Document:

<PAGE>

                                                                    EXHIBIT 10.2

                             AVANIR PHARMACEUTICALS
                          RESTRICTED STOCK GRANT NOTICE
                  (AMENDED AND RESTATED 2000 STOCK OPTION PLAN)

Avanir Pharmaceuticals (the "Company"), pursuant to its Amended and Restated
2000 Stock Option Plan (the "Plan"), hereby grants to the participant under the
Plan (the "Participant") the number of shares (the "Shares") of the Company's
Class A Common Stock, no par value (the "Common Stock"), set forth below (the
"Award"). This Award is subject to all of the terms and conditions as set forth
in this Restricted Stock Grant Notice (the "Grant Notice"), and in the Stock
Purchase Agreement, the Plan, the form of Assignment Separate from Certificate
and the form of Joint Escrow Instructions, all of which are attached hereto and
incorporated herein in their entirety.

Participant:

Date of Grant:

Vesting Commencement
Date:

Number of Shares
Subject to Award:

Vesting Schedule:          The Shares shall vest and be subject to no further
                           restrictions under the Plan upon Participant's
                           termination of service as a Director of the Company,
                           whether, for example, by death, resignation, or
                           retirement in accordance with the Company's regular
                           retirement policy or Corporate Governance Guidelines,
                           provided such termination is not for cause as
                           determined under Section 304 of the California
                           General Corporation Law and, provided, further, that
                           the expiration of Awardee's current term of office as
                           a Director shall not be considered termination of
                           service as a Director of the Company if Participant
                           is elected to one or more succeeding terms as a
                           Director of the Company.

Additional Terms/Acknowledgements: The undersigned Awardee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Stock Purchase
Agreement, the Plan, the form of Assignment Separate from Certificate and the
form of Joint Escrow Instructions. Awardee further acknowledges that as of the
Date of Grant, this Grant Notice, the Stock Purchase Agreement, the Joint Escrow
Instructions and the Plan, set forth the entire understanding between Awardee
and the Company regarding the acquisition of stock in the Company and supersede
all prior oral and written agreements relating thereto, with the exception of
other awards previously granted and delivered to Awardee under the Plan.

AVANIR PHARMACEUTICALS                        AWARDEE:

By: _____________________________             By: _____________________________
           Signature                                       Signature

<PAGE>

Name: ___________________________
Title: __________________________

                                       2

<PAGE>

         Attachment I: Stock Purchase Agreement

         Attachment II: Amended and Restated 2000 Stock Option Plan

         Attachment III: Form of Assignment Separate from Certificate

         Attachment IV: Form of Joint Escrow Instructions

         Attachment V: Spousal Consent

                                       3

<PAGE>

                                    EXHIBIT I

                             AVANIR PHARMACEUTICALS
                   AMENDED AND RESTATED 2000 STOCK OPTION PLAN
                            STOCK PURCHASE AGREEMENT

         STOCK PURCHASE AGREEMENT (the "Agreement"), dated ____________, 200_,
by and between [Director Name] ("Participant") and Avanir Pharmaceuticals, a
California corporation (the "Company").

                                    RECITALS

         WHEREAS, the Company has adopted the Avanir Pharmaceuticals Amended and
Restated 2000 Stock Option Plan (the "Plan"), which provides for awards of
restricted stock to the Company's Directors; and

         WHEREAS, Participant is currently serving as a Director of the Company;
and

         WHEREAS, the Company desires to issue to Participant, and Participant
desires to acquire from the Company, shares of Class A Common Stock, no par
value, of the Company ("Common Stock"), pursuant to the provisions of the Plan.

         NOW THEREFORE, in consideration of the foregoing, and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:

1.   DEFINITIONS.

         Capitalized terms not explicitly defined in this Agreement but defined
in the Plan shall have the same meanings ascribed to them in the Plan.

2.   GRANT OF AWARD.

         Pursuant to the terms of the Restricted Stock Grant Notice ("Grant
Notice") and this Agreement (collectively, the "Award"), the Company hereby
grants to Participant that number of shares of Common Stock set forth in the
Grant Notice (the "Shares").

3.   DELIVERY OF DOCUMENTS.

         The delivery of the Shares shall be effected as follows: Participant
agrees to execute three copies of a blank Assignment Separate from Certificate
substantially in the form attached to the Grant Notice as Attachment III and
Joint Escrow Instructions substantially in the form attached to the Grant Notice
as Attachment IV and to deliver the same in accordance with Section 7 below.
Participant shall also deliver to the Company a signed spousal consent
substantially in the form attached hereto as Attachment V, if he or she is
married on the Date of the Grant set forth in the Grant Notice.

<PAGE>

4.   VESTING.

         Subject to the provisions of the Plan, the Shares shall vest in
accordance with the Grant Notice.

5.   SECURITIES LAW COMPLIANCE.

         Notwithstanding anything to the contrary contained herein, Participant
may not receive any Shares unless they are registered under the Securities Act
and approved for listing on the principal stock exchange on which the Common
Stock trades.

6.   RIGHTS OF REACQUISITION.

         In the event Participant's service as a Director of the Company is
terminated for cause, as determined under Section 304 of the California General
Corporation Law, the Company shall have a right to reacquire (the "Reacquisition
Rights") the Shares received pursuant to the Award that have not yet vested in
accordance with the Vesting Schedule on the Grant Notice (the "Unvested
Shares"). The Company shall, simultaneously with Participant's Termination as a
Director in such event, automatically reacquire all of the Unvested Shares for
the original purchase price thereof, if any, paid by the Participant, unless the
Company agrees to waive its Reacquisition Rights as to any or all of the
Unvested Shares. Any such waiver shall be exercised by the Company by written
notice to Participant or his or her representative (with a copy to the Escrow
Agent) within 30 days after Participant's Termination. If the Company does not
waive its Reacquisition Rights to any or all of the Unvested Shares, the Escrow
Agent shall be notified accordingly and instructed to return the Unvested Shares
to the Company for cancellation.

