Document:

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                                           *** Text omitted and filed separately
                                                Confidential Treatment Requested
                                         Under 17 C.F.R. Sections 200.80 (b) (4)
                                                                   and 240.24b-2

                                                                    EXHIBIT 10.1

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                              RESEARCH, DEVELOPMENT

                         AND COMMERCIALIZATION AGREEMENT

                                 BY AND BETWEEN

                   NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.

                                       AND

                             AVANIR PHARMACEUTICALS

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     This Research, Development and Commercialization Agreement (this
"Agreement") is made and entered into as of this 27th day of April, 2005 (the
"Effective Date") by and between Avanir Pharmaceuticals, a corporation organized
under the laws of the State of California with principal offices at 11388
Sorrento Valley Road, Suite 200, San Diego, California 92121 ("Avanir"), and
Novartis International Pharmaceutical Ltd., a Bermuda corporation with principal
offices at Hurst Holme, 12 Trott Road, Hamilton HM LX, Bermuda ("Novartis").

                                   WITNESSETH

     WHEREAS, Avanir has developed the MIF Program (as defined herein) and the
related Compounds (as defined herein);

     WHEREAS, Novartis and its Affiliates are engaged in the research,
development, marketing, manufacture and distribution of pharmaceutical compounds
used in treating, preventing or diagnosing human or animal diseases and
conditions;

     WHEREAS, both Parties desire to enter into a collaboration, the objective
of which will be to further research and develop the MIF Program and the related
Compounds; and

     WHEREAS, Avanir wishes to grant, and Novartis and its Affiliates wish to
obtain, an exclusive license to further research, develop and commercialize the
Compounds into Drug Products for the treatment, prevention or diagnosis of human
or animal diseases or conditions.

     NOW THEREFORE, in consideration of the foregoing premises, the Parties
agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     For the purpose of this Agreement, the following terms, whether used in
singular or plural form, shall have the respective meanings set forth below:

     1.1 "Accounting Standards" with respect to Avanir shall mean that Avanir
shall maintain records and books of accounts in accordance with United States
Generally

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Accepted Accounting Principles and with respect to Novartis shall mean that
Novartis shall maintain records and books of accounts in accordance with
International Financial Reporting Standards, in each case consistently applied.

     1.2 "Affiliate" shall mean any Person who directly or indirectly controls
or is controlled by or is under common control with a Party. For purposes of
this definition, "control" or "controlled" means ownership directly or through
one or more Affiliates, of fifty percent (50%) or more of the shares of stock
entitled to vote for the election of directors, in the case of a corporation, or
fifty percent (50%) or more of the equity interest in the case of any other type
of legal entity, status as a general partner in any partnership, or any other
arrangement whereby a Party controls or has the right to control the Board of
Directors or equivalent governing body of a corporation or other entity, or the
ability to cause the direction of the management or policies of a corporation or
other entity. The Parties acknowledge that in the case of certain entities
organized under the laws of certain countries outside of the United States, the
maximum percentage ownership permitted by law for a foreign investor may be less
than fifty percent (50%), and that in such case such lower maximum percentage
shall be substituted in the preceding sentence; provided that such foreign
investor has the power to direct the management and policies of such entity. In
the case of Novartis, "Affiliate" shall specifically exclude the Novartis
Institutes for Tropical Diseases, Idenix Pharmaceuticals Inc. and any Person
that becomes an Affiliate of Novartis after the Effective Date for all purposes
under this Agreement; provided that, for the purposes of determining Net Sales
only, such excluded parties shall be deemed to be Affiliates unless they are the
end users of the Drug Product.

     1.3 "Auditor" shall mean an independent reputable and certified auditor to
be engaged by Avanir to conduct a review of Novartis' books and records
regarding the sales of the Drug Products after such auditor's approval by
Novartis, which approval shall be neither unreasonably withheld or delayed.

     1.4 "Avanir Intellectual Property" shall mean all Avanir Patents and Avanir
Know-How and Avanir's right, title and interest in and to Joint Intellectual
Property.

     1.5 "Avanir Know-How" shall mean all Know-How Controlled by Avanir relating
to the MIF Program, the Compounds and the Drug Products.

     1.6 "Avanir Patents" shall mean all Patents Controlled by Avanir relating
to the MIF Program, the Compounds or the Drug Products necessary or useful to
Novartis in the

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development and/or commercialization of the Compounds or the Drug Products. A
list of Avanir Patents is appended hereto as Annex 1 and will be updated
periodically to reflect additions thereto during the term of this Agreement.

     1.7 "Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in New York, New York, Basel, Switzerland or
Hamilton, Bermuda are authorized or required by law to remain closed.

     1.8 "Change In Control" shall mean any transaction which results in the
sale, merger, consolidation, transfer, or other reorganization of Avanir in
which substantially all of the assets of Avanir are transferred to a Third Party
with a market capitalization at the time in excess of $[***] or the resulting
entity with a market capitalization at the time in excess of $[***] which the
holders of Avanir's capital stock immediately prior to the transaction hold less
than a majority of the capital stock of the surviving entity after the
transaction.

     1.9 "Commercially Reasonable Efforts" shall mean the efforts and resources
normally used by Novartis and its Affiliates for a product with comparable sales
or sales potential, stage of development or development potential, and profit or
profit potential to the particular Compound or Drug Product.

     1.10 "Compound" shall mean any compound Controlled by Avanir that directly
interacts with macrophage migration inhibitory factor in vitro and/or in vivo,
including but not limited to that compound Controlled by Avanir known as [***].
The definition of Compound includes all its various chemical forms, including
derivatives, acids, bases, esters, salts, isomers, enantiomers, pro-drug forms,
metabolites, hydrates, solvates, polymorphs and degradants thereof in crystal,
powder or other form in existence as of the Effective Date or that arise during
the term of this Agreement.

     1.11 "Controlled" shall mean the legal authority or right of a Party hereto
to grant a license or sublicense of intellectual property rights to another
Party hereto, or to otherwise disclose proprietary or trade secret information
to such other Party, without breaching the terms of any agreement with a Third
Party, infringing upon the intellectual property rights of a Third Party, or
misappropriating the proprietary or trade secret information of a Third Party.

     1.12 "Data" shall mean any and all results, studies and information of any
type, including test results (including but not limited to pre-clinical and
human tests), and

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developmental, marketing, manufacturing and pharmaceutical information, whether
or not proprietary, and any related technical data or operating information,
regulatory dossier, submissions and translations with respect to any of the
foregoing, generated by or resulting or derived from the efforts of either Party
with respect to the Compounds or the Drug Products.

     1.13 "Development" or "Develop" shall mean activities associated with the
development of the Compounds and the Drug Products which are conducted by or at
the direction of Novartis and its Affiliates including but not limited to: (a)
manufacture, formulation and distribution of the Compounds and Drug Products for
clinical studies and commercial use; (b) planning, implementation, evaluation
and administration of preclinical research and development, animal studies,
human clinical trials, manufacturing process development and scale-up for the
commercial manufacture of the Compounds or the Drug Products; (c) preparation
and submission of Regulatory Filings; and (d) post-market surveillance of
approved drug indications, as required or agreed as part of a marketing approval
by any governmental regulatory authority.

     1.14 "Drug Product" shall mean any finished dosage form containing a
Compound as its active ingredient either alone or in combination with one or
more active or inactive ingredients and which is ready for human or animal
administration as a pharmaceutical.

     1.15 "FDA" shall mean the United States Food and Drug Administration, its
equivalent in another country in the Territory, or successor agencies thereto.

     1.16 "Field" shall mean all human and animal health-care applications
including, but not limited to, research, diagnosis, therapeutics, and
prophylaxis with respect to any Indication.

     1.17 "First Commercial Sale" shall mean the first sale of a Drug Product by
Novartis or an Affiliate or sublicensee of Novartis to a Third Party in a
country in the Territory following Regulatory Approval of such Drug Product in
that country or, if no such Regulatory Approval or similar marketing approval is
required, the date upon which such Drug Product is first commercially launched
in such country.

     1.18 "FTE" shall mean the equivalent of the work of one (1) scientist or
technical support person, full time for one (1) year, for or on behalf of
Avanir, which equates to a total of two thousand (2,000) hours per year of work,
directly related to the Research Program, excluding managerial activities. The
annual rate per FTE shall be $[***].

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     1.19 "Indication" shall mean a recognized disease or condition, sign or
symptom of a disease or condition, or symptom associated with a disease or
syndrome for which use of a Drug Product is approved, as would be identified for
example in the Drug Product's label under applicable FDA regulations or
equivalent thereof.

     1.20 "Initial Research Term" shall have the meaning set forth in Section
2.2.

     1.21 "Joint Intellectual Property" shall mean any and all: (i) Joint
Patents; and (ii) Know-How which are jointly made, conceived or reduced to
practice by Novartis, its Affiliates or others acting on its or their behalf on
the one hand, and Avanir, its Affiliates or others acting on its or their
behalf, on the other hand, in connection with any research, development or other
work relating to the Research Program, the Compounds or the Drug Products
performed under or in connection with this Agreement.

     1.22 "Joint Patents" shall have the meaning set forth in Section 8.3.

     1.23 "Joint Program Committee" or "JPC" shall have the meaning set forth in
Section 4.5.

     1.24 "Joint Research Committee" or "JRC" shall have the meaning set forth
in Section 2.4.

     1.25 "Know-How" shall mean all intellectual property, proprietary material
and information including but not limited to clinical and non-clinical data,
technical information, know-how, experience, inventions, discoveries, trade
secrets, compositions of matter and methods, whether currently existing or
developed or obtained during the course of this Agreement and whether or not
patentable or confidential, that are now or in the future become Controlled by a
Party or its Affiliates and that are necessary to use, research, develop, seek
Regulatory Approval, manufacture or sell, including, without limitation, various
chemical forms, formulations, combinations, back-ups, modes of delivery and
methods of use of the Compounds and/or the Drug Products.

     1.26 "Major Market Countries" shall mean the United States, France,
Germany, Italy, Spain, the United Kingdom and Japan.

     1.27 "MIF Program" shall mean Avanir's low molecular weight macrophage
migration inhibitory factor program composed of the Compounds, all assays and
biomarkers related to such Compounds which are Controlled by Avanir.

     1.28 "Net Sales" with respect to any Drug Product shall mean the gross
amount

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invoiced by or on behalf of Novartis and its Affiliates, licensees or
sublicensees for that Drug Product sold to Third Parties other than licensees or
sublicensees in bona fide, arm's-length transactions, [***], determined in
accordance with Novartis' standard accounting methods as generally and
consistently applied by Novartis and its Affiliates, but only to the extent they
actually pertain to the disposition of such Drug Product and are separately
billed:

     (i)    [***]

     (ii)   [***]

     (iii)  [***]

     (iv)   [***]

     (v)    [***]

     (vi)   [***]

     (vii)  [***]

     (viii) [***]

     (ix)   [***]

     (x)    [***];

     all as determined in accordance with Novartis' and its Affiliates' usual
and customary accounting methods, which are in accordance with International
Financial Reporting Standards as consistently applied at Novartis. Sales from
Novartis to its Affiliates shall be disregarded for purposes of calculating Net
Sales. Any of the items set forth above that would otherwise be deducted from
the invoice price in the calculation of Net Sales but which are separately
charged to Third Parties shall not be deducted from the invoice price in

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the calculation of Net Sales.

     Further:

     (a) In the case of any sale or other disposal of the Drug Product between
or among Novartis and its Affiliates, licensees and sublicensees, for resale,
Net Sales shall be calculated as above only on [***];

     (b) In the case of any sale which is not invoiced or is delivered before
invoice, Net Sales shall be calculated [***] or [***];

     (c) In the case of any sale or other disposal for value, such as barter or
counter-trade, of the Drug Product, or part thereof, other than in an
arm's-length transaction exclusively for money, Net Sales shall be calculated as
above on [***] or [***];

     (d) In the event the Drug Product is sold in a finished dosage form
containing a Compound in combination with one or more other active ingredients
(a "Combination Product"), the Net Sales of the Drug Product, for the purposes
of determining royalty payments, shall be determined by multiplying the Net
Sales (as defined above in this Section) of the Combination Product by the
fraction, A/(A+B) where A is [***] and B is [***]. In the event that such [***]
cannot be determined for both the Drug Product and the other product(s) in
combination, Net Sales for purposes of determining royalty payments shall be
agreed by the Parties based on the relative value contributed by each component,
such agreement shall not be unreasonably withheld.

     1.29 "Novartis Intellectual Property" shall mean all Novartis Patents and
Novartis Know-How made, developed or conceived by Novartis in the course of its
work pursuant to and during the term of this Agreement, and Novartis' and its
Affiliates' right, title and interest in and to Joint Intellectual Property.

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     1.30 "Novartis Know-How" shall mean all Know-How Controlled by Novartis or
its Affiliates (other than by virtue of the licenses granted to it and its
Affiliates hereunder) relating to the Compounds or the Drug Products.

     1.31 "Novartis Patents" shall mean all Patents Controlled by Novartis or
its Affiliates (other than by virtue of the licenses granted to it and its
Affiliates hereunder) relating to the Compounds or the Drug Products.

     1.32 "Novartis Submitted Compound" shall have the meaning set forth in
Section 2.8.

     1.33 "Parties" shall mean Avanir and Novartis and each individually shall
be a "Party".

     1.34 "Patents" shall mean all patent filings, utility model filings and
design filings, whether granted (issued), or not and all foreign counterparts of
any of the foregoing, including but not limited to patent applications,
continuations, continuations-in-part, additions, divisionals, provisionals or
any substitute applications, black box applications, registration applications,
supplementary protection certificate applications, and including granted
(issued) patents with respect to any of such application, including reissue
patents, re-examination patents, renewal patents, extensions including
supplementary protection certificates, confirmation patents or registration
patents and patents of addition.

     1.35 "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization or
government or political subdivision thereof.

     1.36 "Phase I Clinical Trial" means the first clinical study of a Drug
Product in humans.

     1.37 "Phase II Clinical Trial" means a clinical study of a Drug Product in
patients intended to demonstrate efficacy, safety and tolerability, as well as
to define the dosage regimen and dose range required for a product in a
designated indication.

     1.38 "Phase III Clinical Trial" means a clinical study of a Drug Product in
patients which protocol is designed to establish efficacy and safety of such
Product for the purpose of preparing and submitting a Regulatory Filing in a
particular country.

     1.39 "Proprietary Party" shall have the meaning set forth in Section 10.1.

     1.40 "Regulatory Approval" shall mean all authorizations by the appropriate

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governmental entity or entities necessary for commercial sale of a Drug Product
in that country including, without limitation and where mandatory, approval of
labeling, price, reimbursement and manufacturing.

     1.41 "Receiving Party" shall have the meaning set forth in Section 10.1.

     1.42 "Regulatory Filing" shall mean with respect to each Drug Product the
submission to the relevant governmental regulatory authority of any appropriate
regulatory application, and shall include, without limitation, any submission to
a regulatory advisory board, marketing authorization application, supplementary
application or variation thereof, or any equivalent applications.

     1.43 "Research Plan" shall have the meaning set forth in Section 2.3(a).

     1.44 "Research Program" shall mean research activities and development
activities undertaken under this Agreement in connection with the Research Plan.

     1.45 "Research Term" shall have the meaning set forth in Section 2.2.

     1.46 "Research Year" shall mean a twelve (12) month period during the term
of the Research Program commencing on April 1st of a given year, and ending on
March 31st of the following year. The first Research Year hereunder shall be
deemed to have commenced on April 1, 2005.

     1.47 "Sales Report" shall mean a written report or reports showing each of:
(a) the Net Sales of each Drug Product in each country in the world during the
reporting period by Novartis and each Affiliate and sublicensee; (b) the number
of Drug Products sold in each country in the world during the reporting period
by Novartis and each Affiliate and sublicensee, and if applicable, the average
sale price during the reporting period for each Drug Product in any combination
product; (c) the royalties, payable in United States Dollars, which shall have
accrued under Section 7.5 in respect of such sales and the basis of calculating
those royalties; (d) withholding taxes, if any, required by law to be deducted
in respect of any such sales; (e) the US Dollar and local currency Net Sales by
country; and (f) dispositions of the Drug Products other than pursuant to sale
for cash, the value of such non-cash consideration and the method used to
calculate the value of the non-cash consideration.

     1.48 "sPOC" shall mean the selection for the clinical phase of Development
by Novartis in a given Indication. The specific criteria used to determine sPOC
are set forth in the Research Plan.

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     1.49 "Submitted Drug Product" shall have the meaning set forth in Section
2.8.

     1.50 "Territory" shall mean all the countries in the world.

     1.51 "Third Party" shall mean any Person or entity which is not a Party or
an Affiliate of any Party to this Agreement.

     1.52 "United States Dollars" shall mean the legal tender of the United
States of America.

     1.53 "Valid Claim" shall mean a claim of any granted, unexpired Patent that
has not been revoked or held unenforceable or invalid by a decision of a court
or governmental agency of competent jurisdiction from which no appeal can be
taken, or with respect to which an appeal is not taken within the time allowed
for appeal, and that has not been disclaimed, denied or admitted to be invalid
or unenforceable through reissue, disclaimer or otherwise, and that has not been
lost through interference proceedings or by intentional or unintentional
abandonment.

     1.54 "Wind-Down Period" shall have the meaning set forth in Section 12.4.

                                   ARTICLE II

                                RESEARCH PROGRAM

     2.1 COMMENCEMENT

     The Research Program shall commence pursuant to the Research Plan as soon
as practicable after the Effective Date. The Joint Research Committee, as
defined below, shall direct the conduct of the Research Program and the Parties
shall collaborate in the conduct of the Research Program with the roles and
responsibilities specified in the Research Plan. The Joint Research Committee
shall review and coordinate the efforts of the Parties with respect to the
Research Program.

