<PAGE> 1
SCHEDULE 14A INFORMATION
(Rule 14a-101)
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
AVANIR PHARMACEUTICALS
- --------------------------------------------------------------------------------
(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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) 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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
AVANIR PHARMACEUTICALS
9393 TOWNE CENTRE DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92121-3016
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 23, 2000
------------------------
We will hold our annual meeting of shareholders at our offices located at
9393 Towne Centre Drive, Suite 200, San Diego, California 92121 on March 23,
2000, at 9:00 a.m. for the following purposes:
1. To elect two (2) directors to hold office until the annual meeting of
shareholders in 2003.
2. To approve the 2000 stock option plan under which we will reserve for
issuance a total of 2,300,000 shares of Class A Common Stock.
3. To approve an amendment to our articles of incorporation to conform them
with our bylaws regarding the definition of a quorum for a meeting of
our shareholders.
4. To ratify the selection of Deloitte & Touche LLP as our independent
auditors for our fiscal year ending September 30, 2000.
5. To transact any other business as may properly come before the meeting
or any adjournment or postponement of the meeting.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice. Only shareholders of record at the close of
business on January 24, 2000 will be entitled to notice of and to vote at the
meeting or any adjournment of the meeting. We cordially invite each of our
shareholders to be present and vote at the meeting in person.
By Order of the Board of Directors,
/s/ Gregory P. Hanson
GREGORY P. HANSON
Secretary
San Diego, California
January 31, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY. THIS IS IMPORTANT BECAUSE A MAJORITY
OF THE SHARES MUST BE REPRESENTED, EITHER IN PERSON OR BY PROXY, TO CONSTITUTE A
QUORUM. IF YOU PLAN TO ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN THOUGH WE
ASK THAT YOU SEND IN YOUR PROXY NOW.
<PAGE> 3
AVANIR PHARMACEUTICALS
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 23, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................... 1
SHARES OUTSTANDING AND VOTING RIGHTS........................ 2
PROPOSAL ONE
ELECTION OF DIRECTORS..................................... 2
PROPOSAL TWO
APPROVAL OF THE 2000 STOCK OPTION PLAN.................... 7
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE ARTICLES OF INCORPORATION.... 11
PROPOSAL FOUR
RATIFICATION OF INDEPENDENT AUDITORS...................... 12
OTHER BUSINESS.............................................. 22
ATTACHMENT A -- TEXT OF PROPOSED 2000 STOCK OPTION PLAN..... A-1
</TABLE>
i
<PAGE> 4
AVANIR PHARMACEUTICALS
9393 TOWNE CENTRE DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92121-3016
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 23, 2000
------------------------
GENERAL INFORMATION
Your proxy in the enclosed form is solicited by our board of directors for
use at our annual meeting of shareholders to be held on March 23, 2000 at 9:00
a.m. at our offices located at 9393 Towne Centre Drive, Suite 200, San Diego,
California 92121 for the purposes described in the accompanying notice and at
any adjournment or postponement of the meeting. We expect to mail this proxy
statement and the accompanying form of proxy to our shareholders on or about
January 31, 2000.
The shares represented by any proxy in the enclosed form will be voted in
accordance with the instructions given on the proxy if the proxy is properly
executed and we receive it prior to the close of voting at the annual meeting or
any adjournment or postponement of the meeting. Proxies that we receive on which
no contrary instruction has been given will be voted:
- FOR the election of directors to Class II, nominated by management to
serve until the 2003 annual meeting;
- FOR the adoption of the 2000 stock option plan;
- FOR the amendment to our articles of incorporation to conform them with
our bylaws regarding the definition of a quorum for a meeting of
shareholders;
- FOR ratification of the selection of independent auditors for our fiscal
year ending September 30, 2000; and
- as recommended by our board of directors in its discretion, with regard
to all other matters which may properly come before the meeting.
A shareholder giving a proxy has the power to revoke it at any time before it is
exercised. A shareholder may revoke a proxy by filing with our corporate
secretary an instrument revoking it or a duly executed proxy bearing a later
date. The powers of the proxy holders will be suspended if the person executing
the proxy is present at the meeting and votes in person. In order for any
shareholder to nominate a candidate or to submit a proposal for other business
for the meeting, he or she must provide our corporate secretary with not less
than 60 days' advance written notice in the form required by our bylaws.
We will provide copies of solicitation material to brokerage houses,
fiduciaries and custodians holding shares in their names which are beneficially
owned by others ("record holders") to forward to these beneficial owners. In
addition, we may reimburse these persons for their cost of forwarding the
solicitation material to these beneficial owners. We may supplement the original
solicitation of proxies by mail by one or more of telephone, telegram,
facsimile, or personal solicitation by our directors, officers or employees. We
will not pay additional compensation for any of these services. In addition, we
reserve the right to retain a proxy solicitation firm or other third parties to
deliver solicitation material to record holders for distribution by them to
their principals and to assist us in collecting or soliciting proxies from these
holders. We do not expect that the costs of these services, exclusive of
out-of-pocket costs, will exceed $10,000. Except as described above, we do not
intend to solicit proxies other than by mail.
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SHARES OUTSTANDING AND VOTING RIGHTS
Only holders of shares of our Class A Common Stock and Class B Common Stock
of record as of the close of business on January 24, 2000 are entitled to notice
of and to vote at the annual meeting. On the record date, 47,336,814 shares of
our Class A Common Stock and 440,000 shares of our Class B Common Stock were
issued and outstanding. We currently have a dispute with Dr. David H. Katz, the
former president and chief executive officer and a director of our company,
concerning the status of 234,000 shares of our Class A Common Stock. See
Footnote 18 to "Security Ownership of Certain Beneficial Owners and Management."
Each share of our Class A Common Stock is entitled to one vote and each share of
our Class B Common Stock is entitled to five votes on all matters to be voted
upon at the annual meeting. The presence, in person or by proxy duly authorized,
of the holders of a majority of the outstanding shares will constitute a quorum
for the transaction of business at the annual meeting and any continuation or
adjournment of the meeting. Broker non-votes, or shares held by a broker or
nominee that are represented at the annual meeting, but with respect to which
the broker or nominee is not empowered to vote on a particular purpose, will be
counted in determining whether a quorum is present at the annual meeting.
Directors are elected by a plurality of votes of the shares present in
person or represented by proxy at the annual meeting. Any shares not voted,
whether by abstention, broker non-votes or otherwise, will not impact the
election of directors, except to the extent that the failure to vote for an
individual results in another individual receiving a larger portion of votes.
The proposals to approve the 2000 stock option plan and to ratify the
selection of the independent auditors must be approved by a majority of votes
cast at the annual meeting. In determining whether these proposals have been
approved, abstentions are counted as votes against the proposal and broker
non-votes are not counted as votes for or against the proposal.
The proposal to amend our articles of incorporation must be approved by the
vote of a majority of the outstanding shares. Any shares not voted, whether by
abstention, broker non-votes or otherwise, will have the effect of votes against
this proposal.
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the annual meeting and to vote in person. Any shareholder
giving a proxy has a right to revoke it at any time by either:
- a later-dated proxy;
- a written revocation sent to and received by our corporate secretary
prior to the meeting; or
- attendance at the meeting and voting in person.
PROPOSAL ONE
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
Our bylaws provide that our board of directors will be divided into three
classes as nearly equal in number as reasonably possible with any overage
allocated in the discretion of our board of directors. Our board of directors
has fixed the current number of directors, which may vary between five and nine,
at eight in accordance with our bylaws.
Our shareholders will elect two of our eight directors at the annual
meeting to serve as class II directors. Our board of directors has nominated Dr.
Dennis J. Carlo and Mr. Edward J. Hennessy, Jr. to serve as our class II
directors to hold office until the annual meeting of shareholders in 2003. Our
three class III directors -- Messrs. George P. Rutland, chairman of our board of
directors, Kenneth E. Olson and Joseph E. Smith -- are holding office until the
annual meeting of shareholders in 2001. Our three class I directors -- Messrs.
Michael W. George, James B. Glavin and Dr. Gerald J. Yakatan, -- are holding
office until the annual meeting of shareholders in 2002.
Each class II director nominee elected at the annual meeting will hold
office until the annual meeting of shareholders in 2003, and until his successor
is elected and qualified, unless he resigns or his seat on the board
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<PAGE> 6
of directors becomes vacant due to his death, removal or other cause in
accordance with our bylaws. We do not know any reason why any of these nominees
will be unable or unwilling to serve as directors. If any nominee is unable or
unwilling to serve, then the proxies will be voted for the election of the other
persons(s) for the office of director as we may recommend in the place of the
nominee(s).
INFORMATION REGARDING OUR CLASS II DIRECTOR NOMINEES FOR THE THREE-YEAR TERM
EXPIRING AT THE ANNUAL MEETING OF SHAREHOLDERS IN 2003:
The following table sets forth the name, age, principal occupations for the
persons indicated and other directorships of the current class II director
nominees at the annual meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR CURRENT
THE PAST FIVE YEARS AND DIRECTOR TERM
NAME AGE OTHER DIRECTORSHIPS SINCE ENDS
---- --- ------------------------ -------- -------
<S> <C> <C> <C> <C>
Dennis J. Carlo, Ph.D....... 56 - Serves as a co-founder and director of June 2000
Immune Response Corporation since 1987 and 1998
its president and chief executive officer
since 1994.
- From 1987 to 1994, served as its chief
scientific officer, chief operating officer
and executive vice president.
- From 1982 to 1987, served as vice president
of Research and Development and Therapeutic
Manufacturing at Hybritech, Inc., a
biotechnology company acquired in 1986 by
Eli Lilly & Co. Serves as a director of
Vyrex Corporation.
- From 1971 to 1981, held various positions
at Merck & Co., Inc.
Edward L. Hennessy, Jr...... 71 - Retired. June 2000
- From 1979 to 1991, served as chairman and 1998
chief executive officer of Allied-Signal,
Inc.
- Serves as a director of The Wackenhut
Corporation.
</TABLE>
The two nominees for director that receive the highest number of
affirmative votes of the shares present in person or represented by proxy at the
meeting, and entitled to be voted for them, will be elected as our directors.
Any shares that are not voted, whether by abstention, broker non-votes or
otherwise, will not impact the election of our directors, except to the extent
that the failure to vote for an individual will result in another individual
receiving a larger portion of votes. Holders of proxies solicited by this proxy
statement will vote the proxies received by them as directed on the proxy card
or, if no direction is made, for the election of the above listed director
nominees.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE LISTED ABOVE.
