**EXHIBIT 10.5**

 

**Second Amended and Restated**

**Employment Agreement**

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”)made effective as of the 13th day of November 2007 (the “Effective Date”), byand between Advanced Life Sciences, Inc., an Illinois corporation (the “Company”),and Ze-Qi Xu, Ph.D. (the “Executive”).

 

WHEREAS, theCompany and the Executive previously entered into an employment contract (the “OriginalEmployment Contract”); and

 

WHEREAS, theCompany and the Executive entered into an Amended and Restated EmploymentAgreement, effective November 7, 2006 (the “First Amended and RestatedEmployment Agreement); and

 

WHEREAS, theCompany and the Executive desire to enter into this Second Amended and RestatedAgreement, effective as of the Effective Date, to amend and restate the FirstAmended and Restated Employment Agreement; and

 

WHEREAS, the Company desires to employ the Executive in accordance withthe terms and conditions hereinafter set forth and the Executive desires to beso employed; and

 

WHEREAS, theCompany has agreed with the Executive that this Agreement shall set forth theterms and conditions of the Executive’s employment with the Company;

 

NOW,THEREFORE, in consideration of the mutual covenants contained herein, theCompany and the Executive agree as follows:

 

1.                                       Term.The employment of the Executive by the Company pursuant to this Agreement shallbegin as of the Effective Date and shall expire on the third anniversary of theEffective Date (the “Term”), unless extended, as set forth below, or otherwiseterminated pursuant to the provisions of this Agreement; provided, however,that commencing on the third anniversary of the Effective Date and on eachanniversary thereafter, the Term of this Agreement shall automatically beextended for one additional year unless, not later than 90 days prior to suchanniversary, the Executive or the Company shall have given notice in writingthat he or it does not wish to extend this Agreement.

 

2.                                       Positionand Duties. The Executive shall serve as the Executive Vice President andChief Scientific Officer of the Company, and shall have such responsibilities,duties and authority as are assigned by the Chief Executive Officer and arecustomarily associated with such position, including but not limited to, thosehe may have as of the Effective Date. The Executive shall devote such time tothe performance of his duties as is necessary to satisfactorily perform hisresponsibilities and duties.

 

3.                                       Placeof Performance. In connection with the Executive’s employment by theCompany, the Executive shall be based at the principal executive offices of theCompany currently in Woodridge, Illinois, except for required travel on theCompany’s business.

 

4.                                       Compensationand Related Matters. During the Term of the Executive’s employment, ascompensation and consideration for the performance by the Executive of theExecutive’s duties, responsibilities and covenants pursuant to this Agreement,the Company shall pay the Executive and the Executive agrees to accept in fullpayment for such performance the amounts and benefits set forth below.

 

(a)                                  Salary. TheCompany shall pay to the Executive an annual base salary of $225,000 (“BaseSalary”), payable in substantially equal installments no less frequently thanmonthly in accordance with the Company’s applicable payroll practices. TheCompensation Committee of the Board of Directors of the Company (the “CompensationCommittee”) shall review the Base Salary annually, at a minimum, or at suchother time as it deems a review necessary and may increase the Base Salary on aprospective basis. Any such salary adjustment shall then be considered BaseSalary for the purposes of this Agreement. The Executive’s Base Salary shallnot be reduced after any increase, without the Executive’s consent.

 

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(b)                                 Bonus.The Executive shall be eligible to participate throughout the Term in theCompany’s annual bonus plan or any similar or successor bonus plan (“Bonus Plan”)in accordance with the Company’s compensation practices and the terms andprovisions of the Bonus Plan. Each year, the Executive may be eligible toreceive a target performancebonus of thirty percent (30%) of Base Salary. The amount of the Executive’starget performance bonus shall be reviewed annually and may be increased by theCompensation Committee.

 

(c)                                  StockIncentive Plan. The Executive shall be eligible to receive additionalawards of the Company’s common stock under the Company’s Stock Incentive Planor under any other equity plan of the Company as determined by the CompensationCommittee in its discretion.

 

(d)                                 Other Benefits andPerquisites. During the Term of the Executive’s employment hereunder:

 

(i) Benefit Plans. The Executive shall beentitled to participate in or receive benefits under any employee pension orwelfare benefit plan or arrangement made available by the Company at any timeduring his employment hereunder to its employees (collectively the “BenefitPlans”), including without limitation each qualified retirement plan, lifeinsurance and accident plan, medical, dental insurance plans, and disabilityplan, subject to and on a basis consistent with the terms, conditions andoverall administration of such plans and arrangements, as they may be amendedfrom time to time.

 

(ii) Vacation. The Executive shall beentitled to not less than 20****days of paidvacation in each calendar year, in accordance with the Company’s vacationpolicy.

 

(iii)                               ExpenseReimbursement. The Executive shall be entitled to receive reimbursement forall reasonable business, travel or other out-of-pocket expenses incurred by theExecutive in fulfilling the Executive’s duties and responsibilities hereunder,provided that such expenses are incurred and accounted for in accordance withthe policies and procedures established by the Company.

