**Exhibit 10.5****EMPLOYMENT AGREEMENT**     This Employment Agreement (“Agreement”), entered into effective October 15, 2006, is betweenAmerican Pacific Corporation, a Delaware corporation having its principal place of business at3770 Howard Hughes Parkway, Suite 300, Las Vegas, Nevada 89109 (the “Company”), and JosephCarleone, an individual residing at the address set forth below his signature at the end of thisAgreement (the “Executive”) (collectively, “the parties”). **1.** **The Company’s Business**     The Company is engaged in the manufacture of specialty chemicals, including perchloratechemicals, sodium azide and HalotronTM fire suppression agents, the design and manufacture ofenvironmental protection products and other products as may be acquired or developed over time,active pharmaceutical ingredients and registered intermediates for commercial customers in thepharmaceutical industry, and real estate development. **2.** **Period of Employment**               (a) **Basic Term**. The Company shall employ Executive to render services to the Company asExecutive Vice President and Chief Operating Officer (“COO”), to perform such duties andresponsibilities as may be assigned by the Board of Directors and the Chief Executive Officer fromthe effective date of this Agreement through September 30, 2009 (the “Term Date”), unlessExecutive’s employment relationship with the Company terminates sooner as provided in Section 5below.               (b) Annual Renewal. Each year the term and provisions of this Agreement shall automaticallyextend for a total three-year period and unless either party notified the other in writing to thecontrary at least 30 days prior to the applicable October date that it, or he, does not want theterm to so extend. **3.** **Position, Duties, Responsibilities**               (a) Service by Executive as a director on the Board of any organization other than theCompany, its subsidiaries or affiliates shall be subject to the written consent of the CEO andAMPAC’s Board of Directors; and such consent may be withdrawn should the CEO or AMPAC’s Board ofDirectors, in its sole discretion determine Executive’s status as a member of such Board ofDirectors is not in the best interests of the Company.               (b) During his employment by the Company, except upon the prior written consent of theCompany, Executive will not (i) accept any other employment, or (ii) engage, directly orindirectly, in any other business activity (whether or not pursued for pecuniary advantage) that isor may be in conflict with, or that might place Executive in a conflicting position to that of, theCompany. Without limitation, the Executive shall not act in any advisory or other capacity for anyindividual, firm, association or corporation other than the Company and its subsidiary corporationsin matters in any way pertaining to any business or undertaking in any
 

 
way similar to or competitive with the business or activities of the Company and its subsidiary oraffiliated corporations or other business, (whatever the form, LLC, LLP, etc.).               (c) **Other Activities.**Executive represents and warrants that by accepting employment with theCompany he is not violating the terms of any agreement, legal obligation, contractual, regulatoryor statutory, including but not limited to fiduciary duty implied expressly or by law; and to theextent a contract or contracts exist between Executive and prior employees that containrestrictions on future employment by Executive, such contracts or related documents have beenprovided to the Company for its review.               (d) **Proprietary Information**. “Proprietary Information” is all information and any idea inwhatever form, tangible or intangible, pertaining in any manner to the business of the Company andits subsidiary corporations, or its employees, clients, consultants, or business associates, whichwas produced by any employee of the Company or its subsidiary corporations, in the course of his orher employment or otherwise produced or acquired by or on behalf of the Company or its subsidiarycorporations. All Proprietary Information not generally known outside of the Company’sorganization, and all Proprietary Information so known only through improper means, shall be deemed“Confidential Information.” Without limiting the foregoing definition, Proprietary and ConfidentialInformation shall include, but not be limited to: (i) formulas, teaching and developmenttechniques, processes, trade secrets, computer programs, electronic codes, inventions,improvements, and research projects; (ii) information about costs, profits, markets, sales, andlists of customers or clients; (iii) business, marketing, and strategic plans; and (iv) employeepersonnel files and compensation information. Executive should consult any Company proceduresinstituted to identify and protect certain types of Confidential Information, which are consideredby the Company to be safeguards in addition to the protection provided by this Agreement. Nothingcontained in those procedures or in this Agreement is intended to limit the effect of the other.               (e) **General Restrictions on Use**. During the Period of Employment, Executive shall useProprietary Information, and shall disclose Confidential Information, only for the benefit of theCompany and as is necessary to carry out his responsibilities under this Agreement. Followingtermination, Executive shall neither, directly or indirectly, use any Proprietary Information nordisclose any Confidential Information, except as expressly and specifically authorized in writingby the Company. The disclosure or publication to anyone who does not have a need to know, whetheremployed by the Company or not, of any Proprietary Information through literature, speeches ordiscussion must be approved in advance in writing by the Company. **4.** **Compensation.**               In consideration of the services to be rendered under this Agreement, Executive shall beentitled to the following:               (a) The Company shall pay Executive as compensation for services a base salary at the annualrate of $306,800 (Three Hundred Six Thousand Eight Hundred Dollars) (which includes an automobileallowance of $16,800), or at such rate as the Compensation
