Document:

appas8080708ex41.htm

    
      

    

    Return
      to S-8

    Exhibit 4.1

    
 

    A.P.
      PHARMA, INC.

    NON-QUALIFIED
      STOCK
      PLAN

     

    (as
      amended through July 3, 2008)

     

    
      	
              SECTION
                 1.  

            	
               PURPOSE;
                DEFINITIONS.

            

    

     

    (a) Purpose.  The
      purposes of the Plan are:

     

    (i) to
      provide to certain persons who are not employees of the Company a material
      inducement to become executives of, or consultants to, A.P. Pharma, Inc., a
      Delaware corporation, its subsidiaries or affiliates by providing an opportunity
      to acquire stock in the Company; and

     

    (ii) to
      encourage selected employees, excluding officers and directors, to improve
      operations and increase profits of the Company.

     

    (b) Definitions.  For
      purposes of the Plan, the following terms have the following
      meanings:

     

    (i) “Award”
      means any award under the Plan, including any Option, Restricted Stock or Stock
      Purchase Right Award.

     

    (ii) “Award
      Agreement” means, with respect to each Award, the signed written agreement
      between the Company and the Plan participant setting forth the terms and
      conditions of the Award.

     

    (iii) “Board”
      means the Board of Directors of the Company.

     

    (iv) “Change
      in Control” has the meaning set forth in Section 8(a).

     

    (v)  “Code”
      means the Internal Revenue Code of 1986, as amended from time to time, and
      any
      successor statute.

     

    (vi) “Commission”
      means the Securities and Exchange Commission and any successor
      agency.

     

    (vii) “Committee”
      means the Committee referred to in Section 2, or the Board in its capacity
      as
      administrator of the Plan in accordance with Section 2.

     

    (viii) “Company”
      means A.P. Pharma, Inc., a Delaware corporation.

     

    (ix) “Disability”
      means permanent and total disability as determined by the Committee for purposes
      of the Plan.

     

    (x) “Non-Employee
      Director” has the meaning set forth in Rule 16b-3 under the Exchange Act, and
      any successor definition adopted by the Commission.

     

    (xi) “Exchange
      Act” means the Securities Exchange Act of 1934, as amended from time to time,
      and any successor statute.

     

    (xii) “Fair
      Market Value” means as of any given date (a) if the Stock is listed on any
      established stock exchange or a national market system, the closing sales price
      for the Stock or the closing bid if no sales were reported, as quoted on such
      system or exchange, as reported in the Wall Street Journal; or (b) in the
      absence of an established market for the Stock, the fair market value of the
      Stock as determined by the Committee in good faith.

     

    (xiii) “Non-Qualified
      Stock Option” means an Option that is not an Incentive Stock Option, within the
      meaning of Section 422 of the Code.

     

    (xiv) “Option”
      means an option granted under Section 5.

     

    (xv)  “Plan”
      means this A.P. Pharma, Inc. Non-Qualified Stock Plan, as amended from time
      to
      time.

     

    (xvi) “Restricted
      Stock” means an Award of Stock subject to restrictions, as more fully described
      in Section 6.

     

    (xvii) “Restriction
      Period” means the period determined by the Committee under Section
      6(b).

     

    (xviii) “Rule
      16b-3” means Rule 16b-3 under Section 16(b) of the Exchange Act, as amended from
      time to time, and any successor rule.

     

    (xix) “Stock”
      means the Common Stock of the Company, and any successor security.

     

    (xx) “Stock
      Appreciation Right” means an Award granted under Section 7.

     

    (xxi) “Subsidiary”
      has the meaning set forth in Section 424 of the Code.

     

    (xxii) “Tax
      Date” means the date defined in Section 9(f).

     

    (xxiii) “Termination”
      means, for purposes of the Plan, with respect to a participant, that the
      participant has ceased to be, for any reason, employed by, or a consultant
      to,
      the Company, a subsidiary or an affiliate; provided, that for purposes of this
      definition, unless otherwise determined by the President of the Company, in
      his
      sole discretion, Termination shall not include a change in status from an
      employee of, to a consultant to, the Company or any subsidiary or affiliate,
      or
      vice versa.

     

    
      	
              SECTION
                2.  

            	
               ADMINISTRATION.

            

    

     

    (a) Committee.  The
      Plan shall be administered by the Board or, upon delegation by the Board, by
      a
      committee of Non-Employee Directors appointed by the Board.  In
      connection with the administration of the Plan, the Committee shall have the
      powers possessed by the Board.  The Committee may act only by a
      majority of its members, except that the Committee may from time to time select
      another committee or one or more other persons to be responsible for any matters
      for which Non-Employee Director are not required pursuant to Rule
      16b-3.  The Board at any time may abolish the Committee and revest in
      the Board the administration of the Plan.

