appa10q208ex10-u.htm


    
      

    

     

    Exhibit
      10-U

    Return
      to
      10-Q

     

    

    


    July
      2, 2008

     

    Mr.
      Ronald J.
      Prentki

    
      
        	 	 
	 	 


      

    

     

     

    Dear
      Ron:

     

    A.
      P.
      Pharma, Inc. (the “Company”) is pleased to offer you the position of President
      and Chief Executive Officer of the Company.  The terms of your
      employment with the Company are as set forth below:

     

    1. Position.

     

    a. Title.  You
      will become the President and
Chief Executive Officer
      of the Company, working out of the Company’s
      headquarters office in Redwood City, California.  As such, you will
      report to the Company’s Board of Directors (the “Board”).  Upon
      commencement of employment, you will also be appointed to serve as a member
      of
      the Board, and as long as you are a Company employee you agree to serve in
      such
      capacity without additional compensation.

     

    b. Duties.  As
      President and Chief
      Executive Officer, you will have the duties, responsibilities and authority
      customarily associated with such position as the Company’s most senior executive
      officer, including responsibility for the overall management of the
      Company.  You agree to the best of your ability and experience that
      you will loyally and conscientiously perform all of your duties and obligations
      to the Company.  During your employment, you further agree that
      you:  (i) will devote substantially all of your business time and
      attention to the business of the Company; (ii) will not render commercial or
      professional services of any nature to any other person or organization, whether
      or not for compensation, without the prior written consent of the Board which
      will not be unreasonably withheld; and (iii) will not directly or indirectly
      engage or participate in any business or activity that is competitive in any
      manner with the business of the Company.  Nothing in this letter
      agreement will prevent you from serving on advisory boards or boards of
      charitable organizations, so long as such service does not unduly interfere
      with
      the performance of your duties to the Company.  The Company also
      requests that you not accept nor seriously discuss joining the board of any
      public or private for-profit company without first seeking the permission of
      the
      Nominating and Governance Committee of the Company.  While you are an
      executive officer and director of the Company, the Company will assist you
      in
      satisfying your reporting obligations under Section 16 of the Securities
      Exchange Act of 1934 (the “Exchange Act”).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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      Mr. Ronald J. Prentki

      July 2, 2008

      Page 2

       

       

           2. Start
        Date.  Subject to fulfillment of any pre-conditions imposed by
        this letter agreement, you will commence full-time employment with the Company
        on a mutually agreed upon start
        date (the “Start Date”).

    

     

    3. Compensation
      and Benefits.

     

    a. Base
      Salary.  For all services rendered to the Company, you will
      receive a bi-weekly base salary of not less than $16,346.15
      (which on an annualized
      basis equals $425,000), which will be paid in accordance with the Company’s
      regular bi-weekly payroll practice. For purposes of this letter agreement,
      the
      term “Base Salary” means the annual base salary set forth in this Section 3.a.
      or, to the extent the amount of such Base Salary is adjusted upward from time
      to
      time in the future pursuant to the Company’s annual review process, your
      annualized base salary as applicable on the relevant date.  The
      Board’s Compensation and Stock Option Committee (the “Committee”) will
      periodically review your Base Salary followed by a recommendation to the board
      for possible increase, the first
      such review will take place
      in not more than 12 months from the Start Date.

     

    b. Incentive
      Bonuses.  Except as set forth below with respect to the period
      ending on December 31, 2008, you will be eligible to earn an annual incentive
      bonus with an annual target amount equivalent to 50% of your Base Salary
      (“Target Bonus”).  Your right to be paid an annual incentive bonus
      under this Section 3.b. will be based on your continued employment throughout
      each applicable performance period (subject to Section 7) and the satisfaction
      of operating performance metrics and other milestones established by the
      Committee in its sole discretion (but with input from you) with respect to
      such
      period, all subject to final approval by the board.  Such performance
      metrics and milestones will be established no later than 60 days after the
      start
      of the applicable performance period; provided that with respect
      to
      2008, such metrics and milestones will be established on or before September
      30,
      2008.  The actual amount of bonus paid, assuming certification by the
      Committee and subsequently the board that the objectives have been achieved
      and
      the level of such achievement, may be more or less than the Target Bonus
      amount.  Any bonus payable under this Section 3.b. will be payable
      within 60 days following the end of the applicable performance period (provided that you remain employed
      on the last day of the applicable performance period).  With respect
      to 2008, any bonus amount earned and that becomes payable will be pro-rated
      from
      your Start Date through December 31, 2008.

