UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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AVANIR PHARMACEUTICALS,
INC.(Name of Registrant as Specified In Its Charter)
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10120 Enterprise, Suite 300
200Aliso Viejo, California 92656
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
STOCKHOLDERS
To Be Held on February 19, 200916, 2012
Stockholder:You are cordially invited to attend the Annual Meeting of ShareholdersStockholders of Avanir Pharmaceuticals, Inc., a CaliforniaDelaware corporation (the “Company”“Company”), which will be held on February 19, 2009,16, 2012, at 9:00 a.m. local time, at the IslandRenaissance Club Sport Aliso Viejo Hotel, 690 Newport Center Drive, Newport Beach,50 Enterprise, Aliso Viejo, California. Only shareholdersstockholders who ownedheld stock at the close of business on the record date, December 26, 200819, 2011 (the “Record Date”“Record Date”), may vote at the Annual Meeting, orincluding any adjournment or postponement of the Annual Meeting that may take place.
thereof.At the Annual Meeting, you will be asked to consider and vote upon: (1) the election of threetwo Class II directors; (2) the ratification of KMJ Corbin & Company, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2009;2012, (3) an advisory (non-binding) vote on the approval of our change in corporate domicile from California to DelawareCompany’s executive compensation and (4) the transaction of any other business that may properly come before the meeting or any adjournment of the meeting.thereof. No other items of business are expected to be considered at the meeting and no other director nominees will be entertained, pursuant to the Company’s bylaws.
Bylaws.The accompanying Proxy Statement more fully describes the details of the business to be conducted at the Annual Meeting. After careful consideration, our Board of Directors has unanimously approved the proposals and recommends that you vote FOR each nominee and proposal described in the Proxy Statement.
This year weWe are pleased to take advantagemake use of the Securities and Exchange Commission rules that allow issuerscompanies to furnish proxy materials to their shareholders onstockholders via the Internet. We believe these rules allowthe ability to deliver proxy materials electronically allows us to provide our shareholdersstockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact from the distribution of our Annual Meeting.
Meeting materials.We look forward to seeing you at the Annual Meeting.
Keith A. Katkin
President and Chief Executive Officer
December 21, 2011
January 9, 2009
I M P O R T A N T
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE ONVIA THE INTERNET OR OVER THE TELEPHONE AS INSTRUCTED IN THENOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS AND ON THE ENCLOSED PROXY CARD OR, IF YOU REQUESTED AND RECEIVED A PRINTED COPY OF THE PROXY STATEMENT, COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD USING THE ENCLOSED RETURN ENVELOPE, AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. EVEN IF YOU HAVE VOTED BY PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY CARD ISSUED IN YOUR NAME FROM THAT RECORD HOLDER.INTERMEDIARY.
TABLE OF CONTENTS
10120 Enterprise, Suite 300
200Aliso Viejo, California 92656
PROXY STATEMENT FOR
2009
2012 ANNUAL MEETING OF SHAREHOLDERS
To Be Held on February 19, 2009STOCKHOLDERS
TO BE HELD ON FEBRUARY 16, 2012
GENERAL INFORMATION
This proxy statementProxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Avanir Pharmaceuticals, (theInc. (““Company”Avanir” or the “Company”) for use at the Company’s 20092012 annual meeting of shareholders,stockholders, to be held at the IslandRenaissance Club Sport Aliso Viejo Hotel, located at 690 Newport Center Drive, Newport Beach,50 Enterprise, Aliso Viejo, California, on Thursday, February 19, 2009,16, 2012, at 9:00 a.m. local time. We intend to mail aThis proxy statement is being made available via the Internet on December 21, 2011 and the mailing date of the Notice Regarding the Availability of Proxy Materials (the ““Notice”Notice”) to our shareholdersstockholders will be on or about January 9, 2009.
3, 2012.The Notice will instructinstructs you as to how you may access and review all of the important information contained in the proxy materials. The Notice will also instructinstructs you as toon how you may submit your proxy onvia the Internet. If you receivedreceive a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice.
For a proxy to be effective, it must be properly executed and received prior to the annual meeting. Each proxy properly tendered will, unless otherwise directed by the shareholder,stockholder, be voted for the proposals and nominees described in this proxy statementProxy Statement and at the discretion of the proxy holder(s) with regard to all other matters that may properly come before the meeting.
The Company will pay all of the costs of soliciting proxies. We will provide copies of our proxy materials to brokerage firms, fiduciaries and custodians for forwarding to beneficial owners who request printed copies of these materials and will reimburse these persons for their costs of forwarding these materials. Our directors, officers and employees may also solicit proxies by telephone, facsimile, or personal solicitation; however, we will not pay them additional compensation for any of these services.
Shares Outstanding and Voting Rights
Only holders of record of our Class A common stock ((““common stock”stock”) at the close of business on December 26, 200819, 2011 (the ““record date”Record Date”), are entitled to notice of and to vote at the annual meeting. On the record date, 78,227,041Record Date, 132,467,537 shares of common stock were issued and outstanding. Each share of common stock is entitled to one vote on all matters to be voted upon at the annual meeting. Holders of common stock do not have the right to cumulative voting in the election of directors. The presence, in person or by proxy, of the holders of a majority of the outstanding shares on the record dateRecord Date will constitute a quorum for the transaction of business at the annual meeting and any adjournment thereof.
Persons who hold shares of Avanir common stock directly on the Record Date (“record date (“record holders”holders”) must return a proxy card or attend the annual meeting in person in order to vote on the proposals. Persons who hold shares of Avanir indirectly on the record dateRecord Date through a brokerage firm, bank or other financial institution ((““beneficial holders”holders”) must return a voting instruction form to have their shares voted on their behalf. Brokerage firms, banks or other financial institutions that do not receive voting instructions from beneficial holders may either vote these shares on behalf of the beneficial holders or return a proxy leaving these shares un-voted (a ““broker non-vote”non-vote”).
Abstentions and broker non-votes will be counted for the purpose of determining the presence or absence of a quorum, but will not be counted for the purpose of determining the number of votes cast on a given proposal. The required vote for each of the three proposals expected to be acted upon at the annual meeting is described below:
Proposal No. 1 — Election of directors. Directors are elected by a plurality, with the nominees obtaining the most votes being elected. Because there is no minimum vote required, abstentions and broker
non-votes will be entirely excluded from the vote and will have no effect on its outcome. However, as described below, we have adopted a majority vote standard under our Corporate Governance Guidelines,Bylaws, which means that directors may not be eligible to retain their Board seat if there is a greater number of votes against“AGAINST” their election than for.
“FOR” their election. Under the majority vote standard, any shares that are not voted, whether by abstention, broker non-votes or otherwise, will not affect 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 cast.Proposal No. 2 — Ratification of independent registered public accounting firmfirm.. This proposal must be approved by a majority of the shares castpresent and entitled to vote on that proposal, provided that the total votes cast in favor represents at least a majority of the quorum required for the meeting.proposal. As a result, abstentions and broker non-votes on this proposal will generally have no effect, unless an insufficient number of shares are voted to satisfy the majority-of-a-quorum requirement.
Proposal No. 3 — Change of domicile. This proposal must be approved by a majority of the outstanding shares. As a result, abstentions and broker non-votes on this proposal will have the same effect as
voting against the proposal and broker non-votes will have no effect on the vote outcome.Proposal No. 3 — Advisory (non-binding) vote on executive compensation. This advisory proposal will be approved if a “no” vote.
majority of the shares present and entitled to vote on the proposal are voted in favor of the resolution. As a result, abstentions will have the same effect as voting against the proposal and broker non-votes will have no effect on the vote outcome.We encourage you to vote by proxy, whether via telephone, through the Internet or mailing an executed proxy card. By voting in advance of the meeting, this ensures that your shares will be voted and reduces the likelihood that the Company will be forced to incur additional expenses soliciting proxies for the annual meeting. Any record holder of our common stock may attend the annual meeting in person and may revoke the enclosed form of proxy at any time by:
executing and delivering to the corporate secretary a later-dated proxy;
delivering a written revocation to the corporate secretary before the meeting; or
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| • | executing and delivering to the corporate secretary a later-dated proxy; |
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| • | delivering a written revocation to the corporate secretary before the meeting; or |
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| • | voting in person at the annual meeting. |
voting in person at the annual meeting.
Beneficial holders of our common stock who wish to change or revoke their voting instructions should contact their brokerage firm, bank or other financial institution for information on how to do so. Beneficial holders who wish to attend the annual meeting and vote in person should contact their brokerage firm, bank or other financial institution holding shares of Avanir on their behalf in order to obtain a “legal proxy,” which will allow them to both attend the meeting and vote in person. Without a legal proxy, beneficial holders cannot vote at the annual meeting because their brokerage firm, bank or other financial institution may have already voted or returned a broker non-vote on their behalf.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The bylawsCertificate of Incorporation of the Company provideprovides that the Board of Directors is to be divided into three classes as nearly equal in number as reasonably possible, with directors in each class serving three-year terms. The total Board size is currently fixed at nine directors and there are currently eight directors serving.seven directors. Currently, the Class I directors (whose terms expire at the 2011 annual meeting of shareholders) are Stephen G. Austin, CPA and Dennis G. Podlesak. The Class II directors (whose terms expire at the 20092012 annual meeting of shareholders)stockholders) are Keith A. Katkin and Charles A. Mathews and Nicholas J. Simon.Mathews. The Class III directors (whose terms expire at the 20102013 annual meeting of shareholders)stockholders) are David J. Mazzo, Ph.D., Craig A. Wheeler and Scott M. Whitcup, M.D. The Class I directors (whose terms expire at the 2014 annual meeting of stockholders) are Stephen G. Austin, CPA and Dennis G. Podlesak. Class II directors elected at the annual meeting will hold office until the 20122015 annual meeting of shareholdersstockholders and until their successors are elected and qualified, unless they resign or their seats become vacant due to death, removal, or other cause in accordance with the bylawsBylaws of the Company.
All threeAs described below, the Board has nominated Messrs. Katkin and Mathews for reelection as Class II directors at the Annual Meeting. Both nominees have indicated their willingness to serve if elected. Should anyeither nominee become unavailable for election at the annual meeting, the persons named on the enclosed proxy as proxy holders may vote all proxies given in response to this solicitation for the election of a substitute nominee chosen by the Board.
The Corporate Governance Committee, which acts as the Company’s nominating committee, reviews and recommends to the Board potential nominees for election to the Board. In reviewing potential nominees, the Corporate Governance Committee considers the qualifications of each potential nominee in light of the Board’s existing and desired mix of experience and expertise. Specifically, the Corporate Governance Committee considers each potential nominee’s scientific and business experience, skills and characteristics, wisdom, integrity, ability to make independent analytical inquiries, understanding of the Company’s business and prospects, and willingness to
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devote adequate time to Board duties. These criteria are set forth in our Corporate Governance Guidelines, a copy of which is available on our website atwww.avanir.com.
After reviewing the qualifications of potential Board candidates, the Corporate Governance Committee presents its recommendations to the Board, which selects the final director nominees. TheUpon the recommendation of the Corporate Governance Committee, recommended the nominees identified below.Board nominated Messrs. Katkin and Mathews for reelection as Class II directors. The Company did not pay any fees to any third parties to identify or assist in identifying or evaluating nominees for the annual meeting.
The Corporate Governance Committee considers shareholderstockholder nominees using the same criteria set forth above. ShareholdersStockholders who wish to present a potential nominee to the Corporate Governance Committee for consideration for election at a future annual meeting of shareholdersstockholders must provide the Corporate Governance Committee with notice of the nomination and certain information regarding the candidate within the time periods set forth below under the caption “Shareholder“Stockholder Proposals.”
Although the Corporate Governance Committee may consider whether nominees assist in achieving a mix of Board members that represents a diversity of background and experience, which is not only limited to race, gender or national origin, we have no formal policy regarding board diversity.
Nominees and Incumbent Directors
The NominatingCorporate Governance Committee has recommended, and the Board has nominated, Messrs. Katkin Mathews and SimonMathews to be reelected Class II directors at the annual meeting. Mr. Simon was initially elected to the Board in May 2008 following the Company’s $40 million follow-on stock offering. The Nominating Committee recommended that Mr. Simon join the Board at that time in light of his industry experience and the significant holdings by Mr. Simon’s firm in Company common stock.
The following table sets forth the following information for these nominees and the Company’s continuing directors: the year each
such nominee or continuing director was first elected a director
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of the ageCompany, their respective ages as of each nominee and continuing director,the date of filing of this proxy statement, the positions currently held with the Company, currently held by each nominee and continuing director, the year each nominee’s or continuing director’stheir current term will expire and each nominee’s and continuing director’stheir current class:
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| | | | | | | | | Current
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Nominee/Director Name
| | | | Position(s) with the
| | Year Current
| | Director
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and Year First Became a Director | | Age | | Company | | Term Expires | | Class |
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Nominees for Class I Directors: | | | | | | | | | | | | |
| Keith A. Katkin (2007) | | | 37 | | | President, Chief Executive Officer, Director | | | 2009 | | | II |
| Charles A. Mathews (2001) | | | 70 | | | Director | | | 2009 | | | II |
| Nicholas J. Simon (2008) | | | 54 | | | Director | | | 2009 | | | II
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Continuing Directors: | | | | | | | | | | | | |
| David J. Mazzo, Ph.D. (2005) | | | 52 | | | Director | | | 2010 | | | III |
| Craig A. Wheeler (2005) | | | 48 | | | Chairman of the Board of Directors | | | 2010 | | | III |
| Scott M. Whitcup, M.D. (2005) | | | 49 | | | Director | | | 2010 | | | III |
| Stephen G. Austin, CPA (2003) | | | 56 | | | Director | | | 2011 | | | I |
| Dennis G. Podlesak (2005) | | | 51 | | | Director | | | 2011 | | | I |
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Nominee / Director Name and Year First Became a Director | | Age | | | Position(s) with the Company | | Year Current
Term Expires | | | Current
Director
Class | |
| Nominees for Class II Directors: | | | | | | | | | | | | | | |
Keith A. Katkin (2007) | | | 40 | | | President, Chief Executive Officer, Director | | | 2012 | | | | II | |
Charles A. Mathews (2001) | | | 73 | | | Director | | | 2012 | | | | II | |
| Continuing Directors: | | | | | | | | | | | | | | |
David J. Mazzo, Ph.D. (2005) | | | 54 | | | Director | | | 2013 | | | | III | |
Craig A. Wheeler (2005) | | | 51 | | | Chairman of the Board of Directors | | | 2013 | | | | III | |
Scott M. Whitcup, M.D. (2005) | | | 52 | | | Director | | | 2013 | | | | III | |
Stephen G. Austin, CPA (2003) | | | 59 | | | Director | | | 2014 | | | | I | |
Dennis G. Podlesak (2005) | | | 53 | | | Director | | | 2014 | | | | I | |
Class II Directors Nominated for Election
The following persons have been nominated by the CompanyBoard to be elected as Class II directors at the 20092012 annual meeting.
Keith A. Katkinjoined Avanir Pharmaceuticals in July 2005 as Senior Vice President of Sales and Marketing. In March 2007, Mr. Katkin was appointed President and Chief Executive Officer of Avanir and was elected as a member of the Board of Directors.Directors in March of 2007. From July 2005 until March 2007, Mr. Katkin served as Senior Vice President of Sales and Marketing. Prior to joining Avanir, Mr. Katkin previously served as Vice President, Commercial Development for Peninsula Pharmaceuticals, playing a key role in the management and ultimate sale of the company.company to Johnson & Johnson in 2005. Additionally, Mr. Katkin’s employment experience includes leadership roles at InterMune, Amgen and Abbott Laboratories. Mr. Katkin also served as strategic advisor to Cerexa, a pharmaceutical company that was sold to Forest Laboratories in 2007. Mr. Katkin received a B.S. degree in Business and Accounting from Indiana University and an M.B.A. degree in Finance from the Anderson School of Management at UCLA, graduating with honors. Mr. Katkin is alsobecame a licensed Certified Public Accountant.
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Charles A. Mathewsserved as our Chairman of the Board from March 2005 through November 2006 and has served as a Board member since September 2001. Mr. Mathews also currently serves on our Audit Committee, Corporate Governance Committee and Executive Committee. Mr. Mathews is an active private investor and previously served as the president of the San Diego Tech Coast Angels, part of an affiliation of over 200 accredited “angel” investors active in the life science and technology industries. From April 2002 until January 2004, Mr. Mathews served as the President and Chief Executive Officer of DermTech International, a privately held contract research organization focused on dermal and transdermal drugs. From 1996 to April 2002, Mr. Mathews was an independent management consultant, providing CEO-level consulting services to various public and private companies. He currently serves as a director for Lpath Inc. and several privately held companies. During his career, Mr. Mathews has held general management responsibilities for companies operating in nine countries on three continents, and has served on boards of directors of over twenty companies in seven countries. Mr. Mathews is actively involved in community affairs including serving as the President and Treasurerelected director of Pauma Valley Community Services District.District and an appointed member of the Pala Pauma Sponsor Group. He was recognized as the 2003 Director of the Year for Corporate Governance by the Corporate Directors Forum, San Diego.
Nicholas J. Simonjoined The Board believes that Mr. Mathews is a valuable addition to the Company’s Board of Directors due to Mr. Mathews’s extensive experience serving as a director and Chief Executive Officer of companies in May 2008. He is a Managing Directorthe life science industry and his deep experience in serving as director of Clarus Ventures, LLC, a life sciences focused venture capital firm that he co-founded in 2005. He has been a General Partner of MPM BioVentures III since October 2001. In addition, Mr. Simon has over twenty years ofcompanies operating experience in the biopharmaceutical industry including Genentech from 1989 to 2000 where he was Vice President of Business and Corporate Development. Mr. Simon currently serves on the Board of Directors of Achillion Pharmaceuticals, Inc. (ACHN), ARYx Therapeutics (ARYX) and Poniard, Inc. (PARD), all publicly traded companies, and also Pearl Therapeutics, Inc., QuatRx Pharmaceuticals Company, Sientra, Inc., and Verus Pharmaceuticals, Inc., which are private biotech companies. Mr. Simon is also on the Advisory Council at the Gladstone Institute, a privatenot-for-profitseven different countries. research institute affiliated with the University of California, San Francisco. Mr. Simon received a B.S. degree in microbiology from the University of Maryland and an M.B.A from Loyola College.
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Class III Directors continuing in office until 20102013
David J. Mazzo, Ph.D.has served as a Board member since February 2006.July 2005 and he currently serves on our Compensation Committee and Science Committee. He is the President and Chief Executive Officer of Regado Biosciences, Inc., a privately held,U.S.-based biopharmaceutical company developing novel aptamer-reversal agent pairs initially in the area of injectable antithrombotics. Prior to joining Regado and until April 2008, Dr. Mazzo served as President and Chief Executive Officer of Æterna Zentaris, Inc., a global biopharmaceutical company with products and a therapeutic focus in the areas of oncology and endocrinology. Dr. Mazzo also served as a director of Æterna Zentaris from April 2007 through April 2008. Prior to joining Æterna Zentaris in March 2007, Dr. Mazzo had served as President and Chief Executive Officer of Chugai Pharma USA since April 2003. Dr. Mazzo has spent more than 2028 years in the pharmaceutical industry and has held positions of increasing responsibility with Merck, Baxter, Rhône-Poulenc Rorer, Hoechst Marion Roussel and Schering-Plough. Dr. Mazzo holds a B.A. degree in Honors (Interdisciplinary Humanities) and a B.S. degree in Chemistry from Villanova University, as well as an M.S. degree in Chemistry and a Ph.D. degree in Analytical Chemistry from the University of Massachusetts (Amherst). He further complemented his American education as a Research Fellow at the Ecole Polytechnique Fédérale de Lausanne, Switzerland. Dr. Mazzo serves as a member of the board of directors of Regado Biosciences and as non-executive Chairman of the board of directors of pSivida, Inc. He is alsoBased on Dr. Mazzo’s experience within the pharmaceutical industry and his executive experience, specifically his experience as Chief Executive Officer at other companies in the biotechnology industry, as well as his service on other boards of directors in the biotechnology industries, the Board believes Dr. Mazzo has the appropriate set of skills to serve as a member of the board of trustees of Bonnie Brae Residential Treatment Center for Adolescent Boys (Liberty Corner, NJ).
our Board.Craig A. Wheelerhas served as our Chairman of the Board since May 2007.2007 and currently serves on our Audit Committee, Corporate Governance Committee and Executive Committee. Mr. Wheeler serves as a director and as Chief Executive Officer of Momenta Pharmaceuticals, Inc. Prior to joining Momenta in August 2006, Mr. Wheeler was President of Chiron BioPharmaceuticals for five years, of Chiron BioPharmaceuticals, a division of Chiron Corporation, until it was acquired by Novartis AG in 2006. In this position he was responsible for all aspects of the division including commercial, research, development and manufacturing. Mr. Wheeler serves on the Board of Directors for the Generic Pharmaceutical Associates (GPHA) and is a member of their executive committee. He currently serves on the IBM Life Science StrategicCornell Biomedical Engineering Advisory CouncilBoard, and serves on the Whitehead InstituteGene Partnership Advisory Board for Biomedical Research’s Boardthe Children’s Hospital of Associates.Boston. Mr. Wheeler holds B.S. and M.S. degrees in chemical engineering from Cornell University and an M.B.A. degree from the Wharton School of the University of Pennsylvania, where he majored in marketing and finance.
Mr. Wheeler’s experience within the pharmaceutical industry and his management experience at other companies in the biotechnology industry make him a valuable member of our Board.Scott M. Whitcup, M.D. joined the Company’s Board of Directors in February 2006.2006 and currently serves on our Corporate Governance Committee, Executive Committee and Science Committee. He serves as Executive Vice President and Head of Research and Development of Allergan, Inc. Dr. Whitcup has served in this role since July 2004 and is responsible for Allergan’s drug discovery efforts, as well as the ophthalmology, Botox®/neurology, urology, skin care, medical devices and other new technology development programs worldwide. Dr. Whitcup was given the additional title of Chief Scientific Officer in 2009. Dr. Whitcup joined Allergan in January 2000 as
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Vice President, Development, Ophthalmology and, in January 2004, he became Allergan’s Senior Vice President, Development, Ophthalmology. From 1993 until 2000, Dr. Whitcup served as the Clinical Director of the National Eye Institute at the National Institutes of Health. Dr. Whitcup is a faculty member at the Jules Stein Eye Institute / David Geffen School of Medicine at UCLA. Dr. Whitcup graduated from Cornell University Medical College and completed residency training both in internal medicine at UCLA Medical Center and in ophthalmology at the Massachusetts Eye and Ear Infirmary-Harvard Medical School. He then received fellowship training in uveitis and ocular immunology at the National Eye Institute.
Dr. Whitcup’s scientific expertise and involvement in drug discovery efforts allow him to provide unique perspective to our operations and, accordingly, our Board believes Dr. Whitcup has the appropriate skill set to serve on our Board.5
Class I Directors continuing in office until 20112014
Stephen G. Austin, CPAhas served as a Board member since March 2003.2003 and currently serves on our Audit Committee and Compensation Committee. He has been a Partner in Swenson Advisors, LLP, a regional accounting firm (registered with the PCAOB), since May 1998 and has served as Managing Partner since October 2006. At Swenson Advisors, LLP, Mr. Austin manages audit, SEC, Sarbanes-Oxley and business consulting engagements with a focus on technology, manufacturing, service, real estate, social media and non-profit organizations. Prior to joining Swenson Advisors, Mr. Austin accumulated over 22 years of experience as an audit partner with Price Waterhouse LLP, where he worked from 1976 to 1996, and with McGladrey & Pullen, LLP, where he worked from 1996 to 1998, serving both public and private companies. While at Price Waterhouse, Mr. Austin worked in their national office in New York, where he addressed complex accounting and reporting issues for publicly tradedpublicly-traded companies and worked with various members of the FASB and EITF staffs. Mr. Austin is licensed as a CPA in California and Georgia. He serves as a board member or advisory board member for various not-for-profit foundations, associations and public service organizations in the United States and serves on the Global Boardboard of Directorsdirectors of Integra International, an international federationassociation of accounting firms. In 2004, Mr. Austin published a book on business ethics entitled, “Rise of the New Ethics Class,” and in 2005 and 2006 he published articles in Asia discussing The Sarbanes-Oxley Act of 2002.
In 2010 and 2011, Mr. Austin authored articles for the AICPA. Mr. Austin holds a B.S. degree in accounting from Bob Jones University and an M.B.A. degree from the University of Georgia. Based on Mr. Austin’s length of history with the Company, audit committee expertise and extensive experience serving as a director of other companies, the Board believes Mr. Austin has the appropriate set of skills to serve as a member of our Board.Dennis G. Podlesakjoined the Company’s Board of Directors in March 2005.2005 and currently serves on our Compensation Committee and Science Committee. He is a Partner at Domain Associates LLC, a life science focused venture capital firm, and has over 20 years of experience within the pharmaceutical industry. Prior to joining Domain in February 2008,November 2007, Mr. Podlesak served as the Chief Executive Officer and a member of the Boardboard of Directorsdirectors of Cerexa, Inc. since June 2005, which became a wholly owned subsidiary of Forest Laboratories after being acquired by Forest in January 2007. Cerexa was spun out of Peninsula Pharmaceuticals Inc., and, while at Peninsula, Mr. Podlesak served as the Chief Executive Officer and as a member of the Boardboard of Directorsdirectors from September 2004 until he led the sale of Peninsula to Johnson & Johnson in June 2005. Prior to joining Peninsula, Mr. Podlesak served with Novartis AG as a Senior Vice President and Head of a North American Business Unit, and as a member of the Pharmaceutical Executive Committee and Global Leadership Team. Earlier in his career, Mr. Podlesak served as Vice President and Head of the CEC division of Allergan, IncInc. and was a member of Allergan’s North American and Global Management Team. Mr. Podlesak spent the first ten years of his career with SmithKline Beecham (now GlaxoSmithKline plc). Mr. Podlesak has served on a number of public company and private boards, and is alsocurrently a member of the board of directors of Corthera, Inc,Adynxx, Inc., Regado Biosciences, DOVSyndax Pharmaceuticals Inc and the non-profit organization Prevent Blindness. Most recently, Mr. Podlesak was Chairman of Corthera, Inc., which was acquired by Novartis AG in January 2010 and was also the Founder, Chief Executive Officer, and board member of Calixa Therapeutics, which was acquired by Cubist in December 2009. Mr. Podlesak received a B.A. degree in Business Administration from Western Illinois University and an M.B.A. degree from Pepperdine University.
University and has completed postgraduate studies at the Wharton School, University of Pennsylvania. Based on Mr. Podlesak’s experience within the pharmaceutical industry and his executive experience, specifically his experience as Chief Executive Officer at other companies in the biotechnology industry, as well as his service on other boards of directors in the biotechnology industries, the Board believes Mr. Podlesak has the appropriate set of skills to serve as a member of our Board.Vote Required
The nominees who receive the greatest number of affirmative votes of the shares present in person or by proxy will be elected as Class II directors. Any shares that are not voted, whether by abstention, broker non-votes or otherwise, will not affect 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 cast. If anyeither nominee receives more votes against his election than for his election and that nominee is nevertheless elected under the plurality vote
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standard, that director will be required under our Corporate Governance GuidelinesBylaws to submit a conditional resignation to the Company. This resignation will then be considered by the Corporate Governance Committee, taking into account the circumstances of the election, and a recommendation will be presented to the disinterested members of the Board, who will then vote whether to accept the resignation.
Holders of proxies solicited by this proxy statementProxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is made, then FOR the election of all theboth nominees named in this proxy statement.
Proxy Statement.THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE NOMINEES IDENTIFIED ABOVE.
5
7
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has selected KMJ Corbin & Company, LLP ((““KMJ”KMJ”) as our independent registered public accounting firm for the fiscal year ending September 30, 2009,2012, and has further directed that we submit the selection of KMJ for ratification by our shareholdersstockholders at the annual meeting. As described below, in April 2007, the Audit Committee approved the dismissal of Deloitte & Touche LLP (“D&T”) as our independent registered public accounting firm and the appointment of KMJ.