     

    (b) Authority.  The
      Committee shall grant Awards only to persons who are not at the time of the
      Award employees of the Company for the purpose of providing a material
      inducement to such persons to become employees of or consultants to the
      Company.  In particular and without limitation, the Committee, subject
      to the terms of the Plan, shall:

     

    (i) select
      the persons to whom Awards may be granted;

     

    (ii) determine
      whether and to what extent Awards are to be granted under the Plan;

     

    (iii) determine
      the number of shares to be covered by each Award granted under the
      Plan;

     

    (iv) determine
      the terms and conditions of any Award granted under the Plan and any related
      loans to be made by the Company, based upon factors determined by the Committee;
      and

     

    (v) determine
      to what extent and under what circumstances any Award payments may be deferred
      by a participant.

     

    (c) Committee
      Determinations
      Binding.  The Committee may adopt, alter and repeal
      administrative rules, guidelines and practices governing the Plan as it from
      time to time shall deem advisable, may interpret the terms and provisions of
      the
      Plan, any Award and any Award Agreement and may otherwise supervise the
      administration of the Plan.  Any determination made by the Committee
      pursuant to the provisions of the Plan with respect to any Award shall be made
      in its sole discretion at the time of the grant of the Award or, unless in
      contravention of any express term of the Plan or Award, at any later
      time.  All decisions made by the Committee under the Plan shall be
      binding on all persons, including the Company and Plan
      participants.

     

    
      	
              SECTION
                3.  

            	
               STOCK
                SUBJECT TO PLAN.

            

    

     

    (a) Number
      of
      Shares.  The total number of shares of Stock reserved and
      available for issuance pursuant to Awards under this Plan shall be 2,062,500
      shares.  Such shares may consist, in whole or in part, of authorized
      and unissued shares or treasury shares or shares reacquired in private
      transactions or open market purchases, but all shares issued under the Plan,
      regardless of source shall be counted against the 2,062,500 share
      limitation.  If any Option terminates or expires without being
      exercised in full or if any shares of Stock subject to an Award are forfeited,
      or if an Award otherwise terminates without issuance in full being made to
      the
      participant in the form of Stock, the shares not issued under such Option or
      Award shall again be available for issuance in connection with
      Awards.  Any Award under this Plan shall be governed by the terms of
      the Plan and any applicable Award Agreement.

     

    (b) Adjustments.  In
      the event of any merger, reorganization, consolidation, recapitalization, stock
      dividend, stock split or other change in corporate structure affecting the
      Stock, such substitution or adjustments shall be made in the aggregate number
      of
      shares of Stock reserved for issuance under the Plan, in the number and exercise
      price of shares subject to outstanding Options, and in the number of shares
      subject to other outstanding Awards, as may be determined to be appropriate
      by
      the Committee, in its sole discretion; provided, however, that the number of
      shares subject to any Award shall always be a whole number.

     

    
      	
              SECTION
                4.  

            	
               ELIGIBILITY.

            

    

     

    Awards
      may be granted only to persons (i) not employed by the Company at the time
      of
      the Award and who the Company wishes to attract as an officer or other employee
      of, or consultant to, the Company, its subsidiaries and affiliates as a material
      inducement to accepting employment or consultancy with the Company or (ii)
      who
      are employees of the Company but are not officers or directors of the Company
      at
      the time of the Award.

     

    
      	
              SECTION
                5.  

            	
               STOCK
                OPTIONS.

            

    

     

    (a) Type.  Any
      Option granted under the Plan shall be in such form as the Committee may from
      time to time approve; provided, that only Non-Qualified Stock Options may be
      granted under the Plan.

     

    (b) Terms
      and
      Conditions.  Options granted under the Plan shall be subject to
      the following terms and conditions:

     

    (i) Option
      Term.  The term of each Option shall be fixed by the Committee,
      but no Option shall be exercisable more than ten (10) years after the date
      the
      Option is granted.

     

    (ii) Grant
      Date.  The Company may grant Options under the Plan at any time
      and from time to time before the Plan terminates.  The Committee shall
      specify the date of grant or, if it fails to, the date of grant shall be the
      date the intended optionee is first treated as an employee or consultant for
      payroll purposes.

     

    (iii) Exercise
      Price.  The exercise price per share of Stock purchasable under
      an Option shall be equal to at least 100% of the Fair Market Value on the date
      of grant.

