<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] 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 LOGO)
11388 SORRENTO VALLEY ROAD, SUITE 200
SAN DIEGO, CALIFORNIA 92121
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, MARCH 15, 2001
------------------------
We will hold our annual meeting of shareholders at our offices located at
11388 Sorrento Valley Road, Suite 200, San Diego, California 92121 on Thursday,
March 15, 2001, at 9:00 a.m. local time for the following purposes:
1. To approve an amendment to our bylaws to reduce the number of classes of
directors from three to two.
2. To elect directors as follows: (a) if proposal one is approved, then
three directors to serve a two-year term and three directors to serve an
initial one-year term; or (b) if proposal one is not approved, then
three directors to serve a three-year term.
3. To ratify the selection of Deloitte & Touche LLP as our independent
auditors for the fiscal year ending September 30, 2001.
4. 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 17, 2001 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 [ ], 2001
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY. 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 IF YOU SEND IN YOUR PROXY CARD NOW.
<PAGE> 3
AVANIR PHARMACEUTICALS
11388 SORRENTO VALLEY ROAD, SUITE 200
SAN DIEGO, CALIFORNIA 92121
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 15, 2001
------------------------
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Avanir Pharmaceuticals (the "Company") for
use at the Company's 2001 annual meeting of shareholders to be held on Thursday,
March 15, 2001 at 9:00 a.m. local time. The meeting will be held at our offices
located at 11388 Sorrento Valley Road, Suite 200, San Diego, California 92121.
We expect to mail this proxy statement and the accompanying form of proxy to our
shareholders on or about January [ ], 2001.
In order for a proxy to be effective, it must be properly executed and
received prior to the close of voting at the annual meeting or any adjournment
or postponement of the meeting. Each proxy properly tendered will, unless
otherwise directed by the shareholder, be voted as follows:
- FOR an amendment to Article 3.3 of the Company's Amended and Restated
Bylaws, to reduce the number of classes of directors from three to two,
and to reduce the term of each director from three years to two years;
- FOR the election of the Company's director nominees as follows: (a) if
proposal one is approved, then three directors to serve a two-year term
and three directors to serve an initial one-year term; or (b) if proposal
one is not approved, then three directors to serve a three-year term;
- FOR ratification of the selection of Deloitte & Touche LLP as our
independent auditors for the fiscal year ending September 30, 2001; and
- at the discretion of the proxy holder(s) with regard to all other matters
that 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 consideration at
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. We
will reimburse these persons for their cost of forwarding the solicitation
material to these beneficial owners. We may also solicit proxies by 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 may retain a proxy solicitation firm or other third party to
deliver proxy materials 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.
<PAGE> 4
SHARES OUTSTANDING AND VOTING RIGHTS
Only holders of record of our Class A Common Stock and Class B Common Stock
as of the close of business on January 17, 2001 (the "record date") are entitled
to notice of and to vote at the annual meeting. On the record date,
[[57,237,958]] shares of our Class A Common Stock and [[49,000]] shares of our
Class B Common Stock were issued and outstanding. 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, 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 only in determining whether a
quorum is present at the annual meeting.
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 received by our corporate secretary prior to the
meeting; or
- attendance at the meeting and voting in person.
PROPOSAL ONE
AMENDMENT TO BYLAWS
TO REDUCE THE CLASSES OF DIRECTORS FROM THREE TO TWO
(ITEM 1 ON THE PROXY CARD)
The size of the Board of Directors has decreased due to the death of one
director and the decision by another to not stand for reelection. Our bylaws
currently provide that our Board of Directors be divided into three classes of
directors, each serving three-year terms. Under the California Corporations
Code, companies with three classes of directors must have three seats in each
class. In light of the recent decrease in the size of our board and the
requirements of the California Corporations Code, the Board of Directors has
approved an amendment to our bylaws decreasing the total size of the board and
reducing the number of classes from three to two. If this amendment is approved
by the shareholders, the board will consist of two classes of directors, each
class initially containing three seats. Directors will each serve two-year
terms. Class I directors will serve initially until the 2002 annual meeting of
shareholders while Class II directors will serve until the 2003 annual meeting
of shareholders. Proposal Two sets forth the names of each of the directors who
will serve initially in the two new classes if this proposal is approved.
As the number of directors on our board increases or decreases, the Company
intends to adjust the number of directors in each class to remain as nearly
equal as reasonably possible, with any overage allocated in the discretion of
the Board. Vacancies may be filled by our Board of Directors and directors
appointed to any such vacancies will serve the remainder of the term for that
class.
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<PAGE> 5
If our shareholders approve this Proposal One, then Article III, Section
3.3 of the bylaws of the Company will be amended and restated in its entirety to
read as follows:
3.3 Election, Term of Office.
The directors shall be divided into two classes, designated Class I and
Class II as nearly equal in number as reasonably possible, with any overage
allocated in the discretion of the Board of Directors. The initial term of
office of the Class I directors will expire at the 2002 annual meeting of
shareholders. The initial term of office of the Class II directors will
expire at the 2003 annual meeting of shareholders. At the 2002 annual
meeting of shareholders, and at each annual meeting of shareholders
thereafter, directors shall be elected to succeed directors of the class
whose terms expire for a term of office to expire at the second succeeding
annual meeting after their election. All directors, including directors
elected to fill vacancies, shall hold office until the expiration of the
term for which elected and until their successors are elected and
qualified, except in the case of death, resignation or removal of any
director.