 

5.                                       Termination.

 

(a)                                  TheExecutive’s employment hereunder may be terminated under the followingcircumstances:

 

(i)                                     The death of theExecutive;

 

(ii)                                  By the Company for “Cause”,which shall mean any of the following:, as determined by the Board in itsdiscretion:  (A) conviction of or plea ofguilty or *nolo contendere* to anycriminal violation involving dishonesty or fraud; (B) engagement in conductthat is injurious to the Company; (C) engagement in any act of dishonesty or misconductthat results in damage to the Company or its business or reputation or that theBoard determines to adversely affect the value, reliability or performance ofthe Executive to the Company; (D) refusal or failure to substantially complywith the Company’s human resources rules, policies, directions and/orrestrictions relating to harassment and/or discrimination, or with complianceor risk management rules, policies, directions and/or restrictions; (E)unauthorized use or disclosure of Confidential Information (as defined below)or other trade secrets of the Company; (F) loss of any license or registrationthat is necessary for the Executive to perform his duties to the Company, orcommission of any act that could result in the legal disqualification of theExecutive from being employed by the Company or any of its affiliates; (G)failure to cooperate with the Company or any of its affiliates in any internalinvestigation or administrative, regulatory or judicial proceeding; or (H)continuous failure by the Executive to perform his duties to the Company (whichmay include any sustained and unexcused absence of the Executive from theperformance of such duties, which absence has not been certified in writing asdue to physical or mental illness or disability), after a written demand forperformance has been delivered to the Executive identifying the manner in whichthe Executive has failed to substantially perform such duties. The applicationof any part of the definition of Cause set forth in clauses (A) through (H)above to the Executive shall not preclude or prevent the reliance by theCompany or the Board on any other part of the definition that also may beapplicable. In addition, the Executive’s employment shall be deemed to haveterminated for Cause if, after the Executive’s employment has terminated, factsand circumstances are discovered that would have justified a termination forCause.

 

(iii)                               Bymutual agreement between the Company and the Executive; or

 

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(iv)                              Bythe Executive or the Company for any reason other than as stated in Sections5(a)(i) through 5(a)(iii) above, upon providing a Notice of Termination (asdefined in Section 5(b)).

 

(b)                                 Notice ofTermination. Any termination of the Executive’s employment by the Companyor by the Executive (other than a termination pursuant to Section 5(a)(i)above) shall be communicated by written Notice of Termination to the otherparty hereto in accordance with Section 10. For purposes of this Agreement, a “Noticeof Termination” shall mean a notice that shall indicate the specifictermination provision in this Agreement relied upon and shall set forth inreasonable detail the facts and circumstances claimed to provide a basis fortermination of the Executive’s employment under the provision so indicated.

 

(c)                                  “Date of Termination”shall mean (i) if the Executive’s employment is terminated pursuant to Section5(a)(i) above, the date of his death; (ii) if the Executive’s employment isterminated pursuant to Section 5(a)(ii) or 5(a)(iv) above, the date such Noticeof Termination is given (or such later date as provided therein); (iii) if theExecutive’s employment is terminated pursuant to Section 5(a)(iii) above, thedate mutually agreed to by the parties; (iv) the date the Term of thisAgreement expires, if either the Company or the Executive provides notice inaccordance with Section 1; or (v) if the Executive terminates his employmentand fails to provide written notice to the Company of such termination, thedate of such termination.

 

6.                                       CompensationUpon Termination.

 

(a)                                  The followingpayments shall be made upon the Executive’s termination of employment for anyreason:  (i) earned but unpaid BaseSalary through the Executive’s Date of Termination; (ii) any accrued but unpaidvacation; (iii) unreimbursed business expenses owed pursuant to Section4(d)(iii); (iv) any outstanding notes payable to the Executive along with theinterest due; and (v) any amounts payable under any of the Company’s Bonus Planand Benefit Plans in accordance with the terms of those plans. All amountsunder clauses (i) through (v) shall be paid in a lump sum on the Executive’sDate of Termination or as soon as administratively practicable thereafter.

 

 (b)                              Inthe event that the Executive’s employment is terminated pursuant to Sections5(a)(i) or 5(a)(ii), or by the Executive for any reason****pursuant to Section 5(a)(iv), above, theCompany shall have no further obligation to the Executive under this Agreement,other than the payments in Section 6(a).

 

(c)                                  Ifthe Executive’s employment is terminated by the parties pursuant to Section5(a)(iii) above, the Executive shall be entitled to receive the compensationthe parties specify in any written agreement that the Company and the Executiveexecute regarding the Executive’s termination.

