EXHIBIT 10.3**NEITHER THIS SENIOR NOTE (THIS “NOTE”) NOR THE SHARES OF STOCK THAT MAY BE ISSUABLE UPON REPAYMENTOF ANY PORTION OF THIS NOTE, IF APPLICABLE, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED. THE HOLDER MAY NOT TRANSFER THIS NOTE OR THE SHARES OF STOCK THAT MAY BE ISSUABLE UPONREPAYMENT OF ANY PORTION OF THIS NOTE UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION COVERING THISNOTE OR THE SHARES OF STOCK THAT MAY BE ISSUABLE UPON REPAYMENT OF ANY PORTION OF THIS NOTE UNDERTHE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR (B) IF REQUESTED BYAVANIR PHARMACEUTICALS, IT FIRST RECEIVES A LETTER FROM AN ATTORNEY REASONABLY ACCEPTABLE TO ITSTATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDERTHE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ALL APPLICABLE STATE SECURITIES LAWS.****SENIOR NOTE**   $6,675,000.00 May 24, 2006 (the “***Execution Date***”)  Costa Mesa, California          For value received Avanir Pharmaceuticals, a California corporation (“***Payor***”), promises to payto Neal R. Cutler (“***Holder***”) the principal sum of Six Million Six Hundred Seventy-Five Thousanddollars ($6,675,000.00) in lawful money of the United States in immediately available funds and topay interest on the outstanding principal amount of this Senior Note (this “***Note***”) as providedherein, until this Note is repaid in full.          This Note is issued pursuant to and subject to the terms of the Unit Purchase Agreement datedas of May 22, 2006 (the “***Purchase Agreement***”) by and among Payor, the parties listed onSchedule A to the Purchase Agreement and Alamo Pharmaceuticals, LLC, a California limitedliability company, and is issued concurrently with that certain Senior Note in the principal sum of$14,400,000 by and between Payor and Holder (the “***Buyer Note 1***”) and that certain Senior Note inthe principal sum of $4,000,000 by and between Payor and Holder (the “***Buyer Note 2***”, together withBuyer Note 1, the “***Additional Notes***”).          For the purposes of this Note, the following terms shall have the meanings set forth below:          “***Average Price***” means the average of the per share Closing Prices of the Payor Common Stockfor the 5 consecutive Trading Days ending on the Trading Day immediately preceding the date of theapplicable calculation, provided that in calculating the Average Price, each Closing Price duringthe period commencing on the first Trading Day of such 5 consecutive Trading Day period and endingon the date of an event that would require an adjustment of the Threshold Price pursuant to Section3 hereof, shall be appropriately adjusted to take into account the occurrence of the event thatwould result in an adjustment of the Threshold Price.          “***Business Day***” means any day that is not a Saturday, Sunday or other day on which banks in theState of California are authorized or required to close.
 

 
          “***Closing Price***” of the Payor Common Stock on any date means the closing per share sale price(or, if no closing sale price is reported, the average of the bid and ask prices or, if more thanone in either case, the average of the average bid and average ask prices) on such date as reportedon the NASDAQ National Market (at such time that the NASDAQ National Market is not a nationalsecurities exchange), or if such bid and ask prices are not reported by the NASDAQ National Market,in a manner to be determined by the Payor on the basis of such quotation as the Payor’s Board ofDirectors considers appropriate in its reasonable discretion or if the Payor Common Stock is tradedon a U.S. national securities exchange, the closing per share sale price of the Payor Common Stockas is reported in composite transactions for the principal U.S. securities exchange on which thePayor Common Stock is so traded.          “***Events of Default***” has the meaning set forth in Section 9.1.          “***Financing Prepayment Date***” means three Business Days following the consummation of theapplicable Financing Transaction.          “***Financing Transaction***” means each (a) sale by Payor or any of its subsidiaries of any of itsdebt, equity or convertible securities when such securities have been registered for public salepursuant to the Securities Act and (b) sale by Payor or any of its subsidiaries to investors of anyof its debt, equity or convertible securities in a transaction exempt from the registrationrequirements of the Securities Act (but, in each case, excluding the issuance of (i) options orstock issued to employees, consultants, advisors, officers or directors pursuant to a plan orarrangement approved in advance by Payor’s Board of Directors, (ii) securities issued to lessors inconnection with lease financings and the like, (iii) securities issued on conversion of anyoutstanding convertible securities of Payor, (iv) securities issued by a subsidiary of Payor toPayor or another subsidiary of Payor and (v) and securities issued as consideration for mergers,acquisitions or to strategic partners). In no event shall a Financing Transaction include theproceeds of bank loans or credit facilities or revenues from the licensing or sale of any ofPayor’s products, services or technologies.          “***Initial Threshold Price***” means $15.00.          *“****Interest Determination Date***” has the meaning set forth in Section 1.1(b).          *“****Interest Payment Date****”*means the 24th day of each month, or if such date is not a BusinessDay, the next succeeding Business Day.          *“****Interest Period****”*means the period from May 24, 2006 to but excluding the first InterestPayment Date and each successive period from and including each Interest Payment Date to butexcluding the following Interest Payment Date.          “***Interest Rate***” has the meaning set forth in Section 1.1(a)          “***LIBOR***” means the London interbank offered rates.          *“****London Business Day****”*is a day on which dealings in deposits in U.S. dollars are transacted inthe London interbank market.
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          “***Market Disruption Event***” means the occurrence or existence for more than one two-hour periodin the aggregate on any scheduled Trading Day of any suspension or limitation imposed on trading inthe Payor Common Stock or in any options, contracts or future contracts relating to the PayorCommon Stock, and such suspension or limitation occurs or exists at any time before 1:00 p.m.(Eastern Time) on such day.          “***Maturity Date***” means the earlier of (a) the third anniversary of the Execution Date, or ifsuch third anniversary is not a Business Day, the next succeeding Business Day and (b) the date ofthe consummation of any sale of all or substantially all of the assets of Payor.          “***Payor Common Stock***” means the Class A common stock, no par value, of Payor, or any successorsecurity into which Class A common stock shall have been reclassified, exchanged or converted(including as a result of a merger, reorganization, consolidation, share exchange or similarbusiness combination).          “***Prepayment Election Date***” means the date for prepayment specified in the Prepayment ElectionNotice, which date shall be not greater than three Trading Days following the date on which thePrepayment Election Notice is delivered to Payor and shall in all events be prior to the MaturityDate.          “***Prepayment Election Notice***” means a written notice delivered by Payor to Holder statingPayor’s election to prepay all or any portion of the outstanding principal amount of this Note inshares of Repayment Stock, the Prepayment Election Date, the number of shares of Repayment Stock tobe issued and the amount of cash to be paid in lieu of any fractional share of Repayment Stock.          “***Repayment Amount***” means, as of any date of determination, the outstanding principal amount ofthis Note, plus any accrued and unpaid interest thereon to such date.          “***Repayment Stock***” means a number of shares of Payor Common Stock that is calculated bydividing (x) the portion of the outstanding principal amount of and accrued and unpaid interest onthis Note specified in the Prepayment Election Notice to be prepaid in Payor Common Stock, by (y)95% of the Average Price calculated as of the date on which the Prepayment Election Notice isdelivered to Holder.          “***Registration Rights Agreement***” means the Registration Rights Agreement between Payor andHolder, dated as of the Execution Date.          “***Securities Act***” means the Securities Act of 1933, as amended.          “***Stock Equivalents***” has the meaning set forth in Section 3.1.          “***Threshold Price***” means the Initial Threshold Price as the same may be adjusted pursuant toSection 3 herein.          “***Trading Day***” means any day on which (i) there is no Market Disruption Event and (ii) theNASDAQ National Market (at such time that the NASDAQ National Market is not a
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national securities exchange) or the U.S. national securities exchange on which the PayorCommon Stock is listed, admitted for trading or quoted, is open for trading or, if the Payor CommonStock is not so listed, admitted for trading or quoted, any Business Day. A “Trading Day” onlyincludes those days that have a scheduled closing time of 4:00 p.m. (Eastern Time) or the thenstandard closing time for regular trading on the relevant trading system.          “***Trigger Event***” means if the Closing Price of the Payor Common Stock is equal to or greaterthan the Threshold Price for 20 Trading Days during any 30 consecutive Trading Day period prior tothe Maturity Date.     **1. Interest; Repayment Prior to Maturity.**          1.1 Interest.               (a) Interest on this Note shall be calculated on the basis of a 360-day year consisting oftwelve 30-day months and shall be payable to Holder, in cash, by check or by wire transfer at anaddress or to an account designated by Holder in advance, on each Interest Payment Date until thisNote is either converted or repaid in full as provided herein.               (b) The outstanding principal amount of this Note will bear interest for each Interest Periodat a per annum rate equal to LIBOR as determined on the second London Business Day preceding thecommencement of such Interest Period (the “***Interest Determination Date***”) plus 1.33% (133 basispoints) (the “***Interest Rate***”). The Interest Determination Date for this Note for the firstInterest Period is May 22, 2006. Promptly upon determination of the rate by Payor, Payor willinform Holder of the interest rate for the next Interest Period. On any Interest DeterminationDate, LIBOR will be equal to the offered rate for deposits in U.S. dollars having an index maturityof one month, in amounts of at least $1.0 million, as such rate appears on Telerate Page 3750 atapproximately 11:00 a.m., London time, on such Interest Determination Date. If Telerate Page 3750is replaced by another service or ceases to exist, Payor will use the replacing service or suchother service that may be nominated by the British Bankers’ Association for the purpose ofdisplaying LIBOR for U.S. dollar deposits. If no offered rate appears on Telerate Page 3750 on anInterest Determination Date at approximately 11:00 a.m., London time, then Payor will select fourmajor banks in the London interbank market and shall request each of their principal London officesto provide a quotation of the rate at which one-month deposits in U.S. dollars in amounts of atleast $1.0 million are offered by it to prime banks in the London interbank market, on that dateand at that time, that is representative of single transactions at that time. If at least twoquotations are provided, LIBOR will be the arithmetic average of the quotations provided.Otherwise, Payor will select three major banks in New York City and shall request each of them toprovide a quotation of the rate offered by them at approximately 11:00 a.m., New York City time, onthe Interest Determination Date for loans in U.S. dollars to leading European banks having an indexmaturity of one month for the applicable Interest Period in an amount of at least $1.0 million thatis representative of single transactions at that time. If three quotations are provided, LIBORwill be the arithmetic average of the quotations provided. Otherwise, the rate of LIBOR for thenext Interest Period will be set equal to the rate of LIBOR for the then-current Interest Period.
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               (c) If Payor defaults in a payment of interest on the Notes, it shall pay the defaultedinterest plus, to the extent permitted by law, interest payable on the defaulted interest at a rateequal to 2.76% over the Interest Rate.          1.2 Cash Prepayment at Payor’s Option. Payor may, at its option and without penalty,prepay all or any portion of the outstanding principal amount of and accrued and unpaid interest onthis Note at any time prior to the Maturity Date by payment to Holder at an address or to anaccount designated by Holder in advance by wire transfer of immediately available funds.          1.3 Stock Prepayment at Payor’s Option.               (a) Subject to paragraph (c) below, Payor may, at its sole option and without penalty, electto prepay all or any portion of the outstanding principal amount of and accrued and unpaid intereston this Note at any time prior to the Maturity Date in Repayment Stock in the event that:                    (i) a Trigger Event has occurred within the preceding 180 calendar days; and                    (ii) the Average Price exceeds $[THE CLOSING PRICE ON THE TRADING DAY PRIOR TO THE CLOSINGDATE] (subject to adjustment on the same basis as the Initial Threshold Price shall be adjusted inaccordance with Section 3) per share (calculated as of the date on which the Prepayment ElectionNotice is delivered to Holder),by delivering to Holder a Prepayment Election Notice pursuant to the notice provisions set forth inSection 11.05 of the Purchase Agreement.               (b) Delivery of Prepayment Stock. On the Prepayment Election Date specified in theapplicable Prepayment Election Notice, Payor shall, at its expense, issue and deliver to Holder atPayor’s principal office, a certificate or certificates for any shares of the Repayment Stock towhich Holder is entitled (bearing such legends as are required by Section 5 and applicable stateand federal securities laws), together with cash in lieu of any fractional share (determined bymultiplying such fractional share by the Average Price as of the date on which the PrepaymentElection Notice is delivered to Holder). Any repayment of this Note or any portion thereof inshares of Repayment Stock pursuant to this Section 1.3 will be deemed to have been made on theapplicable Prepayment Election Date and such shares of Repayment Stock shall be dated as of theapplicable Prepayment Election Date.               (c) Registration. Payor shall not be permitted to prepay this Note with RepaymentStock pursuant to this Section 1.3, unless, at the time of such prepayment (i) the SecuritiesExchange Commission shall have declared effective a shelf registration statement under theSecurities Act covering the resale of the Repayment Stock or (ii) the Repayment Stock shall nolonger be Registerable Securities (as defined in the Registration Rights Agreement), each inaccordance with the Registration Rights Agreement.
