Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

Registration Rights Agreement (this “Agreement”) dated as of July 25, 2012 among
A.P. Pharma, Inc., a Delaware corporation, (the “Company”), and the investors
listed on the signature pages hereto (each, a “Purchaser” and, collectively, the
“Purchasers”).

Background

1. Sale of Securities. In connection with that certain Securities Purchase
Agreement among the parties hereto dated the date hereof (the “Securities
Purchase Agreement”), the Company has agreed, upon the terms and subject to the
conditions set forth in the Securities Purchase Agreement, to issue and sell to
the Purchasers listed on the signature pages hereof 102,000,000 shares (the
“Common Shares”) of the Company’s common stock, par value $0.01 per share (the
“Common Stock”).

2. Registration Rights. In accordance with the terms of the Securities Purchase
Agreement, the Company has agreed to provide to the Purchasers certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
“Securities Act”), and applicable state securities laws. The execution and
delivery of this Agreement is a condition to the Initial Purchaser’s obligation
to purchase the Common Shares under the Securities Purchase Agreement.

Agreement

The Company and each of the Purchasers hereby agree as follows:

1. Definitions.

Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement. As used in
this Agreement, the following terms shall have the respective meanings set forth
in this Section 1:

“Additional Payment Amount” shall have the meaning set forth in Section 2(d).

“Advice” shall have the meaning set forth in Section 2(e).

“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.

“Commission” means the U.S. Securities and Exchange Commission.

“Common Shares” shall have the meaning set forth in the preamble.

“Company” shall have the meaning set forth in the preamble.

“Effective Date” means, with respect to any Registration Statement, the date
that the Commission first declares effective such Registration Statement.

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“Effectiveness Deadline” means an Initial Effectiveness Deadline or a Subsequent
Effectiveness Deadline.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Filing Deadline” means: (a) with respect to the initial Registration Statement
to be filed pursuant to Section 2(a), the 30th day following the Closing Date
under the Securities Purchase Agreement; and (b) with respect to any additional
Registration Statement to be filed pursuant to Section 2(b), the 30th day
following the date that the Commission shall indicate as being the first date or
time that such filing may be made.

“FINRA” means the Financial Industry Regulatory Authority, Inc. or any successor
organization performing similar functions.

“Holder” or “Holders” means the holder or holders, as the case may be, from time
to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Initial Effectiveness Deadline” means, with respect to the Registration
Statement filed pursuant to Section 2(a), the date that is: (a) in the event
that the Registration Statement is not subject to a full review by the SEC,
90 days after the Closing Date under the Securities Purchase Agreement; or
(b) in the event that the Registration Statement is subject to review by the
SEC, 120 days after the Closing Date under the Securities Purchase Agreement.

“Legal Counsel” shall have the meaning set forth in Section 3(h).

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, any preliminary prospectus, any free-writing
prospectus and any prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by a Registration Statement, and all other amendments and
supplements to such prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such prospectus.

“Purchaser” shall have the meaning set forth in the preamble.

 

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“Registrable Securities” means each of the Securities upon its original issuance
and at all times subsequent thereto until: (i) a Registration Statement covering
such Security has been declared effective by the Commission and such Security
has been disposed of in accordance with such effective Registration Statement;
(ii) such Security ceases to be outstanding; or (iii) such Security has been
sold in compliance with Rule 144 or is salable pursuant to Rule 144(d) without
any limitation on the manner of sale or amount of securities to be sold (or any
similar provision then in force other than Rule 144A).

“Registration Default” shall have the meaning set forth in Section 2(d).

“Registration Statement” means a registration statement filed pursuant to the
terms hereof and which covers the resale by the Holders of Registrable
Securities, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto and all material incorporated by reference (or
deemed to be incorporated by reference) therein. For the avoidance of doubt,
“Registration Statement” means the initial registration statement described
above in this paragraph and any additional registration statement or
registration statements that are needed to sell additional Registrable
Securities with the effect that the obligations of the Company under this
Agreement also extend to such additional registration statement or registration
statements, in all cases, as specified in this Agreement.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“Securities” means the Common Shares issued pursuant to the Securities Purchase
Agreement, together with any securities issued or issuable upon any stock split,
dividend or other distribution, recapitalization or similar event or conversion
price adjustment with respect thereto.

“Securities Act” shall have the meaning set forth in the preamble.

“Securities Purchase Agreement” shall have the meaning set forth in the
preamble.

“Selling Holder Questionnaire” shall have the meaning set forth in Section 2(e).

“Subsequent Effectiveness Deadline” means, with respect to any additional
Registration Statement filed pursuant to Section 2(b), the date that is: (a) in
the event that the Registration Statement is not subject to a full review by the
SEC, 60 days after the Filing Deadline applicable to such Registration
Statement, or (b) in the event that the Registration Statement is subject to a
full review by the SEC, 90 days after the Filing Deadline applicable to such
Registration Statement.