VOTE REQUIRED
Proposal One 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 voting against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL ONE.
PROPOSAL TWO
ELECTION OF DIRECTORS
(ITEM 2 ON THE PROXY CARD)
As indicated in Proposal One, the bylaws of the Company currently provide
that the Board of Directors be divided into three classes as nearly equal in
number as reasonably possible with any overage allocated in the discretion of
the Board. Currently, the Class I directors are Messrs. George and Glavin (whose
terms expire at the annual meeting of shareholders in 2002), the Class II
director is Mr. Hennessy (whose term expires at the annual meeting of
shareholders in 2003), and the Class III directors are Mr. Olson, Dr. Yakatan,
and Dr. Carlo (whose terms expire at the annual meeting of shareholders in
2001). In accordance with the bylaws, the Board of Directors has fixed the
current number of directors (which may vary between five and nine) at six.
If the shareholders approve Proposal One, then three directors will be
elected to Class I and three directors will be elected to Class II at the annual
meeting. Nominees for Classes I and II are listed below in subpart (a). Class I
directors elected at the annual meeting will hold office until the 2002 annual
meeting of shareholders, and Class II directors elected at the annual meeting
will hold office until the 2003 annual meeting of shareholders, and until their
successors are elected and qualified, unless he/she resigns or his/her seat on
the Board of Directors becomes vacant due to death, removal or other cause in
accordance with the bylaws of the Company.
If the shareholders do not approve Proposal One, then three directors will
be elected to Class III under our currently existing three-class board
structure. Nominees for Class III are listed below in subpart (b). Class III
directors elected at the annual meeting will hold office until the 2004 annual
meeting of shareholders and until their successors are elected and qualified,
unless he/she resigns or his/her seat on the Board of Directors becomes vacant
due to death, removal, or other cause in accordance with the bylaws of the
Company.
All nominees have indicated the willingness and ability to serve if
elected. If any nominee becomes unable or unwilling to serve, then proxies will
be voted for the election of the other nominee(s) who may be recommended by the
Board of Directors.
3
<PAGE> 6
PROPOSAL 2(a) NOMINEES FOR ELECTION TO CLASS I AND CLASS II IF PROPOSAL ONE IS
APPROVED.
CLASS I NOMINEES
The following table sets forth the name, age and principal occupations for
the persons indicated and other directorships of the nominees to Class I of the
Board of Directors.
<TABLE>
<CAPTION>
CURRENT
NAME, AGE, DIRECTOR TERM
BUSINESS EXPERIENCE AND DIRECTORSHIPS SINCE ENDS*
------------------------------------- -------- -------
<S> <C> <C>
Michael W. George, age 51................................... 1998 2002
Since August 1998, Mr. George has served as the President
and Chief Operating Officer and a member of the Board of
Directors at UroCor, Inc., a biotechnology company. From
December 1996 to August 1998, Mr. George served in the
following positions at DuPont Merck: Executive Vice
President, Administration, Member of the Operating Group,
and Senior Vice President, Cardiovasculars (June 1997 to
August 1998). Prior to that, Mr. George served in the
following positions at DuPont: President, International &
Europe (January 1994 to December 1996); President, North
America (January 1992 to December 1993); Vice President,
Sales and Marketing (January 1991 to December 1991) and
Director, Worldwide Marketing (August 1989 to December
1990). Prior to August 1989, Mr. George held management
positions at Bristol-Myers Squibb and Sandoz
Pharmaceuticals.
James B. Glavin, age 64..................................... 1999 2002
Since September 1994, Mr. Glavin has served as Chairman of
the Board of Directors of Immune Response Corporation. From
April 1987 to September 1997, Mr. Glavin served in the
following positions at Immune Response Corporation: 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, Mr. Glavin
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.
Mr. Glavin also currently serves as a director of Inhale
Therapeutic Systems, Inc. and the Meridian Fund.
Edward L. Hennessy, Jr., age 72............................. 1998 2003
Mr. Hennessy is currently retired. From 1979 to 1991, Mr.
Hennessy served as Chairman and Chief Executive Officer of
Allied-Signal, Inc. Mr. Hennessy currently serves as a
director of The Wackenhut Corporation.
</TABLE>
---------------
* Expiration of term is based upon our current three-class structure provided
for in our bylaws.
CLASS II NOMINEES
The following table sets forth the name, age and principal occupations for
the persons indicated and other directorships of the nominees to Class II of the
Board of Directors.
<TABLE>
<CAPTION>
CURRENT
NAME, AGE, DIRECTOR TERM
BUSINESS EXPERIENCE AND DIRECTORSHIPS SINCE ENDS*
------------------------------------- -------- -------
<S> <C> <C>
Kenneth E. Olson, age 64.................................... 1988 2001
Mr. Olson served as Chairman of the Board of 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. Mr. Olson
currently serves as a director of WD-40 Company.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
CURRENT
NAME, AGE, DIRECTOR TERM
BUSINESS EXPERIENCE AND DIRECTORSHIPS SINCE ENDS*
------------------------------------- -------- -------
<S> <C> <C>
Gerald J. Yakatan, Ph.D., age 58............................ 1992 2001
Since March 1998, Dr. Yakatan has served as our President
and Chief Executive Officer. From July 1995 to March 1998,
Dr. Yakatan served as our Vice President of Drug Development
on a half-time basis. Dr. Yakatan also currently serves as
Chairman of the Board of IriSys Research & Development, LLC,
a company founded by Dr. Yakatan in 1996 that specializes in
contract drug formulation services. From 1990 to 1995, Dr.