3
<PAGE> 7
INFORMATION REGARDING OUR CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL THE
ANNUAL MEETING IN 2001:
<TABLE>
<CAPTION>
CURRENT
PRINCIPAL OCCUPATION FOR DIRECTOR TERM
NAME AGE THE PAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE ENDS
---- --- ------------------------------------------- ------------- -------
<S> <C> <C> <C> <C>
Kenneth E. Olson........ 63 - Served as chairman of the board of August 1988 2001
directors (July 1984 to June 1994) and
chief executive officer (December 1990 to
February 1996 and March 1997 to June
1998) of Proxima Corporation, a supplier
of display projection systems for
professional desktop computers.
- Serves as a director of Digirad
Corporation.
George P. Rutland....... 67 - Since June 1998, serves as chairman of June 1998 2001
our board of directors.
- Since 1995, serves as chairman, chief
executive officer and a director of
Taipan Corporation, a management
consulting and investing company.
- From 1988 until 1994, served as chairman,
president and chief executive officer of
Northeast Federal Corp. and Northeast
Savings Bank in Hartford, Connecticut.
- From 1993 to 1994, served as chairman and
chief executive officer and a director of
American Custody Corp.
- From 1982 to 1988, served as president
and chief executive officer and a director
of CalFed, Inc. and, from 1982 to 1988,
vice chairman and a director of
California Federal Bank.
- From 1975 to 1982, served as senior
executive vice president of Crocker
National Bank.
- From 1954 to 1975, served as senior vice
president of Citibank.
Joseph E. Smith......... 60 - Retired.
- From March 1989 to September 1997, served
in various capacities at Warner-Lambert
(including president of Pharmaceuticals
(Parke-Davis) and president of Shaving
Products (Schick and Wilkinson Sword),
retiring in September 1997 as corporate
vice-president at Warner-Lambert, and a
member of the Office of the Chairman and
the firm's Management Committee).
- Serves as a director of Boren LePore,
Inc., Vivus, Inc., Shire Pharmaceuticals
Group PLC and Care Insite, Inc.
</TABLE>
4
<PAGE> 8
INFORMATION REGARDING OUR CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL THE
ANNUAL MEETING IN 2002:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR CURRENT
THE PAST FIVE YEARS AND DIRECTOR TERM
NAME AGE OTHER DIRECTORSHIPS SINCE ENDS
---- --- ------------------------ ------------- -------
<S> <C> <C> <C> <C>
Michael W. George....... 51 - Since August 1998, is a director at June 1998 2002
UroCor, Inc. and since October 1999 as
president and chief executive officer
and from August 1998 to October 1999
as president and chief operating
officer at UroCor, Inc.
- From August 1989 to August 1998,
served in positions at Dupont Merck as
executive vice president,
administration, member of the
Operating Group and senior vice
president, Cardiovasculars, and
positions at Dupont (June 1997 to
August 1998), as president of
International & Europe (January 1994
to December 1996); president of North
America (January 1992 to December
1993), vice president of Sales and
Marketing (January 1991 to December
1991) and director of Worldwide
Marketing (August 1989 to December
1990).
- Prior to August 1989, held positions
as a product manager at Bristol-Myers
Squibb and Sandoz Pharmaceuticals.
James B. Glavin......... 64 - Since May 1993, serves as chairman of February 1999 2002
the board of directors of Immune
Response Corporation.
- From April 1987 to September 1997,
served in positions at Immune Response
Corporation. as chief executive
officer (April 1987 to September
1994), president (October 1987 to
September 1994), and treasurer (April
1987 to May 1991). From September 1985
to May 1990, served as chairman of the
board of directors of Smith
Laboratories, Inc. ("Smith Labs"), a
medical products company, and, from
September 1985 to August 1989, served
as acting president and chief
executive officer of Smith Labs.
- Serves as a director of Inhale
Therapeutic Systems, Inc. and the
Meridian Fund.
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR CURRENT
THE PAST FIVE YEARS AND DIRECTOR TERM
NAME AGE OTHER DIRECTORSHIPS SINCE ENDS
---- --- ------------------------ ------------- -------
<S> <C> <C> <C> <C>
Gerald J. Yakatan,
Ph.D.................... 57 - Since March 1998, serves as our April 1992 2002
president and chief executive officer
(CEO). From July 1995 to March 1998,
served as our vice president of Drug
Development of on a half-time basis.
- Serves as chairman of the board of
directors of IriSys Research &
Development, LLC, a company
specializing in contract drug
formulation services, founded by Dr.
Yakatan in 1996.
- Serves as a director DemTech
International and the Center for
Neurologic Study
- From 1990 to 1995, served as president
and CEO of Tanabe Research Laboratories,
USA, Inc., an inflammation drug
discovery research and development
company.
- From 1987 to 1990, served as executive
vice president for Research and
Development and vice president of
Pharmaceutical Development at
Immunetech Pharmaceuticals
</TABLE> (predecessor to Tanabe Research).
There are no family relationships among any of the directors and officers.
BOARD MEETINGS AND COMMITTEES
During fiscal year 1999, our board of directors held nine regular meetings
and twelve special meetings. Each director attended at least 75% of these
meetings, which occurred on or after the initiation of his term as a director,
except for Dr. Carlo who attended 67% of the meetings.
During fiscal year 1999, our board of directors had an executive committee,
an audit committee, a compensation committee and a nominating committee.
Our executive committee has authority from our board of directors to act on
any matter except:
- the approval of any action that requires shareholder approval under
California law;
- the filling of vacancies on our board of directors or on any committee of
our board of directors;
- the fixing of compensation for directors;
- the adoption, amendment or repeal of any bylaw;
- the amendment or appeal of any resolution of our board of directors that,
by its terms, is not amendable or repealable;
- any distribution to shareholders except at a rate or within a price range
determined by our board of directors;
- the appointment of other committees of our board of directors or its
members; or
- the termination of any officer.
Our executive committee currently consists of Mr. Rutland, as committee
chairman, Dr. Yakatan, Dr. Carlo, and Messrs. Hennessy, and Smith. The executive
committee held one meeting during fiscal year 1999.
Our audit committee oversees our accounting and financial reporting
policies and internal controls, reviews annual audit reports and management
letters and makes recommendations to our board of directors regarding the
appointment of independent auditors. Our audit committee currently consists of
Mr. Olson, as
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<PAGE> 10
committee chairman, and Messrs. Glavin and George. Our audit committee held two
meetings during fiscal year 1999.
Our compensation committee recommends to our board of directors the
compensation of our directors and officers, oversees the administration of our
stock option plans and performs other duties regarding compensation for
employees and consultants as our board of directors may delegate from time to
time. See also "Board Compensation Committee Report on Executive Compensation."
Our compensation committee currently consists of Dr. Carlo, as committee
chairman, and Messrs. Rutland and Smith. The compensation committee held one
meeting in fiscal year 1999.
Our nominating committee identifies and recommends to our board of
directors candidates to fill vacancies on our board of directors due to
resignation, term expiration or death. Our nominating committee currently
consists of Mr. Rutland, as committee chairman, and Messrs. Glavin and Olson.
Our nominating committee held one meeting in fiscal year 1999.
PROPOSAL TWO
APPROVAL OF THE 2000 STOCK OPTION PLAN
(ITEM 2 ON THE PROXY CARD)
On December 2, 1999, our board of directors approved the 2000 stock option
plan and reserved for issuance an aggregate of 2,300,000 shares of our Class A
Common Stock issuable under the plan. We are presenting the 2000 stock option
plan to the shareholders for their approval at the annual meeting.
The primary purpose of the 2000 stock option plan is to increase the number
of shares of our Class A Common Stock available for issuance under all of our
stock option plans to ensure that we can continue to grant stock options to
employees, board members and consultants at levels determined appropriate by our
board of directors and our compensation committee. Our board of directors
believes that the number of options currently available for future option grants
under our 1994 stock option plan and 1998 stock option plan are insufficient. As
of December 21, 1999, our 1994 stock option plan had available for issuance only
48,857 options out of the 2,000,000 options authorized under this plan. In
addition, as of December 21, 1999, our 1998 stock option plan had available for
issuance only 11,760 options out of the 1,875,000 options authorized under this
plan.
The full text of the 2000 stock option plan, substantially in the form that
will be in effect if approved by the shareholders, is set forth in Attachment A
to this proxy statement. Our summary of the 2000 stock option plan is subject
to, and qualified in its entirety by, the copy of the plan attached to this
proxy statement.
PURPOSE
The general purpose of the 2000 stock option plan, as with our 1994 and
1998 stock option plan, is to assist us in the recruitment, retention and
motivation of employees, directors and independent contractors who are in a
position to make contributions to our progress. The 2000 stock option plan
offers a significant incentive to our employees, directors and independent
contractors by enabling these individuals to acquire shares of our Class A
Common Stock, which increases their proprietary interest in the growth and
success of our company.
ADMINISTRATION
The 2000 stock option plan is administered by the compensation committee of
our board of directors. This committee is composed of at least two "non-employee
directors," as this term is defined in Rule 16b-3, which is a board member who:
- is not currently an officer or employee of our company;
- does not receive compensation, either directly or indirectly, from us for
services rendered as a consultant or in any other non-director capacity
except for an amount that does not exceed $60,000;
- does not possess an interest in any other related party transactions
exceeding $60,000; and
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<PAGE> 11
- is not engaged in a business relationship for which disclosure would be
required in accordance with Item 404(b) of Regulation S-K.
Subject to the limitations set forth in the 2000 stock option plan, the
compensation committee has broad authority to determine:
- the recipients of options grants (including initial grants to incoming
directors);
- the option exercise term; and
- the rate at which the options may be exercised (including acceleration of
vesting).
If we do not appoint this committee, then our full board of directors is
responsible for administering the 2000 stock option plan.
ELIGIBILITY AND SHARES SUBJECT TO THE 2000 STOCK OPTION PLAN
The principal terms and conditions of the 2000 stock option plan are
summarized below:
- 2,300,000 shares of our Class A Common Stock have been reserved for
issuance upon exercise of options.
- This plan provides for the grant of both incentive stock options and
non-qualified or nonstatutory stock options. Incentive stock options may
be granted only to our employees, including directors who are also
employees. Non-qualified stock options may be granted to our employees,
including directors who are also employees, directors and independent
contractors.
- If any options granted expire, are canceled or otherwise terminate for
any reason, without having been exercised in full, then the shares
allocable to the unexercised portion of these options again become
available for the 2000 stock option plan.
- The maximum term of each option granted is 10 years.
- Stock options that are granted must be exercised by the optionee prior to
the earlier of the expiration date of the option or within 90 days after
termination of the optionee's employment, except that the period may be
extended on specified events, including death and termination due to
disability.
- The exercise price of shares of our Class A Common Stock subject to
options under the 2000 stock option plan must not be less than the fair
market value of our Class A Common Stock on the date of grant to qualify
as an incentive stock option. With respect to an employee who owns more
than ten percent of the total combined voting power of all classes of our
capital stock, the exercise price of any option granted must not be less
than 110% of the fair market value of our Class A Common Stock on the
date of grant. The exercise price for a nonstatutory option must be not
be less than 85% of the fair market value of our Class A Common Stock on
the date of the grant.
