Document:

F. Dean Copeland Agreement

  EXHIBIT 10.2
 AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
 AGREEMENT by and between UnumProvident Corporation, a Delaware corporation having its principal executive offices in Chattanooga, Tennessee (the
“Company”), and F. Dean Copeland (the “Executive”) dated as of March 31, 2003.
 WHEREAS, the Executive currently serves as a senior executive officer of the Company pursuant to this Agreement as first entered into effective January 1, 2002; 
 WHEREAS, the Company recognizes the Executive’s substantial contribution to the growth and success of the Company, desires to provide for the continued employment of the
Executive and to make certain changes in the Executive’s employment arrangements with the Company, which the Board has determined will reinforce and encourage the continued attention and dedication to the Company of the Executive as a member of
the Company’s senior management in the best interests of the Company and its shareholders;
 WHEREAS, the Executive is willing to continue to serve the
Company on the terms and conditions set forth below;
 NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
 1.
Term of Agreement. The Company
hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the date hereof (the
“Effective Date”) and ending on the second anniversary of the Effective Date (the “Initial Term”). Beginning on the second anniversary
of the Effective Date, the Initial Term shall be automatically extended for successive two-year terms unless either the Company or the Executive shall give (in accordance with Section 11(b)) the other party written notice (a “Notice of Non-Renewal”) at least ninety (90) days but not more than one hundred and twenty (120) days prior to the expiration of such term of intention not to extend this Agreement; provided, however, that
any Notice of Non-Renewal given during the CIC Period (defined in Section 4(a)(i)) shall be effective only at the expiration of the CIC Period; and further provided that if the Company enters into an agreement that would constitute a Change in
Control if consummated (the date of such agreement being a “Potential Change in Control”) then any Notice of Non-Renewal provided after such Potential Change in Control or within three (3)
months prior to such Potential Change in Control shall not be effective until the expiration of the CIC Period or, if no Change in Control occurs within twelve (12) months of a Potential Change in Control, the expiration of such twelve (12) month
period. Notwithstanding the foregoing, it is understood that either party may notify the other at any time that the Executive’s employment will terminate due to retirement after age 65 (“Notice of Retirement”); provided, however, that
any such notice given by the Company during the period beginning three months prior to a Potential Change in Control and ending upon the expiration of the CIC Period (or, if no Change in Control occurs within twelve (12) months of a Potential Change
in Control,
 

  the expiration of such twelve (12) month period) shall not be effective until the expiration of the CIC Period (or, if no Change in Control occurs within
(12) months of a Potential Change in Control, the expiration of such twelve (12) month period).
 2.
Terms of Employment.
 (a)
Position and Duties. 3
 (i)
The Executive shall serve as Senior Executive Vice
President and General Counsel of the Company, as a publicly held company, and for an interim period beginning March 31, 2003 (or such later date as may be determined by the Company’s Board of Directors (the “Board”)) and ending at
such time as the Board may determine (the “Interim Period”), as Senior Executive Vice President and General Counsel, Chief Administrative Officer with the appropriate authority, duties and responsibilities attendant to such positions, it
being understood that from time to time the scope of such authority, duties and responsibilities will vary depending upon such matters as acquisitions, dispositions and the evolving organizational structure of the Company and shall generally carry
with it responsibility for such staff functions as Law, Human Resources, Facility Management, Internal Audit and Government Relations. 
 (ii)
Excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his
business attention and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform such
responsibilities. It shall not be a violation of this Agreement for the Executive to (A) serve, with prior approval of the Board, on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.
 (b)
Compensation.

(i)
Annual Base Salary. The
Executive shall receive an annual base salary (“Annual Base Salary”) of $650,000, effective March 31, 2003. Any increase in Annual Base Salary shall not serve to limit or reduce any

 
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  other obligation to the Executive under this Agreement, and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. 
 (ii)
Annual Bonus. The Executive shall be eligible to receive an annual bonus (“Annual Bonus”) with a target level of not less than 80% of Annual Base Salary, or such
greater amount as determined from time to time by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) (the “Target
Bonus Amount”). It is understood that “Annual Bonus” does not include any special or supplemental bonuses that may be awarded from time to time by the Company.
 (iii)
Incentive Awards. Annual
equity grants or cash awards in lieu thereof may be made by the Compensation Committee based upon competitive market analyses and such other factors it may deem appropriate.
 (iv)
Deferred Compensation.
The Company shall credit to a deferred compensation account maintained on its books in the name of the Executive an additional annual deferred payment (and interest, if any, as determined by the Compensation Committee) (the “Deferred Compensation”) in an amount determined by the Compensation Committee in any year in which the Company meets or exceeds its performance targets under its long-term incentive program for officers of the
Company and the Compensation Committee determines that Deferred Compensation is appropriate. The Deferred Compensation amount shall be paid to the Executive on the third anniversary of the date it was first credited; provided, however, that payment
of all or portions may be accelerated to an earlier anniversary date as specified by the Compensation Committee based on the achievement of individual performance goals.
 (v)
Other Employee Benefit Plans. Except as otherwise expressly provided herein, the Executive
shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs (including relocation programs and policies intended to reimburse the Executive in respect of state and local income taxes imposed by
jurisdictions where the Executive does not reside and attributable to compensation paid by the Company) (collectively, “Employee Benefit Plans”) applicable to senior executive officers of the
Company. 
 (vi)
Retirement
Benefit. The Executive shall be entitled to a minimum annual retirement benefit payable monthly (the “Retirement Benefit”) determined as set forth in Attachment A. In
addition, the Executive shall be entitled to post-retirement welfare benefit plan coverage pursuant to the terms of the applicable Company plans to the extent such coverage is provided by 
 
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  the Company. In determining the Executive’s eligibility for and entitlements to post-retirement welfare benefits, the Executive
shall receive full credit for all of his years of service with the Company for all purposes plus five (5) additional years.
 (vii)
Other Perquisites. The Executive shall be entitled for up to fifteen (15) hours per year for his personal use of
the Company’s aircraft and up to $12,000 for the Executive’s charitable gifts made to institutions whose primary activities benefit the communities in which the Company has business operations other than the community in which the
Executive maintains his business residence. In addition, the Company shall pay the Executive such amount as is necessary to reimburse the Executive for any federal, state and local income taxes payable by the Executive with respect to income
recognized in regard to the foregoing perquisites, such that the Executive will be in the same after-tax position as if no such reimbursements had been paid.
 3.
Termination of Employment.
 (a)
Death or Disability. The
Executive’s employment shall terminate automatically upon the Executive’s death. If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on
the 90th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 90 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall be determined in accordance with the Company’s policy, or shall mean the absence
of the Executive from the Executive’s duties with the Company on a full-time basis for any twelve-month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive’s legal representative, whichever is more favorable to the Executive.
 (b)
Cause. The Company may terminate the Executive’s employment for Cause. For purposes of
this Agreement, “Cause” shall mean:
 (i)
the continued failure of the Executive to perform substantially the Executive’s duties with the Company or one of its affiliates (other
than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Chief Executive Officer of the Company (“CEO”) which specifically identifies the manner in which the CEO believes that the Executive has not substantially performed the Executive’s duties, or 
 