The Company is not required to submit the selection of our independent registered public accounting firm for shareholderstockholder approval. However, if the shareholdersstockholders do not ratify this selection, the Audit Committee will reconsider its selection of KMJ. Even if the selection is ratified, our Audit Committee may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that the change would be in the best interests of the Company.
The Audit Committee reviews and pre-approves all audit and non-audit services performed by its independent registered public accounting firm, as well as the fees charged for such services. All fees incurred in fiscal 20082011 for services rendered by KMJ were approved in accordance with these policies. In its review of non-audit service fees, the Audit Committee considers, among other things, the possible impact of the performance of such services on the auditor’s independence. The Audit Committee has determined that the non-audit services performed by KMJ in the fiscal year ended September 30, 20082011 were compatible with maintaining the auditor’s independence. Additional information concerning the Audit Committee and its activities can be found in the following sections of this proxy statement:Proxy Statement: “Board Committees” and “Report of the Audit Committee.”
KMJ has reviewed our interim financial statements since the third quarter of fiscalended March 31, 2007 and commenced auditinghas audited our annual financial statements forsince the year ended September 30, 2007. Representatives of KMJ are expected to be present at the annual meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate shareholderstockholder questions.
Fees for Independent Registered Public Accounting Firm
The following is a summary of the fees billed to the Company by KMJ and D&T for professional services rendered for the fiscal years ended September 30, 20082011 and 2007.2010. These fees are for work invoiced in the fiscal years indicated.
| | | | | | | | | | | | | | | | | |
| | | Fiscal 2008 | | | Fiscal 2007 | |
| | | KMJ | | | D&T | | | KMJ | | | D&T | |
| |
Audit Fees:(1) | | | | | | | | | | | | | | | | |
Consists of fees billed for professional services rendered for the audit of the Company’s annual financial statements (including the audit of internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act) and the review of the interim financial statements included in the Company’s Quarterly Reports (together, the“Financial Statements”) and for services normally provided in connection with statutory and regulatory filings or engagements | | $ | 296,435 | | | $ | — | | | $ | 91,688 | | | $ | 796,281 | |
Other Fees: | | | | | | | | | | | | | | | | |
Audit-Related Fees | | | | | | | | | | | | | | | | |
| Consists of fees billed for assurance and related services reasonably related to the performance of the annual audit or review of the Financial Statements (defined above) | | | 28,691 | | | | 34,357 | | | | — | | | | — | |
Tax Fees | | | | | | | | | | | | | | | | |
| Consists of fees billed for tax compliance, tax advice and tax planning | | | 1,600 | | | | 146,893 | | | | — | | | | 147,604 | |
All Other Fees | | | | | | | | | | | | | | | | |
| Consists of fees billed for other products and services not described above | | | 35,764 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total Other Fees | | | 66,055 | | | | 181,250 | | | | — | | | | 147,604 | |
| | | | | | | | | | | | | | | | | |
Total All Fees | | $ | 362,490 | | | $ | 181,250 | | | $ | 91,688 | | | $ | 943,885 | |
| | | | | | | | | | | | | | | | | |
6
| | | | | | | | |
| | | 2011 | | | 2010 | |
Audit Fees: | | | | | | | | |
Consists of fees billed for professional services rendered for the audit of the Company’s annual financial statements and the review of the interim financial statements included in the Company’s Quarterly Reports (together, the “Financial Statements”) and for services normally provided in connection with statutory and regulatory filings or engagements | | $ | 232,832 | | | $ | 174,427 | |
Other Fees: | | | | | | | | |
Audit-Related Fees | | | | | | | | |
Consists of fees billed for assurance and related services reasonably related to the performance of the annual audit or review of the Financial Statements (defined above) | | | 52,205 | | | | 31,412 | |
Tax Fees | | | | | | | | |
Consists of fees billed for tax compliance, tax advice and tax planning | | | — | | | | — | |
All Other Fees | | | | | | | | |
Consists of fees billed for other products and services not described above, which consisted of fees relating to: accounting policy and auditor consent | | | 23,055 | | | | 11,335 | |
| | | | | | | | |
Total Other Fees | | | 75,260 | | | | 42,747 | |
| | | | | | | | |
Total All Fees | | $ | 308,092 | | | $ | 217,174 | |
| | | | | | | | |
8
| | |
(1) | | Audit fees decreased in fiscal 2008 as compared to fiscal 2007 as a result of the transition from D&T to KMJ. In addition, the organizational changes we implemented in fiscal 2007 have resulted in a smaller company which has resulted in a decrease in audit fees. |
Change in Independent Registered Public Accounting Firm
Effective as of April 10, 2007, the Audit Committee approved the dismissal of D&T as our independent registered public accounting firm and appointed KMJ as our independent registered public accounting firm for the fiscal year ended September 30, 2007.
In connection with D&T’s audits for the interim periods ended December 31, 2006 and March 31, 2007, there were no disagreements with D&T on any matter of accounting principles or practices, financial disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of D&T, would have caused D&T to make reference to the subject matter of such disagreements in connection with its reports. In addition, no reportable events, as defined in Item 304(a)(1)(v) ofRegulation S-K, occurred during the interim periods ending December 31, 2006 and March 31, 2007.
During the interim periods ended December 31, 2006 and March 31, 2007 and through April 10, 2007, neither we nor anyone on our behalf consulted with KMJ regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to us nor oral advice was provided by KMJ that was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) ofRegulation S-K and the related instructions to Item 304 ofRegulation S-K, or a reportable event, as the term is defined in Item 304(a)(1)(v) ofRegulation S-K.
Vote Required
Ratification of the selection of the independent registered public accounting firm requires the affirmative vote of a majority of the shares present in person or by proxy and votingentitled to vote on the proposal, provided thatproposal. Abstentions will have the total votes cast in favor represents at least a majority ofsame effect as voting against the quorum required for the meeting. While abstentions andproposal. Because broker non-votes are not counted as votes for or against this proposal, they maywill have no effect on the effect of preventing approval if fewer than halfoutcome of the shares required to constitute a quorum vote in favor of this proposal.
vote.THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL NO. 2.
7
9
PROPOSAL NO. 3
REINCORPORATION OF THE COMPANY INTO THE STATE OF DELAWAREADVISORY VOTE ON EXECUTIVE COMPENSATION
Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act
”) requires that stockholders have the opportunity to cast an advisory (non-binding) vote on executive compensation (a so-called “say-on-pay” vote), as well as an advisory vote with respect to whether future say-on-pay votes will be held every one, two or three years (a so-called “say-on-frequency” vote).We conducted both a say-on-pay vote and say-on-frequency vote at our 2011 Annual Meeting of Stockholders. At such meeting, a majority of stockholders present and entitled to vote on the proposals (i) approved the say-on-pay proposal and (ii) selected one year as the desired frequency of future stockholder say-on-pay votes with respect to the say-on-frequency proposal. In November 2008,light of the results of such stockholder vote, the Board adopted a resolution to hold a say-on-pay vote annually. Accordingly, this Proposal No. 3 seeks an advisory vote of stockholders with respect to the executive compensation of the Company’s named executive officers.
The advisory vote on executive compensation is a non-binding vote on the compensation of the Company’s “named executive officers,” as described in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure, set forth in this proxy statement. The advisory vote on executive compensation is not a vote on the Company’s general compensation policies, compensation of the Company’s Board of Directors, adoptedor the Company’s compensation policies as they relate to risk management.
Our philosophy in setting compensation policies for executive officers has two fundamental objectives: (1) to attract, motivate and retain a proposalhighly skilled team of executives and (2) to reincorporatealign our executives’ interests with those of our stockholders by rewarding short-term and long-term performance and tying compensation to increases in stockholder value. The Compensation Committee believes that executive compensation should be directly linked both to continuous improvements in corporate performance (so-called “pay for performance”) and accomplishments that are expected to increase stockholder value. The Compensation Discussion and Analysis section starting on page 18 provides a more detailed discussion of the executive compensation program and compensation philosophy.
The vote under this Proposal No. 3 is advisory, and therefore not binding on the Company, the Board or our Compensation Committee. However, our Board, including our Compensation Committee, values the opinions of our stockholders and, to the extent there is any significant vote against the executive officer compensation as disclosed in this proxy statement, we will consider our stockholders’ concerns and evaluate what actions may be appropriate to address those concerns.
Stockholders will be asked at the Annual Meeting to approve the following resolution pursuant to this Proposal No. 3:
RESOLVED, that the stockholders of Avanir from California to Delaware, subject to shareholder approval. This same proposal was approved byPharmaceuticals, Inc. approve, on an advisory basis, the compensation of the Company’s “named executive officers” (as defined in the Proxy Statement), as such compensation is described in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure, set forth in the Company’s definitive proxy statement for the 2012 Annual Meeting of Stockholders.
Recommendation
The Board of Directors in December 2007 and was presented forrecommends a shareholder vote at the 2008 Annual Meeting of Shareholders. Prior to that meeting, the Board withdrew the proposal due to a lack of voting participation by the Company’s shareholders, with only approximately 30%“FOR” approval of the outstanding shares returning proxies to vote on that proposal. This low rate of voting participation was attributable to the fact that the proposal was considered non-routine, which meant brokers did not have discretion to vote shares on behalf of beneficial holders absent instructions from the beneficial holders. In deciding to resubmit this proposal for a shareholder vote at the 2009 Annual Meeting, the Board considered, among other things, the facts that an overwhelming percentage (more than 93%) of the votes cast on this proposal at the 2008 Annual Meeting were in favor and that Risk Metrics (formerly ISS), a shareholder governance advisory firm, recommended that shareholders vote in favor of the proposal.
The following summary describes the principal reasons for this proposal, provides a brief comparison of rights as a shareholder in a California and Delaware corporation and describes the mechanics for how the change of domicile would be accomplished if approved.
Background
Avanir was formed in 1988 as a California corporation. Although there are many publicly traded California corporations, Delaware is the preferred state of incorporation for publicly traded companies, with more than one-half of all public companies and two-thirds of newly public companies choosing to be formed in Delaware. Delaware is preferred over other states as a location in which to be domiciled because Delaware’s corporate laws are flexible, highly developed and well understood. Additionally, Delaware corporations and shareholders have access to highly specialized courts, which hear only issues pertaining to Delaware corporate law and thus provide a quick, efficient and highly expert forum to resolve disputes.
In planning for the Company’s future, the Board and management believe that operating as a Delaware corporation offers potentially significant advantages. The Company and the Boardforegoing resolution. Proxies will be
able to draw upon well-established principlesso voted unless stockholders specify otherwise in their proxies.Vote Required
Approval of corporate governance in making legal and business decisions. Delaware corporate law is prominent and predictable, providing a reliable foundation upon whichthis resolution requires the Company’s governance decisions can be based. Additionally, the Company will gain the flexibilityaffirmative vote of being able to lower the size of the Board from the current size of nine directors, which is required under California law due the classification of our board, which has the potential to create ongoing savings in costs relating to director compensation.
Anticipated Benefits
The Board has approved the proposed change of domicile to receive the following expected benefits as a Delaware corporation:
Highly Developed and Predictable Corporate Law. Delaware has one of the most modern statutory corporation laws, which is revised regularly to meet changing legal and business needs of corporations. The Delaware legislature is responsive to developments in modern corporate law and Delaware has proven sensitive to changing needs of corporations and their shareholders. For example, in 2006, the General Corporation Law of the State of Delaware (the“DGCL”) was amended to facilitate the adoption of majority voting standards for the election of directors. As a result of these amendments, the DGCL allows a director to tender his or her resignation in advance, with the resignation to be effective only upon the occurrence of future events, such as not obtaining a majority of the shares present in person or by proxy and entitled to vote in an uncontested election of directors. Provisions such as these are intended to facilitateon the adoption of majority voting standards, which are generally considered to be consistent with best practices in corporate governance. Although Avanir California has adopted a majority vote rule as part of its internal corporate governance guidelines, the California Corporate Code has not been amended to provide California corporations withmatter. Abstentions will have the same flexibility with these policieseffect as exists in Delaware.
8
Access to Specialized Courts. Delaware’s court system provides quick and efficient resolutions in corporate litigation. Delaware has a specialized Court of Chancery that hears corporate law cases. Furthermore, appeals tovoting against the Supreme Court of Delaware in important corporate cases can be made and decided very quickly. The economies of scale created byresolution. Because broker non-votes are not counted as votes for or against this resolution, they will have no effect on the higher volume of corporate litigation in Delaware contribute to an efficient and expert court system and bar. In contrast, disputes regarding California corporate law are heard by the Superior Court, the general trial court in California that hears all manner of cases, from criminal to civil. The highly specialized natureoutcome of the Delaware court system is widely believed to result in more consistent rulings.
Additionally, because so many companies are incorporated in Delaware, Delaware courts are often the first in the country to provide companies and shareholders with rulings on rights and obligations in important new areas. For example, in early 2007, the Delaware Chancery Court issued a series of rulings in stock option backdating cases. These decisions provided important and timely guidance to shareholders and directors on these issues and have helped to change board practices around option grant documentation to avoid backdating issues. Because Delaware courts were among the first and most influential to address these issues, many California corporations have looked to Delaware law for guidance on these issues. More recently, Delaware courts have addressed questions relating to the ability of shareholders to nominate directors and bring other business before shareholder meetings. These rulings have clarified the rights of shareholders in Delaware, while public companies domiciled in other states must look at these rulings by analogy to see if the rulings would similarly affect their corporations and shareholders. We believe that the lack of clarity on these issues is ultimately detrimental to both the corporation and its shareholders.
Recruiting and Retention Benefits. The Board believes that the better understood and comparatively stable corporate environment afforded by Delaware will better enable the Company to recruit talented and experienced directors and officers. In comparison, California corporate law is not as well developed and is generally not well known outside of the state. In seeking to attract and retain outside directors from across the country, the Board believes that being governed by the well known body of law offered by Delaware could serve as an advantage.
Potential Cost Savings. The Board believes that being incorporated in Delaware may result in potentially significant cost savings for the Company, principally relating to the costs associated with director compensation. As a California corporation with a classified board, we must have at least nine directors. Delaware imposes no similar requirement. If we were to reincorporate to Delaware, the Company would expect to maintain a board of up to eight directors. Our board currently has eight members and, until recently, had seven directors for a period of time. The average annual cost to the Company for each director was approximately $130,000 in fiscal 2008, which included cash and non-cash compensation and reimbursement for travel and other board-related expenses. If we do not change our corporate domicile from California, we will continue to have a required board size of nine directors and, over time, we would likely seek to fill the remaining vacancy once we identify a suitable candidate. Additionally, because Delaware corporate law is more developed and widely understood than California corporate law, the Company expects that it would incur at least somewhat lower legal costs in analyzing matters of corporate law and fiduciary duties that may arise from time to time.
Although the Company will incur annual franchise taxes in Delaware, the anticipated savings are expected to exceed the additional tax burden. The costs associated with the change in domicile are expected to be fully offset with these savings in the first year following redomiciling in Delaware.
9
Summary Comparison of Rights
In forming the proposed new Delaware corporation (“Avanir Delaware”), the Board has generally sought to keep the existing material rights of shareholders in the California corporation (“Avanir California”) intact to the extent possible, while making selected changes that had been reviewed and recommended by the Corporate Governance Committee. The Board views the additional protections afforded by these changes as being in the best interest of all of the Company’s shareholders. Where the Governance Committee has approved a change in the rights for Avanir Delaware, the Delaware rights have been created in a way that is considered to be consistent with rights for a newly public Delaware corporation.
The following summary compares certain of these rights in Avanir Delaware with Avanir California. Annex A provides a more detailed comparison of rights and the following summary is subject to and qualified by this annex.
| | | | |
| | Avanir California
| | Avanir Delaware
|
|
Capital Stock
| | | | |
• Authorized shares | | 200 million shares of common stock authorized, 10 million shares of preferred stock authorized | | Same |
| | | | |
• Par value | | No par value | | $0.0001 per share |
| | | | |
• Designated preferred stock | | 1 million shares designated as Series C Preferred Stock; no shares currently issued or outstanding | | Similar series of preferred stock expected to be created after change of domicile |
| | | | |
• Voting rights for common stock | | One vote per share | | Same |
| | | | |
• Cumulative voting | | Not allowed | | Same |
| | | | |
• Dividend rights | | Holders of common stock have the right to receive dividends when and if declared by the Board of Directors | | Same |
Board of Directors
| | | | |
• Election of Directors | | Plurality vote, with a majority vote standard contained in the Company’s Corporate Governance Guidelines | | Same |
| | | | |
• Classification of board | | Board is divided into three classes, with directors in each class serving staggered three-year terms | | Same |
| | | | |
• Number of directors | | Bylaws provide for 5-9 directors, with current size fixed at nine* | | Same, with the initial size to be fixed at eight |
| | | | |
• Removal of directors | | Directors may be removed with or without “cause” by a shareholder vote, unless a number of shares sufficient to elect such director (if voted cumulatively) vote against removal | | Directors can only be removed for “cause” |
| | | | |
• Filling board vacancies | | Vacancies may be filled by the Board or by the shareholders, provided that only shareholders may fill vacancies created with the removal of a director | | Vacancies may be filled only by the Board |
| | | | |
• Indemnification | | The corporation is obligated to indemnify directors to the full extent permitted, provided that indemnification is not available for certain acts, such as self-dealing transactions, other breaches of the director’s duty of loyalty to the corporation and the payment of unlawful dividends | | Similar |
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| | | | |
| | Avanir California
| | Avanir Delaware
|
|
Shareholder rights
| | | | |
• Shareholders calling special meetings | | Holders of 10% of more of outstanding shares may call a special meeting | | Shareholders do not have the ability to call special meetings |
| | | | |
• Ability to act by written consent | | Any shareholder action may be taken by written consent signed by the holders of outstanding shares having no less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted | | Shareholders do not have the ability to act by written consent |
| | | | |
• Advanced notice required for proposing business at a meeting | | Notice must generally be provided to the Secretary of the company between 90 and 120 days before the meeting date | | Similar |
| | | | |
• Appraisal rights | | Shareholders may have rights of appraisal in a merger or sale of Avanir; these rights are limited so long as Avanir’s shares are listed on a national securities exchange | | Similar |
| | | | |
• Bylaw amendments | | Bylaws may generally be amended by the Board; where shareholder approval is required, majority vote is needed | | Bylaws may generally be amended by the Board; where shareholder approval is required, 75% vote is needed, unless amendment is recommended by the Board, in which case only a majority vote is required |
| | | | |
• Charter amendments | | Charter may generally be amended by the Board; where shareholder approval is required, majority vote is needed | | Similar; where shareholder approval is required for amendment of provisions pertaining to indemnification of directors, classification of directors and bylaw amendments, 75% vote is needed |
| | |
* | | So long as the board is divided into three classes, the number of directors for the California corporation shall be no less than 9. |
Annex B to this proxy statement contains the Certificate of Incorporation for Avanir Delaware. Annex C to this proxy statement contains the form of bylaws for Avanir Delaware.
Mechanics of the Reincorporation
To complete the reincorporation, Avanir California will merge with and into Avanir Delaware, with Avanir California disappearing and Avanir Delaware continuing as the surviving entity. If the reincorporation is approved and implemented, each outstanding share of Avanir California common stock will automatically be converted into one share of Avanir Delaware common stock upon effectiveness of the reincorporation. Each outstanding option to purchase shares of Avanir California common stock will also be converted into an option to purchase the same
11
number of shares of Avanir Delaware common stock, with no changes in the option exercise price or other terms and conditions of such options. The Company’s other employee benefit arrangements will be continued by the Avanir Delaware upon the terms and subject to the conditions then in effect.
The reincorporation will not result in any change in the business, location, management, assets, liabilities or net worth of the Company, nor will it result in any change in location of Company employees, including the Company’s management. After the change of domicile, the daily business operations of the Company will continue as they are presently conducted at the Company’s principal executive offices located in Aliso Viejo, California. The consolidated financial condition and results of operations of Avanir Delaware immediately after the reincorporation is completed will be the same as those of the Company immediately prior to the consummation of the reincorporation, with the exception of immaterial changes to our balance sheet that will be made to reflect the change in par value from zero to $0.0001 per share. The capitalization of the Company immediately after completion of the reincorporation will be the same as immediately prior to the reincorporation. In addition, upon the effectiveness of the reincorporation merger, the Board of Directors of Avanir Delaware will consist of those persons then serving on the Board of the Company and the individuals serving as executive officers of the Company immediately prior to the reincorporation will continue as executive officers of Avanir Delaware.
Shareholders should note that approval of the reincorporation proposal will also constitute approval of the assumption by Avanir Delaware of the Company’s outstanding equity awards and equity plans, as well as warrants and other outstanding rights to purchase the Company’s capital stock. The Company’s other employee benefit arrangements will also be continued by Avanir Delaware upon the terms and subject to the conditions in effect prior to the reincorporation. Prior to the reincorporation, the Company will seek to obtain any requisite consents from parties with whom it may have material contractual arrangements. Assuming such consents are obtained, the Company’s rights and obligations under such material contractual arrangements will continue and be assumed by Avanir Delaware.
If approved, the Company expects that the reincorporation would be effected shortly after the annual meeting. However, this proposal allows the Board to abandon the reincorporation at any time prior to completion if the Board determines that the reincorporation has become inadvisable for any reason. The reincorporation certificate, which will give effect to the reincorporation and which is attached to this proxy statement as Annex D, may also be amended at any time prior to its effectiveness, provided that the Company must re-solicit the shareholder approval of the reincorporation if the terms of the reincorporation certificate are changed in any material respect.
No Exchange of Share Certificates Required
The reincorporation and resulting change in domicile will not require shareholders to exchange their share certificates; certificates representing Avanir California common stock will represent the same number of shares of common stock in Avanir Delaware. As soon as practicable upon or after the change of domicile, however, shareholders who desire may elect to exchange their share certificates. Detailed instructions concerning the procedures to follow for exchanging stock certificates will be sent to shareholders who request such information following the reincorporation.
Potential Interests of Directors and Officers
The Company’s directors and officers have no separate interests in this proposal that would be expected to differ materially from the general interests of the Company’s shareholders.
Certain U.S. Federal Income Tax Considerations of the Reincorporation
The following discussion addresses certain U.S. federal income tax considerations that are generally applicable to U.S. holders (as defined below) of common stock of the Company who receive common stock of Avanir Delaware in exchange for their common stock of the Company in the reincorporation. This discussion addresses only those shareholders who hold their common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the“Code”) and does not address all the U.S. federal income tax
12
consequences that may be relevant to particular shareholders in light of their individual circumstances or to shareholders that are subject to special rules, including, without limitation:
| | |
| • | financial institutions, insurance companies, regulated investment companies or real estate investment trusts; |
|
| • | pass-through entities or investors in such entities; |
|
| • | tax-exempt organizations; |
|
| • | dealers in securities or currencies, or traders in securities that elect to use a mark-to-market method of accounting; |
|
| • | persons that hold common stock as part of a straddle or as part of a hedging, integrated, constructive sale or conversion transaction; |
|
| • | persons who are not U.S. holders; |
|
| • | persons that have a functional currency other than the U.S. dollar; |
|
| • | persons who acquired their shares of common stock through the exercise of an employee stock option or otherwise as compensation; |
|
| • | persons whose common stock is “qualified small business stock” for purposes of Section 1202 of the Code; and |
|
| • | persons who are subject to the alternative minimum tax. |
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of common stock that is:
| | |
| • | a citizen or resident of the United States; |
|
| • | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the U.S. or any of its political subdivisions; |
|
| • | a trust that (1) is subject to the supervision of a court within the U.S. and the control of one or more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or |
|
| • | an estate that is subject to U.S. federal income tax on its income regardless of its source. |
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of common stock, the U.S. federal income tax consequences to each partner generally will depend on the status of the partner and the activities of the partnership and the partner. Partners holding common stock and partners in such partnerships should consult their own tax advisors with respect to the U.S. federal income tax consequences of the reincorporation.
The tax consequences to holders of options to acquire common stock of the Company are also not discussed herein. In addition, the following discussion does not address the tax consequences of transactions effected prior to or after the reincorporation (whether or not such transactions are in connection with the reincorporation).
The following discussion is based on the interpretation of the Code, applicable Treasury Regulations, judicial authority and administrative rulings and practice, all as of the date hereof. The Internal Revenue Service (the“IRS”) is not precluded from adopting a contrary position. In addition, there can be no assurance that future legislative, judicial or administrative changes or interpretations will not adversely affect the accuracy of the statements and conclusions set forth herein. Any such changes or interpretations could be applied retroactively and could affect the tax consequences of the reincorporation to the Company, Avanir Delawareand/or the Company’s shareholders. A ruling from the IRS will not be requested in connection with the reincorporation.
EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISORS TO DETERMINE PARTICULAR FEDERAL TAX CONSEQUENCES TO SUCH SHAREHOLDERS OF THE REINCORPORATION, AS WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER LAWS.
13
Subject to the limitations, qualifications and exceptions described herein, and assuming the reincorporation qualifies as a reorganization within the meaning of Section 368(a) of the Code, the U.S. federal income tax consequences of the reincorporation will be as follows:
| | |
| • | No gain or loss will be recognized by holders of the common stock of the Company upon receipt of common stock of Avanir Delaware pursuant to the reincorporation; |
|
| • | The aggregate tax basis of the common stock of Avanir Delaware received by each shareholder of the Company in the reincorporation will be equal to the aggregate tax basis of the common stock of the Company surrendered in exchange therefor; |
|
| • | The holding period of the common stock of Avanir Delaware received by each shareholder of the Company will include the period for which such shareholder held the common stock of the Company surrendered in exchange therefor, provided that such common stock of the Company was held by such shareholder as a capital asset at the time of the reincorporation; and |
|
| • | No gain or loss will be recognized by the Company or Avanir Delaware as a result of the reincorporation. |
A U.S. holder of the Company’s shares may be required to attach a statement to its tax returns for the year of the reincorporation that contains the information listed in TreasuryRegulation Section 1.368-3T(b) and may be required to maintain a permanent record of facts relating to the merger. Such information includes, among other things, the shareholder’s tax basis in the shareholder’s common stock of the Company and the fair market value of the shareholder’s common stock of the Company immediately prior to the reincorporation.
Rule 144
Under Rule 144 of the Securities Act, the holding period for restricted shares of Avanir Delaware common stock received in exchange for Avanir California common stock will include the period during which Avanir California common stock was held.
No Dissenter’s Rights
Shareholders who vote against the reincorporation merger willnot have the right under California corporate law to seek a court appraisal for the fair value of their shares.
Required Vote
The approval of a change of the Company’s domicile from California to Delaware, to be effected by the merger of Avanir California with and into Avanir Delaware, will be approved if a majority of the outstanding shares of common stock of the Company vote “FOR” Proposal No. 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF
THE REINCORPORATION AND THE REINCORPORATION MERGER
AS DESCRIBED ABOVE IN THIS PROPOSAL NO. 3.
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10
CORPORATE GOVERNANCE
We believe that the Company benefits from having a strong and independent Board of Directors.Board. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with the Company that would affect his or her exercise of independent judgment. On an annual basis, the Board reviews the independence of all directors under guidelines established by NASDAQ and in light of each director’s affiliations with the Company and members of management, as well as significant holdings of Company securities. This review considers all known relevant facts and circumstances in making an independence determination. Based on this review, the Board has made an affirmative determination that all directors, other than Mr. Katkin, are independent. It was determined that Mr. Katkin was determined to lacklacks independence due tobecause of his status as the Company’s President and Chief Executive Officer.
Code of Business Conduct and Ethics
We believe that our Board of Directors and committees, led by a group of strong and independent directors, provide the necessary leadership, wisdom and experience that the Company needs in making sound business decisions. Our Code of Business Conduct and Ethics helps clarify the operating standards and ethics that we expect of all of our officers, directors and employees in making and implementing those decisions. Waivers of our Code of Business Conduct and Ethics may only be granted by the Board or the Corporate Governance Committee and will be publicly announced promptly in our SEC filings. In furthering our commitment to these principles, we invite you to review our Code of Business Conduct and Ethics and other corporate governance materials located on our website atwww.avanir.com.