 

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“Subsequent Registration Statement” shall have the meaning set forth in
Section 2(b).

“Suspension Period” shall have the meaning set forth in Section 2(c).

“Trading Day” means any day on which the Common Stock is traded on the Trading
Market; provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time).

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the Nasdaq Global Market, the Nasdaq Capital Market or such
other United States registered national securities exchange on which the Common
Stock is listed or quoted for trading on the date in question.

“Transaction Documents” means, collectively, this Agreement and the Securities
Purchase Agreement, dated as of July 25, 2012, among the Company and the
purchasers named therein.

2. Registration.

(a) Initial Registration. On or prior to the Filing Deadline, the Company shall
prepare and file with the Commission a Registration Statement covering the
resale of all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-3
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3 in which case such registration shall be on
another appropriate form for such purpose) and shall contain (except if
otherwise required pursuant to written comments received from the Commission
upon a review of such Registration Statement) a “Plan of Distribution”
substantially in the form attached hereto as Annex A, as the same may be amended
in accordance with the provisions of this Agreement. The Company shall use
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as soon as practicable but, in any event, no
later than the Initial Effectiveness Deadline, and shall use commercially
reasonable efforts to keep the Registration Statement (or a Subsequent Form S-3,
as defined below) continuously effective under the Securities Act until the
earlier of (i) such time as all of the Registrable Securities covered by such
Registration Statement have been sold or (ii) the date when all Registrable
Securities covered by the Registration Statement cease to be Registrable
Securities as determined by the counsel to the Company (the “Effectiveness
Period”). Notwithstanding the foregoing, the Company shall only be required to
initially register the number of Registerable Securities the Commission allows
to be registered on the initial Registration Statement.

(b) Subsequent Registrations. If for any reason the Commission does not permit
all of the Registrable Securities to be included in the Registration Statement
initially filed pursuant to Section 2(a), then the Company shall prepare and
file as soon as practicable after the date on

 

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which the Commission shall indicate as being the first date or time that such
filing may be made, but in any event by the Filing Deadline, an additional
Registration Statement covering the resale of the Registrable Securities not
already covered by an existing and effective Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 (the “Subsequent
Registration Statement”), provided that the number of Registerable Securities
that the Company shall be required to register on each Subsequent Registration
Statement shall not exceed the number of Registerable Securities the Commission
allowed to be registered on the initial Registration Statement. The Company
shall use commercially reasonable efforts to cause such Registration Statement
to be declared effective under the Securities Act as soon as practicable but, in
any event, no later than the Subsequent Effectiveness Deadline, and shall use
commercially reasonable efforts to keep such Registration Statement continuously
effective under the Securities Act during the Effectiveness Period.

(c) Suspension Periods. Notwithstanding anything to the contrary contained
herein, the Company may suspend the effectiveness of a Registration Statement by
written notice to the Holders for a period (each such period, a “Suspension
Period”) not to exceed an aggregate of 45 days in any 90-day period, and not to
exceed an aggregate of 90 days in any 360-day period, if:

 

  (i) an event occurs and is continuing as a result of which, if such event were
not disclosed in the Registration Statement, the Registration Statement would,
in the Company’s reasonable judgment, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and

 

  (ii) the Company reasonably determines in good faith that the disclosure of
such event at such time would be seriously detrimental to the Company or its
business;

provided that, in the event the disclosure relates to a previously undisclosed
proposed or pending material business transaction, the disclosure of which would
impede the Company’s ability to consummate such transaction, the period during
which the effectiveness of the Registration Statement is suspended shall not be
included in the calculation of any Suspension Period.

(d) Additional Payment Amounts. The Company and the Purchasers agree that the
Holders will suffer damages if the Company fails to fulfill its obligations
under this Section 2 and that it would not be feasible to ascertain the extent
of such damages with precision. Accordingly, if:

 

  (i) a Registration Statement is not filed with the Commission on or before the
applicable Filing Deadline;

 

  (ii) a Registration Statement is not declared effective by the Commission on
or before the applicable Effectiveness Deadline;

 

  (iii)

a Registration Statement is filed and declared effective but, during the
applicable Effectiveness Period, shall cease to be effective or, other than by
reason of a Suspension Period as provided in Section 2(c), shall fail to be
usable for its intended purpose without such disability being cured within

 

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  twenty Business Days by an effective post-effective amendment to such
Registration Statement, a supplement to the Prospectus, a report filed with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
that cures such failure; or

 

  (iv) (A) prior to or on the 45th day, as may be permitted under Section 2(c),
of any Suspension Period, such suspension has not been terminated or
(B) Suspension Periods exceed an aggregate of 45 days, as may be permitted under
Section 2(c), in any 90-day period or an aggregate of 90 days in any 360-day
period,