- During an optionee's lifetime, the options will be exercisable only by
the optionee and will not be transferable. In the event of death, the
optionee's options will not be transferable other than by will or by the
laws of descent and distribution.
In addition to cash payments, the 2000 stock option plan authorizes the
compensation committee to permit an optionee to pay the exercise price of an
option:
- by delivery of shares of our Class A Common Stock or irrevocable
instructions to a securities broker approved by us to sell the optionee's
shares and deliver all or a part of the sale proceeds to us in payment of
all or part of the exercise price and any withholding taxes; or
- by delivery of irrevocable instructions to pledge the optionee's shares
to a securities broker or lender approved by us as security for a loan,
and to deliver all or part of the loan proceeds to us in payment of all
or part of the exercise price and any withholding taxes. These shares
shall be valued at their fair market value on the date when the new
shares are purchased under the 2000 stock option plan.
8
<PAGE> 12
Based upon the closing price of $2.03125 for our Class A Common Stock on
the OTC Bulletin Board on January 13, 2000, the maximum aggregate value of the
underlying securities to be issued under the 2000 stock option plan is
$4,672,000. The actual value of the securities to be issued will be determined
by the fair market value of the underlying securities on the date(s) the
securities are issued. To date, we have granted 300,000 options under the 2000
stock option plan, which remains subject to shareholder approval at the annual
meeting.
DURATION, AMENDMENT AND TERMINATION
Our board of directors may amend, suspend or terminate the 2000 stock
option plan at any time, except that any amendment, suspension or termination
will not affect any previous option grants. Our shareholders must approve,
however, any amendment of the 2000 stock option plan that:
- increases the number of shares available for issuance;
- materially changes the class of persons who are eligible for the grant of
incentive stock options; or
- if required by the rules under the Securities Exchange Act of 1934, would
materially increase the benefits accruing to participants under the 2000
stock option plan or would materially modify the eligibility requirements
for participation in the 2000 stock option plan.
We do not need to receive shareholder approval for any other amendment of the
2000 stock option plan. Unless terminated by our board of directors, the 2000
stock option plan will terminate on December 2, 2009, and we may not grant
options or sell stock under the 2000 stock option plan following the termination
date.
EFFECT OF CORPORATE EVENTS
Immediately prior to the occurrence of any of the following transactions,
the exercisability or vesting of the options issued under the 2000 stock option
plan will accelerate automatically:
- a merger or acquisition where we are not the surviving entity;
- a sale, transfer or other disposition of all or substantially all of our
assets; or
- any reorganization or business combination where 50% or more of our
outstanding voting stock is transferred to different holders.
However, the exercisability or vesting of an outstanding option under the 2000
stock option plan will not accelerate if:
- its acceleration is subject to other applicable limitations imposed by
the compensation committee at the time of the grant; or
- in connection with the transaction triggering the acceleration, the
option either is assumed by the successor corporation or its parent
company or is replaced with a comparable option to purchase shares of the
capital stock of the successor corporation or its parent company. Our
compensation committee will make this final, binding and conclusive
determination.
The exercisability of incentive stock options, if accelerated, will still
remain subject to a maximum dollar limitation of $100,000 imposed on the
exercise of stock options under the 2000 stock option plan. Except as otherwise
provided in the 2000 stock option plan, all outstanding stock options will, if
not previously exercised or assumed by the successor corporation or its parent
company, terminate and cease to be outstanding upon the occurrence of an
acceleration event described in the preceding paragraph.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 2000 stock
option plan are intended to be eligible for the federal income tax treatment
accorded to "incentive stock options." There are generally no federal income tax
consequences to the optionee or us by reason of the grant or exercise of an
incentive stock
9
<PAGE> 13
option other than a disqualifying disposition as described below. However, the
exercise of an incentive stock option may increase the optionee's alternative
minimum tax liability, if any.
If an optionee holds stock acquired through the exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, then any gain or loss on a disposition of
the stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods,
at the time of disposition, then the optionee will realize taxable ordinary
income equal to the lesser of:
- the excess of the stock's fair market value on the date of exercise over
the exercise price; or
- the optionee's actual gain, if any, on the purchase and sale.
The optionee's additional gain, or any loss upon the disqualifying
disposition will be a capital gain or loss which will be long-term or short-term
depending on whether the stock was held for more than one year. To the extent
the optionee recognizes ordinary income by reason of a disqualifying
disposition, we generally will be entitled (subject to the requirement of
reasonableness and the satisfaction of a tax reporting obligation) to a
corresponding business expense deduction in the tax year in which the
disqualifying disposition occurs.
Non-Qualified Stock Options. There generally are no tax consequences to the
optionee or us by reason of the grant of a non-qualified stock option. Upon
exercise of a non-qualified stock option, the optionee will recognize taxable
ordinary income equal to the difference between the stock's fair market value on
the date of exercise and the option exercise price. With respect to employees,
we are required to withhold taxes in an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness and the satisfaction of
any withholding obligation, we generally will be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionee. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for this stock plus any amount recognized as ordinary income upon exercise of
the option. This gain or loss will be long or short-term depending on whether
the stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to repurchase options or who are subject to
Section 16(b) of the Securities Exchange Act of 1934.
Potential Limitation on Company Deductions. We may be denied a deduction if
we compensate a covered employee by more than $1,000,000 in a taxable year under
Section 162(m) of the Internal Revenue Code. This deduction limitation, however,
does not apply to compensation that qualifies as "performance-based
compensation." Compensation attributable to stock options will qualify as
performance-based compensation if:
- the option plan contains a per-employee limitation on the number of
shares for which options may be granted during a specified period;
- the per-employee limitation is approved by the shareholders;
- the option is granted by a compensation committee comprised solely of
"outside directors;" and
- the exercise price of the option is no less than the fair market value of
the stock on the date of grant.
In addition, compensation attributable to stock options will qualify as
performance-based compensation if the option is granted by a compensation
committee comprised solely of "outside directors" and is granted or is
exercisable only upon the achievement of an objective performance goal
established by the compensation committee while the outcome is substantially
uncertain and approved by the shareholders.
The 2000 stock option plan provides for, but does not require, the
administration of the plan in a manner that satisfies the above conditions.
Accordingly, we may not be able to claim a tax deduction for exercises of
non-qualified stock options or disqualifying dispositions of incentive stock
options by any of our top five (5) highest paid executives to the extent that
the income from these exercises or dispositions, combined with their other
taxable compensation for the year, exceeds $1 million. Our board of directors
will evaluate whether compliance will materially benefit our company.
10
<PAGE> 14
The foregoing discussion is intended to be a general summary only of the
federal income tax aspects of options granted under the 2000 stock option plan.
Tax consequences may vary depending on the particular circumstances at hand. In
addition, administrative and judicial interpretations of the application of the
federal income tax laws are subject to change. Furthermore, no information is
given with respect to state or local taxes that may be applicable. Participants
in the 2000 stock option plan who are residents of or are employed in a country
other than the United States may be subject to taxation in accordance with the
tax laws of that particular country in addition to or instead of United States
federal income taxes.
EXEMPTION FROM SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934 establishes insider
liability for profits realized from any "short-swing" trading transaction -- a
"purchase and sale" or "sale and purchase" within less than six months. Grants
of options are generally viewed as purchases of the underlying securities for
purposes of Section 16. Rule 16b-3 under the Securities Exchange Act of 1934
provides that transactions by officers and directors in accordance with an
employee stock option plan, such as option grants, are exempt from Section 16
liability if the plan meets various requirements. In general, these transactions
are exempt from the insider liability rules if:
- approved by the board of directors or a committee of the board that is
composed solely of two or more non-employee directors;
- approved by the affirmative votes of the holders of a majority of our
outstanding shares present and entitled to vote at a duly held
shareholder meeting; or
- our shares are held by the officer or director for a period of at least
six months following the date of acquisition, provided that this
condition will be satisfied with respect to a derivative security if at
least six months elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other
than upon exercise or conversion) or its underlying equity security.
The 2000 stock option plan is structured to comply with the above exemption
requirements of Rule 16b-3 under the Securities Exchange Act of 1934.
VOTE REQUIRED
The affirmative vote by the holders of a majority of our outstanding shares
present in person or represented by proxy at the meeting and voted is required
for approval of the 2000 stock option plan. OUR BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" THE APPROVAL OF THE 2000 STOCK OPTION PLAN.
PROPOSAL THREE
APPROVAL OF AN AMENDMENT TO OUR ARTICLES OF
INCORPORATION TO CONFORM WITH OUR BYLAWS REGARDING THE DEFINITION OF
A QUORUM FOR A MEETING OF SHAREHOLDERS
(ITEM 3 ON THE PROXY CARD)
On December 2, 1999, our board of directors approved an amendment to our
articles of incorporation to incorporate the definition of a quorum that is set
forth in our bylaws. Our bylaws provide that the presence of shareholders
representing 33 1/3% of our voting shares at a shareholder meeting will
constitute a quorum. California corporate law requires that our articles of
incorporation specifically state whether we have established a minimum quorum
requirement of 33 1/3% to establish a quorum of less than 50%. Accordingly, we
propose the addition of the following Article 6 to our articles of
incorporation:
"6. The presence in person or by proxy of persons entitled to vote a
majority of the voting shares of the Corporation at any meeting, but not
less than 33 1/3 percent of all voting shares of the Corporation, shall
constitute a quorum for the transaction of business. The Shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, not
11
<PAGE> 15
withstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum."
Our board of directors believes that we should amend our articles of
incorporation to establish a minimum quorum requirement of 33 1/3% to maintain
consistency between the quorum requirements in our articles of incorporation and
bylaws and to allow the bylaw to be effective at shareholder meetings by
complying with California corporate law.
VOTE REQUIRED
The affirmative vote by the holders of a majority of our outstanding shares
is required for the approval of the amendment to our articles of incorporation.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO
OUR ARTICLES OF INCORPORATION.
PROPOSAL FOUR
RATIFICATION OF INDEPENDENT AUDITORS
(ITEM 4 ON THE PROXY CARD)
Our board of directors has selected Deloitte & Touche LLP as our
independent auditors for the fiscal year ending September 30, 2000, and has
further directed that we submit the selection of independent auditors for
ratification by our shareholders at the annual meeting. Deloitte & Touche LLP
has audited our financial statements annually since our inception. Its
representatives are expected to be present at the annual meeting. They will have
the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
We are not required to solicit shareholder ratification for the selection
of Deloitte & Touche LLP as our independent auditors. Our board of directors is
submitting the selection of Deloitte & Touche LLP to our shareholders for
ratification as a matter of good corporate practice. If our shareholders fail to
ratify the selection, then our board of directors will reconsider whether or not
to retain that firm. Even if the selection is ratified, our board of directors
may direct the appointment of a different independent accounting firm at any
time during the year if our board determines that the change would be in the
best interests of our company and our shareholders.
