8-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): August 7, 2006

Avanir Pharmaceuticals
__________________________________________
(Exact name of registrant as specified in its charter)

California	001-15803	33-0314804
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
11388 Sorrento Valley Road, San Diego, California		92121
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 858-622-5200

Not Applicable
______________________________________________
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On August 7, 2006, Avanir Pharmaceuticals (the "Company") issued a press release announcing the appointment of Theresa Hope-Reese as the Company’s Vice President of Human Resources. Prior to joining Avanir, Ms. Hope-Reese worked for Water Pik Technologies, Inc. as Corporate Vice President of Human Resources from January 2000 until its acquisition in April 2006. Prior to joining Water Pik, she spent more than eleven years at Varco International, Inc., where she was Vice President of Human Resources.

Ms. Hope-Reese's appointment is pursuant to an employment agreement, dated as of August 7, 2006 (the "Agreement"). Under the Agreement, Ms. Hope-Reese will serve in an at-will capacity with an initial annual base salary of $220,000. Ms. Hope-Reese is entitled to receive an annual discretionary bonus in a target amount equal to 30% of her then-current base salary (pro rated for 2006). The actual amount of Ms. Hope-Reese’s annual bonus awards will be determined by the Compensation Co mmittee.

Pursuant to the Agreement, Ms. Hope-Reese will also be awarded 6,000 shares of restricted Class A common stock (the "Restricted Stock"), which will vest in full on the second anniversary of her employment with the Company. If Ms. Hope-Reese’s employment terminates for "Cause," or without "Good Reason" (as such terms are defined), the Company may reacquire the unvested shares at a nominal purchase price. Additionally, Ms. Hope-Reese will be awarded an inducement option to purchase up to 40,000 shares of Class A common stock at an exercise price equal to the fair market value of the underlying shares on the date of grant (the "Initial Option"). The Initial Option has a ten-year term and will be subject to a four-year vesting schedule, vesting with respect to 25% of the underlying shares one year after the commencement of employment and with respect to the remaining shares in 12 equal installments on a quarterly basis thereafter. The Initial Option will be granted as an inducement op tion outside of the Company’s existing equity incentive plans, but will be subject to the general terms and conditions of the Company’s 2005 Equity Incentive Plan.

Ms. Hope-Reese will also be eligible to participate in Company benefit plans on the same basis and terms as are applicable to other executive employees of the Company.

If Ms. Hope-Reese is terminated without Cause, or if she resigns for Good Reason, then she will be entitled to (i) severance pay in an amount equal to six months base salary and an amount equal to the greater of (x) 15% of her base salary or (y) 50% of the last annual bonus, if any, paid to Ms. Hope-Reese, and (ii) accelerated vesting of the Restricted Stock.

Additionally, on Auguust 7, 2006, Ms. Hope-Reese entered into the Company’s standard executive officer change of control agreement (the "COC Agreement"), which provides certain severance benefits if her employment is terminated following a "Change of Control" (as such term is define d) of the Company. These severance benefits will be paid only if (i) the termination of her employment occurs 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, Ms. Hope-Reese will receive severance payments equal to 12 months of base salary, plus an amount equal to the greater of (A) the aggregate bonus payment(s) received by Ms. Hope-Reese in the Company’s preceding fiscal year or (B) her then-current target bonus amount. Additionally, the vesting of outstanding equity awards will accelerate and Ms. Hope-Reese will be entitled to up to 12 months of post-termination benefits continuation under COBRA.

The Agreement and the form of COC Agreement are filed herewith as Exhibits 10.1 and 10.2, respectively. A copy of the press release is furnished herewith as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

Exhibit No. Description

10.1 Employment Agreement, dated August 7, 2006
10.2 Form of Change of Control Agreement*
99.1 Press release, dated August 7, 2006

* Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 26, 2006.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Avanir Pharmaceuticals
August 10, 2006	By:	Gregory P. Hanson, CMA
		Name: Gregory P. Hanson, CMA
		Title: VP and Chief Accounting Officer

Exhibit Index

Exhibit No.	Description
10.1	Employment Agreement, dated August 7, 2006
99.1	Press release, dated August 7, 2006

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (“Agreement”), dated as of August 7, 2006 (the “Effective Date”), is made by and between AVANIR PHARMACEUTICALS, a California corporation having its principal offices at 101 Enterprise, Suite 300, Aliso Viejo, California, 92656 (the "Company”), and Theresa Hope-Reese (“Employee”).