Yakatan served as President and CEO of Tanabe Research
Laboratories, USA, Inc., an inflammation drug discovery
research and development company. Previously, Dr. Yakatan
held various positions over a seven-year span at
Warner-Lambert Co., including Vice President of Product
Development for the Pharmaceutical Research Division.
Dennis J. Carlo, Ph.D., age 57.............................. 1998 2001
Dr. Carlo is a co-founder of Immune Response Corporation and
has served as a director since 1987 and as its President and
Chief Executive Officer since 1994. From 1987 to 1994, Dr.
Carlo served as Chief Scientific Officer, Chief Operating
Officer and Executive Vice President at Immune Response
Corporation. From 1982 to 1987, Dr. Carlo served as Vice
President of Research and Development and Therapeutic
Manufacturing at Hybritech, Inc., a biotechnology company
acquired in 1986 by Eli Lilly & Co. Previously, Dr. Carlo
held various positions at Merck & Co., Inc. from 1971 to
1981. Currently, Dr. Carlo serves as a Director of Vyrex
Corporation.
</TABLE>
---------------
* Expiration of term is based upon our current three-class structure provided
for in our bylaws.
PROPOSAL 2(b) NOMINEES FOR ELECTION TO CLASS III IF PROPOSAL ONE IS NOT
APPROVED.
The following table sets forth the name, age and principal occupations for
the persons indicated and other directorships of the nominees to Class III of
the Board of Directors.
<TABLE>
<CAPTION>
CURRENT
NAME, AGE, DIRECTOR TERM
BUSINESS EXPERIENCE AND DIRECTORSHIPS SINCE ENDS
------------------------------------- -------- -------
<S> <C> <C>
Kenneth E. Olson, age 64.................................... 1988 2001
Mr. Olson served as Chairman of the Board of 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. Mr. Olson
currently serves as a director of WD-40 Company.
Gerald J. Yakatan, Ph.D., age 58............................ 1992 2001
Since March 1998, Dr. Yakatan has served as our President
and Chief Executive Officer. From July 1995 to March 1998,
Dr. Yakatan served as our Vice President of Drug Development
on a half-time basis. Dr. Yakatan also currently serves as
Chairman of the Board of IriSys Research & Development, LLC,
a company founded by Dr. Yakatan in 1996 that specializes in
contract drug formulation services. From 1990 to 1995, Dr.
Yakatan served as President and CEO of Tanabe Research
Laboratories, USA, Inc., an inflammation drug discovery
research and development company. Previously, Dr. Yakatan
held various positions over a seven-year span at
Warner-Lambert Co., including Vice President of Product
Development for the Pharmaceutical Research Division.
Dennis J. Carlo, Ph.D., age 57.............................. 1998 2001
Dr. Carlo is a co-founder of Immune Response Corporation and
has served as a director since 1987 and as its President and
Chief Executive Officer since 1994. From 1987 to 1994, Dr.
Carlo served as Chief Scientific Officer, Chief Operating
Officer and Executive Vice President at Immune Response
Corporation. From 1982 to 1987, Dr. Carlo served as Vice
President of Research and Development and Therapeutic
Manufacturing at Hybritech, Inc., a biotechnology company
acquired in 1986 by Eli Lilly & Co. Previously, Dr. Carlo
held various positions at Merck & Co., Inc. from 1971 to
1981. Currently, Dr. Carlo serves as a Director of Vyrex
Corporation.
</TABLE>
5
<PAGE> 8
VOTE REQUIRED
In each class of directors up for election, the three nominees who receive
the greatest number of affirmative votes of the shares present in person or
represented by proxy and entitled to vote thereon, will be elected as the
directors for that class. Any shares that are 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 will result in another
individual receiving a larger proportion of the 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE NOMINEES LISTED ABOVE.
PROPOSAL THREE
RATIFICATION OF INDEPENDENT AUDITORS
(ITEM 3 ON THE PROXY CARD)
Our Board of Directors has selected Deloitte & Touche LLP as our
independent auditors for the fiscal year ending September 30, 2001, and has
further directed that we submit the selection of independent auditors for
ratification by our shareholders at the annual meeting. The proposal to ratify
the selection of the independent auditors is not required to be submitted for
shareholder approval. However, if the shareholders do not ratify this selection,
the Board of Directors will reconsider its selection of Deloitte & Touche LLP.
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 the board determines that the change would be in the best interests of
our company and our shareholders.
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 shareholder questions.
VOTE REQUIRED
The Board of Directors is seeking ratification of its selection by the
affirmative vote of a majority of the shares represented and voted at the annual
meeting. In determining whether ratification has been obtained, abstentions are
counted as votes against ratification while broker non-votes are not counted as
votes for or against ratification.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
DELOITTE & TOUCHE LLP AS OUR INDEPENDENT AUDITORS FOR FISCAL 2001.