 

(d)                                 Inaddition to the payments made under Section 6(a), if the Executive’s employmentis terminated by the Company without Cause pursuant to Section 5(a)(iv) above,and conditioned upon the Executive’s execution of a valid and legallyenforceable release of claims against the Company, the Company shall, for aperiod of twelve (12) months following the Date of Termination (the “SeverancePeriod”):  (i) provide to the Executivesalary continuation paid in accordance with the Company’s applicable payrollpractices, at the Executive’s Base Salary rate in effect as of the Date ofTermination and (ii) continue the Executive’s coverage under the Company’shealth medical, dental, vision, disability, and life and accident benefitplans, in which the Executive participated immediately prior to the Date ofTermination, provided, however, that if the Company cannot continue suchcoverage, the Company shall provide or arrange to provide, at its expense,similar coverage to the Executive and if such coverage cannot be arranged, the****Company will provide a cash equivalent payment to theExecutive. In addition, no later than two and one-half (21⁄2) months followingthe end of the year in which the Executive’s employment is terminated, theCompany shall pay the Executive in a lump sum an amount equal to the Executive’starget performance bonus multiplied by a fraction, the numerator of which isthe number of days in the calendar year in which the Executive’s employment isterminated through the Date of Termination and the denominator of which is 365.Notwithstanding the forgoing, vacation days shall not accrue during theSeverance Period.

 

(e)                                  The Executive shallnot be required to mitigate the amount of any payment provided for in thisSection 6 by seeking other employment or otherwise, nor shall the amount of anypayment or benefit provided for in this Section 6 be reduced by anycompensation earned by the Executive as the result of employment by anotheremployer, by retirement benefits, by offset against any amount claimed to beowed by the Executive to the Company, or otherwise.

 

(f)                                    The obligations ofthe Company to make payments and provide benefits under this Section 6 shallsurvive the termination of this Agreement.

 

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7.                                       Changein Control. Upon a Change in Control(as defined below), all outstanding stock options and other equity awards underthe Company’s Stock Incentive Plan or other similar or successor plan held bythe Executive will immediately become fully vested and exercisable.

 

(a)                                  Paymentsand Benefits Upon Employment Termination Upon a Change in Control. If, withintwenty four (24) months after a Change in Control, the Executive’s employmentis terminated by the Company other than for Cause or if the Executiveterminates employment for Good Reason (as defined below), the Company shallprovide the following payments and benefits to the Executive, in lieu of thosepayments and benefits provided under Sections 6(d), but in addition to theamounts payable under Section 6(a):

 

(i)                                     TheCompany shall pay the Executive a lump sum cash amount equal to (2) times thesum of (A) the Executive’s annual Base Salary as in effect on the date of theExecutive’s termination of employment and (B) the Executive’s targetperformance bonus amount as in effect as in effect for the fiscal year in whichthe Executive’s employment is terminated:

 

(Base Salary +Target Performance Bonus)   x   2  =   lump sum cash amount

 

(ii)                                  TheCompany shall continue the Executive’s coverage under the Company’s healthmedical, dental, vision, disability, and life and accident insurance benefitplans in which the Executive participated immediately prior to the Executive’stermination of employment for a period of twenty four (24) months, provided,however, that if the Company cannot continue such coverage, the Company shallprovide or arrange to provide, at its expense, similar coverage to theExecutive and if such coverage cannot be arranged, the****Companywill provide a cash equivalent payment to the Executive.

 

(b)                                 Timingof Payment. All payments under Section 7(a)(i) shall be made in a lump sum cashpayment as soon as practicable, but in no event more than 10 days after theExecutive’s termination of employment.

 

(c)                                  Definitions.For purposes of this Agreement, the following terms shall have the followingdefinitions:

 

(i) “Change in Control” means the occurrence ofany one or more of the following:

 

(A)                              any“person” (as such term is defined in Section 3(a)(9) of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3)and 14(d)(2) of the Exchange Act), including a “group” (as defined in Section13(d)(3) of the Exchange Act), other than (I) the Company, (II) any wholly-ownedsubsidiary of the Company, (III) any employee benefit plan (or related trust)sponsored or maintained by the Company or any of its affiliates, or (IV) a “PermittedHolder” (as defined below), becomes a “beneficial owner” (as defined in Rule13d-3 under the Exchange Act), directly or indirectly, of securities of theCompany having fifty percent (50%) or more of the combined voting power of thethen-outstanding securities of the Company that may be cast for the election ofdirectors of the Company (other than as a result of an issuance of securitiesinitiated by the Company in the ordinary course of business) (the “CompanyVoting Securities”); provided, however, that the event described in thisSection 7(c)(i) shall not be deemed to be a Change in Control by virtue of anyunderwriter temporarily holding securities pursuant to an offering of suchsecurities;

 

(B)                                individuals who, as ofthe date of this Agreement, constitute the Board (the “Incumbent Directors”),together with any new director(s) whose election or nomination for election bythe Company’s stockholders subsequent to the date hereof was approved by a voteof at least two-thirds (2/3) of the directors then still in office who eitherwere Incumbent Directors or whose election or nomination for election waspreviously so approved, cease for any reason to constitute a majority thereof;

 

(C)                                the consummation by theCompany of a reorganization, merger or consolidation, or sale or otherdisposition of all or substantially all of the assets of the Company (a “BusinessCombination”), in each case, unless immediately following such BusinessCombination:  (A) holders of thesecurities of the Company entitled to vote generally in the election ofdirectors of

 

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the Company immediately prior to such Business Combination own or hold,in substantially the same proportions as their ownership immediately prior tosuch Business Combination, more than 50% of the combined voting power of thenoutstanding voting securities entitled to vote generally in the election ofdirectors of (x) the entity resulting from such Business Combination, or (y) ifapplicable, the entity that as a result of such Business Combination owns theCompany or all or substantially all of the Company’s assets either directly orthrough one or more subsidiaries; or

 

(D)                               the stockholders of theCompany approve a plan of complete liquidation or dissolution of the Company.

