Exhibit 10.46**SEPARATION AGREEMENT AND RELEASE OF CLAIMS**     If you choose to accept Avanir Pharmaceuticals’ (“the Company”) Severance Package, please signand return this Agreement to Jesus Varela, Director of Human Resources, by no later than 5:00 p.m.on 29 June 2007. You may scan and e-mail the signed Agreement to Jesus Varela atjvarela@avanir.com and mail the original to him at the Company’s offices at 101 Enterprise, Suite300, Aliso Viejo, California 92656, telephone 949.389.6747.RECITALS     WHEREAS, Jagadish Sircar (“Employee”) will conclude his employment with the Company(collectively the “Parties”), as described herein;     WHEREAS, after the conclusion of Employee’s employment with the Company, the Employee wishesto serve as a consultant to the Company, and the Company wishes to retain the Employee as aconsultant, on the terms and conditions described herein; and     WHEREAS, each of the Parties to this Agreement desires an amicable separation of theEmployee’s employment with the Company, and to resolve any and all claims, disputes, issues, ormatters that were asserted or could be asserted;     NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained andother good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,the Parties agree as follows:*(a) Termination Date*     Employee’s employment with the Company will terminate effective 29 June 2007 (the “TerminationDate”);*(b) Consulting Services*     Employee agrees to provide to the Company consulting services, defined below, as anindependent contractor for a term of six (6) months following the Termination Date (the “ConsultingPeriod”) at any reasonable times requested by the Company; provided that the Company shall notrequire the Employee to provide any such services to an extent that would unreasonably interferewith the Employee’s search for employment or with any subsequent employment. Such servicesinclude, but are not limited to, providing advice and assistance pertaining to researchcollaborations and patent portfolio, special projects, conference/meeting appearances or any othermatter consistent with the Employee’s background, skills and experience, as requested by KeithKatkin, President & Chief Executive Officer (the “Consulting Services”). Such Consulting Servicesshall be limited to a maximum of one (1) full day per week. As compensation for providingConsulting Services during the Consulting Period, Employee will receive $1,000.00 per week payableby the Company within thirty (30) days following its receipt of an invoice for the Work. TheCompany shall reimburse Employee for reasonable expenses, including travel expenses, incurred onbehalf of the Company during the Consulting Period, provided that such expenses are approved inadvance and substantiated in accordance with Company policies. Employee understands and agreesthat his obligations to the Company under the Employee Invention Assignment, Patent andConfidential Information Agreement entered into between Employee and the Company on 15
 

 
May 1996, a copy of which is attached to this Agreement, shall continue through the ConsultingPeriod. The Consulting Period will terminate on 31 December 2007 unless extended upon mutualagreement.     If, at any time within the Consulting Period, the Company enters into a definitive agreementwith a strategic partner pertaining to the development and/or commercialization of AVP-13358,XenerexTM, and/or RCT, Employee shall be entitled to an incentive payment in an amount equal to$15,000.00 (the “Incentive Payment”) for each transaction. In addition, Employee shall be entitledto an incentive payment in an amount equal to $5,000.00 for each additional cytokine inhibitor thatis included within the same, or different, definitive agreement. The Incentive Payment(s) shall bemade to Employee within five (5) days following the execution of the definitive agreement(s) whichtriggered such Incentive Payment(s). Employee acknowledges and agrees that the Company shallwithhold appropriate federal, state, local (and foreign, if applicable) income and employment taxesfrom the Incentive Payment(s).*(c) Severance*   In exchange for agreeing to be bound by the terms of this Agreement, the Company will provideEmployee with the following payments and incentives to which he otherwise would not be entitled: a) The Company will make a cash severance payment to Employee in an amount equal tothirty-nine (39) weeks of Employee’s current base salary, less all the requiredwithholdings and taxes, payable in a lump sum.  b) If Employee chooses to elect continuation of coverage under the federal law known asCOBRA, the Company will continue to pay his medical, dental and vision premiums through 31March 2008, unless Employee becomes eligible for coverage under another group insuranceplan before that date, at which time the Company’s payment obligations would terminate.Effective 01 April 2008, COBRA payments become Employee’s sole responsibility.  c) Right Management Consultants will be available to Employee for the purpose of providingexecutive outplacement services, provided that Employee begins utilizing such services nolater than two (2) months after the date of this Agreement. Included in the outplacementservices offered will be: **•** Coaching with an Executive Career Management Consultant  **•** Logistics and Support with an Office  **•** Unlimited Access Right Management’s Learning Center  **•** Marketplace Resources  **•** Computer, PhoneThe payments described in this Section will become due one business day after the Date ofIrrevocability (defined below), provided that Employee complies with his obligations under thisAgreement.*(d) Release*     (1) Employee for himself and his heirs, agents, assigns, executors, successors and each ofthem, unconditionally, irrevocably and absolutely releases and discharges the Company, and anyparent and subsidiary corporations, divisions, and affiliated corporations, partnerships or otheraffiliated entities of the Company, past and present, as well as the Company’s employees, officers,directors, agents, predecessors, successors and assigns (collectively “Released Parties”) from allclaims related in any way to the transactions or occurrences between them to date, to the fullestextent permitted by law, including, but not limited to, Employee’s employment with the Company, thetermination of his employment, and
