**Exhibit 10.42****EMPLOYMENT AGREEMENT**     This EMPLOYMENT AGREEMENT (“Agreement”), dated as of 12 February 2007 (the “EffectiveDate”), is made by and between AVANIR PHARMACEUTICALS, a California corporation having itsprincipal offices at 101 Enterprise, Suite 300, Aliso Viejo, California, 92656 (the“Company”), and Martin J. Sturgeon (“Employee”).AGREEMENT     1. Commencement Date.          Employee’s employment under this Agreement shall commence on 12 February 2007(“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 inthe future, nothing in this Agreement shall be construed as a guarantee of employment of anylength.     3. Employment Duties.          (a) Title. Employee shall be Vice President of Finance and Chief Accounting Officerof the Company and shall be assigned duties and responsibilities consistent with that position atthe discretion of the Company.          (b) Full-Time Attention. Employee shall devote his full time, attention, energy andskills to the Company during the period he 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 $16,666.67 per month(an annual rate of $200,000), 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 eligiblefor an annual discretionary bonus of up to 25% of the Employee’s then-current annual base salary(pro-rated for fiscal 2007 as described below), with such bonus to be determined and paid in thefirst quarter of each fiscal year with respect to Employee and Company performance in the priorfiscal year. The actual bonus may be higher or lower than the 25% target amount, at thediscretion of the Company. Any bonus payable with regard to performance in fiscal 2007
 

 
will be prorated on account of Employee’s commencement of employment less than one year priorto the payment date. Employee must be employed by the Company when bonuses are distributed inorder to be eligible to receive such bonus. If Employee leaves the employ of the Company for anyreason prior to the distribution of annual bonuses in any given year, he will not be eligible toreceive any part of that year’s discretionary bonus.          (c) Equity Compensation. The Company has recommend to its Board of Directors thatEmployee be granted the following equity awards as additional compensation and such awards havebeen approved, pending the commencement of employment:               (i) Subject to the commencement of employment, Employee shall be granted a restricted stockunit on the Commencement Date representing 10,000 shares of Class A common stock (the“RSU’s”). The RSU’s shall vest in full upon Employee’s completion of two full years ofemployment (the “Vesting Date”). The RSU’s will be granted pursuant to the Company’sequity compensation plans (the “Equity Plans”) and will be governed by the terms andconditions of such plans. Except as set forth in Section 10(d)(ii), the RSU’s shall be forfeitedif the Employment is terminated prior to the Vesting Date.               (ii) Subject to the commencement of employment, Employee shall be granted an option on theCommencement Date to purchase 20,000 shares of Class A common stock, with an exercise price equalto 100% of the fair market value of the underlying shares on the date of grant, subject to afour-year vesting schedule (25% vesting on the first anniversary of the Commencement Date and theremainder vesting in 12 equal installments each quarter thereafter over the next three years).This option shall be granted as an “inducement option” under NASDAQ Marketplace Rule 4350 and shallbe granted outside of the Equity Plans, but shall be governed in all material respects as if it wasgranted under the Company’s 2005 Equity Incentive Plan, *mutatis mutandis*. This option will betreated for tax purposes as a non-statutory stock option.     The foregoing share amounts and share purchase prices shall be adjusted, as necessary, to giveeffect to any stock split, reverse stock split, stock dividend, recapitalization or similartransaction 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 employeebenefit plans, programs and arrangements maintained by the Company and made available to employeesgenerally. The Employee’s participation in such Company plans or programs shall be on the samebasis and terms as are applicable to other executive employees of the Company. Employee shallaccrue 5 weeks of vacation the first year of service.          (e) Reimbursement of Expenses. During his employment with the Company, Employee shallbe entitled to reimbursement for all reasonable and necessary business expenses incurred on behalfof the Company, in accordance with the Company’s policies and procedures.     5. Confidentiality Agreement. Employee shall concurrently herewith execute anddeliver to the Company the Employee Invention Assignment, Patent and Confidential InformationAgreement (“Confidentiality Agreement”) in the form attached hereto as Exhibit B.
 

