Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE

For good and valuable consideration, rendered to resolve and settle finally,
fully, and completely all matters that now or may exist between them, the
parties below enter this Agreement and General Release ("Agreement").

1.           Parties. The Parties to this Agreement are Ronald J. Prentki, his
heirs, representatives, successors and assigns (hereinafter referred to
collectively as "Executive") and A.P. Pharma, Inc., and/or any of its
predecessors, successors, subsidiaries, affiliates, parents, and related
companies (hereinafter referred to collectively as the "Company").

2.           Separation from Employment. Executive has resigned as a member of
the Company’s Board of Directors (the “Board”) and from his officer positions as
Chief Executive Officer and President of the Company, effective May 25, 2010,
and resigned his employment and all other positions that he holds with the
Company and any of its subsidiaries and affiliates, effective June 15, 2010 (the
“Resignation Date”).  During the period beginning May 25, 2010 and the
Resignation Date, Executive shall work diligently to transfer his duties,
responsibilities and knowledge to Paul Goddard and John Whelan.

3.           Severance Payments and Benefits. As consideration for the promises
and covenants of Executive set forth in this Agreement, the Company agrees to
provide him with the severance payments and benefits as set forth in his
Employment Letter with the Company dated July 2, 2008, as amended December 29,
2008 (the “Employment Letter”).  Such payments and benefits shall be made
following the Effective Date of this Agreement, as follows:

(a)           The Company will pay to the Executive in a lump sum twenty-four
(24) months of base pay at the annual rate of $425,000, for a total payment of
$850,000 (the “Severance Payment”), less all applicable taxes and other
authorized deductions.  The Severance Payment shall be paid in a lump sum on
July 15, 2010.

(b)           Provided that the Executive elects to receive continued health
insurance benefits pursuant to COBRA, the Company shall continue to pay to the
Executive its portion of the health insurance benefits provided to the Executive
immediately prior to his resignation for himself and his eligible dependents,
from the Resignation Date through the earlier of (i) June 15, 2011, or (ii) the
date Executive becomes eligible for health insurance coverage from another
source, whichever occurs earlier.  The Executive agrees to promptly inform the
Company in writing if he becomes eligible for health insurance coverage from
another source prior to June 15, 2011.  In addition, the Executive shall be able
to utilize the approximately $2,500 in Flex Plan contributions that he has made
prior to his resignation, consistent with the provisions thereof.

(c)           The Company shall accelerate the vesting of all equity awards
granted to Executive such that Executive will be treated as vested in the number
of options or other equity incentive shares equal to the total number that would
have vested in accordance with their terms in the twelve (12) month period
following the Resignation Date had the Executive continued employment through
such period.  The number of options or other equity incentive shares in which
the Executive shall be vested, after giving effect to the preceding sentence, as
of the Resignation Date is reflected in Exhibit A hereto.  The Executive shall
have until September 13, 2010 in which to exercise vested incentive stock
options and until June 15, 2011 in which to exercise vested non-qualified stock
options.  Except as expressly provided herein, all options or other equity
incentive shares shall be treated in accordance with the applicable Plan, Notice
of Grant and applicable option or other equity incentive share Agreement.

(d)           Executive  acknowledges that the Company will not have
responsibility to reimburse the Executive for any relocation and related
expenses not previously submitted to the Company and paid to the Executive prior
to the date hereof, except for $1,780 of storage expenses related to Executive’s
original relocation, providing Executive submits an associated documented
expense report prior to the Resignation Date.

       4.           No Other Payments Due. On the Resignation Date, the
Executive shall be paid an amount equal to all accrued, unpaid wages through the
Resignation Date plus the $1,780 cited in 3(d) above.  Executive acknowledges
and agrees that he has heretofore received all bonuses, or other such sums due
to him, and that the only further payments to which he will be entitled,
assuming he signs this Agreement, will be the Severance Payments and Benefits to
be provided under the Employment Letter, as reflected in Section 3 of this
Agreement.