ShareholderStockholder Communications
Generally, shareholdersstockholders who have questions or concerns regarding the Company should contact our Investor Relations department at(949) 389-6700. However, any shareholdersstockholders who wish to address questions regarding the business or affairs of the Company directly with the Board, of Directors, or any individual director, should direct his or her questions in writing to the Chairman of the Board, Avanir Pharmaceuticals, 101Inc., 20 Enterprise, Suite 300,200, Aliso Viejo, California 92656. Upon receipt of any such communications, the correspondence will be directed to the appropriate person, including individual directors.
BOARD OF DIRECTORS AND COMMITTEES
During fiscal 2008,2011, our Board of Directors met fiveeight times. Each director attended at least 75% of the aggregate of the meetings of the Board of Directors and meetings of the committees of which he was a member in our last fiscal year. During fiscal 2008,2011, our Board of Directors had an Audit Committee, a Compensation Committee, a Corporate Governance Committee, an Executive Committee and a Science Committee. All members of the Audit, Compensation, and Corporate Governance and Science Committees are non-employee directors who are deemed independent.
All members of our Board of Directors attended the 20082011 Annual Meeting of Shareholders.Stockholders. Although the Company has no formal policies regarding director attendance at annual meetings, it does expect that all members of the Board of Directors will attend the 20092012 Annual Meeting.
Board Leadership Structure and Risk Oversight
The positions of Chairman of the Board and Chief Executive Officer are separated, which allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. Our Board recognizes the time, effort, and energy that the Chief Executive Officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our Chairman. Our Board also believes that this structure ensures a greater role for the independent directors in the oversight of our Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board. Our Board believes its administration of its risk oversight function has not affected its leadership structure.
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While our Bylaws do not require that our Chairman and Chief Executive Officer positions be separate, our Board believes that having separate positions and having an independent outside director serve as Chairman is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance. Our separated Chairman and Chief Executive Officer positions are augmented by the independence of six of our seven directors, and our independent Board committees that provide appropriate oversight in the areas described below. At executive sessions of independent directors, these directors speak candidly on any matter of interest, which may be with or without the Chief Executive Officer present. The Board of Directors met in executive session four times in 2011. We believe this structure provides consistent and effective oversight of our management and the Company.
The Board has overall responsibility for the oversight of the Company’s risk management process, which is designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance stockholder value. Risk management includes not only understanding company-specific risks and the steps management implements to manage those risks, but also what level of risk is acceptable and appropriate for the Company. Management is responsible for establishing our business strategy, identifying and assessing the related risks and implementing appropriate risk management practices. The Board periodically reviews our business strategy and management’s assessment of the related risk, and discusses with management the appropriate level of risk for the Company, especially in light of the fact that the Company again has a marketed product and may face additional risk management concerns that it did not face while developing product candidates, such as risk of off-label promotion and other risks associated with marketed products. The Board also delegates oversight to Board committees to oversee selected elements of risk as set forth below.
Board Committees
Audit Committee. As of the record date,Record Date, the Audit Committee was comprised of Messrs. Austin (Chairman), Mathews and Wheeler. The Audit Committee selects the Company’s independent registered public accounting firm, approves its compensation, oversees and evaluates the performance of the independent registered public accounting firm, oversees the accounting and financial reporting policies and internal control systems of the Company, reviews the Company’s interim and annual financial statements, independent registered public accounting firm reports and management letters, and performs other duties, as specified in the Audit Committee Charter, a copy of which is available on the Company’s website atwww.avanir.com. Additionally, the Audit Committee is involved in the oversight of the Company’s risk management through its practice of having a head of the Company’s different business functions report on risk management issues within his or her respective business division at each quarterly meeting of the Audit Committee. The Audit Committee met nineseven times in fiscal 2008.2011. All
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members of the Audit Committee satisfy the current independence standards promulgated by NASDAQ and the SEC and the Board has determined that Mr. Austin is an “audit committee financial expert,” as the SEC has defined that term in Item 401407 ofRegulation S-K.
Compensation Committee. As of the record date,Record Date, the Compensation Committee was comprised of Dr. Mazzo (Chairman) and Messrs. Podlesak and Austin. The Compensation Committee determines compensation levels for the Company’s executive officers and directors, oversees administration of the Company’s equity compensation plans, and performs other duties regarding compensation for employees and consultants as the Board may delegate from time to time. Our Chief Executive Officer makes recommendations to the Compensation Committee regarding the corporate and individual performance goals and objectives relevant to executive compensation and executives’ performance in light of such goals and objectives, and recommends other executives’ compensation levels to the Compensation Committee based on such evaluations. The Compensation Committee considers these recommendations and then makes an independent decision regarding officer compensation levels and awards. The Compensation Committee met sevenfive times in fiscal 2008.2011. A copy of the Compensation Committee charter is available on the Company’s website atwww.avanir.com. All members of the Compensation Committee satisfy the current NASDAQ independence standards.
Corporate Governance Committee. As of the record date,Record Date, the Corporate Governance Committee was comprised of Messrs. Mathews (Chairman) and Wheeler and Dr. Whitcup. The Corporate Governance
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Committee oversees the Company’s Code of Conduct, develops and implements policies and processes regarding corporate governance matters, assesses Board membership needs and acts as the Company’s nominating committee by reviewing potential director nominees and recommending nominees to the Board. The Corporate Governance Committee met sevensix times in fiscal 2008.2011. A copy of the Corporate Governance Committee charter is available on our website atwww.avanir.com. All members of the Corporate Governance Committee satisfy the current NASDAQ independence standards.
Executive Committee. As of the record date,Record Date, the Executive Committee was comprised of Messrs. Wheeler (Chairman), Katkin and Mathews and Dr. Whitcup. Subject to certain exceptions, the Executive Committee is authorized to act on any matter that the Board may consider when the Board is not in session. The Executive Committee met three timesdid not meet in fiscal 2008.
2011.Science Committee. As of the record date,Record Date, the Science Committee was comprised of Drs. Whitcup (Chairman) and Mazzo and Messrs. Podlesak and Simon.Mr. Podlesak. The Science Committee advises management and the Board on scientific and regulatory matters relating to the Company’s drugs and drug candidates.candidates, including reviewing medical affairs policies and practices of the Company and reviewing key scientific, clinical and medial aspects of significant proposed business development activities. The Science Committee reviews both pre-clinical studies and clinical trials of Avanir’s research programs, and provides advice on the design, conduct, and analyses of these data. The Science Committee is also responsible for reviewing and providing advice on scientific issues relating to drug manufacturing and intellectual property related to Avanir’s scientific research. The Science Committee met five times in fiscal 2008.
2011.Compensation Committee Interlocks and Insider Participation
NoDuring the last completed fiscal year, no member of the Compensation Committee was during fiscal 2008, ana current or former officer or employee of the Company, nor was any member of the Compensation Committee formerly one of our officers.Avanir. None of our executive officers served (i) as a member of the compensation committee (or board of directors serving the compensation function) of another entity one of whosewhere such entity’s executive officers served on the compensation committee or (ii)our Compensation Committee. Moreover, none of our executive officers served as a member of the compensation committee (or board of directors serving the compensation function) of another entity one of whosewhere such entity’s executive officers served on our Board of Directors.
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EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our current executive officers and key employees and their respective ages and positions as of December 21, 2011 are set forth in the following table. Biographical information regarding each executive officer and key employee who is not also a director is set forth following the table.
| | | | | | |
Name | | Age | | | Position |
Keith A. Katkin | | | |
Name
| | Age | | Position
|
|
Keith A. Katkin | | | 3740 | | | President and Chief Executive Officer |
Randall E. Kaye, M.D. Gregory J. Flesher | | | 4641 | | | Senior Vice President and Chief Business Officer |
Randall E. Kaye, M.D. | | | 49 | | | Senior Vice President and Chief Medical Officer |
Christine G. OcampoJoao Siffert, M.D. | | | 3648 | | | Senior Vice President, Research and Development |
Christine G. Ocampo | | | 39 | | | Vice President, Finance (principal financial officer) |
Gregory J. Flesher. Mr. Flesher joined Avanir in June 2006 as Senior Director of Commercial Strategy, assumed the additional responsibility for Business Development and Portfolio Planning in November 2006 and was promoted to Vice President of Business Development in August 2007. In February of 2011, he was promoted to Senior Vice President and Chief Business Officer. Prior to joining Avanir, Mr. Flesher held positions as Director of Sales – Hepatology (from 2004 to 2006) and Director of Marketing — Pulmonary at InterMune, Inc. (from 2002 to 2004). Prior to his tenure at InterMune, Mr. Flesher held both oncology and nephrology marketing positions with Amgen Inc., a global biotechnology company, from 1999 to 2002. Mr. Flesher also has global marketing and clinical development experience from Eli Lilly and Company, where he worked from 1995 to 1998. Mr. Flesher graduated from Purdue University with a Bachelor of Science in Biology and has completed his doctorate coursework in Biochemistry and Molecular Biology at Indiana University School of Medicine.
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Randall E. Kaye, M.D. Dr. Kaye was appointed Senior Vice President and Chief Medical Officer in March 2007. From November 2006 until March 2007, he served as Vice President Clinical and Medical Affairs, and from January 2006 to November 2006 as Vice President of Medical Affairs. Immediately prior to joining AVANIR,Avanir, Dr. Kaye was the Vice President of Medical Affairs for Scios Inc., a division of Johnson & Johnson, from 2004 to 2006. From 2002 to 2004, Dr. Kaye recruited and managed the Medical Affairs department for InterMune Inc. Previously, Dr. Kaye served for nearly a decade in a variety of Medical Affairs and Marketing positions for Pfizer Inc. Dr. Kaye earned his Doctor of Medicine, Masters in Public Health and Bachelor of Science degrees at George Washington University in Washington, D.C. and was a Research Fellow in Allergy and Immunology at Harvard Medical School.
Joao Siffert, M.D. Dr. Siffert joined Avanir in August 2011 as Senior Vice President, Research and Development. Dr. Siffert previously served as Vice President and Chief Medical Officer at Ceregene, Inc., a biotechnology company focused on the development of neurotrophic gene therapies for Alzheimer’s and Parkinson’s diseases, from September 2007 to August 2011. Prior to his work at Ceregene, Dr. Siffert served as the Chief Medical Officer at Avera Pharmaceuticals, a CNS specialty pharmaceutical company, from May 2005 to September 2007. Prior to joining Avera, Dr. Siffert held positions with Pfizer (from February 2002 to May 2005) first as a medical director for Relpax and subsequently as the worldwide medical team leader of Lyrica and Neurontin focusing in areas of pain and epilepsy. Prior to Pfizer, Dr. Siffert held academic positions at Beth Israel Medical Center, where he served as director of the Adult Neuro-Oncology program, and Albert Einstein College of Medicine, where he was assistant professor of neurology. Dr. Siffert completed residencies in pediatrics at New York University School of Medicine and in neurology at Harvard Medical School. Dr. Siffert was certified by the American Board of Neurology and Psychiatry in 1996. He holds an M.D. degree from the University of Sao Paulo School of Medicine as well as an M.B.A. degree from Columbia University Business School.
Christine G. Ocampo. Ms. Ocampo was appointed Vice President, Finance in February 2008. Ms. Ocampo previously served as the Company’s Controller since March 2007. Prior to joining the Company, Ms. Ocampo served as Senior Vice President, Chief Financial Officer, Chief Accounting Officer, Treasurer and Secretary of Cardiogenesis Corporation from November 2003 until April 2006. From 2001 to November 2003, Ms. Ocampo served in the role of Vice President and Corporate Controller at Cardiogenesis. Prior to joining Cardiogenesis in April 1997, Ms. Ocampo held a management position in Finance at Mills-Peninsula Health Systems in Burlingame, California, and spent three years as an auditor for Ernst & Young LLP. Ms. Ocampo graduated with a BachelorsBachelor of Science in Accounting from Seattle University and became a licensed Certified Public Accountant in 1996.
CERTAIN RELATIONSHIPS AND RELATED PARTYRELATED-PARTY TRANSACTIONS
Transactions with Related Parties
Other than compensation arrangements described below under the captions “Executive Compensation” and “Director Compensation,” we are not a party to any transactions between us and certain “related parties,” which are generally considered to be our directors and executive officers, nominees for director, holders of 5% or more of our outstanding common stock and members of their immediate families. The purchase by Clarus of approximately $17.8 million of Company securities in March 2008 was not deemed to be a related party transaction at that time as the terms were negotiated at arm’s length and Mr. Simon was not then serving as a member of the Board of Directors. Mr. Simon was elected as a director in May 2008.
Related-Party Transaction Review and Approval
Our Board of Directors has adopted policies and procedures for the review and approval of related partyrelated-party transactions and has delegated to the Corporate Governance Committee the authority to review and approve the material terms of any proposed related partyrelated-party transactions. To the extent that a proposed related partyrelated-party transaction may involve a non-employee director or nominee for election as a director and may be material to a consideration of that person’s independence, the matter may also be considered by the other disinterested directors.
Pursuant to our Code of Business Conduct and Ethics and our Corporate Governance Committee Charter, each of our executive officers and directors must disclose related partyrelated-party transactions to our Corporate Governance Committee. In order to avoid conflicts of interest, our executive officers and directors may not acquire any
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ownership interest in any supplier, customer or competitor (other than nominal amounts of stock in publicly traded companies), enter into any consulting or employment relationship with any customer, supplier or competitor, or engage in any outside business activity that is competitive with any of our businesses, without first disclosing the proposed transaction. After the proposed transaction has been disclosed, a determination will be made by our
17
Corporate Governance Committee as to what course to follow, depending on the nature or extent of the conflict. Furthermore, our executive officers and directors may not serve on any board of directors of any customer, supplier or competitor unless such board service has been disclosed to us and approved by our Board of Directors.Board. Our Corporate Governance Committee has been delegated the task of reviewing other directorships and consulting agreements of Board members for conflicts of interest. All members of our Board of Directors are required to report annually all other directorships and consulting agreements to the chairperson of the Corporate Governance Committee.
agreements.In determining whether to approve or ratify a related-party transaction, the Corporate Governance Committee may consider, among other factors it deems appropriate, the potential benefits to us, the impact on a director’s or nominee’s independence or an executive officer’s relationship with or service to us, whether the related partyrelated-party transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. In deciding to approve a transaction, the Corporate Governance Committee may, in its sole discretion, impose such conditions as it deems appropriate on us or the related party in connection with its approval of any transaction. Any transactions involving the compensation of executive officers, however, are to be reviewed and approved by the Compensation Committee. If a related-party transaction will be ongoing, the Corporate Governance Committee may establish guidelines to be followed in our ongoing dealings with the related party. Thereafter, the Corporate Governance Committee, on at least an annual basis, will review and assess ongoing relationships with the related party to see that they are in compliance with the committee’s guidelines and that the related-party transaction remains appropriate.
18SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% 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-10% stockholders 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 the review of copies of the reports filed with the SEC, all reports required to be filed by our executive officers, directors and greater-than-10% stockholders were timely filed in fiscal 2011.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information, as of September 30, 2011, regarding the Company’s Amended and Restated 1994, 1998 and 2000 Stock Option Plans and 2003 and 2005 Equity Incentive Plans, as well as other stock options and warrants previously issued by the Company as compensation for services.
| | | | | | | | | | | | |
Plan category | | Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and
Rights(1) | | | Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights | | | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
First Column) (2) | |
Equity compensation plans approved by security holders | | | 338,309 | | | $ | 8.29 | | | | 574,382 | |
Equity compensation plans not approved by security holders | | | 7,745,587 | | | $ | 2.20 | | | | 7,557,780 | |
Total | | | 8,083,896 | | | $ | 2.46 | | | | 8,132,162 | |
| (1) | Excludes a total of 1,798,144 shares of common stock issuable upon the vesting of outstanding restricted stock units. |
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| (2) | Excludes shares that may be added pursuant to the “evergreen” features under the Amended and Restated 2003 and 2005 Equity Incentive Plans. 325,000 additional shares were authorized for issuance in November 2011 under the “evergreen” feature contained in the 2005 Equity Incentive Plan. |
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
TheBased on information available to us and filings with the SEC, the following table sets forth certain information regarding the beneficial ownership (as defined byRule 13d-3 under the Securities Exchange Act of 1934) of our outstanding common stock based on information available to us and filings with the SEC byfor (i) each of our directors, (ii) each of our “named executive officers,” as defined in Executive Compensation below, (iii) all of our directors and executive officers as a group, and (iv) persons knowknown to us to beneficially hold more than 5% of our outstanding common stock. The following information is presented as of OctoberDecember 1, 20082011 or such other date as may be reflected below.
Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC and include voting or investment power with respect to shares of stock. This information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, shares of common stock issuable under stock options or warrants that are exercisable within 60 days of OctoberDecember 1, 20082011 are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options or warrant(s), but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each shareholderstockholder named in the following table possesses sole voting and investment power over their shares of common stock, except for those jointly owned with that person’s spouse. Unless otherwise indicated below, the address of each person listed on the table isc/o Avanir Pharmaceuticals, 101Inc., 20 Enterprise, Suite 300,200, Aliso Viejo, California 92656.
| | | | | | | | | |
| | | Shares Beneficially Owned | |
| | | | | | Percent of
| |
Name of Beneficial Owner | | Number(1) | | | Class(2) | |
| |
Greater than 5% Holders | | | | | | | | |
| Clarus Ventures, LLC(3) | | | 15,650,014 | | | | 19.99 | % |
One Memorial Drive
Cambridge MA 02142 | | | | | | | | |
| Vivo Ventures(4) | | | 11,803,278 | | | | 14.52 | % |
575 High Street, Suite 201
Palo Alto, CA 94301 | | | | | | | | |
| ProQuest Investments(5) | | | 9,798,866 | | | | 12.53 | % |
90 Nassau Street, 5th Floor
Princeton NJ 08542 | | | | | | | | |
| OrbiMed Capital LLC(6) | | | 5,858,364 | | | | 7.39 | % |
767 Third Avenue, 30th Floor
New York, NY 10017 | | | | | | | | |
Current directors and named executive officers: | | | | | | | | |
| Nicholas J. Simon(3) | | | 15,650,014 | | | | 19.99 | % |
| Keith A. Katkin(7) | | | 646,255 | | | | * | |
| Randall E. Kaye, M.D.(8) | | | 441,520 | | | | * | |
| Charles A. Mathews(9) | | | 126,969 | | | | * | |
| Stephen G. Austin, CPA(10) | | | 120,094 | | | | * | |
| Dennis G. Podlesak(11) | | | 114,844 | | | | * | |
| David J. Mazzo, Ph.D.(12) | | | 114,844 | | | | * | |
| Craig A. Wheeler(13) | | | 113,844 | | | | * | |
| Scott M. Whitcup, M.D.(14) | | | 113,844 | | | | * | |
| Christine G. Ocampo(15) | | | 65,000 | | | | * | |
| All current executive officers and directors as a group (10 persons) | | | 17,507,228 | | | | 22.31 | % |
| | | | | | | | |
| | | Shares Beneficially Owned | |
Name and Address of Beneficial Owner | | Number(1) | | | Percent of
Class(2) | |
Greater than 5% Holders | | | | | | | | |
T. Rowe Price Associates, Inc. (3) | | | 18,712,447 | | | | 14.7 | % |
100 E. Pratt Street | | | | | | | | |
Baltimore, MD 21202 | | | | | | | | |
| | |
Ingalls & Snyder LLC (4) | | | 13,136,340 | | | | 10.3 | % |
61 Broadway | | | | | | | | |
New York, NY 10006 | | | | | | | | |
FMR LLC (5) | | | 7,418,410 | | | | 5.8 | % |
82 Devonshire | | | | | | | | |
Boston, MA 02109 | | | | | | | | |
BlackRock Institutional Trust Company, N.A. (6) | | | 6,770,447 | | | | 5.3 | % |
400 Howard Street | | | | | | | | |
San Francisco, CA 94105 | | | | | | | | |
Vanguard Group, Inc. (7) | | | 6,535,262 | | | | 5.1 | % |
P.O. Box 2600 | | | | | | | | |
Valley Forge, PA 19482-2600 | | | | | | | | |
| | |
Current directors and named executive officers: | | | | | | | | |
| | |
Keith A. Katkin (8) | | | 1,223,561 | | | | 1.0 | % |
Craig A. Wheeler (9) | | | 308,844 | | | | * | |
Charles A. Mathews (10) | | | 250,719 | | | | * | |
Stephen G. Austin, CPA (11) | | | 250,094 | | | | * | |
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| | | | | | | | |
| | | Shares Beneficially Owned | |
Name and Address of Beneficial Owner | | Number(1) | | | Percent of
Class(2) | |
Dennis G. Podlesak (12) | | | 244,844 | | | | * | |
David J. Mazzo, Ph.D. (13) | | | 244,844 | | | | * | |
| Scott M. Whitcup, M.D. (14) | | | 243,844 | | | | * | |
William J. Sibold | | | — | | | | * | |
Joao Siffert, M.D. | | | — | | | | * | |
Christine G. Ocampo (15) | | | 208,121 | | | | * | |
All current executive officers and directors as a group (9 persons) | | | 2,974,871 | | | | 2.3 | % |
| * | | |
* | | Represents beneficial ownership of lessLess than 1%.one percent. |
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| | |
| (1) | | Represents shares of common stock and shares of restricted stock held as of OctoberDecember 1, 2008,2011, plus shares of common stock that may be acquired upon exercise of options, warrants and other rights exercisable within 60 days from Octoberof December 1, 2008. Certain purchasers of warrants from our April 2008 offering have elected to block the exercise of these warrants, subject to a61-day notice period for the removal of this “blocker” provision. This blocker has the effect of excluding the warrant shares from the beneficial ownership calculations set forth above.2011. |
|
| (2) | | Based on 78,211,673126,959,119 shares of common stockthe registrant’s Common Stock that were issued and outstanding as of OctoberDecember 1, 2008.2011. The percentage ownership and voting power for each person (or all directors and executive officers as a group) is calculated by assuming the exercise or conversion of all options, warrants and convertible securities exercisable or convertible within 60 days of OctoberDecember 1, 20082011 held by such person and the non-exercise and non-conversion of all outstanding warrants, options and convertible securities held by all other persons. |
|
| (3) | | Based on a Schedule 13D/A13F-HR filed June 19, 2008 by Clarus Lifesciences I, L.P. (“Clarus I”), Clarus Ventures I GP, L.P. (the “Clarus I GPLP”), Clarus Ventures I, LLC (the “Clarus I GPLLC”), Nicholas Galakatos (“Galakatos”), Dennis Henner (“Henner”), Robert Liptak (“Liptak”), Nicholas Simon (“Simon”), Michael Steinmetz (“Steinmetz”), and Kurt Wheeler (“Wheeler”). Clarus I GPLP is the sole general partnerNovember 14, 2011 on behalf of Clarus I. Clarus I GPLLC is the sole general partner of Clarus I GPLP. Galakatos, Henner, Liptak, Simon, Steinmetz, and Wheeler are all of the managing directors of Clarus I GPLLC. On April 4, 2008, Clarus I purchased 15,557,318 shares of Common Stock, as well as warrants exercisable for up to 5,445,061 shares of Common Stock (the “Warrant”). The exercise of the Warrant is limited so that Clarus I may only exercise that portion of the Warrant such that Clarus I’s beneficial ownership does not exceed 19.99% on a post-exercise basis. Accordingly, Clarus I has the right to acquire beneficial ownership, within 60 days of October 1, 2008, of only 92,696 additional shares of common stock underlying the Warrant. Each of these reporting persons disclaims beneficial ownership of all shares of common stock other than those shares which such person owns of record. Simon currently serves on the Company’s Board of Directors and has agreed to forego any director compensation, including the receipt of equity awards granted to other non-employee directors.T. Rowe Price Associates, Inc. |
|
| (4) | | Based on information known to the Company asa Schedule 13F-HR filed October 25, 2011 on behalf of April 2008. Includes 8,743,169 shares of common stock and 3,060,109 of common stock underlying warrants that were exercisable within 60 days from October 1, 2008. The warrants contain a limitation on exercise that prevents the reporting persons from exercising any warrants if, after giving effect to the exercise the reporting persons would, in the aggregate, beneficially own more than 19.99% of the outstanding shares of Class A Common Stock.Ingalls & Snyder LLC. |
|
| (5) | | Based on Form 4a Schedule 13F-HR filed on October 24, 2008November 14, 2011 on behalf of the following persons: (i) ProQuest Investments III, L.P., a Delaware limited partnership (“Investments III”), with respect to Shares beneficially owned by it; (ii) ProQuest Associates III LLC, a Delaware limited liability company (“Associates III”), as General Partner of Investments III with respect to Shares beneficially owned by Investments III; (iii) ProQuest Investments IV, L.P., a Delaware limited partnership (“Investments IV”), with respect to Shares beneficially owned by it; (iv) ProQuest Associates IV LLC, a Delaware limited liability company (“Associates IV”), as General Partner of Investments IV with respect to Shares beneficially owned by Investments IV; (v) Jay Moorin, an individual and a member of Associates III and Associates IV (“Moorin”), with respect to Shares beneficially owned by Associates III and Associates IV; and (vi) Alain Schreiber, an individual and a member of Associates III and Associates IV (“Schreiber”), with respect to Shares beneficially owned by Associates III and Associates IV. Reported holdings consist of 9,798,866 shares of Class A Common Stock and 2,708,849 shares of Class A Common Stock issuable upon the exercise of warrants. The warrants contain a limitation on exercise, which, in combination with an agreement between the reporting persons and the Company, prevents the reporting persons from exercising any warrants if, after giving effect to the exercise the reporting persons would, in the aggregate, beneficially own more than 9.99% of the outstanding shares of Class A Common Stock. Accordingly, no portion of the warrants was exercisable within 60 days of October 1, 2008. This limit on exercisability can be increased to 19.99% upon providing 61 days advance notice.FMR LLC. |
|
| (6) | | Based on information known to thea Schedule 13F-HR filed November 3, 2011 on behalf of BlackRock Institutional Trust Company, asN.A. and a Schedule 13F-HR filed November 3, 2011 on behalf of April 2008. Includes 4,831,947 shares of common stock and 1,026,417 shares of common stock underlying warrants that were exercisable within 60 days from October 1, 2008. The warrants contain a limitation on exercise that prevents the reporting persons from exercising any warrants if, after giving effect to the exercise the reporting persons would, in the aggregate, beneficially own more than 19.99% of the outstanding shares of Class A Common Stock. Samuel D. Isaly, aBlackRock Fund Advisors. |
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| | |
| | natural person (“Isaly”), owns a controlling interest in OrbiMed Advisors LLC and certain related entities. As a result, Isaly and OrbiMed Advisors LLC share power to direct the vote and to direct the disposition of such shares. |
|
| (7) | Based on a Schedule 13F-HR filed November 15, 2011 on behalf of Vanguard Group, Inc. |
| (8) | Includes (i) 67,8131,032,704 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 2008,2011, (ii) 575,94231,250 shares underlying restricted stock units granted under the Company’s equity plans and (iii) 2,500159,607 shares of common stock. |
|
(8) | (9) | Includes (i) 25,7826,250 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 20082011 and (ii) 415,738302,594 shares underlying restricted stock units granted under the Company’s equity plans, including 500 shares of common stock that are held by certain family members and for which Dr. Kaye disclaims beneficial ownership.plans. |
|
(9) | (10) | Includes (i) 15,0008,750 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 2008,2011, (ii) 107,594237,594 shares underlying restricted stock units granted under the Company’s equity plans, (iii) 1,875 shares of common stock held in Mr. Mathews’Mathews’s individual retirement account, for which Mr. Mathews is the beneficial owner, and (iv) 2,500 shares of common stock held directly by Mr. Mathews. Mr. Mathews has shared voting and shared investment power with respect to 246,344 shares of common stock that are subject to the terms of the Mathews Family Trust U/A, dated 7/21/1992, of which Stephanie Mathews is a co-trustee with power of independent action. |
|
(10) | (11) | Includes (i) 10,000 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 2008,2011, (ii) 107,594237,594 shares underlying restricted stock units granted under the Company’s equity plans and (iii) 2,500 shares of common stock. |
|
(11) | (12) | Includes (i) 6,250 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 2008,2011, (ii) 107,594 shares underlying restricted stock units granted under the Company’s equity plans that will vest and be issued within 60 days from October 1, 2008 and (iii) 1,000 shares of common stock. |
|
(12) | | Includes (i) 6,250 shares of common stock issuable upon the exercise of options exercisable within 60 days from October 1, 2008, (ii) 107,594237,594 shares underlying restricted stock units granted under the Company’s equity plans and (iii) 1,000 shares of common stock. |
|
| (13) | | Includes (i) 6,250 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 2008 and2011, (ii) 107,594237,594 shares underlying restricted stock units granted under the Company’s equity plans.plans and (iii) 1,000 shares of common stock. |
|
| (14) | | Includes (i) 6,250 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 20082011 and (ii) 107,594237,594 shares underlying restricted stock units granted under the Company’s equity plans. |
|
17
| (15) | | Includes (i) 7,500157,975 shares of common stock issuable upon the exercise of options exercisable within 60 days from Octoberof December 1, 2008 and2011, (ii) 57,5005,625 shares underlying restricted stock units granted under the Company’s equity plans. |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% 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-10% 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 the review of copies of the reports furnished to the Company, all reports required to be filed by our executive officers, directors and greater-than-10% shareholders were timely filed in fiscal 2008, other than the failure of Vivo Ventures to file a report on Form 3 reflecting its acquisition in April 2008 of more than 10% of our outstanding common stock.