(each such event referred to in foregoing clauses (i) through (iv), a
“Registration Default”), then in such event as relief for the damages to any
Holder by reason of any such delay in or reduction of its ability to sell the
Registrable Securities and not as a penalty, the Company hereby agrees to pay to
each Holder, subject to Section 2(e), an amount in cash equal to 1.5% of the
aggregate purchase price of the unregistered Registrable Securities held by such
Holder for each 30-day period (prorated for periods totaling less than 30 days)
following the Registration Default until the earlier to occur of: (i) such time
as when the Company cures the Registration Default; and (ii) the six (6) month
anniversary of the date hereof. The payments to which a Holder shall be entitled
pursuant to this Section 2(d) are referred to herein as “Additional Payment
Amounts”. The Company shall pay Additional Payment Amounts, if any, to Holders
on the earlier of: (I) the last day of the calendar month during which such
Additional Payment Amounts are incurred; and (II) the third Business Day
following the date on which the Registration Default giving rise to the
Additional Payment Amounts is cured. In the event that the Company fails to pay
Additional Payment Amounts within three Trading Days, such Additional Payment
Amounts shall accrue interest, payable in cash in arrears, at the rate of
1.0% per month (prorated for partial months) until paid in full.

(e) Selling Holder Agreements. Each Holder agrees to furnish to the Company a
completed questionnaire in the form attached to this Agreement as Annex B or in
a form mutually agreeable to the parties (a “Selling Holder Questionnaire”). The
Company shall not be required to include the Registrable Securities of a Holder
in a Registration Statement and shall not be required to pay any Additional
Payment Amounts under Section 2(d) or other damages to any Holder who fails to
furnish to the Company a fully completed Selling Holder Questionnaire at least
ten Business Days prior to the applicable Filing Deadline.

Each Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 2(c) or Section 3(c), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder’s receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement or until it is advised in
writing (the “Advice”) by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.

 

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With respect to Registrable Securities not already covered by a Registration
Statement, the Company shall not be obligated to file: (i) more than one
pre-effective amendment or supplement to a Registration Statement for all
Holders during any fiscal quarter; and (ii) more than one post-effective
amendment to a Registration Statement for all Holders during any semi-annual
period, and provided further, in all such cases involving supplements or
amendments (whether pre-effective or post-effective), the Company shall only be
obligated to make a filing when the aggregate principal amount of the
Registrable Securities to be included in such amendment or supplement is more
than $5 million.

3. Registration Procedures.

(a) Right to Prior Drafts. Not less than five Business Days prior to the filing
of a Registration Statement or any related Prospectus or any amendment or
supplement thereto, the Company shall furnish to each Holder copies of the
“Selling Security Holders” section of such documents in the form in which the
Company proposes to file them, which sections will be subject to the review of
each such Holder. Each Holder shall provide comments, if any, within two
Business Days after the date such materials are provided. The Company shall not
file a Registration Statement, any Prospectus or any amendments or supplements
thereto in which the “Selling Security Holders” section thereof differ in any
material respect from the disclosure received from a Holder in its Selling
Holder Questionnaire (as amended or supplemented).

(b) Subsequent Amendments or Supplements, etc. The Company shall: (i) prepare
and file with the Commission such amendments, including post-effective
amendments, pursuant to Rule 462 or otherwise, to a Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep such
Registration Statement continuously effective as to the applicable Registrable
Securities for its applicable Effectiveness Period; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably practicable to any comments received
from the Commission with respect to any Registration Statement or any amendment
thereto; (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the Registration Statements
and the disposition of all Registrable Securities covered by each Registration
Statement; and (v) upon the occurrence of any event contemplated by
Section 3(c)(v), as promptly as reasonably practicable, prepare a supplement or
amendment, including a post-effective amendment, to the affected Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, no Registration Statement nor any
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

(c) Notices to Holders. The Company shall notify the Holders as promptly as
reasonably practicable (and, in the case of clause (i)(A) below, not less than
two Business Days prior to such filing; and, in the case of (i)(c) below, not
more than 24 hours after effectiveness): (i): (A) when a Prospectus or any
supplement thereto or post-effective amendment to a Registration Statement is
proposed to be filed; (B) when the Commission notifies the Company whether there
will be a “review” of such Registration Statement; and (C) with respect to each
Registration Statement or any post-effective amendment, when the same has

 

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become effective; (ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or that requires any Registration Statement, Prospectus or any
document incorporated or deemed to be incorporated therein by reference to be
revised so that, in the case of such Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

(d) Copies. Upon request, the Company shall furnish to each Holder, without
charge: (i) at least one copy of each Registration Statement and each amendment
thereto and all exhibits to the extent requested by such Holder (excluding those
previously furnished or incorporated by reference), except if such documents are
available on Edgar; and (ii) an electronic copy of each Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Holder may reasonably request. The Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

(e) Blue Sky. The Company shall, prior to any public offering of Registrable
Securities, use commercially reasonable efforts to cooperate with the selling
Holders in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of all jurisdictions within the
United States that the selling Holders request in writing be covered, to keep
each such registration or qualification (or exemption therefrom) effective
during the applicable Effectiveness Period and to do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by any Registration Statement; provided, that
the Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to become subject to any tax
in any such jurisdiction where it is not then so subject.