7.   ESCROW OF UNVESTED COMMON STOCK.

         As security for the faithful performance of the terms of this Agreement
and to insure the availability for delivery of Participant's Common Stock upon
execution of the Reacquisition Rights herein provided for, Participant agrees,
concurrently herewith, to deliver to and deposit with the Secretary of the
Company or the Secretary's designee (the "Escrow Agent"), as Escrow Agent in
this transaction, the certificate or certificates evidencing the Shares and
three executed blank forms of Assignment Separate from Certificate in the form
attached to the Grant Notice as Attachment III. Such documents will be held by
the Escrow Agent and delivered by the Escrow Agent pursuant to the Joint Escrow
Instructions delivered to the Escrow Agent concurrently herewith.

8.   RIGHTS AS SHAREHOLDER.

         Subject to the provisions of this Agreement, Participant shall be
entitled to exercise all rights and privileges of a shareholder of the Company
with respect to the Shares deposited in escrow. Participant shall be deemed to
be the holder of the Shares for purposes of receiving any dividends that may be
paid with respect to such Shares and for purposes of exercising any voting
rights relating to such Shares, even if some or all of the Shares have not yet
vested and been released from the Company's Reacquisition Rights.

                                       2

<PAGE>

9.   LIMITATIONS ON TRANSFER.

         In addition to any other limitation on transfer created by applicable
securities laws, Participant agrees not to sell, assign, hypothecate, donate,
encumber or otherwise dispose of any interest in the Shares except by will or by
the laws of descent and distribution while the Shares are subject to the
Reacquisition Rights.

10.  RESTRICTIVE LEGENDS.

         The stock certificates evidencing the Shares issued under the Award
shall bear appropriate legends determined by the Company.

11.  AWARD NOT A SERVICE CONTRACT.

         The Award is not a service contract and nothing in the Award shall be
deemed to create in any way whatsoever any obligation on the Company, its
shareholders, Board of Directors, officers or employees to continue
Participant's position as a Director of the Company.

12.  WITHHOLDING OBLIGATIONS.

         12.1     At the time the Award is granted, or at any time thereafter as
requested by the Company, Participant authorizes withholding from payroll and
any other amounts payable to him/her, and otherwise agrees to make adequate
provision for, any sums required to satisfy federal, state, local and foreign
tax withholding obligations of the Company or an affiliate, if any, which arise
in connection with the Award.

         12.2     Unless the tax withholding obligations of the Company or any
affiliate are satisfied, the Company shall have no obligation to issue a
certificate for any of the Shares or release any of the Shares from any escrow
provided for herein.

13.  NOTICES.

         Any notices provided for in the Award or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by mail by the Company to Participant, five days after deposit
in the United States mail, postage prepaid, addressed to Participant at the last
address provided by Participant to the Company.

14.  MISCELLANEOUS.

         14.1     The rights and obligations of the Company under the Award
shall be transferable to any one or more persons or entities, and all covenants
and agreements hereunder shall inure to the benefit of, and be enforceable by
the Company's successors and assigns.

         14.2     Participant agrees upon request to execute any further
documents or instruments necessary or desirable in the sole determination of the
Company to carry out the purposes or intent of the Award.

                                       3

<PAGE>

         14.3     Participant acknowledges and agrees that he/she has reviewed
the Award in its entirety, has had an opportunity to obtain the advice of
counsel prior to executing and accepting the Award and fully understands all
provisions of the Award.

15.  GOVERNING PLAN DOCUMENT.

         The Award is subject to all the provisions of the Plan, the provisions
of which are hereby made a part of the Award, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of the Award and those of the Plan, the provisions of the
Plan shall control.

         Participant represents that he or she has read this Agreement, the
Grant Notice and the Plan and is familiar with their terms and provisions.
Participant hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Committee upon any questions arising under
this Agreement.

                  [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

                                       4

<PAGE>

   IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
                            date first above written.

AVANIR PHARMACEUTICALS                        [DIRECTOR NAME]

By: ____________________________              By: _____________________________
             Signature                                      Signature

Name: __________________________

Title: _________________________

                  [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

                                       5

<PAGE>

                                  ATTACHMENT II
                              AMENDED AND RESTATED
                             2000 STOCK OPTION PLAN

<PAGE>

                                 ATTACHMENT III
                      ASSIGNMENT SEPARATE FROM CERTIFICATE

         For Value Received and pursuant to that certain Restricted Stock Grant
Notice and Stock Purchase Agreement (the "Award"), _____________ hereby sells,
assigns and transfers unto Avanir Pharmaceuticals, a California corporation
("Assignee") ________________________ (__________) shares of the Common Stock of
the Assignee, standing in the undersigned's name on the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint the Company's Secretary as attorney-in-fact
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises. This Assignment may be used only in
accordance with and subject to the terms and conditions of the Award, in
connection with the reacquisition of shares of Common Stock of the Corporation
issued to the undersigned pursuant to the Award, and only to the extent that
such shares remain subject to the Corporation's Reacquisition Rights under the
Award.

