Document:

appa10q307ex1015.htm

    Exhibit
      10.15

    

    A.P.
      PHARMA, INC.

     

    MANAGEMENT
      RETENTION AGREEMENT

     

    This
      Management Retention Agreement (the “Agreement”) is dated as of November
      8, 2007, by and between Dr. John Barr (“Employee”) and A.P. Pharma, Inc.,
      a Delaware corporation (the “Company”).  This Agreement is
      intended to provide Employee with certain benefits described herein upon the
      occurrence of specific events and supercedes an earlier Change of Control
      Agreement dated March 23, 2005 between the Company and Employee.

     

    RECITALS

     

    A.           The
      Company’s Board of Directors believes it is in the best interests of the Company
      and its shareholders to retain Employee and provide incentives to Employee
      to
      continue in the service of the Company.

    

    B.           The
      Board of Directors further believes that it is imperative to provide Employee
      with certain benefits upon certain termination of Employee’s employment in
      connection with an Involuntary Termination or with a Change of Control, which
      benefits are intended to provide Employee with financial security and provide
      sufficient income and encouragement to Employee to remain with the Company,
      notwithstanding the possibility of a Change of Control.

    

    D.           To
      accomplish the foregoing objectives, the Board of Directors has directed the
      Company, upon execution of this Agreement by Employee, to agree to the terms
      provided in this Agreement.

    

    It
      is therefore agreed as
      follows

     

    1.           At-Will
      Employment.  The Company and Employee acknowledge that
      Employee’s employment is and shall continue to be at-will, as defined under
      applicable law, and that Employee’s employment with the Company may be
      terminated by either party at any time for any or no reason.  If
      Employee’s employment terminates for any reason, Employee shall not be entitled
      to any payments, benefits, damages, award or compensation other than as provided
      in this Agreement or otherwise agreed to by the Company.  The terms of
      this Agreement shall terminate upon the earliest of:  (i) the date on
      which Employee ceases to be employed as a corporate officer of the Company,
      other than as a result of an Involuntary Termination; (ii) the date that
      all obligations of the parties hereunder have been satisfied.  A
      termination of the terms of this Agreement pursuant to the preceding sentence
      shall be effective for all purposes, except that such termination shall not
      affect the payment or provision of compensation or benefits on account of a
      termination of employment occurring prior to the termination of the terms of
      this Agreement.  The rights and duties created by this Section 1 are
      contingent upon the Employee’s release of claims against the Company (at the
      time of termination in a form reasonably satisfactory to the Company) and may
      not be modified in any way except by a written agreement executed by an officer
      of the Company upon direction from the Board of Directors.

     

        2.           Benefits Upon
      Termination of Employment.

     

    (a)           Severance.  In
      the event that Employee suffers an Involuntary Termination at any
      time  Employee will be entitled to receive severance benefits as
      follows:  (i) severance payments during the period from the date of
      Employee’s termination until the date twelve months after the effective date of
      the termination (the “Severance Period”) equal to the base salary which
      Employee was receiving immediately prior to the Involuntary Termination together
      with (ii) the average bonus paid by the Company to the Employee for services
      during each of the three 12- month periods prior to Involuntary Termination
      date, which payments shall be paid during the Severance Period in accordance
      with the Company’s standard payroll practices; and (iii) continuation of payment
      by the Company of its portion of the health insurance benefits provided to
      Employee immediately prior to the Involuntary Termination pursuant to the terms
      of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
      (“COBRA”) or other applicable law through the earlier of the end of the
      Severance Period or the date upon which Employee is no longer eligible for
      such
      COBRA or other benefits under applicable law.

     

    (b)           Treatment
      of Stock Options Upon Involuntary Termination.  In the
      event that Employee suffers an Involuntary Termination under circumstances
      other
      than as covered in paragraph 2(c) below, the Employee’s unvested Company stock
      options shall continue to vest for the 12 month Severance Period following
      the
      Involuntary Termination date in accordance with the provisions of the option
      agreement and plan pursuant to which such option was granted.

     

    (c)           Treatment
      of Stock Options Upon a Change of Control.  In the event
      that Employee suffers an Involuntary Termination in connection with or within
      twelve months following the effective date of a Change of Control, 100% of
      Employee’s unvested Company stock options shall become immediately vested on
      such termination date.  Except for the accelerated vesting provided by
      this paragraph 2(c), each such option shall be exercisable in accordance with
      the provisions of the option agreement and plan pursuant to which such option
      was granted.

