**Exhibit10.22**

** **

**SEPARATIONAGREEMENT**

 

**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 “EffectiveDate”);

 

**WHEREAS,**Gray isa member of the Board of Directors of the Company (the “Board”), andPresident and Chief Executive Officer of the Company;

 

**WHEREAS,** Grayintends to resign and terminate his employment and all other positions with theCompany and its subsidiaries, including the offices of President and ChiefExecutive Officer and Gray’s membership on the Board;

 

**WHEREAS,**theCompany intends to accept Gray’s resignation and wishes to provide to Graycertain payments and to provide Gray with certain other benefits upon suchtermination and Gray agrees to give certain releases and provide certainservices to the Company;

 

**NOW, THEREFORE,**inconsideration of the mutual promises set forth herein and for other good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto hereby agree as follows:

 

1.                                       Resignation and Termination.

 

1.1.                              Gray hereby resigns from all positions hecurrently holds with the Company and any subsidiary of the Company, includingwithout limitation the positions of President, Chief Executive Officer andDirector, and member of the Board and any committee thereof, effective as ofthe Effective Date. Gray agrees to transfer any shares of any subsidiary orinterest of any trust of the Company held by him as nominee or in any othercapacity to the Company or its designee.

 

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

 

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2.             Company Covenants.

 

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

 

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

 

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

 

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

 

2.3.                              Vesting and Exercise of Existing Options andRestricted Stock. On theEffective Date, all outstanding Company stock options and shares of restrictedstock of the Company held by Gray shall immediately and fully vest. Alloutstanding Company stock options held by Gray shall remain exercisable by Grayuntil June 30, 2007, notwithstanding anything to the contrary in documentsrelated to such option grants, and shall expire on such date.

 

2.4.                              Consulting. At the Company’s sole discretion, Gray and the Company hereby agreethat, beginning on July 1, 2005 and thereafter, the Company may requestthat Gray serve the Company in the capacity of a consultant. The Company shallpay to Gray the sum of $2,000 for each day worked by Gray as a consultant atthe request of the Company pursuant to this Agreement. From the Effective Dateuntil July 1, 2005 Gray agrees to cooperate with the Company, at no cost to theCompany, in connection with the transition of operations of the Company to anew Chief Executive Officer of the Company.

 

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2.5.                              Benefits. For a period of Twenty (20) months following the Effective Date, theCompany shall, at its sole expense, continue to maintain and provide coverageunder Gray’s existing health coverage plan. For a period of Twelve (12) monthsfollowing the Effective Date, the Company shall, at its sole expense, provideoutplacement services appropriate to Gray’s position.

 

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

 

2.7.                              No Duty to Mitigate Damages. Gray’s payments and benefits under Sections2.1, 2.2, 2.3 and 2.5 of this Agreement shall be considered severance pay inconsideration of his past service, and as an inducement to him to enter intoand become bound by this Agreement, and his entitlement thereto shall not bedependent upon whether or not Gray provides further services of any type to orfor 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 accessto certain highly sensitive, special, unique information of the Company that isconfidential or proprietary. Gray hereby covenants and agrees not to use ordisclose any Confidential Information (as hereinafter defined) except fordisclosures made solely (i) to authorized representatives of the Company;or (ii) as required by any governmental, statutory or judicial authority, providedthat prior to any such disclosure Gray shall provide the Company with notice ofsuch requirement as is practicable and shall cooperate with the Company inresponding to such requirement, including assisting the Company in procuring aprotective order or other modification of such required disclosure.

 

3.2.                              Confidential Information. For purposes of this Agreement, “ConfidentialInformation” means any data or information with respect to the businessconducted by the Company that is material to the Company and not generallyknown by the public. To the extent consistent with the foregoing definition,Confidential Information includes without limitation; (i) reports,pricing, sales manuals and training manuals, selling and pricing procedures,and financing methods of the Company, together with any techniques utilized bythe Company in designing, developing, manufacturing, testing or marketing itsproducts or in performing services for clients, customers and accounts of theCompany and (ii) the business plans and financial statements, reports andprojections of the Company.

 

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3.3.                              Return of Property. Gray covenants, agrees and acknowledges thatall Confidential Information is and shall remain the sole, exclusive andvaluable property of the Company and Gray has and shall acquire no right, titleor interests therein. Any and all printed, typed, written or other materialwhich Gray may have or obtain shall be and remain the exclusive property of theCompany, and any and all material (including any copies) shall be promptlydelivered by Gray to the Company. The Company acknowledges that the personalproperty listed on Exhibit B is and shall remain Gray’spersonal property unaffected by this Agreement

 

4.             Indemnification.The Company shall indemnify Gray to the same extent provided to its otherdirectors and officers by its charter and by-laws against all costs, chargesand expenses, including, without limitation, attorneys’ fees, incurred orsustained by Gray in connection with any action, suit or proceeding to whichGray may be made a party by reason of being an officer, director or employee ofthe Company for acts undertaken from the time of his employment by the Companythrough the Effective Date (the “IndemnificationPeriod”), andGray will be included as an insured individual under any liability insurancepolicy that insures other officers or directors of the Company for acts takenduring the Indemnification Period.