21
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information, as of September 30, 2008, regarding the Company’s Amended and Restated 1994, 1998 and 2000 Stock Option Plans and 2003 and 2005 Equity Incentive Plans, as well as other stock options and warrants previously issued by the Company as compensation for services.
| | | | | | | | | | | | | |
| | | | | | | | | Number of Securities
| |
| | | Number of Securities
| | | | | | Remaining Available for
| |
| | | to be Issued Upon
| | | | | | Future Issuance Under
| |
| | | Exercise of
| | | Weighted-Average
| | | Equity Compensation
| |
| | | Outstanding Options,
| | | Exercise Price of
| | | Plans (Excluding
| |
| | | Warrants and
| | | Outstanding Options,
| | | Securities Reflected in
| |
Plan category | | Rights(1) | | | Warrants and Rights | | | First Column)(2) | |
| |
| Equity compensation plans approved by security holders | | | 375,005 | | | $ | 8.63 | | | | 1,194,432 | |
| Equity compensation plans not approved by security holders(3) | | | 2,503,022 | | | $ | 1.15 | | | | 1,574,812 | |
| | | | | | | | | | | | | |
| Total | | | 2,878,027 | | | $ | 2.12 | | | | 2,769,244 | |
| | | | | | | | | | | | | |
| | |
(1) | | Excludes a total of 2,432,416plans, (iii) 32,621 shares of common stock issuable upon the vesting of outstanding restricted stock units. |
|
(2) | | Excludes shares that may be added pursuant to the “evergreen” features under the Amended and Restated 2003 and 2005 Equity Incentive Plans. 325,000 additional shares were authorized for issuance in November 2008 under the “evergreen” feature contained in the 2005 Equity Incentive Plan. |
|
(3) | | Includes a maximum of 2,254,000(iv) 11,900 shares of common stock issuable, at $0.88 per share, uponheld by certain family members and for which Ms. Ocampo is the achievement of specified performance goals relating to the clinical development of Zenvia. The actual number of shares issuable, which is between 0 and 2,254,000 in total, is based on the date of achievement of the performance goals and could be lower than reflected in the table.beneficial owner. |
Compensation Discussion and Analysis
The following compensation discussion and analysis describes the material elements of compensation earned in fiscal 20082011 by each of the current and former executive officers identified below in the Summary Compensation Table, who are referred to collectively as our “named executive officers.” Our named executive officers with respect to the fiscal year that ended on September 30, 20082011 are Keith A. Katkin, President and Chief Executive Officer; Joao Siffert, M.D., Senior Vice President, Research and Development; and Christine G. Ocampo, Vice President, Finance; and Randall E. Kaye, M.D.,Finance, as well as William J. Sibold, our former Senior Vice President and Chief MedicalCommercial Officer. These persons constitute our principal executive officer, principal financial officer and two other executive officers serving during fiscal 2008.2011. This disclosure includes payments that were made and compensation-related actions that were taken in the first quarter of fiscal 2009,2012, where these payments and decisions related to performance in fiscal 2008.
2011.Compensation Philosophy and Objectives
Our philosophy in setting compensation policies for executive officers has two fundamental objectives: (1) to attract, motivate and retain a highly skilled team of executives and (2) to align our executives’ interests with those of our stockholders by rewarding short-term and long-term performance and tying compensation to increases in shareholderstockholder value. The Compensation Committee believes that executive compensation should be both directly linked both to continuous improvements in corporate performance (so-called “pay(“pay for performance”) and accomplishments that are expected to increase shareholderstockholder value. In furtherance of this goal, the Compensation Committee has adhered to the following guidelines as a foundation for decisions that affect the levels of compensation:
| | |
| • | provide a competitive total compensation package that enables the Company to attract and retain highly qualified executives with the skills and experience required for the achievement of business goals; |
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align compensation elements with the Company’s annual goals and long-term business strategies and objectives;promote the achievement of key strategic and financial performance measures by linking short-term and long-term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and
align executives’ incentives with the creation of stockholder value.
| | |
| • | align all elements of compensation with the Company’s annual goals and long-term business strategies and objectives; |
|
| • | promote the achievement of key strategic and financial performance measures by linking short-term and long-term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and |
|
| • | align executives’ incentives with the creation of shareholder value. |
The Compensation Committee has historically compensated executive officers with three compensation components: base salary, annual incentive bonus and equity-based compensation. The Compensation Committee believes that cash compensation in the form of base salary and an annual incentive bonus provides our executives with short-term rewards for success in operations, and that long-term compensation through the award of stock options, restricted stock and other equity awards aligns the objectives of management with those of our shareholdersstockholders with respect to long-term performance and success.
As a pharmaceutical company engaged in the development of products for potential commercialization, the Company currently does not generate significant revenues or profits. As a result, theThe Compensation Committee places additional emphasisalso has historically focused on the Company’s financial and working capital condition when making compensation decisions and approving performance objectives. Accordingly,Because the Compensation CommitteeCompany has had limited sources of capital and historically has sought to preserve cash, overall compensation traditionally has been weighted more heavily toward contingent performance-based payments, such as annual incentive bonuses, and equity-based compensation more heavily in order to tie a substantial portionthat is earned only upon the Company’s achievement of specified performance goals. Although the Company commercially launched its product, NUEDEXTA™, during the second quarter of the executives’ total compensation to2011 fiscal year, the Company’s performance. TheCompany currently does not generate significant revenues or profits. Accordingly, the Compensation Committee will continue to periodically reassess the appropriate weighting of equitycash and cashequity compensation in light of the company’sCompany’s expenditures in connection with its product launch and its working capital situation.
needs with the goal of more equally weighting cash compensation and long-term equity compensation in the future.18
Risk Management and Mitigation
In reviewing the compensation structure in fiscal 2011, the Compensation Committee also considered how the Company’s compensation policies may affect the Company’s risk profile and how compensation policies may be used to mitigate risks facing the Company. More specifically, the Compensation Committee considered the general design philosophy of the Company’s policies for employees whose conduct would be most affected by incentives established by compensation policies. In considering these issues, the Compensation Committee concluded that the use of performance-based bonuses and long-term equity awards did not appear to create undue risks for the Company or encourage excessive risk-taking behavior on the part of employees.
With respect to bonus awards, the amount of an individual’s award depends principally (exclusively, in the case of our Chief Executive Officer) on overall Company performance, which reduces the ability and incentive for an individual to take undue risks in an effort to increase the amount of his or her bonus award for a particular year. The Company’s performance goals are reviewed and approved by the Compensation Committee at the beginning of each fiscal year and are considered to be generally of the nature that would not encourage or reward excessive risk taking. Additionally, the Compensation Committee monitors Company performance throughout the year and has the ability to intervene in instances where actions by the Company vis-à-vis Company performance goal attainment would be considered unduly risky to prevent or penalize such actions.
With respect to equity awards, these awards typically vest over several years, meaning that long-term value creation, contrasted with short-term gain, presents the best opportunity for employees to profit from these awards. To the extent that performance-based equity awards are used, the events that trigger vesting are expected to be realized several years in the future. The Company has not historically used claw-back provisions or imposed holding periods for vested awards, although the Compensation Committee will consider whether such mechanisms might be appropriate in the future to mitigate risk as the Company transitions from a drug development company to a fully integrated specialty pharmaceutical company with commercial operations. Additionally, the use of financial-based performance metrics to determine employee compensation may subject those payouts to claw-back penalties under the Dodd-Frank Act, to the extent that there is a subsequent restatement of the financial measure that was used to determine a payout.
Roles in Determining Compensation
The Board has delegated to the Compensation Committee the responsibility to ensure that total compensation paid to our executive officers, including named executive officers, is consistent with our compensation policy and objectives. The Compensation Committee oversees and approves all compensation arrangements and actions for our executive officers and other key employees, including the named executive officers. While the Compensation Committee draws on a number of sources,resources, including input from the Chief Executive Officer and independent compensation consultants, to make decisions regarding the Company’s executive compensation program, ultimate decision-making authority rests with the Compensation Committee. The Compensation Committee which retains discretion over base salary, annual incentive bonus, equity compensation and other compensation considerations. The Compensation Committee relies upon the judgment of its members in making compensation decisions, after reviewing the performance of the Company and carefully evaluating an executive’s performance during the year against established goals, operational performance and business responsibilities. In addition, the Compensation Committee incorporates judgment in the assessment process to respond to and adjust for the evolving business environment.
Corporate goals are reviewed annually by the Compensation Committee and then presented to the full Board for review and approval.Compensation Consultant
The Compensation Committee retains the services of an external compensation consultant, Radford, Surveys + Consulting, a division of AON (An AonHewitt Company (““Radford”). The mandate of the consultant is to assist the Compensation Committee in its review of executive and director compensation practices, including the competitiveness of pay levels, executive
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compensation design, benchmarking with the Company’s peers in the industry and other technical considerations including tax- and accounting-related matters. The Compensation Committee regularly evaluates Radford’s performance, considers alternative compensation consultants and has the final authority to engage and terminate Radford’s services.
The Compensation Committee, after a review of the factors set forth in Section 10C(b) of the Securities Exchange Act of 1934, has determined that Radford is an independent compensation consultant.Chief Executive Officer
The Chief Executive Officer attends Compensation Committee meetings and works with the Compensation Committee Chairman and Radford to develop compensation recommendations for the executive officers other than(excluding the Chief Executive Officer,Officer), based upon individual experience and breadth of knowledge, internal considerations, individual performance during the fiscal year and other factors thatdeemed relevant by the Compensation Committee. The recommendations are taken into account when determining executive compensation. The recommendations
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arethen submitted to the Compensation Committee for review and approval.consideration. The Compensation Committee works directly with Radford and the Chairman of the Board to determine compensation actions for the Chief Executive Officer’s compensation. Our Chief Executive Officer is not present for these discussions related to his compensation.
Officer.Competitive Market Benchmarking
The Compensation Committee draws on a number of sourcesresources to assist in the evaluation of the various components of the Company’s executive compensation program including, but not limited to, industry data compiled yearly by Radford in its Global Life Sciences Survey, which represents a nationally-based assessment of executive compensation widely used within the pharmaceutical and biotechnology industry sectors. While we do not believe that it is appropriate to establish compensation levels based solely on benchmarking, pay practices at other companies are nevertheless an important factor that the Compensation Committee considers in assessing the reasonableness of compensation and ensuring that our compensation practices are competitive in the marketplace. Accordingly,The peer companies adopted by the Company following the FDA approval of NUEDEXTA in October 2010 and used in determining compensation actions in the 2011 fiscal year were selected by the Compensation Committee with Radford’s support in fiscal 20082010 on the basis of the Company’s anticipation of the approval decision for NUEDEXTA, their similarity to us in terms of competition for talent, phase of development or stage of commercialization, current and potential market capitalization, and number of employees. The list of peer companies used in determining compensation actions in the 2011 fiscal year consisted of the following 26 publicly-traded companies in the pharmaceutical and biotechnology industries:
| | | | |
Acorda Therapeutics | | Dyax | | Pain Therapeutics |
| | |
Affymax | | Isis Pharmaceuticals | | Pozen |
| | |
Alexza Pharmaceuticals | | MAP Pharmaceuticals | | Savient Pharmaceuticals |
| | |
Alkermes | | Momenta Pharmaceuticals | | Seattle Genetics |
| | |
Allos Therapeutics | | Nektar Therapeutics | | Somaxon Pharmaceuticals |
| | |
AMAG Pharmaceuticals | | NPS Pharmaceuticals | | Theravance |
| | |
Arena Pharmaceuticals | | Optimer Pharmaceuticals | | Vical |
| | |
Cadence Pharmaceuticals | | Orexigen Therapeutics | | ViroPharma |
| | |
Cypress Pharmaceuticals | | Osiris Therapeutics | | |
The Compensation Committee reviews the Company’s list of peer companies periodically to reflect changes in market capitalization, developments at the Company relative to its peer companies and other factors. During fiscal 2011, the Compensation Committee noted that the above list of peer companies, selected in fiscal 2010, was in need of updating to reflect changes in market capitalization, developments at the peer companies, and other factors. Accordingly, the Compensation Committee engaged Radford to assist in determining a new list of peer companies following the Compensation Committee’s criteria, including phase of development and stage of
20
commercialization, current and potential market capitalization, and number of employees. The peer group selected was comprised of the following companies:
| | | | |
Acorda Therapeutics | | Isis Pharmaceuticals | | Pozen |
| | |
Affymax | | ISTA Pharmaceuticals | | Questcor Pharmaceuticals |
| | |
Alkermes | | MAP Pharmaceuticals | | Savient Pharmaceuticals |
| | |
Allos Therapeutics | | Momenta Pharmaceuticals | | Seattle Genetics |
| | |
AMAG Pharmaceuticals | | Nektar Therapeutics | | Somaxon Pharmaceuticals |
| | |
Cadence Pharmaceuticals | | NPS Pharmaceuticals | | Theravance |
| | |
Cell Therapeutics | | Optimer Pharmaceuticals | | Vical |
| | |
Dyax | | Osiris Therapeutics | | ViroPharma |
| | |
Halozyme Therapeutics | | Pain Therapeutics | | VIVUS |
In May 2011, the Compensation Committee adopted the new list of peer companies that were determined to be more comparable to the Company’s business following the commercial launch of NUEDEXTA during the second quarter of the 2011 fiscal year. The Compensation Committee considered various factors, including number of employees, market capitalization and stage of commercialization, to select the comparator companies. In addition to the selection of the new list of peer companies, the Compensation Committee engaged Radford to conduct a comprehensive benchmarking study to reportreporting on compensation levels and practices, including equity, relative to the Company’s new list of peer companies in the pharmaceutical and biotechnology industries. Peer group selection was determined by specific criteria obtained from public filings and Radford’s 2008 Global Life Sciences Survey, including a peer company’s stage of development, number of employees and market capitalization.companies. An Executive Compensation ReviewAssessment report was prepared by Radford in July 2008August 2011 that provided a competitive assessment of the Company’s executive compensation program as compared to the market data for base salaries, target total cash compensation and equity compensation.
Based on Radford’s assessmentcompensation of the new list of peer companies. In consideration of the benchmarking data for the new peer companies and recommendation, the Compensation Committee selected the following 18 publicly-traded companiesCompany’s performance in fiscal 2011, adjustments to compensation were made in the pharmaceutical and biotechnology industries, which were determined to be generally similar in termsfirst quarter of competition for talent, phase of products in development, financial attributes, research and development expenditures, and stock price:
| | | | |
ARYX Therapeutics | | Introgen Therapeutics | | Somaxon Pharmaceuticals |
Avigen | | La Jolla Pharmaceuticals | | Telik |
Cypress Bioscience | | NPS Pharmaceuticals | | Titan Pharmaceuticals |
CytRx | | Optimer Pharmaceuticals | | Trubion Pharmaceuticals |
Discovery Laboratories | | Orexigen Therapeutics | | Vanda Pharmaceuticals |
Favrille | | Peregrine Therapeutics | | Vical |
fiscal 2012, as described below.Implementation of Objectives
In fiscal 2008,2011, our executive compensation program consisted of the following forms of compensation, each of which are described below in greater detail:
| | |
| • | Base Salary |
|
| • | Annual Bonus Incentive |
|
| • | Equity Compensation |
|
| • | Employee Benefit Program |
Base Salary
Our Compensation Committee aims to set executives’ base salaries, in the aggregate, at levels near the 50th50th percentile of salaries of executives with similar roles as compared to the Company’s peer group. The Compensation Committee believes it is important to provide adequate fixed compensation to our executive officers working in a highly volatile and competitive industry. Our Compensation Committee believes that the 50th50th percentile for base salaries is the minimum cash compensation level that will allow us to attract and retain highly
24
skilled executives. The Compensation Committee’s choice of this target percentile reflects consideration
of our shareholders’stockholders’ interests in paying what is necessary, but not significantly more than necessary to achieve our corporate goals, while conserving cash
21
and equity as much as practicable. We believe that, given the industry in which we operate and our compensation philosophy and objectives, base salaries at the 50th50th percentile are generally sufficient to retain our current executives and to hire new executives when and as required. In determining appropriate base salary levels for a given executive officer, the Compensation Committee considers the following factors:
individual performance of the executive, as well as our overall performance, during the prior year;
level of responsibility, including breadth, scope and complexity of the position;
| | |
| • | individual performance of the executive, as well as our overall performance, during the prior year; |
|
| • | level of responsibility, including breadth, scope and complexity of the position; |
|
| • | level of experience and expertise of the executive; |
|
| • | internal review of the executive’s compensation relative to other executives to ensure internal equity; and |
|
| • | executive officer compensation levels at other similar companies to ensure competitiveness. |
level of experience and expertise of the executive;
internal review of the executive’s compensation relative to other executives to ensure internal equity; and
executive officer compensation levels at other similar companies to ensure competitiveness.
Salaries for executive officers are determined on an individual basis at the time of hire and are set to be competitive with peer companies in our industry. Adjustments to base salary are considered annually in light of each executive officer’s individual performance, the Company’s performance and compensation levels at peer companies in our industry, as well as changes in job responsibilities or promotion. The Chief Executive Officer assists the Compensation Committee in its annual review of the base salaries of other executive officers based on the foregoing criteria.
Changes in Base Salaries for Fiscal 20092012
Radford’sThe Executive Compensation Assessment report prepared by Radford in August 2011 provided a competitive assessment in fiscal 2008 of the Company’s compensation practices as compared to that of the Company’s new list of peer companies and suggested that on average,the 2011 base salary levels for the majority of the Company’s executives are at or belowwere between the 25th percentile25th and 50th percentiles as compared to the Company’s peer group. The following table shows the base salaries for our named executive officers for fiscal 2009, after giving effect to salary adjustments made in November 2008, which were effective as of October 1, 2008, as well as the average salaries in our peer group at the 25th, 50th and 75th percentiles.
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Base Salary — Market Data(2) | |
| | | | | Fiscal 2009
| | | 25th
| | | 50th
| | | 75th
| |
Name | | Title | | Base Salary(1) | | | Percentile | | | Percentile | | | Percentile | |
| |
| Keith A. Katkin | | President and Chief
Executive Officer | | $ | 373,248 | | | $ | 402,800 | | | $ | 431,800 | | | $ | 479,800 | |
| Randall E. Kaye, MD | | Senior Vice President and
Chief Medical Officer | | $ | 326,667 | | | $ | 285,300 | | | $ | 305,300 | | | $ | 338,000 | |
| Christine G. Ocampo | | Vice President, Finance | | $ | 197,820 | | | $ | 200,000 | | | $ | 214,200 | | | $ | 235,200 | |
| | |
(1) | | Effective as of October 1, 2008 |
|
(2) | | Source: Radford’s Executive Compensation Review of July 2008. |
In considerationlight of the Company’s financial and working capital condition,growth following the FDA’s approval of NUEDEXTA in fiscal 2011, the Compensation Committee recommended to continue with the plan, previously approved ain fiscal 2011, of staged increaseincreases to the Company’s executives over a two to three yearthree-year period starting in fiscal 2011. The plan is intended to provide base salary adjustments to the Company’s executives whose base salaries are below market levels at the 50th50th percentile, with the goal of bringing base salaries to competitive base salary levels at or near the 50th percentile. The first adjustment was targeted50th percentile by the end of the three-year period. Any increase would be capped at 9.9% annually (unless the base salary for any executive is below market levels for the 25th percentile, in which case the Compensation Committee would, at its discretion, approve an increase above such cap to raise base salariesbring the officer to the 25th percentile, with a cap of 9.9% for any increase, as compared to the Company’s peer group. All increases took25th percentile) and would take into consideration executives’ tenure in their respective roles, performance, job criticality, and merit increases for each of the fiscal 2008 targeted at 4.2%, as suggested by Radford.years during the three-year period. The Compensation Committee deemed the base salary adjustmentsthis strategy to be reasonableconsistent with the Company’s stated compensation philosophy and objectives considering the experience levels of executives and necessary in order to retain key executives needed to achieve the Company’s goals and business objectives. Following the end of the fiscal 2008,2011, the Compensation Committee approved the first scheduleda second adjustment to base salariessalaries. This second adjustment, which represents a market-based adjustment of compensation, will take effect subject to the achievement of a certain revenue level during the 2012 fiscal year and is in conjunction withaddition to the merit-based increase that is typically awarded during the first quarter of each fiscal year.
In fixing the target for the revenue goal, the Compensation Committee deemed it appropriate to establish a performance goal that was believed to be aggressive, meaning that it would be considered achievable, but only with a high degree of diligence and success in execution.
25The following table shows the base salaries for our named executive officers for fiscal 2012 (excluding Mr. Sibold, who is no longer employed with the Company), after giving effect to merit-based increases made in
22
November 2011, which were effective as of October 1, 2011, as well as the average salaries in our new peer group at the 25th, 50th and 75th percentiles.
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Potential Fiscal 2012 | | | Base Salary — Market Data(3) | |
| | | | | Fiscal 2012 | | | | 25th | | | 50th | | | 75th | |
Name | | Title | | Base Salary(1) | | | Base Salary(2) | | | Percentile | | | Percentile | | | Percentile | |
Keith A. Katkin | | President and Chief
Executive Officer | | $ | 505,716 | | | $ | 530,506 | | | $ | 504,800 | | | $ | 560,400 | | | $ | 652,700 | |
Joao Siffert, M.D. | | Senior Vice President,
Research and Development | | $ | 351,604 | | | $ | 351,604 | | | $ | 319,700 | | | $ | 349,200 | | | $ | 372,400 | |
Christine G.
Ocampo | | Vice President, Finance | | $ | 224,562 | | | $ | 236,670 | | | $ | 239,200 | | | $ | 258,000 | | | $ | 274,600 | |
The table below shows fiscal 2008| (1) | Effective as of October 1, 2011. |
| (2) | Potential base salaries after giving effect to second (market-based) adjustment, which will only apply subject to the achievement of certain revenue levels. |
| (3) | Source: Radford’s Executive Compensation Review of August 2011. |
Fiscal 2011 and 20092012 base salary levels for each named executive officer:
| | | | | | | | | | | | | | | |
| | | | | Fiscal 2008
| | | Fiscal 2009
| | | Percentage
| |
Name | | Title | | Base Salary | | | Base Salary(1) | | | (%) Increase | |
| |
| Keith A. Katkin | | President and Chief
Executive Officer | | $ | 339,625 | | | $ | 373,248 | | | | 9.9 | % |
| Randall E. Kaye, MD | | Senior Vice President and
Chief
Medical Officer | | $ | 313,500 | | | $ | 326,667 | | | | 4.2 | % |
| Christine G. Ocampo(2) | | Vice President, Finance | | $ | 180,000 | | | $ | 197,820 | | | | 9.9 | % |
| | | | | | | | | | | | | | |
| | | | | Fiscal 2011 | | | Fiscal 2012 | | | Fiscal 2012 | |
Name | | Title | | Base Salary | | | Base Salary(1) | | | Base Salary(2) | |
Keith A. Katkin | | President and Chief
Executive Officer | | $ | 495,800 | | | $ | 505,716 | | | $ | 530,506 | |
Joao Siffert, M.D. | | Senior Vice President,
Research and Development | | $ | 350,000 | | | $ | 351,604 | | | $ | 351,604 | |
Christine G. Ocampo | | Vice President, Finance | | $ | 220,159 | | | $ | 224,562 | | | $ | 236,670 | |
| | |
| (1) | | Effective as of October 1, 20082011, inclusive of merit-based increase. |
|
| (2) | | Ms. Ocampo was appointedPotential base salaries after giving effect to this position effective February 21, 2008second (market-based) adjustment, which will only apply subject to the achievement of certain revenue levels. |
The Company also provides executive officers with annual performance-based cash bonuses, which are specifically designed to reward executives for overall corporate performance as well as individual performance in a given year. Corporate goals are established at the beginning of each fiscal year by the Compensation Committee with input from senior management and with final approval by the independent members of the Board of Directors. The target annual incentive bonus amounts vary depending on each executive’s accountability, scope of responsibilities and potential impact on the Company’s performance. Accordingly, the higher the level of control and accountability that is exercisable by an executive officer over our overall performance, the greater the percentage of the executive officer’s target total cash compensation that is dependent on the annual performance-based cash bonus award. Fiscal 20082011 target annual incentive bonus levels ranged from 30% to 50% of base salary for our named executive officers.
Our Compensation Committee sets annual incentive bonus amounts for executive officers as a percent of base salary generally ranging between the 25th50th and 75th75th percentiles in our peer group. Although the Compensation Committee has selected a target bonus in some cases above the 50th percentile in percentage terms, the actual total cash compensation is generally expected to be at or near the 50th percentile measured in
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dollar terms. The target bonuses, as a percentage of base salary, for the named executive officers for fiscal 20092012 (excluding Mr. Sibold, who is no longer employed with the Company) are set forth in the following table.
| | | | | | | | | | | | | | | | | | | |
| | | | | Target Bonus
| | | | | | | | | | |
| | | | | for Fiscal
| | | Target Annual Incentive Bonus — Market Data(1) | |
| | | | | 2009 (% of
| | | 25th
| | | 50th
| | | 75th
| |
Name | | Title | | Base Salary) | | | Percentile | | | Percentile | | | Percentile | |
| |
| Keith A. Katkin | | President and Chief
Executive Officer | | | 50 | % | | | 45 | % | | | 50 | % | | | 55 | % |
| Randall E. Kaye, MD | | Senior Vice President and
Chief Medical Officer | | | 40 | % | | | 30 | % | | | 35 | % | | | 40 | % |
| Christine G. Ocampo | | Vice President, Finance | | | 30 | % | | | 20 | % | | | 25 | % | | | 30 | % |
| | | | | | | | | | | | | | | | | | |
| | | | | Target
Bonus for Fiscal 2012 (% of | | | Target Annual Incentive
Bonus — Market Data(1) | |
| | | | | | 25th | | | 50th | | | 75th | |
Name | | Title | | Base Salary) | | | Percentile | | | Percentile | | | Percentile | |
Keith A. Katkin | | President and Chief
Executive Officer | | | 50 | % | | | 50 | % | | | 55 | % | | | 60 | % |
Joao Siffert, M.D. | | Senior Vice President,
Research and Development | | | 40 | % | | | 30 | % | | | 35 | % | | | 40 | % |
Christine G. Ocampo | | Vice President, Finance | | | 30 | % | | | 30 | % | | | 30 | % | | | 35 | % |
| | |
| (1) | | Source: Radford’s Executive Compensation Review of July 2008.August 2011. |
The Compensation Committee considers the individual performance of each executive officer and the Company’s overall performance for the preceding fiscal year in deciding whether to award a bonus and, if one is to be awarded, the amount of the bonus. TheFor fiscal 2011, the maximum bonus for each executive is 140%was 150% of his or her respective target and the minimum bonus, or threshold, for each executive iswas zero. All executive officers, except for the Chief Executive Officer, are assigned annual incentive bonus targets with 75% of the bonus attributed to corporate performance and 25% based on individual performance. The annual incentive bonus for the Chief Executive Officer is based 100% on overall corporate performance. In addition, the Compensation Committee has the discretion to adjust an award by +/−10%-10%, not to exceed 140%160% of target for any bonus award, based on additional considerations of performance and to account for the evolving business environment during the performance year.