     

    (iv) Exercisability.  Subject
      to the other provisions of the Plan, an Option shall be exercisable in its
      entirety at grant or at such times and in such amounts as are specified in
      the
      Award Agreement evidencing the Option.  Except to the extent otherwise
      provided in the Award Agreement, in the event of Termination prior to the Option
      being exercisable in full, any such unexercisable portion shall expire as of
      such Termination.  The Committee, in its absolute discretion, at any
      time may waive any limitations respecting the time at which an Option first
      becomes exercisable in whole or in part.

     

    (v) Method
      of Exercise;
      Payment.  To the extent the right to purchase shares has
      accrued, Options may be exercised, in whole or in part, from time to time,
      by
      written notice from the optionee to the Company stating the number of shares
      being purchased, accompanied by payment of the exercise price for the
      shares.

     

    
      	
              SECTION
                6.  

            	
               RESTRICTED
                STOCK.

            

    

     

    (a) Price.  The
      Committee may grant to a participant Restricted Stock.  The grantee
      shall pay the par value per share as consideration therefor.

     

    (b) Restrictions.  Subject
      to the provisions of the Plan and the Award Agreement, during the Restriction
      Period set by the Committee, commencing with and not exceeding ten (10) years
      from the date of such Award, the participant shall not be permitted to sell,
      assign, transfer, pledge or otherwise encumber shares of Restricted
      Stock.  Within these limits, the Committee may provide for the lapse
      of such restrictions in installments and may accelerate or waive such
      restrictions, in whole or in part, based on service, performance or such other
      factors or criteria as the Committee may determine.

     

    (c) Dividends.  Unless
      otherwise determined by the Committee, with respect to dividends on shares
      of
      Restricted Stock, dividends payable in cash shall be automatically reinvested
      in
      additional Restricted Stock, and dividends payable in Stock shall be paid in
      the
      form of Restricted Stock.

     

    (d) Termination.  Except
      to the extent otherwise provided in the Award Agreement and pursuant to Section
      6(b), in the event of a Termination during the Restriction Period, all shares
      still subject to restriction shall be forfeited by the participant.

     

    
      	
              SECTION
                7.  

            	
               STOCK
                APPRECIATION RIGHTS.

            

    

     

    (a) General.  Stock
      Appreciation Rights may be granted either alone, in addition to, or in tandem
      with other Awards granted under the Plan.  The Administrator may grant
      Stock Appreciation Rights to eligible participants subject to terms and
      conditions not inconsistent with this Plan and determined by the
      Administrator.  The specific terms and conditions applicable to the
      participant shall be provided for in the Stock Award Agreement.  Stock
      Appreciation Rights shall be exercisable, in whole or in part, at such times
      as
      the Administrator shall specify in the Stock Award Agreement.

     

    (b) Exercise
      of Stock
      Appreciation Right.  Upon the exercise of a Stock Appreciation
      Right, in whole or in part, the participant shall be entitled to a payment
      in an
      amount equal to the excess of the Fair Market Value on the date of exercise
      of a
      fixed number of shares of Stock covered by the exercised portion of the Stock
      Appreciation Right, over the Fair Market Value on the Grant Date of the Stock
      covered by the exercised portion of the Stock Appreciation Right (or such other
      amount calculated with respect to Stock subject to the Award as the
      Administrator may determine).  The amount due to the participant upon
      the exercise of a Stock Appreciation Right shall be paid in such form of
      consideration as determined by the Administrator and may be in cash, shares
      of
      Stock or a combination thereof, over the period or periods specified in the
      Stock Award Agreement.  A Stock Award Agreement may place limits on
      the amount that may be paid over any specified period or periods upon the
      exercise of a Stock Appreciation Right, on an aggregate basis or as to any
      participant.  A Stock Appreciation Right shall be considered exercised
      when the Company receives written notice of exercise in accordance with the
      terms of the Stock Award Agreement from the person entitled to exercise the
      Stock Appreciation Right.

     

    (c) Nonassignability
      of Stock
      Appreciation Rights.  Except as
      determined by the Administrator, no Stock Appreciation Right shall be assignable
      or otherwise transferable by the participant, except by will or by the laws
      of
      descent and distribution.

     

    
      	
              SECTION
                8.  

            	
               CHANGE
                IN CONTROL.

