medical, health, life insurance and disability plans generally available to all our employees,, set salaries at levels that are intended to attract, engage and retain executive officers whose abilities are critical to our long-term success and competitiveness. We vary bonus payments annually based on a performance structure designed to reward results and balance individual accountability with team-oriented collaboration that fosters integrity and a high-performance culture. Historically, we also issue equity-based compensation annually in varying amounts that are intended to represent a significant portion of each executive’s total compensation package because we believe it promotes innovation and calculated assessment and management of risk designed to achieve Avigen’s long-term objectives.

      Drug development is slow, costly and associated with a high failure rate. Therefore, successful drug development can extend over many years and requires our executives to employ their judgment in developing long-term operating plans that:

• identify meaningful treatments for patients,

• effectively demonstrate the safety and efficacy of our products, and

• protect our intellectual property and optimize the use of our financial resources in order to maximize value retention for our stockholders.

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      The Committee believes that in determining compensation, management performance should be evaluated against specific strategic objectives that create shareholder value. Complete achievement of these strategic objectives may extend beyond a given compensation period; therefore, the Committee must use its discretionary judgment based on the experience and knowledge within the industry of its members, in assessing the quality of management’s performance within an established framework of general parameters for annual compensation.

Compensation Components

      The Committee draws on a number of reference sources to assist in the evaluation of the various components of executive compensation. One source is industry data compiled in the Radford Biotechnology Survey which represents a nationally-based assessment of executive compensation widely used within the pharmaceutical and biotechnology industry sectors. The Committee generally focuses on regional data from companies in the San Francisco Bay Area and targets compensation levels that fall within the 50 ^th and 70 ^th percentiles reported for comparable positions based on the Committee’s subjective determination as to the appropriate range to attract and retain our executives given the size of our company. In addition, the Committee examines performance compensation packages of a number of selected companies that develop products for similar neurological indications or that are at a similar employee size and development stage. In 2007, this group consisted of Acorda Therapeutics, Inc., XenoPort, Inc., Renovis, Inc., Pain Therapeutics, and Palatin Technologies, Inc., however, in 2008, given the company’s immediate efforts to preserve cash in response to the termination of the AV650 program, the Committee, with the support of management, determined not to take any immediate actions on compensation for fiscal 2008, and so the Committee did not conduct a competitive analysis of compensation packages from other companies.

      To establish the relationship between executive compensation and the creation of stockholder value, the Committee subjectively evaluates the success of the management team as a whole and each individual executive’s performance in contributing to achieving the company’s strategic objectives. The Committee applies its assessment within the framework of our compensation program which defines a discretionary range in which to determine individual compensation adjustments for each executive officer. Our compensation program consists of three principal components: salary, short-term incentive compensation consisting of incentive bonus payments, and long-term incentive compensation consisting of equity grants. Each year, the Committee reviews executive officer compensation using summary “tally sheets” that show for each of the executive officers the following: (a) summary of total compensation; (b) each element of current compensation; and (c) cumulative amount of all previously issued equity awards.

      Base Salary. The Committee reviews each executive’s base salary annually. Among the factors taken into consideration are (1) individual performance, (2) corporate performance measured against strategic objectives, (3) levels of responsibility, (4) prior experience, (5) breadth of knowledge of the industry, and (6) competitive pay practices examined from industry source material discussed above. The Committee does not assign any specific weighting to these various factors when determining base salary.

      Incentive Bonus. The Committee sets target incentive levels annually for each executive officer in consultation and discussion with Dr. Chahine, other than for his own target incentive level. Ordinarily, the Committee considers industry data compiled by Radford and determines the appropriate level of target incentive bonus award for our chief executive officer and for our other executive officers as a percentage of their respective base salaries based on the Committee’s subjective determination as to the appropriate range to attract and retain our executive officers given the size of the company, assigning the actual percentage within this range based upon the level of each executive officer’s responsibility and experience. The Committee determines actual bonus payments based on subjective assessments of the performance of management and individual officers in achieving the company’s strategic objectives, applied to these target incentive levels. As a function of this process, the Committee met several times throughout the year with Dr. Chahine to review the status of the management team’s individual contributions. The 2008 strategic objectives against which corporate performance was intended to be measured are discussed below under “2008 Performance”.