Dated:__________________________

      Signature:________________

      _______________, Recipient

[Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable execution of the Company's
Reacquisition Rights set forth in the Award without requiring additional
signatures on your part.]

<PAGE>

                                  ATTACHMENT IV
                            JOINT ESCROW INSTRUCTIONS

Date:_________________

Secretary
Avanir Pharmaceuticals
11388 Sorrento Valley Rd
Suite 200
San Diego, CA 92121

Dear Sir/Madam:

         As Escrow Agent for both Avanir Pharmaceuticals, a California
corporation (the "Company"), and the undersigned recipient of stock of the
Company ("Recipient"), you are hereby authorized and directed to hold the
certificate or certificates evidencing the shares (the "Shares") of the
Company's Class A Common Stock, no par value ("Common Stock"), granted under an
Award issued pursuant to the Company's Amended and Restated 2000 Stock Option
Plan (the "Plan") and the documents delivered to you pursuant to that certain
Restricted Stock Grant Notice (the "Grant Notice"), dated _______________,
20___, and Stock Purchase Agreement (the "Agreement") of the same date, in
accordance with the following instructions:

1. In the event Recipient's service as a Director of the Company is terminated
under circumstances set forth in Section 6 of the Agreement, the Company or its
assignee will deliver to Recipient and you a written notice specifying that the
certificate or certificates evidencing the Shares shall be transferred to the
Company for cancellation or further transfer pursuant to any waiver of
Reacquisition Rights pursuant to Section 6 of the Agreement. Recipient and the
Company hereby irrevocably authorize and direct you to complete such transfer in
accordance with the terms of such notice.

2. In order to complete the share transfer, you are specifically directed (a) to
date any forms of Assignments Separate from Certificate in your possession
necessary for the transfer, (b) to insert the number of Shares being transferred
in such forms, and (c) to deliver same, together with the certificate or
certificates evidencing the Shares to the Company.

3. Recipient irrevocably authorizes the Company to deposit with you any
certificates registered in his/her name evidencing the Shares and any additions
to or substitutions for the Shares as specified in the Grant Notice. Recipient
hereby irrevocably constitutes and appoints you as Recipient's attorney-in-fact
and agent for the term of this escrow to execute with respect to such securities
and other property all documents of assignment and/or transfer and all stock
certificates necessary or appropriate to make all securities negotiable and
complete any transaction herein contemplated.

4. This escrow shall terminate upon vesting of the Shares or upon the earlier
return of the Shares to the Company.

5. If at the time of termination of this escrow you have in your possession any
documents, securities, or other property belonging to Recipient, you shall
deliver all of same to Recipient or his/her permitted assigns or representatives
and shall be discharged of all further obligations hereunder.

<PAGE>

6. Your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.

7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely, and shall be protected in relying or
refraining from acting, on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Recipient while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.

8. You are hereby expressly authorized to disregard any and all warnings given
by any of the parties hereto or by any other person or corporation, excepting
only orders or process of courts of law, and are hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court. In case you obey
or comply with any such order, judgment or decree of any court, you shall not be
liable to any of the parties hereto or to any other person, firm or corporation
by reason of such compliance, notwithstanding any such order, judgment or decree
being subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.

9. You shall not be liable in any respect on account of the identity, authority
or rights of the parties executing or delivering or purporting to execute or
deliver the Grant Notice or any documents or papers deposited or called for
hereunder.

10. You shall not be liable for the loss of any rights under any statute of
limitations with respect to these Joint Escrow Instructions or any documents
deposited with you.

11. You shall be entitled to employ such legal counsel, including, but not
limited to the Company's counsel, and other experts as you may deem necessary to
advise you in connection with your obligations hereunder, may rely upon the
advice of such counsel, and may pay such counsel reasonable compensation
therefor.

12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall
cease to be an employee of the Company or if you shall resign by written notice
to each party. In the event of any such termination, the Company may appoint any
officer or assistant officer of the Company as successor Escrow Agent and
Recipient hereby confirms the appointment of such successor or successors as his
attorney-in-fact and agent to the full extent of your appointment.

13. If you reasonably require other or further instruments in connection with
these Joint Escrow Instructions or obligations in respect hereto, the necessary
parties hereto shall join in furnishing such instruments.

14. It is understood and agreed that should any dispute arise with respect to
the delivery and/or ownership or right of possession of the Shares, you may (but
are not obligated to) retain in your possession without liability to anyone all
or any part of such securities until such dispute shall have been settled either
by mutual written agreement of the parties concerned or by a final order, decree
or judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.

                                       2

<PAGE>

15. All of your costs and expenses, including without limitation attorneys fees
and disbursements and the fees and expenses of other advisors, incurred in
performing your duties as Escrow Agent hereunder should be promptly paid by the
Company upon submission of appropriate documentation.

16. Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in any
United States Post Box, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties hereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days' written notice to each of the other parties hereto:

Company:                   Avanir Pharmaceuticals
                           11388 Sorrento Valley Road , Suite 200
                           San Diego, CA 92121
                           Attn: Chief Financial Officer

Recipient:                 Insert Recipient's Name
                           Insert Address
                           Insert Address

Escrow Agent:              Avanir Pharmaceuticals
                           11388 Sorrento Valley Rd, Suite 200
                           San Diego, CA 92121
                           Attn: Secretary

17. By signing these Joint Escrow Instructions you become a party hereto only
for the purpose of said Joint Escrow Instructions; you do not become a party to
the Grant Notice.

18. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Company may at any time or from time to time
assign its rights under the Grant Notice and these Joint Escrow Instructions in
whole or in part.

Very truly yours,

         AVANIR PHARMACEUTICALS               RECIPIENT

         By:_______________________           ________________________________

         Print Name:_______________           Print Name:_____________________

         Title:____________________

         ESCROW AGENT

                                       3

<PAGE>

         ___________________________________

         Print Name: Gregory P. Hanson

         Title: Secretary

                                       4

<PAGE>

                                  ATTACHMENT V
                                 SPOUSAL CONSENT

CONSENT OF SPOUSE

         I, _____________________, spouse of ____________________, have read and
hereby approve the Avanir Pharmaceuticals (the "Company") Restricted Stock Grant
Notice, dated _____________, and all attachments thereto (the "Agreement"). In
consideration of the granting of securities to my spouse as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact with respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement,
or any securities issued thereunder, under the community property laws or
similar laws relating to marital property in effect in our state of residence as
of the date of execution of the Agreement.

Dated:                           Signature:

                                       5<PAGE>

                                                                    EXHIBIT 10.3

                           2003 EQUITY INCENTIVE PLAN
                                       OF
                             AVANIR PHARMACEUTICALS

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               PAGE
                                                                                               ----
<S>                                                                                            <C>
1.  Purpose of this Plan...................................................................      1

2.  Definitions and Rules of Interpretation................................................      1

    2.1   Definitions......................................................................      1
    2.2   Rules of Interpretation..........................................................      5

3.  Shares Subject to this Plan; Term of this Plan.........................................      5

    3.1   Number of Award Shares...........................................................      5
    3.2   Source of Shares.................................................................      5
    3.3   Term of this Plan................................................................      5

4.  Administration.........................................................................      5

    4.1   General..........................................................................      5
    4.2   Authority of Administrator.......................................................      6
    4.3   Scope of Discretion..............................................................      7

5.  Persons Eligible to Receive Awards.....................................................      8

    5.1   Eligible Individuals.............................................................      8
    5.2   Limitations on Issuances to Certain Awardees.....................................      8

6.  Terms and Conditions of Options........................................................      8

    6.1   Price............................................................................      8
    6.2   Term.............................................................................      8
    6.3   Vesting..........................................................................      8
    6.4   Form and Method of Payment.......................................................      8
    6.5   Nonassignability of Options......................................................      9
    6.6   Substitute Options...............................................................      9
    6.7   Repricings.......................................................................     10

7.  Stock Appreciation Rights and Stock Awards.............................................     10
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                                                             <C>
    7.1   Stock Appreciation Rights........................................................     10
    7.2   StockAwards......................................................................     11

8.  Exercise of Awards.....................................................................     12

    8.1   In General.......................................................................     12
    8.2   Time of Exercise.................................................................     12
    8.3   Issuance of Award Shares.........................................................     12
    8.4   Termination......................................................................     12

9.  Certain Transactions and Events........................................................     14

    9.1   In General.......................................................................     14
    9.2   Changes in Capital Structure.....................................................     14
    9.3   Fundamental Transactions.........................................................     14
    9.4   Changes in Control...............................................................     14
    9.5   Divestiture......................................................................     15
    9.6   Dissolution......................................................................     15
    9.7   Cut-Back to Preserve Benefits....................................................     15

10. Withholding and Tax Reporting..........................................................     16

    10.1  Tax Withholding Alternatives.....................................................     16

11. Compliance with Law....................................................................     16

12. Amendment or Termination of this Plan or Outstanding Awards............................     16

    12.1  Amendment and Termination........................................................     16
    12.2  Shareholder Approval.............................................................     17
    12.3  Effect...........................................................................     17

13. Reserved Rights........................................................................     17

    13.1  Nonexclusivity of this Plan......................................................     17
    13.2  Unfunded Plan....................................................................     17

14. Special Arrangements Regarding Award Shares............................................     17

    14.1  Escrow of Stock Certificates.....................................................     17
    14.2  Repurchase Rights................................................................     18
</TABLE>

                                       ii

<PAGE>

<TABLE>
<S>                                                                                             <C>
15. Beneficiaries..........................................................................     18

16. Miscellaneous..........................................................................     18

    16.1  Governing Law....................................................................     18
    16.2  Determination of Value...........................................................     18
    16.3  Reservation of Shares............................................................     19
    16.4  Electronic Communications........................................................     19
    16.5  Notices..........................................................................     19
</TABLE>

                                      iii

<PAGE>

                           2003 EQUITY INCENTIVE PLAN
                                       OF
                             AVANIR PHARMACEUTICALS

1.       PURPOSE OF THIS PLAN

         The purpose of this 2003 Equity Incentive Plan is to enhance the
long-term shareholder value of Avanir Pharmaceuticals by offering opportunities
to eligible individuals to participate in the growth in value of the equity of
Avanir Pharmaceuticals.

2.       DEFINITIONS AND RULES OF INTERPRETATION

         2.1      DEFINITIONS. This Plan uses the following defined terms:

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

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

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

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

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

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

                  (g)      "AWARDEE" means: (i) a person to whom an Award has
been granted, including a holder of a Substitute Award, and (ii) a person to
whom an Award has been transferred in accordance with all applicable
requirements of Sections 6.5 and 15.

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

                  (i)      "CHANGE IN CONTROL" means any transaction or event
that the Board specifies as a Change in Control under Section 9.4.

<PAGE>

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

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

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

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

                  (n)      "CONSULTANT" means an individual who, or an employee
or owner of any entity that, provides bona fide services to the Company or an
Affiliate.