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  (ii)
the willful
engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or
 (iii)
conviction of a felony or a guilty or nolo contendere plea by the Executive with respect thereto.
 For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the CEO or
based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be
deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
 (c)
Good Reason. The Executive’s employment may be terminated by the Executive for Good
Reason. For purposes of this Agreement, “Good Reason” shall mean the following events, provided, however, that clauses (i) through (v) shall constitute Good Reason only in the absence of the
written consent of the Executive:
 (i)
the
assignment to the Executive of any duties inconsistent with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a)(i) of this Agreement, or
any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive; provided, however, that the assignment to the Executive of any duties or responsibilities following the Interim Period that are reasonably related to the Executive’s
qualifications shall not constitute Good Reason;
 (ii)
any failure by the Company to comply with any of the provisions of Section 2(b) of this Agreement (including, but not limited to, any
reduction in Annual Base Salary), other than an isolated, insubstantial and 
 
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  inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
 (iii)
any purported termination
by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement, or any failure to renew this Agreement (other than pursuant to a Notice of Non-Renewal given after the Executive’s 65th
birthday);
 (iv)
any failure by the Company
to comply with and satisfy Section 9(c) of this Agreement; or
 (v)
any required relocation of the Executive, provided that no required relocation shall be considered to constitute Good Reason unless it occurs
during the CIC Period (as defined in Section 4(a)(i)).
 Notwithstanding the foregoing, placing the Executive on a paid leave for up to 30 days, pending the determination of
whether there is a basis to terminate the Executive for Cause, shall not constitute a Good Reason event; provided, further, that, if the Executive is subsequently terminated for Cause, then the Executive shall repay any amounts paid by the Company
to the Executive during such paid leave period.
 (d)
Change in Control. For purposes of this Agreement, “Change in Control” shall mean the occurrence of any one of the following events:
 (i)
during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director and whose election or nomination for election was approved by a vote of at
least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination)
shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest (as described in Rule 14a-11 under the Act)
(“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of any “person” (as such term is
defined in Section 3(a)(9) of the Act and as used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board (“Proxy Contest”), including by reason of any agreement intended
to avoid or settle any Election or Contest or Proxy Contest, shall be deemed an Incumbent Director;
 (ii)
any person is or becomes a “beneficial owner” (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the 
 
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  Company’s then outstanding securities eligible to vote for the election of the Board (the “Company
Voting Securities”); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control of the Company by virtue of any of the following acquisitions: (A) by the
Company of any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by an underwriter temporarily holding securities pursuant to an offering of such securities,
(D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), or (E) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the
Incumbent Directors approve a resolution providing expressly that the acquisition pursuant to this clause (E) does not constitute a Change in Control of the Company under this paragraph (ii);
 (iii)
the consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the
transaction (a “Reorganization”), or sale or other disposition of all or substantially all of the Company’s assets to an entity that is not an affiliate of the Company (a
“Sale”), unless immediately following such Reorganization or Sale: (A) more than 50% of the total voting power of (x) the corporation resulting from such Reorganization or the corporation
which has acquired all or substantially all of the assets of the Company (in either case, the “Surviving Corporation”), or (y) if applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by the Company Voting
Securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization or Sale), and such voting power
among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Reorganization or Sale, (B) no person (other than any employee benefit
plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) following the consummation of the Reorganization or Sale were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Reorganization or Sale
(any Reorganization or Sale 
 
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  which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or
 (iv)
the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.
 Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.
 (e)
Notice of Termination. Any termination by the Company or by the Executive shall be
communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a
written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the
Executive’s employment under the provision so indicated and (iii) specifies the Date of Termination (as defined below). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the
Executive’s or the Company’s rights hereunder.
 (f)
Date of Termination. “Date of Termination” means (i) if
the Executive’s employment is terminated by the Company for Cause, the date of receipt of the Notice of Termination or any later date specified therein within 90 days of such notice, (ii) if the Executive’s employment is terminated by
reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be, (iii) if the Executive’s employment is terminated by the Company other than for Cause, death or Disability, 90 days after
giving such notice, (iv) if the Executive’s employment is terminated by the Executive, 90 days after the giving of such notice by the Executive provided that the Company may elect to place the Executive on paid leave for all or any part of
such 90-day period or accelerate the Date of Termination, and (v) if the Executive’s employment is terminated pursuant to a Notice of Non-Renewal, the date specified in Section 1 as the end of the two-year term in which such notice is provided
or any other mutually agreed upon date.
 
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  4.
Obligations of the Company upon Termination.
 (a)
Good Reason; Other Than for Cause, Death or Disability. If, the Company shall terminate the Executive’s
employment (including a termination pursuant to a Notice of Non-Renewal under Section 1 given before the Executive’s 65th birthday) other than for Cause or Disability, or the Executive shall terminate employment for Good Reason, this
Agreement shall terminate without further obligation to the Executive other than:
 (i)
the Company shall pay to the Executive (x) if such termination occurs during the two-year period after a Change in Control (such two-year
period being hereafter referred to as the “CIC Period”) or during the twelve (12) month period after a Potential Change in Control (the “Potential CIC
Period”), in a lump sum in cash within ten (10) days after the Date of Termination, and (y) if such termination occurs any other time, in equal monthly payments during the eighteen (18) months commencing
on the Date of Termination:
 A.
the product
of three (3), if such termination occurs during the CIC period or Potential CIC Period, otherwise, two (2) times the sum of (x) the highest annual bonus paid to the Executive for any of the three (3) years prior to the Date of Termination (the
“Recent Annual Bonus”) and (y) the Executive’s Annual Base Salary;
 B.
the sum of (x) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, and
(y) the product of (1) the Recent Annual Bonus multiplied by (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator
of which is 365, to the extent not theretofore paid (the sum of the amounts described in clauses (x) and (y) shall be hereinafter referred to as the “Accrued Obligations”); 
 C.
the Deferred Compensation; and
 D.
if such termination occurs during the CIC Period or
Potential CIC Period, a lump sum cash payment equal to the difference between (x) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which
the Executive was eligible for participation at the time of termination of employment, assuming the Executive had accumulated three (3) additional years of employment, and (y) the actuarial present value of the Retirement Benefit determined using
the actuarial assumptions prescribed under the tax-qualified defined 
 
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  benefit plan under which the Executive was eligible for participation at the time of termination of employment.
 (ii)
the Company shall continue to provide, for a period
of three (3), if such termination occurs during the CIC Period or Potential CIC Period, otherwise two (2), years following the Executive’s Date of Termination, the Executive (and the Executive’s dependents, if applicable) with the same
level of medical, dental, accident, disability and life insurance benefits upon substantially similar terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to the Executive’s
Date of Termination (or, if more favorable to the Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control or Potential Change in Control); provided that, if the Executive cannot continue to participate
in the Company plans providing such benefits (including the Company’s retiree medical plans), the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. It is understood that
in the event a commercially underwritten disability policy is unavailable, the Company may provide the Executive continued disability benefits on a self-insured basis which would substantially duplicate the terms of the Company’s existing
long-term disability plans. Notwithstanding the foregoing, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be
secondary to such benefits during the period of the Executive’s eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides any additional benefits necessary to give the Executive the
benefits provided hereunder.
 (iii)
if
termination occurs during the CIC Period or Potential CIC Period, all stock options, restricted stock awards and other equity based awards granted after July 1, 1999 (the “Equity Awards”)
shall vest (and such options shall remain exercisable for a period of two (2) years or the earlier expiration of their initial term), otherwise, the Equity Awards will expire as provided under the terms of their applicable agreements; and