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Committee of the Board of Directors may determine from time to time, should automobile cost andoperation fluctuate. Such salary shall be payable in accordance with the standard payrollprocedures of the Corporation. Once the Corporation’s Compensation Committee of the Board ofDirectors has increased such salary, it thereafter shall not be reduced. The annual compensationspecified in this Section 3, together with any increases in such compensation that the CompensationCommittee of the Board of Directors may grant from time to time, is referred to in this Agreementas “Base Compensation.”               (b) The Company shall review the Base Compensation the anniversary each year of employment byExecutive or at different intervals at the discretion of the Board of Directors. Any increase inExecutive’s Base Compensation shall be made effective as soon as practicable after.               (c) Executive shall be eligible (i) to participate in all of the Company’s benefit plans madeavailable to all employees generally, (ii) to participate in all benefit plans made available toCompany officers holding the office of Vice President, Senior Vice President, Executive VicePresident, President, Chief Operating Officer, and Chief Executive Officer generally (to the extentthere are such generally-applicable benefit plans made available to such company officers), and(iii) to receive perquisites of employment, as established by the Company with the approval of theBoard of Directors from time to time. **5.** **Termination of Employment**               (a) **Termination By Death**. Executive’s employment shall terminate upon the death of Executive.Company shall pay to Executive’s beneficiaries or estate, as appropriate, compensation then due andowing as of the date of death, and shall continue to pay Executive’s salary and benefits, throughthe second full month after Executive’s death. As of the date of death, all stock options availableto Executive through the Term Date shall be deemed accelerated and vested, and may be exercised bythe appropriate representative of Executive’s estate. Thereafter, all obligations of Company underthis Agreement shall cease. Nothing in this Section shall affect any entitlement of Executive’sheirs to the benefits of any Life insurance, vested funds in Plans governed by provisions of Stateor Federal laws, including but not limited to 401(K), deferred compensation, pension, etc.               (b) **Termination By Disability**. If, in the sole opinion of the Company, Executive shall beprevented from properly performing his duties hereunder by reason of any physical or mentalincapacity for a period of more than ninety (90) days in the aggregate in any twelve-month period,then, to the extent permitted by law, Company may terminate Executive’s employment. Company shallpay to Executive all compensation to which Executive is entitled through the last day of the monthin which the 90th day of incapacity occurs, and thereafter, all of Company’s obligations under thisAgreement shall cease. Nothing in this Section shall affect Executive’s rights under any disabilityplan in which he is a participant.               (c) **Termination For Convenience**. The Company may terminate Executive’s employment for itsconvenience prior to the Term Date. Should the Company exercise that right:
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                    (i) The Company in an attempt to ease the Executive’s transition, and upon receipt of amutually satisfactory release, shall continue to pay to Executive a sum of money equal to the BaseCompensation (less the amount allocated to the Automobile Allowance) for a period of three (3)years from the date the employment relationship with the Company terminates (the “TerminationDate”). Provided, however, such payments by the Company shall be offset, during the third yearfollowing the Termination Date, by earned income realized by Executive from all sources other thandirectors’ fees paid by the Company. In addition, the Company will pay the Executive a monthlyamount equal to the cost of COBRA under the medical plans offered by the Company for a period ofeighteen (18) months.                    (ii) All shares of stock granted to Executive and all unexercised options to purchase Companystock that are unvested at the time of the termination of employment shall become fully vested andexercisable.                    (iii) The payments described in this Section 5.c shall be conditioned upon Executive’scontinued compliance with the material obligations described in this Agreement. Should Executiveviolate any such obligations, in the good faith belief of the Company all payments shall cease               (d) **Termination By Company For Cause.