     

    c. Benefits.  The
      Company will provide you with the opportunity to participate in benefits plans
      and programs of the Company, if any, to the extent your position, tenure and
      other qualifications make you eligible to participate, subject to any
      eligibility requirements imposed by such plans.  You will be entitled to reasonable
      vacation time each year based on your reasonable judgment as to an appropriate
      and beneficial amount of vacation time relative to the responsibilities of
      your
      position.  You
      will be expected to use all vacation time in the year earned.  You
      will not accrue any days of vacation time based upon your days of
      service.  You will also be entitled to paid time off for holidays based on the
      Company’s written policies as then in effect.  The Company reserves
      the right to cancel or change the benefit plans and programs it offers to its
      employees at any time.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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        Mr. Ronald J.
          Prentki

        July 2,
          2008

        Page
          3

      

       

          

               d. Indemnification.  Commencing
        as of the Start Date, you will be covered under the Company’s insurance policies
        (the “Policies”) for directors’ and officers’ liability coverage and will be
        provided indemnification to the maximum extent permitted by the Company’s Bylaws
        and Certificate of Incorporation, including becoming a party to the Company’s
        standard indemnification agreement (the “Indemnification
        Agreement”).  Such coverage and indemnification will be on terms no
        less favorable than provided to any other Company senior executive or
        director.  The indemnification and liability insurance shall cover
        events occurring at any time during the period in which you are rendering
        services in any capacity to the Company, even if such claims are brought
        after
        the end of such service period in accordance with the terms of the Policies
        and
        the Indemnification Agreement.  In the event of any claims covered by
        them, you will be entitled to have your costs paid and fees advanced by the
        Company in accordance with the terms of the Policies and the Indemnification
        Agreement.  Provided it can do so on commercially reasonable terms (as
        determined in the sole discretion of the Board), the Company agrees during
        your
        tenure as Chief Executive Officer and, to the extent applicable to you,
        thereafter to maintain at least the level of insurance coverage as is provided
        for under the Policies as of the date of this letter
        agreement.

    

     

    4. Equity
      Awards.

     

    a. Initial
      Stock Option Grant.  Subject to your acceptance of this letter
      and effective upon your Start Date, the Compensation Committee, under
      authorization from the board, will grant you on the Start Date stock options (the
“Options”) to purchase 1,400,000
      shares of the Company’s Common Stock with a per
      share exercise price equal to the closing price of a share of the Company’s
      common stock as reported on the Nasdaq Global Market on your Start
      Date.  The Option shares in each Option will vest and
      become exercisable at the rate of 25% of the total number of Option shares
      on
      the first anniversary of your Start Date and l/48th of the total number of
      Option shares on that same date of each month thereafter until you are
      completely vested.  Vesting will, of course, depend on your continued
      and continuous service relationship with the Company.  The Options may
      at your election be incentive
      stock options equal to the maximum number of shares permissible under the
      Internal Revenue Code of 1986 and the applicable Treasury Regulations (currently
      $100,000 of exercise price vesting in each calendar year) which will be granted
      under the Company’s 2007 Equity Incentive Plan, and will be nonstatutory options
      for the balance of the shares which will be granted under either or both of the
      Company’s 2007 Equity Incentive
      Plan and
      Non-Qualified Stock Plan.  Each Option will
      have a ten-year term (subject to earlier termination in accordance with its
      terms), and will be subject to the terms of the Stock Option Agreement between
      you and the Company (which will incorporate the terms of Section 7.c.(ii) and
      Section 7.c.(iii) below).  Except in the event of a termination of
      your employment for Cause, you will be able to exercise those Option shares
      that
      were vested on your last day of your service to the Company for, in the case
      of
      incentive stock options, three months following such last day, and in the case
      of nonstatutory options, one year following such last day.  In the
      event of a termination for Cause for other than an act cited in Section
      7.b.(i)(g), you will be able to exercise any vested Options within three months
      following such Termination Date;  however, if a termination for Cause
      results from your Inability to Perform Services or your death, any vested
      Options as of the Termination Date may be exercised within one year following
      such Termination Date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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      Mr. Ronald J. Prentki

      July 2, 2008

      Page 4

       

       

    

    b. Subsequent
      Equity Awards.  Subject to the discretion of the Company’s
      Board of Directors and the Committee, you may be eligible to receive additional
      grants of stock options or other equity awards from time to time in the future,
      on such terms and subject to such conditions as the Board shall determine as
      of
      the date of any such award.