            

    

     

    (a) Definition
      of “Change in
      Control”.  For purposes of Section 8(b), a “Change in Control”
means the occurrence of any one of the following:

     

    (i) Any
      “person”, as such term is used in Sections 13(d) and 14(d) of the Exchange Act
      (other than the Company, a subsidiary, an affiliate, or a Company employee
      benefit plan, including any trustee of such plan acting as trustee) is or
      becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
      Act), directly or indirectly, of securities of the Company representing 51%
      or
      more of the combined voting power of the Company’s then outstanding securities;
      or

     

    (ii) the
      dissolution or liquidation (partial or total) of the Company or a sale of assets
      involving 51% or more of the assets of the Company, any merger or reorganization
      of the Company, whether or not another entity is the survivor, in a transaction
      pursuant to which the holders, as a group, of all of the shares of the Company
      outstanding prior to the transaction hold, as a group, less than 51% of the
      shares of the Company outstanding after the transaction, or any other event
      which the Board determines, in its discretion, would materially alter the
      structure of the Company or its ownership.

     

    (b) Impact
      of
      Event.  In the event of a “Change in Control” as defined in
      Section 8(a), the Board may, in its discretion, approve of acceleration
      provisions no more favorable to participants than the following shall
      apply:

     

    (i) Any
      Options outstanding as of the date such Change in Control is determined to
      have
      occurred and not then exercisable and vested shall become fully exercisable
      and
      vested; and

     

    (ii) The
      restrictions and limitations applicable to any Restricted Stock and Stock
      Purchase Rights shall lapse, and such Restricted Stock shall become fully
      vested.

     

    
      	
              SECTION
                9.  

            	
               GENERAL
                PROVISIONS.

            

    

     

    (a) Award
      Grants.  Any Award may be granted either alone or in addition
      to other Awards granted under the Plan.  Subject to the terms and
      restrictions set forth elsewhere in the Plan, the Committee shall determine
      the
      consideration, if any, payable by the participant for any Award and, in addition
      to those set forth in the Plan, any other terms and conditions of the
      Awards.  The Committee may condition the grant or payment of any Award
      upon the attainment of specified performance goals or such other factors or
      criteria, including vesting based on continued employment or consulting, as
      the
      Committee shall determine.  Performance objectives may vary from
      participant to participant and among groups of participants and shall be based
      upon such Company, subsidiary, group or division factors or criteria as the
      Committee may deem appropriate, including, but not limited to, earnings per
      share or return on equity.  The other provisions of Awards also need
      not be the same with respect to each recipient.

     

    (b) Award
      Agreement.  As soon as practicable after the date of an Award
      grant, the Company and the participant shall enter into a written Award
      Agreement identifying the date of grant, and specifying the terms and conditions
      of the Award.  Options are not exercisable until after execution of
      the Award agreement by the Company and the Plan participant, but a delay in
      execution of the agreement shall not affect the validity of an Option
      grant.

     

    (c) Certificates.  All
      certificates for shares of Stock or other securities delivered under the Plan
      shall be subject to such stock transfer orders, legends and other restrictions
      as the Committee may deem advisable under the rules, regulations and other
      requirements of the Commission, any market in which the Stock is then traded
      and
      any applicable federal, state or foreign securities law.

     

    (d) Termination.  Unless
      otherwise provided in the applicable Award Agreement or by the Committee, in
      the
      event of Termination for any reason other than death, retirement or Disability,
      Awards held at the date of Termination (and only to the extent then exercisable
      or payable, as the case may be) may be exercised in whole or in part at any
      time
      within three (3) months after the date of Termination, or such lesser period
      specified in the Award Agreement (but in no event after the expiration date
      of
      the Award), but not thereafter.  If Termination is due to retirement
      or to death or Disability, Awards held at the date of Termination (and only
      to
      the extent then exercisable or payable, as the case may be) may be exercised
      in
      whole or in part by the participant in the case of retirement or Disability,
      by
      the participant’s guardian or legal representative or by the person to whom the
      Award is transferred by will or the laws of descent and distribution, at any
      time within two (2) years from the date of Termination or any lesser period
      specified in the Award Agreement (but in no event after the expiration of the
      Award).

     

    (e) Delivery
      of Purchase
      Price.  If and only to the extent authorized by the Committee,
      participants may make all or any portion of any payment due to the
      Company

     

    (i) with
      respect to the consideration payable for an Award,

     

    (ii) upon
      exercise of an Award, or

     

    (iii) with
      respect to federal, state, local or foreign tax payable in connection with
      an
      Award, by delivery of (x) cash, (y) check, or (z) any property other than cash
      (including a promissory note of the participant or shares of Stock or
      securities) so long as, if applicable, such property constitutes valid
      consideration for the Stock under, and otherwise complies with, applicable
      law.  No promissory note under the Plan shall have a term (including
      extensions) of more than five years or shall be of a principal amount exceeding
      90% of the purchase price paid by the borrower.