AGREEMENT

1. Commencement Date.

Employee’s employment under this Agreement shall commence on August 7, 2006 (“Commencement Date”).

2. At-will Employment.

Employee’s employment relationship with the Company (“Employment”) is at-will, terminable at any time with or without cause or advance notice by either the Company or Employee. While certain sections of this Agreement describe events that could occur at a particular time in the future, nothing in this Agreement shall be construed as a guarantee of employment of any length.

3. Employment Duties.

(a) Title. Employee shall be Vice President of Human Resources of the Company and shall be assigned duties and responsibilities consistent with that position at the discretion of the Company.

(b) Full-Time Attention. Employee shall devote her full time, attention, energy and skills to the Company during the period she is employed under this Agreement.

(c) Policy Compliance. Employee shall comply with all of the Company’s policies, practices and procedures, including the terms of the Confidentiality Agreement (defined below).

4. Compensation.

(a) Base Salary. The Company shall pay Employee a base salary of $18,333.33 per month (an annual rate of $220,000), or such higher amount as the Company may determine from time to time (“Base Salary”), payable in accordance with the Company’s regular payroll practices.

(b) Bonus Compensation. In addition to the Base Salary, Employee shall be eligible for an annual discretionary bonus of up to 30% of the Employee’s then-current annual base salary (pro-rated for fiscal 2006 as described below), with such bonus to be determined and paid in the first quarter of each fiscal year with respect to Employee and Company performance in the prior fiscal year. The actual bonus may be higher or lower than the 30% target amount, at the discretion of the Company. Any bonus payable with regard to performance in fiscal 2006 will be prorated on account of Employee’s commencement of employment less than one year prior to the payment date. Employee must be employed by the Company when bonuses are distributed in order to be eligible to receive such bonus. If Employee leaves the employ of the Company for any reason prior to the distribution of annual bonuses in any given year, she will not be eligible to receive any part of that year’s discretionary bonus.

(c) Equity Compensation. The Company will recommend to its Board of Directors that Employee be granted the following equity awards as additional compensation:

(i) Subject to Board approval and the commencement of employment, Employee shall be granted the right to purchase 6,000 shares of Class A common stock (the “Restricted Shares”) at a purchase price of $0.001 per share. The Restricted Shares shall vest in full upon Employee’s completion of two full years of employment (the “Vesting Date”). The Restricted Shares will be granted pursuant to the Company’s equity compensation plans (the “Equity Plans”) and will be governed by the terms and conditions of such plans. Subject to Section 10(d) of this Agreement, the Restricted Shares may be repurchased by the Company in accordance with the Equity Plans if the Employment is terminated prior to the Vesting Date.

(ii) Subject to Board approval and the commencement of employment, Employee shall be granted an option to purchase 40,000 shares of Class A common stock, with an exercise price equal to 100% of the fair market value of the underlying shares on the date of grant, subject to a four-year vesting schedule (25% vesting on the first anniversary of the Commencement Date and the remainder vesting in 12 equal installments each quarter thereafter over the next three years). This option shall be granted pursuant to the Equity Plans and shall be subject to the terms and conditions of such plans. This option is intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) to the fullest extent permitted, and any excess will be treated as a non-statutory stock option. The Company has no responsibility as to actual tax treatment, however.

The foregoing share amounts and share purchase prices shall be adjusted, as necessary, to give effect to any stock split, reverse stock split, stock dividend, recapitalization or similar transaction affecting the Company’s Class A common stock that is effected after the Effective Date.

(d) Employee Benefits. Employee shall be entitled to participate in all employee benefit plans, programs and arrangements maintained by the Company and made available to employees generally. The Employee’s participation in such Company plans or programs shall be on the same basis and terms as are applicable to other executive employees of the Company. Employee shall accrue 4 weeks of vacation the first year of service.

(e) Reimbursement of Expenses. During her employment with the Company, Employee shall be entitled to reimbursement for all reasonable and necessary business expenses incurred on behalf of the Company, in accordance with the Company’s policies and procedures.

5. Confidentiality Agreement. Employee shall concurrently herewith execute and deliver to the Company the Employee Invention Assignment, Patent and Confidential Information Agreement (“Confidentiality Agreement”) in the form attached hereto as Exhibit B.