VOTE REQUIRED
The affirmative vote by the holders of a majority of our outstanding shares
present in person or represented by proxy at the meeting and voted is required
for the ratification of Deloitte & Touche LLP as our independent auditors for
the fiscal year ending September 30, 2000. OUR BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" THE RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP TO SERVE
AS OUR INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2000.
12
<PAGE> 16
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership (as defined by Rule 13d-3 under the Securities Exchange Act of 1934 of
our voting shares of our Class A Common Stock and Class B Common Stock as of
December 21, 1999 by: (i) each of our directors, director nominees and named
executive officers; (ii) all of our current executive officers and directors as
a group; and (iii) each person or "group" of persons (as defined under Section
13(d)(3) of the Securities Exchange Act of 1934) known by us to own beneficially
5% or more of the outstanding shares or voting power of our voting securities.
The table is based upon information supplied by directors, officers and
principal shareholders. Unless otherwise indicated, each of the listed persons
has sole voting and sole investment power with respect to the shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL PERCENT OF
TITLE OF CLASS OWNER OR IDENTITY OF GROUP(1) OWNERSHIP(2) CLASS(2)
-------------- ------------------------------ ------------ ----------
<S> <C> <C> <C>
Class A Common Stock Gerald J. Yakatan, Ph.D.(3) 487,158 1.0%
Class B Common Stock -- -0-
Class A Common Stock George P. Rutland(4) 326,668 *
Class B Common Stock -- -0-
Class A Common Stock Dennis J. Carlo, Ph.D.(5) 74,168 *
Class B Common Stock -- -0-
Class A Common Stock Michael W. George(6) 76,168 *
Class B Common Stock -- -0-
Class A Common Stock James B. Glavin(7) 63,334 *
Class B Common Stock -- -0-
Class A Common Stock Edward L. Hennessy, Jr.(8) 124,168 *
Class B Common Stock -- -0-
Class A Common Stock Kenneth E. Olson(9)(10) 286,735 *
Class B Common Stock 16,000 3.6%
Class A Common Stock Joseph E. Smith(11) 74,168 *
Class B Common Stock -- -0-
Class A Common Stock James E. Berg(12) 202,099 *
Class B Common Stock -- -0-
Class A Common Stock J. David Hansen(13) 122,743 *
Class B Common Stock -- -0-
Class A Common Stock Gregory P. Hanson(14) 128,212 *
Class B Common Stock -- -0-
Class A Common Stock All officers and directors as a group (eleven 1,965,621 4.1%
Class B Common Stock persons)(15)(16) 16,000 3.6%
Class A Common Stock David H. Katz, M.D.(17)(18) 3,366,193 7.0%
Class B Common Stock 375,000 85.2%
</TABLE>
- ---------------
"*" represents less than one percent.
(1) The address for all persons shown, except Dr. Katz, is c/o AVANIR
Pharmaceuticals, 9393 Towne Centre Drive, Suite 200, San Diego, California
92121. The address for Dr. Katz is 1775 La Jolla Rancho Road, La Jolla,
California 92037.
(2) Based upon 46,060,314 shares of Class A Common Stock and 440,000 shares of
Class B Common Stock outstanding as of December 21, 1999. The percentage
ownership and voting power for each shareholder (or all directors and
executive officers as a group), is calculated by assuming the exercise or
conversion of all warrants, options and convertible securities exercisable
or convertible within 60 days of December 21, 1999 held by a shareholder
and the nonexercise and nonconversion of all other outstanding warrants,
options and convertible securities. Each share of Class A Common Stock
entitles
13
<PAGE> 17
the holder to one vote per share on matters to be voted on by shareholders,
while each share of Class B Common Stock entitles the holder to five votes
per share on matters to be voted on by shareholders.
(3) Includes 37,500 shares of Class A Common Stock and options to purchase
449,658 shares of Class A Common Stock. Does not include options to
purchase 650,342 shares of Class A Common Stock which are not exercisable
within 60 days of December 21, 1999.
(4) Includes 222,500 shares of Class A Common Stock and options to purchase
104,168 shares of Class A Common Stock. Does not include options to
purchase 50,832 shares of Class A Common Stock which are not exercisable
within 60 days of December 21, 1999.
(5) Includes options to purchase 74,168 shares of Class A Common Stock. Does
not include options to purchase 50,832 shares of Class A Common Stock which
are not exercisable within 60 days of December 21, 1999.
(6) Includes 2,000 shares of Class A Common Stock and options to purchase
74,168 shares of Class A Common Stock. Does not include options to purchase
50,832 shares of Class A Common Stock which are not exercisable within 60
days of December 21, 1999.
(7) Includes options to purchase 63,334 shares of Class A Common Stock. Does
not include options to purchase 51,666 shares of Class A Common Stock which
are not exercisable within 60 days of December 21, 1999.
(8) Includes 50,000 shares of Class A Common Stock and options to purchase
74,168 shares of Class A Common Stock. Does not include options to purchase
50,832 shares of Class A Common Stock which are not exercisable within 60
days of December 21, 1999.
(9) Includes 36,400 shares of Class A Common Stock and options to purchase
250,335 shares of Class A Common Stock. Does not include options to
purchase 46,665 shares of Class A Common Stock which are not exercisable
within 60 days of December 21, 1999.
(10) Includes 16,000 shares of Class B Common Stock.
(11) Includes options to purchase 74,168 shares of Class A Common Stock. Does
not include options to purchase 50,832 shares of Class A Common Stock which
are not exercisable within 60 days of December 21, 1999.
(12) Includes options to purchase 202,099 shares of Class A Common Stock. Does
not include options to purchase 161,901 shares of Class A Common Stock
which are not exercisable within 60 days of December 21, 1999.
(13) Includes 5,000 shares of Class A Common Stock and options to purchase
117,743 shares of Class A Common Stock. Does not include options to
purchase 202,257 shares of Class A Common Stock which are not exercisable
within 60 days of December 21, 1999.
(14) Includes 6,000 shares of Class A Common Stock and options to purchase
122,212 shares of Class A Common Stock. Does not include options to
purchase 197,788 shares of Class A Common Stock which are not exercisable
within 60 days of December 21, 1999.
(15) Includes 359,400 shares of Class A Common Stock, options to purchase
1,606,221 shares of Class A Common Stock. Does not include 1,564,779
options to purchase Class A Common Stock not exercisable within 60 days of
December 21, 1999.
(16) Includes 16,000 shares of Class B Common Stock.
(17) Includes 1,121,003 shares of Class A Common Stock held by Dr. Katz and
2,000 shares held by his wife, options to purchase 1,827,000 shares of
Class A Common Stock and 386,190 shares of Class A Common Stock issuable
upon the exercise of Class D Warrants and options to purchase 30,000 shares
of Class A Common Stock held by his wife.
The Amendment No. 2 to Schedule 13D dated September 3, 1998 filed by Dr.
Katz with the SEC reports that Dr. Katz owns 234,000 shares of Class A
Common Stock that he obtained as part of a settlement agreement between Dr.
Katz and several third parties. Dr. Katz has taken the position that these
shares should be reinstated to their prior status as shares of our Class B
Common Stock. We disagree with Dr. Katz' claim that these shares should be
reclassified as shares of our Class B Common
14
<PAGE> 18
Stock based on our interpretation of our articles of incorporation. Dr Katz
is seeking a judicial determination that these shares should be reinstated
as shares of Class B Common Stock. If Dr. Katz obtains a determination in
his favor in advance of the annual meeting, then we intend to provide to
Dr. Katz the voting rights that he would have enjoyed had he held these
shares of our Class B Common Stock on the record date of the annual
meeting. The effect of such a determination could increase Dr. Katz's
voting rights by as much as 936,000 votes and his beneficial ownership to
as high as 12.2%.
(18) Includes 375,000 shares of Class B Common Stock.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file reports of beneficial
ownership and changes in beneficial ownership with the SEC. Executive officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms that they file.
To our knowledge, based solely on review of the copies of the reports
furnished to us and written representation that no other reports were required,
all Section 16(a) filing requirements applicable to our executive officers,
directors and greater than ten percent shareholders were complied with in fiscal
year 1999.
EXECUTIVE COMPENSATION
NON-EMPLOYEE DIRECTORS
Outside directors who are not otherwise employed by us, other than Mr.
Rutland, are paid a retainer of $500 per month. Mr. Rutland, our chairman of the
board, receives a monthly retainer of $2,500. In addition, all outside directors
receive $1,500 for attendance at each regular meeting of our board of directors,
and $250 for attendance at each annual meeting of directors and meetings of
committees of the directors. Committee chairpersons for all committees receive
$500 for attendance at the meeting. Instead of payment of cash fees in the
second half of the 1999 calendar year, we awarded Mr. Rutland stock options to
purchase 30,000 shares of Class A Common Stock at an exercise price of $0.7813
per share for attendance at all meetings from June 30, 1999 to the end of the
calendar year. Mr. Rutland's options were valued at $20,750 at the time of
issuance. Each of the other non-employee directors were awarded options to
purchase 15,000 shares of Class A Common Stock at an exercise price of $0.7813
per share for attendance at all meetings from June 30, 1999 to the end of the
calendar year. These options were valued at an average of approximately $9,800
per non-employee director at the time of issuance.
In March 1994, our shareholders approved our 1994 stock option plan. Our
1994 stock option plan provides that non-employee directors are automatically
granted options to purchase 10,000 shares of our Class A Common Stock on the
date of our annual meeting each year. The options granted at that time have an
exercise price equal to the fair market value of our Class A Common Stock on the
date of grant, vest ratably over three years and have a term of ten years.
Unless sooner terminated by our board of directors, our 1994 stock option plan
expires on January 14, 2004. Our board of directors may amend, suspend, modify
or terminate our 1994 stock option plan, but may not without the prior written
approval of our shareholders make any amendment which:
- materially increases the number of shares available for issuance under
our 1994 stock option plan (except as expressly permitted);
- materially changes the class of persons who are eligible for the grant of
incentive stock options; or
- if required by Rule 16b-3 (or any successor) under the Securities
Exchange Act of 1934, would materially increase the benefits accruing to
participants under our 1994 stock option plan or would materially modify
the requirements as to eligibility for participation in our 1994 stock
option plan.
15
<PAGE> 19
On February 19, 1999, Dr. Carlo and Messrs. Rutland, George, Glavin,
Hennessy, Olson and Smith each received stock options to purchase 10,000 shares
of our Class A Common Stock at an exercise price of $0.72 per share in
accordance with our 1994 stock option plan.
On December 2, 1999, our board of directors adopted the 2000 stock option
plan, which our shareholders will consider for approval as part of this proxy.
See Proposal Two.