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      The Committee establishes the company’s strategic objectives in discussions with Dr. Chahine at the beginning of the compensation period to ensure that its performance evaluations at the end of the compensation period reflect the strategic priorities of the company to create value for our stockholders. Ordinarily, Dr. Chahine reviews the performance of the company and of each executive officer, other than his own, with the Committee at the end of the compensation period and makes recommendations to the Committee for its review and final determination.

      Equity Incentives. The Committee is responsible for making stock option grants under Avigen’s 2006 Equity Incentive Plan (the “ 2006 Plan ”), and believes that long-term stockholder value is best achieved through an ownership culture among all our employees, particularly our executives, through grants of stock-based awards.

      The Committee grants stock-based awards under the 2006 Plan with multi-year vesting periods designed as incentives to retain key employees to continue in the employ of Avigen. Through option grants, executives receive significant equity incentives to build long-term stockholder value. The exercise price of options granted under the 2006 Plan is 100% of fair market value of the underlying stock on the date of grant. Employees receive value from these grants only if Avigen’s common stock appreciates over the long-term. The size of option grants is determined based primarily on Avigen’s philosophy of significantly linking executive compensation with stockholder interests, the individual criteria set forth below, and the Committee’s use of industry sources in order to be knowledgeable of compensation practices for companies of a similar size and development stage in the biotechnology and pharmaceutical industries. Historically, the Committee does not target any specific level as compared to industry average in determining stock option grants.

      Change in Control Arrangements. The Board of Directors, upon the recommendation of the Committee, established a Management Transition Plan (“Transition Plan”) in 1998, which was amended in March 2005 and again in October 2008. The Transition Plan is intended to retain key employees and enable executive officers to represent stockholder interests during periods involving a possible change in control of the company, and to provide severance benefits in the event of termination of employment without cause. The Transition Plan is designed to protect the earned benefits of key employees, including executive officers, against adverse changes that may result from a change in control of the company or termination without cause. The level of payments provided under the agreement for executives reflects the Committee’s subjective view, based upon its experience, of comparable benefits offered to executives under change of control arrangements at other companies within the industry in a similar development stage. Each of our named executive officers are participants in the plan and will receive the following benefits if their employment is involuntarily terminated, or they resign as a result of a constructive termination, as defined under the Plan:

• 15 months base salary (21 months in the case of Dr. Chahine);

• extended option exercisability of two years;

• full accelerated vesting of outstanding stock options; and

• 15 months (18 months in the case of Dr. Chahine) health benefits payments, or until such earlier date as the executive officer secures subsequent employment that provides substantially similar health benefits.

      In October 2008, the Board amended the Transition Plan to comply with certain changes in federal tax regulations that were required to be made before December 31, 2008, and at the same time, the Committee reviewed benefit levels offered by other companies within the industry similar to Avigen. Based on this review, the Committee adjusted the benefits included in the Transition Plan by adding an additional three months of severance benefits for each executive officer and extending those benefits to circumstances in which an executive officer was terminated without cause. The amendments were adopted to make the Transition Plan comparable to benefits offered by companies similar to Avigen, as without this security, we were at risk of losing executive talent necessary to preserve the value of the company’s assets.

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2008 Performance

      At the beginning of the year, the Committee determined to base its assessment of Avigen’s overall performance for the fiscal year ended December 31, 2008 on the following strategic objectives:

• Quality data from Phase II clinical development progress of AV650;

• Responsible management of finances;

• Clinical development progress of AV411;

• Development and progress toward clinical testing of AV513;

• Evaluation, identification and development of new product candidates for clinical testing, including proprietary analogs for AV411; and

• Execution of a strategic plan that efficiently manages financial and staffing resources to support the research and development needs of the company, including raising additional capital for clinical testing.

      Historically, the Committee applies its discretion in determining a subjective evaluation of the overall performance of the company. For fiscal 2008, the Committee took into consideration the performance of management against all the 2008 strategic objectives, including the quality execution of the AV650 Phase II clinical trial, responsible management of finances, and the successful sale of company’s early-stage AV513 program for $7 million, and authorized the accrual of $250,000 for bonus payouts to executive officers. In discussions with Dr. Chahine, and given the company’s immediate efforts to preserve cash in response to the termination of the AV650 program, the Committee, with the support of management, has not authorized the payout of any bonuses from that pool.

2009 Compensation

      The Committee, with the support of management, has determined (given the current business environment) not to adjust base salaries for 2009, other than in connection with the promotion of Ms. Thomson to Vice President, General Counsel. Effective January 1, 2009. Ms. Thomson’s base salary was increased to $267,931. The Committee has not yet finalized or determined the relative weighting of strategic objectives to be used as the basis for its evaluation of management’s performance for fiscal 2009.