     

    (d)           Lapse of
      Restrictions on Restricted Stock Upon Involuntary
      Termination.  In the event that Employee suffers an
      Involuntary Termination under circumstances other than in connection with or
      within twelve months following the effective date of a Change of Control,
      relinquishment of all forfeiture and transfer restrictions on stock previously
      awarded to the Employee will continue, solely for the duration of the twelve
      month Severance Period, in accordance with the provisions of the restricted
      stock agreement relating to such restricted stock.

     

    (e)           Lapse
      of Restrictions on Restricted Stock Upon a
      Change of Control.  Upon a Change of Control all
      forfeiture and transfer restrictions on shares of restricted stock
      previously  awarded to Employee shall lapse in their
      entirety.

     

    (f)           Termination
      for Cause.  Notwithstanding any other provision of this
      Agreement, if Employee’s employment is terminated for Cause at any time, then
      Employee shall not be entitled to receive payment of any severance benefits
      or
      any continuation or acceleration of stock option vesting or relinquishment
      of
      forfeiture and transfer restrictions on restricted stock
      awards.  Employee will receive payment(s) for all salary, bonuses and
      unpaid vacation accrued as of the date of Employee’s termination of
      employment.

     

    (g)           Voluntary
      Resignation.  If Employee voluntarily resigns from the
      Company under circumstances which do not constitute an Involuntary Termination,
      then Employee shall not be entitled to receive payment of any severance
      benefits, or option acceleration, or relinquishment of forfeiture and transfer
      restrictions.  Employee will receive payment(s) for all salary,
      bonuses and unpaid vacation accrued as of the date of Employee’s termination of
      employment.

     

    3.           Definition
      of Terms.  The following terms referred to in this Agreement
      shall have the following meanings:

    

    (a)           “Cause”
      means any of the following:  (i)  Employee’s theft,
      dishonesty, willful misconduct, breach of fiduciary duty for personal profit,
      or
      falsification of any Company or Affiliate documents or records;
      (ii)  Employee’s material failure to abide by a Company’s or
      Affiliate’s code of conduct or other policies (including without limitation,
      policies relating to confidentiality and reasonable workplace conduct);
      (iii)  Employee’s unauthorized use, misappropriation, destruction or
      diversion of any tangible or intangible asset or corporate opportunity of the
      Company or an Affiliate (including, without limitation,  Employee’s
      improper use or disclosure of confidential or proprietary information);
      (iv) any intentional act by  Employee which has a material
      detrimental effect on the Company or an Affiliate’s reputation or business;
      (v)  Employee’s repeated failure or inability to perform any reasonable
      assigned duties after written notice from the Company or an
      Affiliate  (including, without limitation, habitual absence from work
      for reasons other than illness), and a reasonable opportunity to cure, such
      failure or inability; (vi) any material breach by  Employee of
      any employment or service agreement between  Employee and the Company
      or an Affiliate, which breach is not cured pursuant to the terms of such
      agreement; or (vii)  Employee’s conviction (including any plea of
      guilty or nolo contendere) of any criminal act involving fraud, dishonesty,
      misappropriation or moral turpitude, or which impairs  Employee’s
      ability to perform his or her duties with the Company or an
      Affiliate.

     

    (b)           “Change
      in Control” means the occurrence of any of the following:

     

    (i)  an
      Ownership Change Event or a series of related Ownership Change Events
      (collectively, a “Transaction”) in which the stockholders of
      the Company immediately before the Transaction do not retain immediately after
      the Transaction, in substantially the same proportions as their ownership of
      shares of the Company’s voting stock immediately before the Transaction, direct
      or indirect beneficial ownership of more than fifty percent (50%) of the total
      combined voting power of the outstanding voting securities of the Company or
      such surviving entity immediately outstanding after the Transaction, or, in
      the
      case of an Ownership Change Event the entity to which the assets of the Company
      were transferred (the “Transferee”), as the case may be;
      or

     

    (ii)  the
      liquidation or dissolution of the Company.

     

    For
      purposes of the preceding sentence, indirect beneficial ownership shall include,
      without limitation, an interest resulting from ownership of the voting
      securities of one or more corporations or other business entities which own
      the
      Company or the Transferee, as the case may be, either directly or through one
      or
      more subsidiary corporations or other business entities.  The Board
      shall have the right to determine whether multiple sales or exchanges of the
      voting securities in the Company or multiple Ownership Change Events are
      related, and its determination shall be final, binding and
      conclusive.  The Board may also, but need not, specify that other
      transactions or events constitute a Change in Control.