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

                  (p)      "DIVESTITURE" means any transaction or event that the
Board specifies as a Divestiture under Section 9.5.

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

                  (r)      "EMPLOYEE" means a regular employee of the Company or
an Affiliate, including an officer or Director, who is treated as an employee in
the personnel records of the Company or an Affiliate, but not individuals who
are classified by the Company or an Affiliate as: (i) leased from or otherwise
employed by a third party, (ii) independent contractors, or (iii) intermittent
or temporary workers. The Company's or an Affiliate's classification of an
individual as an "Employee" (or as not an "Employee") for purposes of this Plan
shall not be altered retroactively even if that classification is changed
retroactively for another purpose as a result of an audit, litigation or
otherwise. An Awardee shall not cease to be an Employee due to transfers between
locations of the Company, or between the Company and an Affiliate, or to any
successor to the Company or an Affiliate that assumes the Awardee's Options
under Section 9. Neither service as a Director nor receipt of a director's fee
shall be sufficient to make a Director an "Employee."

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

                  (t)      "EXECUTIVE" means, if the Company has any class of
any equity security registered under Section 12 of the Exchange Act, an
individual who is subject to Section 16 of the Exchange Act because of the
individual's relationship with the Company or an Affiliate. If the Company does
not have any class of any equity security registered under Section 12 of the
Exchange Act, "Executive" means any (i) Director, (ii)

                                       2

<PAGE>

officer elected or appointed by the Board, or (iii) beneficial owner of more
than 10% of any class of the Company's equity securities.

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

                  (v)      "FAIR MARKET VALUE" means the value of Shares as
determined under Section 16.2.

                  (w)      "FUNDAMENTAL TRANSACTION" means any transaction or
event described in Section 9.3.

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

                  (y)      "NONSTATUTORY OPTION" means any Option other than an
incentive stock option qualified as such under Section 422 of the Code.

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

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

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

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

                                       3

<PAGE>

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

                  (ee)     "PLAN" means this 2003 Equity Incentive Plan of
Avanir Pharmaceuticals.

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

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

                  (hh)     "SAR" OR "STOCK APPRECIATION RIGHT" means a right to
receive cash based on a change in the Fair Market Value of a specific number of
Shares pursuant to an Award Agreement, as described in Section 7.1.

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

                  (jj)     "SHARE" means a share of the Class A Common Stock of
the Company or other securities substituted for the Class A Common Stock under
Section 9.

                  (kk)     "STOCK AWARD" means an offer by the Company to sell
shares subject to certain restrictions pursuant to the Award Agreement as
described in Section 7.2.

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

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

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

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

                  (pp)     "TERMINATION" means that the Awardee has ceased to
be, with or without any cause or reason, an Employee, Director or Consultant.
However, unless so determined by the Administrator, "Termination" shall not
include a change in status from an Employee, Consultant or Director to another
such status. An event that causes an

                                       4

<PAGE>

Affiliate to cease being an Affiliate shall be treated as the "Termination" of
that Affiliate's Employees, Directors, and Consultants.

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

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

         3.1      NUMBER OF AWARD SHARES. Subject to adjustment under Section 9,
the maximum number of Shares that may be issued under this Plan is 2,500,000, as
increased on the first January 1 after the effective date of this Plan and each
January 1 thereafter by a number of Shares equal to the least of: (a) 5% of the
number of Shares issued and outstanding on the immediately preceding December
31, or (b) a number of Shares set by the Board. When an Award is granted, the
maximum number of Shares that may be issued under this Plan shall be reduced by
the number of Shares covered by that Award. If an Award later terminates or
expires without having been exercised in full, the maximum number of Shares that
may be issued under this Plan shall be increased by the number of Shares covered
by, but not purchased under, that Award. The repurchase of Shares by the Company
pursuant to a Stock Award that has not vested in full shall not increase the
maximum number of Shares that may be issued under this Plan.

         3.2      SOURCE OF SHARES. Award Shares may be: (a) Shares that have
never been issued, (b) Shares that have been issued but are no longer
outstanding, or (c) Shares that are outstanding and are acquired to discharge
the Company's obligation to deliver Award Shares.

         3.3      TERM OF THIS PLAN

                  (a)      This Plan shall be effective on, and Awards may be
granted under this Plan after, the date it has been adopted by the Board.

                  (b)      This Plan has no termination date. However, it
terminates as provided in Section 12.

4.       ADMINISTRATION

         4.1      GENERAL

                                       5

<PAGE>

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

                  (b)      So long as the Company has registered and outstanding
a class of equity securities under Section 12 of the Exchange Act, the Committee
shall consist of Company Directors who are "Non-Employee Directors" as defined
in Rule 16b-3.

         4.2      AUTHORITY OF ADMINISTRATOR. Subject to the other provisions of
this Plan, the Administrator shall have the authority to:

                  (a)      grant Awards, including Substitute Awards;

                  (b)      determine the Fair Market Value of Shares;

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

                  (d)      select the Awardees;

                  (e)      determine the times Awards are granted;

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

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

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

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

                  (j)      modify or amend any Award;

                                       6

<PAGE>

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

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

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

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

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

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

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

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

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

         4.3      SCOPE OF DISCRETION. Subject to the last sentence of this
Section 4.3, on all matters for which this Plan confers the authority, right or
power on the Board, the Committee, or other Administrator to make decisions,
that body may make those decisions in its sole and absolute discretion. Those
decisions will be final, binding and conclusive. In making its decisions, the
Board, Committee or other Administrator need not treat all persons eligible to
receive Awards, all Awardees, all Awards or all Award Shares the same way.
Notwithstanding anything herein to the contrary, and except as provided in
Section 12.3, the discretion of the Board, Committee or other Administrator is
subject to the specific provisions and specific limitations of this Plan, as
well as all rights conferred on specific Awardees by Award Agreements and other
agreements.