S UMMARY C OMPENSATION T ABLE

      The following table shows for the fiscal years ended December 31, 2008, 2007 and 2006, compensation awarded to or paid to, or earned by, Avigen’s Chief Executive Officer, Chief Financial Officer and its three other most highly compensated executive officers at December 31, 2008 (the “ Named Executive Officers ”).

Summary Compensation Table

										Option			All Other
				Salary			Bonus			Awards			Compensatio n
Name and Principal Position		Year		($)		($)		($) (2)		($) (3)		Total ($)
Kenneth G. Chahine, President		2008		$443,251			(1	)		$341,318			$4,552			$789,120
and Chief Executive Officer		2007		$426,613			$158,380			$333,763			$4,299			$923,055
		2006		$407,239			$95,000			$271,027			$4,199			$777,465
Andrew A. Sauter, Chief		2008		267,931			(1	)		208,961			3,378			480,270
Financial Officer		2007		238,625			68,903			166,461			3,558			477,547
		2006		229,017			28,000			98,733			3,458			359,208
Michael D. Coffee, Chief		2008		313,903			(1	)		281,150			4,712			599,765
Business Officer		2007		302,120			90,636			237,876			4,711			635,343
		2006		288,400			69,000			152,547			4,711			514,658
Kirk W. Johnson, Ph.D., Vice		2008		278,528			(1	)		249,062			4,451			532,040
President Research and		2007		248,824			74,025			282,000			4,091			608,940
Development		2006		237,524			46,000			192,092			4,091			479,707
M. Christina Thompson, J.D.,		2008		221,524			(1	)		242,283			3,366			467,174
Vice President, General		2007		239,861			65,062			234,067			3,466			542,456
Counsel and Secretary		2006		239,444			46,000			162,436			3,466			451,346

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________________________
 

(1)		The Compensation Committee authorized the accrual of $250,000 for bonus payouts to executive officers for 2008, but has not authorized the allocation or payout of any bonuses from that pool.
(2)		The amounts shown in this column represent the dollar amounts recognized for financial statement reporting purposes for each fiscal year ended December 31, in accordance with FAS 123(R), excluding an estimate of forfeitures related to service-based vesting conditions, and thus include amounts from awards granted in and prior to 2008. Assumptions used in the calculation of these amounts are described in the notes to Avigen’s audited financial statements for the fiscal year ended December 31, 2008, which will be included in Avigen’s Annual Report on Form 10-K expected to be filed with the SEC on March 16, 2009. All grants were made subject to individual award agreements, the form of which was previously filed with the SEC.
(3)		Except as otherwise indicated, represents insurance premiums paid by Avigen with respect to supplemental long-term care insurance for the benefit of the Named Executive Officer and up to $2,500 of matching contributions to Avigen’s 401(k) savings plan.

G RANTS O F P LAN -B ASED A WARDS

      There were no grants of plan-based awards to the Named Executive Officers for the fiscal year ended December 31, 2008.

O UTSTANDING E QUITY A WARDS AT F ISCAL Y EAR E ND

      The following table shows for the fiscal year ended December 31, 2008, certain information regarding outstanding equity awards at fiscal year end for the Named Executive Officers.