     

    (c)           “Involuntary
      Termination” shall include any termination by the
      Company other than for Cause and Employee’s voluntary termination within sixty
      days following the occurrence of any of the following events without Employee’s
      written consent:  (i) a material reduction or change in job duties,
      responsibilities and requirements inconsistent with Employee’s position with the
      Company and Employee’s prior duties, responsibilities and requirements or a
      change in Employee’s reporting relationship; (ii) a material reduction of
      Employee’s base compensation (other than in connection with a general decrease
      in base salaries for most officers of the successor corporation); or (iii)
      Employee’s refusal to relocate to a facility or location more than forty miles
      from the Company’s current location, provided that Employee will not resign due
      to such change, reduction or relocation without first providing the Company
      with
      written notice of the event or events constituting the grounds for his voluntary
      resignation within thirty days of the initial existence of such grounds and
      a
      reasonable cure period of not less than thirty days following the date of such
      notice.

    

    (d)           “Ownership
      Change Event” means the occurrence of any of the following with respect
      to the Company:  (i) the direct or indirect sale or exchange in a
      single or series of related transactions by the stockholders of the Company
      of
      more than fifty percent (50%) of the voting stock of the Company; (ii) a merger
      or consolidation in which the Company is a party; or (iii) the sale,
      exchange, or transfer of all or substantially all of the assets of the
      Company.

     

        4.           Limitation
      and Conditions on Payments.

     

    (a)           Parachute
      Payments.  In the event that the severance and other
      benefits provided for in this Agreement to the
      Employee:  (i) constitute “parachute payments” within the meaning
      of Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”); and (ii) but for this Section, would be subject to the
      excise tax imposed by Section 4999 of the Code, then the Employee’s
      severance benefits under Sections 2(a) and 2(b) shall be payable
      either:

    

    (i)  in
      full; or

     

    (ii)  as
      to such lesser amount which would result in no portion of such severance
      benefits being subject to excise tax under Section 4999 of the Code,
      whichever of the foregoing amounts, taking into account the applicable federal,
      state and local income taxes and the excise tax imposed by Section 4999,
      results in the receipt by the Employee on an after-tax basis, of the greatest
      amount of severance benefits under Section 2(a) and 2(b), notwithstanding that
      all or some portion of such severance benefits may be taxable under
      Section 4999 of the Code.  Unless the Company and the Employee
      otherwise agree in writing, any determination required under this Section 4
      shall be made in writing by independent public accountants selected by the
      Company (the “Accountants”), whose determination shall be conclusive and
      binding upon the Employee and the Company for all purposes.  For
      purposes of making the calculations required by this Section 4, the
      Accountants may make reasonable assumptions and approximations concerning
      applicable taxes and may rely on reasonable, good faith interpretations
      concerning the application of Section 280G and 4999 of the
      Code.  The Company and the Employee shall furnish to the Accountants
      such information and documents as the Accountants may reasonably request in
      order to make a determination under this Section.  The Company shall
      bear all costs the Accountants may reasonably incur in connection with any
      calculations contemplated by this Section 4.

     

    (b)           Release
      Prior to Receipt of Benefits.  Prior to the receipt of
      any benefits under this Agreement, Employee shall execute a release of claims
      agreement (the “Release”) in the form provided by the
      Company.  Such Release shall specifically relate to all of Employee’s
      rights and claims in existence at the time of such execution and shall confirm
      Employee’s obligations under the Company’s standard form of proprietary
      information agreement.

     