(f) Certificates. The Company shall cooperate with the Holders to facilitate the
timely preparation and delivery of either certificates or a book entry position
through the DTC’s DWAC system representing Registrable Securities to be
delivered to a transferee pursuant to any Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such Holders may reasonably request.

(g) Underwriters. If underwriters are used or if any Holder is deemed to be,
alleged to be or reasonably believes it may be deemed or alleged to be, an
underwriter or is required under

 

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applicable securities laws to be described in a Registration Statement as an
underwriter, with the concurrence of counsel for the Company, the Company shall
use its reasonable efforts to furnish, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters: (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters; and (ii) a letter, dated as of such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering addressed to the
underwriters.

(h) 144 Information. With a view to making available to Holders the benefits of
Rule 144 promulgated under the Securities Act, the Company shall, during the
Effectiveness Period, file with the Commission in a timely manner all reports
and other documents required of the Company under Rule 144(c) and provide to any
Holder that is an affiliate of the Company (as “affiliate” is defined in Rule
144(a)(1)), as long as such Holder owns Registrable Securities, upon reasonable
request: (i) a written statement by the Company that it has complied with the
current information requirements of Rule 144(c); and (ii) such other information
as may be reasonably requested to avail any Holder of any rule or regulation of
the Commission that permits the selling of any such securities without
registration.

4. Registration Expenses.

All fees and expenses incident to the performance of or compliance with this
Agreement by the Company, other than underwriting discounts and commissions,
shall be borne by the Company whether or not any Registrable Securities are sold
pursuant to a Registration Statement including, without limitation:

(i) all registration and filing fees (including, without limitation, fees and
expenses: (A) with respect to filings required to be made with any Trading
Market on which the Common Stock is then listed for trading; (B) related to
compliance with applicable state securities or Blue Sky laws; and (C) incurred
in connection with the preparation or submission of any filing with FINRA);

(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by Holders of a majority of the
Registrable Securities included in a Registration Statement);

(iii) messenger, telephone and delivery expenses;

(iv) fees and disbursements of counsel for the Company;

(v) Securities Act liability insurance, if the Company so desires such
insurance;

(vi) fees and expenses of all other persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement; and

 

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(vii) all of the Company’s own internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit and the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.

5. Indemnification.

(a) Indemnification by the Company. The Company will indemnify each Purchaser
who holds Common Shares (if Common Shares held by such Purchaser are included in
the securities as to which such registration is being effected), each of its
officers and directors, partners, members and each person controlling such
Purchaser within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on: (A) any untrue
statement (or alleged untrue statement) of a material fact contained in any
Registration Statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such Registration Statement, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading; or (B) any
violation by the Company of the Securities Act, the Exchange Act, state
securities laws or any rule or regulation promulgated under such laws applicable
to the Company in connection with any such registration, and in each case, the
Company will reimburse each such Purchaser, each of its officers and directors,
partners, members and each person controlling such Purchaser, for any legal and
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on: (X) any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed by
such Purchaser or controlling person, and stated to be specifically for use
therein; (Y) the use by a Purchaser of an outdated or defective prospectus after
the Company has notified such Purchaser in writing that the prospectus is
outdated or defective; or (Z) a Purchaser’s (or any other indemnified person’s)
failure to send or give a copy of the prospectus or supplement (as then amended
or supplemented), if required, pursuant to Rule 172 under the Securities Act (or
any successor rule) to the persons asserting an untrue statement or alleged
untrue statement or alleged untrue statement or omission or alleged omission at
or prior to the written confirmation of the sale of Common Shares to such person
if such statement or omission was corrected in such prospectus or supplement;
provided, further, that the indemnity agreement contained in this Section 5(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld).

(b) Indemnification by the Purchasers. Each Purchaser holding Common Shares
will, if Common Shares held by such Purchaser are included in the securities as
to which such registration is being effected, severally and not jointly,
indemnify the Company, each of its directors and officers, other holders of the
Company’s securities covered by such Registration Statement, each person who
controls the Company within the meaning of Section 15 of the

 

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Securities Act, and each such holder, each of its officers and directors and
each person controlling such holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on: (A) any untrue statement (or
alleged untrue statement) of a material fact contained in any such Registration
Statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, to the extent, and
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Registration Statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Purchaser and stated to be specifically for use therein;
or (B) any violation by such Purchaser of the Securities Act, the Exchange Act,
state securities laws or any rule or regulation promulgated under such laws
applicable to such Purchaser, and in each case, such Purchaser will reimburse
the Company, each other holder, and directors, officers, persons, underwriters
or control persons of the Company and the other holders for any legal or any
other expenses reasonably incurred, as such expenses are incurred, in connection
with investigating or defending any such claim, loss, damage, liability or
action; provided, that the indemnity agreement contained in this Section 5(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of such
indemnifying Purchaser (which consent shall not be unreasonably withheld or
delayed). The liability of any Purchaser for indemnification under this
Section 5(b) in its capacity as a seller of Common Shares shall not exceed the
amount of net proceeds to such Purchaser of the securities sold in any such
registration.