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 outstanding Class A Common Stock as of December 18, 2001 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
6
<PAGE> 9
voting and sole investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME AND ADDRESS OF NATURE OF OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS(3)
------------------- ----------------------- --------
<S> <C> <C>
Gerald J. Yakatan.............................. 796,750 1.4%
Dennis J. Carlo................................ 67,921 *
Michael W. George.............................. 116,504 *
James B. Glavin................................ 54,036 *
Edward L. Hennessy, Jr. ....................... 66,772 *
Kenneth E. Olson............................... 266,254 *
Joseph E. Smith................................ 114,504 *
James E. Berg.................................. 287,005 *
J. David Hansen................................ 249,136 *
Gregory P. Hanson.............................. 254,705 *
All executive officers and directors as a group
(eleven persons)............................. 2,273,587 3.8%
</TABLE>
---------------
* less than one percent
(1) The address for all persons shown c/o AVANIR Pharmaceuticals, 11388 Sorrento
Valley Road, Suite 200, San Diego, California 92121.
(2) No executive officer or director owns any shares of the Company's Class B
Common Stock. Share holdings include: (i) 37,600 shares of Class A Common
Stock and options to purchase 759,150 shares of Class A Common Stock held by
Dr. Yakatan; (ii) options to purchase 67,921 shares of Class A Common Stock
held by Dr. Carlo; (iii) 2,000 shares of Class A Common Stock and options to
purchase 114,504 shares of Class A Common Stock held by Mr. George; (iv)
20,000 shares of Class A Common Stock and options to purchase 34,036 shares
of Class A Common Stock held by Mr. Glavin; (v) options to purchase 66,772
shares of Class A Common Stock held by Mr. Hennessy; (vi) 63,414 shares of
Class A Common Stock and options to purchase 202,840 shares of Class A
Common Stock held by Mr. Olson; (vii) options to purchase 114,504 shares of
Class A Common Stock held by Mr. Smith; (viii) options to purchase 287,005
shares of Class A Common Stock held by Mr. Berg; (ix) 5,000 shares of Class
A Common Stock and options to purchase 244,136 shares of Class A Common
Stock held by Mr. Hansen; (x) 6,100 shares of Class A Common Stock and
options to purchase 248,605 shares of Class A Common Stock held by Mr.
Hanson; and (xi) 134,114 shares of Class A Common Stock and options to
purchase 2,139,473 shares of Class A Common Stock held by all executive
officers and directors as a group.
(3) Based upon 57,237,958 shares of Class A Common Stock outstanding as of
December 18, 2000. 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 18, 2000 held by a shareholder and the nonexercise and
nonconversion of all other outstanding warrants, options and convertible
securities.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 reports filed under Section 16(a).
To the Company's knowledge, based solely on review of the copies of the
reports furnished to the Company, all Section 16(a) filing requirements
applicable to our executive officers, directors and greater than ten percent
shareholders were complied with in fiscal 2000.
7
<PAGE> 10
BOARD MEETINGS AND COMMITTEES
During fiscal 2000, our Board of Directors held eleven regular meetings and
seven special meetings. Each director attended at least 75% of the meetings of
the Board of Directors and any committees on which he may sit that were held on
or after the initiation of his term as a director. During fiscal 2000, our Board
of Directors had an executive committee, an audit committee, a compensation
committee and a nominating committee.
Our executive committee currently consists of Dr. Yakatan, as committee
chairman, Dr. Carlo and Messrs. Hennessy and Glavin. Mr. Glavin replaced Mr.
Rutland in November 2000, following Mr. Rutland's death. The executive committee
did not hold any meetings during fiscal 2000. 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 audit committee oversees our accounting and financial reporting
policies and internal controls, reviews annual audit reports and management
letters, makes recommendations to our Board of Directors regarding the
appointment of independent auditors, and carries out a number of other
responsibilities, as outlined in the Audit Committee Charter in Exhibit A. See
also, "Report of Audit Committee." Our audit committee currently consists of Mr.
Olson, as committee chairman, Mr. Glavin and Mr. George. Our audit committee
held four meetings during fiscal 2000.
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 "Report of Compensation Committee on Executive Compensation." Our
compensation committee currently consists of Dr. Carlo, as committee chairman,
Mr. Glavin and Mr. Smith. Mr. Glavin replaced Mr. Rutland in November 2000,
following Mr. Rutland's death. Our compensation committee held four meetings in
fiscal 2000.
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. Glavin, as committee chairman, and Mr. Olson. Mr. Rutland served
on the nominating committee until his death in October 2000. Our nominating
committee held one meeting in fiscal 2000.
EXECUTIVE COMPENSATION
NON-EMPLOYEE DIRECTORS
In order to conserve cash, the Company did not pay cash fees to our Board
of Directors from July 1, 1999 to June 30, 2000. Previously, non-employee
directors were paid a monthly retainer of $500 plus $1,500 for attendance at
each regular meeting of the Board of Directors, and $250 for attendance at each
annual meeting of shareholders and meetings of board committees on which any
director serves. Committee chairpersons were
8
<PAGE> 11
paid an additional $500 for attendance at each committee meeting. The Chairman
of the board was paid a monthly retainer $2,000.