    5.           Section
      409A.  Notwithstanding any provision of this Agreement to
      the contrary, if, at the time of Employee’s termination of employment with the
      Company, Employee is a “specified employee” (as defined in Section 409A of the
      Code) and the deferral of the commencement of any severance payments or benefits
      otherwise payable pursuant to this Agreement as a result of such termination
      of
      employment is necessary in order to prevent any accelerated income recognition
      or additional tax under Section 409A of the Code, then the Company will not
      commence any payment of any such severance payments or benefits otherwise
      required hereunder (but without any reduction in such payments or benefits
      ultimately paid or provided to Employee) that (a) will not and may not under
      any
      circumstances, regardless of when such termination occurs, be paid in full
      by
      March 15 of the year following Employee’s termination of employment, and
      (b) are in excess of the lesser of (i) two times Employee’s then annual
      compensation or (ii) two times the limit on compensation then set forth in
      Section 401(a)(17) of the Code and will not be paid by the end of the second
      calendar year following the year in which the termination occurs, until
the first payroll date that occurs after the date that is six months
      following Employee’s “separation of service” with the Company (as defined under
      Code Section 409A).  If any payments are delayed due to such
      requirements, such amounts will be paid in a lump sum to Employee on the
      earliest of (x) the Employee’s death following the date of Employee’s
      termination of employment with the Company or (y) the first payroll date that
      occurs after the date that is six months following Employee’s “separation of
      service” with the Company.  For these purposes, each severance payment
      or benefit is designated as a separate payment or benefit and will not
      collectively be treated as a single payment or benefit.  This
      paragraph is intended to comply with the requirements of Section 409A of the
      Code so that none of the severance payments and benefits to be provided
      hereunder will be subject to the additional tax imposed under Section 409A
      of
      the Code and any ambiguities herein will be interpreted to so
      comply.  Employee and the Company agree to work together in good faith
      to consider amendments to this Agreement and to take such reasonable actions
      which are necessary, appropriate or desirable to avoid imposition of any
      additional tax or income recognition prior to actual payment to Employee under
      Section 409A of the Code.  Notwithstanding anything to the contrary
      contained herein, to the extent that any amendment to this Agreement with
      respect to the payment of any severance payments or benefits would constitute
      under Code Section 409A a delay in a payment or a change in the form of payment,
      then such amendment must be done in a manner that complies with Code Section
      409A(a)(4)(C).

     

    6.           Conflicts.  Employee
      represents that Employee’s performance of all the terms of this Agreement will
      not breach any other agreement to which Employee is a party.  Employee
      has not, and will not during the term of this Agreement, enter into any oral
      or
      written agreement in conflict with any of the provisions of this
      Agreement.  Employee further represents that Employee is entering into
      or has entered into an employment relationship with the Company of Employee’s
      own free will and that Employee has not been solicited as an employee in any
      way
      by the Company.

     

    7.           Successors.  Any
      successor to the Company (whether direct or indirect and whether by purchase,
      lease, merger, consolidation, liquidation or otherwise) to all or substantially
      all of the Company’s business and/or assets shall assume the obligations under
      this Agreement and agree expressly to perform the obligations under this
      Agreement in the same manner and to the same extent as the Company would be
      required to perform such obligations in the absence of a
      succession.  The terms of this Agreement and all of Employee’s rights
      hereunder and thereunder shall inure to the benefit of, and be enforceable
      by,
      Employee’s personal or legal representatives, executors, administrators,
      successors, heirs, distributees, devisees and legatees.

     

    8.           Notice.  Notices
      and all other communications contemplated by this Agreement shall be in writing
      and shall be deemed to have been duly given when personally delivered or when
      mailed by U.S. registered or certified mail, return receipt requested and
      postage prepaid.  Mailed notices to Employee shall be addressed to
      Employee at the home address which Employee 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 Secretary.

    

    9.           Miscellaneous
      Provisions.

    

    (a)           No
      Duty to Mitigate.  Employee shall not be required to
      mitigate the amount of any payment contemplated by this Agreement (whether
      by
      seeking new employment or in any other manner), nor shall any such payment
      be
      reduced by any earnings that Employee may receive from any other
      source.

    

    (b)           Waiver.  No
      provision of this Agreement shall be modified, waived or discharged unless
      the
      modification, waiver or discharge is agreed to in writing and signed by Employee
      and by an authorized officer of the Company (other than Employee).  No
      waiver by either party of any breach of, or of compliance with, any condition
      or
      provision of this 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.

    

    (c)           Whole
      Agreement.  No agreements, representations or
      understandings (whether oral or written and whether express or implied) which
      are not expressly set forth in this Agreement have been made or entered into
      by
      either party with respect to the subject matter hereof.  This
      Agreement supersedes any agreement of the same title and concerning similar
      subject matter dated prior to the Effective Date, and by execution of this
      Agreement both parties agree that any such predecessor agreement shall be deemed
      null and void.

    

    (d)           Choice
      of Law.  The validity, interpretation, construction and
      performance of this Agreement shall be governed by the laws of the State of
      California without reference to conflict of laws provisions.