     

    (f) Tax
      Withholding.  Any shares or other securities so withheld or
      tendered will be valued by the Committee as of the date they are withheld or
      tendered; provided, however, that Stock shall be valued at Fair Market Value
      on
      such date.  The value of the shares withheld or tendered may not
      exceed the required federal, state, local and foreign withholding tax
      obligations as computed by the Company.  Unless the Committee permits
      otherwise, the participant shall pay to the Company in cash, promptly when
      the
      amount of such obligations becomes determinable (the “Tax Date”), all applicable
      federal, state, local and foreign withholding taxes that the Committee in its
      discretion determines to result (i) from the lapse of restrictions imposed
      upon
      an Award, (ii) upon exercise of an Award, or (iii) from a transfer or other
      disposition of shares acquired upon exercise or payment of an Award, or
      otherwise related to the Award or the shares acquired in connection with an
      Award.

     

    A
      participant who has received an Award or payment under an Award may, to the
      extent, if any, authorized by the Committee in its discretion, make an election
      to (x) deliver to the Company a promissory note of the participant on the terms
      set forth in Section 9(e), or (y) tender any such securities to the Company
      to
      pay the amount of tax that the Committee in its discretion determines to be
      required to be withheld by the Company subject to any limitations imposed by
      Section 16(b) of the Exchange Act or other applicable law.

     

    (g) No
      Transferability.  Unless otherwise provided for in the
      applicable Award Agreement or by the Committee, no Award shall be assignable
      or
      otherwise transferable by the participant other than by will or by the laws
      of
      descent and distribution, and during the life of a participant, an Award shall
      be exercisable, and any elections with respect to an Award may be made, only
      by
      the participant or participant’s guardian or legal representative.

     

    (h) Adjustment
      of Awards;
      Waivers.  The Committee may adjust the performance goals and
      measurements applicable to Awards (i) to take into account changes in law and
      accounting and tax rules, (ii) to make such adjustments as the Committee deems
      necessary or appropriate to reflect the inclusion or exclusion of the impact
      of
      extraordinary or unusual items, events or circumstances in order to avoid
      windfalls or hardships, and (iii) to make such adjustments as the Committee
      deems necessary or appropriate to reflect any material changes in business
      conditions.  In the event of hardship or other special circumstances
      of a participant and otherwise in its discretion, the Committee may waive in
      whole or in part any or all restrictions, conditions, vesting, or forfeiture
      with respect to any Award granted to such participant.

     

    (i) Non
      Competition.  The Committee may condition its discretionary
      waiver of a forfeiture, the acceleration of vesting at the time of Termination
      of a participant holding any unexercised or unearned Award, the waiver of
      restrictions on any Award, or the extension of the expiration period to a period
      not longer than that provided by the Plan upon such participant’s agreement (and
      compliance with such agreement) to (i) not engage in any business or activity
      competitive with any business or activity conducted by the Company and (ii)
      be
      available for consultations at the request of the Company’s management, all on
      such terms and conditions (including conditions in addition to clauses (i)
      and
      (ii)) as the Committee may determine.

     

    (j) Dividends.  The
      reinvestment of dividends in additional Stock or Restricted Stock at the time
      of
      any dividend payment pursuant to Section 6(c) shall only be permissible if
      sufficient shares of Stock are available under Section 3 for such reinvestment
      (taking into account then outstanding Awards).

     

    (k) Regulatory
      Compliance.  Each Award under the Plan shall be subject to the
      condition that, if at any time the Committee shall determine that (i) the
      listing, registration or qualification of the shares of Stock upon any
      securities exchange or for trading in any securities market or under any state
      or federal law, (ii) the consent or approval of any government or regulatory
      body or (iii) an agreement by the participant with respect thereto, is necessary
      or desirable, then such Award shall not be consummated in whole or in part
      unless such listing, registration, qualification, consent, approval or agreement
      shall have been effected or obtained free of any conditions not acceptable
      to
      the Committee.

     

    (l) Rights
      as
      Shareholder.  Unless the Plan or the Committee expressly
      specifies otherwise, an optionee shall have no rights as a shareholder with
      respect to any shares covered by an Award until the stock certificates
      representing the shares are actually delivered to the
      optionee.  Subject to Sections 3(b) and 6(c), no adjustment shall be
      made for dividends or other rights for which the record date is prior to the
      date the certificates are delivered.

     

    (m) Beneficiary
      Designation.  The Committee, in its discretion, may establish
      procedures for a participant to designate a beneficiary to whom any amounts
      payable in the event of the participant’s death are to be paid.