COMPENSATION OF EXECUTIVE OFFICERS
In March 1998, we entered into an employment agreement with Dr. Yakatan and
retention agreements with other executive officers, which we describe below in
more detail under "Employment Contracts and Retention Agreements."
The following executive compensation information reflects all compensation
awarded to, earned by or paid to our named executive officers for the fiscal
years ended September 30, 1999, 1998 and 1997. The named executive officers are
our chief executive officer, regardless of compensation level, and our other
executive officers who received in excess of $100,000 in total annual salary and
bonus for fiscal year 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS PAYOUTS
------------------------ -------
ANNUAL COMPENSATION RESTRICTED SECURITIES
---------------------- OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(2) ($) ($) ($) SAR'S(#)(3) ($) ($)
------------------ ---- ------- ----- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald J. Yakatan(1).................. 1999 300,000 -- -- -- 300,000 -- --
President and Chief Executive Officer 1998 222,461 -- -- -- 300,000 -- --
1997 111,693 -- -- -- 15,000 -- --
James E. Berg......................... 1999 125,000 -- -- -- 150,000 -- --
Vice President of Clinical Affairs 1998 117,673 -- -- -- 25,000 -- --
and Product Development 1997 110,792 -- -- -- 25,000 -- --
J. David Hansen(4).................... 1999 165,000 -- -- -- 150,000 -- --
Vice President of Sales and
Marketing 1998 3,173 -- -- -- -- -- --
1997 -- -- -- -- -- -- --
Gregory P Hanson(5)................... 1999 110,000 -- -- -- 150,000 -- --
Vice President and Chief Financial
Officer 1998 16,920 -- -- -- -- -- --
1997 -- -- -- -- -- -- --
Timothy R Russell(6).................. 1999 102,533 -- -- -- 150,000 -- --
Former Vice President of 1998 180,116 -- -- -- 10,000 -- --
Business Development and Licensing 1997 177,031 -- -- -- 15,000 -- --
</TABLE>
- ---------------
(1) Dr. Yakatan's salary for 1997 and until March 1998 was based on allocating
50% of his time to our company and 50% of his time to other endeavors while
he was employed as our Vice President of Drug Development. Commencing with
his employment as President and Chief Executive Officer on March 4, 1998,
Dr. Yakatan's salary was raised to $300,000 for full-time service.
(2) Amounts shown include compensation earned and received by our named
executive officers. No amounts were earned but deferred at the election of
those officers.
(3) We have not made any grants of SAR's.
(4) Mr. Hansen was hired as Vice President, Sales and Marketing on September 14,
1998.
(5) Mr. Hanson was hired as Vice President, Finance and Chief Financial Officer
on July 27, 1998.
(6) Mr. Russell served as Vice President, Business Development and Licensing
until April 2, 1999.
16
<PAGE> 20
STOCK OPTION GRANTS
The following table shows all individual grants of stock options to our
named executive officers during fiscal year 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
OPTIONS/SARS EXERCISE APPRECIATION FOR
GRANTED TO OR BASE OPTION TERMS(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE 5% 10%
---- ------------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerald J. Yakatan............. 300,000 28% $0.72 2/19/09 $135,841 $344,248
James E. Berg................. 150,000 14% $0.72 2/19/09 $ 67,921 $172,124
J. David Hansen............... 150,000 14% $0.72 2/19/09 $ 67,921 $172,124
Gregory P. Hanson............. 150,000 14% $0.72 2/19/09 $ 67,921 $172,124
Timothy R. Russell (4)........ 150,000 14% $0.72 2/19/09 $ 67,921 $172,124
</TABLE>
- ---------------
(1) These options vest over three years, with one-third vesting on the date of
grant, and the remaining two-thirds begin vesting at the beginning of the
second year and vest during the next two years on a daily basis. Vesting may
be accelerated and the options may be repriced at the discretion of our
board of directors. In the event of a specified corporate transaction such
as a dissolution, merger or other reorganization of our company in which
more than 50% of our stock is exchanged, vesting on these options will
accelerate unless the surviving corporation assumes the outstanding options,
substitutes similar rights for outstanding options, or the options will
continue.
(2) Market price on date of grant.
(3) The potential realizable value is calculated by assuming that the stock
price on the date of grant appreciates at the indicated rate, compounded
annually, for the entire term of the option and that the option is exercised
and sold on the last day of its term at this appreciated stock price.
(4) Mr. Russell served as Vice President, Business Development and Licensing
from September 18, 1992 to April 2, 1999. Of the 150,000 options noted
above, 50,000 options had vested as of the date of his departure from our
company.
OPTION EXERCISES IN FISCAL YEAR 1999
Set forth below is information with respect to exercises of stock options
by our named executive officers during fiscal year 1999 and the fiscal year-end
value of all unexercised stock options held by these persons.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF OPTIONS VALUE OF IN-THE-MONEY
HELD AT FISCAL OPTIONS
SHARES YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald J. Yakatan........... -- -- 387,715 352,285 -- --
James E. Berg............... -- -- 171,554 117,446 -- --
J. David Hansen............. -- -- 84,793 165,207 -- --
Gregory P. Hanson........... -- -- 89,262 160,738 -- --
Timothy R. Russell.......... -- -- 255,239 -- -- --
</TABLE>
- ---------------
(1) Based upon the closing bid price of our Common Stock of $0.28125 quoted on
the OTC Bulletin Board on September 30, 1999.
17
<PAGE> 21
EMPLOYMENT CONTRACTS AND RETENTION AGREEMENTS
Dr. Yakatan's Employment Agreement. In March 1998, we entered into an
employment agreement with Dr. Gerald J. Yakatan, our president and chief
executive officer. Dr. Yakatan's employment agreement provides that Dr.
Yakatan's employment with us is "at-will." Subject to the discretion of our
board of directors, Dr. Yakatan's annual base salary is $300,000, and he is
eligible for a discretionary incentive bonus. Dr. Yakatan also received, as part
of signing his employment agreement, a grant of 300,000 stock options under our
1994 stock option plan, at an exercise price equal to $1.8125 (the fair market
value of our Class A Common Stock on the date of the grant), of which 103,389
consisted of non-qualified stock options and 196,611 consisted of incentive
stock options. Stock options exercisable into 100,000 shares of Class A Common
Stock vested immediately, with the remainder of the stock options vesting in
four equal annual increments of 50,000 per year on the anniversary date of Dr.
Yakatan's employment, commencing on March 4, 1999.
In the event of a "change of control termination" in the first three years
of Dr. Yakatan's employment, or in the event Dr. Yakatan is otherwise terminated
without cause as defined in the agreement, Dr. Yakatan is eligible for severance
in an amount equal to 12 months of base salary paid over a 12-month period in
exchange for his execution of a release of all claims effective as of the
termination date. In the event of a termination without cause of the employment
relationship or in the event of a "change of control termination" that occurs
after the first year of employment, vesting of the unvested options described
above will be accelerated to include options that would otherwise have vested
had Dr. Yakatan remained an employee for an additional 12 months. In the event
of any other termination of Dr. Yakatan's employment, Dr. Yakatan's vested
options will be exercisable in all respects in accordance with the terms of our
1994 and 1998 stock option plans.
Employee Retention Agreement. In February 1999, we entered into retention
agreements with a number of our vice presidents and director level employees,
including Messrs. Berg, Hansen, Hanson and Russell. Mr. Russell subsequently
resigned from our company on April 2, 1999. Under these agreements, if an
employee is terminated within one year from entering into the employment
agreement because of a "change of control termination," then the employee is
eligible for severance in an amount equal to twelve months of base salary, plus
the cost of health insurance, paid over a 12-month period in exchange for his
execution of a release of all claims to be effective as of the termination date.
Definition of a "Change of Control Termination". For purposes of both Dr.
Yakatan's employment agreement and the retention agreements, a "change of
control termination" of the employment relationship occurs where the employee
is:
- terminated without "Cause" or
- "resigns for good reason," within twelve (12) months following one of the
following events relating to the following change of control events:
- an entity beneficially owns shares representing 50% or more of our
combined voting power then outstanding that are entitled to vote in the
election of our directors;
- if incumbent directors, new directors that were elected or nominated by
our incumbent directors or directors elected or nominated by a majority
of our incumbent directors and new directors cease to constitute a
majority of our board of directors
- if we are involved in a reorganization, merger, consolidation or other
corporate transaction where our shareholders immediately before the
transaction do not own more than fifty percent (50%) of our combined
voting power or other corporation resulting from the transaction
immediately after the transaction; or
- all or substantially all of our assets are sold, liquidated or
distributed.
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<PAGE> 22
An employee may "resign for good reason" upon:
- a meaningful and detrimental alteration in the employee's position or the
nature or status of the employee's responsibilities and reporting
relationship from those in effect upon execution of the employment
agreement;
- the assignment to the employee of any duties inconsistent with his status
as one of our executive officers;
- our reduction in the employee's base salary by more than five percent
(5%), unless the base salaries of our other executive officers also are
accordingly reduced;
- our relocation of the employee or our principal executive offices to a
location outside San Diego County, if the employee's principal office is
in San Diego County, without reimbursement of relocation costs; or
- any other conduct which satisfies the requirements for "constructive
termination" as that term is defined under California law.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Letter of Intent with IriSys Research and Development, LLC. On February 5,
1999, we signed a letter of intent with IriSys Research and Development, LLC, a
company specializing in contract drug formulation services, to license the
world-wide rights to a product intended for use in a condition associated with
neurodegenerative diseases, chronic cough and neuropathic pain. Dr. Yakatan, our
president, chief executive officer and a director, founded and serves as the
chairman of IriSys Research and Development, LLC.
Loan by the Certain Members of our Board of Directors. On October 21, 1999,
several members of our board of directors participated in loaning a total of
$75,000 to us for use as working capital, which was at a time when other
financing alternatives were not attractive to us. These loans accrued interest
at the prime rate as reported in the Wall Street Journal and were due upon the
earlier of the date that we raise an aggregate of $2 million in financing or 90
days. We paid back these loans plus interest on January 17, 2000.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The compensation committee recommends to our board of directors
compensation for our directors and officers and oversees the administration of
our employee stock option plans. All decisions of the compensation committee
relating to compensation of our executive officers are reviewed and approved by
our entire board of directors.
COMPENSATION POLICY
Our executive compensation policy is designed to establish an appropriate
relationship between executive pay and our annual performance, its long-term
growth objectives and its ability to attract and retain qualified executive
officers. The compensation committee attempts to achieve these goals by
integrating on an individualized basis competitive annual base salaries with
stock options through our stock option plans and otherwise. The compensation
committee believes that cash compensation in the form of salary and bonus
provides our executives with short term rewards for success in operations, and
that long term compensation through the award of stock options better
coordinates the objectives of management with those of our shareholders with
respect to our long term performance and success. The compensation committee
generally takes into consideration a variety of subjective and objective factors
in determining the compensation package for our executive officers, including
how compensation compares to that paid by competing companies and the
responsibilities and performance by each executive and our company as a whole.