**At any time, and without prior notice, the Company mayterminate Executive’s employment For Cause (as defined below). The Company shall pay Executive allcompensation then due and owing; thereafter, all of the Company’s obligations under this Agreementshall cease. Termination for “Cause” shall mean termination of Executive’s employment because ofExecutive’s (i) involvement in fraud, misappropriation or embezzlement related to the business orproperty of the company; (ii) conviction for, or guilty or “no contest” plea to, a felony; (iii)material breach of this Agreement; (iv) a pattern of failure to substantially perform his dutiesunder this Agreement, provided, however, that if such Cause is reasonably curable, the companyshall not terminate Executive’s employment hereunder unless the Company first gives notice of itsintention to terminate and the grounds of such termination, and the Executive has not, withinthirty (30) days following receipt of this notice, cured such Cause, to the satisfaction of theCompany.               **(e) By Executive For His Convenience.**At any time, Executive may terminate the Period ofEmployment for any reason, with or without cause, by providing Company thirty (30) days’ advancewritten notice. Company shall have the option, in its complete discretion, to make termination ofthe Period of Employment effective at any time prior to the end of such notice period, providedCompany pays Executive all compensation due and owing through the last day actually worked, plus anamount equal to the base salary Executive would have earned through the balance of the above noticeperiod, thereafter, all of Company’s obligations under this Agreement shall cease.               (f) **By Executive Following Change in Leadership**. Executive may terminate, without liability,the Period of Employment if another individual, other than Executive, succeeds the currentincumbent as President and Chief Executive Officer of the Company, provided Executive givesEmployer ninety (90) days advance written notice of this
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reason for termination of his employment. If Executive resigns for this reason, he will receive thebenefits owed him upon occurrence of a “corporate transition,” as set forth in Section 5(g) below.               (g) **Corporate Transition.**                    (i) Corporate Transition Defined. For purposes of this Agreement, a “Corporate Transition”shall include any of the following transactions to which the Company is a party: (A) a merger orconsolidation in which the Company is not the surviving entity and securities representing morethan fifty percent (50%) of the total combined voting power of the Company’s outstanding securitiesare transferred to a holder different from those who held such securities immediately prior to suchmerger; (B) the sale, transfer or other disposition of all or substantially all of the assets ofthe Company in liquidation or dissolution of the Company; (C) any reverse merger in which theCompany is the surviving entity but in which securities representing more than fifty percent (50%)of the total combined voting power of the Company’s outstanding securities are transferred toholder different from those who held such securities immediately prior to such merger; or (D) anycash dividend paid by the Company that, in the aggregate with all other dividends paid in anytwelve month period, is greater than the combined earnings of the Company for the Company’s twofiscal years prior to such dividend payment date. In addition, a Corporate Transaction shall alsoinclude a “Change of Control” as such term is defined in the Company’s 2001 Stock Option Plan, a“Capital Change of the Company” as such term is defined in the Company’s 1997 Stock Option Plan ora “Corporate Capital Transaction” as such term is defined in the Company’s 1991 Stock Option Plan.                    (ii) Acceleration of vesting at time of Corporate Transition. Should a Corporate Transitiontake place, all shares of stock granted to Executive and all unexercised options to purchaseCompany stock granted to the Executive that are unvested at the time of the Corporate Transitionshall become fully vested and exerciseable.                    (iii) Benefits Upon Occurrence of Corporate Transition. Upon the occurrence of a CorporateTransition and subject to the obligations in Section 6.d.-e. below, Executive shall be entitled tothe benefits described in Section 5.c above, regardless of whether the Executive’s employment isterminated in connection with such Corporate Transition. 6. **Termination Obligations**               (a) **Return of Company’s Property**. Executive hereby acknowledges and agrees that all personalproperty, including, without limitation, all books, manuals, records, reports, notes, contracts,lists, blueprints, and other documents, or materials, or copies thereof, and equipment furnished toor prepared by Executive in the course of or incident to Executive’s employment, belong to Companyand shall be promptly returned to Company upon termination of Executive’s employment.               (b) **Representations and Warranties Survive Termination of Employment**. The representations andwarranties contained herein shall survive termination of Executive’s employment and expiration ofthis Agreement.