     

    (n) Additional
      Plans.  Nothing contained in the Plan shall prevent the
      Company, a subsidiary or an affiliate from adopting other or additional
      compensation arrangements for its employees and consultants.

     

    (o) No
      Employment
      Rights.  The adoption of the Plan shall not confer upon any
      employee any right to continued employment nor shall it interfere in any way
      with the right of the Company, a subsidiary or an affiliate to terminate the
      employment of any employee at any time.

     

    (p) Rule
      16b-3.  Notwithstanding any provision of the Plan, the Plan
      shall always be administered, and Awards shall always be granted and exercised,
      in such a manner as to conform to the provisions of Rule 16b-3.

     

    (q) Governing
      Law.  The Plan and all Awards shall be governed by and
      construed in accordance with the laws of the State of California.

     

    (r) Use
      of
      Proceeds.  All cash proceeds to the Company under the Plan
      shall constitute general funds of the Company.

     

    (s) Unfunded
      Status of
      Plan.  The Plan shall constitute an “unfunded” plan for
      incentive and deferred compensation.  The Committee may authorize the
      creation of trusts or arrangements to meet the obligations created under the
      Plan to deliver Stock or make payments; provided, however, that unless the
      Committee otherwise determines, the existence of such trusts or other
      arrangements shall be consistent with the “unfunded” status of the
      Plan.

     

    (t) Assumption
      by
      Successor.  The obligations of the Company under the Plan and
      under any outstanding Award may be assumed by any successor corporation, which
      for purposes of the Plan shall be included within the meaning of
“Company”.

     

    
      	
              SECTION
                10.  

            	
               AMENDMENTS
                AND TERMINATION.

            

    

     

    The
      Board
      may amend, alter or discontinue the Plan or any Award, but no amendment,
      alteration or discontinuance shall be made which would impair the rights of
      a
      participant under an outstanding Award without the participant’s
      consent.

     

    
      	
              SECTION
                11.  

            	
               EFFECTIVE
                DATE OF PLAN.

            

    

     

    The
      Plan
      shall be effective on the date it is adopted by the Board.

     

    
      	
              SECTION
                12.  

            	
               TERM
                OF PLAN.

            

    

     

    No
      Award
      shall be granted on or after October 24, 2010, but Awards granted prior to
      October 24, 2010 may extend beyond that date.

     

     

     

    Plan
      approved by the Board of Directors on October 24, 2000.appas8080708ex42.htm

     
      
        

      

    

     

    
      Return
        to S-8

    

    
      EXHIBIT
        4.2

    

    A.P.
      pharma, inc.

     

    NON-QUALIFIED
      STOCK PLAN

     

    NONQUALIFIED
      STOCK OPTION AGREEMENT

     

    
      	
              (A)

            	
              Name
                of Optionee:

            	
              Name

            
	
              (B)

            	
              Grant
                Date:

            	
              Grant
                Date

            
	
              (C)

            	
              Number
                of Shares:

            	
              Shares
                Granted

            
	
              (D)

            	
              Exercise
                Price:

            	
              Grant
                Exercise
                Price(FMV)

            
	
              (E)

            	
              Vesting
                Base Date:

            	
              Vest
                Start Date

            
	
              (F) 

            	
              Effective
                Date:

               

            	
              Effective
                Date

            

    

    THIS
      NONQUALIFIED STOCK OPTION AGREEMENT (the “Agreement”),
      is made and entered into as of the date set forth in Item F above (the “Effective
      Date”) between A.P.
      Pharma, Inc., a Delaware corporation (the “Company”)
      and Enter Name (“Optionee”).

     

    THE
      PARTIES AGREE AS FOLLOWS:

     

    1. Grant
      of
      Option.  The Company hereby grants to Optionee pursuant to the
      Company’s Non-Qualified Stock Plan (the “Plan”),
      a
      copy of which is attached to this Agreement as Exhibit 1, a nonqualified stock
      option (the “NQO”)
      to
      purchase all or any part of an aggregate of the number of shares (the “NQO
      Shares”) of the Company’s Common Stock (as defined in the Plan) listed in
      Item C above on the terms and conditions set forth herein and in the Plan,
      the
      terms and conditions of the Plan being hereby incorporated into this Agreement
      by reference.

     

    2. Exercise
      Price.  The exercise price for purchase of each share of Common
      Stock covered by this NQO shall be the price set forth in Item D
      above.

     

    3. Term.  This
      NQO shall expire ten (10) years after the Grant
      Date

     

    4. Adjustment
      of
      NQOs.  The Company shall adjust the number and kind of shares
      and the exercise price thereof in certain circumstances in accordance with
      the
      provisions of Section 3(b) of the Plan.