     2.2 TERM

     The Research Program will conclude two (2) years from the Effective Date
(the "Initial Research Term"), unless earlier terminated in accordance with the
provisions hereof. The Research Program may be extended for up to two (2)
additional one- (1-) year periods (each of such periods, along with the Initial
Research Term, a "Research Term"), upon agreement of the Parties, upon the
provision of written notice to Avanir not later than ninety

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(90) calendar days prior to the end of the then current Research Term. Upon
mutual agreement of the Parties, the Research Term may be extended for
additional periods.

     2.3 RESEARCH PLAN; RESEARCH DILIGENCE; SUBMISSION OF REPORTS

     (a) Novartis and Avanir will agree upon an overall research plan, which
shall outline the overall objectives of the Research Program, including general
work flow and deliverables for each of the Parties (the "Research Plan"). An
initial outline of the Research Plan shall be attached to this Agreement as
Annex 2. The Parties will agree upon the final Research Plan within sixty (60)
calendar days after the Effective Date. Thereafter, the Research Plan shall be
reviewed by the JRC as necessary, and at any other time upon the request of
either Party, and shall be modified as appropriate to reflect material
scientific or commercial developments. Any disagreements between the Parties
with respect to any modification of the Research Plan will be resolved in
accordance with Section 2.7 of this Agreement.

     (b) Each of Avanir and Novartis and their respective Affiliates shall use
commercially reasonable efforts to fulfill their respective obligations under
the Research Plan.

     (c) Within at least ten (10) calendar days prior to each scheduled
quarterly meeting, each of the Parties shall provide a report to the JRC
detailing its progress with respect to the Research Program.

     2.4 JOINT RESEARCH COMMITTEE

     Upon execution of this Agreement, Avanir and Novartis will establish a
Joint Research Committee ("JRC"), which shall consist of an equal number of
executives or scientists as may be designated by each Party from time to time.
The JRC shall initially have six (6) members with each of Novartis and Avanir
having one (1) vote. If the JRC chooses to designate a Committee Chair, the
Parties shall alternate responsibility for chairing the meetings of the JRC,
beginning with Novartis. The JRC shall hold its first meeting within thirty (30)
calendar days after the Effective Date. Thereafter, the JRC shall meet
quarterly, or with such other frequency as may be established by the JRC (but in
no event less often than three (3) times per year), and at such time and
location as may be established by the JRC, for the following purposes:

     (a) Provide general oversight of the Research Program;

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     (b) Periodically review the overall goals and strategy of the Research
Program and consider changes to the Research Plan;

     (c) Prioritize the allocation of resources dedicated to the Research
Program, determine the number of FTEs required, and determine if Third Party
contractors should be engaged in connection with the Research Program; provided
that: (i) the foregoing rights of the JRC shall not be exercised to divest
Avanir of its rights to perform the services and conduct the activities set
forth in the Research Program; and (ii) the selection of Third Party contractors
and the terms of any engagement shall be in the sole discretion of [***];

     (d) Review for acceptance any compound(s) Controlled by Novartis to be
included in the Research Program pursuant to Section 2.8, if any; and

     (e) Resolve any disagreement between the Parties and discuss and resolve
any other relevant issues submitted to it, in accordance with the dispute
resolution procedure set forth in Section 2.7 below.

     The JRC may meet via telephone or video conference or in person; provided,
however, no less than one meeting each year shall be in person. In person
meetings shall, as a general matter, alternate between the Parties' (or, in the
case of Novartis, its Affiliates') sites in the United States. Each Party shall
be entitled to bring visitors to participate in meetings of the JRC; provided
that such visitors are reasonably acceptable to the other Party and subject to
obligations of confidentiality and non-use to the inviting Party no less
burdensome than as set forth in Article X. The Party providing the Chair of the
meeting shall prepare and circulate an agenda for comment and approval by the
other Party for the upcoming meeting and shall be responsible for taking minutes
at the meeting. Written minutes reflecting the conduct of each meeting of the
JRC shall be prepared and circulated among all members of the JRC promptly
following the meeting to which they relate. Minutes shall be reasonably detailed
and shall summarize all matters discussed by the JRC, state any conclusions or
determinations reached by the JRC and summarize the reasons for any such
conclusions or determinations. In addition, a Party may call a meeting of the
JRC upon reasonable notice to the other Party, such notice requirement being
deemed waived by a Party's attendance and participation. Conversations between
members of the JRC shall not be deemed to be meetings thereof absent a call for
a meeting, whether mutual or unilateral or such meeting being otherwise
scheduled. Minutes shall become official only upon their

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unanimous approval by the members of the JRC who attended the meeting reflected
in the minutes, and any dispute regarding the minutes shall not be subject to
resolution pursuant to Section 2.7.

     The JRC shall have the authority to create project teams for the Research
Program, each of which will meet (via telephone or video conference or in
person) no less frequently than monthly, and which will report to the JRC on its
progress on activities performed on the Research Program. The JRC shall also
have the authority to create additional subcommittees as needed. Notwithstanding
the foregoing, the JRC shall not have the authority to amend or modify the terms
of this Agreement.

     2.5 EXCHANGE OF INFORMATION; USE OF TECHNOLOGY

     (a) Avanir and Novartis and their respective Affiliates will share
information with the JRC necessary to facilitate mutual understanding of the
status of the Research Program and decision-making in connection therewith, as
soon as it is available.

     (b) Neither Avanir nor Novartis nor their respective Affiliates shall use
information disclosed by the other Party (excluding information which is no
longer subject to confidentiality restrictions under Article X by reason of the
exceptions set forth in Section 10.2(a), (b) and (c)) for any purpose, including
the filing of Patents containing such information without the other Party's
consent (which shall not be unreasonably withheld), other than for carrying out
the Research Program or discharging its responsibilities under this Agreement.

     (c) Except as otherwise set forth in this Agreement, neither Party shall be
entitled to information from the other Party concerning know-how, information or
technology discovered or developed by that Party outside the Research Program or
the Development; except that each Party must disclose to the JRC as soon as
practicable any and all know-how, information or technology which it discovers
or develops regarding any Joint Intellectual Property.

     (d) Neither Party will apply its rights in any information or technology or
the use thereof (and will use reasonable efforts to prevent its licensees, if
any, from applying similar rights acquired by license) to block or impede the
use of such information or technology as permitted hereunder by the other Party
or its assignees or licensees.

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     2.6 PRIMARY DATA ACCESS

     Each Party shall grant to the other and its Affiliates access to all data
(including, without limitation, all primary data and data contained in
laboratory notebooks) that directly relates to the MIF Program and/or is
generated as a result of performing its obligations under the Research Program.
Each Party and its Affiliates shall have the right, at reasonable intervals,
upon reasonable notice, and at its own expense, to have authenticated copies of
such data made to use and transfer as permitted hereunder.

     2.7 DECISIONS OF THE JRC; RESOLUTION OF DISPUTES

     The JRC shall make decisions unanimously where possible, but at least by
majority vote. If the JRC is unable to decide or resolve unanimously any matter
properly presented to it for action, then at the written request of either
Party, the issue shall be referred to the President of the Novartis Institutes
for BioMedical Research, Inc. (an Affiliate of Novartis) and the Chief Executive
Officer of Avanir. Such officers of the Parties, or their designees, will meet
promptly thereafter and shall negotiate in good faith to resolve such issue for
up to sixty (60) days. In the event of a deadlock, [***] shall have the deciding
vote. No such decisions shall obligate Avanir to spend money or devote resources
outside the previously agreed to in the Research Plan.

     2.8 POTENTIAL INCLUSION OF NOVARTIS COMPOUNDS TO THE RESEARCH PROGRAM

     From time to time during the Research Term, Novartis shall submit to the
JRC, for inclusion in the Research Program, any compound(s) Controlled by
Novartis (other than compounds licensed in or acquired by Novartis or its
Affiliates after the Effective Date) that (a) Novartis either has tested prior
to the Effective Date of this Agreement, or chooses, in its sole discretion, to
test using [***] and (b) [***]. Submission of such compound(s) to the JRC shall
be made in writing specifying in reasonable detail the compound(s) to be
included, and the acceptance by the JRC of such compound(s) shall be documented
in the minutes of the JRC. Each such compound that is accepted for inclusion by
the JRC (each a "Novartis Submitted Compound") and a drug product which contains
such Novartis Submitted Compound (each, a "Submitted Drug Product") shall be
treated as a Compound and a Drug Product, respectively, for the purposes of this
Agreement. For the avoidance of doubt: (i) the decision to submit any
compound(s) Controlled by Novartis for inclusion in the Research Program
pursuant to this Section 2.8 shall be in Novartis' sole and absolute discretion.

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                                   ARTICLE III

                                     LICENSE

     3.1 GRANT TO NOVARTIS

     Subject to the terms and conditions of this Agreement, Avanir hereby grants
to Novartis and its Affiliates a worldwide, exclusive license under the Avanir
Intellectual Property (with the right to sublicense) to research, develop, have
developed, make, have made, use, distribute, have distributed, export, have
exported, import, have imported, promote, have promoted, market, have marketed,
sell, have sold and offer to sell the Compounds and the Drug Products whether in
monotherapy or in combination with other pharmaceutical products, in the Field
in the Territory. Subject to the provisions of this Agreement, Avanir shall have
the right to use Avanir Intellectual Property and the Joint Intellectual
Property solely for research purposes and to comply with its obligations under
this Agreement. Novartis may subcontract its rights to manufacture the Compounds
or the Drug Products to a Third Party and may contract with Third Parties of its
choice to conduct or assist in the conduct of human clinical trials and the
evaluation of trials data or for any commercialization purposes. Novartis shall
be responsible to Avanir for the performance of any of its sublicensees or
subcontractors. Novartis shall not permit any subcontractors or sublicensees to
use Avanir Intellectual Property without provisions safeguarding confidentiality
at least equivalent to those provided in Article X (Confidentiality).

     3.2 INFORMATION TRANSFER

     From time to time after the Effective Date, and as determined by the JRC:
(i) Avanir shall deliver to Novartis free of charge material information
Controlled by it and possessed or readily available to Avanir relating to the
MIF Program and the Compounds and not previously provided to Novartis or its
Affiliates; and (ii) Novartis shall deliver to Avanir free of charge material
information Controlled by it and possessed or readily available to Novartis
relating to small molecule antagonists of macrophage migration inhibitory
factors not previously provided to Avanir. The information to be delivered shall
include copies of all Patents, Know-How, copyrights, copyright registrations,
and applications thereof, and all clinical or non-clinical data relating to the
MIF Program and macrophage migration inhibitory factors, as the case may be, and
the Compounds and all other manifestations of the intellectual property embodied
in the Compounds whether in human or machine readable form, all of which
delivered by Avanir shall be treated as confidential Avanir information pursuant
to Article X and all of which delivered by Novartis shall be treated as
confidential Novartis information pursuant to Article X.

                                       16
<PAGE>
     3.3 COMPOUND SUBSTANCE TRANSFER

     As soon as practicable after the Effective Date, Avanir shall deliver to
Novartis free of charge such amounts of the Compounds, cell lines and other
material as are available to Avanir, and are not required otherwise for use by
or on behalf of Avanir in connection with the Research Plan or Development. Upon
the successful testing of a Compound in all of the in vivo models set forth in
the Research Plan, Avanir shall use commercially reasonable efforts to deliver
to Novartis approximately [***] of such Compound (at [***]). All such substances
described in this Section 3.3 shall be accompanied by appropriate certificates
of analysis to the extent they exist.

                                   ARTICLE IV

                                   DEVELOPMENT

     4.1 DEVELOPMENT RESPONSIBILITIES

     As soon as practicable after the achievement of the sPOC milestone
described in Section 7.4(a) and Annex 2 in connection with a particular
Compound, Novartis or its Affiliates shall commence the Development of such
Compound. Novartis or its Affiliates shall have sole authority and
responsibility for, and bear the cost of conducting, the Development with
respect to the Compound and the resulting Drug Product(s).

     4.2 REGULATORY MATTERS

     Novartis or its Affiliates shall have sole discretion concerning the
regulatory strategy and decision-making for all Compounds and Drug Products. All
Regulatory Filings shall be made by Novartis or its Affiliates. Novartis or its
Affiliates shall be responsible for all required Regulatory Approvals, including
formulary or marketing approvals. All Regulatory Approvals shall be held in the
name of Novartis or its Affiliates. Novartis or its Affiliates shall be the
principal interface with and shall otherwise handle all interactions with
regulatory agencies with respect to any Compounds and Drug Products. Novartis or
its Affiliates shall have the right to cross-reference information and
regulatory filings arising out of development work which previously has been
conducted by Avanir and its Affiliates and licensees, for the purpose of
Regulatory Filings hereunder. Avanir shall assist Novartis

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<PAGE>
and its Affiliates and take all actions as reasonably requested by Novartis or
its Affiliates to enable Novartis or its Affiliates to comply with any law
applicable to the Compounds or the Drug Products, and Novartis or its Affiliates
shall reimburse Avanir for its out-of-pocket expenses incurred in connection
with such assistance.

     4.3 DEVELOPMENT OBLIGATIONS; DEVELOPMENT REPORTS

     Novartis or its Affiliates shall use Commercially Reasonable Efforts to
develop the Compounds into Drug Products. Novartis or its Affiliates shall
promptly notify Avanir in writing if it should determine that development of the
Compounds or the Drug Products is not technically feasible or commercially
justifiable, specifying in reasonable detail the reasons for that determination.
Novartis or its Affiliates shall prepare and submit to Avanir, on a semi-annual
basis, reports which set forth in reasonable detail: (a) the progress of the
Development and the results of work performed during the preceding semi-annual
period including a description of any key scientific discoveries as of the date
of the report; and (b) Development activities that are ongoing and planned for
the following semi-annual period, including a current schedule of anticipated
events or milestones, including those set forth in Section 7.2; (c) the
anticipated and actual market introduction dates for each Compound and Drug
Product; and (d) any sublicensing activity under this Agreement. Novartis or its
Affiliates will promptly report to Avanir the date of the first sale of a
Compound or Drug Product in each country. In the event of a Change In Control of
Avanir, Novartis and its Affiliates shall no longer be obligated to provide the
development reports set forth above to Avanir.

     4.4 INDICATIONS

     Novartis or its Affiliates shall have the sole discretion to determine the
Indication(s) for which it will develop the Compounds and the Drug Products.

     4.5 JOINT PROGRAM COMMITTEE

     (a) Within sixty (60) calendar days after the first achievement of the
[***] described in Section 7.4(a) and Annex 2, the Parties will establish a
Joint Program Committee ("JPC"), which shall consist of at least two (2)
representatives from each Party which may be designated by such Party from time
to time. Upon the establishment of the JPC with respect to a particular
Compound, the JRC shall have no further authority with respect to such Compound.
Each Party shall be entitled to bring visitors to participate in meetings of the
JPC; provided that such visitors are reasonably acceptable to the other Party

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<PAGE>
and subject to obligations of confidentiality and non-use to the inviting Party
no less burdensome than as set forth in Article X. The JPC shall meet quarterly,
or with such other frequency as may be established by the JPC (but in no event
less often than two (2) times per year), and at such times and locations as may
be established by the JPC, for the sole purpose of providing a forum for
Novartis to seek input from, and provide updates to Avanir with respect to the
Development of Compounds and/or the commercialization of Drug Products, such
input to be given due consideration by Novartis. The JPC shall have no
decision-making authority with respect to the Development of Compounds and/or
the commercialization of Drug Products.

     (b) Each Party shall bear all expenses incurred by its delegates in
connection with their participation on the JPC. Meetings may be held in person,
by video conference or by teleconference, as the JPC may determine. In person
meetings shall, as a general matter, alternate between the Parties' (or, in the
case of Novartis, its Affiliates') sites in the United States. The JPC shall not
have the authority to amend or modify the terms of this Agreement. The JPC shall
be dissolved immediately upon provision of a written notice from Novartis to
Avanir in the event of a Change In Control of Avanir.

                                    ARTICLE V

                            MANUFACTURING AND SUPPLY

     5.1 COMPOUNDS AND DRUG PRODUCTS

     Novartis and its Affiliates shall have the exclusive worldwide right to
manufacture, distribute and supply (or have manufactured, distributed or
supplied) all Compounds and Drug Products as necessary for the conduct of the
Development and for all commercial purposes. Novartis and its Affiliates may
subcontract manufacturing in its sole discretion.

     5.2 FORMULATION AND PACKAGING

     In all events, Novartis and its Affiliates will be responsible for
formulation, packaging and labeling including but not limited to package inserts
and leaflets of the Drug Products.

                                       19
<PAGE>
                                   ARTICLE VI

                                COMMERCIALIZATION

     6.1 MARKETING AND PROMOTION

     Consistent with Section 3.1, Novartis and its Affiliates shall have the
exclusive worldwide right to distribute, have distributed, export, have
exported, import, have imported, promote, have promoted, market, have marketed,
sell, have sold and offer to sell the Drug Products in the Territory.

     6.2 RECORDING OF SALES

     Novartis and its Affiliates shall record all sales of the Drug Products.
Pricing of the Drug Products will be determined by Novartis and its Affiliates
in their sole discretion.