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all other losses, liabilities, claims, demands and causes of action, known or unknown,suspected or unsuspected, arising directly or indirectly out of or in any way connected withEmployee’s employment with the Company and the termination of that employment. This release isintended to have the broadest possible application permitted by law and includes, but is notlimited to, any tort, contract, common law, constitutional or statutory claims (including, withoutlimitation, claims under the Americans with Disabilities Act, Title VII of the Civil Rights Act of1964, Older Workers Benefit Protection Act and Age Discrimination in Employment Act, CaliforniaFair Employment and Housing Act, state or local fair employment practices laws or ordinances, andstate or federal plant closing laws) and all claims for attorneys’ fees, costs and expenses.Notwithstanding the foregoing, this release shall not serve as a waiver of Employee’s rights to (i)vested benefits such as in the Avanir Pharmaceuticals Employee Savings and Protection Plan, (ii)workers compensation benefits, (iii) statutorily-required indemnification under California LaborCode Section 2802 or any comparable provisions of other states’ laws, or (iv) any other benefits orclaims that cannot be released as a matter of law.     (2) Employee declares and represents that he intends this Agreement to be complete and notsubject to any claim of mistake, and that the release herein expresses a full and complete releaseand, regardless of the adequacy or inadequacy of the consideration, the Parties intend the releaseto be final and complete. The Parties execute this release with the full knowledge that thisrelease covers all possible claims against the Released Parties, to the fullest extent permitted bylaw.     (3) Employee acknowledges that the Company has advised him to review this Agreement with anattorney before signing it. Employee has 21 days within which to review and consider this Agreementbefore signing it, which period may be waived. Should Employee decide not to use the entire 21days, he knowingly and voluntarily waives any claim that he was not in fact given that period oftime or did not use the entire 21 days to consult an attorney and/or consider this Agreement.Employee may revoke the Agreement for up to 7 calendar days after signing it, which period may notbe waived, and this Agreement shall not become effective or enforceable until the revocation periodhas passed (such date of effectiveness being the “Date of Irrevocability”). Any revocation of thisAgreement must be in writing addressed to and received by Human Resources on behalf of the Companyno later than 5:00 p.m. on the 7th day after Employee signs it. If Employee revokes thisAgreement, he will not receive any of the benefits described in this Agreement. This Agreement doesnot waive or release any rights or claims Employee may have under the Age Discrimination inEmployment Act that arise after the execution of this Agreement.*(e) Acknowledgement of Understanding*     Employee and the Company acknowledge that they may discover facts or law different from, or inaddition to, the facts or law that they know or believe to be true with respect to the claimsreleased in this Agreement and agree, nonetheless, that this Agreement and the release contained init shall be and remain effective in all respects notwithstanding such different or additional factsor the discovery of them. Employee and the Company expressly acknowledge and agree that Employee’srights under Section 1542 of the California Civil Code and any comparable provisions of otherstates’ and federal law are expressly waived. That section provides:A general release does not extend to claims which the creditor does not know orsuspect to exist in his favor at the time of executing the release, which if knownby him must have materially affected his settlement with the debtor.*(f) Pursuit of Released Claims*     Employee represents that, as of the date of this Agreement, he has not filed any lawsuits,charges, complaints, petitions, claims or other accusatory pleadings against Released Parties inany court or with
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any governmental agency. Employee further agrees that, to the fullest extent permitted bylaw, he will not prosecute, nor allow to be prosecuted on his behalf, in any court, whether stateor federal, any claim or demand of any type related to the matters released above, it being theintention of Employee that with the execution of this release, Released Parties will be absolutely,unconditionally and forever discharged of and from all obligations to or on behalf of Employeerelated in any way to the matters discharged herein. Employee further represents that he has notassigned any claim he may have against Released Parties to any other person or entity. Nothing inthis Agreement affects Employee’s right to file a charge or complaint with the Equal EmploymentOpportunity Commission (EEOC).*(g) Return of Company Property*     By signing this Agreement, Employee represents and warrants that he will have returned tothe Company on or before 29 June 2007, all Company property, including all originals and copies ofdocuments removed from the Company’s premises at any time during his employment with the Company.Employee will not be entitled to the Severance Package described in Section (c) herein unless anduntil all such property is returned to the Company.*(h) Expense Reimbursement, Vacation Advance Reimbursement*     By signing this Agreement, Employee agrees that all outstanding claims for reimbursements havebeen submitted to the Company.