 

5.                                       Public Statement, Non-disparagement.

 

5.1.                              Gray and the Company shall make a press releaseannouncing Gray’s resignation in the form attached hereto as Exhibit A(the “ApprovedPublicStatement”) on the Effective Date. NeitherGray nor the Company shall make any public statement other than the Approved PublicStatement or that is consistent with the Approved Public Statement.

 

5.2.                              Gray shall make no disparaging statements,whether public or private, with regard to the Company, its officers, employees,Oracle Partners or its affiliates or members of the Board unless and to theextent specifically compelled by any governmental agency or tribunal to make astatement.

 

5.3.                              The Company and the members of the Board shallmake no disparaging statements, whether public or private, about Gray unlessand to the extent specifically compelled by any government agency or tribunalto make a statement. In response to an inquiry, or as necessary or appropriateto make clear Gray’s status with the Company or the circumstances of hisdeparture, the Company and the members of the Board shall inform third partiesthat Gray is a shareholder of the Company and/or that he is not an employee,officer, director or other agent of the Company by saying that Gray remains ashareholder of the Company and that Gray resigned voluntarily, or other wordsof similar effect. Neither the Company nor the members of the Board shall makeany statement that implies or suggests that

 

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the reason for Gray’s separationfrom the Company was anything other than Gray’s voluntary action.

 

6.                                       Mutual Release and Covenant Not to Sue.

 

6.1                                 Release and Covenant Not to Sue from Gray.

 

(a)                                  Release. Gray hereby releases each of the Company and its officers, employees,directors, shareholders (in their capacities as such), attorneys, agents,successors, and assigns, from each and every right, claim, debt, demand,liability, cost, expense, and/or cause of action, which he has or may have hadagainst any of such released parties as of the Effective Date, whether known orunknown.

 

(b)                                 Covenant Not to Sue. Gray hereby covenants and agrees not to bringsuit against any of the Company or any of its officers, employees, directors, attorneys, agents, successors, andassigns based upon any claim herein released.

 

(c)                                  Rights Retained. Notwithstanding anything in this Agreement to the contrary, Grayexpressly reserves his right to take action against the Company to preserve hisrights under this Agreement in the event of a breach thereof by the Company,subject to Section 7 below.

 

6.2                                 Release and Covenant Not to Sue from the Company.

 

(a)                                  Release. The Company hereby releases each of Gray and his attorneys, agents,successors, and assigns from each and every right, claim, debt, demand,liability, cost, expense, and/or cause of action arising out of Gray’s serviceor status as an employee, officer, director, shareholder (in his capacity assuch) or representative of shareholders of the Company, existing as of theEffective Date and whether known or unknown.

 

(b)                                 Covenant Not to Sue. The Company hereby covenants and agrees not tobring suit against each of Gray and his attorneys, agents, successors, andassigns based upon any claim herein released.

 

(c)                                  Rights Retained. Notwithstanding anything in this Agreement to the contrary, the Companyexpressly reserves its right to take action against Gray to preserve its rightsunder this Agreement in the event of a breach thereof by Gray, subject toSection 7 below.

 

7.                                       Arbitration. Any controversy or claim arising out of or relating to this Agreement,or the breach thereof, shall be settled exclusively by single-arbitratorarbitration, in Dallas, Texas, in accordance with the

 

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Commercial Arbitration Rules ofthe American Arbitration Association then in effect, and judgment upon theaward rendered by the arbitrator may be entered in any court havingjurisdiction thereof.

 

8.                                       Collateral. Payments owed to Gray by the Company pursuant to Section 2 hereofshall be secured by, and the Company hereby grants to Gray a security interestin and to, all of the assets of the Company, ranking junior only to thesecurity interest granted to Cornell Capital Partners, LP and Highgate HouseFunds, Ltd. Any failure to pay timely any amount due under Section 2.1(b)shall result, automatically, in the full acceleration of all such payments notyet paid in full if such amount due is not paid within 10 days after writtennotice from Gray. With respect to the Company, any commencement of a bankruptcyproceeding, assignment for the benefit of creditors or the appointment of areceiver, trustee, liquidator or other similar official shall also result,automatically, in the full acceleration of all such payments not yet paid infull.