     6.2 USE OF COMMERCIALLY REASONABLE EFFORTS

     Novartis and its Affiliates shall use Commercially Reasonable Efforts and
sound and reasonable business practices and judgment to effect the introduction
of Drug Products into the Major Market Countries as soon as reasonably
practicable. Novartis or its Affiliates shall promptly notify Avanir if it shall
determine that the marketing and sale of a Drug Product in any Major Market
Country is not commercially reasonable or economically profitable or if for
other unforeseen reasons further commercial support of a Drug Product in any
country is no longer prudent or practical.

                                   ARTICLE VII

                                    PAYMENTS

     7.1 UP-FRONT PAYMENT

     Upon the receipt by Novartis of a corresponding invoice from Avanir,
Novartis shall pay Avanir $2.5 million within ten (10) business days after the
Effective Date.

     7.2 STAFFING AND RESEARCH SUPPORT PAYMENTS

     Novartis or its Affiliates will fund between [***] and [***] Avanir FTEs in
each particular Research Year, with the exact number of FTEs to be determined by
the JRC. The JRC shall determine the manner in which such FTEs shall be
allocated under the Research Program. The annual rate per FTE shall be $[***].
The FTEs shall be funded in support of the Research Program under this
Agreement.

     Payments due for each Research Year shall be made by Novartis or its
Affiliates to Avanir quarterly in advance on or before April 1, July 1, October
1, and January 1 of each

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<PAGE>
Research Year except that the quarterly payment due April 1, 2005 for the first
Research Year shall be made within thirty (30) calendar days after the Effective
Date. All payments shall be made without deduction for withholding or other
similar taxes, in United States Dollars to the credit of such bank account as
may be designated by Avanir in writing to Novartis. Any payments which fall due
on a date which is a legal holiday in Hamilton, Bermuda or Basel, Switzerland
may be made on the next following day which is not a legal holiday in Hamilton,
Bermuda or Basel, Switzerland.

     7.3 RECORDS

     Avanir shall keep accurate records and books of accounts, in accordance
with the Accounting Standards, containing all data reasonably required for the
calculation and verification of FTEs employed by, or equivalents supplied by,
Avanir in accordance with the Research Plan.

     At Novartis' reasonable advance written request, Avanir shall make those
records available, no more than once in a calendar year, during reasonable
working hours, for review by a recognized independent accounting firm acceptable
to both parties, at Novartis' expense, for the sole purpose of verifying the
accuracy of those records in the calculation of FTEs involved in the Research
Program. Novartis shall use commercially reasonable efforts to cause the
accounting firm to retain all such information in confidence.

     In the event of a negative difference between the average number of FTEs
stated to be involved in the Research Program and the number of FTEs actually
employed, the amount previously advanced to Avanir and attributable to any such
negative difference shall be due and payable to Novartis within thirty (30) days
of its receipt of the accounting firm's report. If the negative difference is
more than [***] in any Research Year, then Avanir shall also pay the reasonable
costs of the independent accountant employed by Novartis in the review.

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<PAGE>
     7.4 MILESTONE PAYMENTS

     (a) Novartis or its Affiliates shall notify Avanir within thirty (30)
calendar days after the achievement of the milestone events set forth below with
respect to the Compounds or the Drug Products, and Novartis or its Affiliates
shall pay to Avanir the amounts set forth below in accordance with Section
16.18:

<TABLE>
<S>     <C>
[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]
</TABLE>

*    In order to be considered as a second or third Regulatory Approval for the
     purposes of the milestones set forth above, a Regulatory Approval must be
     for an Indication in a different therapeutic area than the other Regulatory
     Approvals for such Drug Product. For the avoidance of doubt, the second
     Regulatory Approval for a Drug Product must be for an

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<PAGE>
Indication in a different therapeutic area from the first Regulatory Approval
for such Drug Product, and the third Regulatory Approval must be for an
indication in a different therapeutic area from the first and second Regulatory
Approval for such Drug Product. By way of example, [***], [***] and [***] would
be considered separate therapeutic areas for the purposes of this Agreement, but
an Indication of combination therapy in [***] would not be considered as a
separate therapeutic area.

     (b) None of the payments listed above shall be payable more than once, and
each shall be payable at the first achievement of a milestone event for the
Compound or Drug Product and shall not be payable again if subsequently a
Combination Product, back-up or another Compound would achieve the same
milestone event.

     (c) All payments shall be made by wire transfer in United States Dollars to
the credit of such bank account as may be designated by Avanir in this Agreement
or in writing to Novartis. Any payment which falls due on a date which is not a
Business Day in Hamilton, Bermuda or Basel, Switzerland may be made on the next
succeeding Business Day in Hamilton, Bermuda or Basel, Switzerland. In the event
that any payment due hereunder is not received by Avanir when due, Novartis
shall pay to Avanir interest charges at a rate equal to the [***]. Such interest
shall be calculated from the date that payment was due until actually received
by Avanir.

     7.5 ROYALTY PAYMENTS

     (a) On a Drug Product by Drug Product basis, with respect to those
countries in which an Avanir Patent with a Valid Claim exists, Novartis or its
Affiliates shall pay to Avanir the following royalties in respect of such
countries:

[***] percent ([***]%) on annual Net Sales up to $[***]

[***] percent ([***]%) on that amount of annual Net Sales that is greater than
$[***] but less than or equal to $[***]

[***] percent ([***]%) on that amount of annual Net Sales greater than $[***]

     (b) In the event that Novartis or its Affiliates determines in its sole
discretion (but only after consultation with Avanir), that it would be necessary
or useful to acquire rights

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<PAGE>
from one or more Third Parties in order to sell a Drug Product in a country,
then [***] percent ([***]%) of the royalty payable to such Third Party in such
country shall be deductible from the royalties payable to Avanir under this
Agreement. In no event shall this deduction cause the amounts to be paid to
Avanir to be less than [***] percent ([***]%) of the amount otherwise payable to
Avanir pursuant to Section 7.5(a) or Section 7.5(c), as the case may be. In the
event that the amount Novartis or its Affiliates is entitled to deduct hereunder
exceeds the amount of any individual royalty payment due to Avanir, Novartis or
its Affiliates shall be entitled to deduct amounts from any subsequent
payment(s) until the entire amount to which Novartis or its Affiliates is
entitled to deduct has been so deducted.

     (c) On a Drug Product by Drug Product basis, with respect to those
countries in which no Avanir Patents with a Valid Claim exist, Novartis shall
pay to Avanir royalties at [***] percent ([***]%) of the rates set forth in
Section 7.5(a), as reduced by Section 7.5(b), if applicable, in consideration of
Avanir Know-How; provided, however that, should a generic version of a Drug
Product be sold by a Third Party in the same country as a Drug Product, then the
royalty payments set forth in this Section 7.5 for such Drug Product shall
cease.

     (d) On a country-by-country basis, royalties as outlined in this Section
7.5 shall be payable for the term of this Agreement as set out in Article XII
(Term and Termination), on a quarterly basis, within sixty (60) calendar days
after the end of each calendar quarter, and in accordance with Section 16.18.

     7.6 SALES REPORTS

     (a) During the term of this Agreement and after the First Commercial Sale
of a Drug Product, Novartis or its Affiliates shall furnish or cause to be
furnished to Avanir on a quarterly basis a Sales Report covering each calendar
quarter (each such calendar quarter being sometimes referred to herein as a
"reporting period"). With respect to sales of Drug Products invoiced in United
States Dollars, the Net Sales amounts and the amounts due to Avanir hereunder
shall be expressed in United States Dollars. With respect to sales of Drug
Products invoiced in a currency other than United States Dollars, the Net Sales
and amounts due to Avanir hereunder shall be expressed in the domestic currency
of the Party making the sale, together with the United States Dollar equivalent
of the amount payable to Avanir, calculated using the then-current Novartis
standard exchange rate methodology applied in its external reporting (which is
ultimately based on official rates such as Reuters and the European Central
Bank) for the conversion of foreign currency sales into United States

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<PAGE>
Dollars. Novartis shall furnish to Avanir appropriate evidence of payment of any
tax or other amount required by applicable laws or regulations to be deducted
from any royalty payment, including any tax or withholding levied by a foreign
taxing authority in respect of the payment or accrual of any royalty. Sales
Reports shall be due on the thirtieth (30th) Business Day following the close of
each reporting period. Novartis or its Affiliates shall keep accurate records in
sufficient detail to enable the amounts due hereunder to be determined and to be
verified by Avanir.

     (b) If at any time legal restrictions prevent the prompt remittance of any
payments with respect to any country of the Territory where a Drug Product is
sold, Novartis or its Affiliates or its sublicensees shall convert the amount
owed into US Dollars and remit payment from another source of funds.

     7.7 AUDIT

     (a) Avanir shall have the right for a period of three (3) years after
receiving any report or statement with respect to royalties due and payable to
appoint an Auditor to inspect the relevant records of Novartis or its Affiliates
to verify such reports, statements, records or books of accounts, as applicable.
Before beginning its audit, the auditor shall execute an undertaking reasonably
acceptable to Novartis by which the Auditor shall keep confidential all
information reviewed during such audit. The auditor shall have the right to
disclose to Avanir its conclusions regarding any payments owed to Avanir.

     (b) Novartis and its Affiliates shall keep complete and accurate books and
records regarding the sales of Drug Products in sufficient detail to enable the
payments due to Avanir hereunder to be determined. Novartis and its Affiliates
shall retain the books and records with respect to any annual accounting periods
for three (3) years after the date of the last entry for such annual accounting
period and during any extended period during the pendency of any controversy.
Novartis or its Affiliates shall make its records available for inspection by
the Auditor during regular business hours at such place or places where such
records are customarily kept, upon receipt of reasonable advance notice from
Avanir, solely to verify the accuracy of Novartis' or its Affiliates' sales
reports, payments records or books of accounts and Novartis' or its Affiliates'
compliance in other respects with this Agreement. Such inspection right shall
not be exercised more than once in any calendar year nor more frequently than
once with respect to records covering any specific period of time, except in the
event of accounting changes or restatements by Novartis or its Affiliates
directly related

                                       25
<PAGE>
to a Drug Product and limited to any specific country changes or restatements.
Avanir agrees to hold in strict confidence all information received and all
information learned in the course of any audit or inspection, except to the
extent necessary for such Avanir to reveal such information in order to enforce
its rights under this Agreement or if disclosure is required by law, regulation
or judicial order.

     (c) [***] shall pay for such inspections, as well as its own legal expenses
associated with enforcing its rights with respect to any payments hereunder,
except that in the event there is any upward adjustment in aggregate amounts
payable for any year shown by such inspection of more than [***] percent
([***]%) of the amount paid, [***] shall pay for such inspection.

                                  ARTICLE VIII

                              INTELLECTUAL PROPERTY

     8.1 NOVARTIS INTELLECTUAL PROPERTY

     (a) All Novartis Intellectual Property shall be the property of Novartis or
its Affiliates, and Novartis or its Affiliates shall be the sole owner of such
Novartis Intellectual Property, other than that licensed hereunder from Avanir.

     (b) Novartis will be responsible for, and shall bear all expenses incurred
in, preparing, filing, prosecuting and maintaining all Novartis Patents.

     (c) Avanir undertakes at the reasonable request and the expense of Novartis
or its Affiliates to sign, or have signed, any and all documents necessary in
connection with the filing, prosecution, maintenance, extension and enforcement
of the Novartis Patents and to take such other necessary actions as Novartis or
its Affiliates may reasonably request from Avanir in connection with the
Novartis Patents.

     (d) Novartis or its Affiliates shall keep Avanir apprised of any activities
related to the Novartis Patent Rights by providing Avanir with copies of all
official actions, amendments and responses, which affect the scope of any
claims, with respect to the preparation, filing, prosecution and maintenance of
the Novartis Patents, and Novartis or its Affiliates shall take into account
Avanir's comments with respect to such activities. Other than reasonably
considering Avanir's comments, Novartis or its Affiliates shall have sole
discretion with respect to the preparation, filing, prosecution and maintenance
of the

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<PAGE>
Novartis Patents.

     8.2 AVANIR INTELLECTUAL PROPERTY

     (a) All Avanir Intellectual Property whether or not patentable, will be the
property of Avanir, and Avanir shall be the sole owner of such Avanir
Intellectual Property.

     (b) Avanir shall be responsible for, and Novartis shall bear all reasonable
expenses incurred in, preparing, filing, prosecuting and maintaining the Avanir
Patents. For the purposes of this Section 8.2, Novartis shall only bear such
expenses in the event that: (i) in the case of a new patent application, the
Parties have agreed upon the filing of such new patent application and its
scope; (ii) the Parties have agreed, before filing, upon any country variant in
case of any foreign filing which is due during the term of this Agreement; (iii)
in the case of payments to patent agents employed by Avanir or its Affiliates,
Novartis has received the current fee sheet for such patent agent; and (iv)
Avanir has informed Novartis promptly upon becoming aware of any extraordinary
costs to be spent in patent prosecution or patent maintenance in any country,
including but not limited to costs in appeal proceedings, opposition
proceedings, costs for the filing of divisional applications, claim fees, and
the like, and Novartis has agreed to pay such costs in advance, which agreement
shall not be unreasonably withheld or delayed.

     (c) Novartis and its Affiliates undertake at the reasonable request of
Avanir to sign, or have signed, any and all documents necessary in connection
with the filing, prosecution, maintenance, extension and enforcement of the
Avanir Patents and to take such other necessary actions as Avanir may reasonably
request from Novartis or its Affiliates in connection with the Avanir Patents.

     (d) Avanir shall keep Novartis apprised of any activities related to the
Avanir Patent Rights by providing Novartis: (i) with a draft of new applications
and foreign filing texts at least ten (10) business days before the intended
filing; (ii) promptly with copies of all official actions, amendments and
responses, which affect the scope of any claims; (iii) with foreseen amendments
and responses to official actions which affect the scope of any claim at least
five (5) business days before the action due date. Avanir shall take into
account Novartis' or its Affiliates' comments with respect to such activities.

     (e) On each six-month anniversary of the Effective Date, Avanir shall
update Novartis on the status of all Patent filings indicated on Annex 1,
including information on the country particulars (filing date, filing number) of
each Patent, each foreign filing

                                       27
<PAGE>
equivalent, and the corresponding Patent status (pending, granted, opposed,
under appeal, (un)intentionally abandoned, etc.). Additionally, Avanir shall
notify Novartis of any new Patent applications comprising Avanir Intellectual
Property filed in any country promptly after such Patent application is filed.

     8.3 JOINT INTELLECTUAL PROPERTY

     (a) Joint Intellectual Property and all Patents claiming joint inventions
shall be owned jointly by Novartis and Avanir, and such Patents shall constitute
"Joint Patents". Joint inventorship shall be determined in accordance with the
rules of inventorship under the patent laws of the United States.

     (b) The Parties shall determine by mutual agreement which Party shall be
responsible for the filing, prosecution and maintenance of Joint Patents on a
case-by-case basis.

     (c) In the event that a Party responsible for the filing, prosecution and
maintenance of any patent filing within Joint Patents (the "responsible Party")
desires to abandon such patent filing, or if the responsible Party declines
responsibility for such patent filing, the responsible Party shall notify
promptly the other Party (and in any event not less than sixty (60) calendar
days prior to the deadline for taking appropriate action with respect to such
Joint Patent). If the other Party believes that the Joint Patent in question
should be filed, prosecuted and/or maintained, it shall inform the responsible
Party of its belief and the Parties will negotiate in good faith to find a
mutually acceptable course of action.

     (d) Novartis shall bear all reasonable expenses incurred in preparing,
filing, prosecuting and maintaining the Joint Patents. In the event that Avanir
has been determined to be the Party responsible for the filing, prosecution and
maintenance of Joint Patents, for the purposes of this Section 8.3, Novartis
shall only bear such expenses in the event that: (i) in the case of a new patent
application the Parties have agreed upon the filing of a new patent application
and its scope; (ii) in the case of a foreign filing decision the Parties have
agreed upon any country variant in case of any foreign filing which is due
during the term of this Agreement; (iii) in the case of payments to patent
agents employed by Avanir or its Affiliates, Novartis has received the current
fee sheet for such patent agent; and (iv) in the case of extraordinary costs
Avanir has informed Novartis promptly upon becoming aware of any extraordinary
costs to be spent in patent prosecution or patent maintenance in any country,
including but not limited to costs in appeal proceedings, opposition
proceedings,

                                       28
<PAGE>
costs for the filing of divisional applications, claim fees, and the like and
Novartis has agreed to pay such costs in advance, which agreement shall not be
unreasonably withheld or delayed.

     8.4 INFRINGEMENT

     (a) If either Party becomes aware of any activity that such Party believes
represents an infringement of the claims of the Avanir Intellectual Property or
the Novartis Intellectual Property, the Party obtaining such knowledge shall
promptly advise the other in writing of all relevant facts and circumstances
pertaining to the potential infringement. Novartis and Avanir shall thereafter
consult and cooperate fully to determine a course of action, including but not
limited to, the commencement of legal action to terminate any infringement of
the Avanir Intellectual Property or the Novartis Intellectual Property.

     (b) Novartis or its Affiliates shall have the first right, but not
obligation, to initiate and prosecute such legal proceedings related to Novartis
Intellectual Property, and Avanir shall have the first right, but not
obligation, to initiate and prosecute such legal proceedings related to Avanir
Intellectual Property, each at its own expense and in its own name, and to
control the defense of any declaratory judgment action relating to its
Intellectual Property; provided that no settlement shall be entered into by such
Party without the written consent of the other Party if such settlement would
materially affect the other Party's interests. Each Party shall cooperate with
the other Party in such effort, including being joined as a party to such action
if necessary.