(iv)
to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).
 (b)
Death or Disability; Notice of
Retirement. If the Executive’s employment is terminated by reason of the Executive’s death or Disability, 
 
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  or pursuant to a Notice of Retirement, this Agreement shall terminate without further obligations to the Executive’s legal representatives or to the
Executive, as the case may be, under this Agreement, other than for payment of the Deferred Compensation, the Accrued Obligations, the timely payment or provision of Other Benefits, and the Retirement Benefit. In addition, the Equity Awards shall
vest immediately and stock options shall remain exercisable for a period of at least three (3) years or the earlier expiration of their initial term. Deferred Compensation and Accrued Obligations shall be paid to the Executive, the Executive’s
legal representatives, as applicable, in a lump sum in cash within 30 days of the Date of Termination. If, however, the Executive’s employment is terminated by reason of accidental death after a Notice of Termination given either by the
Executive for Good Reason or by the Company other than for Cause, the Company shall also pay to the Executive’s legal representatives in one lump sum the amounts specified in Sections 4(a)(i)(A) and (B).
 (c)
Cause; Other than for Good Reason. If the Executive’s employment shall be terminated for Cause or the Executive terminates his employment without Good Reason (other than in connection with retirement after age 65), this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination to the extent theretofore unpaid and, (ii) the Other Benefits.
 5.
Non-exclusivity of Rights.
Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement; provided that the Executive shall not be eligible for severance benefits under any other
program or policy of the Company.
 6.
Full
Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any
of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result 
 
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  of any contest (regardless of the outcome thereof) pursued or defended against in good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the “Code”).
 7.
Certain Additional Payments by the Company.
 (a)
Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under
this Section 7) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an
additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments. Notwithstanding the foregoing provisions of this Section 7(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the
“Reduced Amount”) that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
 (b)
Subject to the provisions of Section 7(c), all determinations required to be made under this Section 7, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s independent auditors or such other certified public accounting firm
reasonably acceptable to the Executive as may be designated by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the Company to the Executive within five (5) days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm’s
determination. Any determination by the 
 
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  Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
 (c)
The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
 (i)
give the Company any information reasonably requested by the Company relating to such claim,
 (ii)
take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
 (iii)
cooperate with the Company in good faith in order
effectively to contest such claim, and
 (iv)
permit the Company to participate in any proceedings relating to such claim;
 provided, however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7(c), the Company shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and 
 
-13-

  all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
 (d)
If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 7(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
 8.
Competition; Confidential Information.
 (a)
During the term of this Agreement, the Executive shall not directly or indirectly, own, manage, operate, join, control, or participate in the
ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, whether for compensation or otherwise, without the prior written consent of the Company. Notwithstanding the preceding
sentence, the Executive shall not be prohibited from owning less than one (1%) percent of any publicly traded corporation, whether or not such corporation is deemed to be a competing business. For the purposes of this Agreement, a
“competing business” shall be any business which is a significant competitor of the Company or any of its subsidiaries, or which the Company reasonably determines may become a significant
competitor, unless the Executive’s primary duties and responsibilities with respect to such business are not related to the 
 
-14-

  management or operation of disability insurance or complementary special risk products and services in any country where the Company or any of its
subsidiaries is conducting business. 
 (b)
If
the Executive engages in any activity described in Section 8(a) or, breaches Section 8(c), or solicits (as defined below) any employee of the Company or any of its subsidiaries after the Date of Termination and during the period in which he is
receiving payments pursuant to Section 4(a)(i) (any such event a “Forfeiture Event”), then all such payments shall immediately cease, the Executive shall forfeit his rights under Section
4 of this Agreement and all outstanding Equity Awards shall terminate and cease to be exercisable as of such date. In addition, the Executive shall remit to the Company in cash an amount equal to the income recognized on the exercise of any stock
options during the 90-day period prior to Forfeiture Event. For purposes of this Agreement, “solicit” shall mean any direct or indirect communication of any kind whatsoever, regardless of by
whom initiated, inviting, advising, encouraging or requesting any employee of the Company or any of its subsidiaries, in any manner, to resign from the Company or to apply for or accept employment with any person or entity. For purposes of
implementing this provision, the Executive shall notify the Company in advance of undertaking any employment, consulting or other relationship with any business during the eighteen-month period after the Date of Termination. This Section 8(b)
shall cease to apply upon the occurrence of a Change in Control.
 (c)
The Executive hereby acknowledges that, as an employee of the Company, he will be making use of, acquiring and adding to confidential information
of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is
material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Company only and shall not
at any time, directly or indirectly, during the term of this Agreement and thereafter divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own
benefit or for the benefit of others.
 (d)
Any
termination of the Executive’s employment or of this Agreement shall have no effect on the continuing operation of this Section 8.
 (e)
The Executive acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of Section 8(a), (b) or (c). The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of such provisions, and
to specific performance of each of the terms thereof in addition to any other legal or equitable 
 
-15-

  remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this
Section 8, raise the defense that the Company has an adequate remedy at law.
 (f)
The terms and provisions of this Section 8 are intended to be separate and divisible provisions and if, for any reason, any one or more of
them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive’s
future employment imposed by this Section 8 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 8 unreasonable in
duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction.
 (g)
The parties acknowledge that this Agreement would not
have been entered into and the benefits described in Sections 2 or 4 would not have been promised in the absence of the Executive’s promises under this Section 8.
 9.
Successors. 
 (a)
This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal
representatives.
 (b)
This Agreement shall
inure to the benefit of and be binding upon the Company and its successors and assigns.
 (c)
The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this
Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
 10.
Disputes.
 (a)
Mandatory
Arbitration. Subject to the provisions of this Section 10, any controversy or claim between the Executive and the Company arising out of or relating to or concerning this Agreement or any aspect of the Executive’s
employment with the Company or the termination of that employment (together, an 
 
-16-

  “Employment Matter”) will be finally settled by arbitration in the County of New York administered
by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the
following ways: (i) each arbitrator will agree to treat as confidential evidence and other information presented to them, (ii) there will be no authority to award punitive damages (and the Executive and the Company agree not to request any such
award) and (iii) a decision must be rendered within 10 business days of the parties’ closing statements or submission of post-hearing briefs.
 (b)
Injunctions and Enforcement of Arbitration Awards. The Executive or the Company may bring an action or special
proceeding in a state or federal court of competent jurisdiction to enforce any arbitration award under Section 10(a). Also, the Company may bring such an action or proceeding, in addition to its rights under Section 10(a) and whether or not an
arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Section 8. The Executive agrees that (i) violating any part of Section 8(a), 8(b) or  8(c) would cause damage to the
Company that cannot be measured or repaired, (ii) the Company therefore is entitled to an injunction, restraining order or other equitable relief restraining any actual or threatened violation of Section 8(a), 8(b) or 8(c), (iii) no bond will
need to be posted for the Company to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of Section 8(a) or Section 8(c) would be difficult to calculate and that remedies at
law would be inadequate.
 (c)
Waiver of
Jury Trial. To the extent permitted by law, the Executive and the Company waive any and all rights to a jury trial with respect to any Employment Matter.
 11.
Miscellaneous.
 (a)
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
 (b)
All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
 If to the Executive:
F. Dean Copeland
214 Camden Road, N.E.
Atlanta, GA 30309
 
-17-

  If to the Company:
UnumProvident Corporation
1 Fountain Square
Chattanooga, TN 37402
Attention: Chief Executive Officer
 or to such other address as either party shall have furnished to the other in writing in
accordance herewith. Notice and communications shall be effective when actually received by the addressee.
 (c)
The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of
this Agreement.
 (d)
The Company may withhold
from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
 (e)
The Executive’s or the Company’s failure to
insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(vi) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
 (f)
From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control
agreement between the parties with respect to the subject matter hereof.
 12.
General Release. All payments under this Agreement to be made in connection with the Executive’s termination of
employment will be conditioned on the Executive signing a general form of release substantially in the form attached hereto as Exhibit A.
 