                                       7

<PAGE>

5.       PERSONS ELIGIBLE TO RECEIVE AWARDS

         5.1      ELIGIBLE INDIVIDUALS. Awards (including Substitute Awards) may
be granted to, and only to, Employees, Directors and Consultants, including to
prospective Employees, Directors and Consultants conditioned on the beginning of
their service to or for the Company or an Affiliate.

         5.2      LIMITATIONS ON ISSUANCES TO CERTAIN AWARDEES. Notwithstanding
any other provision of this Plan, no Award may be granted under this Plan to any
Executive if:

                  (i)      the effect of such grant would be to cause the number
of Shares issued or issuable to Executives, as a group, upon the grant or
exercise of such Award, to exceed 50% of the total Shares issued or issuable
under this Plan in the first three years (the "INITIAL PERIOD") following
adoption of this Plan; or

                  (ii)     the effect of such grant would be to cause the number
of Shares issued or issuable to Executives, as a group, upon the grant or
exercise of such Award, to exceed 50% of the total Shares issued or issuable
under this Plan in any 12 month period following the Initial Period.

6.       TERMS AND CONDITIONS OF OPTIONS

         The following rules apply to all Options:

         6.1      PRICE. No Option may have an Option Price less than 85% of the
Fair Market Value of the Shares on the Grant Date.

         6.2      TERM. No Option shall be exercisable after its Expiration
Date. No Option may have an Expiration Date that is more than ten years after
its Grant Date.

         6.3      VESTING. Options shall be exercisable: (a) on the Grant Date,
(b) in accordance with a schedule related to the Grant Date, the date the
Optionee's directorship, employment or consultancy begins, or a different date
specified in the Option Agreement, or (c) upon the achievement of Objectively
Determinable Performance Conditions. No Option granted to an individual who is
subject to the overtime pay provisions of the Fair Labor Standards Act may be
exercised before the expiration of six months after the Grant Date.

         6.4      FORM AND METHOD OF PAYMENT.

                  (a)      The Administrator shall determine the acceptable form
and method of payment for exercising an Option.

                                       8

<PAGE>

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

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

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

                           (ii)     provided that a public market exists for the
Shares, consideration received by the Company under a procedure under which a
licensed broker-dealer advances funds on behalf of an Optionee or sells Option
Shares on behalf of an Optionee (a "CASHLESS EXERCISE PROCEDURE"), provided that
if the Company extends or arranges for the extension of credit to an Optionee
under any Cashless Exercise Procedure, no Officer or Director may participate in
that Cashless Exercise Procedure;

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

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

         6.5      NONASSIGNABILITY OF OPTIONS. Except as determined by the
Administrator, no Option shall be assignable or otherwise transferable by the
Optionee except by will or by the laws of descent and distribution. However,
Options may be transferred and exercised in accordance with a Domestic Relations
Order and may be exercised by a guardian or conservator appointed to act for the
Optionee.

         6.6      SUBSTITUTE OPTIONS. The Board may cause the Company to grant
Substitute Options in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger, tender offer,
or other similar transaction) or of all or a portion of the assets of any
entity. Any such substitution shall be effective on the effective date of the
acquisition. Unless and to the extent specified otherwise by the Board,
Substitute Options shall have the same terms and conditions as the options they
replace, except that (subject to Section 9) Substitute Options shall be Options
to purchase Shares rather than equity securities of the granting entity and
shall have an Option Price determined by the Board.

                                       9

<PAGE>

         6.7      REPRICINGS. Options may be repriced, replaced or regranted,
through cancellation or modification without shareholder approval.

7.       STOCK APPRECIATION RIGHTS AND STOCK AWARDS

         7.1      STOCK APPRECIATION RIGHTS. The following rules apply to SARs:

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

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

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

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

                                       10

<PAGE>

of Shares rather than equity securities of the granting entity and shall be on
terms that, as determined by the Board in its sole and absolute discretion,
properly reflects the substitution.

                  (e)      REPRICINGS. An SAR may be repriced, replaced or
regranted, through cancellation or modification without shareholder approval.

         7.2      STOCK AWARDS. The following rules apply to all Stock Awards:

                  (a)      GENERAL. The specific terms and conditions of a Stock
Award applicable to the Awardee shall be provided for in the Award Agreement.
The Award Agreement shall state the number of Shares that the Awardee shall be
entitled to receive or purchase, the terms and conditions on which the Shares
shall vest, the price to be paid, if any, and, if applicable, the time within
which the Awardee must accept such offer. The offer shall be accepted by
execution of the Award Agreement. The grant or vesting of a Stock Award may be
made contingent on achievement of Objectively Determinable Performance
Conditions.

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

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

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

                  (e)      SUBSTITUTE STOCK AWARD. The Board may cause the
Company to grant Substitute Stock Awards in connection with the acquisition by
the Company or an Affiliate of equity securities of any entity (including by
merger) or all or a portion of the assets of any entity. Unless and to the
extent specified otherwise by the Board, Substitute Stock Awards shall have the
same terms and conditions as the stock awards they replace, except that (subject
to Section 9) Substitute Stock Awards shall be Stock Awards to purchase Shares
rather than equity securities of the granting entity and shall have a Purchase
Price that, as determined by the Board in its sole and absolute discretion,

                                       11

<PAGE>

properly reflects the substitution. Any such Substituted Stock Award shall be
effective on the effective date of the acquisition.