     (c) If the Party which is entitled to firstly pursue the defense, does not
succeed, within ninety (90) calendar days after receiving notice from the other
Party of a potential infringement or within sixty (60) calendar days after
providing the other Party with notice of such infringement, either: (i) in
terminating such infringement; or (ii) in instituting an action to prevent
continuation thereof, or if the Party notifies the other Party that it does not
plan to defend against or terminate the infringement or to institute any such
action, then the other Party shall have the right to do so at its own cost and
expense. Each Party shall cooperate with the other Party in such effort,
including being joined as a party to such action if necessary.

     (d) In addition, each Party shall have the right to join in any action
against infringement brought in accordance with this Section 8.4 if necessary in
order to assert the damages incurred by such Party as a result of the alleged
infringement; provided that: (i) the

                                       29
<PAGE>
foregoing shall not limit or restrict in any way the rights of the Party
controlling such action as determined in accordance with this Section 8.4 from
exercising such control in its discretion; (ii) in the event Avanir joins
Novartis in the defense of an infringement action, Avanir may elect to
participate up to [***] percent ([***]%) of the total out-of-pocket cost and
expense of Novartis and Avanir and consequently share to the same proportion in
any award; and (iii) in the event Novartis joins Avanir in the defense of an
infringement action, Novartis may elect to participate up to [***] percent
([***]%) of the total out-of-pocket cost and expense of Novartis and Avanir and
consequently share to the same proportion in any award. In the event that Avanir
decides not to join Novartis by way of participating in paying for out-of-pocket
costs and expenses, any recovery by Novartis (after reimbursement of its
out-of-pocket costs and expenses), which is intended as a reimbursement for
[***] as a result of such infringement shall be treated as [***] for purposes of
this Agreement. If Avanir pursues any such matter after Novartis declines to do
so, any recovery shall belong to Avanir alone.

     (e) The costs and expenses (including attorneys' fees) of any action
against an infringement brought in accordance with this Section shall be borne
by the Party controlling the infringement action, unless stated otherwise in
this Article VIII.

     8.5 UPDATING

     Each Party shall keep the other reasonably informed of developments in any
action or proceeding relating to the potential infringement of the claims of a
Patent relating to the Compounds or the Drug Products including, to the extent
permissible by law, the state of any settlement negotiations and the terms of
any offer related thereto.

     8.6 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS

     (a) If a Third Party asserts that a patent, trademark or other intellectual
properties owned by it is infringed by the importation, manufacture, use or sale
of any Compound or Drug Product, or if either Party learns of a claim or
assertion that the development, manufacture, use, marketing, promotion,
importation, exportation, offer for sale, sale or distribution of the Compounds
or the Drug Products infringes or otherwise violates the intellectual property
rights of any Third Party, then such Party will promptly notify the other Party
in writing. Novartis will have the sole right, but not the obligation, to
control such defense at its own expense. If Novartis does not assume control of
such defense, then Avanir shall have the right to control such defense at its
own expense. In any event, the

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Party not controlling such defense will have the right to be represented in any
such action at its own expense. The Party controlling such defense shall keep
the other Party advised of the status of such action and shall consider
recommendations made by the other Party in respect thereto. The Party not
controlling such defense will assist and cooperate in any such infringement
litigation at the defending Party's reasonable request. If the Party controlling
such defense is not the Party against whom such action was originally brought,
then the Party controlling such defense will not agree to the settlement of any
such action without the prior written consent of the other Party.

     (b) If Novartis conducts the defense, Novartis will use Commercially
Reasonable Efforts to determine how and whether to defend against such charge of
infringement.

     (c) During the period in which such litigation is pending and following the
resolution thereof, Novartis shall bear all other costs incurred in connection
therewith (including litigation costs, attorneys fees, costs of settlement)
including damage awards and any other payment resulting therefrom in the event
Novartis is barred as a result of such litigation from further sales in the
country concerned.

     (d) Such application and deduction shall not apply to infringement caused
by Novartis' or its Affiliates' use of their respective name, trade name, logo
or the Novartis Patents or Novartis Know-How.

     8.7 TRADEMARKS

     Novartis or its Affiliates will be responsible for, and shall have sole
discretion in, selecting trademarks for the use on or in connection with the
Drug Products in the Territory. Novartis or its Affiliates will be responsible
for registration of such trademarks and will be the sole owner of such
trademarks. For the avoidance of doubt, trademarks, including those created
hereunder, are not included in the definition of Know-How.

     8.8 DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT AND PEDIATRIC
EXCLUSIVITY

     (a) The Parties shall cooperate in an effort to avoid the loss of any
rights which may otherwise be available to the Parties under the provisions of
the Drug Price Competition and Patent Term Restoration Act of 1984 or comparable
laws outside of the United States and for pediatric exclusivity.

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     (b) Avanir shall provide any relevant Patent information to Novartis or its
Affiliates such that Novartis or its Affiliates, as an NDA applicant, may inform
the FDA or other applicable regulatory authority.

     (c) Avanir shall grant Novartis and its Affiliates cross-reference rights
to any relevant Drug Master Files and pre-clinical, clinical or regulatory
files.

     (d) The Parties shall cooperate with each other in obtaining patent term
restoration or supplemental protection certificates or their equivalents in any
country and region in the Territory where applicable. Avanir shall provide all
reasonable assistance to Novartis and its Affiliates, including permitting
Novartis or its Affiliates to proceed with applications for such in the name of
Avanir, if so required.

                                   ARTICLE IX

                         REPRESENTATIONS AND WARRANTIES

     9.1 REPRESENTATIONS AND WARRANTIES OF AVANIR

     Avanir represents and warrants to Novartis as follows:

     (a) Avanir is duly organized, validly existing and in good standing under
the laws of the State of California, with full power and authority to execute
and deliver this Agreement and to perform its obligations hereunder

     (b) This Agreement has been duly executed and delivered by Avanir and
constitutes the valid and binding obligation of Avanir, enforceable against
Avanir in accordance with its terms, subject to bankruptcy, insolvency or
similar laws of general application affecting the rights of creditors, and
subject to equitable principles limiting rights to specific performance or other
equitable remedies. The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of Avanir, its
officers and directors on behalf of Avanir and no other corporate proceedings on
the part of Avanir are necessary to authorize such execution, delivery and
performance.

     (c) Except as disclosed in writing to Novartis: (i) Avanir, to its best
knowledge owns or possesses licenses or other such rights to use all Avanir
Intellectual Property, and to grant the licenses herein; and (ii) the granting
of the licenses to Novartis and its Affiliates hereunder does not violate any
right known to Avanir of any Third Party and, to its best knowledge, Avanir has
obtained all necessary consents from Third Parties in order to allow it to enter
into its obligations under this Agreement.

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     (d) Except as disclosed in writing by Avanir to Novartis or its agents, to
Avanir's knowledge, the development, manufacture, use or sale of any Compounds
or Drug Products pursuant to this Agreement insofar as the same is based upon
the practice of the licenses granted by Avanir to Novartis and its Affiliates
under this Agreement, will not infringe or conflict with any Third Party right
or patent, and Avanir is not aware of any issued patent or pending patent
application that, if issued, would be infringed by the development, manufacture,
use or sale of any Compounds or Drug Products by virtue of the practice of the
licenses granted by Avanir to Novartis and its Affiliates under this Agreement.

     (e) There is no action, suit, proceeding investigation, arbitration
proceedings or other proceedings pending or threatened against Avanir or
affecting, in whole or in part, the Avanir Intellectual Property at law, in
equity or otherwise, in, before, or by, any court or governmental authority, and
there is not currently outstanding any unsatisfied judgments or outstanding
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court, an administrative agency or by an arbitrator) domestic or foreign, or
arbitrator relating, in whole or in part, against any of the Avanir Intellectual
Property which would have or reasonably be expected to have a material adverse
effect.

     (f) Execution of this Agreement and consummation of the transactions
contemplated hereby and thereby will not: (i) result in the violation of or
conflict with any of the terms and provisions of the articles of incorporation
or by-laws of Avanir; (ii) result in a material violation or breach of, or
constitute (with or without due notice or lapse of time or both) a material
default (or give rise to any right of termination, modification, cancellation or
acceleration or loss of material benefits) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, contract, agreement,
permit, license, lease, purchase order, sales order, arrangement or other
commitment or obligation to which Avanir is a Party; or (iii) violate any order,
writ, injunction, decree, statute, treaty, rule or regulation applicable to
Avanir, except such violations, breaches or defaults with respect to clauses
(ii) and (iii) above which would not have a material adverse effect.

     9.2 REPRESENTATIONS AND WARRANTIES OF NOVARTIS

     (a) Novartis is duly organized, validly existing and in good standing under
the laws of Bermuda with full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.

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     (b) Novartis represents and warrants to Avanir that this Agreement has been
duly executed and delivered by Novartis and constitutes the valid and binding
obligation of Novartis, enforceable against Novartis in accordance with its
terms. The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of Novartis, its officers and
directors on behalf of Novartis.

                                    ARTICLE X

                                 CONFIDENTIALITY

     10.1 UNDERTAKING

     During the term of this Agreement, each Party (the "Receiving Party") shall
keep confidential, and other than as provided herein shall not use or disclose,
directly or indirectly, any trade secrets, confidential or proprietary
information, or any other knowledge, information, documents or materials, owned,
developed or possessed by the other Party (the "Proprietary Party"), whether in
tangible or intangible form, the confidentiality of which such other Party takes
commercially reasonable measures to protect, including but not limited to Avanir
Intellectual Property and Novartis Intellectual Property. The Affiliates of each
Party shall be entitled to possess such trade secrets, confidential or
proprietary information or any other knowledge, information, documents or
materials, owned, developed or possessed by the other Party to the same extent
that its affiliated Party is entitled to possess such items. Each Party shall
cause is Affiliates to comply with the terms and conditions of this Article X as
if such Affiliates were signatories to this Agreement.

     (a) Each Party shall take any and all lawful measures to prevent the
unauthorized use and disclosure of such information, and to prevent unauthorized
Persons or entities from obtaining or using such information.

     (b) Each Party further agrees to refrain from directly or indirectly taking
any action which would constitute or facilitate the unauthorized use or
disclosure of such information. Each Party may disclose such information to its
officers, employees and agents, to authorized licensees and sublicensees, and to
subcontractors in connection with the development or manufacture of the
Compounds or the Drug Products to the extent necessary to enable such parties to
perform their obligations hereunder or under the applicable license, sublicense
or subcontract, as the case may be; provided that such officers, employees,
agents, licensees, sublicensees and subcontractors have entered into appropriate
confidentiality agreements for secrecy and non-use of such information which by
their terms shall be enforceable by injunctive relief at the instance of the
disclosing Party.

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     (c) Each Party shall be liable for any unauthorized use and disclosure of
such information by its Affiliates, and its and its Affiliates', officers,
employees, agents, sublicensees and subcontractors.

     10.2 EXCEPTIONS

     Notwithstanding the foregoing, the provisions of Section 10.1 shall not
apply to knowledge, information, documents or materials which the Receiving
Party can conclusively establish:

     (a) have entered the public domain without the Receiving Party's breach of
any obligation owed to the Proprietary Party;

     (b) are permitted to be disclosed by the prior written consent of the
Proprietary Party;

     (c) have become known to the Receiving Party from a source other than the
Proprietary Party, other than by breach of an obligation of confidentiality owed
to the Proprietary Party;

     (d) are disclosed by the Proprietary Party to a Third Party without
restrictions on its disclosure;

     (e) are independently developed by the Receiving Party without breach of
this Agreement; or

     (f) are required to be disclosed by the Receiving Party to comply with
applicable laws or regulations, to defend or prosecute litigation or to comply
with governmental regulations; provided that the Receiving Party provides prior
written notice of such disclosure to the Proprietary Party and takes reasonable
and lawful actions to avoid or minimize the degree of such disclosure.

     10.3 PUBLICITY

     The Parties will agree upon the content of any press release or other
public communications relating to this Agreement and the transactions
contemplated herein.

     Except to the extent already disclosed in a press release or other public
communication, no public announcement concerning the existence or the terms of
this Agreement or concerning the transactions described herein shall be made,
either directly or

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indirectly, by Avanir or Novartis or their respective Affiliates, except as may
be legally required by applicable laws, regulations, or judicial order, without
first obtaining the approval of the other Party and agreement upon the nature,
text, and timing of such announcement, which approval and agreement shall not be
unreasonably withheld or delayed.

     The Party desiring to make any such public announcement shall provide the
other Party with a written copy of the proposed announcement in sufficient time
prior to public release to allow such other Party to comment upon such
announcement, prior to public release.

     Neither Avanir nor its Affiliates may publish or present any results, data,
or scientific findings related to the MIF Program or the Research Program
without the prior written consent of Novartis. Novartis and its Affiliates may
publish or presents any results, data, or scientific findings related to the MIF
Program or the Research Program without the consent of Avanir; provided that
Novartis or its Affiliates shall provide the Avanir with a written copy of the
results, data, or scientific findings to be published or presented in sufficient
time prior to public release to allow Avanir to comment prior to public release.
For the avoidance of doubt, Patents and Regulatory Filings are not regarded as
publications for the purposes of this Section 10.3.

     10.4 SURVIVAL

     The provisions of this Article X shall survive the termination of this
Agreement and shall extend for a period of [***] thereafter.

                                   ARTICLE XI

                               DISPUTE RESOLUTION

     11.1 GOVERNING LAW AND JURISDICTION

     This Agreement shall be governed and construed in accordance with the laws
of the State of Delaware. Both Parties agree to submit to personal jurisdiction
and venue in the State of Delaware.

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     11.2 DISPUTE RESOLUTION PROCESS

     (a) Except as otherwise explicitly provided herein, in the event of any
claim arising out of or relating to any provision of this Agreement, failing
resolution of the controversy or claim, the matter shall be referred to the
chief executive officer of Avanir or his designee and the chief executive
officer of Novartis or his designee who shall, as soon as practicable, attempt
in good faith to resolve the controversy or claim. If such controversy or claim
is not resolved within sixty (60) calendar days of the date of initial referral
of the matter to the chief executive officers, either Party shall be free to
initiate the arbitration proceedings outlined in the following Section.

     (b) In the event of any controversy or claim arising out of or relating to
any provision of this Agreement, the Parties shall try to settle their
differences amicably between themselves. Any unresolved disputes arising between
the Parties relating to, arising out of or in any way connected with this
Agreement or any term or condition hereof, or the performance by either Party of
its obligations hereunder, whether before or after termination of this
Agreement, shall be resolved by final and binding arbitration. Whenever a Party
shall decide to institute arbitration proceedings, it shall give written notice
to that effect to the other Party. Except in the case of a determination to be
made where payments are to be made to by one Party to the other, the Party
giving such notice shall refrain from instituting the arbitration proceedings
for a period of sixty (60) calendar days referred to in Section 11.2(a) to allow
the Parties time to further attempt to come to an amicable resolution of the
dispute. Arbitration shall be held in New York, New York, according to the
commercial rules of the International Chamber of Commerce ("ICC"). The
arbitration will be conducted by a panel of three arbitrators appointed in
accordance with ICC rules; provided that each Party shall within thirty (30)
calendar days after the institution of the arbitration proceedings appoint a
Party arbitrator, and the Party-arbitrators shall select, if available, a
neutral arbitrator who shall have significant senior management experience in
the pharmaceutical or biotechnology businesses to be chairman of the arbitration
panel, within thirty (30) calendar days thereafter. If the Party-arbitrators are
unable to select a neutral arbitrator within such period, the neutral arbitrator
shall be appointed in accordance with ICC rules. All arbitrator(s) eligible to
conduct the arbitration must agree to render their opinion(s) within thirty (30)
calendar days of the final arbitration hearing. No arbitrator (nor the panel of
arbitrators) shall have the power to award punitive damages under this Agreement
and such award is expressly prohibited. Decisions of the arbitrator(s) shall be
final and binding on all of the Parties. Judgment on the award so rendered may
be entered in a court having jurisdiction thereof. In any arbitration pursuant
to this Agreement, the arbitrators shall

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interpret the express terms hereof and apply the laws of the State of Delaware.
The losing Party to the arbitration (if any) as determined by the arbitrators
shall pay the costs of arbitration. Notwithstanding the provisions of this
Section 11.2(b), either Party may seek preliminary or injunctive measures or
other equitable relief in any court of competent jurisdiction.

                                   ARTICLE XII

                              TERM AND TERMINATION

     12.1 TERM

     This Agreement shall become effective upon the Effective Date and the term
of this Agreement shall extend, subject to all applicable laws, with respect to
a Drug Product (or Submitted Drug Product, if applicable) in a particular
country until the later of:

     (a) the expiration of the last to expire of the Avanir Patents (or Novartis
Patents, solely with respect to a Submitted Drug Product) containing a Valid
Claim covering the Compound or the Drug Product (or Submitted Drug Product, if
applicable) or its use or manufacture in that country; or

     (b) [***] years from the date of First Commercial Sale of the Drug Product
(or Submitted Drug Product, if applicable) in that country.

     12.2 TERMINATION FOR CAUSE

     In addition to rights of termination which may be granted to either Party
under other provisions of this Agreement, either Party may terminate this
Agreement upon ninety (90) calendar days' prior written notice to the other
Party upon the material breach by such other Party of any of its
representations, warranties or obligations under this Agreement; provided that
such termination shall become effective only if the breaching Party shall fail
to remedy or cure the breach to the reasonable satisfaction of the other Party
within ninety (90) calendar days of receiving such notice.