-18-

  IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
  

	  
 	  
 	 EXECUTIVE
 
	  
 	  
 	  
  /s/ F. DEAN COPELAND

	  
 	  
 	 
 

  

	  
 	  
 	 UNUMPROVIDENT CORPORATION
 
	 
 
 
 	  
 	 By
 	 
 /s/ C. WILLIAM POLLARD
 
	  
 	  
 	  
 	 
 

 Date March 31, 2003 
 
-19-

  Attachment A
 The Retirement Benefit
shall be the benefit provided under the Unum Corporation Senior Executive Retirement Plan (the “Plan”) as amended and restated effective January 1, 1997 to Schedule B Participants (as such term is defined under the Plan) with the following
modifications:
 •
To the extent that any
portion of the Plan incorporates by reference a provision of the Qualified Plan (as such term is defined under the Plan), such provision of the Qualified Plan as in effect from time to time shall be applied in determining the Retirement Benefit. In
the event such provision includes any grandfathering, protection of accrued benefits or any special transition provision, these modifications should also be applied.
 •
For purposes of calculating the Retirement Benefit, the Executive shall receive full credit for all of his years of
service with the Company for all purposes plus five additional years.
 •
The proviso contained in the first paragraph of Section 3.3 of the Plan regarding disallowance of certain service credit for purposes of determining retirement benefits for
Schedule B Participants shall be ignored.
 •
The proviso in Section 3.4(a) of the Plan with regard to the disallowance of certain service credit for purposes of determining Disability Retirement Benefits (as such term is defined in the Plan) shall be ignored.
 For the avoidance of doubt the Retirement Benefit (including the lump-sum benefit payable in accordance with Section 4(a)(i)(D)) of this Employment Agreement) shall be calculated
according to the following methodology:
 
-20-

  F. Dean Copeland
 Employment
Agreement Retirement Benefit
 Employee Data:
 Date of Birth
Date of
Employment
Date of Termination
Age at Termination
Benefit Commencement Date (of Annual Retirement Benefit)
Age at Benefit Commencement
Earnings (based on qualified plan pensionable earnings, but without regard to IRC 401(a)(17) limit on compensation, plus amounts deferred under any non qualified deferred compensation plan)
 Final Average Earnings (FAE)
(based on qualified plan definition; current definition is highest five calendar year earnings during the last ten consecutive calendar years of employment)

Service
Service Adjustment (5 years)
Adjusted Service
Maximum Service recognized – 20 years
 Retirement Benefit:
 (1)
Gross Annual Retirement Benefit
(2.5% x Adjusted Service x FAE)
 (2)
Early Retirement Reduction Factor (5% per year from age 60)
 (3)
Gross Annual Retirement Benefit, Reduced for
Early Retirement [(1) x (2)]
 Reductions:
 (4)
Annual Pension Plan Benefit
 (5)
Annual Supplemental Plan Benefit
(Nonqualified)
 (6)
Social Security Benefit (Age 65 benefit calculated based on social security wage and
benefit levels as of termination of employment, and assuming zero participant 
 
-21-

  earnings after termination. This offset is applied to monthly payments due after the month in which the participant attains age 65 (no
offset prior to 65).)
 (7)
(a) Annual Retirement Benefit, Net of Reductions,
Payable Prior to and Including Month in Which Participant Attains Age 65 
(Single Life Annuity)
[(3)-(4)-(5)]
 (b) Annual Retirement Benefit, Net of Reductions, Payable Beginning in Month After Attainment of Age 65
[(3)-(4)-(5)-(6)]
 
-22-

  EXHIBIT A
 GENERAL
RELEASE
 For and in consideration of the payment, mutual promises, covenants, and agreements made by and between you and UnumProvident in the Agreement
dated as of March 31, 2003, to which this General Release is attached as Exhibit A, you unconditionally and generally release UnumProvident from each and every action, claim, right, liability or demand of any kind and nature, and from any claims
which may be derived therefrom, that you had, have, or might hereafter claim to have against UnumProvident or any employee, agent, successor or predecessor of UnumProvident at common law, public policy or otherwise, particularly including, but not
by way of limitation, the following: all claims for personal injury, including negligent infliction of emotional distress; any claim arising under the Age Discrimination in Employment Act of 1967, as amended; Title VII of the Civil Rights Act of
1991; the Americans with Disabilities Act of 1990; the Rehabilitation Act of 1973; the Fair Labor Standards Act; the National Labor Relations Act; Sections 1981 through 1988 of Title 42 of the United States Code; the Immigration Reform and Control
Act; the False Claims Act; the Occupational Safety and Health Act; the Worker Adjustment and Retraining Notification Act; the Employment Retirement Income Security Act of 1974 (save for a benefit claim as provided below); any other federal, state or
local law dealing with discrimination in employment on the basis of sex, race, color, national origin, religion, disability, age, sexual orientation or any other grounds; any claim for unpaid compensation or unpaid bonus; any claim for wrongful
discharge or breach of contract; and any other claims
 
-23-

  based on tort, whether based on common law, public policy or otherwise. It is your intent to release all claims of every nature and kind whether known or
unknown, accrued or unaccrued, which you may have against UnumProvident as of the date of the execution of this General Release.
 It is expressly understood
and agreed by you that this General Release does not include your vested rights, if any, in the Unum Corporation Senior Executive Retirement Plan, UnumProvident Corporation Supplemental Pension Plan, UnumProvident Pension Equity Plan or in the
UnumProvident 401(k) Retirement Plan, any other rights you may have to benefits under UnumProvident’s welfare benefit plans, any rights you may have to coverage under UnumProvident’s professional liability insurance policies, including any
directors and officers liability insurance, or any vested rights you may have under a stock option or long term incentive plan, or any rights to deferred compensation. Such retirement plan, welfare plan, stock options or deferred compensation rights
survive unaffected by this release, subject to the laws and plan documents governing those plans. This General Release does not include any rights or claims against UnumProvident or those associated with UnumProvident that you may have which arise
after the date you sign the General Release, or any claim that you may have to unemployment compensation or workers’ compensation benefits, or any claim you may have to indemnification in accordance with the provisions of the UnumProvident
Corporation Certificate of Incorporation or Bylaws.
  