Outstanding Equity Awards at December 31, 2008

		Option Awards (1)
		Number of				Number of
		Securities				Securities
		Underlying				Underlying
		Unexercised				Unexercised				Option				Option
		Options (#)				Options (#)				Exercise				Expiration
Name		Exercisable		Unexercisable		Price ($) (2)		Date
Kenneth Chahine (3)
			37,500				-				$5.88			01/16/09
			17,500				-				5.38			07/01/09
			25,000				-				29.00			05/19/10
			75,000				-				38.19			06/14/10
			100,000				-				14.63			03/09/11
			37,500				-				8.53			07/02/12
			75,000				-				3.53			05/20/13
			125,000				-				3.38			06/25/14
			26,812				6,188				3.14			07/01/15
			137,500				12,500				5.06			02/22/16
			52,500				37,500				5.50			01/03/17
			37,775				75,549				4.42			12/05/17
Andrew Sauter (4)
			25,000				-				$17.50			11/01/09
			5,000				-				29.00			05/19/10
			13,333				-				14.63			03/09/11
			7,500				-				8.53			07/02/12
			13,000				-				3.53			07/11/13
			20,000				-				3.13			08/10/14
			14,062				938				3.25			01/03/15
			8,187				2,813				3.45			07/12/15
			34,375				15,625				3.63			01/18/16
			45,833				4,167				5.06			02/22/16
			37,917				27,083				5.50			01/03/17
			27,282				54,563				4.42			12/05/17
Michael Coffee (5)
			140,625				9,375				$2.86			02/23/15
			5,687				1,313				3.14			07/01/15
			105,416				9,584				5.06			02/22/16
			37,917				27,083				5.50			01/03/17
			27,282				54,563				4.42			12/05/17
Kirk Johnson (6)
			70,000				-				$6.31			01/12/14
			50,000				-				3.38			06/25/14
			13,406				3,094				3.14			07/01/15
			105,416				9,584				5.06			02/22/16
			40,833				29,167				5.50			01/03/17
			29,381				58,760				4.42			12/05/17
M. Christina Thomson (7)
			20,000				-				$47.63			02/07/10
			18,333				-				14.63			03/09/11
			10,000				-				8.53			07/02/12
			12,500				-				3.53			07/11/13
			92,000				-				3.38			06/25/14
			8,406				3,094				3.14			07/01/15
			105,416				9,584				5.06			02/22/16
			37,917				27,083				5.50			01/03/17
			22,968				45,935				4.42			12/05/17

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____________________
 

(1)		All option awards were granted on a date 10-years prior to the expiration date, with option awards that were granted prior to February 22, 2006 vesting in 16 equal quarterly installments from the date of grant and option awards granted on or after February 22, 2006 vesting in 12 equal quarterly installments from the date of grant.
(2)		Option exercise price subtotals represent the weighted average of all outstanding equity awards including both exercisable and unexercisable.
(3)		In the aggregate, these options are to purchase 878,824 shares of our common stock at a weighted average exercise price of $9.37 per share.
(4)		In the aggregate, these options are to purchase 356,678 shares of our common stock at a weighted average exercise price of $6.14 per share.
(5)		In the aggregate, these options are to purchase 418,845 shares of our common stock at a weighted average exercise price of $4.18 per share.
(6)		In the aggregate, these options are to purchase 409,641 shares of our common stock at a weighted average exercise price of $4.93 per share.
(7)		In the aggregate, these options are to purchase 413,236 shares of our common stock at a weighted average exercise price of $7.12 per share.

O PTION E XERCISES AND S TOCK V ESTED

      There were no option exercises or stock vested to the Named Executive Officers for the fiscal year ended December 31, 2008.

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P OTENTIAL P AYMENTS U PON T ERMINATION OR C HANGE IN C ONTROL

      Avigen initially adopted its Transition Plan (“Transition Plan”) in July 1998. In May 2005, Avigen’s Board, upon the recommendation of the Compensation Committee of the Board, amended the Transition Plan to retain key employees and enable executive officers to represent stockholder interests during periods involving a possible change in control. The Transition Plan is designed to protect the earned benefits of key employees, including executive officers, against adverse changes that may result from a change in control of Avigen. In October 2008, the Board amended the Transition Plan to comply with certain changes in federal tax regulations that were required to be made before December 31, 2008 and to provide each participant with severance benefits in the event she or he was terminated other than for cause or was constructively terminated. At that time, the Compensation Committee took the opportunity to assess whether the benefits included in the Transition Plan were comparable to such plans in companies similar to Avigen and determined to add an additional three months of severance benefits for each executive officer.

      An employee of Avigen becomes a participant in the Transition Plan only if Avigen delivers to that employee a Transition Plan Eligibility Notice, in which case the employee becomes a “Participant” in the Transition Plan. Each of Dr. Chahine, Mr. Coffee, Ms. Thomson, Dr. Johnson, and Mr. Sauter is a participant in the Transition Plan.

      A Participant in the Transition Plan will receive, if the Participant’s employment with Avigen terminates due to an “involuntary termination” or a “constructive termination,” as those terms are defined in the Transition Plan, the following benefits:

	(a)		salary continuation for the number of months designated in the Transition Plan Eligibility Notice given to the Participant;
	(b)		accelerated stock option vesting and extended exercisability as provided in the Transition Plan Eligibility Notice given to the Participant; and
	(c)		Avigen will pay the COBRA premiums for the Participant for the number of months designated in the Transition Plan Eligibility Notice given to the Participant, up to 18 months, or until such earlier date as the Participant becomes covered by a health plan of a subsequent employer.