     12.3 TERMINATION FOR BANKRUPTCY

     If at any time during the term of this Agreement, an Event of Bankruptcy
(as defined below) relating to either Party (the "Bankrupt Party") occurs, the
other Party (the "Other Party") shall have, in addition to all other legal and
equitable rights and remedies available

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hereunder, the option to terminate this Agreement upon thirty (30) calendar
days' written notice to the Bankrupt Party. It is agreed and understood that if
the Other Party does not elect to terminate this Agreement upon the occurrence
of an Event of Bankruptcy, except as may otherwise be agreed with the trustee or
receiver appointed to manage the affairs of the Bankrupt Party, the Other Party
shall continue to make all payments required of it under this Agreement as if
the Event of Bankruptcy had not occurred, the Bankrupt Party shall not have the
right to terminate any license granted herein, and in the event that Avanir is
the Bankrupt Party, the operation of the Joint Research Committee and the Joint
Program Committee shall immediately cease. The term "Event of Bankruptcy" shall
mean: (a) filing in any court or agency pursuant to any statute or regulation of
any state or country, a petition in bankruptcy or insolvency or for
reorganization or for an arrangement or for the appointment of a receiver or
trustee of the Bankrupt Party or of its assets; (b) proposing a written
agreement of composition or extension of a Bankrupt Party's debts, (c) being
served with an involuntary petition against the Bankrupt Party, filed in any
insolvency proceeding, and such petition shall not be dismissed within sixty
(60) calendar days after the filing thereof, (d) proposing or being a party to
any dissolution or liquidation; or (e) making an assignment for the benefit of
creditors. Without limitation, the Bankrupt Party's rights under this Agreement
shall include those rights afforded by 11 U.S.C. Section 365(n) of the United
States Bankruptcy Code (the "USBC") and any successor thereto. If the bankruptcy
trustee of a Bankrupt Party as a debtor or debtor-in-possession rejects this
Agreement under 11 U.S.C. Section 365(o) of the USBC, the non-Bankrupt Party may
elect to retain its rights licensed from the Bankrupt Party hereunder (and any
other supplementary agreements hereto) for the duration of this Agreement and
avail itself of all rights and remedies to the full extent contemplated by this
Agreement and 11 U.S.C. Section 365(n) of the USBC, and any other relevant laws.

     12.4 TERMINATION BY NOVARTIS

     Following the [***] anniversary of the Effective Date, Novartis may
terminate this Agreement at any time upon the provision of sixty (60) calendar
days' prior written notice. In addition, Novartis may, in its sole discretion,
relinquish the licenses granted to it hereunder with respect to any particular
Compound or Drug Product without affecting the licenses granted to it hereunder
with respect to any other Compound or Drug Product. There shall be a wind-down
period (the "Wind-Down Period") of [***] subsequent to the effective termination
date during which Novartis or its Affiliates shall only continue to fund that
number of Avanir FTEs that were involved in the Research Plan immediately prior

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to the termination notice. For the avoidance of doubt, only those activities in
which Avanir had been engaged at the time of termination shall continue during
the Wind-Down Period.

     12.5 EFFECT OF TERMINATION

     (a) Termination of this Agreement for any reason, or expiration of this
Agreement, will not affect: (i) obligations, including the payment of any
royalties and milestones which have accrued as of the date of termination or
expiration; and (ii) rights and obligations which, from the context thereof, are
intended to survive termination or expiration of this Agreement.

     (b) For each country, at the end of the term of this Agreement as provided
in Section 12.1 in respect of a Drug Product, Novartis and its Affiliates shall
have a perpetual, non-exclusive, transferable, paid-up, royalty-free license
with the right to sublicense in such country, to research, develop, have
developed, make, have made, use, distribute, have distributed, export, have
exported, import, have imported, promote, have promoted, market, have marketed,
sell, have sold and offer to sell the Compounds, the Drug Product in the Field
in the Territory under the Avanir Intellectual Property.

     (c) If Novartis terminates this entire Agreement pursuant to Section 12.4
or Avanir terminates this entire Agreement pursuant to Section 12.2, then all
licenses granted to Novartis and its Affiliates hereunder shall terminate and
revert to Avanir, and any sublicenses granted by Novartis or its Affiliates
hereunder shall be assigned to Avanir, and all copies of confidential
information of Avanir shall be returned to it.

     (i)  Novartis and its Affiliates shall grant to Avanir an exclusive,
          worldwide, paid-up license under Novartis Intellectual Property (with
          the right to sublicense with the consent of Novartis, which shall not
          be unreasonably withheld or delayed) to research, develop, have
          developed, make, have made, use, distribute, have distributed, export,
          have exported, import, have imported, promote, have promoted, market,
          have marketed, sell, have sold and offer to sell the Compounds (except
          Novartis Submitted Compounds) and the Drug Products (except Submitted
          Drug Products) whether in monotherapy or in combination with other
          pharmaceutical products, in the Field in the Territory.
          Notwithstanding the foregoing, in the event that Avanir commercializes
          any such Drug Product that Novartis has progressed through Development
          to the end of [***], then Avanir shall pay to Novartis a [***] percent
          ([***]%) royalty

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          on any future sales of such Drug Product sold directly by Avanir or
          its Affiliates, and in the case where Avanir does not sell such Drug
          Product directly, Avanir shall pay to Novartis a [***] percent
          ([***]%) royalty on any future sales of such Drug Product sold
          indirectly by Avanir or its Affiliates.

     (ii) In the event that Novartis determines in its sole discretion that it
          wishes to license out, sell, or transfer rights to develop any
          Submitted Drug Product(s), Avanir shall have a first right of
          negotiation to acquire exclusive rights to such Submitted Drug
          Product(s) on commercially reasonable terms. In such event, Novartis
          shall give written notice to Avanir that it wishes to license out,
          sell, or transfer rights to develop such Submitted Drug Product(s) and
          Avanir shall have thirty (30) days from the date on which it is deemed
          pursuant to Section 16.14 to have received such notice from Novartis
          to inform Novartis in writing of whether it wishes to act on its right
          of first negotiation. If Avanir does not notify Novartis in writing of
          its desire to act on its right of first negotiation within this thirty
          (30) day period, Novartis shall be free to grant rights to such
          Submitted Drug Products(s) to Third Parties. If Avanir does notify
          Novartis in writing of its desire to act on its right of first
          negotiation within this thirty (30) day period, the Parties shall
          enter into good faith negotiations regarding the terms and conditions
          for the proposed license, sale, or transfer rights to develop such
          Submitted Drug Product(s). In the event that the Parties fail to
          conclude such good faith negotiations and execute the agreements
          documenting such transaction within one hundred and twenty (120) days
          of the date on which Avanir notifies Novartis of its desire to act on
          its right of first negotiation, Novartis shall be free grant rights to
          such Submitted Drug Products(s) to Third Parties; provided that,
          Novartis shall not license, sell, or transfer such rights to a Third
          Party on terms more favorable to such Third Party than those last
          offered to Avanir without notifying Avanir in writing and affording
          Avanir the opportunity to enter into the proposed transaction on the
          same terms and conditions. In such event, Avanir shall have ten (10)
          business days in which to notify Novartis in writing that it wishes to
          enter into such transaction on the proposed terms and conditions.

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     (iii) In the event that termination occurs during the Development but prior
          to the First Commercial Sale of a Drug Product, Avanir may elect, but
          solely for Compounds and Drug Products that originated as Avanir
          Intellectual Property, and give, within sixty (60) calendar days of
          the date of termination notice, written notice to Novartis requesting
          the transfer of Data and Know-How as it pertains to the manufacturing
          processes of the relevant Compound and/or Drug Product, and to
          purchase remaining stocks and inventory of the relevant Compound
          and/or Drug Product that Novartis may have in its possession. The
          purchase price for such stocks shall be based on direct labor and
          out-of-pocket costs that Novartis may have incurred for such stock.
          The purchase shall be EX WORKS (Incoterms 2000) with [***]. Novartis
          shall make no representations or warranties as to the suitability of
          such stocks for any use and will be sold as-is. Novartis shall not be
          obligated to conduct any further testing on such stocks. Novartis
          shall not be required to dedicate more than [***] FTEs to such efforts
          and in any case shall not be required to provide further efforts
          towards the transfer of such manufacturing Data and Know-How beyond
          ninety (90) calendar days of the actual termination date of this
          Agreement. Avanir may request and Novartis, in its sole discretion,
          may provide further assistance towards the Data and Know-How transfer,
          however such assistance by Novartis shall be reimbursed by Avanir at
          the then prevailing Novartis FTE compensation rate. The Parties shall
          also agree to transfer any Regulatory Filings regarding such Compound
          and Drug Product from Novartis to Avanir, and Avanir shall bear any
          costs that may be incurred during such transfer. In the event that
          termination occurs after the First Commercial Sale of a Drug Product
          that originated as Avanir Intellectual Property, the Parties agree to
          enter into good faith negotiations to conclude a commercially
          reasonable supply agreement which, at a minimum, will provide for
          Novartis to supply and Avanir to purchase, commercially acceptable
          Drug Product for a period of [***]. The Parties shall also agree to
          transfer affected Regulatory Filings pursuant to such Compounds and
          Drug Products from Novartis to Avanir, and Avanir shall bear any costs
          that may be incurred during such transfer.

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     (d) If Novartis terminates this entire Agreement pursuant to Section 12.2,
then Novartis and its Affiliates shall be entitled to convert the license
granted herein to an exclusive, worldwide license, with the right to sublicense,
to research, develop, have developed, make, have made, use, distribute, have
distributed, export, have exported, import, have imported, promote, have
promoted, market, have marketed, sell, have sold and offer to sell the
Compounds, the Drug Products in the Field in the Territory under the Avanir
Intellectual Property, subject only to the obligation to pay to Avanir the
amounts due under Sections 7.4 and 7.5 as they become due; provided, however, in
the event that such termination was due to (i) the purported grant to a Third
Party of license rights granted exclusively to Novartis under this Agreement,
(ii) the disclosure by Avanir of material confidential information of Novartis
in violation of Article X of this Agreement, (iii) Avanir ceasing to perform its
funded obligations during the Research Term or (iv) the material breach by
Avanir of any of the representations or warranties set out in Section 9.1,
Novartis shall only be obligated to pay to Avanir [***] percent ([***]%) of the
amounts otherwise due under Sections 7.4 and 7.5 as they become due.

                                  ARTICLE XIII

                                 INDEMNIFICATION

     13.1 INDEMNIFICATION BY AVANIR

     Avanir will indemnify and hold Novartis and its Affiliates, and their
employees, officers and directors harmless against any Third Party loss,
damages, action, suit, claim, demand, liability, expense, bodily injury, death
or property damage (a "Loss"), that may be brought, instituted or arise against
or be incurred by such Persons to the extent such Loss is based on or arises out
of:

     (a) negligence or willful misconduct concerning the Research Program, a
Compound or a Drug Product by Avanir or its Affiliates; or

     (b) the breach by Avanir of any of its material obligations, covenants,
representations or warranties set forth in this Agreement; and

     (c) provided that the foregoing indemnification shall not apply to any Loss
to the extent such Loss is caused by the breach of this Agreement, negligent or
willful misconduct of Novartis or its Affiliates and their employees, officers
and directors.

                                              * Confidential Treatment Requested

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<PAGE>
     13.2 INDEMNIFICATION BY NOVARTIS

     Novartis will indemnify and hold Avanir, and its Affiliates, and their
employees, officers and directors harmless against any Third Party Loss that may
be brought, instituted or arise against or be incurred by such Persons to the
extent such Loss is based on or arises out of:

     (a) the development, manufacture, use, sale, storage or handling of a
Compound or a Drug Product by Novartis or its Affiliates or their
representatives, agents, licensees, sublicensees or subcontractors under this
Agreement, or any actual or alleged violation of law resulting therefrom (with
the exception of Losses based on infringement or misappropriation of
intellectual property rights); or

     (b) the breach by Novartis of any of its material obligations, covenants,
representations or warranties set forth in this Agreement;

     (c) the breach by any of Novartis' or its Affiliates or sublicensees of any
obligations relating to manufacture and whether through willful default or
negligence, giving rise to a Loss by Avanir; and

     (d) provided that the foregoing indemnification shall not apply to any Loss
to the extent such Loss is caused by the breach of this Agreement, negligent or
willful misconduct of Avanir or its Affiliates and their employees, officers and
directors.

     13.3 CLAIMS PROCEDURES

     Each Party entitled to be indemnified by the other Party (an "Indemnified
Party") pursuant to Section 13.1 or 13.2 shall give notice to the other Party
(an "Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of any threatened or asserted claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided:

     (a) that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld or delayed)
and the Indemnified Party may participate in such defense at such Party's
expense (unless: (i) the employment of counsel by such Indemnified Party has
been authorized by the Indemnifying Party; or (ii) the Indemnified Party shall
have reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in the defense of such action, in

                                       44
<PAGE>
each of which cases the Indemnifying Party shall pay the reasonable fees and
expenses of one law firm serving as counsel for the Indemnified Party, which law
firm shall be subject to approval, not to be unreasonably withheld, by the
Indemnifying Party); and

     (b) the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Agreement
to the extent that the failure to give notice did not result in harm to the
Indemnifying Party.

     (c) No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the approval of each Indemnified Party which approval shall
not be unreasonably withheld, consent to entry of any judgment or enter into any
settlement which: (i) would result in injunctive or other relief being imposed
against the Indemnified Party; or (ii) does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.

     (d) Each Indemnified Party shall furnish such information regarding itself
or the claim in question as an Indemnifying Party may reasonably request in
writing and shall be reasonably required in connection with the defense of such
claim and litigation resulting therefrom.

     13.4 LIMITATION OF LIABILITY

     Neither Party shall be liable to the other for consequential, indirect or
punitive damages. For the avoidance of doubt, no Party can recover from the
other Party more than once for a single cause of action under an indemnity
granted by an indemnifying Party pursuant to this Agreement. The foregoing
sentence shall not be construed to preclude recovery in respect of multiple
claims arising from a single event or series of events. Neither Party shall have
liability with respect to any breach of any of the other Party's representations
and warranties under this Agreement: (a) for any individual item where the Loss
relating thereto is less than $[***]; and (b) in respect of each individual item
where the Loss relating thereto is equal to or greater than $[***], unless and
until the aggregate amount of such Losses exceeds [***] percent ([***]%) of the
amounts which Novartis or its Affiliates has paid under this Agreement and then
the liable Party shall be liable for the entire amount of the Losses described
in this Article XIII. The foregoing shall not be construed to limit liability
pursuant to Section 13.1 or Section 13.2. Each Party shall take and shall cause
its Affiliates to take all reasonable steps to mitigate any Loss upon becoming
aware of any event which would reasonably be expected to, or does, give rise
thereto,

                                              * Confidential Treatment Requested

                                       45
<PAGE>
including incurring costs only to the minimum extent necessary to remedy a
breach that gives rise to the Loss.

     13.5 COMPLIANCE

     The Parties shall comply fully with all applicable laws and regulations in
connection with their respective activities under this Agreement.

     13.6 INSURANCE

     Each Party shall use all commercially reasonable efforts to maintain
insurance and/or self-insurance including product liability insurance, with
respect to its activities hereunder and, in that event, shall claim upon such
insurance policy before relying upon the Indemnity set forth in Article XIII.

                                   ARTICLE XIV

                                  PIRATE GOODS

     Novartis and its Affiliates shall exercise commercially reasonable efforts
to monitor the sales in the Territory and take action to prevent trade in goods
by a Third Party that violate Novartis' or its Affiliates' exclusive legal
rights to market, price and sell a Drug Product in such a market. In the event
that Avanir first becomes aware of such a trade in goods by a Third Party which
violates Novartis' or its Affiliates' exclusive legal rights, Avanir shall
notify Novartis within seven (7) calendar days of first becoming aware of such
trading by a Third Party.

                                   ARTICLE XV

                                   EXCLUSIVITY

     During the term of this Agreement and except as otherwise set forth in this
Agreement, Avanir will work exclusively with Novartis and its Affiliates on the
MIF Program and the development of the Compounds and the Drug Products in the
Field and in the Territory.

                                       46
<PAGE>
                                   ARTICLE XVI

                            MISCELLANEOUS PROVISIONS

     16.1 OFFICIAL LANGUAGE

     English shall be the official language of this Agreement, and all
communications between the Parties hereto shall be conducted in that language.

     16.2 EXPORT CONTROLS

     This Agreement is made subject to any restrictions concerning the export of
materials and intellectual property from the United States which may be imposed
upon or related to either Party to this Agreement from time to time by the
Government of the United States. Furthermore, Novartis and its Affiliates will
not export, directly or indirectly, any Avanir Intellectual Property or any
Compound or Drug Product utilizing such Avanir Intellectual Property to any
countries for which the United States Government or any agency thereof at the
time of export requires an export license or other governmental approval,
without first obtaining the written consent to do so from the Department of
Commerce or other agency of the United States Government when required by
applicable statute or regulation.

     16.3 PHARMACOVIGILANCE

     Novartis shall be fully responsible for ensuring compliance with all
pharmacovigilance obligations, including the holding and maintaining of the
global safety database for the Drug Products. Prior to the first Regulatory
Approval of the first Drug Product, the Parties shall agree and implement a
procedure for the mutual exchange of adverse event reports and safety
information associated with the Drug Product. Details of the operating procedure
respecting such adverse event reports and safety information exchange shall be
the subject of a mutually acceptable pharmacovigilance agreement between the
Parties which shall at that time be made an addendum to this Agreement. Such
pharmacovigilance agreement shall be implemented at a time sufficient to permit
compliance with applicable guidelines and regulations of regulatory authorities.

     16.4 WAIVER

     No provision of the Agreement may be waived except in writing by both
Parties hereto. No failure or delay by either Party hereto in exercising any
right or remedy hereunder or under applicable law will operate as a waiver
thereof, or a waiver of a particular right or waiver of any right or remedy on
any subsequent occasion.