6. Non-Competition. During her Employment, Employee shall not, directly or indirectly, either as an employee, employer, consultant, corporate officer or director, investor, or in any other capacity, engage or participate in any business that is a Competitor of the Company, unless such participation or interest is fully disclosed to the Company and approved by the Board. “Competitor” as used in this paragraph refers to any company that has therapeutic products (i) on the market or in clinical development and (ii) that are in competition with the products the Company has on the market or that have entered clinical development. Notwithstanding the above, Employee may own securities in any Competitor that is a public company, so long as Employee does not own, of record or beneficially, more than an aggregate of five percent of the outstanding securities of such company.

7. Non-Solicitation. During her Employment, and for a period of 12 months thereafter, whether for Employee’s own account or the account of any other person, Employee shall not solicit, directly or indirectly, any employee to leave her or her employment with the Company. For purposes of this Agreement, the phrase, “shall not solicit, directly or indirectly,” includes, without limitation, that Employee shall not: (i) identify any Company employees to any third party as potential candidates for employment, such as by disclosing the names, backgrounds, compensation or qualifications of any Company employees; (ii) personally or through any other person approach, recruit or otherwise solicit employees of Company to work for any other employer; or (iii) participate in any pre-employment interview with any person who was employed by the Company while Employee was employed by the Company whether under this Agreement or otherwise.

8. Agreement with Previous Employers. Employee represents and warrants to the Company that she does not have any agreement with any previous employer that prevents her from performing her duties and responsibilities under this Agreement or that in any way limits her performance hereunder. Employee understands and acknowledges that her employment with Avanir is contingent upon her compliance with any and all agreements between her and her prior employers.

9. Change of Control. Upon commencement of employment, Employee shall be eligible to enter into the Company’s standard Change of Control Agreement for executive officers (the “Change of Control Agreement”) in the form attached hereto as Exhibit A.

10. Voluntary Resignation or Termination for “Cause.”

(a) Payment upon Voluntary Resignation or Termination for Cause. If Employee voluntarily resigns her Employment, and such resignation is not a “Resignation for Good Reason” (as defined in the Change of Control Agreement), or if Employee is terminated for Cause (defined below), the Company shall pay Employee all accrued and unpaid Base Salary through the date of termination and any vacation that is accrued but unused as of such date. Employee shall not be eligible for Severance Payments, as defined below, or any continuation of benefits (other than those provided for under the Federal Consolidated Omnibus Budget Reconciliation Act (“COBRA”)), or any other compensation pursuant to this Agreement or otherwise.

(b) Definition of “Cause.” As set forth above, the Employment relationship between the parties is at-will, terminable at any time by either party for any reason or no reason. The termination may nonetheless be for “Cause.” For purposes of this Agreement, “Cause” means:

(i) Employee’s material breach of this Agreement or any confidentiality agreement between the Company and Employee; or

(ii) Employee’s willful and intentional failure or refusal to comply with the Company’s Employee Manual, the Company’s Code of Business Conduct and Ethics, or other policies or procedures established by the Company; or

(iii) Employee’s willful and intentional appropriation (or attempted appropriation) of a material business opportunity of the Company, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of the Company; or

(iv) Employee’s misappropriation (or attempted misappropriation) of any of the Company’s funds or material property; or

(v) Employee’s conviction of, or the entering of a guilty plea or plea of no contest with respect to a felony, the equivalent thereof, or any other crime with respect to which imprisonment is a possible punishment; or

(vi) Employee’s willful and intentional misconduct or incompetence; or

(vii) Employee’s becoming “disabled,” (defined in Section 409A(a)(2)(C) of the Code), resulting in her inability to perform the essential functions of her position, with reasonable accommodation; or

(viii) Employee’s death.

(c) In each case, “Cause” shall be determined conclusively by the Board, acting in good faith. Notwithstanding the foregoing, no event described in Section 10(b)(i), (ii), (iii) and (vi) above will give rise to “Cause” unless it is communicated by the Company to Employee in writing and unless it is not corrected by the Employee in a manner that is reasonable satisfactory to Company within 30 days of the Employee’s receipt of such written notice.

