Document:

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                                                                  Exhibit 10.21

                           2005 EQUITY INCENTIVE PLAN
                                       OF
                             AVANIR PHARMACEUTICALS

1.   PURPOSE OF THIS PLAN.

     The purpose of this 2005 Equity Incentive Plan is to retain and motivate
executives, employees and directors while at the same time aligning their
interests with those of the Company's shareholders.

2.   DEFINITIONS AND RULES OF INTERPRETATION.

     2.1 DEFINITIONS.

     This Plan uses the following defined terms:

         (a) "ADMINISTRATOR" means the Board or the Committee, or any officer or
employee of the Company to whom the Board or the Committee delegates authority
to administer this Plan, but only to the extent of such delegation of authority.

         (b) "AFFILIATE" means a "parent" or "subsidiary" (as each is defined in
Section 424 of the Code) of the Company and any other entity that the Board or
Committee designates as an "Affiliate" for purposes of this Plan.

         (c) "APPLICABLE LAW" means any and all laws of whatever jurisdiction,
within or without the United States, and the rules of any stock exchange or
quotation system on which Shares are listed or quoted, applicable to the taking
or refraining from taking of any action under this Plan, including the
administration of this Plan and the issuance or transfer of Awards or Award
Shares.

         (d) "AWARD" means a Stock Award (e.g. restricted stock unit award),
SAR, Cash Award, or Option granted in accordance with the terms of this Plan.

         (e) "AWARD AGREEMENT" means the document evidencing the grant of an
Award.

         (f) "AWARD SHARES" means Shares covered by an outstanding Award or
purchased under an Award.

         (g) "AWARDEE" means: (i) a person to whom an Award has been granted,
including a holder of a Substitute Award, (ii) a person to whom an Award has
been transferred in accordance with all applicable requirements of Sections 6.5,
7(h), and 17.

         (h) "BOARD" means the Board of Directors of the Company.

         (i) "CASH AWARD" means the right to receive cash as described in
Section 8.3.

         (j) "CHANGE IN CONTROL" means any transaction or event that the Board
specifies as a Change in Control under Section 10.4.

         (k) "CODE" means the Internal Revenue Code of 1986.

         (l) "COMMITTEE" means a committee composed of Company Directors
appointed in accordance with the Company's charter documents and Section 4.

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         (m) "COMPANY" means Avanir Pharmaceuticals, a California corporation.

         (n) "COMPANY DIRECTOR" means a member of the Board.

         (o) "CONSULTANT" means an individual who, or an employee of any entity
that, provides bona fide services to the Company or an Affiliate not in
connection with the offer or sale of securities in a capital-raising
transaction, but who is not an Employee.

         (p) "DIRECTOR" means a member of the Board of Directors of the Company
or an Affiliate.

         (q) "DIVESTITURE" means any transaction or event that the Board
specifies as a Divestiture under Section 10.5.

         (r) "DOMESTIC RELATIONS ORDER" means a "domestic relations order" as
defined in, and otherwise meeting the requirements of, Section 414(p) of the
Code, except that reference to a "plan" in that definition shall be to this
Plan.

         (s) "EFFECTIVE DATE" means the later of the date on which this Plan is
approved by the Company's shareholders and the date on which this Plan is
approved by the Board.

         (t) "EMPLOYEE" means a regular employee of the Company or an Affiliate,
including an officer or Director, who is treated as an employee in the personnel
records of the Company or an Affiliate, but not individuals who are classified
by the Company or an Affiliate as: (i) leased from or otherwise employed by a
third party, (ii) independent contractors, or (iii) intermittent or temporary
workers. The Company's or an Affiliate's classification of an individual as an
"Employee" (or as not an "Employee") for purposes of this Plan shall not be
altered retroactively even if that classification is changed retroactively for
another purpose as a result of an audit, litigation or otherwise. An Awardee
shall not cease to be an Employee due to transfers between locations of the
Company, or between the Company and an Affiliate, or to any successor to the
Company or an Affiliate that assumes the Awardee's Options under Section 10.
Neither service as a Director nor receipt of a director's fee shall be
sufficient to make a Director an "Employee."

         (u) "EXCHANGE ACT" means the Securities Exchange Act of 1934.

         (v) "EXECUTIVE" means, if the Company has any class of any equity
security registered under Section 12 of the Exchange Act, an individual who is
subject to Section 16 of the Exchange Act or who is a "covered employee" under
Section 162(m) of the Code, in either case because of the individual's
relationship with the Company or an Affiliate. If the Company does not have any
class of any equity security registered under Section 12 of the Exchange Act,
"Executive" means any (i) Director, (ii) officer elected or appointed by the
Board, or (iii) beneficial owner of more than 10% of any class of the Company's
equity securities.

         (w) "EXPIRATION DATE" means, with respect to an Award, the date stated
in the Award Agreement as the expiration date of the Award or, if no such date
is stated in the Award Agreement, then the last day of the maximum exercise
period for the Award, disregarding the effect of an Awardee's Termination or any
other event that would shorten the life of the Award.

         (x) "FAIR MARKET VALUE" means the value of Shares as determined under
Section 18.2.

         (y) "FUNDAMENTAL TRANSACTION" means any transaction or event described
in Section 10.3.

         (z) "GRANT DATE" means the date the Administrator approves the grant of
an Award. However, if the Administrator specifies that an Award's Grant Date is
a future date or the date on which a condition is satisfied, the Grant Date for
such Award is that future date or the date that the condition is satisfied.

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         (aa) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option under Section 422 of the Code and designated as an
Incentive Stock Option in the Award Agreement for that Option.

         (bb) "NON-STATUTORY OPTION" means any Option other than an Incentive
Stock Option.

         (cc) "NON-EMPLOYEE DIRECTOR" means any person who is a member of the
Board but is not an Employee of the Company or any Affiliate of the Company and
has not been an Employee of the Company or any Affiliate of the Company at any
time during the preceding twelve months. Service as a Director does not in
itself constitute employment for purposes of this definition.

         (dd) "OBJECTIVELY DETERMINABLE PERFORMANCE CONDITION" shall mean a
performance condition (i) that is established (A) at the time an Award is
granted or (B) no later than the earlier of (1) 90 days after the beginning of
the period of service to which it relates, or (2) before the elapse of 25% of
the period of service to which it relates, (ii) that is uncertain of achievement
at the time it is established, and (iii) the achievement of which is
determinable by a third party with knowledge of the relevant facts. Examples of
measures that may be used in Objectively Determinable Performance Conditions
include net order dollars, net profit dollars, net profit growth, net revenue
dollars, revenue growth, individual performance, earnings per share, return on
assets, return on equity, and other financial objectives, objective customer
satisfaction indicators and efficiency measures, each with respect to the
Company and/or an Affiliate or individual business unit.

         (ee) "OFFICER" means an officer of the Company as defined in Rule 16a-1
adopted under the Exchange Act.

         (ff) "OPTION" means a right to purchase Shares of the Company granted
under this Plan.

         (gg) "OPTION PRICE" means the price payable under an Option for Shares,
not including any amount payable in respect of withholding or other taxes.

         (hh) "OPTION SHARES" means Shares covered by an outstanding Option or
purchased under an Option.

         (ii) "PLAN" means this 2005 Equity Incentive Plan of Avanir
Pharmaceuticals.

         (jj) "PURCHASE PRICE" means the price payable under a Stock Award for
Shares, not including any amount payable in respect of withholding or other
taxes.

         (kk) "RULE 16B-3" means Rule 16b-3 adopted under Section 16(b) of the
Exchange Act.

         (ll) "SAR" OR "STOCK APPRECIATION RIGHT" means a right to receive cash
based on a change in the Fair Market Value of a specific number of Shares
pursuant to an Award Agreement, as described in Section 8.1.

         (mm) "SECURITIES ACT" means the Securities Act of 1933.

         (nn) "SHARE" means a share of the Class A common stock of the Company
or other securities substituted for the Class A common stock under Section 10.

         (oo) "STOCK AWARD" means an offer by the Company to sell shares subject
to certain restrictions pursuant to the Award Agreement as described in Section
8.2 or, as determined by the Committee, a notional account representing the
right to be paid an amount based on Shares.

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         (pp) "SUBSTITUTE AWARD" means a Substitute Option, Substitute SAR or
Substitute Stock Award granted in accordance with the terms of this Plan.

         (qq) "SUBSTITUTE OPTION" means an Option granted in substitution for,
or upon the conversion of, an option granted by another entity to purchase
equity securities in the granting entity.

         (rr) "SUBSTITUTE SAR" means a SAR granted in substitution for, or upon
the conversion of, a stock appreciation right granted by another entity with
respect to equity securities in the granting entity.

         (ss) "SUBSTITUTE STOCK AWARD" means a Stock Award granted in
substitution for, or upon the conversion of, a stock award granted by another
entity to purchase equity securities in the granting entity.

         (tt) "TERMINATION" means that the Awardee has ceased to be, with or
without any cause or reason, an Employee, Director or Consultant. However,
unless so determined by the Administrator, or otherwise provided in this Plan,
"Termination" shall not include a change in status from an Employee, Consultant
or Director to another such status. An event that causes an Affiliate to cease
being an Affiliate shall be treated as the "Termination" of that Affiliate's
Employees, Directors, and Consultants.

     2.2 RULES OF INTERPRETATION. Any reference to a "Section," without more, is
to a Section of this Plan. Captions and titles are used for convenience in this
Plan and shall not, by themselves, determine the meaning of this Plan. Except
when otherwise indicated by the context, the singular includes the plural and
vice versa. Any reference to a statute is also a reference to the applicable
rules and regulations adopted under that statute. Any reference to a statute,
rule or regulation, or to a section of a statute, rule or regulation, is a
reference to that statute, rule, regulation, or section as amended from time to
time, both before and after the Effective Date and including any successor
provisions.

3.   SHARES SUBJECT TO THIS PLAN; TERM OF THIS PLAN.

     3.1 NUMBER OF AWARD SHARES.Subject to the provisions of Section 10.2 of
this Plan, the maximum aggregate number of Shares that may be sold under the
Plan is 2,000,000 Shares, plus an annual increase on the first day of each of
the Company's fiscal years beginning in fiscal 2006 equal to the lesser of (a)
1% of the Shares outstanding on the last day of the immediately preceding fiscal
year, (b) 1,300,000 Shares, or (c) such lesser number of Shares as the Board
shall determine. Additionally, the maximum number of Shares that may be issued
under this Plan pursuant to Stock Awards shall not exceed 15% of the aggregate
Shares reserved for issuance under the Plan. The number of Shares initially
reserved for issuance over the term of this Plan shall be increased by those
Shares that are restored pursuant to the decision of the Board or Committee
pursuant to Section 6.4(a) to deliver only such Shares as are necessary to award
the net Share appreciation. Except as required by applicable law, Shares
issuable pursuant to outstanding Awards shall not reduce the number of Shares
reserved for issuance under this Plan until the earlier of the date such Shares
are vested pursuant to the terms of the applicable Award or the actual date of
delivery of the Shares to the Awardee. Also, if an Award later terminates or
expires without having been exercised in full, the maximum number of shares that
may be issued under this Plan shall be increased by the number of Shares that
were covered by, but not purchased under, that Award. By contrast, the
repurchase of Shares by the Company shall not increase the maximum number of
Shares that may be issued under this Plan.

     3.2 SOURCE OF SHARES. Award Shares may be Shares that have never been
issued or Shares that are outstanding and are acquired to discharge the
Company's obligation to deliver Award Shares.

     3.3 TERM OF THIS PLAN.

         (a) This Plan shall be effective on, and Awards may be granted under
this Plan on and after the Effective Date.

         (b) Subject to the provisions of Section 14, Awards may be granted
under this Plan for a period of ten years from the earlier of the date on which
the Board approves this Plan and the date the Company's

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shareholders approve this Plan. Accordingly, Awards may not be granted under
this Plan after the ten-year anniversary of the earlier of those dates.

4.   ADMINISTRATION.

     4.1 GENERAL.

         (a) The Board shall have ultimate responsibility for administering this
Plan. The Board may delegate certain of its responsibilities to a Committee,
which shall consist of at least two members of the Board. The Board or the
Committee may further delegate its responsibilities to any Employee of the
Company or any Affiliate. Where this Plan specifies that an action is to be
taken or a determination made by the Board, only the Board may take that action
or make that determination. Where this Plan specifies that an action is to be
taken or a determination made by the Committee, only the Committee may take that
action or make that determination. Where this Plan references the
"Administrator," the action may be taken or determination made by the Board, the
Committee, or other Administrator, but only to the extent of the authority
delegated by the Board or the Committee to that Administrator. However, only the
Board or the Committee may approve grants of Awards to Executives, and an
Administrator other than the Board or the Committee may grant Awards only within
the guidelines established by the Board or Committee. Moreover, all actions and
determinations by any Administrator are subject to the provisions of this Plan.

         (b) The Committee shall consist of Company Directors who are
"Non-Employee Directors" as defined in Rule 16b-3 and, after the expiration of
any transition period permitted by Treasury Regulations Section 1.162-27(h)(3),
who are "outside directors" as defined in Section 162(m) of the Code.