                                       47
<PAGE>
     16.5 FORCE MAJEURE

     Neither Party shall be held liable or responsible to the other Party nor be
deemed to have defaulted under or breached this Agreement for failure or delay
in fulfilling or performing any term of this Agreement, other than an obligation
to make a payment, when such failure or delay is caused by or results from fire,
floods, embargoes, government regulations, prohibitions or interventions, war,
acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts, acts of God, or any other cause beyond the
reasonable control of the affected Party.

     16.6 REGISTRATION OF LICENSE

     Novartis or its Affiliates may, at its or their expense, register the
license granted under this Agreement in any country where the use, sale or
manufacture of a Drug Product in such country would be covered by a Valid Claim.
Upon request by Novartis or its Affiliates, Avanir agrees promptly to execute
any "short form" licenses submitted to it by Novartis or its Affiliates in order
to effect the foregoing registration in such country, but such licenses shall in
no way alter or affect the obligations of the Parties hereunder.

     16.7 SEVERABILITY

     It is the intention of the Parties to comply with all applicable laws
domestic or foreign in connection with the performance of its obligations
hereunder. In the event that any provision of this Agreement, or any part
hereof, is found invalid or unenforceable, the remainder of this Agreement will
be binding on the Parties hereto, and will be construed as if the invalid or
unenforceable provision or part thereof had been deleted, and the Agreement
shall be deemed modified to the extent necessary to render the surviving
provisions enforceable to the fullest extent permitted by law.

     16.8 GOVERNMENT ACTS

     In the event that any act, regulation, directive, or law of a government,
including its departments, agencies or courts, should make impossible or
prohibit, restrain, modify or limit any material act or obligation of Novartis,
Avanir and their respective Affiliates under this Agreement, the Party, if any,
not so affected shall have the right, at its option, to suspend or terminate
this Agreement as to such country, if good faith negotiations between the
Parties to make such modifications to this Agreement as may be necessary to
fairly address the impact thereof, are not successful after a reasonable period
of time in producing mutually acceptable modifications to this Agreement.

     16.9 GOVERNMENT APPROVALS

                                       48
<PAGE>
     Novartis will use reasonable efforts to obtain any government approval
required to enable this Agreement to become effective, or to enable any payment
hereunder to be made, or any other obligation hereunder to be observed or
performed. Each Party will keep the other informed of progress in obtaining any
such approvals.

     16.10 ASSIGNMENT

     Novartis may assign its rights and obligations under this Agreement without
the prior written consent of Avanir to an Affiliate or in connection with the
transfer or sale of all or substantially all of its assets or business or in the
event of its merger or consolidation with a Third Party. Novartis may also
assign its rights and obligations under this Agreement to any of the [***], with
the prior written consent of Avanir. Avanir may not assign its rights and
obligations under this Agreement during the Research Term without the prior
written consent of Novartis. Thereafter, but prior to receipt of the first
Regulatory Approval for a Drug Product, Avanir may assign its right to receive
payments under this Agreement only to a Third Party which has a market
capitalization prior to the assignment (including its affiliates) of less than
$[***]. Following the receipt of the first Regulatory Approval for a Drug
Product, Avanir may assign its right to receive payments under this Agreement
without the prior written consent of Novartis. Any other proposed assignment by
Avanir of its rights and obligations under this Agreement shall require the
prior written consent of Novartis. Any request for consent to assignment shall
not be unreasonably withheld or delayed. In addition, Avanir shall be entitled
to assign all or any part of its right to receive payments under this Agreement.
Any purported assignment in contravention of this Section 16.10 shall, at the
option of the non-assigning Party, be null and void and of no effect. No
assignment shall release either Party from responsibility for the performance of
any accrued obligation of such Party hereunder. This Agreement shall be binding
upon and enforceable against the successor to or any permitted assignee from
either of the Parties hereto.

     16.11 AFFILIATES

     Each Party may perform its obligations hereunder personally or through one
or more Affiliates, although each Party shall nonetheless be solely responsible
for the performance of its Affiliates. Neither Party shall permit any of its
Affiliates to commit any act (including any act of omission) which such Party is
prohibited hereunder from committing directly. The use of subcontractors by
either Party shall not increase the financial obligations of the other Party
hereunder in any respect.

                                              * Confidential Treatment Requested

                                       49
<PAGE>
     16.12 COUNTERPARTS

     This Agreement may be executed in duplicate both of which shall be deemed
to be originals, and both of which shall constitute one and the same Agreement.

     16.13 NO AGENCY

     Nothing herein contained shall be deemed to create an agency, joint
venture, amalgamation, partnership or similar relationship between Novartis and
Avanir. Notwithstanding any of the provisions of this Agreement, neither Party
shall at any time enter into, incur, or hold itself out to third Parties as
having authority to enter into or incur, on behalf of the other Party, any
commitment, expense, or liability whatsoever, and all contracts, expenses and
liabilities undertaken or incurred by one Party in connection with or relating
to the development, manufacture or sale of the Compounds or the Drug Products
shall be undertaken, incurred or paid exclusively by that Party, and not as an
agent or representative of the other Party.

     16.14 NOTICE

     All communications between the Parties with respect to any of the
provisions of this Agreement will be sent to the addresses set out below, or to
other addresses as designated by one Party to the other by notice pursuant
hereto, by prepaid certified, air mail (which shall be deemed received by the
other Party on the seventh (7th) Business Day following deposit in the mails),
or by cable, telex, facsimile transmission, or other electronic means of
communication (which shall be deemed received when transmitted), with
confirmation by letter given by the close of business on or before the next
following Business Day:

     If to Novartis, at:

     Novartis International Pharmaceutical Ltd.
     Hurst Holme, 12 Trott Road
     P.O. Box HM 2899
     Hamilton HM LX
     Bermuda
     Fax: + [***]
     Attention: Emil Bock

     with a copy to:

     Novartis Institutes for BioMedical Research, Inc.
     400 Technology Square
     Cambridge, Massachusetts 02139
     Fax: + [***]
     Attention: Robert L. Thompson, Vice President and General Counsel

                                              * Confidential Treatment Requested

                                       50
<PAGE>
     and

     Novartis Pharma AG
     Lichstrasse, 35
     CH-4056 Basel, Switzerland
     Fax: +[***]
     Attention: General Counsel Pharma Legal

     If to Avanir, at:

     Avanir Pharmaceuticals
     11388 Sorrento Valley Road
     Suite 200
     San Diego, California 92121
     Fax: + [__________]
     Attention: ___________________________

     with a copy to:

     Heller Ehrman White & McAuliffe LLP
     4350 La Jolla Village Drive
     San Diego, California 92122-1246
     Fax: +858.450.8499
     Attention: Richard A. Kaufman, Esq.

     16.15 HEADINGS

     The paragraph headings are for convenience only and will not be deemed to
affect in any way the language of the provisions to which they refer.

     16.16 AUTHORITY

     The undersigned represent that they are authorized to sign this Agreement
on behalf of the Parties hereto. The Parties each represent that no provision of
this Agreement will violate any other agreement that such Party may have with
any other Person. Each Party has relied on that representation in entering into
this Agreement.

     16.17 ENTIRE AGREEMENT

     This Agreement, including the Annexes appended hereto, contains the entire
understanding of the Parties relating to the matters referred to herein, and may
only be amended by a written document, duly executed on behalf of the respective
Parties.

     16.18 INVOICE REQUIREMENT

                                              * Confidential Treatment Requested

                                       51
<PAGE>
     Except as otherwise set forth in this Agreement, any amounts payable to
Avanir hereunder shall be made within thirty (30) calendar days after receipt by
Novartis, or its nominee designated for that purpose in advance by Novartis in
writing to Avanir, of an invoice covering such payment, which invoice shall
conform to the extent reasonably practicable to the form of invoice contained in
Annex 3.

                            [Signature page follows]

                                       52
<PAGE>
     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives in duplicates as of the day,
month and year first above written.

AVANIR PHARMACEUTICALS

By: /s/ Gerald J. Yakatan
    ----------------------------
Title: President & CEO

NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.

By: /s/ Emil Bock
    ----------------------------
Title: Emil Bock, Member of the Board of Directors

By: /s/ Michael Jones
    ----------------------------
Title: Michael Jones, Member of the Board of Directors

                                  53
<PAGE>
                            ANNEX 1 - PATENT SCHEDULE

                             AVANIR PHARMACEUTICALS

                          MIF PATENTS AND APPLICATIONS

                                      [***]

                                              * Confidential Treatment Requested
<PAGE>
                             ANNEX 2 - RESEARCH PLAN

                                      [***]

                                              * Confidential Treatment Requestedexv10w1

 

EXHIBIT 10.1

AXCESS INTERNATIONAL, INC.

2005 EQUITY INCENTIVE PLAN

          The AXCESS INTERNATIONAL Inc. 2005 Equity Incentive Plan (the “Plan”) was adopted by the Board
of Directors of AXCESS INTERNATIONAL Inc., a Delaware corporation (the “Company”), effective as of
May 10, 2005, subject to approval by the Company’s stockholders.

ARTICLE 1

PURPOSE

          The purpose of the Plan is to foster and promote the long-term financial success of the
Company and its Subsidiaries and materially increase the value of the Company and its Subsidiaries
by (a) encouraging the long-term commitment of the Employees, Consultants, and Outside Directors of
the Company and its Subsidiaries, (b) motivating performance of the Employees, Consultants, and
Outside Directors of the Company and its Subsidiaries by means of long-term performance related
incentives, (c) encouraging and providing Employees, Consultants, and Outside Directors of the
Company and its Subsidiaries with an opportunity to obtain an ownership interest in the Company,
(d) attracting and retaining outstanding Employees, Consultants, and Outside Directors by providing
incentive compensation opportunities, and (e) enabling participation by Employees, Consultants, and
Outside Directors in the long-term growth and financial success of the Company and its
Subsidiaries.

          With respect to Reporting Participants, the Plan and all transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (the “1934 Act”). To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted
by law and deemed advisable by the Committee.

ARTICLE 2

DEFINITIONS

          For the purpose of the Plan, unless the context requires otherwise, the following terms shall
have the meanings indicated:

	 	2.1	 	“Award” means the grant of any Incentive Stock Option, Nonqualified Stock Option,
Reload Option, or Restricted Stock whether granted singly or in combination (each
individually referred to herein as an “Incentive”).
	 
	 	2.2	 	“Award Agreement” means a written agreement between a Participant and the Company which
sets out the terms of the grant of an Award.
	 
	 	2.3	 	“Award Period” means the period set forth in the Award Agreement with respect to a
Stock Option during which the Stock Option may be exercised, which shall commence on the
Date of Grant and expire at the time set forth in the Award Agreement.
	 
	 	2.4	 	“Board” means the board of directors of the Company.
	 
	 	2.5	 	“Code” means the Internal Revenue Code of 1986, as amended.
	 
	 	2.6	 	“Committee” means the committee appointed or designated by the Board to administer the
Plan in accordance with Article 3 of this Plan.
	 
	 	2.7	 	“Common Stock” means the common stock, par value $0.01 per share, which the Company is
currently authorized to issue or may in the future be authorized to issue, or any
securities into which or for which the common stock of the Company may be converted or
exchanged, as the case may be, pursuant to the terms of this Plan.
	 
	 	2.8	 	“Company” means Axcess International Inc., a Delaware Corporation, and any successor
entity.

 

 

	 	2.9	 	“Consultant” means any person performing advisory or consulting services for the
Company or a Subsidiary, with or without compensation, to whom the Company chooses to grant
an Award in accordance with the Plan, provided that bona fide services must be rendered by
such person and such services shall not be rendered in connection with the offer or sale of
securities in a capital raising transaction.
	 
	 	2.10	 	“Corporation” means any entity that (i) is defined as a corporation under Code Section
7701 and (ii) is the Company or is in an unbroken chain of corporations (other than the
Company) beginning with the Company, if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing a majority of the total combined
voting power of all classes of stock in one of the other corporations in the chain. For
purposes of clause (ii) hereof, an entity shall be treated as a “corporation” if it
satisfies the definition of a corporation under Section 7701 of the Code.
	 
	 	2.11	 	“Date of Grant” means the effective date on which an Award is made to a Participant as
set forth in the applicable Award Agreement; provided, however, that solely for purposes of
Section 16 of the 1934 Act and the rules and regulations promulgated thereunder, the Date
of Grant of an Award shall be the date of stockholder approval of the Plan if such date is
later than the effective date of such Award as set forth in the Award Agreement.
	 
	 	2.12	 	“Employee” means common law employee (as defined in accordance with the Regulations and
Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any
Subsidiary of the Company.
	 
	 	2.13	 	“Fair Market Value” means, as of a particular date, (a) if the shares of Common Stock
are listed on a national securities exchange, the closing sales price per share of Common
Stock on the consolidated transaction reporting system for the principal securities
exchange for the Common Stock on that date, or, if there shall have been no such sale so
reported on that date, on the last preceding date on which such a sale was so reported, (b)
if the shares of Common Stock are not so listed but are quoted on the Nasdaq National
Market System, the closing sales price per share of Common Stock on the Nasdaq National
Market System on that date, or, if there shall have been no such sale so reported on that
date, on the last preceding date on which such a sale was so reported, (c) if the Common
Stock is not so listed or quoted, the mean between the closing bid and asked price on that
date, or, if there are no quotations available for such date, on the last preceding date on
which such quotations shall be available, as reported by Nasdaq, or, if not reported by
Nasdaq, by the National Quotation Bureau, Inc., or (d) if none of the above is applicable,
such amount as may be determined by the Board (acting on the advice of an Independent Third
Party, should the Board elect in its sole discretion to utilize an Independent Third Party
for this purpose), in good faith, to be the fair market value per share of Common Stock.
	 
	 	 	 	“Independent Third Party” means an individual or entity independent of the Company having
experience in providing investment banking or similar appraisal or valuation services and
with expertise generally in the valuation of securities or other property for purposes of
this Plan. The Board may utilize one or more Independent Third Parties.
	 
	 	2.14	 	“Incentive Stock Option” means an incentive stock option within the meaning of Section
422 of the Code, granted pursuant to this Plan.
	 
	 	2.15	 	“Nonpublicly Traded” means not listed on a national securities exchange registered with
the Securities and Exchange Commission or designated for trading on the Nasdaq National
Market.
	 
	 	2.16	 	“Nonqualified Stock Option” means a nonqualified stock option, granted pursuant to this
Plan, to which Section 421 of the Code does not apply.
	 
	 	2.17	 	“Option Price” means the price which must be paid by a Participant upon exercise of a
Stock Option to purchase a share of Common Stock.
	 
	 	2.18	 	“Outside Director” means a director of the Company who is not an Employee.
	 
	 	2.19	 	“Participant” means an Employee, Consultant, or Outside Director of the Company or a
Subsidiary to whom an Award is granted under this Plan.

 

 

	 	2.20	 	“Plan” means this AXCESS INTERNATIONAL Inc. 2005 Equity Incentive Plan, as amended from
time to time.
	 
	 	2.21	 	“Reload Stock Option” means a Nonqualified Stock Option or an Incentive Stock Option
granted pursuant to Section 8.3(b) hereof.
	 
	 	2.22	 	“Reporting Participant” means a Participant who is subject to the reporting
requirements of Section 16 of the 1934 Act.
	 
	 	2.23	 	“Restricted Stock” means shares of Common Stock issued or transferred to a Participant
pursuant to Section 6.5 of this Plan which are subject to restrictions or limitations set
forth in this Plan and in the related Award Agreement.
	 
	 	2.24	 	“Retirement” means any Termination of Service solely due to retirement upon or after
attainment of age sixty-five (65), or permitted early retirement as determined by the
Committee.
	 
	 	2.25	 	“Stock Option” means a Nonqualified Stock Option, a Reload Stock Option or an Incentive
Stock Option.
	 
	 	2.26	 	“Subsidiary” means (i) any corporation in an unbroken chain of corporations beginning
with the Company, if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing a majority of the total combined voting power of all
classes of stock in one of the other corporations in the chain, (ii) any limited
partnership, if the Company or any corporation described in item (i) above owns a majority
of the general partnership interest and a majority of the limited partnership interests
entitled to vote on the removal and replacement of the general partner, and (iii) any
partnership or limited liability company, if the partners or members thereof are composed
only of the Company, any corporation listed in item (i) above or any limited partnership
listed in item (ii) above.
	 
	 	 	 	“Subsidiaries” means more than one of any such corporations, limited partnerships,
partnerships or limited liability companies.
	 
	 	2.27	 	“Termination of Service” occurs when a Participant who is an Employee ceases to or a
Consultant of the Company or any Subsidiary shall cease to serve as an Employee or
Consultant of the Company and its Subsidiaries, for any reason; or, when a Participant who
is an Outside Director of the Company or a Subsidiary shall cease to serve as a director of
the Company and its Subsidiaries for any reason. Except as may be necessary or desirable
to comply with applicable federal or state law, a “Termination of Service” shall not be
deemed to have occurred when a Participant who is an Employee becomes a Consultant or an
Outside Director or vice versa. If, however, a Participant who is an Employee and who has
an Incentive Stock Option ceases to be an Employee but does not suffer a Termination of
Service, and if that Participant does not exercise the Incentive Stock Option within the
time required under Code section 422 upon ceasing to be an Employee, the Incentive Stock
Option shall thereafter become a Nonqualified Stock Option.
	 