     

    5. Pre-employment
      Conditions.

     

    a. Confidentiality
      Agreement.  Your acceptance of this offer and commencement of
      employment with the Company is contingent upon the execution, and delivery
      to an
      officer of the Company, of the Company’s Employee Confidential Information and
      Inventions Agreement a copy of which is attached as Exhibit I for your
      review and execution (the “Confidentiality Agreement”), prior to or on your
      Start Date.

     

    b. Right
      to
      Work.  For purposes of federal immigration law, you will be
      required to provide to the Company documentary evidence of your identity and
      eligibility for employment in the United States.  Such documentation
      must be provided to us on your Start Date or our employment relationship will not become
      effective.

     

    6. No
      Conflicting Obligations.  You understand and agree that by
      accepting this offer of employment, you represent to the Company that your
      performance will not breach any other agreement to which you are a party and
      that you have not, and will not during the term of your employment with the
      Company, enter into any oral or written agreement in conflict with any of the
      material provisions of this letter or the Company’s policies.  You are
      not to bring with you to the Company, or use or disclose to any person
      associated with the Company, any confidential or proprietary information
      belonging to any former employer or other person or entity with respect to
      which
      you owe an obligation of confidentiality under any agreement or
      otherwise.  The Company does not need and will not use such
      information and we will assist you in any way possible to preserve and protect
      the confidentiality of proprietary information belonging to third
      parties.  Also, we expect you to abide by any obligations to refrain
      from soliciting any person employed by or otherwise associated with any former
      employer and suggest that you refrain from having any contact with such persons
      until such time as any non-solicitation obligation expires.

     

    7. Termination
      of
      Employment.

     

    a. At-Will
      Employment.  Subject only to the Company’s obligations
      described in Sections 3.d., 7, 8, and 9, your employment with the Company will
      be on an “at will” basis, meaning that either you or the Company may terminate
      your employment at any time for any reason or no reason without further
      obligation.

     

    b. Termination
      for Cause.  If the Company terminates your employment at any
      time for Cause, your salary shall cease on the date of termination, and you
      will
      not be entitled to any of the severance benefits detailed below other than
      payment of items listed in clauses (i) through (iii) of the second paragraph
      of
      Section 7.c. and such other benefits as expressly required in such event by
      applicable law or the terms of any applicable Company benefit plans

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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      Mr. Ronald J. Prentki

      July 2, 2008

      Page 5

       

       

    

    (i) Definition
      of Cause.  For purposes of this letter agreement, “Cause” shall
      refer to any of the following that are materially injurious to the Company
      and
      shall mean your:  (a) willful material or persistently repeated
      failure to substantially perform your duties and responsibilities
      hereunder, resulting in a timely written warning from the Board citing such
      failure/s (other than a failure resulting from your complete or partial
      incapacity due to physical or mental illness or impairment or disability);
      (b)
      willful act that constitutes gross misconduct; (c) willful breach of a material
      provision of this letter (including the Confidentiality Agreement); (d) material
      or willful violation of a federal or state law or regulation applicable to
      the
      business of the Company; (f)
      your indictment for a felony;
      or
      (g) your commission of
      a
      fraud against the Company or any willful misconduct that brings the reputation
      of the Company into material disrepute. No act or omission
      by you
      will be considered “willful”, unless it is determined that it was committed
      without good faith or without a reasonable belief that the act or omission
      was
      in the best interests of the Company.  Executive’s death or Inability
      to Perform Services (as defined below) shall also constitute Cause for
      termination. The
      foregoing is an exclusive list of the acts or omissions that shall be considered
      “Cause”.  To effect a termination for Cause, preceded by a written
      warning if effected under (a) above, the Board will provide you with a written
      notice of its intent to effect such a termination and the reason therefor and
      will give you 30 days from your receipt of such notice in which to cure any
      act
      or omission giving rise to Cause

     

    (ii) Definition
      of Inability to Perform Services.  For purposes of this
      Agreement, Cause to terminate your employment based on the your inability to
      perform services shall exist if any illness or other incapacity renders the
      you
      physically or mentally unable to perform the essential functions of your
      position, with or without reasonable accommodation, for a period in excess
      of 12
      workweeks in any consecutive 12 month period (“Inability to Perform
      Services”).  A physician selected in good faith by the Board shall
      make a determination of whether you are physically or mentally unable to perform
      the essential functions of your position, with or without reasonable
      accommodation, subject to its review and consideration of all relevant
      information..