     4.2 AUTHORITY OF THE BOARD OR THE COMMITTEE.Subject to the other provisions
of this Plan, the Board or the Committee shall have the authority to:

         (a) grant Awards, including Substitute Awards;

         (b) determine the Fair Market Value of Shares as set forth in Section
18.2;

         (c) determine the Option Price and the Purchase Price of Awards;

         (d) select the Awardees;

         (e) determine the times Awards are granted;

         (f) determine the number of Shares subject to each Award;

         (g) determine the methods of payment that may be used to purchase Award
Shares;

         (h) determine the methods of payment that may be used to satisfy
withholding tax obligations;

         (i) determine the other terms of each Award, including but not limited
to the time or times at which Awards may be exercised, whether and under what
conditions an Award is assignable, and whether an Option is a Non-statutory
Option or an Incentive Stock Option;

         (j) modify or amend any Award;

         (k) authorize any person to sign any Award Agreement or other document
related to this Plan on behalf of the Company;

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         (l) determine the form of any Award Agreement or other document related
to this Plan, and whether that document, including signatures, may be in
electronic form;

         (m) interpret this Plan and any Award Agreement or document related to
this Plan;

         (n) correct any defect, remedy any omission, or reconcile any
inconsistency in this Plan, any Award Agreement or any other document related to
this Plan;

         (o) adopt, amend, and revoke rules and regulations under this Plan,
including rules and regulations relating to sub-plans and Plan addenda;

         (p) adopt, amend, and revoke special rules and procedures which may be
inconsistent with the terms of this Plan, set forth (if the Administrator so
chooses) in sub-plans regarding (for example) the operation and administration
of this Plan and the terms of Awards, if and to the extent necessary or useful
to accommodate non-U.S. Applicable Laws and practices as they apply to Awards
and Award Shares held by, or granted or issued to, persons working or resident
outside of the United States or employed by Affiliates incorporated outside the
United States;

         (q) determine whether a transaction or event should be treated as a
Change in Control, a Divestiture or neither;

         (r) determine the effect of a Fundamental Transaction and, if the Board
determines that a transaction or event should be treated as a Change in Control
or a Divestiture, then the effect of that Change in Control or Divestiture; and

         (s) make all other determinations the Administrator deems necessary or
advisable for the administration of this Plan.

     4.3 SCOPE OF DISCRETION. Subject to the provisions of this Section 4.3, on
all matters for which this Plan confers the authority, right or power on the
Board, the Committee, or other Administrator to make decisions, that body may
make those decisions in its sole and absolute discretion. Those decisions will
be final, binding and conclusive. In making its decisions, the Board, Committee
or other Administrator need not treat all persons eligible to receive Awards,
all Awardees, all Awards or all Award Shares the same way. Notwithstanding
anything herein to the contrary, and except as provided in Section 14.3, the
discretion of the Board, Committee or other Administrator is subject to the
specific provisions and specific limitations of this Plan, as well as all rights
conferred on specific Awardees by Award Agreements and other agreements.

5.   PERSONS ELIGIBLE TO RECEIVE AWARDS.

     5.1 ELIGIBLE INDIVIDUALS. Awards (including Substitute Awards) may be
granted to, and only to, Employees, Directors and Consultants, including to
prospective Employees, Directors and Consultants conditioned on the beginning of
their service for the Company or an Affiliate. However, Incentive Stock Options
may only be granted to Employees, as provided in Section 7(g).

     5.2 SECTION 162(m) LIMITATION.

         (a) OPTIONS AND SARS. Subject to the provisions of this Section 5.2,
for so long as the Company is a "publicly held corporation" within the meaning
of Section 162(m) of the Code: (i) no Employee may be granted one or more SARs
and Options within any fiscal year of the Company under this Plan to purchase
more than 500,000 Shares under Options or to receive compensation calculated
with reference to more than that number of Shares under SARs, subject to
adjustment pursuant to Section 10, (ii) Options and SARs may be granted to an
Executive only by the Committee (and, notwithstanding anything to the contrary
in Section 4.1(a), not by the Board). If an Option or SAR is cancelled without
being exercised or if the Option Price of an Option is reduced,

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that cancelled or repriced Option or SAR shall continue to be counted against
the limit on Awards that my be granted to any individual under this Section 5.2.
Notwithstanding the foregoing, a new Employee of the Company or an Affiliate
shall be eligible to receive up to a maximum of 1,000,000 Shares under Options
in the calendar year which they commence employment, or such compensation
calculated with reference to such number of Shares under SARs, subject to
adjustment pursuant to Section 10.

         (b) CASH AWARDS AND STOCK AWARDS. Any Cash Award or Stock Award
intended as "qualified performance-based compensation" within the meaning of
Section 162(m) of the Code must vest or become exercisable contingent on the
achievement of one or more Objectively Determinable Performance Conditions. The
Committee shall have the discretion to determine the time and manner of
compliance with Section 162(m) of the Code.

6.   TERMS AND CONDITIONS OF OPTIONS.

     6.1 PRICE. No Option may have an Option Price less than the greater of (i)
100% of the Fair Market Value of the Shares on the Grant Date or (ii) the par
value of the Shares, if any, on the Grant Date. The Option Price of an Incentive
Stock Option shall also be subject to Section 7(f).

     6.2 TERM. No Option shall be exercisable after its Expiration Date. No
Option may have an Expiration Date that is more than ten years after its Grant
Date. Additional provisions regarding the term of Incentive Stock Options are
provided in Sections 7(a) and 7(e).

     6.3 VESTING. Options shall be exercisable: (a) on the Grant Date, or (b) in
accordance with a schedule related to the Grant Date, the date the Optionee's
directorship, employment or consultancy begins, or a different date specified in
the Option Agreement. Additional provisions regarding the vesting of Incentive
Stock Options are provided in Section 7(c). No Option granted to an individual
who is subject to the overtime pay provisions of the Fair Labor Standards Act
may be exercised before the expiration of six months after the Grant Date.

     6.4 FORM AND METHOD OF PAYMENT.

         (a) The Board or Committee shall determine the acceptable form and
method of payment for exercising an Option. So long as variable accounting
pursuant to "APB 25" does not apply and the Board or Committee otherwise
determines there is no material adverse accounting consequence at the time of
exercise, the Board or Committee may require the delivery in Shares for the
value of the net appreciation of the Shares at the time of exercise over the
exercise price. The difference between full number of Shares covered by the
exercised portion of the Award and the number of Shares actually delivered shall
be restored to the amount of Shares reserved for issuance under Section 3.1.

         (b) Acceptable forms of payment for all Option Shares are cash, check
or wire transfer, denominated in U.S. dollars except as specified by the
Administrator for non-U.S. Employees or non-U.S. sub-plans.

         (c) In addition, the Administrator may permit payment to be made by any
of the following methods:

             (i) other Shares, or the designation of other Shares, which (A) are
"mature" shares for purposes of avoiding variable accounting treatment under
generally accepted accounting principles (generally mature shares are those that
have been owned by the Optionee for more than six months on the date of
surrender), and (B) have in the aggregate a Fair Market Value on the date of
surrender at least equal to the Option Price of the Shares as to which the
Option is being exercised;

             (ii) provided that a public market exists for the Shares,
consideration received by the Company under a procedure under which a licensed
broker-dealer advances funds on behalf of an Optionee or sells Option Shares on
behalf of an Optionee (a "CASHLESS EXERCISE PROCEDURE"), provided that if the
Company extends

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or arranges for the extension of credit to an Optionee under any Cashless
Exercise Procedure, no Officer or Director may participate in that Cashless
Exercise Procedure;

             (iii) cancellation of any debt owed by the Company or any Affiliate
to the Optionee by the Company including without limitation waiver of
compensation due or accrued for services previously rendered to the Company; and

             (iv) any combination of the methods of payment permitted by any
paragraph of this Section 6.4.

         (d) The Administrator may also permit any other form or method of
payment for Option Shares permitted by Applicable Law.

     6.5 NONASSIGNABILITY OF OPTIONS. Except as determined by the Administrator
and as otherwise permitted by this Section 6.5, no Option shall be assignable or
otherwise transferable by the Optionee except by will or by the laws of descent
and distribution. Options may be transferred and exercised in accordance with a
Domestic Relations Order and may be exercised by a guardian or conservator
appointed to act for the Optionee. Incentive Stock Options may only be assigned
in compliance with Section 7(h).

     6.6 SUBSTITUTE OPTIONS. The Board may cause the Company to grant Substitute
Options in connection with the acquisition by the Company or an Affiliate of
equity securities of any entity (including by merger, tender offer, or other
similar transaction) or of all or a portion of the assets of any entity. Any
such substitution shall be effective on the effective date of the acquisition.
Substitute Options may be Non-statutory Options or Incentive Stock Options.
Unless and to the extent specified otherwise by the Board, Substitute Options
shall have the same terms and conditions as the options they replace, except
that (subject to the provisions of Section 10) Substitute Options shall be
Options to purchase Shares rather than equity securities of the granting entity
and shall have an Option Price determined by the Board.

     6.7 REPRICINGS.

     Options may not be repriced, replaced or regranted through cancellation or
modification without shareholder approval.

7.   INCENTIVE STOCK OPTIONS.

     The following rules apply only to Incentive Stock Options and only to the
extent these rules are more restrictive than the rules that would otherwise
apply under this Plan. With the consent of the Optionee, or where this Plan
provides that an action may be taken notwithstanding any other provision of this
Plan, the Administrator may deviate from the requirements of this Section,
notwithstanding that any Incentive Stock Option modified by the Administrator
will thereafter be treated as a Non-statutory Option.

         (a) The Expiration Date of an Incentive Stock Option shall not be later
than ten years from its Grant Date, with the result that no Incentive Stock
Option may be exercised after the expiration of ten years from its Grant Date.

         (b) No Incentive Stock Option may be granted more than ten years from
the date this Plan was approved by the Board.

         (c) Options intended to be incentive stock options under Section 422 of
the Code that are granted to any single Optionee under all incentive stock
option plans of the Company and its Affiliates, including incentive stock
options granted under this Plan, may not vest at a rate of more than $100,000 in
Fair Market Value of stock (measured on the grant dates of the options) during
any calendar year. For this purpose, an option vests with respect to a given
share of stock the first time its holder may purchase that share,
notwithstanding any right of the Company to repurchase that share. Unless the
administrator of that option plan specifies otherwise in the related agreement

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governing the option, this vesting limitation shall be applied by, to the extent
necessary to satisfy this $100,000 rule, treating certain stock options that
were intended to be incentive stock options under Section 422 of the Code as
Non-statutory Options. The stock options or portions of stock options to be
reclassified as Non-statutory Options are those with the highest option prices,
whether granted under this Plan or any other equity compensation plan of the
Company or any Affiliate that permits that treatment. This Section 7(c) shall
not cause an Incentive Stock Option to vest before its original vesting date or
cause an Incentive Stock Option that has already vested to cease to be vested.

         (d) In order for an Incentive Stock Option to be exercised for any form
of payment other than those described in Section 6.4(b), that right must be
stated at the time of grant in the Option Agreement relating to that Incentive
Stock Option.

         (e) Any Incentive Stock Option granted to a Ten Percent Shareholder,
must have an Expiration Date that is not later than five years from its Grant
Date, with the result that no such Option may be exercised after the expiration
of five years from the Grant Date. A "TEN PERCENT SHAREHOLDER" is any person
who, directly or by attribution under Section 424(d) of the Code, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of any Affiliate on the Grant Date.

         (f) The Option Price of an Incentive Stock Option shall never be less
than the Fair Market Value of the Shares at the Grant Date. The Option Price for
the Shares covered by an Incentive Stock Option granted to a Ten Percent
Shareholder shall never be less than 110% of the Fair Market Value of the Shares
at the Grant Date.

         (g) Incentive Stock Options may be granted only to Employees. If an
Optionee changes status from an Employee to a Consultant, that Optionee's
Incentive Stock Options become Non-statutory Options if not exercised within the
time period described in Section 7(i) (determined by treating that change in
status as a Termination solely for purposes of this Section 7(g)).

         (h) No rights under an Incentive Stock Option may be transferred by the
Optionee, other than by will or the laws of descent and distribution. During the
life of the Optionee, an Incentive Stock Option may be exercised only by the
Optionee. The Company's compliance with a Domestic Relations Order, or the
exercise of an Incentive Stock Option by a guardian or conservator appointed to
act for the Optionee, shall not violate this Section 7(h).

         (i) An Incentive Stock Option shall be treated as a Non-statutory
Option if it remains exercisable after, and is not exercised within, the
three-month period beginning with the Optionee's Termination for any reason
other than the Optionee's death or disability (as defined in Section 22(e) of
the Code). In the case of Termination due to death, an Incentive Stock Option
shall continue to be treated as an Incentive Stock Option if it remains
exercisable after, and is not exercised within, the three month period after the
Optionee's Termination provided it is exercised before the Expiration Date. In
the case of Termination due to disability, an Incentive Stock Option shall be
treated as a Non-statutory Option if it remains exercisable after, and is not
exercised within, one year after the Optionee's Termination.

         (j) An Incentive Stock Option may only be modified by the Board.

8.   STOCK APPRECIATION RIGHTS, STOCK AWARDS AND CASH AWARDS.

     8.1 STOCK APPRECIATION RIGHTS.

         (a) GENERAL. SARs may be granted either alone, in addition to, or in
tandem with other Awards granted under this Plan. The Administrator may grant
SARs to eligible participants subject to terms and conditions not inconsistent
with this Plan and determined by the Administrator. The specific terms and
conditions applicable to the Awardee shall be provided for in the Award
Agreement. SARs shall be exercisable, in whole or in part, at such times as the
Administrator shall specify in the Award Agreement. The grant or vesting of a
SAR may be made contingent on the achievement of Objectively Determinable
Performance Conditions.

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         (b) EXERCISE OF SARS. Upon the exercise of an SAR, in whole or in part,
an Awardee shall be entitled to a payment in an amount equal to the excess of
the Fair Market Value of a fixed number of Shares covered by the exercised
portion of the SAR on the date of exercise, over the Fair Market Value of the
Shares covered by the exercised portion of the SAR on the Grant Date. The amount
due to the Awardee upon the exercise of a SAR shall be paid in Shares over the
period or periods specified in the Award Agreement. An Award Agreement may place
limits on the amount that may be paid over any specified period or periods upon
the exercise of a SAR, on an aggregate basis or as to any Awardee. A SAR shall
be considered exercised when the Company receives written notice of exercise in
accordance with the terms of the Award Agreement from the person entitled to
exercise the SAR. If a SAR has been granted in tandem with an Option, upon the
exercise of the SAR, the number of shares that may be purchased pursuant to the
Option shall be reduced by the number of shares with respect to which the SAR is
exercised.