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          1.4 Financing Prepayments.               (a) Upon the consummation of a Financing Transaction that results in net proceeds to Payorand/or any of its subsidiaries of $100,000,000 or more from such Financing Transaction prior to thetermination of this Note upon payment in full, Payor shall pay to Holder the Repayment Amount as ofthe Financing Prepayment Date at an address or to an account designated by Holder in advance bywire transfer of immediately available funds on or before the Financing Prepayment Date.               (b) Upon the consummation of any Financing Transaction that results in net proceeds to Payorand/or any of its subsidiaries of less than $100,000,000 from such Financing Transaction prior tothe termination of this Note upon payment in full, Payor shall pay, on the applicable FinancingPrepayment Date, the outstanding principal amount of and accrued and unpaid interest on this Notein an aggregate amount equal to the lesser of (x) the Repayment Amount and (y) 20% of the netproceeds of such Financing Transaction, which prepayment shall be made at an address or to anaccount designated by Holder in advance by wire transfer of immediately available funds on or priorto such Financing Prepayment Date; provided, however that no payment on this Note shall be madepursuant to this Section 1.4(b) until the outstanding principal amount of and accrued and unpaidinterest on the Buyer Note 1 has been paid in full.     **2. Repayment at Maturity.**          2.1 Repayment. The Repayment Amount shall be due and payable by Payor on the MaturityDate by wire transfer of immediately available funds to an account designated by Holder prior tothe second Business Day preceding the Maturity Date.          2.2 Delivery of Note. Upon repayment of this Note to Holder in full by payment ofcash and/or delivery of certificates representing the Repayment Stock in accordance with the termsof this Note (a) this Note shall become fully paid and satisfied, (b) all rights with respect tothis Note shall immediately cease and terminate, except only the right to receive such repaymentand/or shares of Repayment Stock in exchange therefor, and (c) Holder shall surrender this Note,duly endorsed for cancellation, to Payor.     **3. Threshold Price Adjustments.**          3.1 Stock Splits, Dividends, Etc. In the event Payor should at any time or from timeto time after the Execution Date effectuate a split or subdivision of the outstanding shares ofPayor Common Stock or fix a record date for the determination of holders of Payor Common Stockentitled to receive a dividend or other distribution payable in additional shares of Payor CommonStock or other securities or rights convertible into, or entitling the holder thereof to receivedirectly or indirectly, additional shares of Payor Common Stock (hereinafter referred to as “***StockEquivalents***”) without payment of any consideration by such holder for the additional shares ofPayor Common Stock or the Stock Equivalents, then, as of such record date (or the date of suchdividend distribution, split or subdivision if no record date is fixed), the Threshold Price thenin effect shall be reduced to the number obtained by multiplying the Threshold Price in effect atsuch date by a fraction, the numerator of which is the number of
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shares of Payor Common Stock outstanding immediately prior to such action, and the denominatorof which shall be the number of shares of Payor Common Stock outstanding immediately following suchaction assuming the full conversion or exercise, as applicable, of such Stock Equivalents.          3.2 Reverse Stock Split, Combination. If the number of shares of Payor Common Stockoutstanding at any time after the Execution Date is decreased by a reverse stock split orcombination of the outstanding shares of Payor Common Stock, then, following the effective date ofsuch combination, the Threshold Price then in effect shall be increased to the number obtained bymultiplying the Threshold Price in effect at such date by a fraction, the numerator of which is thenumber of shares of Payor Common Stock outstanding immediately prior to such action, and thedenominator of which shall be the number of shares of Payor Common Stock outstanding immediatelyfollowing such action.          3.3 Successive Adjustments. Successive adjustments in the Threshold Price shall bemade, without duplication, whenever any event specified in Section 3.1 or 3.2 shall occur.          