 

Notwithstanding the foregoing, a Change inControl shall not be deemed to occur solely because any person acquiresbeneficial ownership of more than fifty percent (50%) of the Company VotingSecurities as a result of the acquisition of Company Voting Securities by theCompany which reduces the number of Company Voting Securities outstanding;provided, however, that if after such acquisition by the Company such personbecomes the beneficial owner of additional Company Voting Securities thatincreases the percentage of outstanding Company Voting Securities beneficiallyowned by such person, a Change in Control transaction shall then occur.

 

Further notwithstanding the foregoing, unlessa majority of the Incumbent Directors determines otherwise, no Change inControl shall be deemed to have occurred with respect to the Executive if theChange in Control results from actions or events in which the Executive is aparticipant in a capacity other than solely as an officer, employee or directorof the Company or any of its affiliates.

 

(ii)                                  “Permitted Holders”means (A) Michael T. Flavin (the “Principal”), (B) the spouse or any immediatefamily member of the Principal and any child or spouse of any spouse orimmediate family member of the Principal, (C) a trust, corporation, partnershipor other entity, the beneficiaries, stockholders, partners, owners or personsbeneficially holding, directly or indirectly, a controlling interest of whichconsists of the Principal and/or such other persons referred to in theimmediately preceding clause (B), or (D) the trustees of any trust referred toin clause (D).

 

(iii)                               “Good Reason” means anyof the following conditions, without the Executive’s consent, (A) a materialdiminution in the Executive’s Base Salary, (B) a material diminution in theExecutive’s authority, duties, or responsibilities, (C) a material diminutionin the authority, duties, or responsibilities of the supervisor to whom theExecutive is required to report, including a requirement that the Executivereport to a corporate officer or employee instead of reporting directly to theBoard (or other similar governing body), (D) a material diminution in thebudget over which the Executive retains authority, (E) a material change in thegeographic location at which the Executive must perform services, and (F) anyother action or inaction that constitutes a material breach by the Company ofthis Agreement. If one or more of the above conditions exists, the Executivemust provide notice to the Company within ninety (90) days of the initialexistence of the condition. Upon such notice, the Company shall have a periodof thirty (30) days during which it may remedy the condition.

 

(d)                                 Treatmentof Parachute Payments.

 

(i)                                     Notwithstandingany other provisions of this Agreement, and except as set forth below, in theevent that any payment or benefit received or to be received by the Executivein connection with a Change in Control or the termination of the Executive’semployment (whether pursuant to the terms of this Agreement or any other plan,arrangement or agreement with the Company, any person whose actions result in aChange in Control or any person affiliated with the Company or such person)(all such payments and benefits, including payments under Section 7(a) above,being hereinafter called “Total Payments”) is determined to be an “excessparachute payment” pursuant to Section 280G of the Internal Revenue Code of1986, as amended (the “Code”), or any successor or substitute provision of theCode, with the effect that the Executive is liable for the payment of theexcise tax described in Code Section 4999 or any successor or substituteprovision of the Code (the “Excise Tax”), then, after taking into account anyreduction in the Total Payments provided by reason of Code Section 280G in suchother plan, arrangement or agreement, the cash payments provided in Section7(a)(i) of this Agreement shall first be reduced, and the noncash

 

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payments andbenefits shall thereafter be reduced, to the extent necessary so that noportion of the Total Payments is subject to the Excise Tax.

 

(ii)                                  Alldeterminations required to be made under this Section 7(d), and the assumptionsto be utilized in arriving at such determination, shall be made by thecertified public accounting firm used for auditing purposes by the Companyimmediately prior to the date of the Executive’s termination of employment or,if the parties determine that such certified public accounting firm cannot makesuch determination because of legal restrictions, the parties shall agree on adifferent certified public accounting firm (such certified public accountingfirm is hereinafter referred to as the “Accounting Firm”), which shall providedetailed supporting calculations both to the Company and the Executive notlater than 5 days prior to the date of the Executive’s termination ofemployment. The Company shall pay all fees and expenses of the Accounting Firm.Any determination by the Accounting Firm shall be binding upon the Company andthe Executive, except as provided in paragraph (ii) below.