	  
 	  
 	 EXECUTIVE
 
	 
 
 
 	  
 	  
 
 
 
	  
 	  
 	 
 
	  
 	  
 	 Name:
 
 
 
	  
 	  
 	 Date: 
 	  
 
	  
 	  
 	  
 	 
 

  
 
-24-

   

	  
 	  
 	 UNUMPROVIDENT CORPORATION
 
	 
 
 
 	  
 	  
 
 
 
	  
 	  
 	 
 
	  
 	  
 	 Name:
 
	  
 	  
 	 Title:
 	  
 
	  
 	  
 	 Date: 
 	  
 
	  
 	  
 	  
 	 
 

 
-25-<PAGE>

                                                                    EXHIBIT 10.1

                             AVANIR PHARMACEUTICALS
                   AMENDED AND RESTATED 2000 STOCK OPTION PLAN
                           (as amended March 13, 2003)

1.       ESTABLISHMENT AND PURPOSE.

         This Plan was established to offer selected Employees, directors,
advisors and Consultants an opportunity to acquire a proprietary interest in
AVANIR Pharmaceuticals, a California corporation, or to increase such interest,
by purchasing shares of the Company's Class A Common Stock. This Plan provides
for the grant of Options and Stock Awards. Options granted under this Plan may
include Nonstatutory Options as well as ISOs intended to qualify under Section
422 of the Code.

2.       DEFINITIONS.

         (a)      "Award" means a Stock Award or Option granted in accordance
with the terms of this Plan.

         (b)      "Awardee" shall mean an individual who holds an Option or a
Stock Award.

         (c)      "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.

         (d)      "Code" shall mean the Internal Revenue Code of 1986, as
amended.

         (e)      "Committee" shall mean a committee of the Board of Directors,
consisting solely of two or more Nonemployee Directors, as appointed by the
Board of Directors from time to time.

         (f)      "Company" shall mean AVANIR Pharmaceuticals, a California
corporation.

         (g)      "Consultant" shall mean any individual who is (i) a member of
the Board of Directors but who is not an Employee, (ii) an affiliate of a member
of the Board of Directors, (iii) a member of the board of directors of a
Subsidiary or (iv) an independent contractor who performs services for the
Company or a Subsidiary.

         (h)      "Employee" shall include every individual performing Service
to the Company or its Subsidiaries if the relationship between such individual
and the Company or its Subsidiaries is the legal relationship of employer and
employee. This definition of "Employee" is qualified in its entirety and is
subject to the definition set forth in Section 3401(c) of the Code and the
applicable regulations thereunder.

         (i)      "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

         (j)      "Exercise Price" shall mean the amount for which one Share may
be purchased upon exercise of an Award, as specified by the Committee in the
applicable Stock Option Agreement or Stock Award.

<PAGE>

         (k)      "Fair Market Value" shall mean the market price of Stock,
determined by the Committee as follows:

                  1.       If Stock was traded over-the-counter (OTC) on either
the OTC Bulletin Board or the NASDAQ SmallCap Market on the date in question and
was not classified as a national market issue, then the Fair Market Value shall
be equal to the mean between the last reported representative bid and asked
prices quoted by the OTC Bulletin Board or the NASDAQ system for such date;

                  2.       If Stock was traded on a national market exchange on
the date in question and was classified as a national market issue, then the
Fair Market Value shall be equal to the last-transaction price quoted by the
NASDAQ system or the American Stock Exchange (AMEX) for such date;

                  3.       If Stock was traded on any other stock exchange on
the date in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transaction report for such date; and

                  4.       If none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee in good faith
and in accordance with Section 260.140.50, Title 10 of the California Code of
Regulations, or with respect to the determination of Fair Market Value in
connection with the exercise of any Awards granted to Nonemployee Directors
under Section 4(b) of this Plan, by an independent appraiser selected by the
Committee in its sole discretion.

In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.

         (l)      "ISO" shall mean an incentive stock option described in
Section 422(b) of the Code.

         (m)      "Nonemployee Director" shall have the meaning set forth in
Rule 16b-3 promulgated under the Exchange Act. If the Board of Directors
determines that compliance with Section 162(m) of the Code is desirable, then
the term "Nonemployee Director" shall also be interpreted to satisfy the
definition of "outside director" under Section 162(m) and applicable regulations
issued pursuant thereto.

         (n)      "Nonstatutory Option" shall mean a Stock Option not described
in Sections 422(b) or 423(b) of the Code.

         (o)      "Option" shall mean an ISO or Nonstatutory Option granted
under this Plan and entitling the holder to purchase Shares.

         (p)      "Optionee" shall mean an individual who holds an Option.

                                       2

<PAGE>

         (q)      "Plan" shall mean this 2000 Stock Option Plan of the Company,
as amended.

         (r)      "Service" shall mean service as an Employee or Consultant.

         (s)      "Share" shall mean one share of Stock, as adjusted in
accordance with Section 8 of this Plan (if applicable).

         (t)      "Stock" shall mean the Class A Common Stock of the Company.

         (u)      "Stock Award" shall mean an offer by the Company to sell or
transfer Shares to an Awardee as described in Section 6(b).

         (v)      "Stock Option Agreement" shall mean the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.

         (w)      "Stock Purchase Agreement" shall mean a notice of exercise and
purchase agreement to be delivered by an Awardee to the Company upon exercise of
a Stock Award.

         (x)      "Subsidiary" shall mean any corporation, if the Company and/or
one or more other Subsidiaries own at least 50 percent of the total combined
voting power of all classes of outstanding capital stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of this Plan shall be considered a Subsidiary commencing as of such date.

         (y)      "Taxes" shall mean the term defined in Section 6(c)(1) of this
Plan.

         (z)      "Total and Permanent Disability" shall mean that the Awardee
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted, or can be expected to last, for a
continuous period of not less than one year.

3.       ADMINISTRATION.

         (a)      General. The Committee shall administer this Plan or, in the
Committee's absence, the Plan shall be administered by the Board of Directors.
The Board of Directors or the Committee may appoint a separate committee of the
Board of Directors, comprised of two or more directors of the Company who need
not be Nonemployee Directors, who may: (i) administer this Plan with respect to
Employees or Consultants who are not officers or directors of the Company or
incoming new directors of the Company, (ii) grant Awards under this Plan to such
persons, and (iii) determine the vesting, number of Shares subject to such
Awards and other terms of such grants.

         (b)      Committee Procedures. The Committee shall designate one of its
members as chairman. The Committee may hold meetings at such times and places as
it shall determine. The acts of a majority of the Committee's members present at
meetings at which a quorum exists, or acts reduced to or approved in writing by
all of the Committee's members, shall be valid acts of the Committee.