(c) Notice and Procedure. Each party entitled to indemnification under this
Section 5 (the “Indemnified Party”) shall give written notice to the party
required to provide indemnification (the “Indemnifying Party”) promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party’s expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party’s ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
there are separate and different defenses. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party (whose consent shall not be unreasonably withheld), consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

(d) Contribution. If the indemnification provided for in this Section 5 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any losses, claims, damages or liabilities referred to herein,
the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
claim,

 

- 11 -

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damage or liability in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and of the Indemnified Party on
the other in connection with the untrue statement or omission that resulted in
such loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Purchaser hereunder exceed the proceeds from the offering received by such
Purchaser. The amount paid or payable by a party as a result of any loss, claim,
damage or liability shall be deemed to include, subject to the limitations set
forth in this Agreement, any reasonable attorneys’ or other reasonable fees or
expenses incurred by such party in connection with any proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section 5 was available to such party in
accordance with its terms.

(e) Survival. The obligations of the Company and the Purchasers under this
Section 5 shall survive completion of any offering of Common Shares in a
Registration Statement and the termination of this Agreement. The indemnity and
contribution agreements contained in this Section 5 are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties and
are not in diminution or limitation of other remedies or causes of action that
the parties may have under the Transaction Documents.

6. Miscellaneous.

(a) Notices. Any notice or other communication required or permitted to be
provided hereunder shall be in writing and shall be delivered in person or by
first class mail (registered or certified, return receipt requested), facsimile,
or overnight air courier guaranteeing next day delivery, to such address as the
recipient shall most recently have designated in writing or, if no such
designation has been made, to the following address:

If to the Company:

AP Pharma, Inc.

123 Saginaw Drive

Redwood City, CA 94063

Attention: John Whelan, Chief Executive Officer

Facsimile: (650) 365-6490

With a copy to:

Ropes & Gray LLP

Three Embarcadero

San Francisco, CA 94111

Attention: Ryan Murr, Esq.

Facsimile: (415) 315-6026

 

- 12 -

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If to a Purchaser:

To the address set forth under such Purchaser’s name on the signature pages
hereto.

If to any other person who is then a registered Holder:

To the address of such Holder as it appears in the record books of the Company.

All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.

Failure to provide a notice or communication to one party hereto or any defect
in it shall not affect its sufficiency with respect to other parties hereto.

(b) Independent Nature of Purchaser’s Obligations and Rights. The obligations of
each Purchaser under this Agreement are several and not joint with the
obligations of each other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under this
Agreement. Nothing contained herein or in any Transaction Document, and no
action taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchaser as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement or any other Transaction Document.
Each Purchaser acknowledges that no other Purchaser will be acting as agent of
such Purchaser in enforcing its rights under this Agreement. Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
Proceeding for such purpose. The Company acknowledges that each of the
Purchasers has been provided with the same Registration Rights Agreement for the
purpose of closing a transaction with multiple Purchasers and not because it was
required or requested to do so by any Purchaser.

(c) Compliance. Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

(d) Remedies. In the event of a breach by the Company or by a Holder of any of
their obligations under this Agreement, each Holder or the Company, as the case
may be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate. In addition, the remedies provided herein are
cumulative and not exclusive of any remedies provided by law.

 

- 13 -

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(e) Governing Law; Jurisdiction; Jury Trial; etc. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICT-OF-LAW PRINCIPLES. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in San Francisco, California, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY. If either party shall commence a proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
proceeding shall be reimbursed by the other party for its attorney’s fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such proceeding.

(f) Amendments and Waivers. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and Holders representing
a majority of then outstanding Registrable Securities, and any amendment to this
Agreement made in conformity with the provisions of this Section 6(h) shall be
binding on the Purchasers and all Holders of the Registrable Securities, as
applicable. No provision hereof may be waived other than by an instrument in
writing signed by the party from whom such waiver is requested. Notwithstanding
the foregoing, a waiver or consent with respect to a matter that relates
exclusively to the rights of one or more Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates, provided that, the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding two sentences.

(g) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

(h) Entire Agreement. This Agreement and the Securities Purchase Agreement
supersede all other prior oral or written agreements among the parties hereto
and persons acting

 

- 14 -

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on their behalf with respect to the matters discussed herein, and this Agreement
and the Securities Purchase Agreement and the instruments referenced herein and
therein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, none of the parties hereto makes any representation, warranty,
covenant or undertaking with respect to such matters.

(i) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns;
provided that no party shall assign any of its rights or obligations hereunder
without the prior written consent of the other party, except that the right to
cause the Company to register Registrable Securities hereunder may be assigned
(but only with all related obligations) by a Holder to a transferee who acquires
all or any part of such Holder’s Registrable Securities from the Holder, as long
as such transferee agrees in writing to be bound by the provisions of this
Agreement.