 

(iii)                               Asa result of the uncertainty in the application of Code Sections 280G and 4999at the time of the initial determination by the Accounting Firm hereunder, itis possible that the Internal Revenue Service (the “IRS”) or other agency willclaim that an Excise Tax, or a greater Excise Tax, is due. If the Executive isrequired to make a payment of any such Excise Tax, the Company will promptlypay the Executive an additional amount equal to the amount, or greater amount,of Excise Tax the Executive is required to pay (plus a gross up payment for anyincome taxes, interest, penalties or additional Excise Tax payable by Executivewith respect to such Excise Tax or additional payment), as determined by theAccounting Firm. The Executive will notify the Company in writing of any claimby the IRS or other agency that, if successful, would require payment by theCompany of the additional payments under this paragraph. The Executive and theCompany shall each reasonably cooperate with the other in connection with anyadministrative or judicial proceedings concerning the existence or amount ofliability for Excise Tax with respect to the Total Payments. The Company shallpay all fees and expenses of the Executive relating to a claim by the IRS orother agency. Payments under this Section 7(d)(iii) will be made by the end ofthe Executive’s taxable year next following the Executive’s taxable year inwhich the Executive remits the related taxes, in accordance with Code Section409A and Treas. Reg. §1.409A-3(i)(1)(v) (or any similar or successorprovisions).

 

8.                                       CodeSection 409A.

 

(a)                                  ThisAgreement is intended to comply with Code Section 409A and the interpretativeguidance thereunder, including the exceptions for short-term deferrals,separation pay arrangements, reimbursements, and in-kind distributions, andshall be administered accordingly. The Agreement shall be construed andinterpreted with such intent.

 

(b)                                 Tothe extent payments under Section 6(d) are subject to Code Section 409A and theExecutive is a Specified Employee (as defined below) as of the Date ofTermination, distributions to the Executive may not be made before the datethat is six months after the date of the Date of Termination or, if earlier,the date of the Executive’s death (the “Six Month Delay Rule”). The term “SpecifiedEmployee” has the meaning given to that term in Code Section 409A and Treas.Reg. §1.409A-1(c)(i) (or other similar or successor provisions). Payments towhich the Executive would otherwise be entitled during the first six monthsfollowing the Date of Termination (the “Six Month Delay”) will be accumulatedand paid on the first day of the seventh month following the Date ofTermination. Notwithstanding the Six Month Delay Rule set forth in this Section8(b), to the maximum extent permitted under Code Section 409A and Treas. Reg.§1.409A-1(b)(9)(iii) (or any similar or successor provision), during the SixMonth Delay, the Company will provide the payments set forth in Section 6(d)(i)above, but in no event will the amount of such payments exceed during the SixMonth Delay an amount equal to two times the lesser of (i) the maximum amountthat may be taken into account under a qualified plan pursuant to Code Section401(a)(17) for the year in which the Date of Termination occurs and (ii) thesum of the Executive’s annualized compensation based upon the annual rate ofpay for services provided to the Company for the taxable year of the Executivepreceding the taxable year of the Executive in which the Executive’s Date ofTermination occurs (adjusted for any increase during that year that wasexpected to continue indefinitely if the Executive had not had a Date ofTermination), provided that amounts paid under this sentence will count toward,and will not be in addition to, the total payment amount required to be made tothe Executive by the Company under Section 6(d)(i) above. Notwithstanding theSix Month Delay Rule set forth in this Section 8(b), to the maximum extentpermitted under Code Section 409A and Treas. Reg. §1.409A-1(b)(9)(v) (or anysimilar or successor provision), the Company will provide the payments setforth in Section 6(d)(ii), if not otherwise excepted from Code Section 409A, tothe extent such payments do not exceed the applicable dollar amount under CodeSection 402(g)(1)(B) for the year in which

 

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the Date of Terminationoccurs; provided that amounts paid under this sentence will count toward, andwill not be in addition to, the total payment amount required to be made to theExecutive by the Company under Section 6(d)(ii) above.

 

(c)                                  Paymentsunder Section 7(a)(i) are intended to qualify as short-term deferrals. However,if the Company reasonably determines that a payment under Section 7(a)(i) abovedoes not qualify as a short-term deferral under Code Section 409A and Treas.Reg. §1.409A-1(b)(4) (or any similar or successor provisions), or that otherbenefits under Section 7(a) do not qualify for an exception from Code Section409A and the Executive is a Specified Employee as of the Date of Termination,distributions to the Executive are subject to the Six Month Delay Rule. Paymentsto which the Executive would otherwise be entitled during the Six Month Delaywill be accumulated and paid on the first day of the seventh month following theDate of Termination. Notwithstanding the Six-Month Delay Rule set forth in thisSection 8(c):

 

(i)                                     Tothe maximum extent permitted under Code Section 409A and Treas. Reg.§1.409A-1(b)(9)(iii) (or any similar or successor provision), during the firstmonth of the Six-Month Delay, the Company will pay the Executive an amountequal to the lesser of:  (i) the totallump sum severance provided under Section 7(a)(i) or (ii) two times the lesserof (A) the maximum amount that may be taken into account under a qualified planpursuant to Code Section 401(a)(17) for the year in which the Date ofTermination occurs, and (B) the sum of the Executive’s annualized compensationbased upon the annual rate of pay for services provided to the Company for thetaxable year of the Executive preceding the taxable year of the Executive inwhich the Executive’s Date of Termination occurs (adjusted for any increaseduring that year that was expected to continue indefinitely if the Executivehad not had a Date of Termination); provided that amounts paid under thissentence will count toward, and will not be in addition to, the total paymentamount required to be made to the Executive by the Company under Section7(a)(i) above.