5.           Release of Claims. As further consideration for the promises and
covenants of the Company set forth in this Agreement, Executive hereby fully and
forever releases and discharges the Company and its current and former owners,
shareholders, members of the Board, officers of the Company, agents, employee
benefit plans, representatives, employees, attorneys, parties, successors,
predecessors, related companies, and assigns (hereinafter collectively called
the "Released Parties"), from all claims and causes of action, whether known or
unknown, including but not limited to those arising out of or relating in any
way to Executive's employment with the Company, including the separation of his
employment, based on any acts or events occurring up until the date of
Executive's signature below.  Executive understands and agrees that this Release
is a full and complete waiver of all claims,
 
 
 
 

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including, but not limited to, any claims with respect to Executive's
entitlement to any wages, bonuses or other forms of compensation; any claims of
wrongful discharge, breach of contract, breach of the covenant of good faith and
fair dealing, violation of public policy, defamation, personal injury, emotional
distress; any claims under Title VII of the Civil Rights Act of 1964, as
amended, the Fair Labor Standards Act, the Age Discrimination in Employment Act
of 1967, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as related to severance benefits, the California Fair Employment and
Housing Act, California Government Code § 12900 et seq., the California Labor
Code, the California Business & Professions Code, the Equal Pay Act of 1963, the
Americans With Disabilities Act, the Civil Rights Act of 1991; and any claims
under any other federal, state, and local laws and regulations.  This Agreement
does not release claims that cannot be released as a matter of law, including,
but not limited to, claims under Division 3, Article 2 of the California Labor
Code (which includes indemnification rights).

6.           Outstanding Claims. As further consideration and inducement for
this Agreement, Executive represents that he has not filed or otherwise pursued
any charges, complaints or claims of any nature that are in any way pending
against the Company or any of the Released Parties with any court or
administrative agency with respect to any matter covered by this Agreement and
that, to the extent permitted by law, he will not do so in the future.  If any
government agency or court assumes jurisdiction of any charge, complaint, cause
of action, or claim covered by this Agreement against the Company or any of the
Released Parties, Executive will withdraw from and/or dismiss the matter with
prejudice, as to any claims he might have. Executive agrees that he will not
participate or cooperate in such matter(s) except as required by law.
 
        7.           Civil Code 1542 Waiver. As a further consideration and
inducement for this Agreement, Executive hereby waives any and all rights under
Section 1542 of the California Civil Code or any other similar state, local, or
federal law, statute, rule, order or regulation he may have with respect to the
Company and any of the Released Parties.  Section 1542 provides:

A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS
OR HER SETTLEMENT WITH THE DEBTOR.

Executive expressly agrees that this Agreement shall extend and apply to all
unknown, unsuspected and unanticipated injuries and damages as well as those
that are now known or disclosed.

8.           Consideration and Revocation Periods. Executive understands that he
has the right to consult with an attorney before signing this
Agreement.  Executive also understands that he has twenty-one (21) calendar days
after receipt of this Agreement within which to review and consider it and
decide to execute or not execute it.  Executive also understands that for a
period of seven (7) calendar days after signing this Agreement, he may revoke
this Agreement by delivering to the Company, within said seven (7) calendar
days, a letter stating that he is revoking it.  If Executive does not deliver
such a letter, then this Agreement shall become effective upon the expiration of
the seventh day after he executed this Agreement (the "Effective Date").

9.           Announcement of Executive’s Resignation. The Company shall
reasonably cooperate with Executive in the preparation of a press release
announcing the Executive’s resignation; provided, however, that the Company
retains full authority over the timing and content of all announcements
regarding the Executive’s departure.  A copy of the present draft of the press
release to be issued by the Company is attached hereto as Exhibit B.

10.           Non-Disclosure of Confidential and Proprietary Information;
Delivery of Company Property.

(a)           Executive agrees that he shall continue to maintain the
confidentiality of all confidential and proprietary information of the Company.
Executive agrees that, in accordance with this Agreement and the Employee
Confidential Information and Invention Assignment Agreement (the
“Confidentiality Agreement”) executed by him in conjunction with Executive’s
employment, he shall not divulge, furnish, or make available to any party any
confidential or proprietary information of the Company, and further agrees to
strictly comply with all provisions of the Confidentiality Agreement that have
continuing effect following the Resignation Date.

(b)           On the Resignation Date, or at any time prior to the Resignation
Date at the Company’s request, Executive shall deliver to the Company the
originals and all copies of all  papers, records, data, notes, drawings, files,
documents, samples, devices, products, equipment and other materials, in
whatever form, relating to the business of the Company, and shall execute the
certification of return of Company documents attached as Exhibit C hereto.  On
the Resignation Date, or at any time prior to the Resignation Date at the
Company’s request, Executive shall deliver to the Company all Company property
in his possession, including, without limitation, all computers, peripherals,
storage devices, cellular telephones and personal digital assistants.
 