At the end of each fiscal year, individual and corporate performance are measured versus plan and a percentage of target is fixed, which then determines the size of the total bonus pool from which annual bonus incentives are to be paid to
26
executive officers. All cash bonuses are awarded retrospectively. Payout dates for all annual incentive bonuses to executive officers are targeted during the first quarter of each fiscal year.
Fiscal 20082011 Annual Bonus Incentive
Upon completion of fiscal 2008,2011, the Compensation Committee assessed the Company’s overall performance against the achievement of corporate performance goals established in October 2007.November 2010. The Compensation Committee then assessed our Chief Executive Officer’s individual accomplishments as well as the individual accomplishments of otherthe Company’s executive officers.
Performance against each goal is scored by the Compensation Committee on a scale of 0 to 5, with a score of 3 equaling the target goal and resulting in a payout amount that is equal to 100% of the target amount. After determining scores for individual goals, a weighted-average score is computed, using the weighting prescribed at the beginning of the year for each goal. Once a total performance score is determined, the funding of the bonus pool is determined from the scale shown below, with the Compensation Committee retaining the discretion as set forth below to adjust individual awards, within certain limits. | | | | |
Weighted Average Score | | Payout Level
(Percent of Target
Amount) | |
0 1 2 3 4 5 | |
| 0
0 50 100 125 150 | %
% % % % % |
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In fixing the targets for each fiscal year, the Compensation Committee selects performance goals that are considered aggressive, meaning that they are goals that are considered achievable, but only with a high degree of diligence and success in execution. In accruing for bonuses during each fiscal year, management assumes that the target goals will be achieved (i.e., a score of 3.0), absent a set of circumstances arising during the course of the year that would suggest otherwise.
Set forth below are the general performance goals that were considered by the Compensation Committee in assessing overall performance for the 20082011 fiscal year:
| | |
| • | Phase III clinical development progress of Zenviatm for pseudobulbar affect (PBA) indication; |
|
| • | Clinical development progress of Zenviatm for neuropathic pain; |
|
| • | Optimizing the value of other non-core Company assets, whether by sale, partnering or other collaboration; |
|
| • | Improving the Company’s cash position by the end of the fiscal year to support budgeted activities including reserves to continue the development of Zenviatm; and |
|
| • | Effective budget management. |
Although we do not disclose more specificyear, as well as the relative weighting of these goals
and the Compensation Committee’s assessment of achievement for
competitive reasons, we believe thateach goal:NUEDEXTA Commercialization (50%): This goal set targets for sales performance for NUEDEXTA and achievement of commercialization-related objectives.
NUEDEXTA Sales Performance (50%): This goal measured the goals discussed above provide our shareholdersnet shipment revenues generated from the sales of NUEDEXTA to wholesalers and other customers along with a clear understanding of the key corporate events consideredqualitative assessment performed by the Compensation Committee in assessingat the end of the 2011 fiscal year on the Company’s performance in executing the lastlaunch plan for NUEDEXTA. Gross NUEDEXTA GAAP revenue for 2011 fiscal year.
year was $7.0 million, net NUEDEXTA GAAP revenue was $6.1 million, Gross NUEDEXTA shipment revenues were $8.8 million, and Net NUEDEXTA shipment revenues were $8.1 million. In particular, with respect to achieving progress toward the overall strategic objectives noted above,scoring this goal, the Compensation Committee notedconsidered the following key accomplishmentsperformance of the sales force during launch and the review period:
need for the launch plan for a first-in-class product to evolve for several months to take into consideration the uncertainties of new market development. As a result, the Compensation Committee did not assign a score (effectively resulting in a score of zero “0”) for the first eight months of the 2011 fiscal year. The Compensation Committee determined that the Company’s achievement for the last four months of the 2011 fiscal year resulted in a score of 3.0 providing for a weighted average score of 1.1.Clinical Development Goals (22.5%): These goals established target performance for the Company for the development of AVP-923 for additional indications, including submitting and receiving FDA acceptance of an Investigational New Drug application, or IND, and continuing the development of NUEDEXTA outside of the United States. The specific goals were as follows:
| | |
| | • | Clinical development progress | NUEDEXTA European Medicines Agency (“EMA”) Progress (12.5%):This goal measured the timely submission of Zenviatma Marketing Authorization Application, or MAA, for NUEDEXTA for the PBA including the achievement of securing a Special Protocol Assessmentindication in the first quarterEuropean Union. In September 2011, the Company was granted a full pediatric waiver from the EMA removing the Company’s requirement to conduct pediatric clinical studies in support of its MAA filing resulting in lower Company expenditures in support of its MAA filing and advancing the 2008 fiscal year;timeline for submission. The Company followed with filing an MAA with the EMA for NUEDEXTA for the treatment of PBA in October 2011. The Compensation Committee determined that the Company achieved a score of 4.0 for this goal. |
|
| | • | Achievement | New AVP-923 IND (10.0%): This goal measured the timely filing and acceptance of several accelerated patient enrollment milestonesan IND application with the FDA to initiate a Phase III clinical trial of AVP-923, an investigational drug for the STAR Trial;treatment of central neuropathic pain in patients with multiple sclerosis. In April 2011, the Company filed an IND application with the FDA to begin a Phase III clinical trial of AVP-923 and enrolled its first patient in the PRIME study (Pain Research in Multiple sclErosis) on November 2, 2011. The Compensation Committee determined that the Company achieved a score of 3.3 for this goal. |
|
| • | Successful implementation of a capital raising strategy to enable support of our continued operations and improvement |
Financial Operations (20%): This category of goals focused attention on demonstrating fiscal responsibility through (i) improving the Company’s cash position by the end of the fiscal year while supporting budgeted activities such as the commercialization of NUEDEXTA; and (ii) effective budget management, as measured by expenses and working capital at the end of the fiscal year.
| • | | Fiscal 2011 Net Operating Cash Burn for Budgeted Activities (5%): The performance metric measures the Company’s aggregate cash expenditures on operations for fiscal 2011. This measure is intended to encourage efficient use of capital, while still achieving the operational goals set forth above, including |
25
| the commercialization of NUEDEXTA. In 2011, the Net Operating Cash Burn was approximately $64.8 million, resulting in a score of 5.0 on this goal. |
| • | | Capital Raise / Cash at Year-End of Fiscal 2011 (15%): The performance metric measures the Company’s effectiveness in raising additional capital and cash available at the end of the 2011 fiscal year;year. This measure is intended to encourage the Company to seek and select the most efficient financing instrument(s) to appropriately fund on-going operational requirements including the commercialization of NUEDEXTA. At September 30, 2011, the Company had a cash balance of approximately $81.8 million resulting in a score of 5.0 on this goal. |
|
Corporate Development Goals (7.5%): This goal targeted enhancing the lifecycle and intellectual property estate relating to NUEDEXTA.
| | • | Successful completion of formal PK study of Zenvia for DPN pain; |
|
| | • | Effective budgetPortfolio Management (7.5%): This goal measures the Company’s achievement of certain corporate development objectives, including those pursued to enhance the value of the Company’s products. During the 2011 fiscal year, the Company defined a corporate development strategy that is expected to enhance the overall business relating to NUEDEXTA with plans on initiating and/or executing on one or more strategic initiatives during the 2012 fiscal year. The Compensation Committee awarded a score of 3.0 for this goal based on the Company’s thorough diligence and cash management;assessment of several corporate development opportunities and |
|
| • | Successful divestiture the Company’s efforts in establishing a long-term lifecycle strategy expected to enhance the intellectual property estate of non-core assets.the Company’s product portfolio. |
The individual performance goals for Keith A. Katkin, the Company’s Chief Executive Officer, were the same as the overall corporate performance goals for the Company, as the primary responsibility of the Chief Executive Officer is to help ensure the overall success of the Company by executing the Company’s business strategies. All other executive officers are assigned annual incentive bonus targets with 75% of the bonus attributed to corporate performance and 25% based on individual performance. The individual goals for Dr. Siffert and Ms. Ocampo are discussed below. In November 2008,addition, as described above, the Compensation Committee approvedhas the discretion to adjust an award by +/-10%, not to exceed 160% of target for any bonus award, based on additional considerations of performance, significant achievements not covered by the annual goals as established at the beginning of the year, and to account for the evolving business environment during the performance year.
The individual performance goals for Joao Siffert, the Company’s Senior Vice President, Research and Development, and Christine Ocampo, the Company’s Vice President of Finance, were similar to the overall corporate performance goals but weighted more heavily, in Dr. Siffert’s case, to clinical development and regulatory milestones, and in Ms. Ocampo’s case, to cash position and budgetary matters, consistent with their roles and responsibilities at the Company. Specifically, the clinical development and regulatory goals described above under the captions “NUEDEXTA EMA Progress” and “New AVP-923 IND” accounted for 100% of Dr. Siffert’s individual performance goals. With respect to Ms. Ocampo, the financial operations goals described above accounted for 30% of her individual performance goals. The other 70% of Ms. Ocampo’s individual performance goals for fiscal 2011 related to building a finance team and expanding the capabilities of the finance department in support of the commercialization of NUEDEXTA (30%), corporate financial leadership (25%), and management of compliance areas, including complying with the requirements of the Sarbanes-Oxley Act and establishing a commercial compliance program (15%). Dr. Siffert’s and Ms. Ocampo’s level of achievement for individual goals is determined by the Compensation Committee, based in part on recommendations from the Chief Executive Officer, with input from the Chairman of the Audit Committee, who is also a member of the Compensation Committee.
Achievement of Goals and Relationship to Compensation Awarded
For fiscal 2011, the Compensation Committee determined that the Company’s performance against the corporate performance goals merited a score of 2.58 out of 5.0, resulting in a bonus pool equal to 79% of the target amount for corporate achievement. Upon determining the Company’s performance against the corporate
26
performance goals, the Compensation Committee applied its discretion to adjust the Company’s corporate achievement score to 2.5 out of 5.0, resulting in a downward adjustment of 4% to set the corporate achievement bonus pool to 75% of target. With respect to Mr. Katkin, his bonus award was determined solely based on the Company’s performance against the corporate goals. The Compensation Committee determined that Dr. Siffert and Ms. Ocampo achieved individual scores of 3.65 out of 5.0 and 3.85 out of 5.0, respectively, resulting in weighted-average annual performance scores of 2.79 for Dr. Siffert and 2.84 for Ms. Ocampo.
These levels of achievement for the combined corporate and individual goals resulted in the Compensation Committee approving bonus awards for performance in 2011 as set forth in the following bonus awards:
| | | | | | | |
| | | | | Bonus for
| |
Name | | Title | | Fiscal 2008 | |
| |
| Keith A. Katkin | | President and Chief Executive Officer | | $ | 210,568 | |
| Randall E. Kaye, MD | | Senior Vice President and Chief Medical Officer | | $ | 155,496 | |
| Christine G. Ocampo | | Vice President, Finance | | $ | 62,878 | |
table: | | | | | | |
Name | | Title | | Fiscal 2011 | |
Keith A. Katkin | | President and Chief Executive Officer | | $ | 185,925 | |
Joao Siffert, M.D. | | Senior Vice President, Research and Development | | $ | 118,475 | (1) |
Christine G. Ocampo | | Vice President, Finance | | $ | 57,173 | |
| (1) | Pursuant to Dr. Siffert’s employment offer letter, his bonus award was prorated for the 2011 fiscal year and based on a 9-month period. |
Equity Compensation
Stock Options and Restricted Stock. As an additional component of our compensation program, executive officers are eligible to receive equity compensation in the form of stock options or restricted stock awards, which may also be granted as awards of restricted stock units. The Compensation Committee grants stock options to executive officers to aid in their retention, to motivate them to assist with the achievement of corporate objectives and to align their interests with those of our shareholdersstockholders by creating a return tied to the performance of our stock
27
price. In determining the form, date of issuance and value of a grant, the Compensation Committee considers the contributions and responsibilities of each executive officer, appropriate incentives for the achievement of our long-term growth, the size and value of grants made to other executives at peer companies holding comparable positions, individual achievement of designated performance goals, and the Company’s overall performance relative to corporate objectives.
Under the terms of our 2003 Equity Incentive Plan and our 2005 Equity Incentive Plan, pursuant to which all new equity grants are currently made, the exercise price of any stock options awarded under the Planthese plans must be equal to at least 100% of the fair market value of our common stock (the closing sales price on the NASDAQ Global Market) on the date of grant. We do not have any program, plan or obligation that requires us to grant equity awards on specified dates, although historically we have made annual grants to existing officers and employees two full trading days after our initial release of year-end earnings results, to new hires uponon a fixed schedule within one month of the commencement of their employment, and periodically in connection with broader compensation surveys, as was the case with the awards granted in July 2008.surveys. We also do not have any program, plan or practice to time stock option grants to our executive officers in coordination with the release of material nonpublic information, other than our practice to grant optionsissue annual option awards two full trading days after our initial release of year-end earnings results. Equity awards may occasionally be granted following a significant change in job responsibilities or to meet other special retention or performance objectives. Additionally, executive officers are eligible to receive equity compensation in the form of restricted stock awards, which may also be granted as awards of restricted stock units, from our 2003 Equity Incentive Plan and our 2005 Equity Incentive Plan.
units.Authority to make equity grants to employees rests with the Compensation Committee. With respect to executive officers, recommendations for equity grants are made by our external compensation consultant, Radford, and then reviewed by the Chief Executive Officer before being sent to the Compensation Committee for review and approval.consideration. The Compensation Committee Chairman has been delegated the authority to review and approve rewards to non-officer employees, within limits set by the Compensation Committee.
In addition, the Chief Executive Officer has been delegated the authority to review and approve new hire awards if they are consistent with the guidelines approved by the Compensation Committee.27
We believe that periodic equity awards serve as useful performance recognition mechanisms with respect to key employees, as most awards are subject to time-based vesting provisions. Our typical equity awards to executive officers (including the named executive officers) have a term of 10 years and vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the grant date and the remainder quarterly over the next three years. Occasionally the granting or vesting of an equity award may be made contingent on achievement of certain specific performance conditions, as was the case with the awards granted in July 2008.conditions. We believe that such periodic equity awards encourage executive officers to remain with usthe Company and also focus on our long-term performance as well as the achievement of specific performance goals.
Equity Grants Awarded and to be Awarded in Fiscal 2008 Equity Awards2012
In July 2008, Radford was directed byconsideration of the Company’s overall performance against the achievement of corporate goals for fiscal 2011, in November 2011 the Compensation Committee approved annual equity awards for the Company’s executive officers and employees. These annual equity awards have historically been awarded to performexisting officers and employees two full trading days after our initial release of year-end earnings results. For the 2012 fiscal year, the Compensation Committee approved granting annual equity awards, consistent with the recommendations presented by Radford in August 2011, representing a complete reviewmix of stock options and full-value restricted stock units to the Company’s executive officers at the 50th percentile level of the Company’s equity guidelines respective of each executive officer’s grade level. The Company’s equity guidelines are based on recommendations by Radford using market data regarding long-term incentives and equity compensation program, including equity ownership relative tofrom the Company’s list of new peer companies. BasedThe Compensation Committee works directly with Radford and the Chairman of the Board to determine the annual equity award for the Chief Executive Officer. All annual equity awards granted in fiscal 2012 to executive officers, including Chief Executive Officer, have a term of 10 years and vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the peer data generated by Radford, Radford recommended,first anniversary of the grant date and the remainder quarterly over the next three years.
In addition to the annual equity grant awarded in fiscal 2012, the Compensation Committee approved a one-time performance-based grant to adjust equity ownership towards market competitive levels, targeted atin the 50th percentile. When Radford’s assessment was presented,form of restricted stock units, the majorityvesting of equity holdings by the Company’s executive officers who were expected to serve the Company for at least the next several years had minimal value, which gave rise to concerns in retaining the Company’s executives. The grant was tied to performance milestones primarily centered on the Company’s Phase III program for Zenvia for the pseudobulbar affect (PBA) indication. The performance-based grant would tie pay to performance and would also provide continuous motivation around key performance objectives for the upcoming fiscal year. The performance grants vest over timecommences following the achievement of certain revenue levels during the goals, thus continuing2012 fiscal year. The performance-based grant is intended to providepromote executive retention, while tying compensation to the creation of meaningful stockholder value in a fashion that is consistent with the Company’s pay-for-performance philosophy. The performance-based grants will be granted at the same time as the annual equity awards, two full trading days after our initial release of year-end earnings results. The actual number of shares underlying these performance-based awards will be determined based on the actual achievement of the revenue goal in fiscal 2012. Once the goal is achieved, the number of shares underlying the award will be fixed and the time-based vesting will commence, vesting over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the vesting milestones by inducingcommencement date and the executives to remain employed.
The values ofremainder quarterly over the equity grants awarded to executive officers in fiscal 2008 as well as all compensation actions issued to the named executive officers in fiscal 2008 are reflected in the Summary Compensation Table.
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Employee Benefit Program
Executive officers are eligible to participate in all of our employee benefit plans, including medical, dental, vision, group life, disability and accidental death and dismemberment insurance, in each case on the same basis as other employees, subject to applicable law. We also provide vacation and other paid holidays to all employees, including executive officers, all of which we believe to be comparable to those provided at peer companies. These benefit programs are designed to enable us to attract and retain our workforce in a competitive marketplace. Health, welfare, and vacation benefits ensure that we have a productive and focused workforce through reliable and competitive health and other benefits.
Our retirement savings plan (401(k) Plan) is a tax-qualified retirement savings plan, pursuant to which all employees, including the named executive officers, are able to contribute certain amounts of their annual compensation, subject to limits prescribed by the Internal Revenue Service. We make matching contributions of up to 50% of the first 4% of salary contributed to the plan. The value of these benefits for each of our named executive officers is reflected in the “All Other Compensation” column of the Summary Compensation Table. Further information about the performance-based grants is reflected in the Outstanding Equity Awards at Fiscal Year-End table.
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Change of Control Arrangements
We have entered into change of control agreements with each of our named executive officers. Our Board of Directors approved these change of control agreements in order to mitigate some of the risk that exists for executives working in a biopharmaceutical company at our current stage of development and where the possibility exists that we may be acquired if our development efforts succeed. These arrangements are intended to attract and retain highly skilled executives who have alternatives that may appear to them to be less risky absent these arrangements and to mitigate a potential disincentive to consider and complete an acquisition, particularly where the services of these executive officers may not be required by the acquirer. These agreements provide change of control benefits either upon the termination of the employee’s service, a significant change in job responsibilities or the need to relocate within 12 months following a change of control. By using a so-called “double trigger” change of control benefit, and thereby tying the severance benefit both to these criteria,a change in control and change in job status, rather than the mere consummation of a change of control transaction, the Compensation Committee believes that it is better able to balance the employee’s need for certainty with the interests of our shareholders.
stockholders.Additionally, our named executive officers may be entitled to acceleration benefits under stock option and equity incentive plans. Our 2003 Equity Incentive Plan contains certain acceleration benefits providing for the accelerated vesting of equity awards in the event of a change of control if such awards are not assumed or substitute awards are issued. Our 2005 Equity Incentive Plan contains similar provisions, as well as a “double trigger” acceleration benefit that applies if services are terminated for certain reasons within 12 months following a change of control. We believe that these “double trigger” acceleration benefits are common practice among comparable companies.
Information regarding the change of control agreements and the potential value of payments upon termination or change of control is provided for the named executive officers under the headings “Employment, Change of Control and Severance Arrangements” and “Potential Payments Upon Termination or Change of Control.”
Compensation of our Current Named Executive Officers
Keith Katkin. Mr. Katkin is compensated with a base salary and, depending on performance and our financial condition, an annual incentive bonus in an amount targeted at 50% of his then-current annual base salary, as well as the annual grant of an equity award. In November 2008,2011, his base salary was increased by 9.9%2.0% to $373,248,$505,716, effective as of October 1, 2008.2011, representing a merit-based increase for fiscal 2011 performance. In addition, Mr. Katkin is eligible to receive an additional 5.0% increase following the achievement of a certain revenue level during the 2012 fiscal year. This change inadditional base salary represents a 4.2% merit-based increase from fiscal 2008 and an additional 5.7% merit-based increase that was awarded uponis consistent with the decision made by the Compensation Committee’s approvalCommittee in 2010 to adjust base salaries over a three-year period, starting in fiscal 2011, for the Company’s executive officers to competitive levels at or near the 50th50th percentile as compared to the Company’s new peer group. The potential total change in Mr. Katkin also received an aggregate of upKatkin’s base salary, including the merit-based increase and salary adjustment, is expected to 689,700 stock options (based onraise his base compensation between the probable dates of achievement for each25th and 50th percentile of the performance goals) as part of the performance-based grants approved by the Compensation Committee in July 2008. These performance-based grants start vesting only upon the successful achievement of the performance goals. If the performance goals are not met by certain dates, the
29
number of awards will be reduced and will ultimately drop to zero. Additionally, onnew peer group. On December 16, 2008,15, 2011, two trading days after our initial release of year-end earnings results, Mr. Katkin received an annual equity award representing a mix of stock options and full-value restricted stock units, in which he received an option to purchase 337,500 shares of common stock and a grant of 446,40030,000 restricted stock optionsunits, which will vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the grant date and the remainder quarterly over the next three years.
In addition, Mr. Katkin was awarded on December 15, 2011 a performance-based grant of a restricted stock unit representing the right to receive up to 97,000 shares of common stock. The grant is tied to a performance milestone relating to the achievement of certain revenue levels during the 2012 fiscal year, with the actual number of shares underlying the award to be determined following the achievement of the performance milestone. This grant will vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the vesting commencement date and the remainder quarterly over the next three years.Randall Kaye.Joao Siffert, M.D. Dr. Kaye,Siffert, our Senior Vice President of Research and Chief Medical Officer,Development, is compensated with a base salary and, depending on performance and our financial condition, an annual incentive bonus in an amount
29
targeted at 40% of his then-current annual base salary. In November 2008, Dr. Kaye’s2011, his base salary was increased by 4.2%2.75%, prorated based on the start of his employment with the Company, to $326,667,$351,604, effective as of October 1, 2008, in2011, representing a merit-based increase for fiscal 2009. Dr. Kaye also received an aggregate of up to 271,700 stock options (based on the probable dates of achievement for each of the performance goals) as part of the performance-based grants approved by the Compensation Committee in July 2008. These performance-based grants start vesting only upon the successful achievement of the performance goals. If the performance goals are not met by certain dates, the number of awards will be reduced and will ultimately drop to zero. Additionally, on2011 performance. On December 16, 2008,15, 2011, two trading days after our initial release of year-end earnings results, Dr. KayeSiffert received an annual equity award representing a mix of stock options and full-value restricted stock units, in which he received an option to purchase 56,250 shares of common stock and a grant of 185,0008,125 restricted stock optionsunits, which will vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the grant date and the remainder quarterly over the next three years.
In addition, Dr. Siffert was awarded on December 15, 2011 a performance-based grant of a restricted stock unit representing the right to receive up to 21,375 shares of common stock. The grant is tied to a performance milestone relating to the achievement of certain revenue levels during the 2012 fiscal year, with the actual number of shares underlying the award to be determined following the achievement of the performance milestone. This grant will vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the vesting commencement date and the remainder quarterly over the next three years.Christine Ocampo. In February 2008, Ms. Ocampo, was appointed as our Vice President Finance. Ms. Ocampoof Finance, is compensated with a base salary and, depending on performance and our financial condition, an annual incentive bonus in an amount targeted at 30% of her then-current annual base salary. In November 2008,2011, her base salary was increased by 9.9%2.0% to $197,820,$224,562, effective as of October 1, 2008.2011, representing a merit-based increase for fiscal 2011 performance. In addition, Ms. Ocampo is eligible to receive an additional 5.5% increase following the achievement of a certain revenue level during the 2012 fiscal year. This change inadditional base salary represents a 4.2% merit-based increase from fiscal 2008 and an additional 5.7% merit-based increase that was awarded uponis consistent with the decision made by the Compensation Committee’s approvalCommittee in 2010 to adjust base salaries over a three-year period, starting in fiscal 2011, for the Company’s executive officers to competitive levels at or near the 50th50th percentile as compared to the Company’s new peer group. The potential total change in Ms. Ocampo also received an aggregate of upOcampo’s base salary, including the merit-based increase and salary adjustment, is expected to 167,200 stock options (based onraise her base compensation to the probable dates of achievement for each25th percentile of the performance goals) as part of the performance-based grants approved by the Compensation Committee in July 2008. These performance-based grants start vesting only upon the successful achievement of the performance goals. If the performance goals are not met by certain dates, the number of awards will be reduced and will ultimately drop to zero. Additionally, onnew peer group. On December 16, 2008,15, 2011, two trading days after our initial release of year-end earnings results, Ms. Ocampo received an annual equity award representing a mix of stock options and full-value restricted stock units, in which she received an option to purchase 90,000 shares of common stock and a grant of 130,0006,250 restricted stock optionsunits, which will vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the grant date and the remainder quarterly over the next three years.
In addition, Ms. Ocampo was awarded on December 15, 2011 a performance-based grant of a restricted stock unit representing the right to receive up to 13,750 shares of common stock. The grant is tied to a performance milestone relating to the achievement of certain revenue levels during the 2012 fiscal year, with the actual number of shares underlying the award to be determined following the achievement of the performance milestone. This grant will vest and become exercisable over a period of four years, with 25% of the underlying shares vesting on the first anniversary of the vesting commencement date and the remainder quarterly over the next three years.William J. Sibold. Mr. Sibold, our former Senior Vice President and Chief Commercial Officer, was compensated with a base salary and was deemed ineligible to receive any annual incentive award, or any other year-end compensation tied to the Company’s performance during the 2011 fiscal year, due to his resignation of employment with the Company on November 16, 2011.
Tax and Accounting Considerations
Deductibility of Executive Compensation. In making compensation decisions affecting our executive officers, the Compensation Committee considers our ability to deduct under applicable federal corporate income tax law compensation payments made to executives. Specifically, the Compensation Committee considers the requirements and impact of Section 162(m) of the Internal Revenue Code, which limits the tax deductibility to us of compensation in excess of $1.0 million in any year for certain executive officers, except for qualified “performance-based compensation” under the Section 162(m) rules. The Compensation Committee considers the Section 162(m) rules as a factor in determining compensation, but will not necessarily limit compensation to amounts deductible under Section 162(m). No covered executive’s compensation for Section 162(m) purposes exceeded $1.0 million for fiscal 2007.
2011.30
Accounting for Stock-BasedShare-Based Compensation. Effective October 1, 2005, we adoptedIn accordance with the fair value recognition provisions of SFAS No. 123(R) to account for all stock grants under all of our stock plans. Under SFAS No. 123(R),Financial Accounting Standards Board’s Accounting Standards Codification 718, we are required to estimate and record an expensethe value for each award of equity compensation at the measurement date using the fair value method and record an expense over the vestingservice period of the award. Although we assessed the desirability of granting shares of restricted stock to our executive officers and employees in lieu of stock option grants in light of the accounting impact of SFAS No. 123(R), we ultimately determined to retain our equity incentive program as the main component of our long-term compensation program as that program helps to align management performance with shareholder goals. Accounting rules also require us to record cash compensation as an expense at the time the obligation is incurred.
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Allocation of Compensation
There is no pre-established policy or target for the allocation of compensation. The factors described above, as well as the overall compensation philosophy, are reviewed to determine the appropriate level and mix of compensation. Historically, and inIn fiscal 2008,2011, the largest portion of compensation to named executive officersMr. Katkin, Dr. Siffert, Ms. Ocampo, and Mr. Sibold was granted in the form of base salary.
equity compensation.Timing of Compensation Actions
Compensation, including base salary adjustments, for our named executive officers is reviewed annually, usually in the first quarter of the fiscal year and upon promotion or other change in job responsibilities.
Minimum Stock Ownership Requirements
There are no minimum stock ownership guidelines for our executives or employees, although senior members of our management team are encouraged and expected to have a significant direct interest in the value of our common stock through open market purchasesand/or receipt of equity awards.
Our compensation policies are designed and are continually being developed to retain and motivate our executive officers and to reward them for outstanding individual and corporate performance.
Compensation Committee Report
The Compensation Committee of the Company has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the foregoing Compensation Discussion and Analysis be included in this proxy statement.