      The current named executive officers of Avigen who are Participants, and the terms of their participation, are:

			Option
	Salary	Option	Extended	COBRA
Name/Position	Continuation	Acceleration	Exercisability	Payments
Kenneth G. Chahine, J.D., Ph.D.	21 months	Full	2 years	18 months
Andrew A. Sauter	15 months	Full	2 years	15 months
Michael D. Coffee	15 months	Full	2 years	15 months
Kirk Johnson, Ph.D.	15 months	Full	2 years	15 months
M. Christina Thomson, J.D.	15 months	Full	2 years	15 months

      If an “involuntary termination” or a “constructive termination” of a Participant occurred on December 31, 2008, that Participant would have received the following benefits:

		Salary		COBRA
Name		Continuation		Payments
Kenneth Chahine		$775,689		$28,881
Andrew Sauter		$334,914		$24,464
Michael Coffee		$392,379		$26,752
Kirk Johnson		$348,160		$26,752
M. Christina Thomson		$334,914		$18,295

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      An “involuntary termination” is the dismissal or discharge by Avigen other than for “cause”, where cause is defined to include: commission of an intentional act to materially injure Avigen; intentional refusal or failure to follow lawful and reasonable directions of the Board or the appropriate individual to whom the participant reports; willfully and habitually neglected duties for Avigen; or conviction of a felony involving moral turpitude that is likely to inflict or has inflicted material injury on Avigen. The termination of a Participant’s employment will not be deemed to be an “involuntary termination” if the termination occurs as a result of that Participant’s death or disability.

      A “constructive termination” occurs when a Participant voluntarily terminates employment with Avigen in the event that, without the participant’s consent, any of specified events occur, including: the assignment of duties or responsibilities which result in a diminution in position or function; a reduction by Avigen in annual base salary; failure by Avigen to continue in effect any benefit plan or program or the taking of any action by Avigen that would adversely affect participation in or reduce benefits under the benefit plans or deprive the participant of any fringe benefit enjoyed at the time of a change in control; relocation by Avigen, or the relocation of Avigen’s principal executive offices if the participant’s principal office is at such offices, to a location more than thirty (30) miles from the location at which the participant was performing duties prior to the change in control; a material breach of the Transition Plan or a material breach of a written agreement with the participant regarding the terms and conditions of employment; or any failure by Avigen to obtain the assumption of the Transition Plan or any material agreement with the participant regarding the terms and conditions of employment by any successor or assign of Avigen.

      No amounts are attributable to vesting of stock options, as the exercise price of all stock options was in excess of the closing price of our common stock on December 31, 2008.

E QUITY I NCENTIVE P LANS

      In the event of a dissolution or liquidation of Avigen, the Board of Directors may accelerate vesting on some or all of the outstanding Stock Awards, as defined in Avigen’s 2006 Equity Incentive Plan (the “Plan”), so that such Stock Awards become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.

      In the event of a Corporate Transaction, as defined in the Plan, in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue outstanding stock awards or substitute similar stock awards for such outstanding stock awards, the vesting of such stock awards shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine. The table above states the value of this accelerated vesting as if the Corporate Transaction occurred on December 31, 2008 and the stock options held by our named executive officers were not assumed, substituted or continued.

D IRECTOR C OMPENSATION

Compensation of Directors

      Effective January 1, 2006, each of Avigen’s non-employee directors receives an annual retainer of $28,000. Any non-employee director who serves as Chairman of Avigen’s Board of Directors receives, in addition to regular payments for service rendered as a member of the Board of Directors, an additional annual retainer of $28,000. Dr. Zola Horovitz is currently designated as Chairman of the Board of Directors. Any non-employee director who serves as the Lead Independent Director of Avigen’s Board of Directors receives, in addition to regular payments for service rendered as a member of the Board of Directors, an additional annual retainer of $14,000 to be paid in equal quarterly installments. Dr. John K. A. Prendergast is currently designated as the Lead Independent Director. There are no additional fees for attendance at Board of Directors or committee meetings; however, Avigen reimburses members of the Board of Directors for their expenses incurred in connection with attendance at Board and committee meetings in accordance with Avigen’s policy. In the fiscal year ended December 31, 2008, the total compensation paid to non-employee directors was $193,667.

