Exhibit 10.4

 
SECOND AMENDMENT TO RIGHTS AGREEMENT
 
 
This Second Amendment dated as of October 20, 2009 (this “Second Amendment”), to
the Preferred Shares Rights Agreement, dated as of December 18, 2006, and
amended on October 1, 2008 (as amended, the “Agreement”) is between A.P. Pharma,
Inc., a Delaware corporation (the “Company”), and Computershare Trust Company
N.A. (the “Rights Agent”).
 
Pursuant to Section 27 of the Agreement, this Amendment is being executed by the
Company and the Rights Agent for the purpose of amending the Agreement as set
forth below:
 
The Agreement is hereby amended as follows:
 
1.           The last sentence of Section 1(a) shall be amended and restated in
its entirety by the following:
 
“Notwithstanding the foregoing or any provision to the contrary in this
Agreement, (i) none of Tang Capital Partners LP, or its Affiliates or Associates
(the “Tang Entities”) is an Acquiring Person pursuant to this Agreement, unless
such Person acquires Beneficial Ownership of 34% or more of the then outstanding
shares of Common Stock and (ii) none of Baker Brothers Advisors LLC, or its
Affiliates or Associates (the “Baker Entities”) is an Acquiring Person pursuant
to this Agreement, unless such Person acquires Beneficial Ownership of 30% or
more of the then outstanding shares of Common Stock.”
 
2.           The last sentence of Section 1(h) shall be amended and restated in
its entirety by the following:
 
“Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Distribution Date shall not occur solely by reason of (i) the Tang
Entities acquiring Beneficial Ownership of more than 20% but less than 34% of
the then outstanding shares of Common Stock or (ii) the Baker Entities acquiring
Beneficial Ownership of more than 20% but less than 30% of the then outstanding
shares of Common Stock.”
 
3.           This Second Amendment shall be deemed to be entered into under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
 
4.           This Second Amendment may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
 
5.           As amended hereby, the Agreement shall remain in full force and
effect.
 
 
 
 
 

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IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment to
Rights Agreement as of the date and year first above written.
 
A.P. PHARMA, INC.
 
By: /s/ Ronald J. Prentki
Name: Ronald J. Prentki
Title: President & CEO
 
 
COMPUTERSHARE TRUST COMPANY N.A.
AS RIGHTS AGENT
 
By: /s/ Kelli Gwinn
Name: Kelli Gwinn
Title: Vice President