Submitted by the Compensation Committee of the Board of Directors
| | |
| | David J. Mazzo, Ph.D., Chairman |
David J. Mazzo, Ph.D., Chairman
Dennis G. Podlesak
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Summary Compensation Table
The following table summarizes compensation paid, awarded or earned for services rendered during fiscal 20082009, 2010 and 2011 by our President and Chief Executive Officer, our Senior Vice President, Research and Development, our Vice President, Finance and our former Senior Vice President and Chief MedicalCommercial Officer. To the extent such officers were executive officers of the Company during fiscal 2007, the table also summarizes compensation paid, awarded or earned for services rendered during fiscal 2007. We refer to these executive officers collectively as our “named executive officers.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Non-Equity
| | | | | | | | | | | | | |
| | | | | | | | | Plan
| | | | | | | | | | | | | |
Name and
| | Fiscal
| | | | | | Performance
| | | Option
| | | Stock
| | | All Other
| | | | |
Principal Position | | Year | | | Salary | | | Awards(1) | | | Awards(2) | | | Awards(2) | | | Compensation(3) | | | Total | |
| |
| Keith A. Katkin | | | 2008 | | | $ | 343,544 | | | $ | 210,568 | | | $ | 302,726 | | | $ | 266,843 | | | $ | 21,716 | | | $ | 1,145,397 | |
| President and Chief Executive Officer | | | 2007 | | | $ | 300,862 | | | $ | 150,000 | | | $ | 183,384 | | | $ | 151,453 | | | $ | 34,466 | | | $ | 820,165 | |
| Randall E. Kaye, M.D. | | | 2008 | | | $ | 317,117 | | | $ | 155,496 | | | $ | 101,870 | | | $ | 226,311 | | | $ | 27,814 | | | $ | 828,608 | |
| Senior Vice President and Chief Medical Officer | | | 2007 | | | $ | 285,075 | | | $ | 120,000 | | | $ | 94,112 | | | $ | 188,972 | | | $ | 15,685 | | | $ | 703,844 | |
| Christine G. Ocampo | | | 2008 | | | $ | 170,848 | | | $ | 62,878 | | | $ | 9,546 | | | $ | 26,056 | | | $ | 16,810 | | | $ | 286,138 | |
| Vice President, Finance | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Non-Equity | | | | | | | | | | | | | |
| | | | | | | | | Plan | | | | | | | | | | | | | |
| Name and | | Fiscal | | | | | | Performance | | | Option | | | Stock | | | All Other | | | | |
Principal Position | | Year | | | Salary | | | Awards(1) | | | Awards(2) | | | Awards(2) | | | Compensation(3) | | | Total | |
Keith A. Katkin | | | 2011 | | | $ | 495,800 | | | $ | 185,925 | | | $ | 1,368,640 | | | $ | 261,250 | | | $ | 24,023 | | | $ | 2,335,638 | |
President and Chief | | | 2010 | | | $ | 410,199 | | | $ | 307,649 | | | $ | 581,383 | | | $ | — | | | $ | 24,729 | | | $ | 1,323,960 | |
Executive Officer | | | 2009 | | | $ | 373,248 | | | $ | 235,146 | | | $ | 178,515 | | | $ | — | | | $ | 19,993 | | | $ | 806,902 | |
| | | | | | | |
Joao Siffert, M.D. (4) | | | 2011 | | | $ | 56,731 | | | $ | 89,578 | | | $ | 579,306 | | | $ | — | | | $ | 7,377 | | | $ | 732,992 | |
Senior Vice President, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and Development | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Christine G. Ocampo | | | 2011 | | | $ | 220,159 | | | $ | 57,173 | | | $ | 248,066 | | | $ | 47,025 | | | $ | 18,288 | | | $ | 590,711 | |
Vice President, Finance | | | 2010 | | | $ | 210,678 | | | $ | 94,805 | | | $ | 213,563 | | | $ | — | | | $ | 14,204 | | | $ | 533,250 | |
| | | 2009 | | | $ | 197,820 | | | $ | 75,963 | | | $ | 51,987 | | | $ | 94,875 | | | $ | 13,753 | | | $ | 434,398 | |
| | | | | | | |
William J. Sibold (4) | | | 2011 | | | $ | 154,808 | | | $ | — | | | $ | 850,325 | | | $ | 83,400 | | | $ | 9,664 | | | $ | 1,098,197 | |
Former Senior Vice President and Chief Commercial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | Annual bonuses are presented as “non-equity plan performance awards.” Such amounts are determined and paid after the end of each fiscal year, but reflect individual and Company performance for the respective fiscal years reflected above. |
|
| (2) | | TheThis column reflects the aggregate grant date fair value of the optionequity awards granted in 2011, 2010 or 2009 and stock awards summarized in the table for fiscal 2008 has been computedcalculated in accordance with SFAS No. 123(R), which requires that we recognize as compensation expenseFASB ASC 718, excluding the valueeffect of all stock-based awards, including stock options, granted to employees in exchange for their services over the requisite service period, which is typically the vesting period, but excluding forfeiture assumptions that are used in calculating equity award expense in the Company’s financial statements.estimated forfeitures. Assumptions used in the calculations for these amounts are includedset forth in Note 13the notes to our 2008 Consolidated Financial Statementsfinancial statements included in our Annual ReportReports onForm 10-K for the fiscal year ended September 30, 2008. The valueeach of the option and stock awards summarized in the table for fiscal 2007 has been computed in accordance with SFAS No. 123(R), which requires that we recognize as compensation expense the value of all stock-based awards, including stock options, granted to employees in exchange for their services over the requisite service period, which is typically the vesting period, but excluding forfeiture assumptions that are used in calculating equity award expense in the Company’s financial statements. Assumptions used in the calculations for these amounts are included in Note 13 to our 2008 Consolidated Financial Statements included in our Annual Report onForm 10-K for the fiscal year ended September 30, 2007.periods presented above. |
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| (3) | | “All Other Compensation” summarized in the table for fiscal 20082011 for Mr. Katkin consists of $17,056$19,123 in medical, dental, vision, disability and life insurance premiums paid by us and $4,660$4,900 in matching contributions made by us under our 401(k) Plan. “All Other Compensation” summarized in the table for fiscal 20072010 for Mr. Katkin consists of $16,972$19,829 in medical, dental, vision, disability and life insurance premiums paid by us $3,812 in matching contributions made by us under our 401(k) Plan and $13,682 in reimbursements for relocation expenses (which includes agross-up of $6,260). |
|
| | “All Other Compensation” summarized in the table for fiscal 2008 for Dr. Kaye consists of $24,016 in medical, dental, vision, disability and life insurance premiums and reimbursements paid by us and $3,798$4,900 in matching contributions made by us under our 401(k) Plan. “All Other Compensation” summarized in the table for fiscal 20072009 for Dr. KayeMr. Katkin consists of $15,685$14,831 in medical, dental, vision, disability and life insurance premiums paid by us. |
|
| | “All Other Compensation” for Ms. Ocampo consists of $16,810us and $5,162 in medical, dental, vision, disability and life insurance premiums paidmatching contributions made by us.us under our 401(k) Plan. |
“All Other Compensation” summarized in the table for fiscal 2011 for Dr. Siffert consists of $6,838 in health savings account contributions and medical, dental, vision, disability and life insurance premiums paid by us and $539 in matching contributions made by us under our 401(k) Plan.
“All Other Compensation” summarized in the table for Ms. Ocampo consists of medical, dental, vision, disability and life insurance premiums paid by us in the amount of $18,288 for fiscal 2011, $14,204 for fiscal 2010 and $13,753 for fiscal 2009.
“All Other Compensation” summarized in the table for fiscal 2011 for Mr. Sibold consists of $7,241 in medical, dental, vision, disability and life insurance premiums paid by us and $2,423 in matching contributions made by us under our 401(k) Plan.
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| (4) | This person was not a named executive officer prior to fiscal 2011. Therefore, compensation information for years prior to fiscal 2011 is not required. |
Grants of Plan-Based Awards
The following table sets forth certain information regarding grants of plan-based awards to the named executive officers during fiscal 2011.
| | | | | | | | | | | | | | | | | | | | |
Name | | Grant
Date | | | Performance Stock
Awards:
Number of
Shares of
Stock or Units
Granted
(#) | | | Option
Awards:
Number of
Securities
Underlying
Options
Granted
(#)(1) | | | Exercise
Price of
Option
Awards
($/Sh) | | | Grant Date
Fair Value of
Stock and
Option
Awards($)(2) | |
Keith A. Katkin | | | 12/1/2010 | | | | 62,500 | (3) | | | 400,000 | | | $ | 4.18 | | | $ | 1,629,890 | |
Joao Siffert, M.D. | | | 9/6/2011 | | | | — | | | | 260,000 | | | $ | 2.74 | | | $ | 579,306 | |
Christine G. Ocampo | | | 12/1/2010 | | | | 11,250 | (3) | | | 72,500 | | | $ | 4.18 | | | $ | 295,091 | |
William J. Sibold | | | 5/3/2011 | | | | 20,000 | (4) | | | 250,000 | | | $ | 4.17 | | | $ | 933,725 | |
| (1) | Options vest with respect to one quarter of the underlying shares on the first anniversary of the grant date, and then with respect to the remaining shares on a quarterly basis over the next three years so that the option is fully vested on the fourth anniversary of the grant date. |
| (2) | This column reflects the aggregate grant date fair value of equity awards granted in 2011 and calculated in accordance with FASB ASC 718, excluding the effect of estimated forfeitures. Assumptions used in the calculations for these amounts are set forth in the notes to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011. |
| (3) | Stock awards vest with respect to 50% of the underlying shares on the first anniversary of the grant date, and then with respect to the remaining 50% of the underlying shares on the second anniversary of the grant date. |
| (4) | Stock award vests with respect to one quarter of the underlying shares on the first anniversary of the grant date, and then with respect to the remaining shares on a quarterly basis over the next three years so that the award is fully vested on the fourth anniversary of the grant date. |
Outstanding Equity Awards at Fiscal Year-End
The following table shows information regarding outstanding equity awards at September 30, 20082011 for our named executive officers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| | | | | | | | | Equity
| | | | | | | | | | | | | |
| | | | | | | | | Incentive
| | | | | | | | | | | | | |
| | | | | | | | | Plan Awards:
| | | | | | | | | | | | | |
| | | | | | | | | Number of
| | | | | | | | | | | | Market
| |
| | | | | | | | | Securities
| | | | | | | | | Number
| | | Value of
| |
| | | | | | | | | Underlying
| | | | | | | | | of Shares
| | | Shares or
| |
| | | | | | | | | Unexercised
| | | Option
| | | | | | or Units
| | | Units of
| |
| | | Number of Securities
| | | Unearned
| | | Exercise
| | | Option
| | | of Stock that
| | | Stock that
| |
| | | Underlying Unexercised Options | | | Options
| | | Price
| | | Expiration
| | | Have Not Vested
| | | Have Not
| |
Name | | Exercisable | | | Unexercisable | | | (#) | | | ($) | | | Date | | | (#) | | | Vested ($)(1) | |
| |
| Keith A. Katkin | | | 56,250 | | | | 18,750 | (2) | | | — | | | $ | 11.76 | | | | 7/5/15 | | | | 32,400 | (2) | | $ | 18,792 | |
| | | | 6,875 | | | | 625 | (3) | | | — | | | $ | 11.68 | | | | 12/7/15 | | | | 53,126 | (4) | | $ | 30,813 | |
| | | | — | | | | 130,960 | (4) | | | — | | | $ | 1.29 | | | | 3/21/17 | | | | 473,194 | (4) | | $ | 274,453 | |
| | | | — | | | | 120,781 | (4) | | | — | | | $ | 2.41 | | | | 9/10/17 | | | | — | | | $ | — | |
| | | | — | | | | — | | | | 689,700 | (5) | | $ | 0.88 | | | | 7/25/15 | | | | — | | | $ | — | |
| Randall E. Kaye, M.D. | | | 23,439 | | | | 14,061 | (2) | | | — | | | $ | 15.84 | | | | 1/17/16 | | | | 32,400 | (2) | | $ | 18,792 | |
| | | | — | | | | — | | | | 271,700 | (5) | | $ | 0.88 | | | | 7/25/15 | | | | 357,143 | (4) | | $ | 207,143 | |
| Christine G. Ocampo | | | 7,500 | | | | 12,500 | (2) | | | — | | | $ | 1.20 | | | | 3/29/17 | | | | 57,500 | (4) | | $ | 33,350 | |
| | | | — | | | | — | | | | 167,200 | (5) | | $ | 0.88 | | | | 7/25/15 | | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| | | Number of Securities
Underlying Unexercised
Options | | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | | Number
of Shares
or Units
of Stock that
Have Not Vested
(#) | | | Market
Value of
Shares or
Units of
Stock that
Have Not
Vested ($)(1) | |
Name | | Exercisable | | | Unexercisable | | | | | |
Keith A. Katkin | | | 75,000 | | | | — | | | $ | 11.76 | | | | 7/5/15 | | | | 62,500 | (2) | | $ | 178,750 | |
| | | 7,500 | | | | — | | | $ | 11.68 | | | | 12/7/15 | | | | — | | | $ | — | |
| | | 130,960 | | | | — | | | $ | 1.29 | | | | 3/21/17 | | | | — | | | $ | — | |
| | | 120,781 | | | | — | | | $ | 2.41 | | | | 9/10/17 | | | | — | | | $ | — | |
| | | 425,082 | | | | 264,618 | | | $ | 0.88 | | | | 7/25/18 | | | | — | | | $ | — | |
| | | 111,600 | | | | 139,500 | | | $ | 0.53 | | | | 12/16/18 | | | | — | | | $ | — | |
| | | 182,700 | | | | 234,900 | | | $ | 1.74 | | | | 11/27/19 | | | | — | | | $ | — | |
| | | — | | | | 400,000 | | | $ | 4.18 | | | | 12/1/20 | | | | — | | | $ | — | |
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| | | Number of Securities
Underlying Unexercised
Options | | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | | Number
of Shares
or Units
of Stock that
Have Not Vested
(#) | | | Market
Value of
Shares or
Units of
Stock that
Have Not
Vested ($)(1) | |
Name | | Exercisable | | | Unexercisable | | | | | |
Joao Siffert, M.D. | | | — | | | | 260,000 | | | $ | 2.74 | | | | 9/6/21 | | | | — | | | $ | — | |
Christine G. Ocampo | | | 3,750 | | | | — | | | $ | 1.20 | | | | 3/29/17 | | | | 11,250 | (2) | | $ | 32,175 | |
| | | 82,050 | | | | 64,150 | | | $ | 0.88 | | | | 7/25/18 | | | | — | | | $ | — | |
| | | 89,375 | | | | 40,625 | | | $ | 0.53 | | | | 12/16/18 | | | | — | | | $ | — | |
| | | 28,763 | | | | 86,287 | | | $ | 1.74 | | | | 11/27/19 | | | | — | | | $ | — | |
| | | — | | | | 72,500 | | | $ | 4.18 | | | | 12/1/21 | | | | — | | | $ | — | |
William J. Sibold | | | — | | | | 250,000 | | | $ | 4.17 | | | | 5/3/21 | | | | 20,000 | (3) | | $ | 57,200 | |
| | |
| (1) | | Calculated by multiplying the number of unvested shares by $0.58,$2.86, the closing price per share of our common stock on the NASDAQ Global Market on September 30, 2008.2011. |
|
| (2) | The total award vests 50% on the first anniversary of the date of grant and the remaining 50% on the second anniversary of the grant date. |
| (3) | The total award vests over four years, with 25% vesting on the first anniversary of the date of grant and the remainder vesting quarterly thereafter over the next three years. |
Option Exercises and Stock Vested
The following table sets forth the vesting in fiscal 2011 of shares of restricted stock or restricted stock units held by the named executive officers, as well as the options exercised by our named executive officers during fiscal 2011.
| | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| | | | | | Value | | | | | | Value | |
| | | Number of Shares | | | Realized | | | Number of Shares | | | Realized | |
| Name and | | Acquired on | | | on Exercise | | | Acquired on | | | on Vesting | |
Principal Position | | Exercise (#) | | | ($)(1) | | | Vesting (#) | | | ($)(1) | |
Keith A. Katkin | | | 195,300 | | | $ | 693,745 | | | | 3,600 | | | $ | 14,103 | |
Joao Siffert, M.D. | | | — | | | $ | — | | | | — | | | $ | — | |
Christine G. Ocampo | | | 47,350 | | | $ | 119,052 | | | | 28,750 | | | $ | 114,138 | |
William J. Sibold | | | — | | | $ | — | | | | — | | | $ | — | |
|
(3)(1) | | The total award vests over three years, with one-third vesting onRepresents the first anniversary ofdifference, if positive, between the date of grant and the remainder vesting quarterly thereafter over the next two years. |
|
(4) | | The total award vests with respect to 50%fair value of the underlying shares on the third anniversary of the grant date and with respect to the remaining shares on the earlier of the third anniversary of the grant date or acceptance by the FDA of the Company’s NDA for Zenvia for PBA. |
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(5) | | The total award is comprised of three grants each related to the achievement of a performance goal relating to the clinical development of Zenvia. Each grant vests over three and3/4 years, with one-sixteenth of each grant vesting on the achievement of the performance goal and the remainder vesting quarterly thereafter over the next three and1/2 years. The number of shares granted is variable basedcommon stock on the date of achievement. The number of shares shown as outstanding at September 30, 2008 is based onvesting and the probable dates of achievement for eachexercise price of the performance goals.award (if any); stock awards (granted as restricted stock units) do not have an exercise price. |
We do not have a defined benefit plan. Our named executive officers did not participate in, or otherwise receive any special benefits under, any pension or defined benefit retirement plan sponsored by us during fiscal 2008.
2011.Nonqualified Deferred Compensation
During fiscal 2008,2011, our named executive officers did not contribute to, or earn any amount with respect to, any defined contribution or other plan sponsored by us that provides for the deferral of compensation on a basis that is not tax-qualified.
Employment, Change of Control and Severance Arrangements
We have entered into employment agreements with each of the named executive officers. These agreements set forth the individual’s base salary, bonus compensation, equity compensation and other employee benefits, which are
34
described above in the Compensation Discussion and Analysis. All employment agreements provide for “at-will”
33
employment, meaning that either party can terminate the employment relationship at any time, although our agreements with our named executive officers provide that they would be eligible for severance benefits in certain circumstances following a termination of employment without cause. These arrangements are described below.
Change of Control Agreements. We have entered into change of control agreements with each of our currentnamed executive officers. The change of control agreements provide certain severance benefits to each officer if his or her employment is terminated within 12 months following a “change of control,” which shall have occurred if (i) any person or entity, including a group deemed to be a person under Section 14(d)(2) of the Exchange Act, becomes the “Beneficial Owner” (as defined inRule 13d-3 under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company’s securities entitled to vote in the election of directors of the Company; or (ii) as a result of or in connection with a proxy solicitation made by a third party pursuant to Regulation 14A of the Exchange Act, the individuals who were our directors immediately before the election cease to constitute a majority of the Board; or (iii) there occurs a reorganization, merger, consolidation or other corporate transaction to which we are a party and in which our shareholdersstockholders immediately prior to such transaction do not, immediately after such transaction, own more than 50% of the combined voting power of the Company; or (iv) all or substantially all of the assets of the Company are sold, liquidated or distributed, other than in connection with a bankruptcy, insolvency or other similar proceeding, or an assignment for the benefit of creditors.
These severance benefits will be paid only if (i) the termination of employment occurs subsequent to the signing of an agreement, the consummation of which would result in a change of control, or within 12 months following the change of control, and (ii) the termination was without “cause” or was a “resignation for good reason” (as such terms are defined). If these conditions are met for a particular officer, he or she will receive severance payments equal to either 12 months (for Vice Presidents), 18 months (for Ms. Ocampo) or 24 months (for Senior Vice Presidents and above) of base salary, plus an amount equal to the greater of (A) the aggregate bonus payment(s) received by such officer in the Company’s preceding fiscal year or (B) the officer’s then-current target bonus amount.amount; provided, however, that if the officer ceases to be employed due to a “disability change of control termination” (as defined in the change of control agreement), then the severance payment will be prorated by a fraction, the numerator of which is the number of days elapsed from the date of the change of control (or the signing of an agreement, the consummation of which will result in a change of control, if such death or disability occurs prior to the actual change of control) through the date of termination, and the denominator of which is 365. Additionally, the vesting of outstanding equity awards will accelerate and the officer will be entitled to up to 12 months of post-termination benefits continuation under COBRA. Mr.Messrs. Katkin and Sibold and Dr. Kaye,Siffert, as senior executive officers, are entitled to severance payments equal to 24 months of base salary, while Ms. Ocampo is entitled to severance payments equal to 1218 months of base salary.
Severance Benefits without a Change of Control. The employment agreement with Mr. Katkin confers certain severance benefits even in the absence of a change of control. In the event Mr. Katkin is terminated without cause“cause” or he resigns for good reason“good reason” (as such terms are defined) in the absence of a change of control, he will be eligible to receive severance benefits in an amount equal to one year of base salary, plus accelerated vesting of all outstanding equity awards.
Change of Control Provisions in Equity Plans. Under the Company’s 2003 and 2005 Equity Incentive Plans, in any change of control transaction (e.g., the acquisition of the Company by way of merger), if the successor corporation does not assume outstanding awards or issue substitute awards, then the vesting of such awards will accelerate so that they are fully exercisable. The Compensation Committee may also, in its discretion, elect to accelerate the vesting of any or all outstanding awards even if the successor corporation will assume such awards or provide for substitute awards. The vesting of certain options granted to non-employee directors under the 2005 Equity Incentive Plan will automatically accelerate immediately prior to any change of control transaction. Additionally, the 2005 Equity Incentive Plan provides that if a successor corporation assumes outstanding awards (or issues replacement awards) and the award holder is terminated without cause within 12 months following the change of control, then the vesting of awards then held by that person will automatically accelerate. In the event of a proposed dissolution or liquidation of the Company, the Board may cause awards granted under the 2003 and 2005 Equity Incentive Plans to be fully vested and exercisable (but not after their expiration date) before the dissolution is completed, but contingent on its completion.
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35
Potential Payments upon Termination or Change of Control
The table below shows the benefits potentially payable to each of our named executive officers if a change of control termination occurred on September 30, 2008.2011 (after giving effect to the compensation actions taken by the Compensation Committee in November 2011). The closing price per share of our common stock on The NASDAQ Global Market on September 30, 20082011 was $0.58.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accelerated
| | |
| | | | | | | Accelerated
| | Vesting of
| | |
| | | Base Salary
| | Target Bonus
| | Vesting of
| | Restricted
| | Total
|
Name | | ($) | | ($) | | Options(1) | | Stock(2) | | ($) |
| |
| Keith A. Katkin(3) | | $ | 679,250 | | | $ | 169,813 | | | $ | — | | | $ | 324,055 | | | $ | 1,173,118 | |
| Randall E. Kaye, M.D.(4) | | $ | 627,000 | | | $ | 125,400 | | | $ | — | | | $ | 225,935 | | | $ | 978,335 | |
| Christine G. Ocampo(5) | | $ | 180,000 | | | $ | 54,000 | | | $ | — | | | $ | 33,350 | | | $ | 267,350 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Base Salary | | | Bonus
Payment | | | Accelerated Vesting of | | | Accelerated Vesting of Restricted | | | Total | |
Name | | ($)(1) | | | ($) | | | Options($)(2) | | | Stock($)(3) | | | ($) | |
Keith A. Katkin (4) | | $ | 1,011,432 | | | $ | 252,858 | | | $ | 1,112,067 | | | $ | 178,750 | | | $ | 2,555,107 | |
Joao Siffert, M.D. (5) | | $ | 703,208 | | | $ | 105,000 | | | $ | 31,200 | | | $ | — | | | $ | 839,408 | |
Christine G. Ocampo (6) | | $ | 336,843 | | | $ | 67,369 | | | $ | 318,315 | | | $ | 32,175 | | | $ | 754,702 | |
William J. Sibold (7) | | $ | 700,000 | | | $ | 70,000 | | | $ | — | | | $ | 57,200 | | | $ | 827,200 | |
| | |
| (1) | Reflects potential payments based on salaries as of October 1, 2011. |
| (2) | The value of the accelerated vesting equals the difference (if positive) between the option exercise price and the last reported stock price for fiscal 20082011 ($0.58)2.86), multiplied by the number of options that would have been accelerated upon a change of control occurring on September 30, 2008. No outstanding options had an exercise price less than $0.58 at September 30, 2008.2011. |
|
(2) | (3) | The dollar value of restricted stock was calculated using the last reported stock price for fiscal 20082011 ($0.58)2.86). |
|
(3) | (4) | Based on 558,7161,039,018 shares underlying unvested stock options and 62,500 shares of restricted stock outstanding as of September 30, 2008.2011. |
|
(4) | (5) | Based on 389,543260,000 shares underlying unvested stock options outstanding as of September 30, 2011. |
| (6) | Based on 263,562 shares underlying unvested stock options and 11,250 shares of restricted stock outstanding as of September 30, 2008.2011. |
|
(5) | (7) | Based on 57,50020,000 shares of restricted stock outstanding as of September 30, 2008.2011. |
The table below shows the benefits potentially payable to Mr. Katkin if his employment was terminated on September 30, 2008,2011 without cause or if he chose to resign for good reason in the absence of a change of control.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accelerated
| | |
| | | | | | | Accelerated
| | Vesting of
| | |
| | | Base Salary
| | Target Bonus
| | Vesting of
| | Restricted
| | Total
|
Name | | ($) | | ($) | | Options(1) | | Stock(2) | | ($) |
| |
| Keith A. Katkin(3) | | $ | 339,625 | | | $ | — | | | $ | — | | | $ | 324,055 | | | $ | 663,680 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Base Salary | | | Bonus
Payment | | | Accelerated Vesting of | | | Accelerated Vesting of Restricted Stock | | | | |
Name | | ($) | | | ($) | | | Options($)(1) | | | ($)(2) | | | Total($)(3) | |
Keith A. Katkin | | $ | 505,716 | | | | N/A | | | $ | 1,112,067 | | | $ | 178,750 | | | $ | 1,796,533 | |
| | |
| (1) | | The value of the accelerated vesting equals the difference (if positive) between the option exercise price and the last reported stock price for fiscal 20082011 ($0.58)2.86), multiplied by the number of options that would have been accelerated upon a termination without cause or a resignation for good reason occurring on September 30, 2008. No outstanding options had an exercise price less than $0.58 at September 30, 2008.2011. |
|
| (2) | | The dollar value of restricted stock was calculated using the last reported stock price for fiscal 20082011 ($0.58)2.86). |
|
| (3) | | Based on 558,7161,039,018 shares underlying unvested stock options and 62,500 shares of restricted stock outstanding as of September 30, 2008.2011. |
We have established and maintain a retirement savings plan under Section 401(k) of the Internal Revenue Code. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a tax deferred basis through contributions to a 401(k) plan. Our 401(k) plan permits us to make matching contributions on behalf of eligible employees, and we currently make these matching contributions up to a maximum amount of 50% of the first 4% of salary contributed to the plan per year. In fiscal 2008,2011, the total value of the Company’s matching contributions on behalf of the named executive officers was $8,458.
35
36
DIRECTOR COMPENSATION
Non-Employee Director Compensation
A summary of the non-employee director compensation arrangements for fiscal 20092012 (effective October 1, 2008)2011) is set forth below.
| | | | | |
| | | Retainer and
| |
| | | Meeting Fees | |
| |
Annual Board Retainer Fee: | | | | |
| All non-employee directors | | $ | 40,000 | |
Annual Chairman Retainer Fees:* | | | | |
| Chairman of the Board | | $ | 25,000 | |
| Audit Committee Chairman | | $ | 25,000 | |
| Compensation Committee Chairman | | $ | 12,500 | |
| Corporate Governance or Science Committee Chairman | | $ | 10,000 | |
Annual Committee Member Retainer Fees:* | | | | |
| Audit Committee | | $ | 10,000 | |
| Compensation Committee | | $ | 5,000 | |
| Corporate Governance or Science Committee | | $ | 3,750 | |
| | | | |
| | | Retainer and
Meeting Fees | |
Annual Board Retainer Fee: | | | | |
All non-employee directors | | $ | 40,000 | |
Annual Chairman Retainer Fees:* | | | | |
Chairman of the Board | | $ | 25,000 | |
Audit Committee Chairman | | $ | 25,000 | |
Compensation Committee Chairman | | $ | 15,000 | |
Corporate Governance or Science Committee Chairman | | $ | 10,000 | |
Annual Committee Member Retainer Fees:* | | | | |
Audit Committee | | $ | 10,000 | |
Compensation Committee | | $ | 7,500 | |
Corporate Governance or Science Committee | | $ | 5,000 | |
| | |
| * | | These fees are in addition to the Annual Board Retainer Fee, as applicable. |
Non-employee directors are also reimbursed for their reasonable out-of-pocket expenses incurred in connection with attending Board and committee meetings and in attending continuing education seminars, to the extent that attendance is required by the Board or the committee(s) on which that director serves.