3.4 Minimal Adjustments. All calculations under this Section 3 shall be made to thenearest cent. No adjustment in the Threshold Price need be made if such adjustment would result ina change in the Threshold Price of less than $0.01. Any adjustment of less than $0.01 that is notmade shall be carried forward and shall be made at the time of and together with any subsequentadjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in the ThresholdPrice.          3.5 Adjustment Notice. In the event the Threshold Price is adjusted pursuant toSection 3.1 or 3.2, Payor will promptly mail to Holder a statement setting forth in reasonabledetail the event requiring the adjustment, the amount of the adjustment, and the method by whichsuch adjustment was calculated, and the date on which such adjustment became effective.     **4. Reduction of the Note for Excess Product Returns.**          The outstanding principal amount of this Note shall automatically be reduced by the amount ofthe Excess Returns Amount (as defined in the Purchase Agreement), if any, determined in accordancewith the terms of Section 1.05 of the Purchase Agreement, and if the outstanding principal amountof this Note shall have been reduced to zero, Payor shall then reduce any accrued and unpaidinterest. Payor shall provide Holder prompt written notice of any such reduction in theoutstanding principal amount of this Note or interest payable on this Note pursuant to this Section4. Interest shall accrue only on the outstanding principal amount of this Note after any suchreduction pursuant to this Section 4.     **5. Transfer, Legend and Stop Transfer Orders.**          5.1 Holder acknowledges that this Note and the Repayment Stock have not been registered underthe Securities Act and agrees not to sell, pledge, distribute, offer for sale, transfer orotherwise dispose of this Note or any Repayment Stock unless (a) there is an effective registrationcovering such Note or such shares of Repayment Stock, as the case may be, under
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the Securities Act and applicable states securities laws or (b) if requested by Payor, Payorfirst receives a letter from an attorney reasonably acceptable to Payor (it being understood thatMilbank, Tweed, Hadley & McCloy LLP shall be deemed acceptable to Payor) stating that in theopinion of the attorney the proposed transfer is exempt from registration under the Securities Act,and under all applicable state securities laws. Unless the shares of Repayment Stock have beenregistered under the Securities Act, upon the issuance of any shares of Repayment Stock, Payorshall instruct its transfer agent or registrar to enter stop transfer orders with respect to suchshares, and all certificates representing shares of Repayment Stock shall bear on the face thereofsubstantially the following legend:THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933, AS AMENDED. THE HOLDER MAY NOT TRANSFER THE SECURITIES EVIDENCED HEREBY UNLESS(A) THERE IS AN EFFECTIVE REGISTRATION COVERING THE SECURITIES EVIDENCED BY THISCERTIFICATE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATESECURITIES LAWS OR (B) IF REQUESTED BY AVANIR PHARMACEUTICALS, IT FIRST RECEIVES ALETTER FROM AN ATTORNEY REASONABLY ACCEPTABLE TO IT STATING THAT IN THE OPINION OFTHE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIESACT OF 1933, AS AMENDED, AND UNDER ALL APPLICABLE STATE SECURITIES LAWS.          5.2 Prior to any such proposed transfer, and as a condition thereto, if such transfer is notmade pursuant to an effective registration statement under the Securities Act, Holder will, ifrequested by Payor, deliver to Payor a certificate of the proposed transferee in the form attachedto this Note as Exhibit A.     **6. Rights of Holder.**          Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in Payor,either at law or in equity, and the rights of Holder are limited to those expressed in this Note.     **7. Representation and Warranties.**          7.1 Holder. Holder has delivered to Payor an Accredited Investor Certificate (asdefined in the Purchase Agreement).          7.2 Payor.               (a) All shares of Payor Common Stock to be issued to Holder as Repayment Stock, when issuedpursuant to and in accordance with this Note and the Purchase Agreement, will be duly authorized,validly issued, fully paid and non-assessable.