(d) Termination Without Cause or Resignation for Good Reason. Subject to Section 9, if Employee: (i) is terminated without “Cause,” or (ii) resigns in a “Resignation for Good Reason,” (as defined in the Change of Control Agreement), then Employee shall be paid all accrued and unpaid Base Salary and any accrued but unused vacation through the date of termination. In addition, in exchange for Employee’s execution of a release of all claims against the Company and its subsidiaries and affiliates effective as of the date of termination and in substantially the form attached to the Change of Control Agreement:

(i) Employee shall be eligible to receive severance payments under this Agreement in an amount equal to six months Base Salary and an amount equal to the greater of (x) 15% of Base Salary or (y) 50% of the last bonus, if any, paid to Employee pursuant to Section 4 (the “Severance Payments”), payable on the earliest of (A) the date that is six months and a day after Employee’s “separation from service” for any reason, other than death or becoming “disabled” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of Employee’s death or on which Employee becomes “disabled” (as such term is used in Section 409A(a)(2)(C) of the Code), (C) the effective date of a “change in the ownership or effective control” of the Company (as such term is used in Section 409A(a)(2)(A)(v) of the Code) or (D) the date such payments or benefits are no longer deemed by the Code to be subject to penalty tax or interest. The provisions of this paragraph shall only apply to the extent required to avoid Employee’s incurrence of any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of this Agreement would cause Employee to incur any penalty tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder, the Company shall, upon the written request of Employee, reform such provision to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Section 409A of the Code and without creating additional cost for the Company; and

(ii) the Company’s right to repurchase the Restricted Shares under the Equity Plans shall lapse and Employee’s ownership of the Restricted Shares shall be fully vested.

11. Dispute Resolution Procedures. Except as expressly provided in this Agreement, Employee agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration, to the extent permitted by law, to be held in Orange County, California in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the “Rules”) and in accordance with the accompanying Mutual Arbitration Agreement attached hereto as Exhibit C. The arbitrator’s decision shall be final, conclusive and binding on the parties to the arbitration pursuant to the Mutual Arbitration Agreement. Judgment may be entered on the decision of the arbitrator in any court having competent jurisdiction.

12. Notices. Any reports, notices or other communications required or permitted to be given by either party hereto, shall be given in writing by personal delivery, overnight courier service, or by registered or certified mail, postage prepaid, return receipt requested, addressed to each respective party at the address shown below or other current address:

If to AVANIR:

Avanir Pharmaceuticals

101 Enterprise, Suite 300

Aliso Viejo, California 92656

Attn: Chief Executive Officer

If to Employee:

Theresa Hope-Reese

[Address]

13. Withholding. All payments, including Base Salary, bonus and Severance Payments, shall be paid less applicable Federal and state withholding taxes. In the case of the rights referred to in Section 4(c) (Equity Compensation) above, Employee shall be responsible for furnishing the Company with the amount of any required withholding at the time it is due, and the Company’s obligations with respect to such rights shall be conditioned upon Employee’s compliance with this Section 13.

14. General Provisions.

(a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

(b) Assignment. Employee may not assign, pledge or encumber her interest in this Agreement or any part thereof.

(c) No Waiver of Breach. The failure to enforce any provision of this Agreement shall not be construed as a waiver of any such provision, nor prevent a party thereafter from enforcing the provision or any other provision of this Agreement. The rights granted the parties are cumulative, and the election of one shall not constitute a waiver of such party’s right to assert all other legal and equitable remedies available under the circumstances.

(d) Severability. The provisions of this Agreement are severable, and if any provision shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions, or enforceable parts of this Agreement, shall not be affected.

(e) Entire Agreement. This Agreement and the exhibits hereto constitute the entire agreement of the parties with respect to the subject matter of this Agreement and supersedes all prior and contemporaneous negotiations, agreements and understandings between the parties, whether oral or written.

(f) Modifications and Waivers. No modification or waiver of this Agreement shall be valid unless in writing, signed by the party against whom such modification or waiver is sought to be enforced.

(g) Amendment. This Agreement may be amended or supplemented only by a writing signed by both of the parties hereto.

(h) Duplicate Counterparts. This Agreement may be executed in duplicate counterparts, each of which shall be deemed an original; provided, however, such counterparts shall together constitute only one agreement.

(i) Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(j) Drafting Ambiguities. Each party to this Agreement and its counsel have reviewed and revised this Agreement. The rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any of the amendments to this Agreement.

* * *

EXECUTED at Aliso Viejo, California, this      day of August, 2006.