Until fiscal 2008, the Company had in place a standard equity compensation package that granted directors $100,000 annually in equity-based compensation. However, following the significant decline in the Company’s stock price following receipt of the Zenvia approvable letter in October 2006, the Board decided to reduce equity compensation in fiscal 2008. In fiscal 2008, non-employee directors were each2011, the Company awarded restricted stock units representing 56,91130,000 shares of common stock to each non-employee director, except for Mr. Wheeler who received restricted stock units representing 35,000 shares of common stock. These awards vest with respect to one-third of the underlying sharesover one year from the date of grant, and then with respect to the remaining shares monthly over the following two years.year. The total grant-date value of these awards to Messrs. Austin, Mathews and Podlesak and Drs. Mazzo and Whitcup was $70,000,$122,100, and the total grant-date value of the award to Mr. Wheeler was $142,450, based on a closing stock price of $1.23$4.07 on the NASDAQ Global Market on the date of grant. The non-employee directors elected to receive 30% lower equity compensation for fiscal 2008 based on the relatively low value of the Company’s common stock and the resulting increase in the number of shares that would have been needed to deliver the $100,000 of value targeted under the Company’s fiscal 2008 compensation policies.
For fiscal 2009, the Company plans to further reduce equity compensation to awards of restricted stock units representing 60,000 shares of common stock for non-employee directors and 120,000 shares of common stock for the Chairman of the Board. These awards will vest ratably over one year. The Board approved the decrease in the vesting period from three years to one year in recognition of the reduction in compensation. The Compensation Committee and the Board will reassessreassesses the appropriate level of equity compensation for non-employee directors in fiscal 2009.on an annual basis. Future equity compensation payments will be determined on ayear-by-year basis for the foreseeable future due to the volatility of the Company’s stock price.
36
The following table shows the compensation paid in fiscal 20082011 to the Company’s non-employee directors.
| | | | | | | | | | | | | | | | | |
| | | Fees
| | | | | | | | | | |
| | | Earned or
| | | | | | | | | | |
| | | Paid in
| | | Stock
| | | Option
| | | | |
Name | | Cash | | | Awards(1) | | | Awards(1) | | | Total | |
| |
| Stephen G. Austin(2) | | $ | 57,000 | | | $ | 71,140 | | | $ | — | | | $ | 128,140 | |
| Charles A. Mathews(3) | | $ | 55,750 | | | $ | 71,140 | | | $ | — | | | $ | 126,890 | |
| David J. Mazzo, Ph.D.(4) | | $ | 42,250 | | | $ | 71,140 | | | $ | 13,133 | | | $ | 126,523 | |
| Dennis G. Podlesak(5) | | $ | 39,250 | | | $ | 71,140 | | | $ | 7,460 | | | $ | 117,850 | |
| Nicholas J. Simon(6) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Craig A. Wheeler(7) | | $ | 64,000 | | | $ | 71,140 | | | $ | 15,519 | | | $ | 150,659 | |
| Scott M. Whitcup, M.D.(8) | | $ | 47,250 | | | $ | 71,140 | | | $ | 16,354 | | | $ | 134,744 | |
| | | | | | | | | | | | |
Name and Principal Position | | Fees
Earned or
Paid in
Cash | | | Stock
Awards(1) | | | Total | |
Stephen G. Austin | | $ | 70,000 | | | $ | 122,100 | | | $ | 192,100 | |
Charles A. Mathews | | $ | 60,000 | | | $ | 122,100 | | | $ | 182,100 | |
David J. Mazzo, Ph.D. | | $ | 56,250 | | | $ | 122,100 | | | $ | 178,350 | |
Dennis G. Podlesak | | $ | 48,750 | | | $ | 122,100 | | | $ | 170,850 | |
Craig A. Wheeler | | $ | 78,750 | | | $ | 142,450 | | | $ | 221,200 | |
Scott M. Whitcup, M.D. | | $ | 53,750 | | | $ | 122,100 | | | $ | 175,850 | |
| | |
| (1) | | The value of the stock and option awards has been computed in accordance with SFAS No. 123(R), which requires that we recognize as compensation expenseFASB ASC 718, excluding the valueeffect of all stock-based awards granted to employees in exchange for services over the requisite service period, which is typically the vesting period, but excluding forfeiture assumptions that weestimated forfeitures. Assumptions used in calculating equity award expensethe calculations for these amounts are included in notes to our financial statements included in our Annual Report on Form 10-K for the Company’s financial statements. Because 123(R) measures the compensation expense over the vesting period, which is typically three years, the figures in this table do not reflect the value of awards that were granted in any given fiscal year. |
|
(2) | | Mr. Austin held 107,594 shares underlying restricted stock awards and 10,000 shares underlying outstanding option awards as ofyear ended September 30, 2008. |
|
(3) | | Mr. Mathews held 107,594 shares underlying restricted stock awards and 15,000 shares underlying outstanding option awards as of September 30, 2008. |
|
(4) | | Dr. Mazzo held 107,594 shares underlying restricted stock awards and 6,250 shares underlying outstanding option awards as of September 30, 2008. |
|
(5) | | Mr. Podlesak held 107,594 shares underlying restricted stock awards and 6,250 shares underlying outstanding option awards as of September 30, 2008. |
|
(6) | | Mr. Simon joined the board in May 2008. To date, he has elected to forego any equity or cash compensation to which he would otherwise be entitled as a non-employee director. |
|
(7) | | Mr. Wheeler held 107,594 shares underlying restricted stock awards and 6,250 shares underlying outstanding option awards as of September 30, 2008. |
|
(8) | | Dr. Whitcup held 107,594 shares underlying restricted stock awards and 6,250 shares underlying outstanding option awards as of September 30, 2008.2011. |
37
REPORT OF THE AUDIT COMMITTEE
The Audit Committee evaluates auditor performance, manages relations with the Company’s independent registered public accounting firm, and evaluates policies and procedures relating to internal control systems. The Audit Committee operates under a written Audit Committee Charter that has been adopted by the Board, of Directors, a copy of which is available on the Company’s website atwww.Avanir.comwww.avanir.com. All members of the Audit Committee currently meet the independence and qualification standards for Audit Committee membership set forth in the listing standards provided by NASDAQ and the SEC.
Other than Mr. Austin, the Audit Committee members are not professional accountants or auditors. The members’ functions are not intended to duplicate or to certify the activities of management and the independent registered public accounting firm. The Audit Committee serves a board-level oversight role in which it provides advice, counsel and direction to management and the auditors on the basis of the information it receives, discussions with management and the auditors, and the experience of the Audit Committee’s members in business, financial and accounting matters.
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors.Board. The Company’s management has the primary responsibility for the financial statements and reporting process, including the Company’s system of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed with management the audited financial statements included in the Annual Report onForm 10-K for the fiscal year ended September 30, 2008.2011. This review included a discussion of the quality and the acceptability of the Company’s financial reporting, including the nature and extent of disclosures in the financial statements and the accompanying notes. The Audit Committee also reviewed the progress and results of the testing of the design and effectiveness of its internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.
The Audit Committee also reviewed with the Company’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of the audited financial statements with accounting principles generally accepted in the United States of America, their judgments as to the quality and the acceptability of the Company’s financial reporting and such other matters as are required to be discussed with the Committee under generally accepted auditing standards, including Statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the Public Company Accounting Oversight Board. The Audit Committee discussed with the independent registered public accounting firm their independence from management and the Company, including the matters required by the applicable rules of the Public Company Accounting Oversight Board.
In addition to the matters specified above, the Audit Committee discussed with the Company’s independent registered public accounting firm the overall scope, plans and estimated costs of their audit. The Committee met with the independent registered public accounting firm periodically, with and without management present, to discuss the results of the independent registered public accounting firm’s examinations, the overall quality of the Company’s financial reporting and the independent registered public accounting firm’s reviews of the quarterly financial statements, and drafts of the quarterly and annual reports.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements should be included in the Company’s Annual Report onForm 10-K for the fiscal year ended September 30, 2008.
2011.Submitted by the Audit Committee of the Board of
Directors
| | |
| | Stephen G. Austin, Chairman |
Stephen G. Austin, Chairman
Charles A. Mathews
38
OTHER BUSINESS
We know of no other matters to be submitted to a vote of shareholdersstockholders at the annual meeting. If any other matter is 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 shareholderstockholder to nominate a candidate or to submit a proposal for other business to be acted upon at a given annual meeting, he or she must provide timely written notice to our corporate secretary in the form prescribed by our bylaws,Bylaws, as described below.
SHAREHOLDERSTOCKHOLDER PROPOSALS
ShareholderStockholder proposals intended to be included in next year’sthe 2013 annual meeting proxy materials must be received by the Secretary of the Company no later than September 11, 20095, 2012, or otherwise as permitted by applicable law (the ““Proxy Deadline”Deadline”). The form and substance of these proposals must satisfy the requirements established by the Company’s bylawsBylaws and the SEC. The same deadlines will apply regardlessSEC, and the timing for the submission of whether theany such proposals may be subject to change as a result of domicile is completed.
changes in SEC rules and regulations.Additionally, shareholdersstockholders who intend to present a shareholderstockholder proposal at the 20092013 annual meeting must provide the Secretary of the Company with written notice of the proposal between 90 and 120 days prior to the date of the annual meeting,provided, however, that if the 20102013 annual meeting date is advanced by more than 30 days before or delayed by more than 60 days after the anniversary date of the 20092012 annual meeting, then shareholdersstockholders must provide notice within time periods specified in our bylaws.Bylaws. Notice must be tendered in the proper form prescribed by our bylaws.Bylaws. Proposals not meeting the requirements set forth in our bylawsBylaws will not be entertained at the meeting. If Proposal No. 3 is approved and the reincorporation is effected, then notice of proposals and nominees will need to be provided in the manner and time periods set forth in the Avanir Delaware bylaws, which are attached to this Proxy Statement as Annex C.
Additionally, any shareholderstockholder seeking to recommend a director candidate or any director candidate who wishes to be considered by the Corporate Governance Committee, the committee that recommends a slate of nominees to the Board for election at each annual meeting, must provide the Secretary of the Company with a completed and signed biographical questionnaire on or before the Proxy Deadline. ShareholdersStockholders can obtain a copy of this questionnaire from the Secretary of the Company upon written request. The Corporate Governance Committee is not required to consider director candidates received after this date or without the required questionnaire. The Corporate Governance Committee will consider all director candidates who comply with these requirements and will evaluate these candidates using the criteria described above under the caption, “Nomination of Directors.” Director candidates who are then approved by the Board will be included in the Company’s proxy statement for that annual meeting.
39
Delivery of Proxy MaterialsDELIVERY OF PROXY MATERIALS
Our annual report to shareholdersstockholders for the fiscal year ended September 30, 2008,2011, including audited financial statements, accompanies this proxy statement.Proxy Statement. Copies of our Annual Report onForm 10-K for fiscal 20082011 and the exhibits thereto are available from the Company without charge upon written request of a shareholder.stockholder. Copies of these materials are also available online through the Securities and Exchange Commission atwww.sec.gov. The Company may satisfy SEC rules regarding delivery of proxy materials, including the proxy statement, annual report and Notice, by delivering a single Notice and, if applicable, a single set of proxy materials to an address shared by two or more Company shareholders.stockholders. This delivery method can result in meaningful cost savings for the Company. In order to take advantage of this opportunity, the Company may deliver only one Notice and, if applicable, a single set of proxy materials to multiple shareholdersstockholders who share an address, unless contrary instructions are received prior to the mailing date. Similarly, if you share an address with another shareholderstockholder and have received multiple copies of our Noticeand/or other proxy materials, you may write or call us at the address and phone number below to request delivery of a single copy of the Notice and, if applicable, other proxy materials in the future. We undertake to deliver promptly upon written or oral request a separate copy of the Notice and, if applicable, other proxy materials, as requested, to a shareholderstockholder at a shared address to which a single copy of the Noticeand/or other proxy materials was delivered. If you hold stock as a record shareholderstockholder and prefer to receive separate copies of a Notice and, if applicable, other proxy materials either now or in the future, please contact the Company’s investor relations department at 10120 Enterprise, Suite 300,200, Aliso Viejo California 92656 or by telephone at(949) 389-6700. If your stock is held through a brokerage firm or bank and you prefer to receive separate copies of a Notice and, if applicable, other proxy materials either now or in the future, please contact your brokerage firm or bank.
EACH SHAREHOLDERSTOCKHOLDER IS URGED TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN
39
40
ANNEX A
COMPARISON OF RIGHTS
The following summary compares certain material rights of shareholders and the duties of directors and officers in Avanir California versus Avanir Delaware. This comparison is based on the charter documents of the two companies, as well as relevant portions of the California Corporations Code (“CCC”) and the General Corporation Law of the State of Delaware (“DGCL”).
Change in Number of Directors
Both the California Bylaws and the Delaware Bylaws establish a range of five to nine directors. Under the CCC the size of the board, because it is classified, must be at least nine directors. Following the reincorporation, Avanir Delaware would be expected to initially have a board with eight directors. Under the CCC, a board of directors may fix the exact number of directors within a stated range set forth in either the articles of incorporation or bylaws, so long as that stated range has been approved by the shareholders. The DGCL permits the board of directors alone to change the authorized number of directors by amendment to the bylaws or in the manner provided in the bylaws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number of directors may be made only by an amendment of such certificate, which would require a vote of shareholders.
Cumulative Voting
Shareholders of Avanir California do not have the right to cumulate votes in the election of directors. Similarly, shareholders of Avanir Delaware would not have the right of cumulative voting.
Filling Vacancies on the Board of Directors
Under the CCC, the board may fill vacancies on the board of directors (other than a vacancy created by removal of a director). If the number of directors is less than a quorum, a vacancy may be filled by (i) the unanimous written consent of the directors then in office, (ii) the affirmative vote of a majority of the directors at a meeting held pursuant to notice or waivers of notice, or (iii) a sole remaining director. The board may fill a vacancy created by removal of a director only if authorized by a corporation’s articles of incorporation or by a bylaw approved by the corporation’s shareholders. Avanir California’s Articles of Incorporation and Bylaws do not authorize directors to fill vacancies created by removal of a director; rather, a vacancy created by removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the unanimous written consent of the shareholders.
Under the DGCL, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director, unless otherwise provided in the certificate of incorporation or bylaws.
Shareholder Proposal Notice Provisions
There is no specific statutory provision under either the CCC or the DGCL relating to advance notice of director nominations and shareholder proposals. The bylaws for both Avanir California and Avanir Delaware require a shareholder’s notice to be delivered to, or mailed and received at, the Company’s principal executive office not less than 90 days nor more than 120 days prior to a scheduled annual meeting, provided that if the meeting date is moved more than 30 days before or after the anniversary of the prior year’s meeting, then notice shall be required to be given within 10 days from the time that the annual meeting date is first publicly announced.
Shareholder Power to Call Special Shareholders’ Meeting
A special meeting of shareholders for Avanir California may be called by the board of directors, the Chairman of the Board, the President and Chief Executive Officer, or the holders of shares entitled to cast not less than ten percent (10%) of the votes at such meeting. Shareholders of Avanir Delaware do not have the ability to call special meetings.
A-1
Dividends and Repurchase of Shares
Under the CCC, a corporation may not make any distribution (including dividends, whether in cash or other property, and including repurchases of its shares) unless either (1) the corporation’s retained earnings immediately prior to the proposed distribution equal or exceed the amount of the proposed distribution or, (2) immediately after giving effect to such distribution, the corporation’s assets (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to 11/4 times its liabilities (not including deferred taxes, deferred income and other deferred credits), and the corporation’s current assets, as defined, would be at least equal to its current liabilities (or 11/4 times its current liabilities if the average pre-tax and pre-interest earnings for the preceding two fiscal years were less than the average interest expenses for such years). Such tests are applied to California corporations on a consolidated basis. Under California law, there are certain exceptions to the foregoing rules for repurchases of shares in connection with certain rescission actions and certain repurchases pursuant to employee stock plans.
The DGCL imposes similar solvency limitations on a corporation’s ability to make distributions to shareholders. Delaware law only permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declaredand/or for the preceding fiscal year as long as the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having preference upon the distribution of assets. In addition, Delaware law generally provides that a corporation may redeem or repurchase its shares only if such redemption or repurchase would not impair the capital of the corporation. In determining the amount of surplus of a Delaware corporation, the assets of the corporation, including stock of subsidiaries owned by the corporation, must be valued at their fair market value as determined by the board of directors, regardless of their historical book value.
Classified Board of Directors
Avanir California has a classified board that is divided into three classes, with directors in each class serving staggered three-year terms. Avanir Delaware will also have a classified board, with directors being divided into three classes. Director class assignments and terms as of the effective time of the change of domicile will remain consistent from Avanir California to Avanir Delaware.
Action by Written Consent of the Shareholders
Any action that may be taken at any annual or special meeting of shareholders of Avanir California may be taken without a meeting and without prior notice so long as a written consent, setting forth the action so taken, is signed by the holders of outstanding shares having no less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. Shareholders of Avanir Delaware do not have the ability to act by written consent.
Removal of Directors
Under the CCC, any director or the entire board of directors may be removed, with or without cause, with the approval of a majority of the outstanding shares entitled to vote. No director of a corporation whose board of directors is classified, however, may be removed (unless the entire board of directors is removed) if the number of votes cast against the removal would be sufficient to elect the director under cumulative voting.
Under the DGCL, a director of a corporation that does not have a classified board of directors or cumulative voting similarly may be removed, with or without cause, by a majority shareholder vote. In the case of a Delaware corporation having a classified board, a director may only be removed for cause, unless the certificate of incorporation otherwise provides. The Avanir Delaware charter does not grant shareholders the right to remove directors without cause.
Interested Director Transactions
Under both California and Delaware law, certain contracts or transactions in which one or more of a corporation’s directors has an interest are not void or voidable because of such interest provided that certain
A-2
conditions, such as obtaining the required approval and fulfilling the requirements of good faith and full disclosure, are met. With certain exceptions, the conditions are similar under California and Delaware law. Under California and Delaware law, (1) either the shareholders or the board of directors must approve any such contract or transaction after full disclosure of the material facts, and, in the case of board approval in California, the contract or transaction must also be “just and reasonable” to the corporation, or (2) the contract or transaction must have been “just and reasonable” (in California) or “fair” (in Delaware) as to the corporation at the time it was approved. In the latter case, California law explicitly places the burden of proof on the interested director. Under California law, to shift the burden of proof on the validity of the contract by shareholder approval, the interested director would not be entitled to vote his or her shares at a shareholder meeting with respect to any action regarding such contract or transaction. To shift the burden of proof on the validity of the contract by board approval, the contract or transaction must be approved by a majority vote of a quorum of the directors, without counting the vote of any interested directors (except that interested directors may be counted for purposes of establishing a quorum). Under Delaware law, if board approval is sought to shift the burden of proof on the validity of the contract, the contract or transaction must be approved by a majority of the disinterested directors (even if the disinterested directors represent less than a quorum). There are no known related party transactions with the Company that could not be so approved under California law but could be so approved under Delaware law.
Shareholder Approval of Certain Business Combinations
Under Section 203 of the DGCL (“Section 203”), certain business combinations with interested shareholders of Delaware corporations are subject to a three-year moratorium unless specified conditions are met. This provision of the DGCL is intended to serve as an anti-takeover device. There is no analogous provision under the CCC.
Bylaw Amendments
Bylaws may generally be amended by the board of directors under both the California Bylaws and the Delaware Bylaws. Where shareholder approval is required, the California Bylaws require a majority vote to amend the bylaws. The Delaware Bylaws require a 75% vote to amend the bylaws unless amendment is recommended by the board of directors, in which case only a majority vote is required.
Charter Amendments
The charter may generally be amended by the board of directors under both the Avanir California and Avanir Delaware charters. Where shareholder approval is required, the Avanir California charter requires a majority vote to amend the charter. Where shareholder approval is required to amend the Avanir Delaware charter, a majority vote is generally needed, except for amendment of the provisions pertaining to indemnification of directors, classification of directors and bylaw amendments, in which case a 75% vote is required.
Indemnification and Limitation of Liability
The CCC and the DGCL have similar laws respecting indemnification by a corporation of its officers, directors, employees and other agents. The laws of both states also permit corporations to adopt provisions in their charters and bylaws eliminating the liability of a director to the corporation or its shareholders for monetary damages for breach of the director’s fiduciary duty of care. However, both states limit the availability of indemnification for breaches of the duty of loyalty (i.e., self-dealing transactions) and for certain other actions, as described below. Both Avanir California and Avanir Delaware provide in their charter documents that the directors, officers, employees and agents shall be exculpated to the fullest extent permitted under applicable law.
Liability limits
Under the DGCL, directors’ monetary liability may not be eliminated or limited for (1) any breach of the director’s duty of loyalty to the corporation or its shareholders, (2) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (3) unlawful payment of dividends or unlawful stock purchases or redemption in violation of the DGCL, or (4) any transaction from which the director derived an improper personal benefit. In effect, under the Delaware law provision, a director could not be held liable for
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monetary damages to the Company for gross negligence or lack of due care in carrying out his or her fiduciary duties as a director so long as such gross negligence or lack of due care does not involve bad faith or a breach of his or her duty of loyalty to the Company. Under Delaware law, such limitation of liability provision does not affect the availability of non-monetary remedies such as injunctive relief or rescission.
Under the CCC, director’s monetary liability may not be eliminate or limited for: (1) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (2) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (3) any transaction from which a director derived an improper personal benefit, (4) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (5) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, (6) interested transactions between the corporation and a director in which a director has a material financial interest, and (7) liability for improper distributions, loans or guarantees.
Indemnification
Indemnification is permitted by both California and Delaware law, provided that the requisite standard of conduct is met. California law requires indemnification when the individual has successfully defended the action on the merits, whereas Delaware law requires indemnification relating to a successful defense on the merits or otherwise.
California law generally permits indemnification of expenses, judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with a derivative or third-party action, provided there is a determination by (a) majority vote of a quorum of disinterested directors, (b) independent legal counsel in a written opinion if such a quorum of directors is not obtainable (c) shareholders, with the shares owned by the person to be indemnified not being entitled to vote thereon, if any, or (d) the court in which the proceeding is or was pending upon application made by the corporation, agent or other person rendering services in connection with the defense, whether or not the application by such person is opposed by the corporation, that the person seeking indemnification has satisfied the applicable standard of conduct.
With respect to derivative actions, however, no indemnification may be provided under California law for amounts paid in settling or otherwise disposing of a pending action or expenses incurred in defending a pending action that is settled or otherwise disposed of, or with respect to the defense of any person adjudged to be liable to the corporation in the performance of his or her duty to the corporation and its shareholders without court approval. In addition, by contrast to Delaware law, California law requires indemnification only when the individual being indemnified was successful on the merits in defending any action, claim, issue or matter.
Delaware law generally permits indemnification of expenses, judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with a derivative or third-party action, provided that there is a determination by (a) a majority vote of disinterested directors (even though less than a quorum), (b) a committee comprised of and established by such disinterested directors (even though less than a quorum), (c) independent legal counsel in a written opinion if there are no such directors or such directors so direct, or (d) the shareholders that the person seeking indemnification has satisfied the applicable standard of conduct. Without requisite court approval, however, no indemnification may be made in the defense of any derivative action in which the person is found to be liable in the performance of his or her duty to the corporation.
Expenses incurred by an officer or director in defending an action may be paid in advance, under Delaware law and California law, if such director or officer undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification. In addition, the laws of both states authorize a corporation’s purchase of indemnity insurance for the benefit of its officers, directors, employees and agents whether or not the corporation would have the power to indemnify against the liability covered by the policy. California law permits a California corporation to provide rights to indemnification beyond those provided therein to the extent such additional indemnification is authorized in the corporation’s articles of incorporation. Thus, if so authorized, rights to indemnification may be provided pursuant to agreements or bylaw provisions that make mandatory the permissive
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indemnification provided by California law. The California Articles permit indemnification beyond that expressly mandated by California law and limit director monetary liability to the extent permitted by California law. Delaware law also permits a Delaware corporation to provide indemnification in excess of that provided by statute. By contrast to California law, Delaware law does not require authorizing provisions in the certificate of incorporation and does not contain express prohibitions on indemnification in certain circumstances. Limitations on indemnification may be imposed by a court, however, based on principles of public policy. The Delaware Bylaws generally require indemnification to the maximum extent permissible under applicable law.
Avanir California has entered into indemnification agreements with its directors and officers that provide indemnification to the fullest extent permitted by California law. If the reincorporation is approved, Avanir directors and officers would be covered by the indemnification agreements with Avanir Delaware. The Delaware indemnification agreements provide indemnification to the fullest extent permitted by current Delaware law and future Delaware law that expands the permissible scope of indemnification.
The indemnification and limitation of liability provisions of California law, and not Delaware law, will apply to actions of the directors and officers of Avanir California occurring prior to the proposed reincorporation.
Inspection of Shareholders’ List
Both California and Delaware law allow any shareholder to inspect the shareholders’ list for a purpose reasonably related to such person’s interest as a shareholder. California law provides, in addition, for an absolute right to inspect and copy the corporation’s shareholders’ list by a person or persons holding 5% or more of a corporation’s voting shares, or any shareholder or shareholders holding 1% or more of such shares who have contested the election of directors. Delaware law does not provide for any such absolute right of inspection. However, shareholders have rights under federal proxy solicitation regulations to either obtain a copy of the shareholders’ list or have the corporation mail proxy materials. These rights would be unaffected by the reincorporation.
Approval of Certain Corporate Transactions
Under both California and Delaware law, with certain exceptions, any merger, consolidation or sale of all or substantially all assets must be approved by the board of directors and by a majority of the outstanding shares entitled to vote. Under California law, similar board and shareholder approval is also required in connection with certain additional acquisition transactions. See “Appraisal Rights” and “Voting and Appraisal Rights in Certain Reorganizations.”
Appraisal Rights
Under both California and Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under varying circumstances, be entitled to appraisal rights, pursuant to which such shareholder may receive cash in the amount of the fair market value of the shares held by such shareholder in lieu of the consideration such shareholder would otherwise receive in the transaction. Under Delaware law, such appraisal rights are not available to (1) shareholders with respect to a merger or consolidation by a corporation the shares of which are either listed on a national securities exchange or are held of record by more than 2,000 holders if such shareholders receive only shares of the surviving corporation, shares of any other corporation that are either listed on a national securities exchange or held of record by more than 2,000 holders, cash in lieu of fractional shares, or any combination of the foregoing, or (2) shareholders of a corporation surviving a merger if no vote of the shareholders of the surviving corporation is required to approve the merger because, among other things, the number of shares to be issued in the merger does not exceed 20% of the shares of the surviving corporation outstanding immediately prior to the merger and if certain other conditions are met.
The limitations on the availability of appraisal rights under California law are somewhat different from those under Delaware law. Shareholders of a California corporation whose shares are listed on a national securities exchange or the NASDAQ Global Market generally do not have such appraisal rights unless the holders of at least 5% of the class of outstanding shares claim the right or the corporation or any law restricts the transfer of such shares. Also, under California law, shareholders of a corporation involved in a reorganization are not entitled to
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dissenters’ rights if the corporation, or its shareholders immediately before the reorganization, or both, will own immediately after the reorganization more than five-sixths of the voting power of the surviving or acquiring corporation or its parent entity (as will be the case in the proposed reincorporation). Thus, appraisal rights are not available to shareholders of Avanir California under California law with respect to the reincorporation.