         (c) NONASSIGNABILITY OF SARS. Except as determined by the
Administrator, no SAR shall be assignable or otherwise transferable by the
Awardee except by will or by the laws of descent and distribution, provided,
however, that SARs may be transferred and exercised in accordance with a
Domestic Relations Order.

         (d) SUBSTITUTE SARS. The Board may cause the Company to grant
Substitute SARs in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger) or all or a
portion of the assets of any entity. Any such substitution shall be effective on
the effective date of the acquisition. Unless and to the extent specified
otherwise by the Board, Substitute SARs shall have the same terms and conditions
as the options they replace, except that (subject to the provisions of Section
9) Substitute SARs shall be exercisable with respect to the Fair Market Value of
Shares rather than equity securities of the granting entity and shall be on
terms that, as determined by the Board in its sole and absolute discretion,
properly reflects the substitution.

         (e) REPRICINGS. A SAR may not be repriced, replaced or regranted,
through cancellation or modification without shareholder approval.

     8.2 STOCK AWARDS.

         (a) GENERAL. The specific terms and conditions of a Stock Award
applicable to the Awardee shall be provided for in the Award Agreement. The
Award Agreement shall state the number of Shares that the Awardee shall be
entitled to receive or purchase, the terms and conditions on which the Shares
shall vest, the price to be paid, whether Shares are to be delivered at the time
of grant or at some deferred date specified in the Award Agreement (e.g. a
restricted stock unit award agreement), whether the Award is payable solely in
Shares, cash or either and, if applicable, the time within which the Awardee
must accept such offer. The offer shall be accepted by execution of the Award
Agreement. The Administrator may require that all Shares subject to a right of
repurchase or risk of forfeiture be held in escrow until such repurchase right
or risk of forfeiture lapses. The grant or vesting of a Stock Award may be made
contingent on the achievement of Objectively Determinable Performance
Conditions.

         (b) RIGHT OF REPURCHASE. If so provided in the Award Agreement, Award
Shares acquired pursuant to a Stock Award may be subject to repurchase by the
Company or an Affiliate if not vested in accordance with the Award Agreement.

         (c) FORM OF PAYMENT. The Administrator shall determine the acceptable
form and method of payment for exercising a Stock Award. Acceptable forms of
payment for all Award Shares are cash, check or wire transfer, denominated in
U.S. dollars except as specified by the Administrator for non-U.S. sub-plans. In
addition, the Administrator may permit payment to be made by any of the methods
permitted with respect to the exercise of Options pursuant to Section 6.4.

         (d) NONASSIGNABILITY OF STOCK AWARDS. Except as determined by the
Administrator, no Stock Award shall be assignable or otherwise transferable by
the Awardee except by will or by the laws of descent and distribution, provided,
however, that Stock Awards may be transferred and exercised in accordance with a
Domestic Relations Order.

                                       10
<PAGE>

         (e) SUBSTITUTE STOCK AWARD. The Board may cause the Company to grant
Substitute Stock Awards in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger) or all or a
portion of the assets of any entity. Unless and to the extent specified
otherwise by the Board, Substitute Stock Awards shall have the same terms and
conditions as the stock awards they replace, except that (subject to the
provisions of Section 10) Substitute Stock Awards shall be Stock Awards to
purchase Shares rather than equity securities of the granting entity and shall
have a Purchase Price that, as determined by the Board in its sole and absolute
discretion, properly reflects the substitution. Any such Substituted Stock Award
shall be effective on the effective date of the acquisition.

     8.3 CASH AWARDS.

         Cash Awards may be granted either alone, in addition to, or in tandem
with other Awards granted under this Plan. After the Administrator determines
that it will offer a Cash Award, it shall advise the Awardee, by means of an
Award Agreement, of the terms, conditions and restrictions related to the Cash
Award.

9.   EXERCISE OF AWARDS.

     9.1 IN GENERAL. An Award shall be exercisable in accordance with this Plan
and the Award Agreement under which it is granted.

     9.2 TIME OF EXERCISE. Options and Stock Awards shall be considered
exercised when the Company receives: (a) written notice of exercise from the
person entitled to exercise the Option or Stock Award, (b) full payment, or
provision for payment, in a form and method approved by the Administrator, for
the Shares for which the Option or Stock Award is being exercised, and (c) with
respect to Non-statutory Options, payment, or provision for payment, in a form
approved by the Administrator, of all applicable withholding taxes due upon
exercise. An Award may not be exercised for a fraction of a Share. SARs shall be
considered exercised when the Company receives written notice of the exercise
from the person entitled to exercise the SAR.

     9.3 ISSUANCE OF AWARD SHARES. The Company shall issue Award Shares in the
name of the person properly exercising the Award. If the Awardee so requests,
the Award Shares shall be issued in the name of the Awardee and the Awardee's
spouse. The Company shall endeavor to issue Award Shares promptly after an Award
is exercised or after the Grant Date of a Stock Award, as applicable. Until
Award Shares are actually issued, as evidenced by the appropriate entry on the
stock register of the Company or its transfer agent, the Awardee will not have
the rights of a shareholder with respect to those Award Shares, even though the
Awardee has completed all the steps necessary to exercise the Award. No
adjustment shall be made for any dividend, distribution, or other right for
which the record date precedes the date the Award Shares are issued, except as
provided in Section 10.

     9.4 TERMINATION.

         (a) IN GENERAL. Except as provided in an Award Agreement or in writing
by the Administrator, including in an Award Agreement, and as otherwise provided
in Sections 9.4(b), (c), (d) and (e) after an Awardee's Termination, the
Awardee's Awards shall be exercisable to the extent (but only to the extent)
they are vested on the date of that Termination and only during the three months
after the Termination, but in no event after the Expiration Date. To the extent
the Awardee does not exercise an Award within the time specified for exercise,
the Award shall automatically terminate.

         (b) LEAVES OF ABSENCE. Unless otherwise provided in the Award
Agreement, no Award may be exercised more than three months after the beginning
of a leave of absence, other than a personal or medical leave approved by an
authorized representative of the Company with employment guaranteed upon return.
Awards shall not continue to vest during a leave of absence, unless otherwise
determined by the Administrator with respect to an approved personal or medical
leave with employment guaranteed upon return.

         (c) DEATH OR DISABILITY. Unless otherwise provided by the
Administrator, if an Awardee's Termination is due to death or disability (as
determined by the Administrator with respect to all Awards other than

                                       11
<PAGE>

Incentive Stock Options and as defined by Section 422(e) of the Code with
respect to Incentive Stock Options), all Awards of that Awardee to the extent
exercisable at the date of that Termination may be exercised for one year after
that Termination, but in no event after the Expiration Date. In the case of
Termination due to death, an Award may be exercised as provided in Section 17.
In the case of Termination due to disability, if a guardian or conservator has
been appointed to act for the Awardee and been granted this authority as part of
that appointment, that guardian or conservator may exercise the Award on behalf
of the Awardee. Death or disability occurring after an Awardee's Termination
shall not cause the Termination to be treated as having occurred due to death or
disability. To the extent an Award is not so exercised within the time specified
for its exercise, the Award shall automatically terminate.

         (d) DIVESTITURE. If an Awardee's Termination is due to a Divestiture,
the Board may take any one or more of the actions described in Section 10.3 or
10.4 with respect to the Awardee's Awards.

         (e) ADMINISTRATOR DISCRETION. Notwithstanding the provisions of Section
9.4 (a)-(d), the Plan Administrator shall have complete discretion, exercisable
either at the time an Award is granted or at any time while the Award remains
outstanding, to:

             (i) Extend the period of time for which the Award is to remain
exercisable, following the Awardee's Termination, from the limited exercise
period otherwise in effect for that Award to such greater period of time as the
Administrator shall deem appropriate, but in no event beyond the Expiration
Date; and/or

             (ii) Permit the Award to be exercised, during the applicable
post-Termination exercise period, not only with respect to the number of vested
Shares for which such Award may be exercisable at the time of the Awardee's
Termination but also with respect to one or more additional installments in
which the Awardee would have vested had the Awardee not been subject to
Termination.

         (f) CONSULTING OR EMPLOYMENT RELATIONSHIP. Nothing in this Plan or in
any Award Agreement, and no Award or the fact that Award Shares remain subject
to repurchase rights, shall: (A) interfere with or limit the right of the
Company or any Affiliate to terminate the employment or consultancy of any
Awardee at any time, whether with or without cause or reason, and with or
without the payment of severance or any other compensation or payment, or (B)
interfere with the application of any provision in any of the Company's or any
Affiliate's charter documents or Applicable Law relating to the election,
appointment, term of office, or removal of a Director.

10.  CERTAIN TRANSACTIONS AND EVENTS.

     10.1 IN GENERAL. Except as provided in this Section 10, no change in the
capital structure of the Company, merger, sale or other disposition of assets or
a subsidiary, change in control, issuance by the Company of shares of any class
of securities or securities convertible into shares of any class of securities,
exchange or conversion of securities, or other transaction or event shall
require or be the occasion for any adjustments of the type described in this
Section 10. Additional provisions with respect to the foregoing transactions are
set forth in Section 14.3.

     10.2 CHANGES IN CAPITAL STRUCTURE. In the event of any stock split, reverse
stock split, recapitalization, combination or reclassification of stock, stock
dividend, spin-off, extraordinary cash or other property dividend or similar
change to the capital structure of the Company (not including a Fundamental
Transaction or Change in Control), the Board shall make whatever adjustments it
concludes are appropriate to: (a) the number and type of Awards that may be
granted under this Plan, (b) the number and type of Options that may be granted
to any individual under this Plan, (c) the terms of any SAR, (d) the Purchase
Price of any Stock Award, (e) the Option Price and number and class of
securities issuable under each outstanding Option, and (f) the repurchase price
of any securities substituted for Award Shares that are subject to repurchase
rights. The specific adjustments shall be determined by the Board. Unless the
Board specifies otherwise, any securities issuable as a result of any such
adjustment shall be rounded down to the next lower whole security. The Board
need not adopt the same rules for each Award or each Awardee.

                                       12
<PAGE>

     10.3 FUNDAMENTAL TRANSACTIONS. Except for grants to Non-Employee Directors
pursuant to Section 11 herein, in the event of (a) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption shall be binding on all
Participants), (b) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (c) the sale of all or
substantially all of the assets of the Company, or (d) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction (each, a "FUNDAMENTAL TRANSACTION"), any or all
outstanding Awards may be assumed, converted or replaced by the successor
corporation (if any), which assumption, conversion or replacement shall be
binding on all participants under this Plan. In the alternative, the successor
corporation may substitute equivalent Awards or provide substantially similar
consideration to participants as was provided to shareholders (after taking into
account the existing provisions of the Awards). The successor corporation may
also issue, in place of outstanding Shares held by the participants,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the participant. In the event such successor
corporation (if any) does not assume or substitute Awards, as provided above,
pursuant to a transaction described in this Subsection 10.3, the vesting with
respect to such Awards shall fully and immediately accelerate or the repurchase
rights of the Company shall fully and immediately terminate, as the case may be,
so that the Awards may be exercised or the repurchase rights shall terminate
before, or otherwise in connection with the closing or completion of the
Fundamental Transaction or event, but then terminate. Notwithstanding anything
in this Plan to the contrary, the Committee may, in its sole discretion, provide
that the vesting of any or all Award Shares subject to vesting or right of
repurchase shall accelerate or lapse, as the case may be, upon a transaction
described in this Section 10.3. If the Committee exercises such discretion with
respect to Options, such Options shall become exercisable in full prior to the
consummation of such event at such time and on such conditions as the Committee
determines, and if such Options are not exercised prior to the consummation of
the Fundamental Transaction, they shall terminate at such time as determined by
the Committee. Subject to any greater rights granted to participants under the
foregoing provisions of this Section 10.3, in the event of the occurrence of any
Fundamental Transaction, any outstanding Awards shall be treated as provided in
the applicable agreement or plan of merger, consolidation, dissolution,
liquidation, or sale of assets.

     10.4 CHANGES OF CONTROL. The Board may also, but need not, specify that
other transactions or events constitute a "CHANGE IN CONTROL". The Board may do
that either before or after the transaction or event occurs. Examples of
transactions or events that the Board may treat as Changes of Control are: (a)
any person or entity, including a "group" as contemplated by Section 13(d)(3) of
the Exchange Act, acquires securities holding 50% or more of the total combined
voting power or value of the Company, or (b) as a result of or in connection
with a contested election of Company Directors, the persons who were Company
Directors immediately before the election cease to constitute a majority of the
Board. In connection with a Change in Control, notwithstanding any other
provision of this Plan, the Board may, but need not, take any one or more of the
actions described in Section 10.3. In addition, the Board may extend the date
for the exercise of Awards (but not beyond their original Expiration Date). The
Board need not adopt the same rules for each Award or each Awardee.
Notwithstanding anything in this Plan to the contrary, in the event of an
involuntary Termination of services for any reason other than death, disability
or Cause, within 12 months following the consummation of a Fundamental
Transaction or Change in Control, any Awards, assumed or substituted in a
Fundamental Transaction or Change in Control, that are subject to vesting
conditions and/or the right of repurchase in favor of the Company or a successor
entity, shall accelerate fully so that such Award Shares are immediately
exercisable upon Termination or, if subject to the right of repurchase in favor
of the Company, such repurchase rights shall lapse as of the date of
Termination. Such Awards shall be exercisable for a period of three months
following termination.

     10.5 DIVESTITURE. If the Company or an Affiliate sells or otherwise
transfers equity securities of an Affiliate to a person or entity other than the
Company or an Affiliate, or leases, exchanges or transfers all or any portion of
its assets to such a person or entity, then the Board may specify that such
transaction or event constitutes a "DIVESTITURE". In connection with a
Divestiture, notwithstanding any other provision of this Plan, the Board may,
but need not, take one or more of the actions described in Section 10.3 or 10.4
with respect to Awards of Award

                                       13
<PAGE>

Shares held by, for example, Employees, Directors or Consultants for whom that
transaction or event results in a Termination. The Board need not adopt the same
rules for each Award or Awardee.