 
 

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11.           Non-Disparagement. Executive agrees to refrain from making
disparaging comments about the Company or any of the Released Parties.  The
Company agrees that its officers and directors will refrain from making
disparaging comments about Executive.  For purposes of this Agreement, a
disparaging comment is one that would likely cause material damage or harm to
the interests or reputation of the Company, any of the Released Parties, or the
Executive.  In response to inquiries with respect to why the Executive resigned
his employment with the Company, the Company agrees that it will communicate
substantially the following statement:

“Mr. Ronald Prentki was President, CEO and a Director of A.P. Pharma for two (2)
years from July 2008 through June 2010.  During that time, he successfully
advanced the Company's lead program, APF 530, through the analysis of the Phase
III clinical data and the filing of a new drug application (NDA) with the U.S.
Food and Drug Administration (FDA).  In addition, he implemented actions which
furthered the Company's viability during difficult economic times, including
staff and significant cost reduction measures, as well as raising funds through
a stock offering. 
 
Mr. Prentki elected to leave the Company based upon differences with the Board
on the regulatory strategy for the Company's lead program.”

12.           Choice of Law and Consent to Jurisdiction. The Parties agree that
California law shall govern the validity, effect and interpretation of this
Agreement.

13.           Tax Consequences.  Executive understands and agrees that the
Company will withhold taxes from all Severance and will report all taxable
payments and benefits provided to Executive under the terms of this Agreement,
in accordance with applicable law.  Executive further understands and agrees
that the Company has not and will not provide him with tax advice concerning any
provisions of this Agreement or any payments and benefits provided hereunder,
and that Executive alone is responsible for seeking whatever advice he deems
appropriate concerning the tax and other consequences of the payments and
benefits to be made under this Agreement.
 
        14.           Entire Agreement/Severability.  This Agreement constitutes
the complete understanding between Executive and the Company and supersedes any
and all prior agreements, promises, representations, or inducements, no matter
its or their form, concerning its subject matter, but with the exception of the
Indemnification Agreement and the Confidentiality Agreement, which remain in
full force and effect to the extent not inconsistent with this Agreement. No
promises or agreements made subsequent to the execution of this Agreement by
these Parties shall be binding unless reduced to writing and signed by
authorized representatives of these Parties. Should any of the provisions of
this Agreement be held invalid by a court or government agency of competent
jurisdiction, the remainder of this Agreement shall, to the fullest extent
permitted by applicable law, remain in full force and effect.
 

[Signature Page Follows]

 
 

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15.           Acknowledgement. Executive hereby acknowledges that he has read
and understands the foregoing Agreement, has had an opportunity to consult with
an attorney regarding its terms, and that he signs it voluntarily and without
coercion.

     
Date: May 25, 2010
 
/s/Ronald J. Prentki
   
Ronald J. Prentki

     
Date: May 25, 2010
 
/s/Paul Goddard
   
A.P. PHARMA, INC.
By:  Paul Goddard
Title:  Chairman

 
 

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EXHIBIT A

 
1.
Non-qualified stock option for 1,400,000 shares of common stock, granted July 7,
2008, at a strike price of $1.19 per share:  On the Resignation Date, 670,833
shares will have vested in accordance with the terms of the option, and vesting
in an additional 350,000 shares will accelerate pursuant to the terms of the
Employment Letter and Section 3(c) of this Agreement, for total vested option
shares of 1,020,833.

2.      Non-qualified stock option for 32,332 shares of common stock, granted
February 17, 2010, at a strike price of $1.93 per share:  On the Resignation
Date, 80 shares will have vested in accordance with the terms of the option, and
vesting in an additional 26,231 shares will accelerate pursuant to the terms of
the Employment Letter and Section 3(c) of this Agreement, for total vested
option shares of 26,311.

3.      Incentive stock option for 217,668 shares of common stock, granted
February 17, 2010, at a strike price of $1.93 per share:  On the Resignation
Date, 15,544 shares will have vested in accordance with the terms of the option,
and vesting in an additional 36,269 shares will accelerate pursuant to the terms
of the Employment Letter and Section 3(c) of this Agreement, for total vested
option shares of 51,813.

4.      Incentive stock options can be exercised on or prior to September 13,
2010, after which they expire.  Non-qualified stock options can be exercised on
or prior to June 15, 2011, after which they expire.

 
 

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EXHIBIT B
 
PRESS RELEASE
 
 
 
A.P. Pharma Announces Changes in Management and Hires Leading Consulting
Practice to Lead FDA Review Process

REDWOOD CITY, Calif. – May XX, 2010 -- A.P. Pharma, Inc. (Nasdaq: APPA), a
specialty pharmaceutical company, today announced that it has hired a leading
consulting practice in pharmaceutical regulatory affairs to lead the FDA review
process and formed a special committee of the Board to oversee the Company’s
regulatory affairs.  These actions have been taken to maximize the probability
of approval by the U.S. Food and Drug Administration (FDA) of APF530, its lead
product candidate for the prevention of acute- and delayed-onset
chemotherapy-induced nausea and vomiting.  APF530 is a long-acting formulation
of granisetron that utilizes the Company’s proprietary Biochronomer™ drug
delivery system.  In March 2010, A.P. Pharma received a Complete Response Letter
from the FDA regarding its New Drug Application submitted in May 2009.  The
Complete Response Letter outlined several issues that would need to be addressed
prior to FDA approval of APF530.