     

    c. Termination
      Without Cause - Severance Benefits.  In no way limiting the
      Company’s policy of employment at-will, if your employment terminates in a
      manner that constitutes an Involuntary Termination (as defined below in Section
      7.(iv)), the Company will offer certain severance benefits to you.  As
      a condition to your receipt of such benefits, you are required to comply with
      your continuing obligations to the Company (including the return of any Company
      property), resign from all positions you hold with the Company including
      membership on the Board (unless otherwise requested by the Board), and execute
      the Company’s standard form of release agreement, as attached hereto as Exhibit II, releasing
      any claims you may have against the Company, its agents and
      successors.

     

    Upon
      termination of your employment for any reason (the last day of your employment
      is referred to as your “Termination Date”), you will receive the following
      payments as of the Termination Date:  (i) all unpaid salary, if any, accrued through the
      Termination Date; (ii) any bonuses earned prior to but unpaid as of the
      Termination Date (including any such bonuses covered by Section 3.b.); and
      (iii)
      any unreimbursed business expenses and any unreimbursed relocation
      expenses as specified in Section 9, both substantiated in accordance with
      Company policy.  The amounts under clauses (i) through (iii) in the
      preceding sentence shall be paid to you without the condition of your providing
      the Company with any release of claims.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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      Mr. Ronald J. Prentki

      July 2, 2008

      Page 6

       

       

    

    (i) Payment
      Upon Involuntary Termination.  In the event that you experience
      an Involuntary Termination, you will also be entitled to receive (i) cash
      severance equal to an amount equal to 24 months of your then-current Base Salary
      and (ii) continuance of payment by the Company of its portion of the health
      insurance benefits provided to you immediately prior to your Involuntary
      Termination pursuant to the terms of the Consolidated Omnibus Budget
      Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law for a
      maximum of either 12 months following your Termination Date or until you become
      eligible for health insurance coverage from another source, whichever occurs
      sooner (provided that you must promptly inform the Company, in writing, if
      you
      become eligible for health insurance coverage from another source within 12
      months after the termination)..  Subject to any delay required under
      Section 9 below, the cash severance amount set forth in this Section 7.c.(i)
      shall be paid within 30 days after an Involuntary Termination, subject to the
      Company’s receipt of your effective release of claims referred to
      above.

     

    (ii) Vesting
      Acceleration on Involuntary Termination occurring absent a Change of
      Control.  In addition to the benefits provided in Section
      7.c.(i) above, but only with respect to an Involuntary Termination not covered
      by Section 7.c.(iii) below, you will be entitled to additional vesting of equity
      incentives effective as of your Termination Date such that as of the effective
      date of your Involuntary Termination you will be treated as vested in a number
      of equity incentive shares equal to the total number of equity incentive shares
      that would have vested
in
      accordance with their
      terms in the 12 month
      period following the date of your
      Involuntary Termination
in addition to
      the number of equity incentive shares in which you would
      otherwise be vested in on the date of your Involuntary Termination.

     

    (iii) Change
      of
      Control Acceleration.  In the event:  (i) you
      experience an Involuntary Termination in connection with a Change of Control
      (the Involuntary Termination shall be deemed to be in connection with a Change
      of Control if the Involuntary Termination occurs within 30 days prior to the
      Change of Control or is required by the merger agreement or other instrument
      relating to such Change of Control or is made at the express request of the
      other party to the transaction constituting such Change of Control or within
      one
      year following a Change of Control of the Company), you will 100% vest in all
      of
      the shares subject to your outstanding and unvested equity incentives upon
      the
      effective date of your Involuntary Termination; or (ii) if any of your equity
      incentives are terminating in a Change of Control because the successor entity
      has not agreed to assume or substitute for such equity incentives in connection
      with the transaction, you will immediately vest in all such equity incentives
      for 100% of the shares subject to such equity incentives effective on the date
      on which any such equity incentive is terminating in connection with the
      transaction, as applicable.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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      Mr. Ronald J. Prentki