     10.6 DISSOLUTION. If the Company adopts a plan of dissolution, the Board
may cause Awards to be fully vested and exercisable (but not after their
Expiration Date) before the dissolution is completed but contingent on its
completion and may cause the Company's repurchase rights on Award Shares to
lapse upon completion of the dissolution. The Board need not adopt the same
rules for each Award or each Awardee. Notwithstanding anything herein to the
contrary, in the event of a dissolution of the Company, to the extent not
exercised before the earlier of the completion of the dissolution or their
Expiration Date, Awards shall terminate immediately prior to the dissolution.

     10.7 CUT-BACK TO PRESERVE BENEFITS. If the Administrator determines that
the net after-tax amount to be realized by any Awardee, taking into account any
accelerated vesting, termination of repurchase rights, or cash payments to that
Awardee in connection with any transaction or event set forth in this Section 10
would be greater if one or more of those steps were not taken or payments were
not made with respect to that Awardee's Awards or Award Shares, then, at the
election of the Awardee, to such extent, one or more of those steps shall not be
taken and payments shall not be made.

11.  NON-EMPLOYEE DIRECTOR AWARDS.

     11.1 NON-EMPLOYEE DIRECTOR AWARDS.

         (a) GENERAL. Except as otherwise determined by the Committee,
Non-Employee Directors will automatically receive Options as set forth below.

             (i) Non-Employee Directors initially elected to the Board on or
after the Effective Date will, at that time, automatically receive an Option to
purchase 25,000 Shares at a price equal to 100% the Fair Market Value on the
Grant Date, such Option to have a ten-year term and to vest and become
exercisable with respect to one-third of the underlying Shares on the first
anniversary of the Grant Date and then with respect to one-twelfth of the
underlying shares quarterly thereafter.

             (ii) Immediately following each annual meeting of shareholders held
on or after the Effective Date, Non-Employee Directors who have then served on
the Board for at least six months will automatically receive an Option to
purchase 10,000 Shares at a price equal to 100% the Fair Market Value on the
Grant Date, such Option to have a ten-year term and to be fully vested and
exercisable on the Grant Date.

         (b) TERMINATION OF SERVICE. The following provisions shall govern the
exercise of any Awards granted pursuant to Section 11.1 held by the Awardee at
the time the Awardee ceases to serve as a Non-Employee Director, Employee or
Consultant:

             (i) IN GENERAL. Except as otherwise provided in Section 10.3, after
cessation of service (the "CESSATION DATE"), the Awardee's Awards shall be
exercisable to the extent (but only to the extent) they are vested on the
Cessation Date and only during the one year after such Cessation Date, but in no
event after the Expiration Date. To the extent the Awardee does not exercise an
Award within the time specified for exercise, the Award shall automatically
terminate.

             (ii) DEATH OR DISABILITY. If an Awardee's cessation of service is
due to death or disability (as determined by the Board), all Awards of that
Awardee, to the extent exercisable upon such Cessation Date, may be exercised
for one year after the Cessation Date, but in no event after the Expiration
Date. In the case of a cessation of service due to death, an Award may be
exercised as provided in Section 16. In the case of a cessation of service due
to disability, if a guardian or conservator has been appointed to act for the
Awardee and been granted this authority as part of that appointment, that
guardian or conservator may exercise the Award on behalf of the Awardee. Death
or disability occurring after an Awardee's cessation of service shall not cause
the

                                       14
<PAGE>

cessation of service to be treated as having occurred due to death or
disability. To the extent an Award is not so exercised within the time specified
for its exercise, the Award shall automatically terminate.

         (c) BOARD DISCRETION. The Awards under this Section 11.1 are not
intended as the exclusive Awards that may be made to Non-Employee Directors
under this Plan. The Board may, in its discretion, amend the Plan with respect
to the terms of the Awards herein, may add or substitute other Awards or may
temporarily or permanently suspend Awards hereunder, all without approval of the
Company's shareholders.

     11.2 CERTAIN TRANSACTIONS AND EVENTS.

         (a) In the event of a Fundamental Transaction while the Awardee remains
a Non-Employee Director, the Shares at the time subject to each outstanding
Option held by such Awardee pursuant to Section 11, but not otherwise vested,
shall automatically vest in full so that each such Option shall, immediately
prior to the effective date of the Fundamental Transaction, become exercisable
for all the Shares as fully vested Shares and may be exercised for any or all of
those vested Shares. Immediately following the consummation of the Fundamental
Transaction, each Option shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or Affiliate thereof).

         (b) In the event of a Change in Control while the Awardee remains a
Non-Employee Director, the Shares at the time subject to each outstanding Option
held by such Awardee pursuant to Section 11, but not otherwise vested, shall
automatically vest in full so that each such Option shall, immediately prior to
the effective date of the Change in Control, become exercisable for all the
Shares as fully vested Shares and may be exercised for any or all of those
vested Shares. Each such Option shall remain exercisable for such fully vested
Shares until the expiration or sooner termination of the Option term in
connection with a Change in Control.

         (c) Each Option which is assumed in connection with a Fundamental
Transaction shall be appropriately adjusted, immediately after such Fundamental
Transaction, to apply to the number and class of securities which would have
been issuable to the Awardee in consummation of such Fundamental Transaction had
the Option been exercised immediately prior to such Fundamental Transaction.
Appropriate adjustments shall also be made to the Option Price payable per share
under each outstanding Option, provided the aggregate Option Price payable for
such securities shall remain the same. To the extent the actual holders of the
Company's outstanding Class A common stock receive cash consideration for their
Class A common stock in consummation of the Fundamental Transaction, the
successor corporation may, in connection with the assumption of the outstanding
Options granted pursuant to Section 11, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration paid
per share of Class A common stock in such Fundamental Transaction.

         (d) The grant of Options pursuant to Section 11 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.

         (e) The remaining terms of each Option granted pursuant to Section 11
shall, as applicable, be the same as terms in effect for Awards granted under
this Plan, provided that the provisions of Section 9.4 and Section 10 shall not
apply to Options granted pursuant to Section 11.

     11.3 LIMITED TRANSFERABILITY OF OPTIONS. Each Option granted pursuant to
Section 11 may be assigned in whole or in part during the Awardee's lifetime to
one or more members of the Awardee's family or to a trust established
exclusively for one or more such family members or to an entity in which the
Awardee is majority owner or to the Awardee 's former spouse, to the extent such
assignment is in connection with the Awardee 's estate or financial plan or
pursuant to a Domestic Relations Order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
Option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the Option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Administrator may deem appropriate. The Awardee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
Options under

                                       15
<PAGE>

Section 11, and those Options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Awardee 's death while holding those Options. Such beneficiary or beneficiaries
shall take the transferred Options subject to all the terms and conditions of
the applicable Award Agreement evidencing each such transferred Option,
including (without limitation) the limited time period during which the Option
may be exercised following the Awardee 's death.

12.  WITHHOLDING AND TAX REPORTING.

     12.1 TAX WITHHOLDING ALTERNATIVES.

         (a) GENERAL. Whenever Award Shares are issued or become free of
restrictions, the Company may require the Awardee to remit to the Company an
amount sufficient to satisfy any applicable tax withholding requirement, whether
the related tax is imposed on the Awardee or the Company. The Company shall have
no obligation to deliver Award Shares or release Award Shares from an escrow or
permit a transfer of Award Shares until the Awardee has satisfied those tax
withholding obligations. Whenever payment in satisfaction of Awards is made in
cash, the payment will be reduced by an amount sufficient to satisfy all tax
withholding requirements.

         (b) METHOD OF PAYMENT. The Awardee shall pay any required withholding
using the forms of consideration described in Section 6.4(b), except that, in
the discretion of the Administrator, the Company may also permit the Awardee to
use any of the forms of payment described in Section 6.4(c). The Administrator,
in its sole discretion, may also permit Award Shares to be withheld to pay
required withholding. If the Administrator permits Award Shares to be withheld,
the Fair Market Value of the Award Shares withheld, as determined as of the date
of withholding, shall not exceed the amount determined by the applicable minimum
statutory withholding rates.

     12.2 REPORTING OF DISPOSITIONS. Any holder of Option Shares acquired under
an Incentive Stock Option shall promptly notify the Administrator, following
such procedures as the Administrator may require, of the sale or other
disposition of any of those Option Shares if the disposition occurs during: (a)
the longer of two years after the Grant Date of the Incentive Stock Option and
one year after the date the Incentive Stock Option was exercised, or (b) such
other period as the Administrator has established.

13.  COMPLIANCE WITH LAW.

     The grant of Awards and the issuance and subsequent transfer of Award
Shares shall be subject to compliance with all Applicable Law, including all
applicable securities laws. Awards may not be exercised, and Award Shares may
not be transferred, in violation of Applicable Law. Thus, for example, Awards
may not be exercised unless: (a) a registration statement under the Securities
Act is then in effect with respect to the related Award Shares, or (b) in the
opinion of legal counsel to the Company, those Award Shares may be issued in
accordance with an applicable exemption from the registration requirements of
the Securities Act and any other applicable securities laws. The failure or
inability of the Company to obtain from any regulatory body the authority
considered by the Company's legal counsel to be necessary or useful for the
lawful issuance of any Award Shares or their subsequent transfer shall relieve
the Company of any liability for failing to issue those Award Shares or
permitting their transfer. As a condition to the exercise of any Award or the
transfer of any Award Shares, the Company may require the Awardee to satisfy any
requirements or qualifications that may be necessary or appropriate to comply
with or evidence compliance with any Applicable Law.

14.  AMENDMENT OR TERMINATION OF THIS PLAN OR OUTSTANDING AWARDS.

     14.1 AMENDMENT AND TERMINATION. Subject to the provisions of Section 14.2,
the Board may at any time amend, suspend, or terminate this Plan.

     14.2 SHAREHOLDER APPROVAL. The Company shall obtain the approval of the
Company's shareholders for any amendment to this Plan if shareholder approval is
necessary to comply with any Applicable Law or with the requirements applicable
to the grant of Awards intended to be Incentive Stock Options. The Board may
also, but need not, require that the Company's shareholders approve any other
amendments to this Plan.

                                       16
<PAGE>

     14.3 EFFECT. No amendment, suspension, or termination of this Plan, and no
modification of any Award even in the absence of an amendment, suspension, or
termination of this Plan, shall impair any existing contractual rights of any
Awardee unless the affected Awardee consents to the amendment, suspension,
termination, or modification. Notwithstanding anything herein to the contrary,
no such consent shall be required if the Board determines, in its sole and
absolute discretion, that the amendment, suspension, termination, or
modification: (a) is required or advisable in order for the Company, this Plan
or the Award to satisfy Applicable Law, to meet the requirements of any
accounting standard or to avoid any adverse accounting treatment, or (b) in
connection with any transaction or event described in Section 10, is in the best
interests of the Company or its shareholders. The Board may, but need not, take
the tax or accounting consequences to affected Awardees into consideration in
acting under the preceding sentence. Those decisions shall be final, binding and
conclusive. Termination of this Plan shall not affect the Administrator's
ability to exercise the powers granted to it under this Plan with respect to
Awards granted before the termination of Award Shares issued under such Awards
even if those Award Shares are issued after the termination.

15.  RESERVED RIGHTS.

     15.1 NONEXCLUSIVITY OF THIS PLAN. This Plan shall not limit the power of
the Company or any Affiliate to adopt other incentive arrangements including,
for example, the grant or issuance of stock options, stock, or other
equity-based rights under other plans.

     15.2 UNFUNDED PLAN. This Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Awardees, any such accounts will be
used merely as a convenience. The Company shall not be required to segregate any
assets on account of this Plan, the grant of Awards, or the issuance of Award
Shares. The Company and the Administrator shall not be deemed to be a trustee of
stock or cash to be awarded under this Plan. Any obligations of the Company to
any Awardee shall be based solely upon contracts entered into under this Plan,
such as Award Agreements. No such obligations shall be deemed to be secured by
any pledge or other encumbrance on any assets of the Company. Neither the
Company nor the Administrator shall be required to give any security or bond for
the performance of any such obligations.

16.  SPECIAL ARRANGEMENTS REGARDING AWARD SHARES.

     16.1 ESCROW OF STOCK CERTIFICATES. To enforce any restrictions on Award
Shares, the Administrator may require their holder to deposit the certificates
representing Award Shares, with stock powers or other transfer instruments
approved by the Administrator endorsed in blank, with the Company or an agent of
the Company to hold in escrow until the restrictions have lapsed or terminated.
The Administrator may also cause a legend or legends referencing the
restrictions to be placed on the certificates.

     16.2 REPURCHASE RIGHTS.

         (a) GENERAL. If a Stock Award is subject to vesting conditions, the
Company shall have the right, during the seven months after the Awardee's
Termination, to repurchase any or all of the Award Shares that were unvested as
of the date of that Termination. The repurchase price shall be determined by the
Administrator in accordance with this Section 16.2 which shall be either (i) the
Purchase Price for the Award Shares (minus the amount of any cash dividends paid
or payable with respect to the Award Shares for which the record date precedes
the repurchase) or (ii) the lower of (A) the Purchase Price for the Shares or
(B) the Fair Market Value of those Award Shares as of the date of the
Termination. The repurchase price shall be paid in cash. The Company may assign
this right of repurchase.

         (b) PROCEDURE. The Company or its assignee may choose to give the
Awardee a written notice of exercise of its repurchase rights under this Section
16.2. However, the Company's failure to give such a notice shall not affect its
rights to repurchase Award Shares. The Company must, however, tender the
repurchase price during the period specified in this Section 16.2 for exercising
its repurchase rights in order to exercise such rights.