     

    5. Exercise
      of
      Options.

     

    5.1 Vesting;
      Time of
      Exercise.  This NQO shall be exercisable according to the
      schedule set forth on Exhibit 5.1 attached hereto.  Such schedule
      shall commence as of the date set forth in Item (E) above (the “Vesting
      Base
      Date”).

     

    5.2 Exercise
      After
      Termination of Status as an Employee, Director or
      Consultant.  In the event of termination of Optionee’s
      continuous status as an employee, director or consultant, this NQO may be
      exercised in whole or in part at
      any time within 90 days of the date of such termination (but in no event after
      the expiration date of this NQO pursuant to Section 3), provided, however,
      that
      in the event of death or disability, this NQO may be exercised in accordance
      with the provisions of Section 9(d) of the Plan.

     

    5.3 Manner
      of
      Exercise.  Optionee may exercise this NQO, or any portion of
      this NQO, by giving written notice to the Company at its principal executive
      office, to the attention of the officer of the Company designated by the Plan
      Administrator, accompanied by payment of the exercise price and payment of
      any
      applicable withholding or employment taxes.  The date the Company
      receives written notice of an exercise hereunder accompanied by payment will
      be
      considered as the date this NQO was exercised.

     

    5.4 Payment.  Except
      as provided in Exhibit 5.4 attached hereto, if any (the absence of such exhibit
      indicating that no exhibit was intended), payment may be made for NQO Shares
      purchased at the time written notice of exercise of the NQO is given to the
      Company, by delivery of cash, check or, in the exercise of the absolute
      discretion of the Administrator, previously owned shares of Common Stock
      (including constructive delivery) or a full recourse promissory note equal
      to up
      to 90% of the exercise price and payable over no more than five
      years.  Any applicable taxes must be paid in cash.  The
      proceeds of any payment shall constitute general funds of the
      Company.

     

    5.5 Delivery
      of
      Certificate.  Promptly after receipt of payment and written
      notice of exercise of the NQO, the Company shall, without stock issue or
      transfer taxes to the Optionee or other person entitled to exercise, deliver
      to
      the Optionee or other person a certificate or certificates for the requisite
      number of NQO Shares or shall register the Optionee as a shareholder on the
      books of the Company.  An Optionee or transferee of an Optionee shall
      not have any privileges as a shareholder with respect to any NQO Shares covered
      by the option until the date of issuance of a stock certificate or, if
      applicable, such registration.

     

    6. Nonassignability
      of NQO.  This NQO is not assignable or transferable by Optionee
      except by will or by the laws of descent and distribution.  During the
      life of Optionee, the NQO is exercisable only by the Optionee.  Any
      attempt to assign, pledge, transfer, hypothecate or otherwise dispose of this
      NQO in a manner not herein permitted, and any levy of execution, attachment,
      or
      similar process on this NQO, shall be null and void.

     

    7. Company’s
      Right
      of Repurchase Upon Termination of Employment.  The NQO Shares
      arising from exercise of this NQO shall be subject to a right of repurchase
      in
      favor of the Company (the “Right
      of
      Repurchase”) to
      the extent set forth on Exhibit 7 attached hereto (the absence of such exhibit
      indicating that no such exhibit was intended and that the NQO shall be subject
      only to the limitations set forth on Exhibit 5.1).

     

    8. Restriction
      on
      Transfer.  Regardless whether the sale of the NQO Shares has
      been registered under the Securities Act or has been registered or qualified
      under the securities laws of any state, the Company may impose restrictions
      upon
      the sale, pledge, or other transfer of NQO Shares (including the placement
      of
      appropriate legends on stock certificates) if, in the judgment of the Company
      and the Company’s counsel, such restrictions are necessary or desirable in order
      to achieve compliance with the provisions of the Securities Act, the securities
      laws of any state, or any other law, or if the Company does not desire to have
      a
      trading market develop for its securities.

     

    9. Tax
      Advice.  The Company has made no warranties or representations
      to Purchaser with respect to the income tax consequences of the transactions
      contemplated by the agreement pursuant to which the NQO Shares will be purchased
      and Purchaser is in no manner relying on the Company or its representatives
      for
      an assessment of such tax consequences.

     

    10. Assignment;
      Binding Effect.  Subject to the limitations set forth in this
      Agreement, this Agreement shall be binding upon and inure to the benefit of
      the
      executors, administrators, heirs, legal representatives, and successors of
      the
      parties hereto; provided, however, that Optionee may not assign any of
      Optionee’s rights under this Agreement.