(j) Counterparts; Facsimile Copies. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing the same (or on whose behalf the same is executed) with the same
force and effect as if such facsimile signature were the original thereof.

(k) Severability. If any provision of this Agreement shall be invalid,
unenforceable, illegal or void in any jurisdiction, such invalidity,
unenforceability, illegality or voidness shall not affect the validly or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. In that case, the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining provisions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

(l) Headings. The headings in this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

[Remainder of page intentionally left blank, signature pages to follow]

 

- 15 -

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

A.P. Pharma, Inc.

By:

 

/s/ John Whelan

  Name: John Whelan   Title: Chief Executive Officer

Company Signature Page to Registration Rights Agreement

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Broadfin Healthcare Master Fund, LTD AUTHORIZED SIGNATORY By:  

/s/ Jason Abrams

Name:   Jason Abrams Title:   CFO ADDRESS FOR NOTICE c/o: Broadfin Capital
Street: 237 Park Avenue, Suite 900 City/State/Zip: New York, NY 10017 Attention:
Jason Abrams Tel: 212-808-2469 Fax: 212-808-2464 Email:
Jason@broadfincapital.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Capital Ventures International by: Heights Capital Management Its Authorized
Agent AUTHORIZED SIGNATORY By:  

/s/ Martin Kobinger

Name:   Martin Kobinger Title:   Investment Manager ADDRESS FOR NOTICE c/o:
Heights Capital Management Street: 101 California St., Suite 3250
City/State/Zip: San Francisco, CA, 94111 Attention: Sam Winer Tel: (415)
403-6500 Fax: (415) 403-6525 Email: winer@sig.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Ayer Capital Partners Master Fund, L.P. AUTHORIZED SIGNATORY By:  

/s/ Jay Venkatesan

Name:   Jay Venkatesan Title:   Managing Member ADDRESS FOR NOTICE c/o: Ayer
Capital Mangement, LP Street: 230 California Street, Suite 600 City/State/Zip:
San Francisco, CA 94111 Attention: Jay Venkatesan Tel: 415-874-4800 Fax:
415-520-6828 Email: jrv@ayercapital.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Ayer Capital Partners Kestrel Fund, LP AUTHORIZED SIGNATORY By:  

/s/ Jay Venkatesan

Name:   Jay Venkatesan Title:   Managing Member ADDRESS FOR NOTICE c/o: Ayer
Capital Mangement, LP Street: 230 California Street, Suite 600 City/State/Zip:
San Francisco, CA 94111 Attention: Jay Venkatesan Tel: 415-874-4800 Fax:
415-520-6828 Email: jrv@ayercapital.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Epworth - Ayer Capital AUTHORIZED SIGNATORY By:  

/s/ Jay Venkatesan

Name:   Jay Venkatesan Title:   Managing Member ADDRESS FOR NOTICE c/o: Ayer
Capital Mangement, LP Street: 230 California Street, Suite 600 City/State/Zip:
San Francisco, CA 94111 Attention: Jay Venkatesan Tel: 415-874-4800 Fax:
415-520-6828 Email: jrv@ayercapital.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

T. Rowe Price Health Sciences Fund, Inc. T. Rowe Price Health Sciences Portfolio
V ALIC Company I - Health Sciences Fund John Hancock Variable Insurance Trust -
Health Sciences Trust John Hancock Funds II - Health Sciences Fund TD Mutual
Funds - TD Health Sciences Fund By: T. ROWE PRICE ASSOCIATES, INC. Investment
Adviser, for and on behalf of the Purchasers listed (above) in Attachment A By:
 

/s/ G. Mark Bussard

Name:   G. Mark Bussard Title:   Vice President ADDRESS FOR NOTICE T. Rowe Price
Associates, Inc. 100 East Pratt Street Baltimore, MD 21202 Attention: Andrew
Baek, Vice President and Senior Legal Counsel Tel: 410-345-2090 Fax:
410-345-6575 Email: andrew_baek@troweprice.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

FTIF - Franklin Biotechnology Discovery Fund AUTHORIZED SIGNATORY By:  

/s/ Steve Gray

Name:   Steve Gray Title:   Vice President ADDRESS FOR NOTICE c/o: Franklin
Templeton Investments Street: One Franklin Parkway, Building 920 City/State/Zip:
San Mateo, CA 94403 Attention: Evan McCulloch Tel: (650) 312 4082 Email:
evan.mcculloch@frk.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Tang Capital Partners, LP AUTHORIZED SIGNATORY By:  