      July 2, 2008

      Page 7

       

       

    

    As
      used
      herein, a “Change of Control” means the occurrence of any of the following
      events:

     

                            (a) the
      consummation of a merger or consolidation of the Company with any other
      corporation, other than a merger or consolidation which would result in the
      voting securities of the Company outstanding immediately prior thereto
      continuing to represent (either by remaining outstanding or by being converted
      into voting securities of the surviving entity or its parent) at least
      50% of the total voting power represented by the voting securities of the
      Company or such surviving entity or its parent outstanding immediately after
      such merger or consolidation;

     

                            (b) the
      consummation of the sale or disposition of all or substantially all of the
      Company’s assets to any other person or entity (other than to a wholly-owned
      subsidiary); or

        

                            (c) any
      “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
      becomes the “beneficial owner”(as defined in Rule 13d-3 of the Exchange Act),
      directly or indirectly, of securities representing 50% or more of the total
      voting power represented by the Company’s then outstanding voting
      securities

     

    (iv) Definition
      of Involuntary Termination.  For purposes of this letter
      agreement, an Involuntary Termination is any termination of your employment
      with
      the Company or its acquirer or successor, as the case may be, which is
      either:  (i) by the Company (or its acquirer or successor) without
      Cause; (ii) by you for Good Reason; or (iii) the liquidation or
      dissolution of the Company or its ceasing operations other than temporary
      cessation resulting from Acts of God.

     

    (v) Definition
      of Good Reason.  For purposes of this letter agreement, you
      will have “Good Reason” to terminate your employment upon the occurrence of any
      of the following without your express written consent:  (i) a change
      in your responsibilities, titles or offices (including your position as a member
      of the Board), or any removal of you from, or any failure to re-elect you to,
      any of such positions, or causing you or requiring you to report to anyone
      other
      than the Board, which has the effect of materially diminishing your
      responsibility or authority, including without limitation that you are no longer
      the sole chief executive officer of the Company;  (ii) a reduction of
      your Base Salary or Target Bonus;  (iii) a material reduction in the
      level or kind of employee benefits to which you were entitled immediately prior
      to such reduction with the result that your overall benefits package is
      significantly reduced;  (iv) a substantial reduction, without good
      business reasons, of the facilities and perquisites (including office space
      and
      location) available to you immediately prior to such reduction;  (v)
      relocation of your primary place of business for the performance of your duties
      to the Company to a location that is more than 50 miles from the location
      specified in Section l.a.;  (vi) any material breach of a material
      provision of this letter agreement by the Company (including without limitation
      the failure to timely provide you the cash compensation, equity compensation
      and/or employee benefits owed you under this letter agreement);
      or  (vii) any failure or refusal of a successor company to the
      Company’s business to expressly agree in writing to assume the Company’s
      obligations hereunder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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      Mr. Ronald J. Prentki

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      Page 8

       

       

    

    (vi) No
      Obligation of You to Mitigate.  No payment or benefit made to
      you or to be made to you pursuant to this letter agreement shall be subject
      to
      offset, as the  amount of any payment provided for in this
      Section 7 shall not be reduced, offset or subject to recovery by the
      Company by reason of any compensation earned by you as the result of employment
      by another employer after your Termination Date, or by reason of your failure
      to
      seek other employment, or otherwise, except for the possible early termination
      of health insurance benefits as provided in Section 7.c.(i).

     

    8. Section
      409A Tax
      Matters.  In the event that the Company determines that any of your
      severance benefits payments fails to satisfy the distribution requirement of
      Section 409A(a)(2)(A) of the Internal Revenue Code (the “Code”) as a result of
      Section 409A(a)(2)(B)(i) of the Code, the payment of such benefit shall be
      accelerated to the minimum extent necessary so that the benefit is not subject
      to the provisions of Section 409A(a)(1) of the Code;  for these purposes,
      each severance payment is hereby designated as a separate payment and will
      not
      collectively be treated as a single payment. (The payment schedule as revised
      after the application of the preceding sentence shall be referred to as the
      “Revised Payment Schedule.”)  However, in the event the payment of benefits
      pursuant to the Revised Payment Schedule would be subject to Section 409A(a)(1)
      of the Code, the payment of such benefits shall not be paid pursuant to the
      Revised Payment Schedule and instead the payment of such benefits shall be
      delayed to the minimum extent necessary so that such benefits are not subject
      to
      the provisions of Section 409A(a)(1) of the Code. The Board shall attach
      conditions to and/or adjust the amounts paid pursuant to this Section 8 to
      preserve, as closely as possible, the economic consequences that would have
      applied in the absence of this Section 8; provided, however, that no such condition
      and/or adjustment shall result in the payments being subject to Section
      409A(a)(1) of the Code.