                                       17
<PAGE>

17.  BENEFICIARIES.

     An Awardee may file a written designation of one or more beneficiaries who
are to receive the Awardee's rights under the Awardee's Awards after the
Awardee's death. An Awardee may change such a designation at any time by written
notice. If an Awardee designates a beneficiary, the beneficiary may exercise the
Awardee's Awards after the Awardee's death. If an Awardee dies when the Awardee
has no living beneficiary designated under this Plan, the Company shall allow
the executor or administrator of the Awardee's estate to exercise the Award or,
if there is none, the person entitled to exercise the Option under the Awardee's
will or the laws of descent and distribution. In any case, no Award may be
exercised after its Expiration Date.

18.  MISCELLANEOUS.

     18.1 GOVERNING LAW. This Plan, the Award Agreements and all other
agreements entered into under this Plan, and all actions taken under this Plan
or in connection with Awards or Award Shares, shall be governed by the laws of
the State of California.

     18.2 DETERMINATION OF VALUE. Fair Market Value shall be determined as
follows:

         (a) LISTED STOCK. If the Shares are traded on any established stock
exchange or quoted on a national market system, Fair Market Value shall be the
closing sales price for the Shares as quoted on that stock exchange or system
for the date the value is to be determined (the "VALUE DATE") as reported in The
Wall Street Journal or a similar publication. If no sales are reported as having
occurred on the Value Date, Fair Market Value shall be that closing sales price
for the last preceding trading day on which sales of Shares are reported as
having occurred. If no sales are reported as having occurred during the five
trading days before the Value Date, Fair Market Value shall be the closing bid
for Shares on the Value Date. If Shares are listed on multiple exchanges or
systems, Fair Market Value shall be based on sales or bid prices on the primary
exchange or system on which Shares are traded or quoted.

         (b) STOCK QUOTED BY SECURITIES DEALER. If Shares are regularly quoted
by a recognized securities dealer but selling prices are not reported on any
established stock exchange or quoted on a national market system, Fair Market
Value shall be the mean between the high bid and low asked prices on the Value
Date. If no prices are quoted for the Value Date, Fair Market Value shall be the
mean between the high bid and low asked prices on the last preceding trading day
on which any bid and asked prices were quoted.

         (c) NO ESTABLISHED MARKET. If Shares are not traded on any established
stock exchange or quoted on a national market system and are not quoted by a
recognized securities dealer, the Administrator (following guidelines
established by the Board or Committee) will determine Fair Market Value in good
faith. The Administrator will consider the following factors, and any others it
considers significant, in determining Fair Market Value: (i) the price at which
other securities of the Company have been issued to purchasers other than
Employees, Directors, or Consultants, (ii) the Company's shareholder's equity,
prospective earning power, dividend-paying capacity, and non-operating assets,
if any, and (iii) any other relevant factors, including the economic outlook for
the Company and the Company's industry, the Company's position in that industry,
the Company's goodwill and other intellectual property, and the values of
securities of other businesses in the same industry.

     18.3 RESERVATION OF SHARES. During the term of this Plan, the Company shall
at all times reserve and keep available such number of Shares as are still
issuable under this Plan.

     18.4 ELECTRONIC COMMUNICATIONS. Any Award Agreement, notice of exercise of
an Award, or other document required or permitted by this Plan may be delivered
in writing or, to the extent determined by the Administrator, electronically.
Signatures may also be electronic if permitted by the Administrator.

     18.5 NOTICES. Unless the Administrator specifies otherwise, any notice to
the Company under any Option Agreement or with respect to any Awards or Award
Shares shall be in writing (or, if so authorized by Section 18.4, communicated
electronically), shall be addressed to the Secretary of the Company, and shall
only be effective when received by the Secretary of the Company.

                                      * * *

Approved by shareholders:  March 17, 2005

                                       18<PAGE>
                        CONFIDENTIAL TREATMENT REQUESTED

                                                                   Exhibit 10.23

                              EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT ("Agreement"), dated as of August 15, 2005 (the
"Effective Date"), is made by and between AVANIR PHARMACEUTICALS, a California
corporation having its principal offices at 11388 Sorrento Valley Road, San
Diego, California, 92121 (the "Company"), and Eric Brandt ("Employee").

                                    AGREEMENT

     1.   Effective Date.

          Employee's employment under this Agreement shall commence on September
6, 2005, or upon such earlier date as the Company and Employee shall mutually
agree on ("Commencement Date").

     2.   At-will Employment.

          Employee's employment relationship with the Company ("Employment") is
at-will, terminable at any time and for any reason by either the Company or
Employee. While certain sections of this Agreement describe events that could
occur at a particular time in the future, nothing in this Agreement shall be
construed as a guarantee of employment of any length.

     3.   Employment Duties.

          a. Title/Responsibilities. Employee shall be the President and Chief
Executive Officer of the Company and shall be elected as a member of the Board
of Directors of the Company as of the Commencement Date. Employee shall perform
all of the duties and responsibilities of such offices set forth in the Bylaws
of the Company and those commonly associated with such offices and such further
duties and responsibilities as may from time to time be assigned to him by the
Board of Directors of the Company (the "Board").

          b. Full-Time Attention. Employee shall devote his full time,
attention, energy and skills to the Company during the period he is employed
under this Agreement. Notwithstanding anything in this Agreement to the
contrary, Employee may, with the consent of the Board, not to be unreasonably
withheld, and subject to the Company's Corporate Governance Guidelines, serve as
a director of one or more other corporations; provided, that, without further
approval by the Board, Employee may serve on the boards of no more than two
public companies and two charitable or civic organizations. Employee's current
board memberships and involvement in charitable organizations, as disclosed by
Employee to the Company, are hereby approved.

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

<PAGE>

     4.   Compensation.

          a. Base Salary. The Company shall pay Employee a base salary of
$41,666.67 per month (an annual rate of $500,000), or such higher amount as the
Board may determine from time to time ("Base Salary"), payable in accordance
with the Company's regular payroll practices. The Compensation Committee will
evaluate whether to increase the Base Salary in October 2006 and then annually
thereafter.

          b. Bonus Compensation. In addition to the Base Salary, Employee shall
be eligible for the following bonus compensation:

               i. a guaranteed bonus equal to 60% of the then-current annual
Base Salary, which is payable on February 15, 2006, but a portion of which
amount shall be immediately repaid to the Company if, within one year from the
Commencement Date, Employee resigns other than for Good Reason or is terminated
with Cause; and

               ii. an annual target bonus equal to 60% of the then-current
annual Base Salary, which is payable in October 2006 and annually thereafter,
provided that the actual bonus may be higher or lower than the target amount,
depending on the Employee's satisfaction of reasonable performance criteria
(which may include Company overall performance criteria) established by the
Compensation Committee of the Board.

          Employee must be employed by the Company when bonuses are distributed
in order to be eligible to receive any portion of such bonus.

          c. Signing Bonus. Employee shall receive a signing bonus upon the
execution of this Agreement in the amount of $150,000, but which amount shall be
immediately repaid to the Company if, within one year from the Commencement
Date, Employee resigns or is terminated with Cause. If the repayment is due in
2006, the amount repaid shall be net of any federal, state or other income taxes
payable by Employee with respect to the receipt of $150,000 in 2005. When, as
and if Employee realizes the benefit of any tax deduction on account of such
repayment (including without limitation realization by way of amending prior tax
returns), he shall promptly thereafter pay an additional amount to the Company
in the amount of such realized tax benefit, provided that Employee shall use his
best efforts to fully realize such tax benefit.

          d. Equity Compensation. Employee shall be granted the following equity
awards as additional compensation:

               i. Employee shall be awarded the right to purchase 1,000,000
shares of Class A common stock on the Commencement Date at a price of $0.001 per
share (the "Restricted Shares"). The Restricted Shares will be subject to a
right of repurchase in favor of the Company that will lapse as to one-third of
the Restricted Shares on the first anniversary of the Commencement Date and as
to an additional one-twelfth of the Restricted Shares on the corresponding day
of every third month thereafter in the form attached hereto as Exhibit 4 (the

                                        2

<PAGE>

"Restricted Stock Agreement"). Employee will have the option to pay any required
withholdings by surrender of Restricted Shares, which will be valued for this
purpose at the average market price in the 5 most recent trading days prior to
the withholding payment date.

               ii. Employee will be eligible for a target option grant of
250,000 shares of Class A common stock, with an exercise price equal to 100% of
the fair market value of the underlying shares on the date of grant, subject to
a four-year vesting schedule (25% vesting one year after the grant and the
remainder vesting in 12 equal installments on a quarterly basis thereafter) and
otherwise subject to the terms and conditions of the Company's equity incentive
plans. The size of the option grants shall be established by the Compensation
Committee and may be larger or smaller than the target size, depending on the
Employee's satisfaction of reasonable performance criteria (which may include
Company overall performance criteria) established by the Compensation Committee.
Employee shall be eligible to receive such an option grant in February 2006 and
annually thereafter in February of each year.

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

          e. Employee Benefits. Employee shall be entitled to participate in all
employee benefit plans, programs and arrangements maintained by the Company and
made available to employees generally, including, without limitation,
retirement, profit sharing and savings plans and medical, disability, dental,
life and accidental death and dismemberment insurance plans and vacation. The
Employee's participation in such plans, programs and arrangements shall be on
the same basis and terms as are applicable to other employees of the Company
generally. Notwithstanding the above, Employee shall be entitled to 5 weeks of
vacation per year of service, the first 5 weeks to vest immediately upon the
Commencement Date and, beginning in 2006 and continuing for each subsequent year
of employment, 5 weeks shall vest immediately upon the anniversary of the
Commencement Date. Such vested vacation represents accrued vacation for all
purposes under California law.

          f. Reimbursement of Expenses. During his Employment with the Company,
Employee shall be entitled to reimbursement for all reasonable and necessary
business expenses incurred on behalf of the Company, including without
limitation, travel and entertainment expenses, business supplies and cellular
phone expenses, in accordance with the Company's policies and procedures.

          g. Reimbursement of Moving/Housing Expenses. The Company shall (i)
reimburse Employee for his reasonable documented moving expenses related to his
employment with Company, including but not limited to packing and unpacking,
home sale assistance including realtor fees, and incidental expenses and (ii)
reimburse Employee for reasonable documented hotel and/or apartment expenses in
San Diego County until Employee has relocated to San Diego County.

                                        3

<PAGE>

     5. Confidentiality Agreement. Employee shall concurrently herewith execute
and deliver to the Company the Employee Confidentiality and Inventions Agreement
("Confidentiality Agreement") in the form attached hereto as Exhibit 1.

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

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

     8. Agreement with Previous Employers. Employee represents and warrants to
the Company that he does not have any agreement (other than customary
confidentiality agreements) with any previous employer that prevents him from
performing his duties and responsibilities under this Agreement or that in any
way limits his performance hereunder.

     9. Voluntary Resignation or Termination for "Cause."

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

                                       4

<PAGE>

          b. Definition of "Cause." As set forth above, the Employment
relationship between the parties is at-will, terminable at any time by either
party for any reason or no reason. The termination may nonetheless be for
"Cause." For purposes of this Agreement, "Cause" is defined as: (i) the willful
refusal of Employee to comply with a lawful instruction of the Board so long as
the instruction is consistent with the scope and responsibilities of Employee's
position ; (ii) Employee's substantial and material failure or refusal to
perform according to, or to comply with, the policies, procedures or practices
established by the Company or the Board of Directors that results in material
harm to the business of the Company; (iii) Employee's commission of or
participation in a fraud or act of dishonesty against the Company that results
in material harm to the business of the Company or to its public reputation; or
(iv) Employee's conviction of, or the entering of a guilty plea or plea of "no
contest" with respect to a felony involving fraud, dishonesty or an act of moral
turpitude, in each case as determined by no fewer than two-thirds of the members
of the Company's Board of Directors (excluding the Employee, if applicable). The
conduct described under clause (i) and (ii) will only constitute Cause if such
conduct is not cured within 15 business days of Employee's receipt of written
notice from the Company or the Board specifying the particulars of the conduct
that may constitute Cause.

     10. Termination Without Cause or Resignation for Good Reason. If, other
than in connection with a Change in Control Transaction, Employee (i) is
terminated without "Cause," as defined in Section 9(b), or (ii) "Resigns for
Good Reason," as defined in Section 12(d)(ii), then Employee shall be paid all
accrued and unpaid Base Salary and any accrued but unused vacation through the
date of termination. In addition, subject to Employee's resignation from the
Company's board of directors (if applicable) and, if and only if the Company is
also willing to enter into it, in exchange for Employee's execution of a mutual
release of all claims by and against the Company and its subsidiaries and
affiliates effective as of the date of termination in the form attached hereto
as Exhibit 2:

          a. Employee shall be eligible to receive severance payments under this
Agreement in an amount equal to 12 months Base Salary and an amount equal to the
greater of (i) 60% of Base Salary or (ii) the last bonus, if any, paid to
Employee pursuant to Section 4(b) (the "Severance Payments"), payable in full
six months and one day after the date of termination, and

          b. the Company's right to repurchase the Restricted Shares under the
Restricted Stock Agreement shall lapse and Employee's ownership of the
Restricted Shares shall be fully vested.

     11. Employee's Disability or Death. Employee's Employment shall terminate
automatically in the event of Employee's death or "Disability." In the event of
Employee's death or Disability, the Company shall pay Employee's estate or
Employee all accrued and unpaid Base Salary through the date of death or
Disability and any vacation that is accrued but unused as of the date of death
or Disability. For purposes of this Agreement, "Disability" shall mean the
Employee's failure to perform his duties hereunder, for a period of not less
than 90 days within any 120-day period because of Employee's incapacitation due
to physical or mental injury, disability, or illness. In addition, Company shall
reimburse Employee for the cost (as grossed up for applicable taxes) of a $3
million life insurance policy and disability insurance equal to 60%

                                       5

<PAGE>

of Employee's base salary at the time of any disability for Employee during his
employment with Company, to be purchased and maintained by Employee at his sole
discretion.