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      Each of Avigen’s non-employee directors is qualified to receive stock option grants under Avigen’s 2006 Equity Incentive Stock Option Plan. The Board of Directors has determined that non-employee directors of Avigen, not serving as Chairman, will be granted options to purchase 20,000 shares of Avigen’s common stock at each annual meeting of Avigen’s stockholders if such non-employee director has served for the entire preceding year. An option to purchase a prorated number of shares is granted to each non-employee director who has served for less than the full preceding year. In addition, each director who is elected for the first time to be a non-employee director of Avigen will be granted an option to purchase 30,000 shares upon the date of initial election to the Board of Directors whether by the Board of Directors or stockholders of Avigen.

      The Board of Directors has also determined that any non-employee director that serves as Chairman of Avigen’s Board of Directors will be granted options to purchase 40,000 shares of Avigen’s common stock at each annual meeting of Avigen’s stockholders.

      The following table shows for the fiscal year ended December 31, 2008 certain information with respect to the compensation of all non-employee directors of Avigen:

D IRECTOR C OMPENSATION F OR F ISCAL 2008

		Fees Earned or				Option
		Paid in Cash				Awards ($)
Name		($)		(2)(3)(4)		Total ($)
Zola Horovitz, Ph.D.			$56,000				$110,301			$166,301
Stephen Dilly, M.B.B.S., Ph.D.			28,000				45,570			73,570
Yuichi Iwaki M.D., Ph.D. (1)			11,667				85,412			97,079
Jan Öhrström, M.D.			28,000				45,570			73,570
John Prendergast, Ph.D.			42,000				47,501			89,501
Richard Wallace			28,000				63,302			91,302

____________________
 

(1)		Includes $47,356 attributable to an extension of the exercise period for Dr. Iwaki’s options.
(2)		The amounts shown in this column represent the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended December 31, 2008 in accordance with FAS 123(R), excluding an estimate of forfeitures related to service-based vesting conditions, and thus include amounts from awards granted in and prior to 2008. Assumptions used in the calculation of these amounts are described in the notes to Avigen’s audited financial statements for the fiscal year ended December 31, 2008, which will be included in Avigen’s Annual Report on Form 10-K expected to be filed with the SEC on or about March 16, 2009. All grants were made subject to individual award agreements, the form of which was previously filed with the SEC.
(3)		The following options were outstanding as of December 31, 2008: Z. Horovitz: 222,500; S. Dilly: 56,667; Y. Iwaki: 115,000; J. Öhrström: 56,667; J. Prendergast: 142,500; and R. Wallace: 75,000.
(4)		The following table sets forth each grant of options to Avigen’s non-employee directors during 2008 under the 2006 Plan, together with the exercise price per share and grant fair value of each award computed in accordance with FAS 123(R) using the Black-Scholes model.

		Options								Grant Date
		Granted				Exercise				Fair Value
		in		Grant		Price Per				of Option
Non-employee Director		2008 (#)		Date		Share ($)		Award ($)
Zola Horovitz, Ph.D.		40,000		05/19/08			$2.96			62,660
Stephen G. Dilly, M.B.B.S., Ph.D.		20,000		05/19/08			2.96			31,330
Jan K. Öhrström, M.D.		20,000		05/19/08			2.96			31,330
John K. A. Prendergast, Ph.D.		20,000		05/19/08			2.96			31,330
Richard Wallace		20,000		05/19/08			2.96			31,330

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HOUSEHOLDING OF PROXY MATERIALS

      The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

      A single proxy statement may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you notify your broker or Avigen that you no longer wish to participate in “householding.” If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report in the future you may (1) notify your broker, (2) direct your written request to: Investor Relations, Avigen, Inc., 1301 Harbor Bay Parkway, Alameda, California 94502, or (3) contact our Chief Financial Officer, Andrew Sauter, at (510) 748-7150. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker. In addition, Avigen will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the annual report and proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered.

      A copy of Avigen’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal ended December 31, 2008 will be available after March 16, 2009 without charge upon written request to: Investor Relations, Avigen, Inc., 1301 Harbor Bay Parkway, Alameda, California 94502.

OTHER MATTERS

      The Board of Directors knows of no other matters that will be presented for consideration at the Special Meeting of Stockholders, and the Avigen Bylaws provide that only matters specified in the notice of the Special Meeting may properly be brought before the Special Meeting. If any other matters are properly brought before the Special Meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

By Order of the Board of Directors

Sincerely,
 

M. C HRISTINA T HOMSON
Vice President, General Counsel and Secretary

[DATE], 2009

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YOUR VOTE IS IMPORTANT

Please take a moment now to vote your shares of Avigen, Inc.
Common Stock for the upcoming Special Meeting of Stockholders.