                                       3

<PAGE>

         (c)      Committee Responsibilities. Subject to the provisions of this
Plan, and without further approval of the Board of Directors, the Committee
shall have full authority and discretion to take the following actions:

                  1.       To interpret this Plan and to apply its provisions;

                  2.       To adopt, amend or rescind rules, procedures and
forms relating to this Plan;

                  3.       To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of this Plan;

                  4.       To determine when Awards are to be granted under this
Plan;

                  5.       To select Awardees from those eligible to participate
in this Plan;

                  6.       To determine the number of Shares to be made subject
to each Award;

                  7.       To prescribe the terms and conditions of each Award,
including, without limitation, the Exercise Price, vesting schedule, whether
such Option is an ISO or a Nonstatutory Option, and the terms and conditions of
each Stock Option Agreement or Stock Purchase Agreement relating to such Award;

                  8.       To amend any outstanding Stock Option Agreement or
Stock Purchase Agreement, subject to applicable legal restrictions and, if
required by the agreement, with the consent of the Awardee;

                  9.       To accelerate or defer, with the consent of the
Awardee if required by the agreement, the exercise date or vesting schedule of
any Award;

                  10.      To reprice, cancel and regrant, or otherwise adjust
the Exercise Price of an Option previously granted by the Committee, with the
consent of the Awardee if required by the agreement;

                  11.      To prescribe the consideration for the grant of each
Award or other right under this Plan and to determine the sufficiency of such
consideration; and

                  12.      To take any other actions deemed necessary or
advisable for the administration of this Plan.

All decisions, interpretations and other actions of the Committee shall be final
and binding on all Awardees, and all persons deriving their rights from an
Awardee. No member of the Committee shall be liable for any action that he or
she has taken or has failed to take in good faith with respect to this Plan, any
Award, or any other right to acquire Shares under this Plan.

                                       4

<PAGE>

4.       ELIGIBILITY.

         (a)      General Rule. Employees and Consultants shall be eligible to
receive Awards. However, only Employees shall be eligible for the grant of ISOs.

         (b)      Ten-Percent Stockholders. An Employee who owns more than 10
percent of the total combined voting power of all classes of Outstanding Stock
of the Company or any of its Subsidiaries shall not be eligible for the grant of
an Option unless (i) the Exercise Price is at least 110 percent of the Fair
Market Value of the Shares underlying such Option on the date of grant of such
Option and (ii) if such Option is an ISO, such ISO is not exercisable after the
expiration of five years from the date of grant.

         (c)      Attribution Rules. For purposes of Subsection (b) above, in
determining Stock ownership, an Employee shall be deemed to own the Stock owned,
directly or indirectly, by or for such Employee's brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Employee holds an Option shall be counted in the
determination of Stock ownership for purposes of the above Subsection (b).

         (d)      Outstanding Stock. For purposes of Subsection (b) above,
"Outstanding Stock" shall include all Stock actually issued and outstanding
immediately after the grant. "Outstanding Stock" shall not include Shares
authorized for issuance under outstanding Options held by the Employee or by any
other person.

5.       STOCK SUBJECT TO THIS PLAN.

         (a)      Basic Limitation. Shares subject to Awards granted under this
Plan shall be authorized but unissued Shares. The aggregate number of Shares
which may be issued under this Plan (upon exercise of Awards or other rights to
acquire Shares) shall not exceed 3,000,000 Shares, subject to adjustment
pursuant to Section 8 of this Plan. The number of Shares subject to Awards or
other rights outstanding at any time under this Plan shall not exceed the number
of Shares which then remain available for issuance under this Plan. The Company,
during the term of this Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of this Plan.

         (b)      Additional Shares. In the event that any outstanding Option
for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purpose of this Plan.

         (c)      Limitation on Grants. The maximum number of Shares as to which
Awards may be granted to any single Optionee under this Plan shall not exceed
500,000 Shares.

                                       5

<PAGE>

6.       TERMS AND CONDITIONS OF AWARDS.

         (a)      Options.

                  1.       General. Each grant of an Option under this Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
this Plan and may be subject to any other terms and conditions which are not
inconsistent with this Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under this Plan need not be identical.

                  2.       Number of Shares. Each Stock Option Agreement shall
specify the number of Shares that are subject to the Option and shall provide
for the adjustment of such number in accordance with Section 8 of this Plan. The
Stock Option Agreement shall also specify whether the Option is an ISO or a
Nonstatutory Option.

                  3.       Exercise Price. Each Stock Option Agreement shall
specify the Exercise Price. The Exercise Price of an ISO shall not be less than
100 percent of the Fair Market Value of a Share on the date of grant of the
Option, except as otherwise provided in Section 4(b) of this Plan. The Exercise
Price of a Nonstatutory Option shall not be less than 85 percent of the Fair
Market Value of a Share on the date of grant. Subject to the preceding two
sentences, the Exercise Price under any Option shall be determined by the
Committee in its sole discretion. The Exercise Price shall be payable in a form
described in Section 7 of this Plan.

                  4.       Exercisability and Term. Each Stock Option Agreement
shall specify the date when all or any installment of the Option is to become
exercisable. The vesting of any Option shall be determined by the Committee in
its sole discretion; provided, however, that the Optionee's right to exercise
the Option shall be at the rate of at least 20% per year over five years from
the date when the Option is granted. A Stock Option Agreement may provide for
accelerated exercisability in the event of the Optionee's death, Total and
Permanent Disability or retirement or other events determined from time to time
by the Committee. The Stock Option Agreement shall also specify the term of the
Option, which term shall not exceed ten years from the date of grant. Subject to
the preceding sentence, the Committee in its sole discretion shall determine
when an Option is to expire. An Option shall be deemed exercised when the
Company receives from the Optionee (i) an executed notice of exercise and
purchase agreement in accordance with the terms of the Option by the person
entitled to exercise the Option and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may, as authorized by the
Committee, consist of any consideration and method of payment allowable under
Section 7 of this Plan. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder of the Company shall
exist with respect to such Shares, notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date when the stock certificate is issued, except as
provided in Section 8 of this Plan. With respect to any ISOs granted under this
Plan, the aggregate Fair Market Value (determined as of the respective date or
dates of grant) of the Shares for which one or more

                                       6

<PAGE>

Options granted to any Employee under this Plan (or any other option plan of the
Company or its parent or Subsidiary corporations) may for the first time become
exercisable as ISOs during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or
more such Options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability thereof as ISOs
shall be applied on the basis of the order in which such Options are granted. To
the extent such dollar limitation is exceeded in any one calendar year, the
Option shall nevertheless be exercisable for the excess number of Shares as a
Nonstatutory Option.

                  5.       Nontransferability. During an Optionee's lifetime,
such Optionee's Option(s) shall be exercisable only by him or her and shall not
be transferable. In the event of an Optionee's death, such Optionee's Option(s)
shall not be transferable other than by will or by the laws of descent and
distribution.

                  6.       Termination.

                           a.       Termination of Service (Except by Death). If
an Optionee's Service terminates for any reason other than such Optionee's
death, then such Optionee's Option(s) shall expire on the earliest of the
following occasions:

                                    i.       The expiration date set forth in
the applicable Option(s);

                                    ii.      The date which is thirty (30) days
after the termination of the Optionee's Service for any reason other than Death
or Total and Permanent Disability; or

                                    iii.     The date that is twelve (12) months
after the termination of the Optionee's Service by reason of Total and Permanent
Disability.