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               (c) **Cooperation in Pending Work**. Following termination of Executive’s employment for anyreason, Executive shall fully cooperate with Company in all matters relating to the winding up ofpending work on behalf of Company and the orderly transfer of work to other employees of Company.Executive shall also cooperate in the defense of any litigation, judicial or administrative,brought by any third party against Company that relates in any way to Executive’s knowledge, actsor omissions or duties while employed by Company. If Executive’s cooperation in the defense of anysuch action requires more than ten (10) hours of Executive’s time, the Executive and Company shallagree on appropriate remuneration for Executive’s time and expenses.               (d) **Noncompetition.**Executive acknowledges and agrees that during his employment with theCompany, he has had access to confidential information and the activities forbidden by thissubsection would necessarily involve the improper use and disclosure of this confidentialinformation. To forestall this use or disclosure, Executive agrees that during the Perioddescribed in Section 5.c when payments to Executive are being made, or for two years after thetermination of Executive for reasons other than for Company’s, the Executive shall not, directly orindirectly, (i) divert or attempt to divert from the Company (or any Affiliate) any business of anykind in which it is engaged; (ii) employ or recommend for employment any person employed by theCompany (or any Affiliate); or (iii) engage in any business activity that is competitive with theCompany (or any Affiliate) in any state where the Company can demonstrate its intention to conductbusiness, unless Executive can prove that any of the above actions was done without the use ofconfidential information. In addition to the above restrictions on competitive activity, andregardless of whether any use of confidential information is involved, Executive agrees that duringthe Payment Period referred to in Section 5(c)(ii) shall not, directly or indirectly, (i) solicitany customer of the Company (or any Affiliate) known to Executive (while he was employed by theCompany) to have been a customer with respect to products or services competitive with products orservices offered by the Company; or (ii) solicit for employment any person employed by the Company(or any Affiliate).               (e) **Confidential Information**.                    (i) The Executive shall never, either during the Term of the Executive’s Employment by theCompany or thereafter, use or employ for any purpose or disclose to any other individual or entityany Confidential Information. The Executive acknowledges and agrees that all ConfidentialInformation is proprietary to the Company, is extremely important to the Company’s business, andthat the use by or disclosure of such Confidential Information to a Competitor could materially andadversely affect the Company, its business and its customers.                    (ii) For purposes of this Agreement, the term “Company” shall refer to the Company andsubsidiary corporations, and any other corporation or entity that is owned, controlled oraffiliated, directly or indirectly, by the Company or that is under common ownership or controlwith the Company.                    (iii) For purposes of this Agreement, the term “Confidential Information” shall meaninformation in any form that is not generally known to the public that relates to the Company’spast, present or future operations, processes, products or services, or to
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any research, development, manufacture, purchasing, accounting, engineering, marketing,merchandising, advertising, selling, leasing, financing or business methods or techniques(including without limitation customer lists, records of customer services, usages andrequirements, sketches and diagrams of Company or customer facilities and like and similarinformation relating to actual or prospective customers) that is or may be related thereto. Allinformation disclosed to the Executive or to which the Executive obtains access during any Term ofthe Executive’s Employment with the Company, whether pursuant to this Agreement or otherwise, or towhich the Executive obtains access by reason of his employment by the Company, that the Executivehas a reasonable basis to believe is or may be Confidential Information, shall be presumed forpurposes of this Agreement to be Confidential Information. **7.** **Notices**               All notices or other communications required or permitted hereunder shall be made in writingand shall be deemed to have been duly given if delivered by hand or mailed, postage prepaid, bycertified or registered mail, return receipt requested, and addressed to the Company:   American Pacific Corporation3770 Howard Hughes Parkway, Suite 300Las Vegas, NV 89109and to Executive at:               The Executive’s address as set forth on the signature page to this Agreement.     Executive and the Company shall be obligated to notify the other party of any change inaddress. Notice of change of address shall be effective only when made in accordance with thisSection. **8.