    

    (e)           Severability.  If
      any term or provision of this Agreement or the application thereof to any
      circumstance shall, in any jurisdiction and to any extent, be invalid or
      unenforceable, such term or provision shall be ineffective as to such
      jurisdiction to the extent of such invalidity or unenforceability without
      invalidating or rendering unenforceable the remaining terms and provisions
      of
      this Agreement or the application of such terms and provisions to circumstances
      other than those as to which it is held invalid or unenforceable, and a suitable
      and equitable term or provision shall be substituted therefore to carry out,
      insofar as may be valid and enforceable, the intent and purpose of the invalid
      or unenforceable term or provision.

    

    (f)           Arbitration.  Any
      dispute or controversy arising under or in connection with this Agreement may
      be
      settled at the option of either party by binding arbitration in the County
      of
      San Mateo, California, in accordance with the rules of the American Arbitration
      Association then in effect.  Judgment may be entered on the
      arbitrator’s award in any court having jurisdiction.  Punitive damages
      shall not be awarded.

    

    (g)           Legal
      Fees and Expenses.  The parties shall each bear their own
      expenses, legal fees and other fees incurred in connection with this
      Agreement.

    

    (h)           No
      Assignment of Benefits.  The rights of any person to
      payments or benefits under this Agreement shall not be made subject to option
      or
      assignment, either by voluntary or involuntary assignment or by operation of
      law, including (without limitation) bankruptcy, garnishment, attachment or
      other
      creditor’s process, and any action in violation of this Section 8(h) shall be
      void.

    

    (i)           Employment
      Taxes.  All payments made pursuant to this Agreement will
      be subject to withholding of applicable income and employment
      taxes.

    

    (j)           Assignment
      by Company.  The Company may assign its rights under this
      Agreement to an affiliate, and an affiliate may assign its rights under this
      Agreement to another affiliate of the Company or to the Company.  In
      the case of any such assignment, the term “Company” when used in a section of
      this Agreement shall mean the corporation that actually employs the
      Employee.

    

    (k)  
Counterparts.  This
      Agreement may be executed in counterparts, each of which shall be deemed an
      original, but all of which together will constitute one and the same
      instrument.

    

    (l)   Renewal.  This
      Agreement shall remain in effect until December 31, 2008 and shall be
      automatically renewed for additional one year periods unless not later than
      three months prior to December 31st of any
      year either
      party gives written notice to the other party of the intention to terminate
      the
      Agreement effective December 31st of that
      year.

    

    The
      parties have executed this Agreement on the date first written
      above.

    

    A.P.
      PHARMA, INC.

     

    By:                                                                

    Name:                                                                

    Title:                                                                

    

    

    EMPLOYEE

     

    Signature:                                                                

    Dr.
      John
      Barr

                                    Address:appa10q307ex1016.htm

    Exhibit
      10.16

    

    AMENDMENTS
      TO ADVANCED POLYMER SYSTEMS, INC.

     

    NON-QUALIFIED
      STOCK PLAN

     

    The
      Advanced Polymer Systems, Inc., Non-Qualified Stock Plan (the “Plan”) is hereby
      amended as follows:

     

    (i)           Section
      2(b) is hereby amended by deleting therefrom “or (ii) are employees, but not
      officers and directors of the Company”.

     

    (ii)           Section
      3 is hereby amended by confirming the provision by the Company’s Board of
      Directors that the total number of shares of the Company’s Common Stock reserved
      and available for issuance pursuant to awards under the Plan shall be 1,062,500
      shares.

     

    (iii)           Section
      5(b)(iii) is hereby amended by changing 85% to 100%.

     

    (iv)           Section
      7 is hereby deleted in its entirety and there is substituted for it a new
      Section 7 as follows:

     

    “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.”

     

    (v)           Section
      1(xx) is hereby amended by changing “Stock Purchase Right” to “Stock
      Appreciation Right”.

     

    IN
      WITNESS WHEREOF, pursuant to authority granted by the Board of Directors of
      Advanced Polymer Systems, Inc., the Compensation and Stock Option Committee
      hereby adopts the above amendments on November 12, 2007.

     

    ADVANCED
      POLYMER SYSTEMS, INC.

     

    Compensation
      and Stock Option Committee

     

     

    By:

    Toby
      Rosenblatt,
      Chairman

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