8.       EXERCISE OF AWARDS

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

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

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

         8.4      TERMINATION

                  (a)      IN GENERAL. Except as provided in an Award Agreement
or in writing by the Administrator, including in an Award Agreement, and as
otherwise provided in Sections 8.4(b), (c), and (d), after an Awardee's
Termination, the Awardee's Awards shall be exercisable to the extent (but only
to the extent) they are vested on the date of that Termination and only during
the three months after the Termination, but in no event after the Expiration
Date. To the extent the Awardee does not exercise an Award within the time
specified for exercise, the Award shall automatically terminate.

                  (b)      LEAVES OF ABSENCE. Unless otherwise provided in the
Award Agreement, no Award may be exercised more than three months after the
beginning of a leave of absence, other than a personal or medical leave approved
by an authorized representative of the Company with employment guaranteed upon
return. Awards shall

                                     12

<PAGE>

not continue to vest during a leave of absence, unless otherwise determined by
the Administrator with respect to an approved personal or medical leave with
employment guaranteed upon return.

                  (c)      DEATH OR DISABILITY. Unless otherwise provided by the
Administrator, if an Awardee's Termination is due to death or disability (as
determined by the Administrator), all Awards, to the extent exercisable on the
date of the Termination, may be exercised for one year after the Termination,
but in no event after the Expiration Date. In the case of a Termination due to
death, an Award may be exercised as provided in Section 15. In the case of
Termination due to disability, if a guardian or conservator has been appointed
to act for the Awardee and has been granted this authority as part of that
appointment, then such guardian or conservator may exercise the Award on behalf
of the Awardee. Death or disability occurring after an Awardee's Termination
shall not cause the Termination to be treated as having occurred due to death or
disability. To the extent an Award is not exercised within the time specified
for its exercise, the Award shall automatically terminate.

                  (d)      DIVESTITURE. If an Awardee's Termination is due to a
Divestiture, the Board may take any one or more of the actions described in
Section 9.3 or 9.4 with respect to the Awardee's Awards.

                  (e)      TERMINATION FOR CAUSE. If an Awardee's Termination is
due to Cause, as hereinafter defined, all of the Awardee's Awards shall
automatically terminate and cease to be exercisable and the Administrator may
rescind any and all exercises of Awards by the Awardee that occurred after the
first event constituting Cause. "Cause" means employment-related dishonesty,
fraud, misconduct or disclosure or misuse of confidential information, or other
employment-related conduct that has, or is, likely to cause significant injury
to the Company, an Affiliate, or any of their respective employees, officers or
directors (including, without limitation, commission of a felony or similar
offense), in each case as determined by the Administrator, in its good faith
judgment, which determination shall be conclusive and binding.

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

                                       13

<PAGE>

9.       CERTAIN TRANSACTIONS AND EVENTS

         9.1      IN GENERAL. Except as provided in this Section 9, no change in
the capital structure of the Company, merger, sale or other disposition of
assets or a subsidiary, change in control, issuance by the Company of shares of
any class of securities or securities convertible into shares of any class of
securities, exchange or conversion of securities, or other transaction or event
shall require or be the occasion for any adjustments of the type described in
this Section 9. Additional provisions with respect to the foregoing transactions
are set forth in Section 12.3.

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

         9.3      FUNDAMENTAL TRANSACTIONS. If the Company merges with another
entity in a transaction in which the Company is not the surviving entity or if,
as a result of any other transaction or event, other securities are substituted
for the Shares or Shares may no longer be issued pursuant to Awards (each a
"FUNDAMENTAL Transaction"), then, notwithstanding any other provision of this
Plan, the Board shall do one or more of the following contingent on the closing
or completion of the Fundamental Transaction: (a) arrange for the substitution,
in exchange for Awards, of options to purchase equity securities other than
Shares (including, if appropriate, equity securities of an entity other than the
Company) (an "assumption" of Awards) on such terms and conditions as the Board
determines are appropriate, (b) accelerate the vesting and termination of
outstanding Awards, in whole or in part, so that Awards can be exercised before
or otherwise in connection with the closing or completion of the Fundamental
Transaction or event but then terminate, (c) cancel or arrange for the
cancellation of Awards in exchange for cash payments to Awardees, and (d) either
arrange for any repurchase rights of the Company with respect to Award Shares to
apply to the securities issued in substitution for Shares or terminate
repurchase rights on Award Shares. The Board need not adopt the same rules for
each Award or each Awardee.

         9.4      CHANGES IN CONTROL. The Board may also, but need not, specify
that other transactions or events constitute a "CHANGE IN CONTROL". The Board
may do that either

                                       14

<PAGE>

before or after the transaction or event occurs. Examples of transactions or
events that the Board may treat as Changes in Control are: (a) the Company or an
Affiliate is a party to a merger, consolidation, amalgamation, or other
transaction in which the beneficial shareholders of the Company, immediately
before the transaction, beneficially own securities representing 50% or less of
the total combined voting power or value of the Company immediately after the
transaction, (b) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Exchange Act, acquires securities holding 30% or more of
the total combined voting power or value of the Company, or (c) as a result of
or in connection with a contested election of Company Directors, the persons who
were Company Directors immediately before the election cease to constitute a
majority of the Board. In connection with a Change in Control, notwithstanding
any other provision of this Plan, the Board may, but need not, take any one or
more of the actions described in Section 9.3. In addition, the Board may extend
the date for the exercise of Awards (but not beyond their original Expiration
Date). The Board need not adopt the same rules for each Award or each Awardee.