     

    11. Damages.  Optionee
      shall be liable to the Company for all costs and damages, including incidental
      and consequential damages, resulting from a disposition of NQO Shares which
      is
      not in conformity with the provisions of this Agreement.

     

    12. Governing
      Law.  This Agreement shall be governed by, and construed in
      accordance with, the laws of the State of California excluding those laws that
      direct the application of the laws of another jurisdiction.

     

    13. Notices.  All
      notices and other communications under this Agreement shall be in
      writing.  Unless and until the Optionee is notified in writing to the
      contrary, all notices, communications, and documents directed to the Company
      and
      related to the Agreement, if not delivered by hand, shall be mailed, addressed
      as follows:

     

    
      
        

      

    A.P.
      Pharma, Inc.

     

    123
      Saginaw Drive

     

    Redwood
      City, CA 94063

     

    Attention:  President

     

    Unless
      and until the Company is notified in writing to the contrary, all notices,
      communications, and documents intended for the Optionee and related to this
      Agreement, if not delivered by hand, shall be mailed to Optionee’s last known
      address as shown on the Company’s books.  Notices and communications
      shall be mailed by first class mail, postage prepaid; documents shall be mailed
      by registered mail, return receipt requested, postage prepaid.  All
      mailings and deliveries related to this Agreement shall be deemed received
      when
      actually received, if by hand delivery, and two business days after mailing,
      if
      by mail.

     

    14. Arbitration.  Any
      and all disputes or controversies arising out of this Agreement shall be finally
      settled by arbitration conducted in California in accordance with the then
      existing rules of the American Arbitration Association, and judgment upon the
      award rendered by the arbitrators may be entered in any court having
      jurisdiction thereof; provided that nothing in this Section 14 shall prevent
      a
      party from applying to a court of competent jurisdiction to obtain temporary
      relief pending resolution of the dispute through arbitration.  The
      parties hereby agree that service of any notices in the course of such
      arbitration at their respective addresses as provided for in Section 13 shall
      be
      valid and sufficient.

     

    15. Entire
      Agreement.  Company and Optionee agree that this Agreement
      (including its attached Exhibits) is the complete and exclusive statement
      between Company and Optionee regarding its subject matter and supersedes all
      prior proposals, communications, and agreements of the parties, whether oral
      or
      written, regarding the grant of stock options or issuances of shares to
      Optionee.

     

    IN
      WITNESS WHEREOF, the parties have executed this Nonqualified Stock Option
      Agreement as of the Effective Date.

     

    A.P.
      Pharma, Inc.

     

    

     

    

    By:   Gregory
      Turnbull

    Title: Chief
      Financial Officer

     

    

     

    The
      Optionee hereby accepts and agrees to be bound by all of the terms and
      conditions of this Agreement and the Plan.

     

    

     

    

     

    Name

     

    

     

    Optionee’s
      spouse indicates by the execution of this Nonqualified Stock Option Agreement
      his or her consent to be bound by the terms thereof as to his or her interests,
      whether as community property or otherwise, if any, in the option granted
      hereunder, and in any NQO Shares purchased pursuant to this
      Agreement.

     

    

     

    

     

    Optionee’s
      Spouse

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        

      

    EXHIBITS

     

    
      	
              
              

              Exhibit
                1

            	
              
              

              Non-Qualified
                Stock Plan

            
	
              
              

              Exhibit
                5.1

            	
              
              

              Time
                of Exercise

            
	
              
              

              Exhibit
                5.4

                (if
                applicable)

            	
              
              

              Payment
                (not applicable)

            
	
              
              

              Exhibit
                7

                (if
                applicable)

            	
              
              

              Right
                of Repurchase (not applicable)

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        

      

    EXHIBIT
      1 OF THE NONQUALIFIED STOCK

     

    OPTION
      AGREEMENT

     

    NON-QUALIFIED
      STOCK PLAN

     

    See
      Exhibit
      4.1

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        

      

    EXHIBIT
      5.1 OF THE NONQUALIFIED STOCK

     

    OPTION
      AGREEMENT

     

    The
      NQO
      shall be exercisable with respect to 25% of the total number of NQO Shares
      one
      year after the Vesting Base Date and with respect to an additional 1/48 of
      the
      total number of NQO Shares on the monthly anniversary of the Vesting Base Date
      of each month thereafter, so that the NQO shall be exercisable with respect
      to
      all of the NQO Shares on and after four years after the Vesting Base
      Date.

     

    Executed
      by:                                                                           
A.P.
      Pharma, Inc.

     

     

    
                            ______________________

    By:   Gregory
      Turnbull

    

    Title: Chief
      Financial Officer

     

    

     

    

     

    

                                ______________________

    Name

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