 

(ii)                                  Tothe maximum extent permitted under Code Section 409A and Treas. Reg.§1.409A-1(b)(9)(v) (or any similar or successor provision), the Company willprovide the payments set forth in Section 7(a)(ii), if not otherwise exceptedfrom Code Section 409A, to the extent such payments do not exceed the applicabledollar amount under Code Section 402(g)(1)(B) for the year in which the Date ofTermination occurs; provided that amounts paid under this sentence will counttoward, and will not be in addition to, the total payment amount required to bemade to the Executive by the Company under Section 7(a)(ii) above.

 

9.                                       RestrictiveCovenants.

 

(a)                                  Trade Secrets. TheExecutive acknowledges that he has had and shall have access to confidentialinformation of the Company, whether or not reduced to writing and whether inpaper, electronic, digital, analog or other format (including, but not limitedto, trade secrets, know-how, Inventions (as defined below), new product andproduct development information, research results, marketing and salesprograms, customer and supplier information, financial data, employee records,cost information, pricing information, sales and marketing strategies, theidentity of customers, information received by the Company under an obligationof confidentiality to customers, and all information generated by the Companyfor customers) relating to the past, present or planned business, customers,clients, contacts, prospects and assets of the Company that is unique, valuableand has not purposefully been made generally known to the public by the Company(“Confidential Information”). Confidential Information shall not include anyinformation that: (i) is now, or hereafter becomes, through no act or failureto act on the part of the Executive that constitutes a breach of this Section9, generally known or available to the public; (ii) is hereafter furnishedwithout restriction on disclosure to the Executive by a third party, other thanan employee or agent of the Company, who is not under any obligation ofconfidentiality to the Company; (iii) is disclosed with the written approval ofthe Company; or (iv) is required to be disclosed or provided by law, courtorder, or similar compulsion, including pursuant to or in connection with anylegal proceeding involving the parties hereto; provided, however, that suchdisclosure shall be limited to the extent so required or compelled; andprovided further, however, that if the Executive is required to disclose suchConfidential Information, the Executive shall give the Company notice of suchdisclosure and cooperate in seeking suitable protections. The Executiveacknowledges that all Confidential Information, and all documents, files,reports, drawings, designs, specifications, formulae, samples, data, writings,tools, equipment, memory devices or any other tangible objects thatincorporate, contain, refer to or embody any Confidential Information (“Items”),acquired by the Executive in connection with the Executive’s employment withthe Company are the property of the Company. Other than in the course ofperforming services for the Company or otherwise authorized in writing by theCompany, the Executive shall not, at any time, directly or indirectly use,divulge, furnish or make accessible to any person any Confidential Information,but instead shall keep all

 

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Confidential Information strictly and absolutely confidential. TheExecutive shall deliver promptly to the Company, at the termination of hisemployment or at any other time at the request of the Company, withoutretaining any copies, all Items and any other documents or materials in theExecutive’s possession relating, directly or indirectly, to any ConfidentialInformation.

 

(b)                                 Non-competition. Beginningon the Effective Date and for a period of twelve (12) months followingExecutive’s Date of Termination (the “Restricted Period”), Executive shall notdirectly or indirectly, alone or in conjunction with any other party, own anyinterest in, operate, control, engage in or participate as a partner, director,principal, officer, employee, independent contractor or agent of, act as aconsultant to, perform any services for, or assist in any way any company,person, or entity in the United States that is engaged in “Competing Services”(as defined herein). Competing Services shall mean chemistry and biologyresearch and development relating to, arising from, connected with, orcompetitive with or intended to be competitive with, any product or researchproject as to which the Executive performed services for the Company, or aboutwhich the Executive received access to Confidential Information while employedby the Company. If the Executive obtains other employment during thetwelve-month period after the Executive’s Date of Termination, the Executiveagrees to notify the Company in writing of the name and address of suchemployer.

 

(c)                                  Non-Solicitation ofEmployees. During the Restricted Period, the Executive shall not, directly orindirectly solicit or induce, or attempt to solicit or induce, any currentemployee of the Company, or any individual who becomes an employee during theRestricted Period, to leave his or her employment with the Company or join orbecome affiliated with any other business or entity, hire any employee of theCompany or in any way interfere with the relationship between any employee andthe Company.