In making its determinations, the compensation committee attempts to address the
unique challenges which are present in the biotechnology industry in which we
compete against a number of public and private companies with respect to
attracting and retaining executives and other key employees.
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<PAGE> 23
The compensation committee has relied heavily on the equity/option position
of executives as an important mechanism to retain and motivate executives and
key employees while at the same time aligning the interests of the executives
with the interests of our shareholders generally. The compensation committee
believes that option grants are instrumental in motivating employees to meet our
future goals. By working to increase our company's value, one of our primary
performance goals is met and our executives are likewise compensated through
option value.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
As discussed above under "Employment Contracts and Retention Agreements,"
we have entered into an employment agreement with Dr. Yakatan which provides for
an annual base salary of $300,000.
COMPENSATION ARRANGEMENTS GENERALLY
Overall, the compensation committee believes that the compensation
arrangements for our executives serve our long term interests and our
shareholders. In particular, the equity/option positions of executives are an
important factor in retaining and attracting key executives. Nonetheless, the
compensation committee intends to continue to review and analyze its policies in
light of our performance and development and the environment in which we compete
for executives and to retain outside compensation consultants from time to time
to assist the compensation committee in such review and analysis.
Compensation Committee
Dennis J. Carlo, Ph.D., Chairman
George P. Rutland
Joseph E. Smith
January 14, 2000
The foregoing reports of the compensation committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the proxy statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that we specifically
incorporate this information by reference, and shall not otherwise be deemed
filed under these acts.
BOARD AUDIT COMMITTEE REPORT
In September 1998, we established a charter for the audit committee, which
includes the overall authorities and responsibilities of the committee. In
general, the audit committee oversees our accounting and financial reporting
policies and controls and reports all actions taken by the committee to the
board of directors. The audit committee is the board of directors' principal
agent in ensuring the independence of our independent auditors, the integrity of
internal controls, and the adequacy of disclosures under the Securities and
Exchange Commission. The audit committee recommends to the board of directors
the retention or replacement of the independent auditors. The audit committee
also reviews with the independent auditor prior to the auditor's annual audit of
our financial records, the scope and general extent of the auditor's examination
including the auditor's engagement letter, factors considered by the auditors in
detailing the scope of the audit, and the auditor's fees. Upon completion of the
audit, the audit committee reviews with our senior management and our auditors,
the results of the audit.
Kenneth E. Olson, Chairman
Michael W. George
James B. Glavin
January 14, 2000
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<PAGE> 24
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on our
Class A Common Stock from September 30, 1994 to September 30, 1999 with the
cumulative total return of the NASDAQ U.S. Index and the NASDAQ Pharmaceutical
Index over the same period.
AVANIR PHARMACEUTICALS
COMPARISON OF FIVE YEAR CUMULATIVE SHAREHOLDER TOTAL RETURN*
AMONG AVANIR PHARMACEUTICALS (1), THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
[[CHART]]
<TABLE>
<CAPTION>
9/94 9/95 9/96 9/97 9/98 9/99
----------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
AVANIR Pharmaceuticals (1) 100 190 71 96 44 11
NASDAQ Stock Market (U.S.) 100 138 164 225 229 372
NASDAQ Pharmaceutical 100 148 178 199 171 289
</TABLE>
- ---------------
(1) Before November 20, 1998, we operated under the name, LIDAK Pharmaceuticals
and traded on the Nasdaq National Market under the symbol LDAKA. On November
25, 1998, our trading symbol became AVNR. On September 20, 1999, our stock
began trading on the OTC Bulletin Board.
* The graph assumes that $100.00 was invested in our Class A Common Stock and
in each index on September 30, 1994.
** The total return for our Class A Common Stock and the indices used assumes
the reinvestment of dividends. No dividends have been declared on our Class
A Common Stock.
In accordance with SEC regulations, this chart is not "soliciting
material", is not deemed filed with the SEC, and is not to be incorporated by
reference in any filing of ours under the Securities Act of 1933 or the
Securities Exchange Act of 1934.
21
<PAGE> 25
OTHER BUSINESS
We know of no other matters to be submitted at the annual meeting. If any
other matters are properly brought before the annual meeting or any adjournment
thereof, it is the intention of the persons named in the enclosed proxy to vote
the shares they represent in accordance with their judgment. In order for any
shareholder to nominate a candidate or to submit a proposal for other business
to be acted upon at the annual meeting, he or she must provide our corporate
secretary with not less than sixty (60) days' advance written notice in the form
prescribed by our bylaws.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
We must receive shareholder proposals intended to be presented at next
year's annual meeting at our principal office no later than October 2, 2000.
These proposals must satisfy the conditions established by the SEC for
shareholder proposals to be included in our proxy statement for that meeting.
Shareholders who intend to present a shareholder proposal at next year's
annual meeting that is not discussed in the related proxy materials should
notify us of the proposal on or before December 17, 2000. Otherwise, the
individuals who have been designated as proxies in connection with next year's
annual meeting will have discretionary authority to vote for or against these
proposals.
FORM 10-K
We are mailing a copy of our annual report for the fiscal year ended
September 30, 1999 with this proxy statement to shareholders entitled to notice
of the annual meeting. At any shareholder's written request, we will provide
without charge, a copy of our annual report on Form 10-K for the fiscal year
ended September 30, 1999, as filed with the Securities and Exchange Commission,
including the financial statements and a list of exhibits. If copies of exhibits
are requested, a copying charge of $0.20 per page will be made. Requests should
be sent to Investor Relations, AVANIR Pharmaceuticals, 9393 Towne Centre Drive,
Suite 200, San Diego, California, 92121.
Each shareholder is urged to complete, date, sign and promptly return the
enclosed proxy card.
By Order of the Board of Directors,
/s/ Gregory P. Hanson
GREGORY P. HANSON
Secretary
San Diego, California
22
<PAGE> 26
ATTACHMENT A
AVANIR PHARMACEUTICALS
2000 STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
This Plan was established in 1999 to offer selected Employees, directors,
advisors and Consultants an opportunity to acquire a proprietary interest in the
success of AVANIR Pharmaceuticals, a California corporation (the "Company"), or
to increase such interest, by purchasing Shares of the Company's common stock.
This Plan provides for the grant of Options to purchase Shares. Options granted
under this Plan may include Nonstatutory Options as well as ISOs intended to
qualify under Section 422 of the Code. This Plan is intended to comply in all
respects with Rule 16b-3 (or its successor) under the Exchange Act.
SECTION 2. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a committee of the Board of Directors,
consisting of Nonemployee Directors as appointed by the Board of Directors from
time to time, or, if no such committee is appointed, all members of the Board of
Directors described in Section 3(a) of this Plan.
(d) "Company" shall mean AVANIR Pharmaceuticals, a California corporation.
(e) "Consultant" shall mean any individual who is (i) a member of the Board
of Directors but who is not an Employee, (ii) an affiliate of a member of the
Board of Directors, (iii) a member of the board of directors of a Subsidiary or
(iv) an independent contractor who performs services for the Company or a
Subsidiary.
(f) "Employee" shall include every individual performing Service to the
Company or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and employee.
This definition of "Employee" is qualified in its entirety and is subject to the
definition set forth in Section 3401(c) of the Code and the applicable
regulations thereunder.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(i) "Fair Market Value" shall mean the market price of Stock, determined by
the Committee as follows:
(1) If Stock was traded over-the-counter (OTC) on either the OTC
Bulletin Board or the NASDAQ Smallcap Market on the date in question and
was not classified as a national market issue, then the Fair Market Value
shall be equal to the mean between the last reported representative bid and
asked prices quoted by the OTC Bulletin Board or the NASDAQ system for such
date;
(2) If Stock was traded on a national market exchange on the date in
question and was classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
NASDAQ system or the American Stock Exchange (AMEX) for such date;
(3) If Stock was traded on any other stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite-transaction report for such date; and
(4) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith and in
accordance with Section 260.140.50, Title 10 of the California Code of
Regulations, or with respect to the determination of Fair Market Value in
connection
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with the exercise of any Options granted to Nonemployee Directors under
Section 4(b) of this Plan, by an independent appraiser selected by the
Committee in its sole discretion.
In all cases, the determination of Fair Market Value by the Committee shall
be conclusive and binding on all persons.
(j) "ISO" shall mean an incentive stock option described in Section 422(b)
of the Code.
(k) "Nonemployee Director" shall mean a member of the Board of Directors
who (i) is not currently an officer or Employee of the Company or a parent or
Subsidiary of the Company, (ii) has not received compensation for serving as a
Consultant or in any other non-director capacity or had an interest in any
transaction with the Company or a parent or Subsidiary of the Company that would
exceed the $60,000 threshold for which disclosure would be required under Item
404(a) of Regulation S-K, or (iii) has not been engaged through another party in
a business relationship with the Company which would be disclosable under Item
404(b) of Regulation S-K. If the Board of Directors determines that compliance
with Section 162(m) of the Code is desirable, then the term "Nonemployee
Director" shall also be interpreted to satisfy the definition of "outside
director" under Section 162(m) and applicable regulations issued pursuant
thereto.
(l) "Nonstatutory Option" shall mean a Stock Option not described in
Sections 422(b) or 423(b) of the Code.
(m) "Option" shall mean an ISO or Nonstatutory Option granted under this
Plan and entitling the holder to purchase Shares.
(n) "Optionee" shall mean an individual who holds an Option.
(o) "Plan" shall mean the 2000 Stock Option Plan of the Company, as
amended.
(p) "Service" shall mean service as an Employee or Consultant.
(q) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 of this Plan (if applicable).
(r) "Stock" shall mean the Common Stock of the Company.
(s) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(t) "Stock Purchase Agreement" shall mean the Notice of Exercise and Stock
Purchase Agreement to be delivered by an Optionee to the Company upon exercise
of an Option.
(u) "Subsidiary" shall mean any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding Stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of this Plan shall be considered a Subsidiary commencing as of such date.
(v) "Taxes" shall mean the term defined in Section 6(d)(1) of this Plan.
(w) "Total and Permanent Disability" shall mean that the Optionee is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
SECTION 3. ADMINISTRATION.
(a) Committee Membership. This Plan shall be administered by the Committee.
The Committee shall be comprised either (i) solely of Nonemployee Directors of
the Company and shall have at least two members or (ii) of the entire Board of
Directors if no such committee is appointed. The Committee shall meet such other
requirements as may be established from time to time by the Securities and
Exchange Commission for plans intended to qualify for exemption under Rule 16b-3
(or its successor) under the Exchange Act. The Board of Directors may appoint a
separate committee of the Board of Directors, comprised of two or more
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<PAGE> 28
directors of the Company who need not be Nonemployee Directors, who may
administer this Plan with respect to Employees or Consultants who are not
officers or directors of the Company or incoming new directors of the Company,
may grant Options under this Plan to such persons and may determine the timing,
number of Shares subject to such Options and other terms of such grants.