As an incentive to retain our directors during this period, the Company
awarded the Chairman with option grants to purchase up to 90,000 shares of Class
A Common Stock at a weighted average exercise price of $1.793 per share, and
awarded each of the other non-employee directors with option grants to purchase
up to 75,000 shares of Class A Common Stock at a weighted average exercise price
of $1.842 per share.
Our 1994 Stock Option Plan (the "1994 Plan") provides that non-employee
directors are automatically granted options to purchase up to 10,000 shares of
Class A Common Stock on the date of our annual shareholder meeting each year at
an exercise price equal to the fair market value of our Class A Common Stock on
the date of grant. These option grants vest ratably over three years and have a
exercise term of ten years. Pursuant to the 1994 Plan, the Company awarded each
of its non-employee directors with an option to purchase up to 10,000 shares of
Class A Common Stock at an exercise price of $1.70 per share.
On July 1, 2000, we resumed paying cash retainers to our directors. The
Chairman of the Board is eligible to receive a monthly retainer of $5,000 and
all other non-employee directors receive a quarterly retainer of $5,000.
COMPENSATION OF EXECUTIVE OFFICERS
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, 2000, 1999 and 1998. The "Named Executive Officers"
are: (i) our chief executive officer, and (ii) our other executive officers who
received total salary and bonus for fiscal 2000 in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION ---------------------
------------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(#)
--------------------------- ---- --------- ---------------------
<S> <C> <C> <C>
Gerald J. Yakatan(1)........................... 2000 316,442 510,000
President and Chief Executive Officer 1999 300,000 300,000
1998 222,461 15,000
James E. Berg.................................. 2000 134,808 150,000
Vice President of Clinical Affairs and 1999 125,000 150,000
Product Development 1998 117,673 25,000
J. David Hansen(2)............................. 2000 179,365 145,000
Vice President of Sales and Marketing 1999 165,000 150,000
1998 3,173 --
Gregory P. Hanson(3)........................... 2000 144,750 145,000
Vice President and 1999 110,000 150,000
Chief Financial Officer 1998 16,920 --
</TABLE>
---------------
(1) Dr. Yakatan joined the Company full-time in March 1998. For two pay periods
in October 1999 and one pay period in November 1999, Dr. Yakatan received
one-half his normal pay for a one-time salary reduction of $17,308. In March
2000, Dr. Yakatan's annual salary was increased to $375,000.
(2) Mr. Hansen was hired as Vice President, Sales and Marketing in September
1998.
(3) Mr. Hanson was hired as Vice President, Finance and Chief Financial Officer
in July 1998.
9
<PAGE> 12
STOCK OPTION GRANTS
The following table shows all individual grants of stock options to our
Named Executive Officers during fiscal 2000.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
PERCENT OF WEIGHTED ASSUMED ANNUAL
TOTAL OPTIONS AVERAGE RATES OF APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERMS(3)
OPTIONS EMPLOYEES IN PRICE ---------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) EXPIRATION DATES 5% 10%
---- ------------- ------------- --------- ------------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gerald J. Yakatan........ 510,000 41% $1.67 10/29/09 to 3/09/10 $771,601 $1,734,210
James E. Berg............ 150,000 12% $1.80 10/29/09 to 3/09/10 $244,620 $ 549,599
J. David Hansen.......... 145,000 12% $1.85 10/29/09 to 3/09/10 $243,676 $ 547,208
Gregory P. Hanson........ 145,000 12% $1.85 10/29/09 to 3/09/10 $243,676 $ 547,208
</TABLE>
---------------
(1) These options vest over three years, with one-third vesting on the first
anniversary of the date of grant, and the remaining two-thirds vesting
ratably 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) Ranges from 85% to 100% of 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.
OPTION EXERCISES IN FISCAL 2000
Set forth below is information with respect to exercises of stock options
by our named executive officers during fiscal 2000 and the fiscal year-end value
of all unexercised stock options held by these persons.
AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF OPTIONS HELD IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gerald J. Yakatan................. 585,208 664,792 $3,768,960 $4,434,025
James E. Berg..................... 252,164 186,836 1,701,971 1,254,959
J. David Hansen................... 182,788 212,212 1,341,251 1,440,741
Gregory P. Hanson................. 187,256 202,744 1,369,104 1,406,638
</TABLE>
---------------
(1) Based upon the closing sales price of our Common Stock of $8.25 quoted on
The American Stock Exchange on September 29, 2000.
EMPLOYMENT CONTRACTS
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" and provides for an annual base salary
and a discretionary incentive bonus. Until March 2000, Dr. Yakatan's initial
base salary was $300,000, at which time it was increased to $375,000. See also,
"Report of Compensation Committee on Executive Compensation." Upon signing his
employment agreement, Dr. Yakatan was granted an option to purchase up to
300,000 shares of Class A Common Stock (the "Initial Grant") at an exercise
price of $1.8125 (the fair market value of our Class A Common Stock on the date
of the grant). The Initial Grant was exercisable immediately with respect
10
<PAGE> 13
to 100,000 shares, with the remainder of the option grant 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 his employment agreement, Dr. Yakatan is eligible
for severance in an amount equal to 12 months of base salary paid over a 12
month period and 12 month's accelerated vesting of the Initial Grant, in
exchange for a release of all claims.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
License Agreement with IriSys Research and Development, LLC. On August 1,
2000, we entered into an agreement with IriSys Research and Development, LLC
("IriSys") to sublicense the exclusive worldwide rights to a patented drug
combination, internally designated as AVP-923, to treat multiple central nervous
system disorders. Our license agreement includes rights to the patented
technology and know-how for the development and potential marketing of products
for treatments of emotional lability, which is a condition associated with
neurodegenerative diseases, neuropathic pain, and chronic cough. The license
agreement contains no up-front payments, but requires certain milestone payments
in the following two instances for each indication:
- If the FDA accepts the filing of a new drug application and
- If the FDA approves the new drug application for marketing.