 

(d)                                 Non-Solicitationof Customers. During the Restricted Period, the Executive shall not, directlyor indirectly, solicit or induce, or attempt to solicit or induce, anycustomer, supplier, licensee, licensor or other business relation of theCompany to terminate its relationship or contract with the Company, to ceasedoing business with the Company, or in any way interfere with the relationshipbetween any such customer, supplier, licensee or business relation and theCompany (including making any negative statements or communications concerningthe Company or their employees).

 

(e)                                  Inventions.The Executive acknowledges all inventions of the Company (including, but notlimited to, procedures, systems, machines, methods, processes, uses,apparatuses, compositions of matter, designs, or configurations of any kind,discovered, conceived, reduced to practice, developed, made or produced) (“Inventions”)that (i) relate to the present or planned business of the Company or the workperformed by the Company for its customers, and (ii) are conceived or reducedto practice by the Executive, either alone or with others, during the Executive’semployment with the Company or during a period of 120 days after the Executive’sDate of Termination, whether or not done during the Executive’s regular workinghours, are the sole property of the Company, including, without limitation, alldomestic and foreign patent rights, rights of registration or other protectionunder the copyright laws, or other rights pertaining to the Inventions. Forpurposes of this Agreement, Inventions shall include any improvements to anInvention and shall not be limited to the definition of a patentable inventionor copyrightable work of authorship as contained in the United States patent orcopyright laws. The Executive shall disclose promptly and fully in writing tothe Company each Invention, whether or not reduced to practice, that theExecutive conceives or learns (either alone or jointly with others) during theTerm of Employment. The Executive hereby assigns to the Company, or itsnominee, all of the Executive’s right, title and interest, includinginternational priority rights, in and to all Inventions (other than anyInvention that was developed entirely on the Executive’s own time and for whichno equipment, supplies, facilities or trade secret information of the Companywas used, unless such Invention relates directly to the Company’s business orto the Company’s actual or demonstrably anticipated research or development),and in and to all United States or foreign patents, copyrights and otherproprietary rights granted thereon or resulting therefrom, and in and to allapplications for United States or foreign copyrights, patents and otherproprietary rights. The Executive shall execute all papers, perform all lawfulacts or assist the Company in any way the Company deems necessary or advisable(at the Company’s expense) for the preparation, filing, prosecution, issuance,procurement, maintenance or enforcement of patents applications and patents ofthe United States and foreign countries, and for obtaining and enforcingcopyright protection and registration, of any Invention. To that end, theExecutive shall at the Company’s request and without limitation, testify in anysuit or other proceeding involving any of the Inventions, execute all documentsthat the Company reasonably determines to be necessary or convenient for use inapplying for and obtaining patent or copyright protection and registration onany of the Inventions and enforcement of that protection and registration, andexecute all necessary documents and papers required to vest title in and assignto the Company (or its nominee) patent or

 

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copyrightprotection and registration. The Executive’s obligation to assist the Companyin obtaining and enforcing patent or copyright protection and registration forthe Inventions shall continue following termination of this Agreement, butCompany shall compensate the Executive following the expiration or terminationof this Agreement at a rate of $10 for the execution of each document and $150per day for each day or portion thereof spent at the Company’s request inrendering assistance, plus reimbursement for the reasonable out-of-pocketexpenses incurred by the Executive for such assistance. The Executive herebyirrevocably appoints the Company and its duly authorized officers and agents ashis agent and attorney-in-fact to act for and on behalf of the Executive infiling all patent applications, applications for copyright protection andregistration amendments, renewals and all other appropriate documents in anyway related to the Inventions.

 

(f)                                    Survival.The provisions set forth in this Section 9 shall survive termination of thisAgreement.

 

(g)                                 ScopeLimitations. If the scope, period of time or area of restriction specified inthis Section 9 are or would be judged to be unreasonable in any courtproceeding, then the period of time, scope or area of restriction shall bereduced or limited in the manner and to the extent necessary to make therestriction reasonable, so that the restriction may be enforced in those areas,during the period of time and in the scope that are or would be judged to bereasonable.

 

10.                                 BindingAgreement; Successors. This Agreement and all rights of the Executivehereunder shall inure to the benefit of and be enforceable by the Executive’spersonal or legal representatives, executors, administrators, successors,heirs, distributees, devisees and legatees. If the Executive should die whileany amounts would still be payable to him hereunder if he had continued tolive, all such amounts, unless otherwise provided herein, shall be paid inaccordance with the terms of this Agreement to the Executive’s devisee,legatee, or other designee or, if there be no such designee, to the Executive’sestate. This Agreement shall be binding upon, and inure to the benefit of, anysuccessors or assigns of the Company. This Agreement is not intended to conferupon any person other than the parties hereto (and the Executives’ Spouse anddependents) any rights or remedies, except as specifically provided in thisSection 10.

 

11.                                 Notice.Notices, demands and all other communications provided for in this Agreementshall be in writing and shall be deemed to have been duly given when delivered,if delivered personally, or (unless otherwise specified) when received, ifmailed by United States certified or registered mail, return receipt requested,postage prepaid, by Federal Express or other reputable overnight courierservice or by facsimile, addressed as follows:

 

If to the Executive:

 

Ze-Qi Xu, Ph.D.