 
     6. Non-Competition. During his Employment, Employee shall not, directly orindirectly, 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 theCompany, unless such participation or interest is fully disclosed to the Company and approved bythe Board. “Competitor,” as used in this paragraph, refers to any company that has therapeuticproducts (i) on the market or in clinical development and (ii) that are in competition with theproducts the Company has on the market or that have entered clinical development. Notwithstandingthe above, Employee may own securities in any Competitor that is a public company, so long asEmployee does not own, of record or beneficially, more than an aggregate of five percent of theoutstanding securities of such company.     7. Non-Solicitation. During his 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 his or her employment with the Company. For purposesof this Agreement, the phrase, “shall not solicit, directly or indirectly,” includes, withoutlimitation, that Employee shall not: (i) identify any Company employees to any third party aspotential candidates for employment, such as by disclosing the names, backgrounds, compensation orqualifications 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 whileEmployee was employed by the Company whether under this Agreement or otherwise.     8. Agreement with Previous Employers. Employee represents and warrants to the Companythat he does not have any agreement with any previous employer that prevents him from performinghis duties and responsibilities under this Agreement or that in any way limits his performancehereunder. Employee understands and acknowledges that his employment with the Company iscontingent upon his compliance with any and all agreements between him and his prior employers.     9. Change of Control. Upon commencement of employment, Employee shall be eligible toenter into the Company’s standard Change of Control Agreement for executive officers (the “Changeof 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 Employeevoluntarily resigns his Employment, and such resignation is not a “Resignation for Good Reason” (asdefined in the Change of Control Agreement), or if Employee is terminated for Cause (definedbelow), the Company shall pay Employee all accrued and unpaid Base Salary through the date oftermination and any vacation that is accrued but unused as of such date. Employee shall not beeligible for Severance Payments, as defined below, or any continuation of benefits (other thanthose 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 betweenthe parties is at-will, terminable at any time by either party for any reason or no reason. Thetermination 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 theCompany and Employee; or               (ii) Employee’s willful and intentional failure or refusal to comply with the Company’sEmployee Manual, the Company’s Code of Business Conduct and Ethics, or other policies or proceduresestablished by the Company; or               (iii) Employee’s willful and intentional appropriation (or attempted appropriation) of amaterial business opportunity of the Company, including attempting to secure or securing anypersonal 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 fundsor material property; or               (v) Employee’s conviction of, or the entering of a guilty plea or plea of no contest withrespect to, a felony, the equivalent thereof, or any other crime with respect to which imprisonmentis 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 his inability to perform the essential functions of his position, with reasonableaccommodation; 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) abovewill give rise to “Cause” unless it is communicated by the Company to Employee in writing andunless it is not corrected by the Employee in a manner that is reasonable satisfactory to Companywithin 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 unpaidBase Salary and any accrued but unused vacation through the date of termination. In addition, inexchange for Employee’s execution of a release of all claims against the Company and itssubsidiaries and affiliates effective as of the date of termination and in substantially the formattached to the Change of Control Agreement, and if Employee is not then entitled to severancebenefits under the Change of Control Agreement in connection with such termination or resignation,then
 

 
               (i) Employee shall be eligible to receive severance payments under this Agreement in an amountequal to six months Base Salary and an amount equal to the greater of (x) 12.5% of Base Salary or(y) 50% of the last bonus, if any, paid to Employee pursuant to Section 4 (the “SeverancePayments”), payable on the earliest of (A) the date that is six months and a day afterEmployee’s “separation from service” for any reason, other than death or becoming “disabled” (assuch terms are used in Section 409A(a)(2) of the Code), (B) the date of Employee’s death or onwhich 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 termis used in Section 409A(a)(2)(A)(v) of the Code) or (D) the date such payments or benefits are nolonger deemed by the Code to be subject to penalty tax or interest. The payment timing provisionsof this paragraph shall only apply to the extent required to avoid Employee’s incurrence of anypenalty tax or interest under Section 409A of the Code or any regulations or Treasury guidancepromulgated thereunder. In addition, if any provision of this Agreement would cause Employee toincur any penalty tax or interest under Section 409A of the Code or any regulations or Treasuryguidance promulgated thereunder, the Company shall, upon the written request of Employee, reformsuch provision to maintain, to the maximum extent practicable, the original intent of theapplicable provision without violating the provisions of Section 409A of the Code and withoutcreating additional cost for the Company; and               (ii) The vesting of the RSU’s shall accelerate and the RSU’s shall become 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 withthis Agreement, or the interpretation, validity, construction, performance, breach, or terminationthereof shall be settled by arbitration, to the extent permitted by law, to be held in OrangeCounty, California in accordance with the National Rules for the Resolution of Employment Disputesthen in effect of the American Arbitration Association (the “Rules”) and in accordance withthe accompanying Mutual Arbitration Agreement attached hereto as Exhibit C. Thearbitrator’s decision shall be final, conclusive and binding on the parties to the arbitrationpursuant to the Mutual Arbitration Agreement. Judgment may be entered on the decision of thearbitrator in any court having competent jurisdiction.     12. Notices. Any reports, notices or other communications required or permitted to begiven by either party hereto, shall be given in writing by personal delivery, overnight courierservice, or by registered or certified mail, postage prepaid, return receipt requested, addressedto each respective party at the address shown below or other current address:     If to AVANIR:Avanir Pharmaceuticals