Further, we are required to pay royalties to IriSys based on a percent of
sales revenue if we market any product ourselves. If we license a product to
someone else, we are required to split any revenues that we receive with IriSys.
The agreement calls for certain minimum sales levels to be achieved in order for
AVANIR to maintain exclusivity of the marketing rights in the licensed
territories.
Dr. Yakatan, president and chief executive officer of AVANIR, is a founder,
chairman and a majority shareholder of IriSys. Except for providing relevant
information regarding AVP-923 and responding to various questions, Dr. Yakatan
did not participate in the Board of Directors' deliberations on this matter. No
fees were paid to IriSys in connection with this matter during fiscal 2000. The
Company believes that the terms of the license agreement with IriSys are no less
favorable to the Company than those that could have been obtained from an
unrelated party.
Research and Development. On June 2, 1999, we entered into an agreement for
services with IriSys to develop formulations for a potential drug substance
candidate using our allergy and asthma technology. IriSys' fees for services
compared favorably to competitive bids submitted to us at that time. During
fiscal 2000 and fiscal 1999, the Company paid IriSys $101,197 and $81,400,
respectively, for services rendered pursuant to this agreement.
Loan by Certain Members of Our Board of Directors. On October 21, 1999,
several members of our Board of Directors loaned an aggregate of $75,000 to the
Company for use as working capital. 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 raised an aggregate of $2 million in financing or 90 days. On
January 17, 2000, the Company repaid the principal and all accrued interest,
which amounted to $1,558.
COMPENSATION COMMITTEE INTERLOCKS AND INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2000, the Company's compensation committee consisted of Dr.
Carlo and Messrs. Glavin and Smith. No member of the compensation committee was,
at any time during fiscal 2000 or at any other time, an officer or employee of
the Company. There are no compensation committee interlocks between the Company
and any other entities involving our executive officers and board members who
serve as executive officers or board members of such entities.
11
<PAGE> 14
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The compensation committee recommends to our Board of Directors
compensation for our directors and officers and oversees the administration of
our 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, except compensation deliberations and decisions relating to
the compensation of the Chief Executive Officer, which must be approved by a
majority of our non-employee directors.
COMPENSATION POLICY
Our executive compensation policy is designed to establish an appropriate
relationship between executive pay and: (i) annual performance, (ii) long-term
growth objectives, and (iii) 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 aligns 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 that 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.
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 the Company's value, one of our primary
performance goals is met and our executives are likewise compensated through
option value.
In considering compensation levels and stock option grants for fiscal 2000,
the compensation committee reviewed the annual performance of executive officers
and compared the Company's executive officer compensation to a group of peer
companies. The compensation committee also took note of the fact that the
Company's executive officers had not been awarded any salary increases for a
period ranging from one and one-half to two years. Based on the committee's
reviews of individual and Company performance and compensation comparisons, the
committee recommended, and the Board of Directors approved, permanent salary
increases and stock option grants to all executive officers. See "Summary
Compensation Table." The Company did not award any cash bonuses in fiscal 2000
to its executive officers.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Yakatan's employment agreement provides for an initial annual base
salary of $300,000. In an effort to conserve capital, Dr. Yakatan agreed to
receive only one half of his monthly salary in October and a portion of November
of 1999, resulting in an aggregate one-time pay reduction of $17,308. In March
2000, the compensation committee recommended an increase to Dr. Yakatan's base
salary.
12
<PAGE> 15
In recommending this increase, the compensation committee noted that Dr.
Yakatan's base salary had not increased for two years and that Dr. Yakatan had
agreed to cuts in salary as a cost-saving measure. To reward Dr. Yakatan for his
performance, and to keep his compensation levels competitive with those offered
at peer companies, the non-employee members of the Board of Directors approved
an increase in Dr. Yakatan's base salary to $375,000. The committee also
recommended, and the outside members of the Board of Directors approved, the
grant of stock option awards to purchase up to 510,000 shares of Class A Common
Stock at a weighted average exercise price of $1.67 per share. Dr. Yakatan was
not awarded a cash bonus in fiscal 2000.