	 	2.28	 	“Total and Permanent Disability” means a Participant is qualified for long-term
disability benefits under the Company’s or Subsidiary’s disability plan or insurance
policy; or, if no such plan or policy is then in existence or if the Participant is not
eligible to participate in such plan or policy, that the Participant, because of ill
health, physical or mental disability or any other reason beyond his or her control, is
unable to perform his or her duties of employment for a period of six (6) continuous
months, as determined in good faith by the Committee; provided that, with respect to any
Incentive Stock Option, Total and Permanent Disability shall have the meaning given it
under the rules governing Incentive Stock Options under the Code.

ARTICLE 3

ADMINISTRATION

          Subject to the terms of this Article 3, the Plan shall be administered by the Board or such
committee of the Board as is designated by the Board to administer the Plan (the “Committee”). The
Committee shall consist of not fewer than two persons. Any member of the Committee may be removed
at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the
membership of the Committee may be filled by appointment by the Board. At any time there is no
Committee to administer the Plan, any references in this Plan to the Committee shall be deemed to
refer to the Board.

 

 

          If necessary to satisfy the requirements of Section 162(m) of the Code and/or Rule 16b-3
promulgated under the 1934 Act, membership on the Committee shall be limited to those members of
the Board who are “outside directors” under Section 162(m) of the Code and “non-employee directors”
as defined in Rule 16b-3 promulgated under the 1934 Act. The Committee shall select one of its
members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act
of a majority of the members of the Committee present at a meeting at which a quorum is present
shall be the act of the Committee.

          The Committee shall determine and designate from time to time the eligible persons to whom
Awards will be granted and shall set forth in each related Award Agreement, where applicable, the
Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance
requirements, as are approved by the Committee, but not inconsistent with the Plan. The Committee
shall determine whether an Award shall include one type of Incentive or two or more Incentives
granted in combination. Although the members of the Committee shall be eligible to receive Awards,
no member of the Committee shall participate in any decisions regarding any Award granted hereunder
to such member. All decisions with respect to any Award, and the terms and conditions thereof, to
be granted under the Plan to any member of the Committee shall be made solely and exclusively by the other members of the Committee, or if such
member is the only member of the Committee, by the Board.

          The Committee, in its discretion, shall (i) interpret the Plan, (ii) prescribe, amend, and
rescind any rules and regulations necessary or appropriate for the administration of the Plan,
(iii) establish performance goals for an Award and certify the extent of their achievement, and
(iv) make such other determinations or certifications and take such other action as it deems
necessary or advisable in the administration of the Plan. Any interpretation, determination, or
other action made or taken by the Committee shall be final, binding, and conclusive on all
interested parties.

          The Committee may delegate to officers of the Company, pursuant to a written delegation, the
authority to perform specified functions under the Plan. Any actions taken by any officers of the
Company pursuant to such written delegation of authority shall be deemed to have been taken by the
Committee. Notwithstanding the foregoing, to the extent necessary to satisfy the requirements of
Section 162(m) of the Code and/or Rule 16b-3 promulgated under the 1934 Act, any function relating
to a Reporting Participant or a covered employee (as defined in Section 162(m) of the Code) shall
be performed solely by the Committee.

          With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3
promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of
any exchange or inter-dealer quotation system upon which the Company’s securities are listed or
quoted, or any other applicable law, rule or restriction (collectively, “applicable law”), to the
extent that any such restrictions are no longer required by applicable law, the Committee shall
have the sole discretion and authority to grant Awards that are not subject to such mandated
restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.

ARTICLE 4

ELIGIBILITY

          Any Employee (including an Employee who is also a director or an officer), Outside Director,
or Consultant of the Company whose judgment, initiative, and efforts contributed or may be expected
to contribute to the successful performance of the Company is eligible to participate in the Plan;
provided that only Employees of a Corporation shall be eligible to receive Incentive Stock Options.
The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any
Employee, Outside Director, or Consultant of the Company or any Subsidiary. Awards may be granted
by the Committee at any time and from time to time to new Participants, or to then Participants, or
to a greater or lesser number of Participants, and may include or exclude previous Participants, as
the Committee shall determine. Except as required by this Plan, Awards granted at different times
need not contain similar provisions. The Committee’s determinations under the Plan (including
without limitation determinations of which Employees, Outside Directors, or Consultants, if any,
are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such
Awards and the agreements evidencing same) need not be uniform and may be made by it selectively
among Participants who receive, or are eligible to receive, Awards under the Plan.

 

 

ARTICLE 5

SHARES SUBJECT TO PLAN

	5.1	 	Number Available for Awards. Subject to adjustment as provided in Articles 11 and 12, the
maximum number of shares of Common Stock that may be delivered pursuant to Awards granted
under the Plan is 5,000,000 shares. Shares to be issued may be made available from authorized
but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the Company on the open market or otherwise. During the term of this Plan, the
Company will at all times reserve and keep available the number of shares of Common Stock that
shall be sufficient to satisfy the requirements of this Plan.
	 
	5.2	 	Reuse of Shares. Subject to Section 5.2(c), if, and to the extent:

     (a) A Stock Option shall expire or terminate for any reason without having been
exercised in full, or in the event that a Stock Option is exercised or settled in a manner
such that some or all of the shares of Common Stock relating to the Stock Option are not
issued to the Participant (or beneficiary) (including as the result of the use of shares
for withholding taxes), the shares of Common Stock subject thereto which have not become
outstanding shall (unless the Plan shall have sooner terminated) become available for
issuance under the Plan; in addition, with respect to any share-for-share exercise or
cashless exercise pursuant to Section 8.3 or otherwise, only the “net” shares issued shall
be deemed to have become outstanding for purposes of the Plan as a result thereof.

     (b) If shares of Restricted Stock under the Plan are forfeited for any reason, such
shares of Restricted Stock shall (unless the Plan shall have sooner terminated) become
available for issuance under the Plan; provided, however, that if any dividends paid with
respect to shares of Restricted Stock were paid to the Participant prior to the forfeiture
thereof, such shares shall not be reused for grants or awards.

     (c) In no event shall the number of shares of Common Stock subject to Incentive Stock
Options exceed, in the aggregate, 5,000,000 shares of Common Stock plus shares subject to
Incentive Stock Options which are forfeited or terminated, or expire unexercised.

ARTICLE 6

GRANT OF AWARDS

	6.1	 	In General. The Company shall execute an Award Agreement with a Participant after the
Committee approves the issuance of an Award. Any Award granted pursuant to this Plan must be
granted within ten (10) years after the date of adoption of this Plan. The Plan shall be
submitted to the Company’s stockholders for approval; however, the Committee may grant Awards
under the Plan prior to the time of stockholder approval. Any such Award granted prior to
such stockholder approval shall be made subject to such stockholder approval. The grant of an
Award to a Participant shall not be deemed either to entitle the Participant to, or to
disqualify the Participant from, receipt of any other Award under the Plan.
	 
	6.2	 	Stock Options. The grant of an Award of Stock Options shall be authorized by the Committee
and shall be evidenced by an Award Agreement setting forth: (i) the Incentive or Incentives
being granted, (ii) the total number of shares of Common Stock subject to the Incentive(s),
(iii) the Option Price, (iv) the Award Period, (v) the Date of Grant, (vi) resale restrictions
or limitation on resale, and (vii) such other terms, provisions, limitations, and performance
objectives, as are approved by the Committee, but not inconsistent with the Plan.
	 
	6.3	 	Option Price. The Option Price for any share of Common Stock which may be purchased under a
Nonqualified Stock Option for any share of Common Stock may be less than, equal to, or greater
than the Fair Market Value of the share on the Date of Grant. The Option Price for any share
of Common Stock which may be purchased under an Incentive Stock Option must be at least equal
to the Fair Market Value of the share on the Date of Grant.
	 
	6.4	 	Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to
any Employee which would permit the aggregate Fair Market Value (determined on the Date of
Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any
other plan of the Company and its Subsidiaries) are exercisable for the first time by such
Employee during any calendar year to exceed $100,000. To the extent any Stock Option granted
under this Plan which is designated as

 

 

	 	 	an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an Incentive
Stock Option, such Stock Option (or any such portion thereof) shall be a Nonqualified
Stock Option. In such case, the Committee shall designate which stock will be treated as
Incentive Stock Option stock by causing the issuance of a separate stock certificate and
identifying such stock as Incentive Stock Option stock on the Company’s stock transfer
records.
	 
	6.5	 	Restricted Stock. If Restricted Stock is granted to or received by a Participant under an
Award (including a Stock Option), the Committee shall set forth in the related Award
Agreement: (i) the number of shares of Common Stock awarded, (ii) the price, if any, to be
paid by the Participant for such Restricted Stock and the method of payment of the price,
(iii) the time or times within which such Award may be subject to forfeiture, (iv) specified
performance goals of the Company, a Subsidiary, any division thereof or any group of Employees
of the Company, or other criteria, which the Committee determines must be met in order to
remove any restrictions (including vesting) on such Award, and (v) all other terms,
limitations, restrictions, and conditions of the Restricted Stock, which shall be consistent
with this Plan. The provisions of Restricted Stock need not be the same with respect to each
Participant. If the Committee establishes a purchase price for an Award of Restricted Stock,
the Participant must accept such Award within a period of thirty (30) days (or such shorter
period as the Committee may specify) after the Date of Grant by executing the applicable Award
Agreement and paying such purchase price.

	 	(a)	 	Legend on Shares. Each Participant who is awarded or receives Restricted
Stock shall be issued a stock certificate or certificates in respect of such shares
of Common Stock. Such certificate(s) shall be registered in the name of the
Participant, and shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such Restricted Stock, substantially as provided in
Section 15.11 of the Plan.
	 
	 	(b)	 	Restrictions and Conditions. Shares of Restricted Stock shall be subject to
the following restrictions and conditions:

	 	i.	 	Subject to the other provisions of this
Plan and the terms of the particular Award Agreements, during such
period as may be determined by the Committee commencing on the Date
of Grant or the date of exercise of an Award (the “Restriction
Period”), the Participant shall not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock. Except for
these limitations, the Committee may in its sole discretion, remove
any or all of the restrictions on such Restricted Stock whenever it
may determine that, by reason of changes in applicable laws or other
changes in circumstances arising after the date of the Award, such
action is appropriate.
	 
	 	ii.	 	Except as provided in sub-paragraph (i)
above or in the applicable Award Agreement, the Participant shall
have, with respect to his or her Restricted Stock, all of the rights
of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon. Certificates
for shares of Common Stock free of restriction under this Plan shall
be delivered to the Participant promptly after, and only after, the
Restriction Period shall expire without forfeiture in respect of
such shares of Common Stock or after any other restrictions imposed
in such shares of Common Stock by the applicable Award Agreement or
other agreement have expired. Certificates for the shares of Common
Stock forfeited under the provisions of the Plan and the applicable
Award Agreement shall be promptly returned to the Company by the
forfeiting Participant. Each Award Agreement shall require that each
Participant, in connection with the issuance of a certificate for
Restricted Stock, shall endorse such certificate in blank or execute
a stock power in form satisfactory to the Company in blank and
deliver such certificate and executed stock power to the Company.
	 
	 	iii.	 	The Restriction Period of Restricted
Stock shall commence on the Date of Grant or the date of exercise of
an Award, as specified in the Award Agreement, and, subject to
Article 12 of the Plan, unless otherwise established by the
Committee in the Award Agreement setting forth the terms of the
Restricted Stock, shall expire upon satisfaction of the conditions
set forth in the Award Agreement; such conditions may provide for
vesting based on (i) length of continuous service, (ii)

 

 

	 	 	 	achievement of specific business objectives, (iii) increases in
specified indices, (iv) attainment of specified growth rates, or (v)
other comparable measurements of Company performance, as may be
determined by the Committee in its sole discretion.
	 
	 	iv.	 	Except as otherwise provided in the
particular Award Agreement, upon Termination of Service for any
reason during the Restriction Period, the non-vested shares of
Restricted Stock shall be forfeited by the Participant. In the
event a Participant has paid any consideration to the Company for
such forfeited Restricted Stock, the Committee shall specify in the
Award Agreement that either (i) the Company shall be obligated to,
or (ii) the Company may, in its sole discretion, elect to, pay to
the Participant, as soon as practicable after the event causing
forfeiture, in cash, an amount equal to the lesser of the total
consideration paid by the Participant for such forfeited shares or
the Fair Market Value of such forfeited shares as of the date of
Termination of Service, as the Committee, in its sole discretion
shall select. Upon any forfeiture, all rights of a Participant with
respect to the forfeited shares of the Restricted Stock shall cease
and terminate, without any further obligation on the part of the
Company.

	6.6	 	Maximum Individual Grants. No Participant may receive during any single grant of the Company
Awards covering an aggregate of more than 500,000 shares of Common Stock.

ARTICLE 7

AWARD PERIOD; VESTING

	7.1	 	Award Period.

	 	(a)	 	Subject to the other provisions of this Plan, the Committee shall specify in
the Award Agreement the Award Period for a Stock Option. No Stock Option granted under
the Plan may be exercised at any time after the end of its Award Period. The Award
Period for any Stock Option shall be no more than ten (10) years from the Date of Grant
of the Stock Option.
	 
	 	(b)	 	In the event of a Termination of Service of a Participant, the Award Period for
a Stock Option shall be reduced or terminated in accordance with the Award Agreement.

	7.2	 	Vesting. The Committee, in its sole discretion, may determine that an Incentive will be
immediately vested in whole or in part, or that all or any portion may not be vested until a
date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more
specified events, subject in any case to the terms of the Plan. If the Committee imposes
conditions upon vesting, then, subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of the Incentive may be vested.

ARTICLE 8

EXERCISE OF INCENTIVE

	7.1	 	In General. The Committee, in its sole discretion, may determine that a Stock Option will be
immediately exercisable, in whole or in part, or that all or any portion may not be exercised
until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or
more specified events, subject in any case to the terms of the Plan. If a Stock Option is
exercisable prior to the time it is vested, the Common Stock obtained on the exercise of the
Stock Option shall be Restricted Stock which is subject to the applicable provisions of the
Plan and the Award Agreement. If the Committee imposes conditions upon exercise, then
subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the
date on which all or any portion of the Stock Option may be exercised. No Stock Option may be
exercised for a fractional share of Common Stock. The granting of a Stock Option shall impose
no obligation upon the Participant to exercise that Stock Option.
	 
	7.2	 	Securities Law and Exchange Restrictions. In no event may an Incentive be exercised or shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of
the shares of Common Stock on a stock exchange or inter-dealer quotation system or any
registration under state or federal securities laws required under the circumstances has not
been accomplished.

 

 

	7.3	 	Exercise of Stock Option.

	 	(a)	 	Notice and Payment. Subject to such administrative regulations as the
Committee may from time to time adopt, a Stock Option may be exercised by the delivery
of written notice to the Committee setting forth the number of shares of Common Stock
with respect to which the Stock Option is to be exercised and the date of exercise
thereof (the “Exercise Date”) which shall be at least three (3) days after giving such
notice unless an earlier time shall have been mutually agreed upon. On the Exercise
Date, the Participant shall deliver to the Company consideration with a value equal to
the total Option Price of the shares to be purchased, payable as provided in the Award
Agreement, which may provide for payment in any one or more of the following ways: (a)
cash or check, bank draft, or money order payable to the order of the Company, (b)
Common Stock (excluding Restricted Stock) owned by the Participant on the Exercise
Date, valued at its Fair Market Value on the Exercise Date, and which the Participant
has not acquired from the Company within six (6) months prior to the Exercise Date, (c)
so long as the Common Stock is not Nonpublicly Traded, by delivery (including by FAX)
to the Company or its designated agent of an executed irrevocable option exercise form
together with irrevocable instructions from the Participant to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the shares of Common Stock
purchased upon exercise of the Stock Option or to pledge such shares as collateral for
a loan and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price, and/or (d) in any other form of valid
consideration that is acceptable to the Committee in its sole discretion.
	 
	 	(b)	 	Reload Stock Options. In the event that shares of Common Stock are delivered
by a Participant in payment of all or a portion of the exercise price of a Stock Option
as set forth in Section 8.3(a) above and/or shares of Common Stock are delivered to or
withheld by the Company in satisfaction of the Company’s tax withholding obligations
upon exercise in accordance with Section 15.6 hereof, then, subject to Article 10
hereof, the Committee may authorize the automatic grant to a Participant so exercising
a Nonqualified Stock Option, a replacement Nonqualified Stock Option, and to a
Participant so exercising an Incentive Stock Option, a replacement Incentive Stock
Option (in either case, a “Reload Stock Option”), to purchase that number of shares so
delivered to or withheld by the Company, as the case may be, at an option exercise
price equal to the Fair Market Value per share of the Common Stock on the date of
exercise of the original Stock Option (subject to the provisions of the Plan regarding
Incentive Stock Options and, in any event not less than the par value per share of the
Common Stock). The option period for a Reload Stock Option will commence on its Date of
Grant and expire on the expiration date of the original Stock Option it replaces
(subject to the provisions of the Plan regarding Incentive Stock Options), after which
period the Reload Stock Option cannot be exercised. The Date of Grant of a Reload
Stock Option shall be the date that the Stock Option it replaces is exercised. A
Reload Stock Option shall automatically vest and be exercisable in full after the
expiration of six (6) months from its Date of Grant. It shall be a condition to the
grant of a Reload Stock Option that promptly after its Date of Grant, a stock option
agreement shall be delivered to the Participant and executed by the Participant and the
Company which sets forth the total number of shares subject to the Reload Stock Option,
the option exercise price, the option period of the Reload Stock Option and such other
terms and provisions as are consistent with the Plan.
	 