(b) Committee Procedures. The Committee shall designate one of its members
as chairman. The Committee may hold meetings at such times and places as it
shall determine. The acts of a majority of the Committee's members present at
meetings at which a quorum exists, or acts reduced to or approved in writing by
all of the Committee's members, shall be valid acts of the Committee.
(c) Committee Responsibilities. Subject to the provisions of this Plan, and
without further approval of the Board of Directors, the Committee shall have
full authority and discretion to take the following actions:
(1) To interpret this Plan and to apply its provisions;
(2) To adopt, amend or rescind rules, procedures and forms relating to
this Plan;
(3) To authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of this Plan;
(4) To determine when Options are to be granted under this Plan;
(5) To select the Optionees;
(6) To determine the number of Shares to be made subject to each
Option;
(7) To prescribe the terms and conditions of each Option, including,
without limitation, the Exercise Price, to determine whether such Option is
to be classified as an ISO or as a Nonstatutory Option, and to specify the
provisions of the Stock Option Agreement relating to such Option;
(8) To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions and to the consent of the Optionee who
entered into such agreement;
(9) To accelerate or defer, with the consent of the Optionee, the
exercise date of any Option;
(10) With the consent of the Optionee, to reprice, cancel and regrant,
or otherwise adjust the Exercise Price of an Option previously granted by
the Committee;
(11) To prescribe the consideration for the grant of each Option or
other right under this Plan and to determine the sufficiency of such
consideration; and
(12) To take any other actions deemed necessary or advisable for the
administration of this Plan.
All decisions, interpretations and other actions of the Committee shall be
final and binding on all Optionees, and all persons deriving their rights from
an Optionee. No member of the Committee shall be liable for any action that he
or she has taken or has failed to take in good faith with respect to this Plan,
any Option, or any other right to acquire Shares under this Plan.
SECTION 4. ELIGIBILITY.
(a) General Rule. Employees and Consultants shall be eligible to receive
Options. However, only Employees shall be eligible for the grant of ISOs.
(b) Ten-Percent Stockholders. An Employee who owns more than 10 percent of
the total combined voting power of all classes of Outstanding Stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an
Option unless (i) the Exercise Price is at least 110 percent of the Fair Market
Value of the Shares underlying such Option on the date of grant of such Option
and (ii) if such Option is an ISO, such ISO is not exercisable after the
expiration of five years from the date of grant.
(c) Attribution Rules. For purposes of Subsection (b) above, in determining
Stock ownership, an Employee shall be deemed to own the Stock owned, directly or
indirectly, by or for such Employee's brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation,
A-3
<PAGE> 29
partnership, estate or trust shall be deemed to be owned proportionately by or
for its stockholders, partners or beneficiaries. Stock with respect to which
such Employee holds an Option shall be counted in the determination of Stock
ownership for purposes of the above Subsection (b).
(d) Outstanding Stock. For purposes of Subsection (b) above, "Outstanding
Stock" shall include all Stock actually issued and outstanding immediately after
the grant. "Outstanding Stock" shall not include Shares authorized for issuance
under outstanding Options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO THIS PLAN.
(a) Basic Limitation. Shares subject to Options granted under this Plan
shall be authorized but unissued Shares. The aggregate number of Shares which
may be issued under this Plan (upon exercise of Options or other rights to
acquire Shares) shall not exceed 2,300,000 Shares, subject to adjustment
pursuant to Section 8 of this Plan. The number of Shares which is subject to
Options or other rights outstanding at any time under this Plan shall not exceed
the number of Shares which then remain available for issuance under this Plan.
The Company, during the term of this Plan, shall at all times reserve and keep
available sufficient Shares to satisfy the requirements of this Plan.
(b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purpose of this Plan.
(c) Limitation on Grants. The maximum number of Shares as to which Options
shall be granted to any single Optionee shall not exceed 500,000 Shares.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under this Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of this Plan
and may be subject to any other terms and conditions which are not inconsistent
with this Plan and which the Committee deems appropriate for inclusion in a
Stock Option Agreement. The provisions of the various Stock Option Agreements
entered into under this Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8 of this Plan. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100 percent of the
Fair Market Value of a Share on the date of grant of the Option, except as
otherwise provided in Section 4(b) of this Plan. The Exercise Price of a
Nonstatutory Option shall not be less than 85 percent of the Fair Market Value
of a Share on the date of grant. Subject to the preceding two sentences, the
Exercise Price under any Option shall be determined by the Committee in its sole
discretion. The Exercise Price shall be payable in a form described in Section 7
of this Plan.
(d) Withholding Taxes. The Company's obligation to deliver Shares or cash
upon the exercise of Options shall be subject to the satisfaction of all
applicable Federal, State and local income tax and employment tax withholding
requirements.
(1) In the event that the Company or a Subsidiary determines that it
is required to withhold federal, state, foreign or local taxes or social
security/insurance amounts in connection with the grant or exercise of an
Option or the disposition of Shares pursuant to the exercise of an Option
(collectively, the "Taxes"), the Optionee or any person succeeding to the
rights of the Optionee, as a condition to such grant, exercise or
disposition, may be required to make arrangements satisfactory to the
Company or such Subsidiary to enable it to satisfy such withholding
requirements. Alternatively, at its discretion, the Company may issue or
transfer Shares net of the number of Shares sufficient to satisfy the
withholding requirements, with such Shares valued as of the date the
withholding obligation is incurred.
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<PAGE> 30
(2) The Committee may also, in its discretion and applying relevant
law in accordance with the provisions of this Section 6(d) and such
supplemental rules as the Committee may from time to time adopt, require as
a condition of delivery of the Shares upon exercise of Options, that the
Optionee remit to the Company an amount in cash or check sufficient to
satisfy the Taxes.
(3) The Committee may, in its discretion and in accordance with the
provisions of this Section 6(d) and such supplemental rules as the
Committee may from time to time adopt, provide any or all Optionees holding
Nonstatutory Options with the right to use Shares in satisfaction of all or
part of the Federal, State and local income tax and employment tax
liabilities incurred by such Optionees in connection with the exercise of
their Options (the "Taxes"). The Optionee holding a Nonstatutory Option may
be provided with the election to have the Company withhold, from the Shares
otherwise issuable upon the exercise of such Nonstatutory Option, a portion
of such Shares with an aggregate Fair Market Value equal to the designated
percentage (up to 100% as specified by the Optionee) of the applicable
Taxes. Any such withholding election shall be subject to the following
terms and conditions:
(i) The election must be made on or before the date the amount of
the Taxes incurred by the Optionee in connection with the exercise of
the Option is determined (the "Tax Determination Date").
(ii) The election shall be irrevocable.
(iii) The election shall be subject to the approval of the
Committee and none of the Shares for which the Option is exercised shall
be withheld in satisfaction of the Taxes incurred by the Optionee in
connection with such exercise, except to the extent the election is
approved by the Committee.
(iv) The Shares withheld pursuant to the election shall be valued
at Fair Market Value on the Tax Determination Date.
(v) In no event may the number of Shares requested to be withheld
exceed in value the dollar amount of Taxes incurred by the Optionee in
connection with the exercise of the Nonstatutory Option.
(vi) If the withholding election is to be made by an Optionee who
is at the time an officer or director of the Company subject to the
short-swing profit restrictions of Section 16(b) of the Exchange Act,
then the following limitations, in addition to the preceding provisions
of this Section 6(d), shall also be applicable:
(A) The election shall not become effective at any time prior to
the expiration of the six month period measured from the later of the
grant date of the Nonstatutory Option to which such election pertains
or the actual grant date of the withholding election, and no Shares
shall accordingly be withheld in connection with any Tax
Determination Date which occurs before the expiration of such six
month period.
(B) The election must be effected in accordance with either of
the following guidelines: (1) the election must be made six months or
more prior to the Tax Determination Date, and (2) the exercise of
such election and the exercise of the Nonstatutory Option to which
such election relates must occur concurrently within a quarterly
"window" period. Quarterly window periods shall begin on the third
business day following the date of public release of each quarterly
or annual summary statement of the Company's sales and earning and
end on the earlier of the 12th business day following such release
date or the Tax Determination Date.
(C) The six month period specified in clauses (A) and (B) shall
not be applicable in the event of the Optionee's death or disability.
(e) Exercisability and Term. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
vesting of any Option shall be determined by the Committee in its sole
discretion; provided, however, that the Optionee's right to exercise the Option
shall be at the rate of at least 20% per year over five years from the date when
the Option is granted. A Stock Option
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<PAGE> 31
Agreement may provide for accelerated exercisability in the event of the
Optionee's death, Total and Permanent Disability or retirement or other events
determined from time to time by the Committee. The Stock Option Agreement shall
also specify the term of the Option, which term shall not exceed ten years from
the date of grant. Subject to the preceding sentence, the Committee in its sole
discretion shall determine when an Option is to expire. An Option shall be
deemed exercised when the Company receives from the Optionee (i) an executed
Stock Purchase Agreement in accordance with the terms of the Option by the
person entitled to exercise the Option and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may, as authorized by the
Committee, consist of any consideration and method of payment allowable under
Section 7 of this Plan. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder of the Company shall
exist with respect to the Shares, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date when the stock certificate is issued, except as provided in
Section 8 of this Plan. With respect to any ISOs granted under this Plan, the
aggregate Fair Market Value (determined as of the respective date or dates of
grant) of the Shares for which one or more Options granted to any Employee under
this Plan (or any other option plan of the Company or its parent or Subsidiary
corporations) may for the first time become exercisable as ISOs during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two or more such Options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability thereof as ISOs shall be applied on the basis
of the order in which such Options are granted. To the extent such dollar
limitation is exceeded in any one calendar year, the Option shall nevertheless
be exercisable for the excess number of Shares as a Nonstatutory Option.
(f) Nontransferability. During an Optionee's lifetime, such Optionee's
Option(s) shall be exercisable only by him or her and shall not be transferable.
In the event of an Optionee's death, such Optionee's Option(s) shall not be
transferable other than by will or by the laws of descent and distribution.
(g) Termination of Service (Except by Death). If an Optionee's Service
terminates for any reason other than such Optionee's death, then such Optionee's
Option(s) shall expire on the earliest of the following occasions:
(1) The expiration date determined pursuant to Subsection (e) above;
(2) The date which is thirty (30) days after the termination of the
Optionee's Service for any reason other than Total and Permanent
Disability; or
(3) The date which is six (6) months after the termination of the
Optionee's Service by reason of Total and Permanent Disability.