Compensation Committee
Dennis J. Carlo, Ph.D., Chairman
James B. Glavin
Joseph E. Smith
December 27, 2000
REPORT OF THE AUDIT COMMITTEE
In fiscal 2000, the audit committee revised and expanded the Company's
Audit Committee Charter to include the revised requirements of The American
Stock Exchange ("AMEX") issued in 2000. As part of the expanded and revised
charter, the audit committee considered and included many of the recommendations
of the 1999 Blue Ribbon Committee on Improving the Effectiveness of Corporate
Audit Committees, sponsored by the New York Stock Exchange and the National
Association of Securities Dealers. The revised and expanded Company Audit
Committee Charter is attached as Exhibit A to this proxy statement. The Audit
Committee Charter includes organization and membership requirements, a statement
of policy and the committee's authority and responsibilities. All members of the
audit committee currently meet the independence and qualification standards set
forth in the AMEX listing standards.
The audit committee conducted four meetings with management and the
independent auditors in fiscal 2000. In the course of these discussions, the
audit committee and independent auditors discussed the auditor's judgments about
the quality of the Company's accounting principles as applied in its financial
reporting. This discussion included issues such as the clarity of the Company's
financial disclosures and degree of aggressiveness or conservatism of the
Company's accounting principles, and underlying estimates and other significant
decisions made by management in preparing the financial disclosure and reviewed
by the outside auditors, as required by Statement on Auditing Standards ("SAS")
No. 61. Additionally, the audit committee reviewed and discussed the audited
financial statements with management. The Company received from the independent
auditors written assurances regarding independence of the auditors. Based on the
foregoing, the audit committee recommended to the Board of Directors that the
Company's audited financial statements for fiscal 2000 be included in the
Company's annual report on Form 10-K for fiscal 2000.
Audit Committee
Kenneth E. Olson, Chairman
Michael W. George
James B. Glavin
December 27, 2000
13
<PAGE> 16
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on our
Class A Common Stock from September 30, 1995 to September 30, 2000 with the
cumulative total return of the NASDAQ Stock Market (U.S.) Index, The American
Stock Exchange ("AMEX") Market Value Index, the NASDAQ Pharmaceutical Index, and
the AMEX Biotechnology Index over the same period. This Comparison of five-year
cumulative total return assumes that $100 was invested in our Class A Common
Stock and in each index on September 30, 1995. The total return for our Class A
Common Stock and the indices used assumes the reinvestment of all dividends. No
dividends were declared on our Class A Common Stock during this period.
[PERFORMANCE GRAPH]
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
9/95 9/96 9/97 9/98 9/99 9/00
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Avanir
Pharmaceuticals(1) 100 37 51 23 6 168
NASDAQ Stock Market
(U.S.) 100 119 163 166 270 359
NASDAQ
Pharmaceutical 100 121 135 116 196 420
AMEX Market Value 100 102 128 120 154 191
AMEX Biotechnology 100 118 121 148 321 652
--------------------------------------------------------------------------------
</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. On April 6, 2000, our stock began
trading on The American Stock Exchange under the symbol AVN.
14
<PAGE> 17
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 written notice to
our corporate secretary no later than 5:00 p.m., January 31, 2001 in the form
prescribed by our bylaws.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be included in next year's annual meeting
proxy materials must be received by the Secretary of the Company no later than
November 15, 2001. The form and substance of these proposals must satisfy the
requirements established by the Company's bylaws and the SEC.
Shareholders who intend to present a shareholder proposal at next year's
annual meeting must provide the Secretary of the Company with written notice of
the proposal between 60 and 120 days prior to the date of the 2002 annual
meeting of shareholders, provided, however, that if the Company provides less
than 70 days' notice or public disclosure of the date of the 2002 annual
meeting, notice of the proposed shareholder action must be received no later
than the close of business on the 10th day following such amendment or
disclosure. Notice must be tendered in the proper form prescribed by the
Company's bylaws.
ANNUAL REPORT
The Company's annual report to shareholders for the fiscal year ended
September 30, 2000, including audited financial statements, accompanies this
proxy statement. Copies of the Company's annual report on Form 10-K for fiscal
2000 and the exhibits thereto are available from the Company without charge upon
written request of a shareholder. Copies of these materials are also available
online through the Securities and Exchange Commission at www.sec.gov.
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
15
<PAGE> 18
EXHIBIT A
AVANIR PHARMACEUTICALS
AUDIT COMMITTEE CHARTER
AVANIR Pharmaceuticals maintains a committee of the Board of Directors
known as the audit committee, which is composed of directors who are independent
of the management of the company and are free of any relationship that, in the
opinion of the Board of Directors, would interfere with their exercise of
independent judgment as a committee member. The committee members must meet the
audit committee's membership requirements, follow its statement of policy, and
shall have the authorities and responsibilities as described below.
ORGANIZATION AND MEMBERSHIP REQUIREMENTS
The audit committee shall consist of a minimum of three members of the
Board of Directors of the company, who are independent for the purposes of
service on the audit committee. Members shall be considered independent if they
have no relationship to the company that may interfere with the exercise of
their independence from management and the company and provided they meet the
tests of "independent" as defined in Amex's Bulletin dated January 20, 2000.
Each of the audit committee members must be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement, and cash flow statement. The audit committee's members must be
willing and able to investigate accounting or other matters, as needed. At least
one independent director must have past employment experience in finance or
accounting, requisite professional certification in accounting or any other
comparable experience including a current or past position as a chief executive
or financial officer or other senior officer with financial oversight
responsibilities.