     12. Change of Control Termination.

          a. Payment Upon Change of Control Termination. In the event of a
"Change of Control Termination" (defined below), Employee shall be paid all
accrued and unpaid Base Salary and any accrued but unused vacation through the
date of termination. In addition, Employee shall be eligible to receive
severance under this Agreement in the following amounts:

               i. if the Transaction Value (defined below) is less than $***,
then Employee shall receive an amount equal to 12 months Base Salary plus the
greater of (i) 60% of Base Salary or (ii) the last bonus, if any, paid to
Employee pursuant to Section 4(b);

               ii. if the Transaction Value is equal to or greater than $***,
but less than $***, then Employee shall receive an amount equal to 24 months
Base Salary plus two times the greater of (i) 60% of Base Salary or (ii) the
last bonus, if any, paid to Employee pursuant to Section 4(b); and

               iii. if the Transaction Value is equal to or greater than $***,
or if the Aggregate Transaction Value (defined below) is equal to, or greater
than, $***, then Employee shall receive an amount equal to 36 months Base Salary
plus three times the greater of (i) 60% of Base Salary or (ii) the last bonus,
if any, paid to Employee pursuant to Section 4(b).

          The foregoing transaction values shall be adjusted, as necessary, to
give effect to any stock split, reverse stock split, stock dividend,
recapitalization or similar transaction affecting the Company's Class A common
stock that is effected after the Effective Date. For the avoidance of doubt,
Employee shall only be entitled to receive the greatest applicable severance
payment described above in clauses (i) through (iv).

          b. For purposes of Section 12(a):

               i. "Aggregate Transaction Value" shall equal the sum of (i) the
aggregate value of the entire equity interest in the Company, at the valuation
reflected in the Change of Control Transaction, as reasonably determined by the
Company's Board of Directors and (ii) the aggregate indebtedness of the Company
at the time of the Change of Control Transaction; and

               ii. "Transaction Value" shall equal the Aggregate Transaction
Value, less the aggregate indebtedness included in calculating Aggregate
Transaction Value, with the result divided by the total number of shares of
Class A common stock issued and outstanding immediately prior to the
consummation of the Change of Control Transaction (calculated giving effect to
dilutive common stock equivalents using the treasury stock method).

----------
***  Certain confidential portions of this Exhibit were omitted by means of
     blackout of the text (the "Mark"). This Exhibit has been filed separately
     with the Secretary of the Commission without the Mark pursuant to the
     Company's Application Requesting Confidential Treatment under Rule 24b-2
     under the 1934 Act.

                                       6

<PAGE>

          c. The payment of any severance payment pursuant to this Section 12 is
conditioned on Employee's resignation from the Company's board of directors (if
applicable) and, if and only if the Company is also willing to enter into it,
his execution of a mutual release of all claims by and against the Company and
its subsidiaries and affiliates effective as of the date of termination, in the
form attached hereto as Exhibit 2. Severance payments to be made under this
Section 12 shall be paid in full six months and one day after the date of
termination.

          d. Definition of "Change of Control Termination". A "Change of Control
Termination" occurs where Employee is (i) terminated without Cause, or (ii)
"Resigns for Good Reason," as defined below, in either case within 24 months
following a "Change of Control," as defined below or, if in connection with the
Change of Control, prior thereto. For purposes of this Section 12(d):

               i.   Cause is defined in Section 9(b) above.

               ii.  "Resigns for Good Reason" is defined as a resignation based
                    on:

                    (1)  a material reduction in Employee's duties and
                         responsibilities as set forth in this Agreement;

                    (2)  the assignment to Employee of any significant duties
                         inconsistent with his status as an executive officer of
                         the Company;

                    (3)  a reduction by the Company in Employee's Base Salary by
                         greater than 5%, except to the extent the base salaries
                         of other executive officers of the Company are also
                         reduced; or

                    (4)  a relocation of Employee's or the Company's principal
                         executive offices to a location 50 miles or more from
                         the Company's current principal executive offices; or

                    (5)  Company's material breach of this Agreement.

               Notwithstanding the foregoing, an event described in Section
12(d)(ii)(1)-(4) shall not constitute Good Reason unless it is communicated in
writing within 90 days of the event giving rise to the claim by Employee to the
Company or its successor and unless it is not corrected by the Company or its
successor in a manner that is reasonably satisfactory to Employee within 30 days
of the Company's receipt of such written notice.

               iii. A "Change of Control" shall have occurred if, and only if,

                    (1)  any individual, partnership, firm, corporation,
                         association, trust, unincorporated organization or
                         other entity or person,

                                       7

<PAGE>

                         or any syndicate or group deemed to be a person under
                         Section 14(d)(2) of the Securities Exchange Act of 1934
                         (the "Exchange Act") is or becomes the "Beneficial
                         Owner" (as defined in Rule 13d-3 of the General Rules
                         and Regulations under the Exchange Act), directly or
                         indirectly, of securities of the Company representing
                         40% or more of the combined voting power of the
                         Company's then outstanding securities entitled to vote
                         in the election of directors of the Company;

                    (2)  there occurs a reorganization, merger, consolidation or
                         other corporate transaction involving the Company
                         ("Transaction"), in each case, with respect to which
                         the stockholders of the Company immediately prior to
                         such Transaction do not, immediately after the
                         Transaction own more than 40% of the combined voting
                         power of the Company or other corporation resulting
                         from such Transaction;

                    (3)  all or substantially all of the assets of the Company
                         are sold, liquidated or distributed; or

                    (4)  Individuals who, as of the Effective Date, constitute
                         the Board of Directors of the Company (the "Incumbent
                         Board"), cease for any reason to constitute at least a
                         majority of the Board of Directors, provided that any
                         person becoming a director subsequent to the date
                         hereof whose election, or nomination for election by
                         the Company's stockholders, is approved by a vote of at
                         least a majority of the directors then comprising the
                         Incumbent Board (other than an election or nomination
                         of an individual whose initial assumption of office is
                         in connection with an actual or threatened election
                         contest relating to the election of the directors of
                         the Company, as such terms are used Rule 14a-11 of
                         Regulation 14A promulgated under the Exchange Act)
                         shall, for the purposes of this Agreement, be
                         considered as though such person were a member of the
                         Incumbent Board of the Company.

                    The first of any of these events to occur shall be deemed to
                    be the "Change of Control Transaction" for purposes of this
                    Agreement.

          e. Stock Option and Restricted Stock Vesting Upon Change of Control
Termination. In the event of a Change of Control Termination: (i) all
outstanding stock options issued to Employee, including those options described
in Section 4(d)(ii), shall be accelerated

                                       8

<PAGE>

and become immediately exercisable, provided, however, that the Stock Options
shall be exercisable for the period or periods set forth in, and in accordance
with the other terms and conditions of, the stock option plans under which such
options were granted, and (ii) the Company's right to repurchase the Restricted
Shares under the Restricted Stock Agreement shall lapse and Employee's ownership
of the Restricted Shares shall be fully vested.

          f. Benefits Continuation. In the event of a Change of Control
Termination, Employee shall, to the extent practicable, be entitled to continue
to participate in all of the employee health and welfare benefit programs
available to Employee before the termination, including but not limited to group
medical insurance, group dental insurance, group-term life insurance, and
disability insurance. In addition, Employee shall receive executive outplacement
benefits of a type and duration generally provided by companies to executives at
Employee's level. These programs shall be continued at no cost to Employee,
except to the extent that tax rules require the inclusion of the value of such
benefits in Employee's income. Employee shall be entitled to continue to
participate in the programs for the shorter of (i) 18 months following the
termination or (ii) the period continuing until the date on which Employee
secures a new position providing for similar benefits. Notwithstanding the above
and in addition to any benefits to which Employee may be entitled above, in the
event of a Change of Control Termination, at a minimum, the Company shall pay
Employee's COBRA benefits until the earlier of (i) such time as when he secures
a new position providing for similar benefits, or (ii) 18 months from
termination.

          g. Indemnification for Excise Tax. In the event that Employee becomes
entitled to receive a severance payment in accordance with the provisions of
Section 12(a), and such severance payment and/or any other benefits or payments
(including transfers of property) that Employee receives, or is to receive,
pursuant to this Agreement or any other agreement, plan or arrangement with the
Company in connection with a Change in Control of the Company ("Other Benefits")
shall be subject to the tax imposed pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any successor thereto) or any
comparable provision of state law (an "Excise Tax"), the following rules shall
apply:

               i. The Company shall pay to Employee, within 30 days after
Employee's termination, an additional amount (the "Gross-Up Payment") such that
the net amount retained by Employee, after deduction of any Excise Tax with
respect to the severance payments or the Other Benefits and any federal, state
and local income tax, employment tax and Excise Tax upon such Gross-Up Payment,
is equal to the amount that would have been retained by Employee if such Excise
Tax were not applicable, as determined by the accounting firm (the "Auditors")
serving as the Company's independent auditors immediately prior to the Change in
Control. It is intended that Employee shall not suffer any loss or expense
resulting from the assessment of any Excise Tax or the Company's reimbursement
of Employee for payment of any such Excise Tax.

               ii. For purposes of determining whether any of the severance
payments or Other Benefits will be subject to an Excise Tax and the amount of
such Excise Tax,

                                       9

<PAGE>

                    (1) any other payment or benefits received or to be received
by Employee in connection with a Change in Control of the Company or Employee's
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Change in Control or any person affiliated with the Company
or such person) shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code (or any successor thereto), and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code (or any
successor thereto) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by the Auditors and acceptable to Employee such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code (or any successor thereto)

                    (2) the amount of the Severance Payments and Other Benefits
which shall be treated as subject to the Excise Tax shall be equal to the lesser
of (A) the total amount of the Severance Payments or Other Benefits or (B) the
amount of excess parachute payments within the meaning of Sections 280G(b)(1)
and (4) of the Code (or any successor or successors thereto), after applying
clause (1), above, and

                    (3) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code (or
any successor or successors thereto).

               iii. For purposes of determining the amount of the Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rates of taxation in the state and locality of Employee's residence on
the date of Employee's termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.

               iv. In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the time of
Employee's termination, Employee shall repay to the Company, at the time that
the amount of such reduction in Excise Tax is finally determined, the portion of
the Gross-Up Payment attributable to such reduction plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code (or
any successor thereto) (the "Applicable Rate"). In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder at the time of
such termination (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess (plus
interest, determined at the Applicable Rate, payable with respect to such
excess) at the time that the amount of such excess is finally determined.

     13. Allergan Option Losses.

          a. If, during the entire period from the Effective Date until the 3rd
business day prior to the expiration of the Stock Options (the "Exercise and
Sell Period"), Employee is

                                       10

<PAGE>

unable to exercise some or all of the Stock Options and simultaneously sell in
the public market all Allergan stock to be received on such exercise due to
limitations under Applicable Law, then, upon delivery by Employee of the
Certification, the Company shall issue a number of shares of Class A common
stock with a value equal to the intrinsic value of the forfeited Stock Options
(net of any applicable exercise prices) as to which Employee was unable to make
such exercise and simultaneous sale, such values to be determined with reference
to (i) the average closing price of the Allergan Inc. common stock for each
trading day in the Exercise and Sell Period and (ii) the average closing price
of the Company's Class A common stock for each trading day in the Exercise and
Sell Period.

          b. For purposes of this Section 13, (a) "Stock Options" shall mean
vested options to purchase shares of Allergan Inc. common stock held by Employee
immediately prior to his resignation with Allergan Inc., (b) "Applicable Law"
shall mean the Securities Act of 1933 and the Securities Exchange Act of 1934,
each as amended, and regulations issued thereunder, and (c) the "Certification"
shall mean a certification, executed by Employee, setting forth in reasonable
detail the number of Stock Options as to which Employee was unable to so
exercise and simultaneously sell and that were forfeited as a result, the
exercise price of such options, and a statement to the effect that Employee was
unable to exercise such Stock Options and simultaneously sell in the public
market all Allergan stock to be received on such exercise during the entire
Exercise and Sell Period due to limitations under Applicable Law. Employee
agrees to use his best efforts to exercise such Stock Options cashlessly and
simultaneously sell the resulting shares if and when notified by Allergan that
he has the ability to do so.

          c. Notwithstanding the foregoing, in no event shall the Company be
required under this Section 13 to (i) issue a number of shares of Class A common
stock with an aggregate value in excess of three percent (3%) of the aggregate
market capitalization of the Company immediately prior to such issuance, or (ii)
compensate Employee for the value of any Stock Options that he actually
exercises (it being agreed that this clause (ii) shall not give rise to any duty
of Employee to actually exercise any Stock Option unless Employee can exercise
it cashlessly and simultaneously sell the resulting shares).

     14. Dispute Resolution Procedures. Except as expressly provided in this
Agreement, Employee agrees that any dispute or controversy arising out of,
relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof shall be
settled by arbitration, to the extent permitted by law, to be held in San Diego
County, California in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association (the
"Rules") and in accordance with the accompanying Mutual Arbitration Agreement
attached hereto as Exhibit 3. The arbitrator's decision shall be final,
conclusive and binding on the parties to the arbitration pursuant to the Mutual
Arbitration Agreement. Judgment may be entered on the decision of the arbitrator
in any court having competent jurisdiction.

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

                                       11

<PAGE>

     If to AVANIR:

          Avanir Pharmaceuticals
          11388 Sorrento Valley Road
          San Diego, California 92121
          Fax: (858) 658-7455
          Attn: Chairman of the Board

     If to Employee:

          Eric Brandt

     16. Notice of Termination. Any purported termination of Employment by the
Company or the Employee shall be communicated by written Notice of Termination
to the other party. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice that indicates the specific termination provision in this
Agreement relied upon and, in the case of a termination for Cause or Resignation
for Good Reason, that sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination of the Employee's
employment. For purposes of this Agreement, no such purported termination of
employment shall be effective without delivery of such a Notice of Termination.