                           b.       The Optionee may exercise all or part of his
or her Option(s) at any time before the expiration of such Option(s) as set
forth in Subsection 6(a)(6), but only to the extent that such Option(s) had
become exercisable before the Optionee's Service terminated or became
exercisable as a result of the termination. The balance of such Option(s) shall
lapse when the Option's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Option(s), all or part of such Option(s) may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Option(s) directly from the Optionee by bequest
or inheritance, but only to the extent that such Option(s) had become
exercisable before the Optionee's Service terminated or became exercisable as a
result of the termination. For purposes of the foregoing provisions of this
Subsection 6(a)(6), the Optionee shall be deemed to be providing Service to the
Company for so long as the Optionee renders Service on a periodic basis to the
Company or a Subsidiary in the capacity of an Employee or Consultant. The
Optionee shall be considered to be an Employee for so long as the Optionee
remains in the employ of the Company or a Subsidiary.

                           c.       Leaves of Absence. For purposes of this
Subsection 6(a)(6), Service shall be deemed to continue while the Optionee is on
military leave, sick leave or other

                                       7

<PAGE>

bona fide leave of absence (as determined by the Committee). The foregoing
notwithstanding, in the case of an ISO granted under this Plan, Service shall
not be deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.

                           d.       Death of Optionee. If an Optionee dies while
he or she is providing Service to the Company, then such Optionee's Option(s)
shall expire on the earlier of the following dates:

                                    i.       The expiration date set forth in
the applicable Option(s) or Stock Option(s); or

                                    ii.      The date that is twelve (12) months
after the Optionee's death.

All or part of the Optionee's Option(s) may be exercised at any time before the
expiration of such Option(s) under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Option(s) directly from the Optionee by bequest or inheritance, but only to the
extent that such Option(s) had become exercisable before the Optionee's death or
became exercisable as a result of the Optionee's death. The balance of such
Option(s) shall lapse when the Optionee dies.

                  7.       Rights as a Shareholder. An Optionee, or a transferee
of an Optionee, shall have no rights as a shareholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 8 of this Plan. Optionees holding Shares acquired pursuant to a Stock
Option shall have all rights associated with holding such Shares.

                  8.       Modification, Extension and Renewal of Options.
Within the limitations of this Plan, the Committee may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options (to
the extent not previously exercised) in return for the grant of new Options at
the same or a different Exercise Price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, impair
such Optionee's rights or increase his or her obligations under such Option.

         (b)      Stock Awards.

                  1.       General. The specific terms and conditions of a Stock
Award granted to any Awardee shall be provided for in a Stock Purchase Agreement
approved for use under the Plan by the Committee. The Stock Purchase Agreement
shall state the number of Shares that the Awardee shall be entitled to receive
or purchase, any restrictions on the transfer of Shares underlying the Award and
the terms and conditions on which such Shares shall vest, the price to be paid,
if any, and, if applicable, the time within which the Awardee must accept such
offer. The offer shall be accepted by execution of the Stock Purchase Agreement
and any payment due for Shares underlying a Stock Award shall be made in lawful
money of the United States of

                                       8

<PAGE>

America. The grant or vesting of a Stock Award may be made contingent on
achievement of performance criteria established by the Committee.

                  2.       Right of Repurchase. If so provided in the Stock
Purchase Agreement, Shares acquired pursuant to a Stock Award may be subject to
a right of repurchase in favor of the Company that expires: (i) over a fixed
period of time, (ii) upon the occurrence of one or more events, or (iii) any
combination of (i) or (ii). The period(s) of time or event(s) upon which a right
of repurchase expires shall be determined by the Committee in its sole
discretion and shall be set forth in the Stock Purchase Agreement. The Committee
may provide for the partial or complete expiration of any such right of
repurchase in the event of the Awardee's death, Total and Permanent Disability,
retirement or other events determined from time to time by the Committee. The
Committee may require that all Shares subject to a right of repurchase be held
by the Company or in escrow until such repurchase right expires.

                  3.       Rights as a Shareholder. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
Shares underlying a Stock Award, no right to vote or receive dividends or any
other rights as a shareholder of the Company shall exist with respect to the
Shares, notwithstanding the execution and delivery of the Stock Purchase
Agreement by the Awardee. No adjustment in the number of Shares shall be made
for a dividend or other right for which the record date is prior to the date
when the stock certificate is issued, except as provided in Section 8 of this
Plan.

         (c)      Withholding Taxes. The Company's obligation to deliver Shares
or cash upon the exercise of any Award shall be subject to the satisfaction of
all applicable Federal, State and local income tax and employment tax
withholding requirements.

                  1.       In the event that the Company or a Subsidiary
determines that it is required to withhold Federal, state, foreign or local
taxes or social security/insurance amounts in connection with the grant or
exercise of an Award or the disposition of Shares pursuant to the exercise of an
Award (collectively, the "Taxes"), the Optionee or any person succeeding to the
rights of the Awardee, as a condition to such grant, exercise or disposition,
may be required to make arrangements satisfactory to the Company or such
Subsidiary to enable it to satisfy such withholding requirements. Alternatively,
at its discretion, the Company may issue or transfer Shares net of the number of
Shares sufficient to satisfy the withholding requirements, with such Shares
valued as of the date the withholding obligation is incurred.

                  2.       The Committee may also, in its discretion and
applying relevant law in accordance with the provisions of this Section 6(c) and
such supplemental rules as the Committee may from time to time adopt, require as
a condition of delivery of the Shares upon exercise of an Award, that the
Awardee remit to the Company an amount in cash or check sufficient to satisfy
the Taxes.

                  3.       The Committee may, in its discretion and in
accordance with the provisions of this Section 6(c) and such supplemental rules
as the Committee may from time to time adopt, provide any or all Awardees
holding Nonstatutory Options or Stock Awards with the

                                       9

<PAGE>

right to use Shares in satisfaction of all or part of the Federal, State and
local income tax and employment tax liabilities incurred by such Awardees in
connection with the exercise of such Awards (the "Taxes"). The Awardee holding a
Nonstatutory Option or Stock Award may be provided with the election to have the
Company withhold, from the Shares otherwise issuable upon the exercise of such
Award, a portion of such Shares with an aggregate Fair Market Value equal to the
designated percentage (up to 100% as specified by the Awardee) of the applicable
Taxes. Any such withholding election shall be subject to the following terms and
conditions:

                           a.       The election must be made on or before the
date the amount of the Taxes incurred by the Awardee in connection with the
exercise of the Award is determined (the "Tax Determination Date").

                           b.       The election shall be irrevocable.

                           c.       The election shall be subject to the
approval of the Committee and none of the Shares for which the Award is
exercised shall be withheld in satisfaction of the Taxes incurred by the Awardee
in connection with such exercise, except to the extent the election is approved
by the Committee.

                           d.       The Shares withheld pursuant to the election
shall be valued at Fair Market Value on the Tax Determination Date.

                           e.       In no event may the number of Shares
requested to be withheld exceed in value the dollar amount of Taxes incurred by
the Awardee in connection with the exercise of the Nonstatutory Option or Stock
Award.

                           f.       If the withholding election is to be made by
an Awardee who is at the time an officer or director of the Company subject to
the short-swing profit restrictions of Section 16(b) of the Exchange Act, then
the following limitations, in addition to the preceding provisions of this
Section 6(c), shall also be applicable:

                                    i.       The election shall not become
effective at any time prior to the expiration of the six month period measured
from the later of the grant date of the Award to which such election pertains or
the actual grant date of the withholding election, and no Shares shall
accordingly be withheld in connection with any Tax Determination Date which
occurs before the expiration of such six month period.