Voting and Appraisal Rights in Certain Reorganizations
Delaware law does not provide shareholders of a corporation with appraisal rights when the corporation acquires another business through the issuance of its stock (1) in exchange for the assets of the business to be acquired, (2) in exchange for the outstanding stock of the corporation to be acquired, or (3) in a merger of the corporation to be acquired with a subsidiary of the acquiring corporation. California law treats these kinds of acquisitions in the same manner as a direct merger of the acquiring corporation with the corporation to be acquired. See “Appraisal Rights.”
Dissolution
Under California law, shareholders holding 50% or more of the total voting power may authorize a corporation’s dissolution, with or without the approval of the corporation’s board of directors, and this right may not be modified by the articles of incorporation. Under Delaware law, unless the board of directors approves the proposal to dissolve, the dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initially approved by the board of directors may it be approved by a simple majority of the corporation’s outstanding stock. In the event of such a board-initiated dissolution, Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority-voting requirement in connection with dissolutions. Avanir Delaware’s Certificate of Incorporation contains no such supermajority-voting requirement, however, and the affirmative vote of a majority of the outstanding shares would be sufficient to approve a dissolution of Avanir Delaware which had previously been approved by the Delaware Company Board.
Shareholder Derivative Suits
California law provides that a shareholder bringing a derivative action on behalf of a corporation need not have been a shareholder at the time of the transaction in question, provided that certain tests are met. Under Delaware law, a shareholder may bring a derivative action on behalf of the corporation only if the shareholder was a shareholder of the corporation at the time of the transaction in question or if his or her stock thereafter came to be owned by him or her by operation of law. California law also provides that the corporation or the defendant in a derivative suit may make a motion to the court for an order requiring the plaintiff shareholder to furnish a security bond. Delaware does not have a similar bond requirement.
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ANNEX B
CERTIFICATE OF INCORPORATION
OF
AVANIR PHARMACEUTICALS, INC.
ARTICLE 1
The name of this Corporation is AVANIR Pharmaceuticals, Inc. (the “Corporation”).
ARTICLE 2
The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle, 19808. The name of the registered agent of the Corporation at that address is Corporation Service Company.
ARTICLE 3
The purpose of this Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the “DGCL”).
ARTICLE 4
4.1. This Corporation is authorized to issue a total of two hundred ten million shares (210,000,000), consisting of two classes of shares, designated respectively Common Stock (the “Common Stock”), and Preferred Stock (the “Preferred Stock”). The authorized number of shares of Common Stock is two hundred million (200,000,000), $0.0001 par value. The authorized number of shares of Preferred Stock is ten million (10,000,000), $0.0001 par value.
4.2. The Board of Directors of the Corporation (the “Board of Directors”) may divide the Preferred Stock into any number of series. The Board of Directors shall fix the designation and number of shares of each such series. The Board of Directors may determine and alter the rights, powers, preferences and privileges, and qualifications, restrictions and limitations thereof, including, but not limited to, voting rights, granted to and imposed upon any wholly unissued series of the Preferred Stock. The Board of Directors (within the limits and restrictions of any resolutions adopted originally fixing the number of shares of any series) may increase or decrease the number of shares of that series; provided, that no such decrease shall reduce the number of shares of such series to a number less than the number of shares of such series then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issues by the Corporation convertible into shares of such series.
ARTICLE 5
5.1. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director of the Corporation, except for liability (a) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended after the effective date of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL.
5.2. Any repeal or modification of this Article 5 by the stockholders of the Corporation or by an amendment to the DGCL shall not adversely affect any right or protection existing at the time of such repeal or modification with
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respect to any acts or omissions occurring either before such repeal or modification of a person serving as a director prior to or at the time of such repeal or modification.
ARTICLE 6
The name and the mailing address of the incorporator are as follows:
NameMailing Address
ARTICLE 7
The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III 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 2011 annual meeting of stockholders. The initial term of office of the Class II directors will expire at the 2012 annual meeting of stockholders. The initial term of office of the Class III directors will expire at the 2010 annual meeting of stockholders. At each annual meeting of stockholders, directors shall be elected for a term expiring at the annual meeting of stockholders held in the third year following the year of 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. No decrease in the number of authorized directors shall shorten the term of any incumbent director.
ARTICLE 8
The Board of Directors is expressly empowered to amend or repeal the bylaws of the Corporation. The bylaws of the Corporation may also be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose as provided in the bylaws, by the affirmative vote of at least 75% of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that the stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the bylaws of the Corporation.
ARTICLE 9
The Corporation reserves the right to amend or repeal this Certificate of Incorporation in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. Whenever any vote of the holders of voting stock is required to amend or repeal any provision of this Certificate of Incorporation, and in addition to any other vote of holders of voting stock that is required by this Certificate of Incorporation or by law, such amendment or repeal shall require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, at a duly constituted meeting of stockholders called expressly for such purpose; provided, however, that the affirmative vote of not less than 75% of the outstanding shares entitled to vote on such amendment or repeal, and the affirmative vote of not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, shall be required to amend or repeal any provision of Article 5, Article 7 or Article 8 of this Certificate of Incorporation.
IN WITNESS WHEREOF, the undersigned sole incorporator, for the purpose of forming a corporation under the laws of the State of Delaware do make, file and record this Certificate of Incorporation, do certify that the facts herein stated are true, and, accordingly, have hereto set my hand this day of , 200 .
Name:
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ANNEX C
BYLAWS
OF
AVANIR PHARMACEUTICALS, INC.
a Delaware corporation
(the “Corporation”)
ARTICLE I
Stockholders
Section 1.Annual Meeting. The annual meeting of stockholders (any such meeting being referred to in these Bylaws as an“Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these Bylaws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these Bylaws to an Annual Meeting or Annual Meetings also shall be deemed to refer to any special meeting(s) in lieu thereof.
Section 2.Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this Bylaw as to such nomination or business. For the avoidance of doubt, for a stockholder to bring nominations or business before an Annual Meeting (other than matters properly brought underRule 14a-8 (or any successor rule) under the Securities Exchange Act of 1934, as amended (the“Exchange Act”)), such stockholder must comply with the notice and other procedures set forth in Article I, Section 2 of this Bylaw and this shall be the exclusive means for a stockholder to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this Bylaw, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.
(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this Bylaw, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this Bylaw and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement required by this Bylaw. To be timely, a stockholder’s written notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s Annual Meeting; provided, however, that in the event that the date of the Annual Meeting is advanced by more than 30 days before or delayed by more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 90th day prior to such Annual Meeting or the 10th day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as“Timely Notice”). Such stockholder’s Timely Notice shall set forth:
(A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to
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Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);
(B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, any material interest in such business of such stockholder and the beneficial owner(s), if any, on whose behalf the proposal is made, and the names and addresses of other stockholders (including beneficial owners) known by the stockholder proposing such business to support such proposal, and the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s);
(C) as to the stockholder giving the notice and the beneficial owner(s), if any, on whose behalf the nomination or proposal is made: (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner(s); (ii)(a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such stockholder and any such beneficial owner(s) including any shares of any class or series of capital stock of the Corporation as to which such stockholderand/or beneficial owner has a right to acquire beneficial ownership at any time in the future, (b) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such stockholderand/or any such beneficial owner(s) the purpose or effect of which is to give such stockholderand/or any such beneficial owner(s) economic benefitand/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such derivative, swap or other transaction provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of shares of any class or series of capital stock of the Corporation (“Synthetic Equity Interests”) and such disclosure shall identify the counterparty to each such Synthetic Equity Interest and shall include, for each such Synthetic Equity Interest, whether or not (x) such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such stockholderand/or any such beneficial owner(s), (y) such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) such stockholder, any such beneficial owner(s) and/or, to their knowledge, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest, (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such stockholderand/or any such beneficial owner(s) has or shares a right to vote any shares of any class or series of capital stock of the Corporation, (d) any agreement, arrangement, understanding or relationship (which disclosure shall identify the counterparty thereto), including any hedge, repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such stockholderand/or any such beneficial owner(s), the purpose or effect of which is to mitigate loss to, reduce the economic risk of shares of any class or series of capital stock of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholderand/or any such beneficial owner(s) with respect to the shares of any class or series of capital stock of the Corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the value of the shares of any class or series of capital stock of the Corporation (“Short Interests”), (e) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation owned beneficially by such stockholderand/or any such beneficial owner(s) that are separated or separable from the underlying shares of the Corporation, (f) any performance-related fees (other than an asset based fee) that such stockholderand/or any such beneficial owner(s) is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation, any Synthetic Equity Interests or Short Interests, if any (the disclosures to be made pursuant to the foregoing clauses (a) through (f) are referred to, collectively, as“Material Ownership Interests”); and (iii) a description of all arrangements or understanding among such stockholderand/or any such beneficial owner(s) and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) or other business proposals are to be made; and
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(D) a statement whether or not the stockholder giving the noticeand/or the beneficial owner(s), if any, on whose behalf the nomination or proposal is made, will deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such stockholder or beneficial owner(s) to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the“Solicitation Statement”).
(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date for the meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting.
(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 85 days prior to the first anniversary of the preceding year’s Annual Meeting, a stockholder’s notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
(b) General.
(1) Only such persons who are nominated in accordance with the provisions of this Bylaw shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this Bylaw. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this Bylaw. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this Bylaw, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this Bylaw. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this Bylaw, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.
(2) Except as otherwise required by law, nothing in this Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director submitted by a stockholder.
(3) Notwithstanding the foregoing provisions of this Section 2, if the stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding the proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2, to be considered a qualified representative of the stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission,
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or a reliable reproduction of the written instrument or electronic transmission, at the meeting of the stockholder.
(4) For purposes of this Bylaw, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(5) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of stockholders to have proposals included in the Corporation’s proxy statement pursuant toRule 14a-8 (or any successor rule) under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an Annual Meeting.
Section 3.Special Meetings. Except as otherwise required by statute, special meetings of the stockholders of the Corporation may be called at any time by any of the following persons: (i) the chairman of the board, (ii) the president and chief executive officer or (iii) the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office.
Section 4.Notice of Meetings; Adjournments. A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books.
Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called. Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.
The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these Bylaws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under Section 2 of this Article I of these Bylaws.
When any meeting is convened, the presiding officer may adjourn the meeting if (a) no quorum is present for the transaction of business, (b) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (c) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amendedand/or restated, the“Certificate”) or these Bylaws, is entitled to such notice.
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Section 5.Quorum. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Section 6.Voting and Proxies. Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by § 212(c) of the Delaware General Corporation Law (“DGCL”). Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by § 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.
Section 7.Action at Meeting. Except where a larger vote is required by law, by the Certificate or by these Bylaws, when a quorum is present at any meeting of stockholders, any matter before any such meeting shall be decided by a majority of the shares present and entitled to vote on such matter. Notwithstanding the foregoing, each director shall be elected by the vote of the majority of the votes cast with respect to the director at any meeting of stockholders for the election of directors at which a quorum is present, provided that if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. For purposes of clarity, it is stated that the provisions of the foregoing sentence do not apply to vacancies and newly created directorships filled by a vote of the Board of Directors under Article II, Section 4 of these Bylaws. For purposes of this Section, a majority of the votes cast means that the number of shares voted ‘for’ a director must exceed 50% of the votes cast with respect to that director. If a nominee who already serves as a director is not reelected, the director shall offer to tender his or her resignation to the Board of Directors. The Corporate Governance Committee will then make a recommendation to the Board of Directors on whether to accept or reject the resignation, or whether other action should be taken. The Board of Directors will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The director who tenders his or her resignation will not participate in the Board of Directors’ decision with respect to his or her offer to tender resignation.
Section 8.Stockholder Lists. The Secretary or an Assistant Secretary (or the Corporation’s transfer agent or other person authorized by these Bylaws or by law) shall prepare and make, at least 10 days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.
Section 9.Presiding Officer. The Chairman of the Board, if one is elected, or if not elected or in his or her absence, the President, shall preside at all Annual Meetings or special meetings of stockholders and shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.
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Section 10.Inspectors of Elections. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
Directors
Section 1.Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.
Section 2.Number, Election and Term of Office. The number of directors of the Corporation shall not be less than five nor more than nine until changed by a bylaw amending this Section 2 duly adopted by the Board of Directors or the stockholders of the Corporation. The exact number of directors shall be fixed from time to time within the limits specified in this Section 2 solely and exclusively by resolution duly adopted from time to time by the Board of Directors. 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. No decrease in the number of authorized directors shall shorten the term of any incumbent director.
Section 3.Qualification. No director need be a stockholder of the Corporation.
Section 4.Vacancies. Vacancies in the Board of Directors, including those resulting from any increase in the authorized number of directors or from death, resignation, disqualification, retirement or removal of a director, may be filled solely and exclusively by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders. Each director so elected shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until his or her successor has been duly elected and qualified or until his or her earlier resignation or removal. When the number of directors is increased or decreased, the Board of Directors shall, subject to Article 7 of the Certificate, determine the class or classes to which the increased or decreased number of directors shall be apportioned; provided, however, that no decrease in the number of directors shall shorten the term of any incumbent director. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, shall exercise the powers of the full Board of Directors until the vacancy is filled.
Section 5.Removal. Directors may be removed from office only with cause. At least forty-five (45) days prior to any meeting of stockholders at which it is proposed that any director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the director whose removal will be considered at the meeting.
Section 6.Resignation. A director may resign at any time by giving written notice (or notice by electronic transmission) to the Chairman of the Board, if one is elected, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.
Section 7. Regular Meetings. The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and
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place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.
Section 8.Special Meetings. Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairman of the Board, if one is elected, or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.
Section 9.Notice of Meetings. Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairman of the Board, if one is elected, or the President or such other officer designated by the Chairman of the Board, if one is elected, or the President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least 24 hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least 48 hours in advance of the meeting. Such notice shall be deemed to be delivered when hand delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if faxed or emailed, or when delivered to the telegraph company if sent by telegram.
A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting; a written waiver of notice may be delivered by electronic transmission, including by email or facsimile. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these Bylaws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
Section 10.Quorum. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this Section, the total number of directors includes any unfilled vacancies on the Board of Directors.
Section 11.Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these Bylaws.
Section 12.Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Such consent shall be treated as a resolution of the Board of Directors for all purposes.
Section 13.Manner of Participation. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these Bylaws.
Section 14.Committees. The Board of Directors may elect one or more committees, including, without limitation, an Audit Committee, a Compensation Committee, a Corporate Governance Committee, an Executive Committee and a Science Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these Bylaws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these Bylaws for the Board of Directors. All members of such committees shall hold such offices at the
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pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.
Section 15.Scientific Council. The Board of Directors may establish a Scientific Council to oversee the scientific research of the Corporation and provide the Scientific Council with such bylaws as it deems appropriate; provided, however, that such bylaws shall be subordinate to and shall not affect the interpretation of these Bylaws.
Section 16.Compensation of Directors. Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.
ARTICLE III
Officers
Section 1.Enumeration. The officers of the Corporation shall be a President and Chief Executive Officer, Vice President, Secretary, Chief Financial Officer and Treasurer. The Corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant chief financial officers and such other officers as may be appointed in accordance with the provisions of Section 13 below.
Section 2.Election. At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.
Section 3.Qualification. No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.
Section 4.Tenure. Except as otherwise provided by the Certificate or by these Bylaws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Section 5.Resignation. Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
Section 6.Removal. Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.
Section 7.Absence or Disability. In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.
Section 8.Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.
Section 9.President and Chief Executive Officer. Subject to such powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the President and Chief Executive Officer of the Corporation shall be the general manager and chief executive officer of the Corporation. In the absence or nonexistence of a Chairman of the board, he shall preside at all meetings of the stockholders, and shall have the general powers and duties of management usually vested in the office of President and Chief Executive Officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
Section 10.Vice President. Except as otherwise provided by the Board of Directors, in the absence or disability of the President and Chief Executive Officer, the Vice Presidents, in order of their rank as fixed by the Board of Directors, or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President and Chief Executive Officer and when so acting shall have all the powers of, and be subject to
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all the restrictions upon, the president and Chief Executive Officer. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or these Bylaws. A Vice President need not be an officer of the Corporation and shall not be deemed an officer of the Corporation unless so appointed by the Board of Directors.
Section 11.Secretary and Assistant Secretary.
(a) The Secretary shall record, or cause to be recorded, and keep, or cause to be kept, at the principal executive office of the Corporation and such other place as the Board of Directors may order, a book of the minutes of actions taken at all meetings of directors and stockholders, with the time and place of holding, whether regular or special and, if special, how authorized, the notice thereof given, the names of those present at directors meetings, the number of shares present or represented by proxy at stockholders meetings and the proceedings thereof.
(b) The Secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation’s transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation.
(c) The Secretary shall give, or cause to be given, notice of all meetings of shareholders and the Board of Directors required by these Bylaws or by law to be given, shall keep the corporate seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws.
(d) The Assistant Secretary, if there shall be such an officer, or, if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
Section 12.Chief Financial Officer/Treasurer and Assistant Treasurers.
(a) The Chief Financial Officer shall be the principal financial officer and treasurer of the Corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. The books of account shall at all reasonable times be open to inspection by any director.
(b) The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board, render to the President and Chief Executive Officer and directors, whenever they request it, an account of all of his or her transactions as Chief Financial Officer and of the financial condition of the Corporation and have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws.
(c) The Assistant Chief Financial Officer, if there shall be such an officer, or, if there shall be more than one, the assistant chief financial officers in the order determined by the Board of Directors (or, if there be no such determination, then in the order of their election), shall, in the absence of the Chief Financial Officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
Section 13.Other Powers and Duties. Subject to these Bylaws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.
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ARTICLE IV
Capital Stock
Section 1.Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairman of the Board of Directors, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.
Section 2.Transfers. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.
Section 3.Record Holders. Except as may otherwise be required by law, by the Certificate or by these Bylaws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these Bylaws.
Section 4.Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; and (2) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 5.Replacement of Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.
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ARTICLE V
Indemnification
Section 1.Definitions. For purposes of this Article:
(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, or (iii) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), an Officer or Director of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;
(b) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;
(c) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;
(d) “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;
(e) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement.
(f) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;
(g) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation.
(h) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and
(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.
Section 2.Indemnification of Directors and Officers.
(a) Subject to the operation of Section 4 of this Article V of these Bylaws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment
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permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment) and to the extent authorized in this Section 2.
(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
(2) Actions, Suits and Proceedings By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deem proper.
(3) Survival of Rights. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.
(4) Actions by Directors or Officers. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce an Officer or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these Bylaws in accordance with the provisions set forth herein.
Section 3.Indemnification of Non-Officer Employees. Subject to the operation of Section 4 of this Article V of these Bylaws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.
Section 4.Good Faith. Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best
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interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.
Section 5.Advancement of Expenses to Directors Prior to Final Disposition.
(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce Director’s rights to indemnification or advancement of Expenses under these Bylaws.
(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to the action and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.
(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.
Section 6.Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition.
(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such is involved by reason of the Corporate Status of such Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer and Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.
Section 7.Contractual Nature of Rights.
(a) The foregoing provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of
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facts then or theretofore existing or any Proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.
(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within 60 days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to the action and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.
Section 8. Non-Exclusivity of Rights. The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise.
Section 9. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.
Section 10. Other Indemnification. The Corporation’s obligation, if any, to indemnify any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise.
ARTICLE VI
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
Section 2. Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation.
Section 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairman of the Board, if one is elected, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or Executive Committee may authorize.
Section 4.Voting of Securities. Unless the Board of Directors otherwise provides, the Chairman of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary powerand/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation.
Section 5.Registered Agent. The Board of Directors may appoint a registered agent upon whom legal process may be served in any action or proceeding against the Corporation.
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Section 6.Corporate Records. The original or attested copies of the Certificate, Bylaws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at the office of its counsel or at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.
Section 7.Certificate. All references in these Bylaws to the Certificate shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time.
Section 8.Amendment of Bylaws.
(a) Amendment by Directors. Except as provided otherwise by law, these Bylaws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose, by the affirmative vote of at least 75% of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these Bylaws, or other applicable law.
Section 9.Notices. If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.
Section 10.Waivers. A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business nor the purpose of any meeting need be specified in such a waiver.
Adopted:
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ANNEX D
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
AVANIR PHARMACEUTICALS, a California corporation
WITH AND INTO
AVANIR PHARMACEUTICALS, INC., a Delaware corporation
Pursuant to Section 253 of the
General Corporation Law of the State of Delaware
AVANIR Pharmaceuticals, a California corporation (“Parent”), does hereby certify to the following facts relating to the merger of Parent with and into AVANIR Pharmaceuticals, Inc. a Delaware corporation (“Subsidiary”), with the Subsidiary remaining as the surviving corporation (the “Merger”):
FIRST: Subsidiary is incorporated pursuant to the General Corporation Law of the State of Delaware (the “DGCL”). Parent is incorporated pursuant to the laws of the State of California.
SECOND: Parent owns 100% of the outstanding shares of the capital stock of Subsidiary that, absent Section 253 of the DGCL, would be entitled to vote on the Merger.
THIRD: The Board of Directors of Parent, by the following resolutions duly adopted on , 200 determined to merge Parent with and into Subsidiary pursuant to Section 253 of the DGCL:
WHEREAS, AVANIR Pharmaceuticals, a California corporation (“Parent”) owns 100% of the outstanding shares of each class of capital stock of AVANIR Pharmaceuticals, Inc., a Delaware corporation (“Subsidiary”), that, absent Section 253 of the DGCL, would be entitled to vote on the Merger (as defined below); and
WHEREAS, the Board of Directors of Parent has deemed it advisable that Parent be merged with and into Subsidiary (the “Merger”) pursuant to Section 253 of the DGCL.
NOW, THEREFORE, BE IT AND IT HEREBY IS
RESOLVED, Parent be merged with and into Subsidiary with Subsidiary as the surviving corporation; and it is further
RESOLVED, that by virtue of the Merger and without any action on the part of the holder thereof, each then outstanding share of Class A Common Stock of Parent shall be converted into and shall automatically become one share of Common Stock of the surviving corporation, held by the person who was the holder of such share of Class A Common Stock of Parent immediately prior to the Merger; and it is further
RESOLVED, that each right, award or option to purchase shares of Class A Common Stock of Parent granted under the Parent’s existing stock option and equity incentive plans and agreements (collectively, the “Plans”) outstanding immediately prior to the effective time of the Merger, shall by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become an equivalent option to purchase or other right to acquire the same number of shares of Common Stock of Subsidiary at the same price per share, and upon the same terms and subject to the same conditions as in effect at the effective time of the Merger; and it is further
RESOLVED, that the same number of shares of Common Stock of Subsidiary shall be reserved for purposes of said Plans as is equal to the number of shares of Class A Common Stock of Parent so reserved as of the effective time of the Merger; and that as of the effective time of the Merger, Subsidiary will assume the Plans and all obligations of Parent under the Plans including the outstanding options or awards or portions thereof granted pursuant to the Plans; and it is further
D-1
RESOLVED, that each warrant and other purchase right issued and outstanding by Parent immediately prior to the effective time of the Merger shall be by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become an equivalent warrant or other purchase right allowing the holder thereof to acquire the same number of shares and class or series of stock of Subsidiary on the same terms and subject to the same conditions as in effect at the effective time of the Merger; and it is further
RESOLVED, that by virtue of the Merger and without any action on the part of the holder thereof, each then outstanding share of capital stock of Subsidiary shall be canceled and no consideration shall be issued in respect thereof; and it is further
RESOLVED, that the Certificate of Incorporation of Subsidiary as in effect immediately prior to the effective time of the Merger shall be the Certificate of Incorporation of the surviving corporation; and it is further
RESOLVED, that the proper officers of Parent be and they hereby are authorized, empowered and directed to make, execute and acknowledge, in the name and on behalf of Parent, a certificate of ownership and merger for the purpose of effecting the Merger and to file the same in the office of the Secretary of State of the State of Delaware, and to do all other acts and things that may be necessary to carry out and effectuate the purpose and intent of the resolutions relating to the Merger; including, without limitation, making any filings in the State of California.
FOURTH: Subsidiary shall be the surviving corporation of the Merger.
FIFTH: The Certificate of Incorporation of Subsidiary as in effect immediately prior to the effective time of the Merger shall be the Certificate of Incorporation of the surviving corporation.
SIXTH: The Merger has been approved by the stockholders of Parent pursuant to and in accordance with Section 1110 of the California Corporations Code.
IN WITNESS WHEREOF, the undersigned corporation has caused this Certificate of Ownership and Merger to be duly executed as of this day of , 200 .
AVANIR PHARMACEUTICALS
A California Corporation
Name:
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10120 ENTERPRISE, SUITE 200
SUITE 300
ALISO VIEJO, CA 92656 | | VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M.p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. |
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| | VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage- paidpostage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
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| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | M39431-P17933 | |
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| | | AVNRP1 | | KEEP THIS PORTION FOR YOUR RECORDS | |
| | | DETACH AND RETURN THIS PORTION ONLY | |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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AVANIR PHARMACEUTICALS, INC. | | For All | | Withhold All | | For All Except | | | | | | | |
AVANIR PHARMACEUTICALS | | For
All | | Withhold
All | | For All
Except | | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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| THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
Vote on Directors | | o |
The Board of Directors recommends that you vote FOR the following: | | o | | o | | | | | |
| 1. | ELECTION OF DIRECTORS TO CLASS II Vote on Directors | | ¨ | | ¨ | | ¨ | | | |
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1. | | Election of Directors | | | | |
| | Nominees: |
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| | Nominees: | | | | | | | | | |
| | 01) Keith A. Katkin
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| | 02) Charles A. Mathews
03) Nicholas J. Simon | | | | | | |
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| | Vote on Proposals | | | |
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The Board of Directors recommends you vote FOR the following proposals: | | For | | Against | | | | Abstain |
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 2 AND 3.
| | For | | Against | | Abstain |
| Vote on Proposals2. | | | | | | | | | | |
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| 2. | Ratification of KMJ Corbin & Company, LLP as independent registered public accounting firm for the fiscal year ending September 30, 2009.2012. | | o¨ | | o¨ | | o¨ |
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3. | | Advisory (non-binding) vote on the Company’s executive compensation. | | ¨ | | ¨ | | ¨ |
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| 3. | Approval of proposed change in corporate domicile from California to Delaware. | | | |
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| 4. | Transaction of any other business that may properly come before the meeting or any adjournment or adjournments thereof. | | | | | | |
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| The shares represented by this proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, this proxy will be voted FOR items 1, 2 and 3. If any other matters properly come before the meeting, the persons named in this proxy will vote in their discretion.
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| For address changes and/or comments, please check this box and write them on the back where indicated.
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| | Please indicate if you plan to attend this meeting. | | o
Yes¨ | | o
No¨ | | | | | | | |
| | | | Yes | | No | | | | | | | | |
| (NOTE:
| Please sign exactly as your name(s) appear(s) hereon. All holders must sign. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate name by authorized officer. If a partnership, please sign inor partnership name, by authorized person.)officer. | | | | | | |
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| | Signature [PLEASE SIGN WITHIN BOX] | Date | | | | | | Signature (Joint Owners) | Date | | | | Signature (Joint Owners) | | Date |
Important Notice Regarding Internetthe Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com.
M39432-P17933
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2009 ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 19, 2009
AVANIR PHARMACEUTICALS, INC.
Annual Meeting of Stockholders
February 16, 2012 9:00 AM
This proxy is solicited by the Board of Directors
The shareholder(s)stockholder(s) hereby appoint(s) Keith A. Katkin and Christine G. Ocampo, or either of them, as proxies, each with the power to appoint his or her substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of Avanir Pharmaceuticals, Inc. that the shareholder(s)stockholder(s) is/are entitled to vote at the 20092012 Annual Meeting of ShareholdersStockholders to be held at 9:00 a.m. Pacific Time on February 19, 200916, 2012 at the IslandRenaissance Club Sport Aliso Viejo Hotel, located at 690 Newport Center Drive, Newport Beach,50 Enterprise, Aliso Viejo, California, and at any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND FOR EACH PROPOSAL.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations and in the discretion of the proxy holders on all other matters that may come before the meeting. | | | | | | |
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(If(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
Continued and to be signed on reverse side