1440 Davey Road

Woodridge, Illinois 60517

 

If to the Company:

 

Advanced Life Sciences, Inc.

1440 Davey Road

Woodridge, Illinois 60517

Attn: Chief Executive Officer

 

or to such other address as anyparty may have furnished to the other in writing in accordance herewith, exceptthat notices of change of address shall be effective only upon receipt.

 

12.                                 GeneralProvisions. No provision of this Agreement may be modified, waived ordischarged unless such waiver, modification or discharge is agreed to inwriting signed by the Executive and such officer of the Company as may bespecifically designated by the Company’s Board. No waiver by either partyhereto at any time of any breach by the other party hereto of, or compliancewith, any condition or provision of this Agreement to be performed by suchother party shall be deemed a waiver of similar or dissimilar provisions orconditions at the same or at any prior or subsequent time. No agreements orrepresentations, oral or otherwise, express or implied, with respect to thesubject matter hereof have been made by either party that are not set forthexpressly in this Agreement.

 

13.                                 Validity.The invalidity or unenforceability of any provision or provisions of thisAgreement shall not affect the validity or enforceability of any otherprovision of this Agreement, which shall remain in full force and effect. Ifany provision of this Agreement is found to be invalid or unenforceable, inwhole or in part, then it shall be deemed to be

 

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modified or restricted to theextent and in the manner necessary to render it valid and enforceable, or shallbe deemed excised from this Agreement, as the case may require, and thisAgreement shall be construed and enforced to the maximum extent permitted bylaw, as if the provision had been originally incorporated herein as so modifiedor restricted, or as if it had not originally been incorporated herein, as thecase may be.

 

14.                                 Counterparts.This Agreement may be executed in one or more counterparts, each of which shallbe deemed to be an original but all of which together shall constitute one andthe same instrument.

 

15.                                 EntireAgreement. This Agreement sets forth the entire agreement of the partieshereto in respect of the subject matter contained herein and supersedes allprior agreements, promises, covenants, arrangements, communications,representations or warranties, whether oral or written, by any officer,employee or representative of any party hereto; and any prior agreement of theparties hereto in respect of the subject matter contained herein is herebyterminated and canceled. For the avoidance of doubt, the Company and theExecutive hereby agree that this Agreement shall replace and supersede theOriginal Employment Contract and First Amended and Restated EmploymentAgreement and govern the relationship of the parties.

 

16.                                 IrreparableHarm. The Executive acknowledges that: (i) the Executive’s compliance withthis Agreement is necessary to preserve and protect the proprietary rights,Confidential Information and the goodwill of the Company and its subsidiariesas going concerns; (ii) any failure by the Executive to comply with theprovisions of this Agreement shall result in irreparable and continuing injuryfor which there will be no adequate remedy at law; and (iii) in the event thatthe Executive should fail to comply with the terms and conditions of thisAgreement, the Company shall be entitled, in addition to such other relief asmay be proper, to all types of equitable relief (including, but not limited to,the issuance of an injunction and/or temporary restraining order) as may benecessary to cause the Executive to comply with this Agreement, to restore tothe Company its property, and to make the Company whole.

 

17.                                 Consentto Jurisdiction and Forum; Legal Fees and Costs. The Company and theExecutive hereby expressly and irrevocably agree that any action, whether atlaw or in equity, arising out of or based upon this Agreement or the Executive’semployment by the Company shall only be brought in a federal or state courtlocated in Cook County, Illinois. The Executive hereby irrevocably consents topersonal jurisdiction in such court and to accept service of process inaccordance with the provisions of such court. In connection with any disputearising out of or based upon this Agreement or the Executive’s employment bythe Company, each party shall be responsible for its or his own legal fees andexpenses and all court costs shall be shared equally by the Company and theExecutive unless the court apportions such legal fees or court costs in adifferent manner.

 

18.                                 Withholding.All payments made to the Executive pursuant to this Agreement shall be subjectto applicable withholding taxes, if any, and any amount so withheld shall bedeemed to have been paid to the Executive for purposes of amounts due to theExecutive under this Agreement.

 

19.                                 GoverningLaw. This Agreement is governed by and is to be construed and enforced inaccordance with the laws of the State of Illinois, without regard to itsconflict of law provisions.

 

IN WITNESSWHEREOF, the parties have executed this Agreement on the date and year firstabove written.

 
| **EXECUTIVE**         | **ADVANCED  LIFE SCIENCES, INC.**                            |
|-----------------------|--------------------------------------------------------------|
|                  |                                                         |
| By:                   | /s/ Ze-Qi Xu                                                 |   | By: | /s/ Michael T. Flavin |   |
| Name: Ze-Qi Xu, Ph.D. | Name:   Michael T. Flavin,  Ph.D.             |
|                  | Title:     Chief  Executive Officer |
|                       |                                                              |  |  |  |  |

 

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