                                    ii.      The election must be effected in
accordance with either of the following guidelines: (1) the election must be
made six months or more prior to the Tax Determination Date, and (2) the
exercise of such election and the exercise of the Award to which such election
relates must occur concurrently within a quarterly "window" period. Quarterly
window periods shall begin on the third business day following the date of
public release of each quarterly or annual summary statement of the Company's
sales and earning and end on the earlier of the 12th business day following such
release date or the Tax Determination Date.

                                       10

<PAGE>

                                    iii.     The six-month period specified in
preceding clauses (i) and (ii) shall not be applicable in the event of the
Awardee's death or disability.

7.       PAYMENT FOR SHARES.

         (a)      General Rule. The entire Exercise Price of Shares issued under
this Plan shall be payable in lawful money of the United States of America at
the time when such Shares are purchased, except as follows:

                  1.       In the case of an ISO granted under this Plan,
payment shall be made only pursuant to the express provisions of the applicable
Stock Option Agreement. However, the Committee (in its sole discretion) may
specify in the Stock Option Agreement that payment may be made pursuant to
Subsections (b), (c) or (d) below; or

                  2.       In the case of a Nonstatutory Option granted under
this Plan, the Committee (in its sole discretion) may accept payment pursuant to
Subsections (b), (c) or (d) below.

         (b)      Surrender of Stock. To the extent that this Subsection (b) is
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or his or her representative for more than 12 months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under this Plan.

         (c)      Exercise/Sale. To the extent that this Subsection (c) is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker approved by the
Company to sell Shares and to deliver all or part of the sales proceeds to the
Company in payment of all or part of the Exercise Price and any Taxes.

         (d)      Exercise/Pledge. To the extent that this Subsection (d) is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any Taxes.

8.       ADJUSTMENT OF SHARES.

         (a)      General. In the event of a subdivision of the outstanding
Stock, a declaration of a dividend payable in Shares, a declaration of a
dividend payable in a form other than Stock in an amount that has a material
effect on the value of Stock, a combination or consolidation of the outstanding
Stock (by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of (i) the number of Shares available for
future grants under Section 5 of this Plan, (ii) the number of Shares covered by
each outstanding Award or (iii) the Exercise Price under each outstanding Award.

                                       11

<PAGE>

         (b)      Reorganizations. In the event of any of the following
transactions (a "Corporate Transaction"):

                  1.       a merger or acquisition involving the Company in
which the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the Company's
incorporation,

                  2.       sale, transfer or other disposition of all or
substantially all of the assets of the Company or

                  3.       any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred to different holders in a single transaction or a
series of related transactions,

then the exercisability of each Option outstanding under this Plan shall be
automatically accelerated so that each such Option shall immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of Shares purchasable under such
Option and may be exercised for all or any portion of such Shares. However, an
outstanding Option under this Plan shall not be so accelerated if (i) such
Option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or parent thereof or be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation or
parent thereof, or (ii) such Option is to be replaced by a comparable cash
incentive program of the successor corporation based on the value of the option
at the time of the Corporate Transaction, or (iii) the acceleration of such
Option is subject to other applicable limitations imposed by the Committee at
the time of the grant. The determination of comparability under clauses (i) or
(ii) above shall be made by the Committee and its determination shall be final,
binding and conclusive. In connection with any such Corporate Transaction, the
exercisability as an incentive stock option under the federal tax laws of any
accelerated Options under this Plan shall remain subject to any applicable
dollar limitation of Section 6(e). Except as provided below in this Subsection
(b), upon the consummation of the Corporate Transaction, all outstanding Options
under this Plan shall, to the extent not previously exercised or assumed by the
successor corporation or its parent company, terminate and cease to be
outstanding. If the Company is the surviving entity in any Corporate Transaction
or the outstanding Options are to be assumed in connection with such Corporate
Transaction, then each Option shall, immediately after such Corporate
Transaction, be appropriately adjusted to apply and pertain to the number and
class of securities which would be issuable to the Optionee, upon consummation
of such Corporate Transaction if the Option were exercised immediately prior to
such Corporate Transaction. Appropriate adjustments shall also be made to the
Exercise Price payable per share, provided the aggregate Exercise Price payable
upon exercise of such Option shall remain the same. In addition, the class and
number of securities available for issuance under this Plan following the
consummation of such Corporate Transaction shall be appropriately adjusted. The
grant of Options under this Plan shall in no way affect the right of the Company
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

                                       12

<PAGE>

         (c)      Reservation of Rights. Except as provided in this Section 8,
an Optionee shall have no rights by reason of any subdivision or consolidation
of Shares of Stock of any class, the payment of any dividend or any other
increase or decrease in the number of Shares of Stock of any class. Any issue by
the Company of Shares of Stock of any class, or securities convertible into
Shares of Stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to this Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassification, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.

9.       SECURITIES LAWS.

         Shares shall not be issued under this Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including, without limitation, the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange on which the
Company's securities may then be listed.

10.      NO EMPLOYMENT RIGHTS.

         No provision of this Plan, nor any right or Award granted under this
Plan, shall be construed to give any person any right to become, to be treated
as, or to remain an Employee or Consultant or in any way to amend, modify, waive
or terminate the Company's (or any Subsidiary's) right to terminate any person's
Service at any time and for any reason.

11.      DURATION AND AMENDMENTS.

         (a)      Term of this Plan. This Plan, as set forth herein, shall
become effective December 2, 1999, the date when the Board of Directors adopted
this Plan. Notwithstanding the foregoing, no Award granted under this Plan shall
become exercisable unless and until this Plan shall have been approved by the
shareholders of the Company. This Plan shall terminate automatically on December
2, 2009, and may be terminated on any earlier date pursuant to Subsection (b)
below.

         (b)      Right to Amend or Terminate this Plan. The Board of Directors
may amend, suspend or terminate this Plan at any time and for any reason;
provided, however, that any amendment of this Plan which: (i) materially
increases the number of Shares available for issuance under this Plan (except as
provided in Section 8 of this Plan); (ii) materially changes the class of
persons who are eligible for the grant of ISOs; or (iii) if required by Rule
16b-3 (or any successor thereto) under the Exchange Act, would materially
increase the benefits accruing to participants under this Plan or would
materially modify the requirements as to eligibility for participation in this
Plan, shall be subject to the approval of the Company's shareholders by the
affirmative vote of the holders of a majority of the securities of the Company
present, or

                                       13

<PAGE>

represented and entitled to vote at a duly held shareholders' meeting.
Shareholder approval shall not be required for any other amendment of this Plan.

         (c)      Effect of Amendment or Termination. No Shares shall be issued
or sold under this Plan after the termination thereof, except upon exercise of
an Award granted prior to such termination. The termination of this Plan, or any
amendment thereof, shall not affect any Share previously issued or any Award
previously granted under this Plan.

                                      * * *

         To record the adoption of this Plan by the Board of Directors, as
amended on March 13, 2003, the Company has caused its authorized officer to
execute the same.

                                      AVANIR PHARMACEUTICALS,
                                      a California corporation

                                      By: ________________________
                                              Gregory P. Hanson
                                              Secretary

                                       14

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