** **Entire Agreement**               This Agreement is intended to be the final, complete, and exclusive statement of the terms ofExecutive’s employment by The Company. Except for any stock option agreements and other agreementsindependently evidencing a loan or other obligation, to or by the parties hereto, this Agreementsupersedes all other prior and contemporaneous agreements and statements pertaining in any mannerto the employment of Executive and it may not be contradicted by evidence of any prior orcontemporaneous statements or agreements. To the extent that the practices, policies, or proceduresof Company, now or in the future, apply to Executive and are inconsistent with the terms of thisAgreement, the provisions of this Agreement shall control. **9.** **Amendments, Waivers**               This Agreement may not be modified, amended, or terminated except by an instrument in writing,signed by Executive and by the CEO pursuant to authorization signed by
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the CEO. No failure to exercise and no delay in exercising any right, remedy, or power under thisAgreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right,remedy, or power under this Agreement preclude any other or further exercise thereof, or theexercise of any other right, remedy, or power provided herein or by law or in equity. **10.** **Assignment; Successors and Assigns**               Executive agrees that he will not assign, sell, transfer, delegate or otherwise dispose of,whether voluntarily or involuntarily, or by operation of law, any rights or obligations under thisAgreement, nor shall Executive’s rights be subject to encumbrance or the claims of creditors. Anypurported assignment, transfer, or delegation shall be null and void. Nothing in this Agreementshall prevent the consolidation of the Company with, or its merger into, any other corporation, orthe sale by the Company of all or substantially all of its properties or assets, or the assignmentby the Company of this Agreement and the performance of its obligations hereunder to any successorin interest. In the event of a change in ownership or control of the Company, the terms of thisAgreement will remain in effect and shall be binding upon any successor in interest.Notwithstanding and subject to the foregoing, this Agreement shall be binding upon and shall inureto the benefit of the parties and their respective heirs, legal representatives, successors, andpermitted assigns, and shall not benefit any person or entity other than those enumerated above. **11.** **Severability; Enforcement**               If any provision of this Agreement, or the application thereof to any person, place, orcircumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, orvoid, the remainder of this Agreement and such provisions as applied to other persons, places, andcircumstances shall remain in full force and effect. **12.** **Governing Law**               The validity, interpretation, enforceability, and performance of this Agreement shall begoverned by and construed in accordance with the law of the State of Nevada. **13.** **Arbitration**               Any claim or controversy between Executive and Company or its successor arising under or inconnection with this Agreement shall be settled by arbitration in accordance with the then currentEmployment Dispute Resolution Rules of the American Arbitration Association and shall be theexclusive remedy for all Arbitrable Claims. Company and Executive agree that arbitration shall beheld in or near Clark County, Nevada, before an arbitrator licensed to practice law in the State ofNevada. The arbitrator shall have authority to award or grant legal, equitable, and declaratoryrelief. Such arbitration shall be final and binding on the parties. The Federal Arbitration Actshall govern the interpretation and enforcement of this section pertaining to Arbitration.               This Agreement to arbitrate survives termination of Executive’s employment.
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               In any dispute arising under or in connection with this Agreement, the prevailing party shallbe entitled to recover all costs and reasonable attorney’s fees.               In the event Executive elects to file suit over a dispute covered by this Section, the Companyshall have the option to seek an order from any court of competent jurisdiction, or proceed todefend the case filed by the Executive who agrees herein to waive trial by jury and proceed to atrial by judge without jury. **14.** **Acknowledgment of Parties**               The parties acknowledge (a) that they have consulted with or have had the opportunity toconsult with independent counsel of their own choice concerning this Agreement, and (b) that theyhave read and understand the Agreement, are fully aware of its legal effect, and have entered intoit freely based on their own judgment and not on any representations or promises other than thosecontained in this Agreement, with the exception of the Offer Letter dated September 5, 2006 whichis incorporated herein by reference and attached hereto. **15.** **Date of Agreement**     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and yearfirst above written.         “Company”      AMERICAN PACIFIC CORPORATION             /s/ John R. Gibson           By: John R. Gibson             Title: Chairman, President and CEO           “Executive”             /s/ Joseph Carleone           Joseph Carleone                         
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