*(i) Nondisparagement*     Employee will not make any voluntary statements, written or verbal, or cause or encourageothers to make any such statements that defame, disparage or in any way criticize Released Parties’business reputation, practices or conduct.*(j) Arbitration of Disputes and Enforcement of Agreement*     (1) Employee and the Company agree to resolve any claims they may have against each other orthat Employee has with any other Released Party through final and binding arbitration. Thisagreement to arbitrate applies to any and all disputes about the validity, interpretation, oreffect of this Agreement or alleged violations of it and whether a particular claim is covered bythis Agreement (“Arbitrable Claims”). Except as provided in Section (j)(3) below, arbitrationshall be the exclusive remedy for any such claim or dispute, and the parties expressly waive theirrights to a jury trial on any such claim or dispute. Arbitration shall be conducted in OrangeCounty, California through JAMS or, if JAMS is not available, through another arbitration providermutually acceptable to the parties. However, either party may bring an action in court to compelarbitration under this Agreement or to enforce an arbitration award. The Federal Arbitration Actshall govern the interpretation and enforcement of this section. If a court or arbitrator findsthe Federal Arbitration Act does not govern, then California law shall govern the interpretationand enforcement of this section.     (2) In any arbitration, legal proceeding or other proceeding brought to enforce or interpretthe terms of this Agreement, the prevailing party shall be entitled to recover reasonableattorneys’ fees and costs. In addition, should Employee or the Company attempt to resolve anyclaim waived by this Agreement or pursue any Arbitrable Claim by any method other than arbitration(except to the extent allowed in Section (j)(3) below), the responding party will be entitled torecover from the initiating party all damages, costs, expenses, and attorneys’ fees incurred as aresult of that breach.     (3) The requirement to arbitrate disputes shall not preclude Employee from filing a charge orcomplaint with the EEOC, including a challenge to the validity of this Agreement.
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*(k) Miscellaneous*     This Agreement sets forth the entire agreement between Employee and the Company pertaining tothe subject matter of this Agreement and supersedes any previous agreements or understandingsbetween Employee and the Company except the 15 May 1996 Employee Invention Assignment, Patent andConfidential Information Agreement (attached hereto) (the “Employee Invention Assignment, Patentand Confidential Information Agreement”) which remains in full force and effect and the terms ofany outstanding stock options and restricted stock awards previously granted to Employee under anyof the following Company’s equity incentive plans: 1994 Stock Option Plan, 1998 Stock Option Plan,2000 Stock Option Plan, 2003 Equity Incentive Plan and 2005 Equity Incentive Plan (the “EquityPlans”). This Agreement may not be modified or canceled in any manner except by a writing signedby both Employee and an authorized official of the Company. Employee acknowledges that the Companyhas made no representations or promises to him, other than those in this Agreement. If anyprovision in this Agreement is found to be unenforceable, that provision will be enforced to thegreatest extent permitted by law and all other provisions will remain fully enforceable. ThisAgreement binds the Parties and their heirs, administrators, representatives, attorneys, executors,successors, and assigns. This Agreement shall be construed as a whole according to its fairmeaning. It shall not be construed strictly for or against Employee or the Released Parties.Unless the context indicates otherwise, the term “or” shall be deemed to include the term “and” andthe singular or plural number shall be deemed to include the other. This Agreement shall begoverned by the law of the State of California, excluding its laws relating to the choice of laws.*(l) Treatment of Equity Awards*     Nothing in this Agreement shall affect or modify any outstanding equity award granted toEmployee under the Equity Plans. Company and Employee acknowledge that pursuant to the terms ofthe Equity Plans, that if Employee accepts this Agreement and commences service as a consultantimmediately after the Termination Date, that he will have no break in his continuous service to theCompany. As a result, all stock options and restricted stock awards previously issued to and heldby Employee as of the Termination Date will continue to vest through the duration of the ConsultingPeriod, in accordance with their existing terms and provisions. If Employee’s service as aconsultant hereunder begins more than one business day after the Termination Date, then theEmployee’s service would be considered terminated under the Equity Plans.*(m) Counterparts*     This Agreement may be executed by facsimile or facsimile signature, and in separatecounterparts, each of which shall be deemed an original but all of which, when taken together,shall constitute one and the same instrument.Please read this Agreement and carefully consider all of its provisions before signing it. ThisAgreement includes a release of known and unknown claims. This Agreement also includes anarbitration clause in which both parties waive any rights they may have to trial by jury withregard to Arbitrable Claims. You may consider consulting with an attorney before signing thisAgreement.I represent and agree that I have carefully read and fully understand all of the provisions of thisSeparation Agreement and Release of Claims and that I am voluntarily agreeing to those provisions.
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Enclosures: Employee Invention Assignment, Patent and Confidential Information Agreement         Date 6/25/07        /s/ Jagadish Sircar                 Employee           Date 6/21/07         /s/ Jesus Varela       Director Human Resources                 Company  
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