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               (b) Payor has duly reserved a sufficient number of shares of Payor Common Stock for theissuance of the Repayment Stock.     **8. Covenants of Payor**. For so long as this Note shall remain outstanding, Payor shall keep asufficient number of shares of Payor Common Stock reserved for the issuance of the Repayment Stock.     **9. Events of Default.**          9.1 The following events will be considered “***Events of Default***” with respect to this Note:               (a) Payor defaults in the payment of any part of the Repayment Amount at the Maturity Date;               (b) Payor defaults in the payment the amount to be paid pursuant to Section 1.4 on anyFinancing Prepayment Date and such default continues for a period of three Business Days;               (c) Payor defaults in the delivery of any Repayment Stock as of the Prepayment Election Dateand such default continues for a period of three Trading Days;               (d) Payor defaults in the payment of any interest due on the Note, which default continues for30 days;               (e) the occurrence of an event of default under any of the Additional Notes, and any of theContingent Note or the Alternate Contingent Notes (each as defined in the Purchase Agreement) ifissued in accordance with Section 1.04(c) of the Purchase Agreement);               (f) Payor defaults in the payment of any Contingent Payment, any Non-US Licensing Earn-OutPayment or any Run Rate Contingent Payment (each as defined in the Purchase Agreement) that theparties or the Independent Accounting Firm (as defined in the Purchase Agreement) have determinedis due and payable in accordance with the terms of the Purchase Agreement and such defaultcontinues for three Business Days;               (g) Payor makes an assignment for the benefit of creditors, or admits in writing its inabilityto pay its debts as they become due, or files a voluntary petition for bankruptcy, or files anypetition or answer seeking for itself any reorganization, arrangement, composition, readjustment,dissolution or similar relief under any present or future statute, law or regulation, or files anyanswer admitting the material allegations of a petition filed against Payor in any such proceeding,or seeks or consents to, or acquiesces in, the appointment of any trustee, receiver or liquidatorof Payor, or of all or any substantial part of the properties of Payor, or Payor or its respectivedirectors or majority shareholders takes any action looking to the dissolution or liquidation ofPayor; or               (h) Within 30 days after the commencement of any proceeding against Payor seeking anyreorganization, arrangement, composition, readjustment, liquidation,
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dissolution or similar relief under any present or future statute, law or regulation, suchproceeding has not been dismissed or, within 30 days after the appointment without the consent oracquiescence of Payor of any trustee, receiver or liquidator of Payor or of all or any substantialpart of the properties of Payor, such appointment will not have been vacated.          9.2 Upon the occurrence of an Event of Default, at the option and upon the declaration ofHolder, the Repayment Amount will, without presentment, demand, protest or notice of any kind, allof which are hereby expressly waived, be forthwith due and payable, and Holder may, immediately andwithout expiration of any additional period of grace, enforce payment of all amounts due and owingunder this Note and exercise any and all other remedies granted to it at law, in equity orotherwise. No right or remedy herein conferred upon Holder is intended to be exclusive of any otherright or remedy contained in the Purchase Agreement, the Registration Rights Agreement, this Noteor in any instrument or document delivered in connection with or pursuant to the PurchaseAgreement, the Registration Rights Agreement or this Note and every such right or remedy containedherein and therein or now or hereafter existing at law or in equity or by statute, or otherwise maybe exercised separately or in any combination. No course of dealing between Payor and the Holderor any failure or delay on the Holder’s part in exercising any rights or remedies hereunder shalloperate as a waiver or preclude the exercise of any other rights or remedies hereunder.     **10. Governing Law.**          The terms of this Note and disputes arising hereunder will be construed in accordance with andgoverned by the laws of the State of California, as applied to contracts entered into by Californiaresidents within the State of California, which contracts are to be performed entirely within theState of California, without reference to principles of conflicts of laws.     **11. Waiver.**          A delay in exercising rights any hereunder will not constitute a waiver of any such rights.     **12. Loss, Theft, Destruction or Mutilation.**          Upon receipt by Payor of evidence and indemnity reasonably satisfactory to it of the loss,theft, destruction or mutilation of, and upon surrender and cancellation of this Note, ifmutilated, Payor will make and deliver in lieu of this Note a new note of like tenor and unpaidprincipal amount and dated as of the date to which interest, if any, has been paid on the unpaidprincipal amount of this Note.     **13. Assignment.**          This Note, and the obligations and rights of Payor hereunder, will be binding upon and inureto the benefit of Payor, Holder, and their respective heirs, personal representatives, successorsand assigns, except that (a) Holder may only assign or transfer any of its rights or obligationsunder this Note in accordance with Section 5, and (b) Payor may not
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assign or transfer any of its rights or obligations under this Note without the prior writtenconsent of Holder; *provided, however*that Payor may assign its rights or obligations under thisNote without obtaining such consent to any successor or purchaser in connection with a merger ofPayor; *provided, further*that Payor shall provide Holder with written notice of the proposedassignment at least ten Business Days prior to such merger.     **14. Amendments and Waivers.**          Changes in or amendments or additions to this Note may only be made, and compliance with anyterm, covenant, agreement, condition or provision set forth herein may only be omitted or waived(either generally or in a particular instance and either retroactively or prospectively), uponwritten consent of each of Payor and Holder.     **15. Notices**.          Any and all notices or other communications or deliveries required or permitted to be providedhereunder shall be in writing and shall be deemed given and effective on the earliest of (i) thedate of transmission, if such notice or communication is delivered via facsimile at the facsimilenumber specified in this Section prior to 5:00 p.m. (California time) on a Business Day, (ii) theBusiness Day after the date of transmission, if such notice or communication is delivered viafacsimile at the facsimile telephone number specified in this Note later than 5:00 p.m. (Californiatime) on any date and earlier than 11:59 p.m. (California time) on such date, (iii) the BusinessDay following the date of mailing, if sent by nationally recognized overnight courier service, or(iv) upon actual receipt by the party to whom such notice is required to be given. The address forsuch notices and communications shall be as follows:       If to Payor: Avanir Pharmaceuticals    11388 Sorrento Valley Rd.    San Diego, CA 92121    Attention: Michael Puntoriero    Telephone: (858) 622-5200    Fax: (858) 658-7447       With a copy to: Latham & Watkins LLP    650 Town Center Drive, 20th Floor    Costa Mesa, CA 92626    Attention: Cary K. Hyden and Jonn R. Beeson    Telephone: (714) 540-1235    Fax: (714) 755-8290       If to Cutler: Neal R. Cutler    [Address]
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       With a copy to: Milbank, Tweed, Hadley & McCloy LLP    601 South Figueroa Street, 30th Floor    Los Angeles, California 90017    Attn: Brett Goldblatt    Telephone: (213) 892-4000    Fax: (213) 629-5063       If to any otherPerson who is thenthe Holder: To the address of such Holder as it appears in the certificate provided to Payor inaccordance with Section 5.2or such other address as may be designated in writing hereafter, in the same manner, by suchPerson.[SIGNATURE PAGE FOLLOWS]
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          IN WITNESS WHEREOF, Payor has caused this Note to be duly executed and delivered as of thedate first written above.                **AVANIR PHARMACEUTICALS**           By: /s/ Michael J. Puntoriero           Name: Michael J. Puntoriero    Title: Senior Vice President and Chief FinancialOfficer  Signature Page to Buyer Note 2
 

 
          IN WITNESS WHEREOF, Holder acknowledges the terms and conditions of this Note and receiveddelivery of this Note as of the date first written above.                **NEAL R. CUTLER**           By:      Neal R. Cutler                  Neal R. Cutler  Signature Page to Buyer Note 2
 

 
**EXHIBIT A**