	 	(c)	 	Issuance of Certificate. Except as otherwise provided in Section 6.5 hereof
(with respect to shares of Restricted Stock) or in the applicable Award Agreement, upon
payment of all amounts due from the Participant, the Company shall cause certificates
for the Common Stock then being purchased to be delivered as directed by the
Participant (or the person exercising the Participant’s Stock Option in the event of
his death) at its principal business office promptly after the Exercise Date; provided
that if the Participant has exercised an Incentive Stock Option, the Company may at its
option retain physical possession of the certificate evidencing the shares
acquired upon exercise until the expiration of the holding periods described in Section
422(a)(1) of the Code. The obligation of the Company to deliver shares of Common Stock
shall, however, be subject to the condition that, if at any time the Committee shall
determine in its discretion that the listing, registration, or qualification of the
Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation
system or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary as a condition of, or in connection with,
the Stock Option or the issuance or purchase of shares of Common Stock thereunder, the
Stock Option may not be exercised in whole or in part unless such listing,
registration,

 

 

	 	 	 	qualification, consent, or approval shall have been effected or obtained free of any
conditions not reasonably acceptable to the Committee.
	 
	 	(d)	 	Failure to Pay. If the Participant fails to pay for any of the Common Stock
specified in such notice or fails to accept delivery thereof, the Participant’s Stock
Option and right to purchase such Common Stock may be forfeited by the Company.

	8.4	 	Disqualifying Disposition of Incentive Stock Option. If shares of Common Stock acquired upon
exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration
of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the
transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock
Option, or in any other disqualifying disposition within the meaning of Section 422 of the
Code, such Participant shall notify the Company in writing of the date and terms of such
disposition. A disqualifying disposition by a Participant shall not affect the status of any
other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of
Section 422 of the Code.

ARTICLE 9

AMENDMENT OR DISCONTINUANCE

          Subject to the limitations set forth in this Article 9, the Board may at any time and from
time to time, without the consent of the Participants, alter, amend, revise, suspend, or
discontinue the Plan in whole or in part; provided, however, that no amendment which requires
stockholder approval in order for the Plan and Incentives awarded under the Plan to continue to
comply with Sections 162(m), 421, and 422 of the Code, including any successors to such Sections,
shall be effective unless such amendment shall be approved by the requisite vote of the
stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent
deemed necessary or advisable by the Committee, be applicable to any outstanding Incentives
theretofore granted under the Plan, notwithstanding any contrary provisions contained in any Award
Agreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding
under the Plan shall, upon request of the Committee and as a condition to the exercisability
thereof, execute a conforming amendment in the form prescribed by the Committee to any Award
Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this Article 9 shall adversely affect any
rights of Participants or obligations of the Company to Participants with respect to any Incentive
theretofore granted under the Plan without the consent of the affected Participant.

ARTICLE 10

TERM

          The Plan shall be effective from the date that this Plan is approved by the Board. Unless
sooner terminated by action of the Board, the Plan will terminate on July 12, 2015, but Incentives
granted before that date will continue to be effective in accordance with their terms and
conditions.

ARTICLE 11

CAPITAL ADJUSTMENTS

          In the event that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other property), recapitalization,
stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up,
spin-off, split-off, combination, subdivision, repurchase, or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event affects the Common Stock
such that an adjustment is determined by the Committee to be appropriate to prevent the dilution or
enlargement of the benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or all of the (i) the
number of shares and type of Common Stock (or the securities or property) which thereafter may be made
the subject of Awards, (ii) the number of shares and type of Common Stock (or other securities or property) subject to outstanding
Awards, (iii) the number of shares and type of Common Stock (or other securities or property)
specified as the annual per-participant limitation under Section 6.6 of the Plan, (iv) the
Option Price of each outstanding Award, and (v) the amount, if any, the Company pays for forfeited
shares of Common Stock in accordance with Section 6.5; provided however, that the number of shares
of Common Stock (or other securities or property) subject to any Award shall always be a whole
number. In lieu of the foregoing, if deemed appropriate, the Committee may make provision for a
cash payment to the holder of an outstanding Award. Notwithstanding the foregoing, no such
adjustment or cash payment shall be made or authorized to the extent that

 

 

such adjustment or cash payment would cause the Plan or any Stock Option to violate Code Section
422. Such adjustments shall be made in accordance with the rules of any securities exchange, stock
market, or stock quotation system to which the Company is subject.

          Upon the occurrence of any such adjustment or cash payment, the Company shall provide notice
to each affected Participant of its computation of such adjustment or cash payment which shall be
conclusive and shall be binding upon each such Participant.

ARTICLE 12

RECAPITALIZATION, MERGER AND CONSOLIDATION

	12.1	 	No Effect on Company’s Authority. The existence of this Plan and Incentives granted
hereunder shall not affect in any way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes
in the Company’s capital structure and its business, or any merger or consolidation of the
Company, or any issuance of bonds, debentures, preferred or preference stocks ranking prior to
or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or
warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
	 
	12.2	 	Conversion of Incentives Where Company Survives. Subject to any required action by the
stockholders, if the Company shall be the surviving or resulting corporation in any merger,
consolidation or share exchange, any Incentive granted hereunder shall pertain to and apply to
the securities or rights (including cash, property, or assets) to which a holder of the number
of shares of Common Stock subject to the Incentive would have been entitled.
	 
	12.3	 	Exchange or Cancellation of Incentives Where Company Does Not Survive. In the event of any
merger, consolidation or share exchange pursuant to which the Company is not the surviving or
resulting corporation, there shall be substituted for each share of Common Stock subject to
the unexercised portions of outstanding Stock Options, that number of shares of each class of
stock or other securities or that amount of cash, property, or assets of the surviving,
resulting or consolidated company which were distributed or distributable to the stockholders
of the Company in respect to each share of Common Stock held by them, such outstanding Stock
Options to be thereafter exercisable for such stock, securities, cash, or property in
accordance with their terms.
	 
	 	 	Notwithstanding the foregoing, however, all Stock Options may be canceled by the Company, in
its sole discretion, as of the effective date of any such reorganization, merger,
consolidation, or share exchange, or of any proposed sale of all or substantially all of the
assets of the Company, or of any dissolution or liquidation of the Company, by either:

	 	(a)	 	giving notice to each holder thereof or his personal representative of its
intention to cancel such Stock Options and permitting the purchase during the thirty
(30) day period next preceding such effective date of any or all of the shares subject
to such outstanding Stock Options, including in the Board’s discretion some or all of
the shares as to which such Stock Options would not otherwise be vested and
exercisable; or
	 
	 	(b)	 	paying the holder thereof an amount equal to a reasonable estimate of the
difference between the net amount per share payable in such transaction or as a result
of such transaction, and the exercise price per share of such Stock Option (hereinafter
the “Spread”), multiplied by the number of shares subject to the Stock Option. In
cases where the shares constitute, or would after exercise, constitute Restricted
Stock, the Company, in its discretion may include some or all of those shares in the
calculation of the amount payable hereunder. In estimating the Spread, appropriate
adjustments to give effect to the existence of the Stock Options shall be made,
such as deeming the Stock Options to have been exercised, with the Company
receiving the exercise price payable thereunder, and treating the shares receivable
upon exercise of the Options as being outstanding in determining the net amount per
share. In cases where the proposed transaction consists of the acquisition of assets
of the Company, the net amount per share shall be calculated on the basis of the net
amount receivable with respect to shares of Common Stock upon a distribution and
liquidation by the Company after giving effect to expenses and charges, including but
not limited to taxes, payable by the Company before such liquidation could be
completed.

 

 

ARTICLE 13

LIQUIDATION OR DISSOLUTION

          Subject to Section 12.3 hereof, in case the Company shall, at any time while any Incentive
under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its
property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall be
entitled to receive, in lieu of each share of Common Stock of the Company which such Participant
would have been entitled to receive under the Incentive, the same kind and amount of any securities
or assets as may be issuable, distributable, or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of Common Stock of the Company. If the
Company shall, at any time prior to the expiration of any Incentive, make any partial distribution
of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but
excluding the distribution of a cash dividend payable out of earned surplus and designated as such)
then in such event the Option Prices then in effect with respect to each Stock Option shall be
reduced, on the payment date of such distribution, in proportion to the percentage reduction in the
tangible book value of the shares of the Company’s Common Stock (determined in accordance with
generally accepted accounting principles) resulting by reason of such distribution.

ARTICLE 14

INCENTIVES IN SUBSTITUTION FOR

INCENTIVES GRANTED BY OTHER ENTITIES

          Incentives may be granted under the Plan from time to time in substitution for similar
instruments held by employees or directors of a corporation, partnership, or limited liability
company who become or are about to become Employees or Outside Directors of the Company or any
Subsidiary as a result of a merger or consolidation of the employing corporation with the Company,
the acquisition by the Company of equity of the employing entity, or any other similar transaction
pursuant to which the Company becomes the successor employer. The terms and conditions of the
substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to
such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in
part, to the provisions of the Incentives in substitution for which they are granted.

ARTICLE 15

MISCELLANEOUS PROVISIONS

	15.1	 	Investment Intent. The Company may require that there be presented to and filed with it by
any Participant under the Plan, such evidence as it may deem necessary to establish that the
Incentives granted or the shares of Common Stock to be purchased or transferred are being
acquired for investment and not with a view to their distribution.
	 
	15.2	 	Nonpublicly Traded Common Stock. In the event a Participant receives, as Restricted Stock or
pursuant to the exercise of a Stock Option, shares of Common Stock that are Nonpublicly Traded
(as defined herein), the Committee may impose restrictions and conditions on the transfer or
other disposition of those shares. The restrictions and conditions may be reflected in the
Award Agreement or in a separate stockholders’ agreement.
	 
	15.3	 	No Right to Continued Employment. Neither the Plan nor any Incentive granted under the Plan
shall confer upon any Participant any right with respect to continuance of employment by the
Company or any Subsidiary.
	 
	15.4	 	Indemnification of Board and Committee. No member of the Board or the Committee, nor any
officer or Employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or made in good faith
with respect to the Plan, and all members of the Board and the Committee, each officer of the
Company, and each Employee of the Company acting on behalf of the Board or the Committee
shall, to the extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination, or interpretation.
	 
	15.5	 	Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any person any right to be granted an Award or any other
rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly
authorized by the Committee and executed on behalf of the Company, and then only to the extent
and upon the terms and conditions expressly set forth therein.

 

 

	15.6	 	Compliance With Other Laws and Regulations. Notwithstanding anything contained herein to the
contrary, the Company shall not be required to sell or issue shares of Common Stock under any
Incentive if the issuance thereof would constitute a violation by the Participant or the
Company of any provisions of any law or regulation of any governmental authority or any
national securities exchange or inter-dealer quotation system or other forum in which shares
of Common Stock are quoted or traded (including without limitation Section 16 of the 1934 Act
and Section 162(m) of the Code); and, as a condition of any sale or issuance of shares of
Common Stock under an Incentive, the Committee may require such agreements or undertakings, if
any, as the Committee may deem necessary or advisable to assure compliance with any such law
or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation
of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required.
	 
	15.7	 	Lock-up Agreement. The Company may require that an Award Agreement include a provision
requiring a Participant to agree that in connection with an underwritten public offering of
Common Stock, upon the request of the Company or the principal underwriter managing such
public offering, no shares of Common Stock received by the Participant under such Award
Agreement may be sold, offered for sale or otherwise disposed of without the prior written
consent of the Company or such underwriter, as the case may be, for at least 180 days after
the effectiveness of the registration statement filed in connection with such offering, or
such longer period of time as the Board may determine, if all of the Company’s directors and
officers agree to be similarly bound. The obligations under this Section 15.7 shall remain
effective for all underwritten public offerings with respect to which the Company has filed a
registration statement, provided, however, that this Section 15.7 shall cease to apply to any
such shares of Common Stock sold to the public pursuant to an effective registration statement
or an exemption from the registration requirements of the Securities Act in a transaction that
complied with the terms of the applicable Award Agreement.
	 
	15.8	 	Tax Requirements. The Company shall have the right to deduct from all amounts hereunder paid
in cash or other form, any Federal, state, or local taxes required by law to be withheld with
respect to such payments. The Participant receiving shares of Common Stock issued under the
Plan shall be required to pay the Company the amount of any taxes which the Company is
required to withhold with respect to such shares of Common Stock. Notwithstanding the
foregoing, in the event of an assignment of a Nonqualified Stock Option pursuant to Section
15.9, the Participant who assigns the Nonqualified Stock Option shall remain subject to
withholding taxes upon exercise of the Nonqualified Stock Option by the transferee to the
extent required by the Code or the rules and regulations promulgated thereunder. Such
payments shall be required to be made prior to the delivery of any certificate representing
such shares of Common Stock. Such payment may be made (i) by the delivery of cash to the
Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under
(iii) below) the required tax withholding obligation of the Company; (ii) if the Company, in
its sole discretion, so consents in writing, the actual delivery by the exercising Participant
to the Company of shares of Common Stock that the Participant has not acquired from the
Company within six months prior to the date of exercise, which shares so delivered have an
aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares
under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole
discretion, so consents in writing, the Company’s withholding of a number of shares to be
delivered upon the exercise of the Stock Option, which shares so withheld have an aggregate
fair market value that equals (but does not exceed) the required tax withholding payment; or
(iv) any combination of (i), (ii), or (iii).
	 
	15.9	 	Stock Option Assignability. Incentive Stock Options may not be transferred, assigned,
pledged, hypothecated or otherwise conveyed or encumbered other than by will or the laws of
descent and distribution and may be exercised during the lifetime of the Participant only by
the Participant or the Participant’s legally authorized representative, and each Award
Agreement in respect of an Incentive Stock Option shall so provide. The designation by a
Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee
may waive or modify any limitation contained in the preceding sentences of this Section 15.9
that is not required for compliance with Section 422 of the Code.
	 
	 	 	Except as otherwise provided herein, Nonqualified Stock Options may not be transferred,
assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will or
the laws of descent and distribution. The Committee may, in its discretion, authorize all
or a portion of a Nonqualified Stock Option granted to a Participant to be on terms which
permit transfer by such Participant to (i) the spouse (or former spouse), children or
grandchildren of the Participant (“Immediate Family Members”), (ii) a trust or trusts for
the exclusive benefit of such Immediate Family Members, (iii) a partnership in which the
only partners are (1) such Immediate Family Members and/or (2) entities which are controlled
by Immediate

 

 

	 	 	Family Members, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3)
of the Code or any successor provision, or (v) a split interest trust or pooled income fund
described in Section 2522(c)(2) of the Code or any successor provision, provided that (x)
there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to
which such Nonqualified Stock Option is granted must be approved by the Committee and must
expressly provide for transferability in a manner consistent with this Section, and (z)
subsequent transfers of transferred Nonqualified Stock Options shall be prohibited except
those by will or the laws of descent and distribution.
	 
	 	 	Following any transfer, any such Nonqualified Stock Option shall continue to be subject to
the same terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of Articles 8, 9, 11, 13 and 15 hereof the term “Participant” shall be
deemed to include the transferee. The events of Termination of Service shall continue to be
applied with respect to the original Participant, following which the Nonqualified Stock
Options shall be exercisable by the transferee only to the extent and for the periods
specified in the Award Agreement. The Committee and the Company shall have no obligation to
inform any transferee of a Nonqualified Stock Option of any expiration, termination, lapse
or acceleration of such Stock Option. The Company shall have no obligation to register with
any federal or state securities commission or agency any Common Stock issuable or issued
under a Nonqualified Stock Option that has been transferred by a Participant under this
Section 15.9.
	 
	15.10	 	Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives
granted under this Plan shall constitute general funds of the Company.
	 
	15.11	 	Legend. Each certificate representing shares of Restricted Stock issued to a Participant
shall bear the following legend, or a similar legend deemed by the Company to constitute an
appropriate notice of the provisions hereof (any such certificate not having such legend shall
be surrendered upon demand by the Company and so endorsed):
	 
	 	 	On the face of the certificate:

“Transfer of this stock is restricted in accordance with conditions printed on the
reverse of this certificate.”

On the reverse:

“The shares of stock evidenced by this certificate are subject to and transferable
only in accordance with that certain Axcess International Inc. 2005 Equity Incentive
Plan, a copy of which is on file at the principal office of the Company in
Carrollton, Texas. No transfer or pledge of the shares evidenced hereby may be made
except in accordance with and subject to the provisions of said Plan. By acceptance
of this certificate, any holder, transferee or pledgee hereof agrees to be bound by
all of the provisions of said Plan.”

The following legend shall be inserted on a certificate evidencing Common Stock issued under
the Plan if the shares were not issued in a transaction registered under the applicable
federal and state securities laws:

“Shares of stock represented by this certificate have been acquired by the holder
for investment and not for resale, transfer or distribution, have been issued
pursuant to exemptions from the registration requirements of applicable state and
federal securities laws, and may not be offered for sale, sold or transferred other
than pursuant to effective registration under such laws, or in transactions
otherwise in compliance with such laws, and upon evidence satisfactory to the
Company of compliance with such laws, as to which the Company may rely upon an
opinion of counsel satisfactory to the Company.”

A copy of this Plan shall be kept on file in the principal office of the Company in
Carrollton, Texas.

 

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of May 10, 2005
by its Chief Executive Officer and Secretary pursuant to prior action taken by the Board.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	AXCESS INTERNATIONAL, INC.
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	By:
	 	/S/ Allan Griebenow
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:
	 	Allan Griebenow
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Title:
	 	President and Chief Executive Officer
	 
	 	 	 	 	 	 	 	 	 	 
	Attest:
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/S/ Allan Frank	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Name:

	 	Allan Frank	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	Chief Financial Officer

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