     17. Withholding. All payments to be made hereunder, including Base Salary
and bonus and severance payments, shall be paid less applicable Federal and
state withholding taxes.

     18. General Provisions.

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

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

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

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

                                       12

<PAGE>

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

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

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

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

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

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

     EXECUTED at San Diego, California, this 15th day of August, 2005.

                                        AVANIR PHARMACEUTICALS

Dated: August 13, 2005                  By: /s/ Charles A. Mathews
                                            ------------------------------------
                                            Charles A. Mathews
                                            Chairman of the Board

                                        EMPLOYEE

Dated: August 19, 2005                  /s/ Eric Brandt
                                        ----------------------------------------

                                       13

<PAGE>

                                    EXHIBIT 2

                             MUTUAL GENERAL RELEASE

     This MUTUAL GENERAL RELEASE ("Release"), is made this ___ day of
____________, 20__ (the "Effective Date") by [_____________] ("Employee") and
AVANIR PHARMACEUTICALS, a California Corporation ("the Company").

                                    RECITALS

     A. On _________, 2005, the parties hereto entered into an Employment
Agreement ("Agreement") pursuant to which the parties agreed that, among other
things, upon (i) a termination without "Cause" or (ii) a termination resulting
from "Change in Control," Employee would become eligible for severance payments
for the periods provided in the Agreement from the date of termination of his
Employment ("Termination Date") in exchange for a mutual release by Employee of
the Company and its subsidiaries and affiliates from all claims which each party
may have against the other and its subsidiaries and affiliates as of the
Termination Date.

     B. The parties desire to dispose of, fully and completely, all claims which
each may have against the other and its subsidiaries and affiliates in the
manner set forth in this Release.

     NOW, THEREFORE, in consideration of the severance payments referenced above
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Employee hereby agrees as follows:

     1. Definition. The term "party" as used in this Agreement means and
includes (a) the Company and each of its affiliates, successors, assignees,
subsidiaries, directors, officers, servants, employees, shareholders, attorneys,
accountants, other professionals, insurers and agents, and all persons acting
by, through, under or in concert with it or them and (b) Employee and each of
his heirs, executors, administrators, assigns and successors.

     2. Release. Each party hereby fully and forever releases, relinquishes,
acquits and discharges the other, and all entities related to each party,
including, but not limited to, heirs, executors, administrators, personal
representatives, assigns, parent, subsidiary and sister corporations,
affiliates, partners and co-venturers (collectively "Related Entities"), from
all rights, claims, demands, actions, causes of action, liabilities and
obligations of every kind, nature and description whatsoever, such party now
has, owns or holds or has at any time had, owned or held or may have against the
other party or Related Entities from any source whatsoever, whether or not
arising from or related to the facts recited in this Release. Employee
specifically releases and waives any and all claims arising under any express or
implied contract, rule, regulation or ordinance, including, without limitation,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the
Americans with Disabilities Act, the California Fair

                                      -14-

<PAGE>

Employment and Housing Act, and the Age Discrimination in Employment Act, as
amended ("ADEA").

     2. Section 1542 Waiver. This Release is intended as a full and complete
release and discharge of any and all claims that each party may have against the
other or Related Entities. In making this Release, each party intends to release
the other and Related Entities from liability of any nature whatsoever for any
claim of damages or injury or for equitable or declaratory relief of any kind,
whether the claim, or any facts on which such claim might be based, is known or
unknown to such party. Each party expressly waives all rights under Section 1542
of the Civil Code of the State of California, which the parties understand
provides as follows:

     A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES NOT KNOW
     OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
     WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
     DEBTOR.

     Each party acknowledges that he or it may discover facts different from or
in addition to those which he or it now believes to be true with respect to this
Release. Each party agrees that this Release shall remain effective
notwithstanding the discovery of any different or additional facts.

     3. Waiver of Certain Claims. Employee acknowledges that he has been advised
in writing of his right to consult with an attorney prior to executing the
waivers set out in this Release, and that he has been given a twenty-one day
period in which to consider entering into the release of ADEA claims, if any. In
addition, Employee acknowledges that he has been informed that he may revoke a
signed waiver of the ADEA claims for up to 7 days after executing this Release.

     4. No Undue Influence. This Release is executed voluntarily and without any
duress or undue influence. Each party acknowledges such party has read this
Release and executed it with his or its full and free consent. No provision of
this Release shall be construed against any party by virtue of the fact that
such party or its counsel drafted such provision or the entirety of this
Release.

     5. Governing Law. This Release is made and entered into in the State of
California and accordingly the rights and obligations of the parties hereunder
shall in all respects be construed, interpreted, enforced and governed in
accordance with the laws of the State of California as applied to contracts
entered into by and between residents of California to be wholly performed
within California.

     6. Severability. If any provision of this Release is held to be invalid,
void or unenforceable, the balance of the provisions of this Release shall,
nevertheless, remain in full force and effect and shall in no way be affected,
impaired or invalidated.

                                      -15-

<PAGE>

     IN WITNESS WHEREOF, the undersigned have executed this Release at San
Diego, California as of the date first above written.

                                        AVANIR PHARMACEUTICALS

Dated:                                  By:
       ----------                           ------------------------------------

                                            ------------------------------------

                                            ------------------------------------

                                        EMPLOYEE

Dated:
       ----------                           ------------------------------------

                                      -16-

<PAGE>

                                    EXHIBIT 3

                          MUTUAL ARBITRATION AGREEMENT

     This MUTUAL ARBITRATION AGREEMENT ("Agreement"), dated as of ___________,
2005, is made by and between AVANIR Pharmaceuticals, a California corporation
("the Company") and [__________] ("Employee") (collectively, the "Parties" or
"we").

AGREEMENT TO ARBITRATE CERTAIN DISPUTES AND CLAIMS

     We agree to arbitrate before a neutral arbitrator any and all disputes or
claims arising from or relating to Employee's recruitment to or employment with
the Company, or the termination of that employment, including claims against any
current or former agent or employee of the Company, whether the disputes or
claims arise in tort, contract, or pursuant to a statute, regulation, or
ordinance now in existence or which may in the future be enacted or recognized,
including, but not limited to, the following claims:

     -    claims for fraud, promissory estoppel, fraudulent inducement of
          contract or breach of contract or contractual obligation, whether such
          alleged contract or obligation be oral, written, or express or implied
          by fact or law;

     -    claims for wrongful termination of employment, violation of public
          policy and constructive discharge, infliction of emotional distress,
          misrepresentation, interference with contract or prospective economic
          advantage, defamation, unfair business practices, and any other tort
          or tort-like causes of action relating to or arising from the
          employment relationship or the formation or termination thereof;

     -    claims for discrimination, harassment, or retaliation under any and
          all Federal, state, or municipal statutes, regulations, or ordinances
          that prohibit discrimination, harassment, or retaliation in
          employment, as well as claims for violation of any other Federal,
          state, or municipal statute, regulation, or ordinance, except as set
          forth herein;

     -    claims for non-payment or incorrect payment of wages, commissions,
          bonuses, severance, employee fringe benefits, stock options and the
          like, whether such claims be pursuant to alleged express or implied
          contract or obligation, equity, the California Labor Code, the Fair
          Labor Standards Act, the Employee Retirement Income Securities Act,
          and any other Federal, state, or municipal laws concerning wages,
          compensation or employee benefits; and

     -    claims arising out of or relating to the grant, exercise, vesting
          and/or issuance of equity in the Company or options to purchase equity
          in the Company.

     We understand and agree that arbitration of the disputes and claims covered
by this Agreement shall be the sole and exclusive method of resolving any and
all existing and future disputes or claims arising out of Employee's recruitment
to or employment with the Company or

                                      -17-

<PAGE>

the termination thereof. We further understand and agree that the following
disputes and claims are not covered by this Agreement and shall therefore be
resolved in any appropriate forum, including courts of law, as required by the
laws then in effect:

          -    claims for workers' compensation benefits, unemployment
               insurance, or state or Federal disability insurance; and

          -    claims concerning the validity, infringement, enforceability, or
               misappropriation of any trade secret, patent right, copyright,
               trademark, or any other intellectual or confidential property
               held or sought by Employee or the Company, including claims
               alleged by Employee or the Company that arise under the Company's
               Employee Confidentiality and Inventions Agreement.

     Nothing in this Agreement should be interpreted as restricting or
prohibiting the Employee from filing a charge or complaint with a Federal,
state, or local administrative agency charged with investigating and/or
prosecuting complaints under any applicable Federal, state or municipal law or
regulation. Any dispute or claim that is not resolved through the Federal,
state, or local agency must be submitted to arbitration in accordance with this
Agreement.

FINAL AND BINDING ARBITRATION

     We understand and agree that the arbitration of disputes and claims under
this Agreement shall be instead of a trial before a court or jury. We further
understand and agree that, by signing this Agreement, we are expressly waiving
any and all rights to a trial before a court regarding any disputes and claims
which we now have or which we may in the future have that are subject to
arbitration under this Agreement.

ARBITRATION PROCEDURES

     We understand and agree that the arbitration shall be conducted in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association; provided, however, that the Arbitrator
shall allow the discovery authorized by California Code of Civil Procedure
section 1283.05 or any other discovery required by law in arbitration
proceedings. Also, to the extent that any of the National Rules for the
Resolution of Employment Disputes or anything in this Agreement conflicts with
any arbitration procedures required by applicable law, the arbitration
procedures required by applicable law shall govern. Employee and the Company
also agree that nothing in this Agreement relieves either of them from any
obligation they may have to exhaust certain administrative remedies before
arbitrating any claims or disputes under this Agreement.

     We understand and agree that the Arbitrator shall issue a written award
that sets forth the essential findings and conclusions on which the award is
based. The Arbitrator shall have the authority to award any relief authorized by
law in connection with the asserted claims or disputes. The Arbitrator's award
shall be subject to correction, confirmation, or vacation, as provided by any
applicable law setting forth the standard of judicial review of arbitration
awards.

                                      -18-

<PAGE>

PLACE OF ARBITRATION

     We understand and agree that the arbitration shall take place in San Diego
County, California.

GOVERNING LAW

     We understand and agree that this Agreement and its validity, construction
and performance, as well as disputes and/or claims arising under this Agreement,
shall be governed by the laws of California, or Federal law. If both Federal and
state law apply to any given dispute or claim, Employee shall have the right to
elect the applicable law.

COSTS OF ARBITRATION

     We understand and agree that the Company shall bear the arbitrator's fee
and any other type of expense or cost that Employee would not be required to
bear if he or she were free to bring the dispute or claim in court as well as
any other expense or cost that is unique to arbitration. We shall each pay our
own attorneys' fees incurred in connection with the arbitration, and the
arbitrator shall not have authority to award attorneys' fees unless a statute or
contract at issue in the dispute authorizes the award of attorneys' fees to the
prevailing party, in which case the arbitrator shall have the authority to make
an award of attorneys' fees as required or permitted by applicable law. If there
is a dispute as to whether the Company or Employee is the prevailing party in
the arbitration, the Arbitrator shall decide this issue.

SEVERABILITY

     We understand and agree that if any term or portion of this Agreement
shall, for any reason, be held to be invalid or unenforceable or to be contrary
to public policy or any law, then the remainder of this Agreement shall not be
affected by such invalidity or unenforceability but shall remain in full force
and effect, as if the invalid or unenforceable term or portion thereof had not
existed within this Agreement.

COMPLETE AGREEMENT

     We understand and agree that this Agreement contains the complete agreement
between the Company and Employee regarding the subject matter of this Agreement,
superseding any and all prior representations and agreements between the Company
and Employee, if any, and that it may be modified only in a writing, expressly
referencing this Agreement, and signed by Employee and the Chairman of the Board
of the Company.

KNOWING AND VOLUNTARY AGREEMENT

     We understand and agree that we have been advised to consult with an
attorney of our own choosing before signing this Agreement, and we have had an
opportunity to do so. We agree that we have read this Agreement carefully and
understand that by signing it, we are

                                      -19-

<PAGE>

waiving all rights to a trial or hearing before a court or jury of any and all
disputes and claims subject to arbitration under this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement at San Diego,
California on the __ day of _______, 2005.

                                        AVANIR PHARMACEUTICALS

                                        By:
                                            ------------------------------------
                                            Charles A. Mathews
                                            Chairman of the Board

                                        EMPLOYEE

                                        ----------------------------------------

                                      -20-

<PAGE>

                                    EXHIBIT 4

                             AVANIR PHARMACEUTICALS

                       RESTRICTED STOCK PURCHASE AGREEMENT

     This Restricted Stock Purchase Agreement (the "Agreement") is made as of
_________, 2005 by and between Avanir Pharmaceuticals, a California corporation
(the "Company"), and ___________ ("Purchaser").

     A. Purchaser and the Company are parties to that certain Employment
Agreement dated as of _________, 2005 (the "Employment Agreement").

     B. Purchaser and the Company desire to specify the terms and conditions of
Purchaser's equity participation in the Company as contemplated in the
Employment Agreement.

     THE PARTIES AGREE AS FOLLOWS:

     1. SALE OF STOCK. In satisfaction of the Company's obligations under
Section 4(d)(i) of the Employment Agreement, and subject to the terms and
conditions of this Agreement, on the Purchase Date (as defined below) the
Company will issue and sell to Purchaser, and Purchaser agrees to purchase from
the Company, 1,000,000 shares of the Company's Class A Common Stock (the
"Purchased Shares") at a purchase price of $0.001 per Share for a total purchase
price of $1,000. The term "Shares" refers to the Purchased Shares and all
securities received in replacement of the Purchased Shares or as stock dividends
or splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares (including the
Purchased Shares).

     2. PURCHASE. The purchase and sale of the Shares under this Agreement shall
occur at the principal office of the Company simultaneously with the execution
of this Agreement by the parties or on such other date as the Company and
Purchaser shall agree (the "Purchase Date"). As promptly as practicable after
the Purchase Date, the Company will deliver to the Company's Secretary pursuant
to Section 4 a certificate representing the Shares to be purchased by Purchaser
(which shall be issued in Purchaser's name) against payment of the purchase
price therefor on the Purchase Date by Purchaser by cash or check made payable
to the Company.