/s/ Kevin Tang

Name:   Kevin Tang Title:   Managing Director ADDRESS FOR NOTICE c/o Tang
Capital Management, LLC 4747 Executive Drive, Suite 510 San Diego, CA 92127
Attention: John Lemkey Tel: 858-200-3412 Fax: 858-200-3837 Email:
jlemkey@tangcapital.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Baker Brothers Life Sciences, L.P. AUTHORIZED SIGNATORY By: Baker Bros Advisors,
LLC, Management Company and Investment Advisor to BAKER BROTHERS LIFE SCIENCES,
L.P., pursuant to authority granted by Baker Brothers Life Sciences Capital,
L.P., general partner to BAKER BROTHERS SCIENCES, L.P. and not the general
partner

/s/ Scott L. Lessing

By:   Scott L. Lessing, President ADDRESS FOR NOTICE c/o: Baker Bros. Advisors,
LLC Street: 667 Madison Ave. 21st Fl. City/State/Zip: New York, NY 10065
Attention: Leo Kirby, CFO Tel: 212-339-5633 Fax: 212-339-5688 Email:
leokirby@bbinvestments.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

14159, L.P. AUTHORIZED SIGNATORY By: Baker Bros Advisors, LLC, Management
Company and Investment Advisor to 14159, L.P., pursuant to authority granted by
14159 Capital, L.P., general partner to 14159, L.P. and not the general partner

/s/ Scott L. Lessing

By:   Scott L. Lessing, President ADDRESS FOR NOTICE c/o: Baker Bros. Advisors,
LLC Street: 667 Madison Ave. 21st Fl. City/State/Zip: New York, NY 10065
Attention: Leo Kirby, CFO Tel: 212-339-5633 Fax: 212-339-5688 Email:
leokirby@bbinvestments.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

667, L.P. AUTHORIZED SIGNATORY By: Baker Bros Advisors, LLC, Management Company
and Investment Advisor to 667, L.P., pursuant to authority granted by 667
Capital, L.P., general partner to 667, L.P. and not the general partner

/s/ Scott L. Lessing

By:   Scott L. Lessing, President ADDRESS FOR NOTICE c/o: Baker Bros. Advisors,
LLC Street: 667 Madison Ave. 21st Fl. City/State/Zip: New York, NY 10065
Attention: Leo Kirby, CFO Tel: 212-339-5633 Fax: 212-339-5688 Email:
leokirby@bbinvestments.com

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

Fidelity Select Portfolios: Biotechnology Portfolio

By:  

/s/ Kenneth Robins

Name: Kenneth Robins

Title: Treasurer

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

FidelityAdvisor Series VII: Fidelity Advisor

Biotechnology Fund

By:  

/s/ Kenneth Robins

Name: Kenneth Robins

Title: Treasurer

--------------------------------------------------------------------------------

Annex A

PLAN OF DISTRIBUTION

We are registering the Shares covered by this prospectus on behalf of the
Selling Security Holders. All costs, expenses and fees connected with the
registration of these Securities will be borne by us. Any brokerage commissions
and similar expenses connected with selling the Securities will be borne by the
Selling Security Holders. The Selling Security Holders may offer and sell the
Securities covered by this prospectus from time to time in one or more
transactions. The term “Selling Security Holders” includes pledgees, donees,
transferees and other successors-in-interest who may acquire Securities through
a pledge, gift, partnership distribution or other non-sale related transfer from
the Selling Security Holders and who agree to be bound by the terms of the
Registration Rights Agreement. The Selling Security Holders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale and they may sell Securities on one or more
exchanges, including the Nasdaq Global Market, in the over-the-counter market or
in privately negotiated transactions at prevailing market prices at the time of
sale, at fixed prices, at varying prices determined at the time of the sale or
at negotiated prices. These transactions include:

 

  •  

ordinary brokerage transactions and transactions in which the broker solicits
purchasers;

 

  •  

purchases by a broker-dealer as principal and resale by the broker-dealer for
its own account pursuant to this prospectus;

 

  •  

exchange or over-the-counter distributions in accordance with the rules of the
exchange or other market;

 

  •  

block trades in which the broker-dealer attempts to sell the Securities as agent
but may position and resell a portion of the block as principal to facilitate
the transaction;

 

  •  

a combination of any such method of sale; and

 

  •  

any other method permitted pursuant to applicable law.

In connection with distributions of the Shares or otherwise, the Selling
Security Holders may:

 

  •  

sell the Securities short and redeliver the Securities to close out short
positions; provided that such short positions were entered into in compliance
with applicable securities laws;

 

  •  

enter into option or other transactions with broker-dealers or other financial
institutions which require the delivery to them of Securities covered by this
prospectus, which they may in turn resell; and

 

  •  

pledge Securities to broker-dealers or other financial institutions, which, upon
a default, they may in turn resell.

 

Annex A – Plan of Distribution

--------------------------------------------------------------------------------

The Selling Security Holders may also sell any Securities under Rule 144 rather
than with this prospectus if the sale meets the requirements of that rule.