 

9.                                       Legal Fees and Expenses. Each party hereto shall pay its own legal feesand expenses of counsel reasonably incurred by such party in connection withthe negotiation, execution and delivery of this Agreement or in seeking in goodfaith to obtain any right or benefit to which such party believes it or he isentitled under this Agreement. In the event of a default by the Company withrespect to any payments owed to Gray under this Agreement, the Company agreesto pay Gray any costs of collection, including but not limited to anyreasonable attorneys fees, which shall be deemed additional payments that aresecured pursuant to Section 8 hereto.

 

10.                                 Notices. Any notices required to be given under this Agreement shall be inwriting and shall be deemed given three (3) days after mailing in the continentalUnited States by registered or certified mail, or upon personal receipt afterdelivery, telex, telecopy, or telegram, to the party entitled thereto at theaddress stated below or to such changed address as the addressee may have givenby a similar notice:

 
| To the Company: |   | Access Pharmaceuticals, Inc.      |
|-----------------|--------|-----------------------------------|
|            |   | 2600 Stemmons Freeway, Suite  176 |
|            |   | Dallas, TX 75207-2107             |
|            |   | Attn: Chief Executive Officer     |
|            |   |                              |
| With a copy to: |   | John J. Concannon III, Esq.       |
|            |   | Bingham McCutchen LLP             |
|            |   | 150 Federal Street                |
|            |   | Boston, MA 02110                  |
|            |   |                              |
| To Gray:        |   | Kerry Gray                        |
|            |   | 4939 Stonyford Dr.                |
|            |   | Dallas, Texas 75287               |

 

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11.           General Provisions.

 

11.1.                        Binding Agreement. This Agreement shall be binding upon and inureto the benefit of Gray and be enforceable by his personal or legalrepresentatives or successors. If Gray dies while any amounts would still bepayable to him hereunder, his rights herein shall still be exercisable by suchrepresentatives or successors. Such amounts shall be paid to Gray’s estate inaccordance with the terms of this Agreement. This Agreement shall not otherwisebe assignable by Gray.

 

11.2.                        Successors. This Agreement shall inure to and be binding upon the Company’ssuccessors. The Company shall require any successor to all or substantially allof its business and/or assets by sale, merger (where the Company is not thesurviving corporation), consolidation, lease or otherwise, by agreement in formand substance satisfactory to Gray, to assume this Agreement expressly. ThisAgreement shall not otherwise be assignable by the Company.

 

11.3.                        Amendment or Modification; Waiver. This Agreement may not be amended or modifiedunless agreed to in writing by Gray and the Company. No waiver by either partyof any breach of this Agreement shall be deemed a waiver of any subsequentbreach.

 

11.4.                        Severability. In the event that any provision of this Agreement shall be determinedto be invalid or unenforceable, such provision shall be enforceable in anyjurisdiction in which valid and enforceable, and in any event the remainingprovisions shall remain in full force and effect to the fullest extentpermitted by law.

 

11.5.                        Rights Granted. This Agreement shall not give Gray any right to compensation orbenefits from the Company or any affiliate of the Company, except for therights specifically stated herein, including those certain severance and otherbenefits that become payable on or after the Effective Date.

 

11.6.                        Governing Law. The validity, interpretation, performance, and enforcement of thisAgreement shall be governed by and construed in accordance with the internallaws of the State of Delaware, without giving effect to the principles ofchoice of law or conflicts of law.

 

11.7.                        Counterparts. This Agreement may be executed in multiple counterparts, each of whichshall be deemed an original, but all of which taken together shall constituteone and the same Agreement.

 

11.8.                        Section Headings. The descriptive section headings in thisAgreement have been inserted for convenience of reference only 

 

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and are not intended to be partof, or to affect the meaning or interpretation of, this Agreement.

 

12.                                 Exclusive Agreement. It is agreed and understood that this Agreementrepresents the entire agreement between the Company and Gray concerning thesubject matter hereof and supersedes all prior agreements and understandingsconcerning Gray’s rights upon the termination of his employment.

 

**IN WITNESS WHEREOF**, the parties hereto have executed this Agreementunder seal as of the day and year first above written.

 
| **Access Pharmaceuticals, Inc.** | **Kerry Gray**                    |
|----------------------------------|-----------------------------------|
|                             |                              |
| By:                              |   /s/ J. Michael  Flinn |   | /s/ Kerry P. Gray |   |
| Name: J. Michael Flinn           |                              |
| Title: Chairman of the Board     |                              |
|                                  |                                   |  |  |  |

 

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