A.P. Pharma, Inc. also announced that Ronald J. Prentki, President, Chief
Executive Officer and Director, has resigned due to differences of opinion in
regulatory strategy.  Mr. Prentki has agreed to assist in implementing an
orderly transition of management responsibilities.  With Mr. Prentki’s
resignation, the Company announced that John B. Whelan, who has served as Vice
President, Finance and Chief Financial Officer since February 2009, has been
appointed to the position of Acting Chief Executive Officer.

“In going forward, we have one goal in mind:  to thoughtfully and thoroughly
address FDA’s remaining concerns as outlined in the March 2010 Complete Response
Letter so that we may best facilitate the approval of our lead product,” stated
Paul Goddard, Ph.D., Chairman of the Board.  “We remain fully committed to
APF530, as we believe that this product could improve the lives of many patients
suffering from cancer by treating one of the major morbidities associated with
its treatment, namely chemotherapy-induced nausea and vomiting.  As potentially
the first product that could address both acute-onset and delayed-onset nausea
and vomiting with a single, subcutaneous injection at the time of chemotherapy
administration, APF530 would represent an important treatment alternative for
patients and physicians.”

About APF530

A.P. Pharma's lead product, APF530, is being developed for the prevention of
both acute- and delayed-onset chemotherapy-induced nausea and vomiting
(CINV).  APF530 contains the 5-HT3 antagonist granisetron formulated in the
Company's proprietary Biochronomer™ drug delivery system, which allows
therapeutic drug levels to be maintained for five days with a single
subcutaneous injection.  Intravenous and oral formulations containing
granisetron are approved for the prevention of acute-onset CINV, but not for
delayed-onset CINV.  Granisetron was selected because it is widely prescribed by
physicians based on a well-established record of safety and efficacy.

About A.P. Pharma

A.P. Pharma is a specialty pharmaceutical company developing products using its
proprietary Biochronomer™ polymer-based drug delivery technology.  The Company's
primary focus is on its lead product, APF530, for the prevention of
chemotherapy-induced nausea and vomiting (CINV).  A.P. Pharma submitted a New
Drug Application (NDA) to the FDA in May 2009 and received a Complete Response
Letter in March 2010 that outlined several issues that would need to be
addressed prior to FDA approval of APF530.  The Company is in the process of
preparing a resubmission to address the issues outlined in the Complete Response
Letter.

A.P. Pharma's Forward-Looking Statements

This news release contains "forward-looking statements" as defined by the
Private Securities Litigation Reform Act of 1995.  These forward-looking
statements involve risks and uncertainties, including uncertainties associated
with the timely development, approval, launch and acceptance of our lead
product, APF530, and other risks and uncertainties identified in the Company's
filings with the Securities and Exchange Commission.  We caution investors that
forward-looking statements reflect our analysis only on their stated date.  We
do not intend to update them except as required by law.
 
 
 
 

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Corporate Contact:
A.P. Pharma, Inc.
John B. Whelan, 650-366-2626
Acting Chief Executive Officer
and
Investor and Media Relations:
Corporate Communications Alliance, LLC
Edie DeVine, 209-814-9564

 
 

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EXHIBIT C
 
TERMINATION CERTIFICATION

This is to certify that I do not have in my possession, nor have I failed to
return, any papers, records, data, notes, drawings, files, documents, samples,
devices, products, equipment, designs, computer programs, and other materials,
including reproductions of any of the aforementioned items, belonging to A.P.
Pharma, Inc., its subsidiaries, affiliates, successors,
or assigns (together, the "Company").

I further certify that I have complied with all the terms of the Company's
Employee Confidential Information and Inventions Agreement signed by me,
including the reporting of any Inventions (as defined therein) conceived or made
by me (solely or jointly with others) covered by that agreement.

I further agree that, in compliance with the Employee Confidential Information
and Inventions Agreement, I will hold in confidence and will not disclose, use,
copy, publish, or
summarize any Confidential Information (as defined in the Employee Confidential
Information and Inventions Agreement) of the Company or of any of its customers,
vendors, consultants, and
other parties with which it does business.

Date:___________________________                                                                           ____________________________________
           Ronald J. Prentki