Separation Agreement

SEPARATION AGREEMENT



THIS SEPARATION AGREEMENT between Access Pharmaceuticals, Inc., a Delaware corporation (the " Company "), and Kerry Gray (hereinafter referred to as " Gray "), dated as of May 10, 2005 (the " Effective Date ");



WHEREAS, Gray is a member of the Board of Directors of the Company (the " Board "), and President and Chief Executive Officer of the Company;



WHEREAS, Gray intends to resign and terminate his employment and all other positions with the Company and its subsidiaries, including the offices of President and Chief Executive Officer and Gray92s membership on the Board;



WHEREAS, the Company intends to accept Gray92s resignation and wishes to provide to Gray certain payments and to provide Gray with certain other benefits upon such termination and Gray agrees to give certain releases and provide certain services to the Company;



NOW, THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:



1. Resignation and Termination .



1.1. Gray hereby resigns from all positions he currently holds with the Company and any subsidiary of the Company, including without limitation the positions of President, Chief Executive Officer and Director, and member of the Board and any committee thereof, effective as of the Effective Date. Gray agrees to transfer any shares of any subsidiary or interest of any trust of the Company held by him as nominee or in any other capacity to the Company or its designee.



1.2. The Employment Agreement, dated as of April 1, 1998, by and between the Company and Gray is hereby terminated in its entirety as of the Effective Date and neither party thereto shall have any further rights or owe any further payment, duty or obligation to the other thereunder; notwithstanding the foregoing, (a) the non-competition obligation of Gray set forth in Section 7 of the Employment Agreement as it relates to (i) mucoadhesive film technology and (ii) products incorporating platinum for use as a chemotherapeutic agent and (b) the non-solicitation obligation of Gray set forth in Section 8 of the Employment Agreement shall each survive for a period of one year from the date of this Agreement.








2. Company Covenants .



2.1. Cash Payments . Commencing as of the Effective Date, Gray shall be entitled to the following cash payments:



(a) On the Effective Date, the Company shall pay to Gray a cash payment of $225,000; and



(b) For a period of eighteen (18) months following the Effective Date, the Company shall pay to Gray a payment of $33,333.33 on the penultimate business day of each calendar month, with the first such payment due and payable on May 30, 2005 making an aggregate payment of $600,000 under this Section 2.1(b).



2.2. Common Stock Issuances . For a period of eighteen (18) months following the Effective Date, the Company shall issue to Gray 3,500 shares of the Company92s common stock on the penultimate business day of each calendar month, with the first such issuance due on May 30, 2005 making an aggregate issuance of 63,000 shares under this Section 2.2. The Company agrees to register the resale of such shares on the next registration statement that it files for which registration of such resale is allowed by the rules of the Securities and Exchange Commission.



2.3. Vesting and Exercise of Existing Options and Restricted Stock . On the Effective Date, all outstanding Company stock options and shares of restricted stock of the Company held by Gray shall immediately and fully vest. All outstanding Company stock options held by Gray shall remain exercisable by Gray until June 30, 2007, notwithstanding anything to the contrary in documents related to such option grants, and shall expire on such date.



2.4. Consulting . At the Company92s sole discretion, Gray and the Company hereby agree that, beginning on July 1, 2005 and thereafter, the Company may request that Gray serve the Company in the capacity of a consultant. The Company shall pay to Gray the sum of $2,000 for each day worked by Gray as a consultant at the request of the Company pursuant to this Agreement. From the Effective Date until July 1, 2005 Gray agrees to cooperate with the Company, at no cost to the Company, in connection with the transition of operations of the Company to a new Chief Executive Officer of the Company.



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2.5. Benefits . For a period of Twenty (20) months following the Effective Date, the Company shall, at its sole expense, continue to maintain and provide coverage under Gray92s existing health coverage plan. For a period of Twelve (12) months following the Effective Date, the Company shall, at its sole expense, provide outplacement services appropriate to Gray92s position.



2.6. Withholding . All payments required to be made by the Company hereunder to Gray shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it must withhold pursuant to any applicable law or regulation.



2.7. No Duty to Mitigate Damages . Gray92s payments and benefits under Sections 2.1, 2.2, 2.3 and 2.5 of this Agreement shall be considered severance pay in consideration of his past service, and as an inducement to him to enter into and become bound by this Agreement, and his entitlement thereto shall not be dependent upon whether or not Gray provides further services of any type to or for the Company or any third party.



3. Gray Covenants . Gray hereby covenants with the Company as follows:



3.1. Non-disclosure . Gray recognizes and acknowledges that he has had and will have access to certain highly sensitive, special, unique information of the Company that is confidential or proprietary. Gray hereby covenants and agrees not to use or disclose any Confidential Information (as hereinafter defined) except for disclosures made solely (i) to authorized representatives of the Company; or (ii) as required by any governmental, statutory or judicial a ...