AVANIR PHARMACEUTICALS

Dated: August 3, 2006	By: /s/ Eric K. Brandt
	Eric K. Brandt Chief Executive Officer
	EMPLOYEE
Dated: August 3, 2006	/s/ Theresa Hope-Reese
	Theresa Hope-Reese

Exhibit 99.1

[AVANIR PHARMACEUTICALS Logo]

AVANIR PHARMACEUTICALS HIRES

THERESA HOPE-REESE AS VICE PRESIDENT OF HUMAN RESOURCES

San Diego, August 7, 2006 — Avanir Pharmaceuticals (NASDAQ: AVNR) announced today that Theresa Hope-Reese has joined the Company as Vice President of Human Resources. Ms. Hope-Reese will be responsible for overseeing all human resource practices and policies for the organization.

Prior to joining Avanir, Ms. Hope-Reese spent over 6 years with Water Pik Technologies, Inc. as Corporate Vice President of Human Resources where she was responsible for all global human resource functions for over 1,200 employees. Prior to joining Water Pik, she worked for Varco International, Inc., where she was Vice President of Human resources. She earned her Bachelor of Science degree in Management from California State University, San Diego and her Masters of Business Administration from the University of North Texas. Additionally, she has earned an Executive Certificate in Management after completing a post graduate program at the Peter F. Drucker and Masatoshi Ito Graduate School of Management in Claremont, California.

“Theresa brings demonstrated and deep functional expertise to the team at Avanir,” said Eric Brandt, President and Chief Executive Officer of Avanir. “The Human Resources function is a vital part of an organization’s ability to recruit and develop great people as well as ensuring that our people have the organizational structure and tools to do their best work. Theresa will be an integral part of our team as we prepare to expand our organization.”

About the Company
Avanir Pharmaceuticals is focused on developing, acquiring and commercializing novel therapeutic products for the treatment of chronic diseases. Avanir’s products and product candidates address therapeutic markets that include the central nervous system, cardiovascular disorders, inflammation and infectious diseases. Avanir currently markets FazaClo^®, the only orally-disintegrating formulation of clozapine for the management of severely ill schizophrenic patients who fail to respond adequately to standard schizophrenic drug treatments. FazaClo is also indicated for reducing the risk of suicidal behavior in patients with schizophrenic or schizoaffective disorder. For full prescribing information and important safety information regarding FazaClo, please visit www.fazaclo.com Avanir’s lead product candidate, Neurodex™ for the treatment of involuntary emotional expression disorder, is the subject of a New Drug Application under priority review with the FDA. Additionally, Avanir has initiated a Phase III clinical trial with Neurodex as a potential treatment for patients with painful diabetic neuropathy. Avanir has active collaborations with two international pharmaceutical companies: Novartis International Pharmaceutical Ltd. for the treatment of inflammatory disease and AstraZeneca for the treatment of cardiovascular disease.  The Company’s first commercialized product, abreva^®, is marketed in North America by GlaxoSmithKline Consumer Healthcare and is the leading over-the-counter product for the treatment of cold sores. Further information about Avanir can be found at www.avanir.com.

Forward Looking Statement
The information contained in this press release, including any forward-looking statements contained herein, should be reviewed in conjunction with the Company’s most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q and other publicly available information regarding the Company. Copies of such information are available from the company upon request. Such publicly available information sets forth many risks and uncertainties related to the company’s business and technology. Forward-looking statements often contain such words like “estimate,” “anticipate,” “believe,” “plan” or “expect”. Avanir disclaims any intent or obligation to update these forward-looking statements.

NASDAQ Notice

Pursuant to Ms. Hope-Reese’s employment agreement, she will receive an inducement grant of a non-qualified stock option to purchase up to 40,000 shares of Avanir’s Class A common stock at a price equal to the fair market value of the common stock as of the date the option is approved by the Compensation Committee of the Board of Directors. This option award will be made outside of the Company’s established equity compensation plans and will be granted without stockholder approval pursuant to NASDAQ Marketplace Rule 4350(i)(1)(A)(iv). The award will have a term of 10 years and a four-year vesting schedule, with one-quarter of the underlying shares vesting on the first anniversary of employment and the remainder vesting on a quarterly basis thereafter for the next three years.

Avanir Pharmaceuticals Contacts:
Patrick O’Brien 949-389-6789 pobrien@avanir.com	Patrice Saxon 858-622-5202 psaxon@avanir.com