         9.5      DIVESTITURE. If the Company or an Affiliate sells or otherwise
transfers equity securities of an Affiliate to a person or entity other than the
Company or an Affiliate, or leases, exchanges or transfers all or any portion of
its assets to such a person or entity, then the Board may specify that such
transaction or event constitutes a "DIVESTITURE". In connection with a
Divestiture, notwithstanding any other provision of this Plan, the Board may,
but need not, take one or more of the actions described in Section 9.3 or 9.4
with respect to Awards or Award Shares held by, for example, Employees,
Directors or Consultants for whom that transaction or event results in a
Termination. The Board need not adopt the same rules for each Award or each
Awardee.

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

         9.7      CUT-BACK TO PRESERVE BENEFITS. If the Administrator determines
that the net after-tax amount to be realized by any Awardee, taking into account
any accelerated vesting, termination of repurchase rights, or cash payments to
that Awardee in connection with any transaction or event set forth in this
Section 9, would be greater if one or more of those steps were not taken or
payments were not made with respect to that Awardee's Awards or Award Shares,
then, and to that extent, one or more of those steps shall not be taken and
payments shall not be made.

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10.      WITHHOLDING AND TAX REPORTING

         10.1     TAX WITHHOLDING ALTERNATIVES

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

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

11.      COMPLIANCE WITH LAW

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

12.      AMENDMENT OR TERMINATION OF THIS PLAN OR OUTSTANDING AWARDS

         12.1     AMENDMENT AND TERMINATION. The Board may at any time amend,
suspend, or terminate this Plan.

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         12.2     SHAREHOLDER APPROVAL. The Company shall obtain the approval of
the Company's shareholders for any amendment to this Plan if shareholder
approval is necessary to comply with any Applicable Law.

         12.3     EFFECT. No amendment, suspension, or termination of this Plan,
and no modification of any Award even in the absence of an amendment,
suspension, or termination of this Plan, shall impair any existing contractual
rights of any Awardee unless the affected Awardee consents to the amendment,
suspension, termination, or modification. Notwithstanding anything herein to the
contrary, no such consent shall be required if the Board determines, in its sole
and absolute discretion, that the amendment, suspension, termination, or
modification: (a) is required or advisable in order for the Company, this Plan
or the Award to satisfy Applicable Law, to meet the requirements of any
accounting standard or to avoid any adverse accounting treatment, or (b) in
connection with any transaction or event described in Section 9, is in the best
interests of the Company or its shareholders. The Board may, but need not, take
the tax consequences to affected Awardees into consideration in acting under the
preceding sentence. Those decisions will be final, binding and conclusive.
Termination of this Plan shall not affect the Administrator's ability to
exercise the powers granted to it under this Plan with respect to Awards granted
before the termination of this Plan.

13.      RESERVED RIGHTS

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

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

14.      SPECIAL ARRANGEMENTS REGARDING AWARD SHARES

         14.1     ESCROW OF STOCK CERTIFICATES. To enforce any restrictions on
Award Shares, the Administrator may require their holder to deposit the
certificates representing Award Shares, with stock powers or other transfer
instruments approved by the Administrator endorsed in blank, with the Company or
an agent of the Company to hold

                                       17

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in escrow until the restrictions have lapsed or terminated. The Administrator
may also cause a legend or legends referencing the restrictions to be placed on
the certificates.

         14.2     REPURCHASE RIGHTS

                  (a)      GENERAL. If a Stock Award is subject to vesting
conditions, the Company shall have the right, during the seven months after the
Awardee's Termination, to repurchase any or all of the Award Shares that were
unvested as of the date of that Termination. The repurchase price shall be
determined by the Administrator in accordance with this Section 14.2 which shall
be either (i) the Purchase Price for the Award Shares (minus the amount of any
cash dividends paid or payable with respect to the Award Shares for which the
record date precedes the repurchase) or (ii) the lower of (A) the Purchase Price
for the Shares or (B) the Fair Market Value of those Award Shares as of the date
of the Termination. The repurchase price shall be paid in cash. The Company may
assign this right of repurchase.

                  (b)      PROCEDURE. The Company or its assignee may choose to
give the Awardee a written notice of exercise of its repurchase rights under
this Section 14.2. However, the Company's failure to give such a notice shall
not affect its rights to repurchase Award Shares. The Company must, however,
tender the repurchase price during the period specified in this Section 14.2 for
exercising its repurchase rights in order to exercise such rights.

15.      BENEFICIARIES

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

16.      MISCELLANEOUS

         16.1     GOVERNING LAW. This Plan, the Award Agreements and all other
agreements entered into under this Plan, and all actions taken under this Plan
or in connection with Awards or Award Shares, shall be governed by the
substantive laws, but not the choice of law rules, of the State of California.

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

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<PAGE>

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

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

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

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

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

         16.5     NOTICES. Unless the Administrator specifies otherwise, any
notice to the Company under any Option Agreement or with respect to any Awards
or Award Shares

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<PAGE>

shall be in writing (or, if so authorized by Section 16.4, communicated
electronically), shall be addressed to the Secretary of the Company, and shall
only be effective when received by the Secretary of the Company.

                                       20

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