(h) The Optionee may exercise all or part of his or her Option(s) at any
time before the expiration of such Option(s) under the preceding sentence, but
only to the extent that such Option(s) had become exercisable before the
Optionee's Service terminated or became exercisable as a result of the
termination. The balance of such Option(s) shall lapse when the Optionee's
Service terminates. In the event that the Optionee dies after the termination of
the Optionee's Service but before the expiration of the Optionee's Option(s),
all or part of such Option(s) may be exercised (prior to expiration) by the
executors or administrators of the Optionee's estate or by any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance,
but only to the extent that such Option(s) had become exercisable before the
Optionee's Service terminated or became exercisable as a result of the
termination. For purposes of the foregoing provisions of this Subsection 6(g),
the Optionee shall be deemed to be providing Service to the Company for so long
as the Optionee renders Service on a periodic basis to the Company or a
Subsidiary in the capacity of an Employee or Consultant. The Optionee shall be
considered to be an Employee for so long as the Optionee remains in the employ
of the Company or a Subsidiary.
(i) Leaves of Absence. For purposes of Subsection (g) above, Service shall
be deemed to continue while the Optionee is on military leave, sick leave or
other bona fide leave of absence (as determined by the Committee). The foregoing
notwithstanding, in the case of an ISO granted under this Plan, Service shall
not
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<PAGE> 32
be deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
(j) Death of Optionee. If an Optionee dies while he or she is providing
Service to the Company, then such Optionee's Option(s) shall expire on the
earlier of the following dates:
(1) The expiration date determined pursuant to Subsection (e) above;
or
(2) The date which is six (6) months after the Optionee's death.
All or part of the Optionee's Option(s) may be exercised at any time before the
expiration of such Option(s) under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Option(s) directly from the Optionee by bequest or inheritance, but only to the
extent that such Option(s) had become exercisable before the Optionee's death or
became exercisable as a result of the Optionee's death. The balance of such
Option(s) shall lapse when the Optionee dies.
(k) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 8 of this Plan.
(l) Modification, Extension and Renewal of Options. Within the limitations
of this Plan, the Committee may modify, extend or renew outstanding Options or
may accept the cancellation of outstanding Options (to the extent not previously
exercised) in return for the grant of new Options at the same or a different
Exercise Price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, impair such Optionee's rights or
increase his or her obligations under such Option.
(m) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
an Option shall be subject to such transfer restrictions as the Committee shall
determine so long as such restrictions do not unfairly prejudice the opportunity
of the Optionee to receive the fair value of the applicable Shares under
applicable law, in addition to any general restrictions that may apply to all
holders of Stock. Options may not be transferred or assigned in any manner other
than by will or by the laws of descent or distribution.
(n) Rule 16b-3. Options granted to persons who are subject to Section 16 of
the Exchange Act shall comply with the applicable provisions of Rule 16b-3
promulgated thereunder and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to this Plan's transactions.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued under this
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as follows:
(1) In the case of an ISO granted under this Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. However, the Committee (in its sole discretion) may specify in
the Stock Option Agreement that payment may be made pursuant to Subsections
(b), (c) or (d) below; or
(2) In the case of a Nonstatutory Option granted under this Plan, the
Committee (in its sole discretion) may accept payment pursuant to
Subsections (b), (c) or (d) below.
(b) Surrender of Stock. To the extent that this Subsection (b) is
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or his or her representative for more than 12 months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under this Plan.
(c) Exercise/Sale. To the extent that this Subsection (c) is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any Taxes.
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<PAGE> 33
(d) Exercise/Pledge. To the extent that this Subsection (d) is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Shares to a securities broker or lender approved
by the Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and any
Taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Stock in an amount that has a material effect on the value
of Stock, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of (i) the number of Shares available for
future grants under Section 5 of this Plan, (ii) the number of Shares covered by
each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) Reorganizations. In the event of any of the following transactions (a
"Corporate Transaction"):
(1) a merger or acquisition involving the Company in which the Company
is not the surviving entity, except for a transaction the principal purpose
of which is to change the State of the Company's incorporation,
(2) sale, transfer or other disposition of all or substantially all of
the assets of the Company or
(3) any other corporate reorganization or business combination in
which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred to different holders in a single transaction or a series of
related transactions,
then the exercisability of each Option outstanding under the Plan shall be
automatically accelerated so that each such Option shall immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of Shares purchasable under such
Option and may be exercised for all or any portion of such Shares. However, an
outstanding Option under the Plan shall not be so accelerated if (i) such Option
is, in connection with the Corporate Transaction, either to be assumed by the
successor corporation or parent thereof or be replaced with a comparable option
to purchase shares of the capital stock of the successor corporation or parent
thereof, or (ii) such Option is to be replaced by a comparable cash incentive
program of the successor corporation based on the value of the option at the
time of the Corporate Transaction, or (iii) the acceleration of such Option is
subject to other applicable limitations imposed by the Committee at the time of
the grant. The determination of comparability under clauses (i) or (ii) above
shall be made by the Committee and its determination shall be final, binding and
conclusive. In connection with any such Corporate Transaction, the
exercisability as an incentive stock option under the
federal tax laws of any accelerated Options under the Plan shall remain subject
to any applicable dollar limitation of Section 6(e). Except as provided below in
this Subsection (b), upon the consummation of the Corporate Transaction, all
outstanding Options under the Plan shall, to the extent not previously exercised
or assumed by the successor corporation or its parent company, terminate and
cease to be outstanding. If the Company is the surviving entity in any Corporate
Transaction or the outstanding Options are to be assumed in connection with such
Corporate Transaction, then each Option shall, immediately after such Corporate
Transaction, be appropriately adjusted to apply and pertain to the number and
class of securities which would be issuable to the Optionee, upon consummation
of such Corporate Transaction if the Option were exercised immediately prior to
such Corporate Transaction. Appropriate adjustments shall also be made to the
Exercise Price payable per share, provided the aggregate Exercise Price payable
upon exercise of such Option shall remain the same. In addition, the class and
number of securities available for issuance under the Plan following the
consummation of such Corporate Transaction shall be appropriately adjusted. The
grant of Options under this Plan shall in no way affect the right of the Company
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
A-8
<PAGE> 34
(c) Reservation of Rights. Except as provided in this Section 8, an
Optionee shall have no rights by reason of any subdivision or consolidation of
Shares of Stock of any class, the payment of any dividend or any other increase
or decrease in the number of Shares of Stock of any class. Any issue by the
Company of Shares of Stock of any class, or securities convertible into Shares
of Stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject to
an Option. The grant of an Option pursuant to this Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassification,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 9. SECURITIES LAWS.
Shares shall not be issued under this Plan unless the issuance and delivery
of such Shares comply with (or are exempt from) all applicable requirements of
law, including, without limitation, the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
SECTION 10. NO EMPLOYMENT RIGHTS.
No provision of this Plan, nor any right or Option granted under this Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee or Consultant or in any way to amend, modify, waive or
terminate the Company's (or any Subsidiary's) right to terminate any person's
Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of this Plan. This Plan, as set forth herein, shall become
effective December 2, 1999, the date when the Board of Directors adopted this
Plan. Notwithstanding the foregoing, no Option granted under this Plan shall
become exercisable unless and until this Plan shall have been approved by the
shareholders of the Company. This Plan shall terminate automatically on the date
which is ten (10) years after its initial adoption by the Board of Directors,
December 2, 2009, and may be terminated on any earlier date pursuant to
Subsection (b) below.
(b) Right to Amend or Terminate this Plan. The Board of Directors may
amend, suspend or terminate this Plan at any time and for any reason; provided,
however, that any amendment of this Plan which: (i) materially increases the
number of Shares available for issuance under this Plan (except as provided in
Section 8 of this Plan); (ii) materially changes the class of persons who are
eligible for the grant of ISOs; or (iii) if required by Rule 16b-3 (or any
successor thereto) under the Exchange Act, would materially increase the
benefits accruing to participants under this Plan or would materially modify the
requirements as to eligibility for participation in this Plan, shall be subject
to the approval of the Company's shareholders by the affirmative vote of the
holders of a majority of the securities of the Company present, or represented
and entitled to vote at a duly held shareholders' meeting. Shareholder approval
shall not be required for any other amendment of this Plan.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
under this Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of this Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under this Plan.
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<PAGE> 35
SECTION 12. EXECUTION.
To record the adoption of this Plan by the Board of Directors on as of
December 2, 1999, the Company has caused its authorized officer to execute the
same.
AVANIR PHARMACEUTICALS,
a California corporation
By: /s/ GERALD J. YAKATAN, PH.D.
------------------------------------
Gerald J. Yakatan, Ph.D.
President and Chief Executive
Officer
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<PAGE> 36
AVANIR PHARMACEUTICALS
9393 Towne Centre Drive, Suite 200
San Diego, California 92121-3016
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Gerald J. Yakatan and
Gregory P. Hanson, and each of them, his true and lawful agents and proxies with
full power of substitution in each, to represent the undersigned at the Annual
Meeting of Stockholders of AVANIR Pharmaceuticals to be held at the Company's
offices at 9393 Towne Centre Drive, Suite 200, San Diego, California 92121, on
March 23, 2000, at 9:00 a.m., local time, and at any adjournments thereof, and
to vote as designated.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED:
- - "FOR" THE ELECTION OF TWO DIRECTORS TO HOLD OFFICE UNTIL THE 2003 ANNUAL
MEETING;
- - "FOR" THE APPROVAL OF THE 2000 STOCK OPTION PLAN;
- - "FOR" THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION; AND
- - "FOR" THE RATIFICATION OF DELOITTE & TOUCHE LLP, AS THE COMPANY'S
AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2000.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
YOUR VOTE IS IMPORTANT! PLEASE VOTE.
(Continued on reverse side)
<PAGE> 37
BACK OF CARD
1. ____ FOR all nominees listed below except as marked to the contrary.
____ WITHHOLD AUTHORITY to vote for all nominees listed below.
<TABLE>
<CAPTION>
Withhold Authority
For Specific Nominee
--------------------
<S> <C>
</TABLE>
Nominees: 1. Dennis J. Carlo, Ph.D.
2. Edward J. Hennessy, Jr.
2. TO APPROVE THE 2000 STOCK OPTION PLAN
<TABLE>
<S> <C> <C>
Vote For ____ Vote Against ____ Abstain ____
</TABLE>
3. TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION ("THE "ARTICLES) TO
CONFORM THE ARTICLES WITH THE BYLAWS REGARDING THE DEFINITION OF A
QUORUM FOR A MEETING OF THE SHAREHOLDERS.
<TABLE>
<S> <C> <C>
Vote For ____ Vote Against ____ Abstain ____
</TABLE>
4. RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
<TABLE>
<S> <C> <C>
Vote For ____ Vote Against ____ Abstain ____
</TABLE>
and to vote on such other business as may properly come before the meeting
Dated: , 2000
Signature of Stockholder(s)
Signature of Stockholder(s)
Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
THANK YOU FOR VOTING
