SEVERANCE AGREEMENT AND RELEASE OF CLAIMS

Exhibit 10.1

SEVERANCE AGREEMENT AND RELEASE OF CLAIMS

     This Severance Agreement and Release of Claims (“Agreement”) is made and entered into by and between Frank J. Bellizzi (“Executive”) and Zila, Inc. and all of its affiliated companies and divisions (collectively referred to as the “Company”); and is intended by the parties hereto to settle and dispose of all claims and liabilities that exist between Executive and Company as indicated herein.

RECITALS

     A. Executive and the Company are parties to that certain Employment Agreement effective as of May 22, 2006 (the “Employment Agreement”).

     B. Executive’s last day of employment with the Company will be June 30, 2008 (the “Severance Date”). Executive’s position as Executive Vice President-Business Development will terminate on the Severance Date and all other positions he holds with the Company and with each of Company’s subsidiaries and affiliated entities will terminate on the date hereof.

     C. By entering into this Agreement, the parties mutually and voluntarily agree to be legally bound by the terms set forth below.

COVENANTS

     NOW, THEREFORE, for valuable consideration, the parties agree as follows:

I.

     A. The Executive’s employment with the Company shall be terminated on the Severance Date and, until such date, he shall receive payroll payments in the same amounts as received prior to the date hereof (less applicable tax withholdings). Such payments shall be made in accordance with the Company’s regular payroll. On or before the Severance Date, the Company will pay Executive for his accrued, but unused 15 days of paid-time-off (“PTO”) (less applicable withholdings). In addition, the Company will promptly reimburse Executive for all business-related expenses he incurs through the date hereof pursuant to existing Company policies and practices.

     B. By December 31, 2008, Executive’s Employment Agreement must be amended either to comply with Section 409A of the Internal Revenue Code (“Code”) or to qualify for an exception to the requirements of Section 409A. In order to qualify for an exception to the requirements of Section 409A of the Code, Executive and the Company hereby amend Executive’s Employment Agreement by adding the following new paragraph to the end of Section 15.4:

Notwithstanding any provision of this Section 15.4 to the contrary, under no circumstances will any amount of the Severance Pay to which you are entitled hereunder be paid to you after March 15 of the year following the year in which the event triggering the Company’s obligation to pay you Severance Pay occurs. If the four-month period over which the Company is to pay you the second one-half of your Severance Pay, as described above, would extend beyond March 15 of the year following the year in which the triggering event occurs, the Company will pay to you any amounts of the Severance Pay the Company has not yet paid to you on the regularly scheduled payroll date immediately prior to such March 15.

     C. The Company will pay Executive $25,000 (subject to applicable tax withholdings) in a lump sum payment on the date this Agreement takes effect (i.e. after the expiration of the seven (7) day revocation period set forth in Section VII, assuming Executive does not revoke his signature during that seven day period).

     D. Effective June 30, 2008 (assuming Executive does not revoke his signature during the seven day period set forth in Section VII), the Company will issue Company common stock to Executive that is worth $52,500 based on the closing price of the Company’s common stock on such date (the “June 30 Restricted Stock”). The number of shares issued will be reduced for applicable tax withholdings, such withheld share to be valued as provided in the preceding sentence All restrictions on the June 30 Restricted Stock will be lifted at the time of the issuance and such shares shall be fully vested upon issuance. The certificate representing the June 30 Restricted Stock will be delivered to Executive no later than July 3, 2008, and will be dated June 30, 2008 and will not bear any restrictive legends.

     E. Assuming Executive does not revoke his signature during the seven day period set forth in Section VII, within 3 business days following the date the Company files a Registration Statement on Form S-8 covering all stock to be issued under this Agreement (the “ Registration Statement” ), but in no event later than June 30, 2008, the Company will issue 600,000 shares of restricted stock to Executive (the “Severance Restricted Stock”). The number of shares issued will be reduced for applicable tax withholdings, such withholdings to be valued based on the closing price of the Company’s common stock on such date. Except as provided in the next sentence, all restrictions on the Severance Restricted Stock will be lifted at the time of the issuance and such shares shall be fully vested upon issuance. Executive agrees that, for a period (the “Lock-Up Period”) beginning on June 6, 2008 and ending on the date that is 90 days thereafter, he will not, without the prior written consent of the Company sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, the Severance Restricted Stock.

     F. The Company agrees to directly pay the entire cost of COBRA coverage for Executive for a period of one (1) year following the Severance Date assuming that Executive timely elects COBRA coverage and that he does not revoke his signature during the seven day period set forth in Section VII.

     G. The Company agrees to the following concerning outstanding grants of stock options and restricted stock to Executive:

	•		All restrictions on the 125,000 shares of restricted stock that were granted to the Executive prior to the date of this Agreement are lifted, and such shares shall be fully vested (the “Prior Restricted Stock”) assuming Executive does not revoke his signature during the seven day period set forth in Section VII. The Company shall withhold the number of shares necessary to provide for applicable tax withholdings, such withholdings to be valued based on the Closing price of the Company’s common stock on the date of this Agreement.
	•		Executive agrees that except for the rights set forth in this Agreement, any option to purchase Company stock or any other right to receive Company stock, whether vested or unvested as of the date hereof, shall terminate immediately.

     H. The Company shall cause the Registration Statement to be filed with the SEC and become effective on or before June 30, 2008 and shall cause all shares of stock that are the subject of this Agreement to be issued in accordance with the Company’s Stock Award Plan and to be covered by such effective Registration Statement at the time of issuance. On and after June 30, 2008, the Company will cooperate with Executive, and will instruct its transfer Agent, to cause all restrictive legends of the June 30 Restricted Stock, the Severance Restricted Stock and the Prior Restricted Stock to be promptl