     

    9. Relocation
      Reimbursement.  In addition
      to
      other benefits provided to you herein by the Company, the Company will reimburse
      you for the following costs and expenses:

     

    a. up
      to
      $150,000 to cover expenses incurred by you in the sale of your home
      (documented);  covered expenses include realtor commissions, transfer
      taxes, legal fees, title insurance charges, escrow fees and other similar
      expenses directly related to the sale of your home;

     

    b. costs
      of
      moving usual household and personal goods;

     

    c. costs
      of
      moving automobiles (if sold instead of moved, comparable credit extended towards
      costs of additional house-hunting relocation trips);

     

    d. up
      to
      three months of temporary housing;

     

    e. up
      to
      three months storage of moved goods;

     

    f. costs
      of
      a total of four house-hunting/relocation trips for you or your spouse;
      and

     

    g. costs
      of
      final move for you and your spouse.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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      Mr. Ronald J. Prentki

      July 2, 2008

      Page 9

       

       

    

    10. Miscellaneous.

     

    a. Notice.  Notices
      and all other communications contemplated by this letter agreement shall be
      in
      writing and shall be deemed to have been duly given when personally delivered
      or
      when mailed by overnight courier, U.S. registered or certified mail, return
      receipt requested and postage prepaid.  In the case of yourself,
      mailed notices shall be addressed to you at the home address that you most
      recently communicated to the Company in writing.  In the case of the
      Company, mailed notices shall be addressed to its corporate headquarters, and
      all notices shall be directed to the attention of its Chairman of the
      Board.

     

    b. Priority.  Terms
      and definitions specified in this letter agreement shall supersede those
      contained within other supportive agreements, such as stock option plans and
      their standard agreements.

     

    c. Assignment.  This
      letter agreement shall not be assignable by either party and shall be binding
      upon, and shall inure to the benefit of, the heirs, executors, administrators,
      legal representatives, successors and assigns of the parties.  In the
      event that all or substantially all of the business, assets and/or stock of
      the
      Company is sold or transferred, then this letter agreement shall be binding
      on
      the transferee of the business, assets and/or stock.


     

    We
      are
      all delighted to be able to extend you this offer and look forward to working
      with you.  To indicate your acceptance of the Company’s offer, please
      sign and date this letter in the space provided below and return it to me on
      or
      before July 3, 2008,
      along with a signed and
      dated original copy of the Employee Confidential Information and Inventions
      Agreement.  This letter, together with the Employee Confidential
      Information and Inventions Agreement and the agreements expressly referenced
      herein, set forth the terms of your employment with the Company and supersede
      any prior representations or agreements, whether written or
      oral.  This letter will be governed by the laws of California, without
      regard to its conflict of laws provisions.  In the event of any
      conflict in terms between this letter agreement and any other agreement between
      you and the Company (including without limitation the two Attachments and the
      other agreements referenced herein), the terms of this letter agreement shall
      prevail.  This letter agreement may not be modified or amended, except
      by a written agreement, signed by the Chairman of the Board and
      yourself.  No waiver by either party of any breach of, or of
      compliance with, any condition or provision of this letter agreement by the
      other party shall be considered a waiver of any other condition or provision
      or
      of the same condition or provision at another time.

     


    
      
        
           

        

        
        

      

      
        
        

        
          

        

      

      
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    Return to
      10-Q

     

    Mr. Ronald J. Prentki

    July 2, 2008

    Page 10

    
 

    


     

    Very
      truly yours,

    


    A.P.
      PHARMA, INC.

     

    


    


    By:             
/s/
      Paul
      Goddard                                                                  


    Paul
      Goddard, Chairman of the
      Board

     

     

    ACCEPTED
      AND AGREED:

    


    Ronald
      J. Prentki

     

      /s/
      Ronald J.
      Prentki                    Date  July
      3,
      2008                


    Signature

     

    
      Exhibit
        I:                                
Employee Confidential Information and Inventions Agreement

      Exhibit
        II:                                Form
        of Release of Claims