In effecting sales, the Selling Security Holders may engage broker-dealers or
agents, who may in turn arrange for other broker-dealers to participate.
Broker-dealers or agents may receive commissions, discounts or concessions from
the Selling Security Holders and/or from the purchasers of Securities for whom
the broker-dealers may act as agents or to whom they sell as principal, or both.
The compensation to a particular broker-dealer may be in excess of customary
commissions.

The Selling Security Holders, any broker-dealers or agents and any participating
broker-dealers that act in connection with the sale of the Securities covered by
this prospectus may be “underwriters” under the Securities Act with respect to
those Securities and will be subject to the prospectus delivery requirements of
that Act, unless exempted therefrom. Any profit that the Selling Security
Holders realize, and any compensation that any broker-dealer or agent may
receive in connection with any sale, including any profit realized on resale of
Securities acquired as principal, may constitute underwriting discounts and
commissions. If the Selling Security Holders are deemed to be underwriters, the
Selling Security Holders may be subject to certain liabilities under statutes
including, but not limited to, Section 11, 12 and 17 of the Securities Act and
Section 10(b) and Rule 10b-5 under the Exchange Act.

The securities laws of some states may require the Selling Security Holders to
sell the Securities in those states only through registered or licensed brokers
or dealers. These laws may also require that we register or qualify the
Securities for sale in those states unless an exemption from registration and
qualification is available and the Selling Security Holders and we comply with
that exemption. In addition, the anti-manipulation rules of Regulation M under
the Securities Exchange Act of 1934 may apply to sales of Securities in the
market and to the activities of the Selling Security Holders and their
affiliates. Regulation M may restrict the ability of any person engaged in the
distribution of the Securities to engage in market-making activities with
respect to the Securities. All of the foregoing may affect the marketability of
the Securities and the ability of any person to engage in market-making
activities with respect to the Securities.

We have agreed to indemnify the Selling Stockholders against liabilities,
including liabilities under the Securities Act, the Exchange Act and state
securities laws, relating to the registration of the Shares offered by this
prospectus.

 

Annex A – Plan of Distribution

--------------------------------------------------------------------------------

Annex B

A.P. PHARMA, INC.

Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner of common stock, $0.01 par value per share (the
“Securities”), of A.P. Pharma, Inc. (the “Company”) understands that the Company
has filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a Registration Statement for the registration and resale of the
Registrable Securities, in accordance with the terms of the Registration Rights
Agreement, dated as of July 25, 2012 (the “Registration Rights Agreement”),
among the Company and the Purchasers named therein. A copy of the Registration
Rights Agreement is available from the Company upon request at the address set
forth below. All capitalized terms used and not otherwise defined herein shall
have the meanings ascribed thereto in the Registration Rights Agreement.

The undersigned hereby provides the following information to the Company for use
in preparing the Registration Statement and any related prospectuses and
represents and warrants that such information is accurate:

 

  1. Name.

(a) Full Legal Name of Selling Securityholder

 

 

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities Listed in Item 3 below are held:

 

 

 

(c) Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by the questionnaire):

 

 

 

 

Annex B – Selling Security Holder Questionnaire

--------------------------------------------------------------------------------

2. Address for Notices to Selling Securityholder:

 

  Name:  

 

    Address:  

 

   

 

    Telephone:  

 

    Fax:  

 

    Contact Person:  

 

    Email:  

 

 

 

3. Beneficial Ownership of Registrable Securities:

(a) Type and Principal Amount of Registrable Securities Beneficially Owned:

 

 

 

 

 

4. Broker-Dealer Status:

(a) Are you a broker-dealer?

 

Yes  ¨    No  ¨  

Note: If yes, the Commission’s staff has indicated that you should be identified
as an underwriter in the Registration Statement.

(b) Are you an affiliate of a broker-dealer?

 

Yes  ¨    No  ¨   

(c) If you are an affiliate of a broker-dealer, do you certify that you bought
the Registrable Securities in the ordinary course of business, and at the time
of the purchase of the Registrable Securities to be resold, you had no
agreements or understandings, directly or indirectly, with any person to
distribute the Registrable Securities?

 

Yes  ¨    No  ¨   

Note: If no, the Commission’s staff has indicated that you should be identified
as an underwriter in the Registration Statement.

 

Annex B – Selling Security Holder Questionnaire

--------------------------------------------------------------------------------

  5. Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.

Except as set forth below in this Item 5, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.

Type and Amount of Other Securities Beneficially Owned by the Selling
Securityholder:

 

 

 

 

  6. Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.

State any exceptions here:

 

 

 

The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof and prior to the Effective Date for the Registration Statement.

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus. The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.

 

Annex B – Selling Security Holder Questionnaire

--------------------------------------------------------------------------------

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.

 

Dated:                        Beneficial Owner:  

 

   

  By:  

 

      Name:       Title:  

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

Ropes & Gray LLP

Three Embarcadero

San Francisco, CA 94111

Attn: Ryan Murr, Esq.

Facsimile: (415) 315-6026

 

Annex B – Selling Security Holder Questionnaire