STATEMENT OF POLICY
The audit committee shall provide assistance to the Board of Directors in
fulfilling their responsibility to the shareholders, potential shareholders,
business partners, suppliers, service providers, and investment community
relating to the corporate accounting, reporting practices, and the quality and
integrity of the financial reports of the company. In so doing, the audit
committee shall have the responsibility to maintain free and open communication
among the directors, the independent auditors, and the financial management of
the company.
AUTHORITY AND RESPONSIBILITIES
In carrying out its responsibilities, the audit committee will:
- Evaluate and recommend the outside auditors to be selected to audit the
financial statements of the company and its divisions and subsidiaries.
As part of such evaluation process, the audit committee shall request and
evaluate a formal written statement from the outside auditors delineating
all relationships between the auditor and the company to verify the
independence of the outside auditor.
- Meet with the independent auditors and financial management of the
company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.
- Review with the independent auditors and financial and accounting
personnel, the adequacy and effectiveness of the accounting and financial
controls of the company, and elicit and make recommendations for the
improvement of such internal control procedures or particular areas where
new or more detailed controls or procedures are desirable. Particular
emphasis should be given to the adequacy of such internal controls to
expose any payments, transactions, or procedures that might be deemed
illegal or otherwise improper.
16
<PAGE> 19
- Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders.
Any changes in accounting principles should be reviewed.
- Inquire of management and the independent auditors about significant
risks or exposures and assess the steps management has taken to minimize
such risk to the company.
- Provide sufficient opportunity for the independent auditors to meet with
the members of the audit committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the company's financial and accounting personnel,
and the cooperation that the independent auditors received during the
course of the audit.
- Review accounting and financial personnel and succession planning within
the department.
- Annually review the chief executive officer's expense accounts.
- Submit the minutes of all meetings of the audit committee to, or discuss
the matters discussed at each audit committee meeting with, the Board of
Directors.
- Investigate any matter brought to the audit committee's attention within
the scope of its duties, with the power to retain outside counsel for
this purpose if, in its judgment, that is appropriate.
- Review the audit committee charter annually and update as necessary,
giving consideration to additional responsibilities which may be
recommended or imposed from time-to-time by The American Stock Exchange,
AICPA and the SEC, through listing and reporting requirements for
companies and auditing requirements for auditors.
- Provide a periodic letter, not less than once every three years, to the
shareholders on behalf of the audit committee that describes in some
depth the audit committee's charter and audit committee's role with the
financial statements.
- Include a statement that the audit committee believes that the company's
financial statements are in accordance with accounting principles
generally accepted in the United States of America, based on the audit
committee's review and discussion with both management and the
independent auditor.
17
<PAGE> 20
AVANIR PHARMACEUTICALS
11388 Sorrento Valley Road, Suite 200
San Diego, California 92121
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
11388 Sorrento Valley Road, Suite 200, San Diego, California 92121, on Thursday,
March 15, 2001, 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 you direct. If
no direction is made, your proxy will be voted:
- "FOR" AN AMENDMENT TO THE COMPANY'S BYLAWS TO REDUCE THE NUMBER OF CLASSES
OF DIRECTORS FROM THREE TO TWO AND TO SHORTEN THE TERM OF EACH DIRECTOR FROM
THREE YEARS TO TWO YEARS.
- "FOR" THE ELECTION OF THE COMPANY'S NOMINEES TO THE BOARD OF DIRECTORS.
- "FOR" RATIFICATION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR FISCAL 2001.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
YOUR VOTE IS IMPORTANT! PLEASE VOTE.
(Continued on reverse side)
C-1
<PAGE> 21
PROPOSAL 1 TO AMEND THE COMPANY'S BYLAWS TO REDUCE THE NUMBER OF CLASSES
OF DIRECTORS FROM THREE TO TWO AND TO SHORTEN THE TERM OF EACH
DIRECTOR FROM THREE YEARS TO TWO YEARS.
[ ] Vote For [ ] Vote Against [ ] Abstain
PROPOSAL 2(a)* ELECT DIRECTORS TO CLASS I AND CLASS II
[ ] Vote For All Nominees [ ] Vote Against [ ] Abstain
Class I Nominees Class II Nominees
---------------- -----------------
1. Michael W. George 1. Dennis J. Carlo, Ph.D.
2. James B. Glavin 2. Kenneth E. Olson
3. Edward L. Hennessy 3. Gerald J. Yakatan, Ph.D.
PROPOSAL 2(b) ELECT DIRECTORS TO CLASS III
[ ] Vote For All Nominees [ ] Vote Against [ ] Abstain
Class III Nominees
------------------
1. Kenneth E. Olson
2. Gerald J. Yakatan, Ph.D.
3. Dennis J. Carlo, Ph.D.
TO WITHHOLD AUTHORITY TO VOTE FOR SPECIFIC NOMINEE(S), WRITE
NAME(S) BELOW.
PROPOSAL 3 RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
[ ] Vote For [ ] Vote Against [ ] Abstain
and to vote on such other business as may properly come before the meeting
Date: ___________________________
___________________________________ ___________________________________
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.
* Please vote for Proposal 2(a) and 2(b). If Proposal 1 is approved, your vote
for Proposal 2(a) will count and 2(b) will be disregarded. If Proposal 1 is
defeated, your vote for Proposal 2(b) will count and 2(a) will be disregarded.
THANK YOU FOR VOTING
C-2