     3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer
created by applicable securities laws, Purchaser shall not assign, encumber or
dispose of any interest in any portion of the Shares which are subject to the
Repurchase Option. After any portion of the Shares has been released from the
Repurchase Option, Purchaser shall not assign, encumber or dispose of any
interest in such portion except in compliance with the provisions below and
applicable securities laws.

          (a) REPURCHASE OPTION.

               (i) In the event of the voluntary or involuntary termination of
Purchaser's employment or consulting relationship with the Company for any
reason (including

                                      -21-

<PAGE>

death or disability), with or without cause, upon the date of such termination
(the "Termination Date"), the Company shall have an irrevocable, exclusive
option (the "Repurchase Option") for a period of 90 days from such date to
repurchase all or any portion of the Shares held by Purchaser as of the
Termination Date which have not yet been released from the Company's Repurchase
Option at the original purchase price per Share specified in Section 1 (adjusted
for any stock splits, stock dividends and the like).

               (ii) Unless the Company notifies Purchaser within 90 days from
the Termination Date that it does not intend to exercise its Repurchase Option
with respect to some or all of the Shares, the Repurchase Option shall be deemed
automatically exercised by the Company as of the 90th day following the
Termination Date, provided that the Company may notify Purchaser that it is
exercising its Repurchase Option as of a date prior to such 90th day. Unless
Purchaser is otherwise notified by the Company pursuant to the preceding
sentence that the Company does not intend to exercise its Repurchase Option as
to some or all of the Shares to which it applies at the time of termination,
execution of this Agreement by Purchaser constitutes written notice to Purchaser
of the Company's intention to exercise its Repurchase Option with respect to all
Shares to which such Repurchase Option applies. The Company, at its choice, may
satisfy its payment obligation to Purchaser with respect to exercise of the
Repurchase Option by either (A) delivering a check to Purchaser in the amount of
the purchase price for the Shares being repurchased, or (B) in the event
Purchaser is indebted to the Company, canceling an amount of such indebtedness
equal to the purchase price for the Shares being repurchased, or (C) by a
combination of (A) and (B) so that the combined payment and cancellation of
indebtedness equals such purchase price. In the event of any deemed automatic
exercise of the Repurchase Option pursuant to this Section 3(a)(ii) in which
Purchaser is indebted to the Company, such indebtedness equal to the purchase
price of the Shares being repurchased shall be deemed automatically canceled as
of the 90th day following the Termination Date unless the Company otherwise
satisfies its payment obligations. Any failure on the part of the Company to
promptly satisfy its payment obligations for the Repurchase Option shall not, in
any way, affect the enforceability of the Company's exercise of the Repurchase
Option. As a result of any repurchase of Shares pursuant to this Section 3(a),
the Company shall become the legal and beneficial owner of the Shares being
repurchased and shall have all rights and interest therein or related thereto,
and the Company shall have the right to transfer to its own name the number of
Shares being repurchased by the Company, without further action by Purchaser.

               (iii) All of the Shares shall initially be subject to the
Repurchase Option. Provided that Purchaser remains continuously employed by the
Company (or continues to provide services to the Company as a consultant), the
Shares shall be released from the Repurchase Option pursuant to the following
schedule:

<TABLE>
<CAPTION>
 No. Shares released
from Repurchase Option                Date
----------------------                ----
<S>                      <C>
       333,333           [first anniversary of
                         Effective Date]
        83,333           [same day of the third
</TABLE>

                                      -22-

<PAGE>

<TABLE>
<S>                      <C>
                         following month]
        83,333           [same day of the third
                         following month]
        83,333           [same day of the third
                         following month]
        83,334           [same day of the third
                         following month]
        83,333           [same day of the third
                         following month]
        83,334           [same day of the third
                         following month]
        83,333           [same day of the third
                         following month]
        83,334           [same day of the third
                         following month]
</TABLE>

               (iv) Notwithstanding the provisions of Section 3(a)(iii) above,
if there is a "Change of Control Termination" (as defined in the Employment
Agreement) or if Purchaser resigns Purchaser's employment for "Good Reason" (as
defined in the Employment Agreement), the vesting of the Shares will accelerate
and the Shares will be released from the Repurchase Option as provided in
Sections 12(e)(ii) and 10(b), respectively, of the Employment Agreement.

          (b) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including insofar as applicable the Company's
Repurchase Option. Any sale or transfer of the Shares shall be void unless the
provisions of this Agreement are satisfied.

          (c) TERMINATION OF RIGHTS. Upon the expiration or exercise of the
Repurchase Option, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 5(a) below and delivered to Purchaser.

     4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the enforcement
of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt
of the certificate(s) for the Shares subject to the Repurchase Option, to
deliver such certificate(s), together with an Assignment Separate from
Certificate in the form attached to this Agreement as Exhibit A executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the

                                      -23-

<PAGE>

Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party). The escrow holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.

     5. RESTRICTED SECURITIES; LEGENDS AND STOP-TRANSFER ORDERS.

          (a) RESTRICTED SECURITIES; LEGENDS. Purchaser understands that the
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), by reason of an exemption therefrom. Purchaser is
purchasing the Shares for investment for his own account only and not with a
view to, or for resale in connection with, any "distribution" thereof within the
meaning of the Securities Act. The certificate or certificates representing the
Shares shall bear the following legend (as well as any legends required by
applicable state and federal corporate and securities laws):

     THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
     THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT
     BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT
     AS TO SUCH TRANSFER OR, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY
     TO THE COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH
     TRANSFER TO COMPLY WITH THE ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF THE
     ACT.

     THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE REPURCHASE
     OPTION OF THE COMPANY AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE
     TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF
     WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

          (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

          (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote

                                      -24-

<PAGE>

or pay dividends to any purchaser or other transferee to whom such Shares shall
have been so transferred.

     6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.

     7. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income
the difference between the amount paid for the Shares and the fair market value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
the Internal Revenue Service within 30 days from the date of purchase. In this
case, the difference between the fair market value of the Shares at the time of
the execution of this Agreement and the amount Purchaser is paying for the
Shares makes it unlikely that Purchaser will choose to make an 83(b) Election,
as such election would require that Purchaser pay taxes on that difference at
the time the Shares are purchased. However, the 83(b) Election must be made if
the Purchaser wishes to avoid additional income under Section 83(a) in the
future. Accordingly, Purchaser understands that failure to file such an election
in a timely manner may result in adverse tax consequences for Purchaser.
Purchaser further understands that an additional copy of such election form
should be filed with his or her federal income tax return for the calendar year
in which the date of this Agreement falls. Purchaser acknowledges that the
foregoing is only a summary of the effect of United States federal income
taxation with respect to purchase of the Shares hereunder, and does not purport
to be complete. Purchaser further acknowledges that the Company has directed
Purchaser to seek independent advice regarding the applicable provisions of the
Code, the income tax laws of any municipality, state or foreign country in which
Purchaser may reside, the tax consequences of Purchaser's death and the decision
as to whether or not to file an 83(b) Election in connection with the
acquisition of the Shares.

     Purchaser agrees that he will execute and deliver to the Company with this
executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
Exhibit B. Purchaser further agrees that Purchaser will execute and submit with
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C,
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.

     8. MISCELLANEOUS.

          (a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.

                                      -25-

<PAGE>

          (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement and the
Employment Agreement set forth the entire agreement and understanding of the
parties relating to the subject matter herein and merge all prior discussions
between them. No modification of or amendment to this Agreement, nor any waiver
of any rights under this Agreement, shall be effective unless in writing signed
by the parties to this Agreement. The failure by either party to enforce any
rights under this Agreement shall not be construed as a waiver of any rights of
such party.

          (c) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of this
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of this Agreement shall be enforceable in accordance with its terms.

          (d) CONSTRUCTION. This Agreement is the result of negotiations between
and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.

          (e) NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address or fax number as set forth below or as
subsequently modified by written notice.

          (f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

          (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.

                            [Signature Page Follows]

                                      -26-

<PAGE>

     The parties have executed this Agreement as of the date first set forth
above.

                                        COMPANY:

                                        AVANIR PHARMACEUTICALS

                                        By:
                                            ------------------------------------
                                        Title:
                                               ---------------------------------
                                        Address: 11388 Sorrento Valley Road
                                                 San Diego, CA 92121

     PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.

                                        PURCHASER:

                                        [_____________]

                                        ----------------------------------------
                                        (Signature)

                                        Address:

                                        ----------------------------------------

                                        ----------------------------------------

I, ________________________________, spouse of [___________], have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or similar interest that I may have in the
Shares shall be similarly bound by the Agreement. I hereby appoint my spouse as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.

                                        ----------------------------------------
                                        Spouse of [___________]

                                      -27-

<PAGE>

                                    EXHIBIT A

                      ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between the undersigned ("Purchaser") and Avanir Pharmaceuticals (the
"Company") dated as of _________, 2005 (the "Agreement"), Purchaser hereby
sells, assigns and transfers unto the Company _________________________________
(________) shares of the Class A Common Stock of the Company standing in
Purchaser's name on the Company's books and represented by Certificate No.
_____, and does hereby irrevocably constitute and appoint ______________________
to transfer said stock on the books of the Company with full power of
substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY
THE AGREEMENT AND THE EXHIBITS THERETO.

Dated:
       ---------------------------

                                        Signature:

                                        ----------------------------------------
                                        [___________]

                                        ----------------------------------------
                                        Spouse of [___________] (if applicable)

Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.

<PAGE>

                                    EXHIBIT B

                    ACKNOWLEDGMENT AND STATEMENT OF DECISION
                        REGARDING SECTION 83(B) ELECTION

     The undersigned has entered a Restricted Stock Purchase Agreement with
Avanir Pharmaceuticals, a California corporation (the "Company"), pursuant to
which the undersigned is purchasing [_________] shares of Common Stock of the
Company (the "Shares"). In connection with the purchase of the Shares, the
undersigned hereby represents as follows:

     1. The undersigned has carefully reviewed the Restricted Stock Purchase
Agreement pursuant to which the undersigned is purchasing the Shares.

     2. The undersigned either [check and complete as applicable]:

     (a)  ____ has consulted, and has been fully advised by, the undersigned's
          own tax advisor, __________________________, whose business address is
          _____________________________, regarding the federal, state and local
          tax consequences of purchasing the Shares, and particularly regarding
          the advisability of making elections pursuant to Section 83(b) of the
          Internal Revenue Code of 1986, as amended (the "Code") and pursuant to
          the corresponding provisions, if any, of applicable state law; or

     (b)  ____ has knowingly chosen not to consult such a tax advisor.

     3. The undersigned hereby states that the undersigned has decided [check as
applicable]:

     (a)  ____ to make an election pursuant to Section 83(b) of the Code, and is
          submitting to the Company, together with the undersigned's executed
          Restricted Stock Purchase Agreement, an executed form entitled
          "Election Under Section 83(b) of the Internal Revenue Code of 1986";
          or

     (b)  ____ not to make an election pursuant to Section 83(b) of the Code.

     4. Neither the Company nor any subsidiary or representative of the Company
has made any warranty or representation to the undersigned with respect to the
tax consequences of the undersigned's purchase of the Shares or of the making or
failure to make an election pursuant to Section 83(b) of the Code or the
corresponding provisions, if any, of applicable state law.

Date:
      -----------------------------     ----------------------------------------
                                        [______________]

Date:
      -----------------------------     ----------------------------------------
                                        Spouse of [______________]

<PAGE>

                                    EXHIBIT C

                          ELECTION UNDER SECTION 83(B)
                      OF THE INTERNAL REVENUE CODE OF 1986

     The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:

1.   The name, address, taxpayer identification number and taxable year of the
     undersigned are as follows:

     NAME OF TAXPAYER: [______________]

     NAME OF SPOUSE: _________________

     ADDRESS: ________________________

              ________________________

     IDENTIFICATION NO. OF TAXPAYER: ___________________________________________

     IDENTIFICATION NO. OF SPOUSE: _____________________________________________

     TAXABLE YEAR: _____________________________________________________________

2.   The property with respect to which the election is made is described as
     follows:

     ____________ shares of the Class A Common Stock, of Avanir Pharmaceuticals,
     a California corporation (the "Company").

3.   The date on which the property was transferred is: __________________

4.   The property is subject to the following restrictions:

     Repurchase option at cost in favor of the Company upon termination of
     taxpayer's employment or consulting relationship or failure of vesting
     criteria.

5.   The fair market value at the time of transfer, determined without regard to
     any restriction other than a restriction which by its terms will never
     lapse, of such property is: $______________.

6.   The amount (if any) paid for such property: $______________

The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.

The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.

Dated:
       ----------------------------     ----------------------------------------
                                        Taxpayer

Dated:
       ----------------------------     ----------------------------------------
                                        Spouse of Taxpayer

<PAGE>

                                     RECEIPT

          Avanir Pharmaceuticals hereby acknowledges receipt of cash or a check
in the amount of $__________ given by Eric Brandt as consideration for
Certificate No. ___________ for ____________ shares of Class A Common Stock of
Avanir Pharmaceuticals.

Dated:
       ----------------------------

                                        Avanir Pharmaceuticals

                                        By:
                                            ------------------------------------
                                        Title:
                                               ---------------------------------

<PAGE>

                               RECEIPT AND CONSENT

     The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. ______ for _____________ shares of Common Stock of Avanir Pharmaceuticals
(the "Company").

     The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Restricted Stock
Purchase Agreement the undersigned has previously entered into with the Company.
As escrow holder, the Secretary of the Company, or his or her designee, holds
the original of the aforementioned certificate issued in the undersigned's name.

Dated:
       ----------------------------

                                        ----------------------------------------
                                        [_______________]

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