PLEASE REVIEW THE PROXY STATEMENT
AND VOTE TODAY IN ONE OF THREE WAYS:

1.		Vote by Telephone – Please call toll-free in the U.S. or Canada at 1-xxx-xxx-xxxx , on a touch-tone telephone . If outside the U.S. or Canada, call 1-xxx-xxx-xxxx . Please follow the simple instructions. You will be required to provide the unique control number printed below.
OR
2.		Vote by Internet – Please access https://www._________________ , and follow the simple instructions. Please note you must type an “s” after http. You will be required to provide the unique control number printed below.

You may vote by telephone or Internet 24 hours a day, 7 days a week. Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a WHITE proxy card.

OR

3.

Vote by Mail – If you do not wish to vote by telephone or over the Internet, please complete, sign, date and return the WHITE proxy card in the envelope provided, or mail to: Avigen, Inc., c/o Innisfree M&A Incorporated, FDR Station, P.O. Box 5155, New York, NY 10150-5155

6 TO VOTE BY MAIL PLEASE DETACH PROXY CARD HERE AND SIGN, DATE AND RETURN IN THE ENVELOPE PROVIDED 6

AVIGEN, INC.
AVIGEN’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “AGAINST” THE BOARD REMOVAL PROPOSAL, AND TAKES NO POSITION WITH RESPECT TO THE BYLAW AMENDMENT PROPOSAL OR THE REPEAL BYLAWS PROPOSAL. PLEASE SIGN, DATE AND MAIL THIS WHITE PROXY CARD TODAY.
BOARD REMOVAL PROPOSAL:		FOR		AGAINST		ABSTAIN
To remove all of the current directors serving on Avigen’s Board of Directors, without cause.		o		o		o
BYLAW AMENDMENT PROPOSAL:		FOR		AGAINST		ABSTAIN
To amend Avigen’s Amended and Restated Bylaws (“Bylaws”) to permit stockholders to elect directors to the Board in cases when the entire board is vacant.		o		o		o
REPEAL BYLAWS PROPOSAL:		FOR		AGAINST		ABSTAIN
To repeal any provision of the Bylaws that was effected since January 8, 2009.		o		o		o

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THIS PROXY WILL NOT BE VOTED ON THE ELECTION PROPOSAL.

These items of business are more fully described in the Proxy Statement accompanying this proxy card.

Date

Signature

Signature (if jointly held)

Title(s)

Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person.

Please sign, date and promptly return this proxy card in the enclosed postage-paid envelope.

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PLEASE VOTE TODAY!

SEE REVERSE SIDE FOR THREE EASY WAYS TO VOTE.

 

 

 

 

 

	6 TO VOTE BY MAIL PLEASE DETACH PROXY CARD HERE AND SIGN, DATE AND RETURN IN THE ENVELOPE PROVIDED 6
AVIGEN, INC. PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ______________, 2009 The undersigned hereby appoints KENNETH G. CHAHINE and M. CHRISTINA THOMSON, and each of them, as attorneys and proxies of the undersigned, with full power of substitution, to vote any or all of the shares of stock of Avigen, Inc. which the undersigned may be entitled to vote at the Special Meeting of Stockholders of Avigen, Inc. to be held at _____________, on [DAY], _____________, 2009 at [TIME] (local time), and at any and all postponements, continuations and adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the matters listed on the reverse side and in accordance with the instructions designated on the reverse side, with discretionary authority as to any and all other matters that may properly come before the Special Meeting. If no direction is made on the Board Removal Proposal, your shares will be voted “AGAINST” such proposal. If no direction is made on the Bylaw Amendment Proposal or the Repeal Bylaws Proposal, your shares will be voted “ABSTAIN” with respect to such proposal.       THE UNDERSIGNED, A HOLDER OF SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF AVIGEN, INC. (THE “COMMON STOCK”), ACTING WITH RESPECT TO ALL OF THE SHARES OF COMMON STOCK HELD BY THE UNDERSIGNED, HEREBY REVOKES ALL PROXIES PREVIOUSLY GIVEN BY THE UNDERSIGNED TO VOTE AT THE SPECIAL MEETING OF STOCKHOLDERS OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.

(continued and to be signed on the reverse)

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