SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
May
29, 2007
Date
of Report
(Date
of earliest event reported)
A.P.
PHARMA, INC.
(Exact
name of Registrant as specified in its charter)
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Delaware
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000-33221
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94-2875566
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(State
or other jurisdiction of
incorporation
or organization)
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(Commission
File Number)
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(I.R.S.
Employer
Identification
No.)
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123
Saginaw Drive
Redwood
City, California 94063
(Address
of principal executive offices) (Zip code)
(650)
366-2626
(Registrant’s
telephone number, including area code)
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR
240.13e-4(c))
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Item
5.02. Departure of Directors or Principal Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers
As
previously announced, on October 9, 2006, Michael O'Connell began a temporary
leave of absence for medical reasons as the President and Chief Executive
Officer of A.P. Pharma, Inc. (the "Company"). Effective that same
date, the Company's Board of Directors appointed Gregory Turnbull, formerly
an
independent director of the Company, to serve as President and Chief Executive
Officer.
On
May
29, 2007, Mr. O’Connell returned from his leave of absence to serve as the
Company’s Chief Operating Officer. Effective June 1, 2007, Mr.
O’Connell will assume additional responsibility as the Company’s Chief Financial
Officer (principal financial officer and principal accounting
officer). On June 1, 2007, Mr. Whiteford, current Vice President,
Finance and Chief Financial Officer, will complete his interim service to
the
Company. Prior to his leave of absence, Mr. O’Connell had served as
the Company’s President and Chief Executive Officer and as a member of the Board
of Directors since August 2000. Mr. Turnbull will continue to serve
as the Company’s President and Chief Executive Officer.
In
connection with his employment as the Company’s Chief Operating Officer and
Chief Financial Officer, Mr. O’Connell will receive annual base salary of
$285,000 and he will be eligible to receive an annual bonus of up to 35%
of his
base salary. The Company and Mr. O’Connell have not entered into a
written agreement setting forth the terms of Mr. O’Connell’s employment as the
Chief Operating Officer and Chief Financial Officer; however, the Company
and
Mr. O’Connell have amended Mr. O’Connell’s March 23, 2005 amended and restated
retention and non-competition agreement to conform with the newly-promulgated
technical provisions of the Treasury Regulations under Section 409A of the
Internal Revenue Code.
Item
9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit
99.1 May 25, 2007 amendment to Amended and Restated Retention and
Non-Competition Agreement between A.P. Pharma, Inc. and Michael P.J.
O’Connell.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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A.P.
PHARMA, INC.
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Date:
May 30, 2007
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By:
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/s/
Gregory Turnbull
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Name:
Gregory Turnbull
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Title: President
and Chief Executive Officer
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AMENDED
AND RESTATED
RETENTION
AND NON-COMPETITION AGREEMENT
A.P.
Pharma, Inc. (the “Company”), and Michael P.J. O’Connell (“Executive”) entered
into a Retention and Non-Competition Agreement (the “Retention Agreement”),
effective the 23rd day of March, 2005 (the “Effective Date”) in full
substitution for the Retention and Non-Competition Agreement originally entered
into between the parties effective May 12, 1999 and amended in its entirety
effective August 1, 2000. The Retention Agreement is hereby
revised, effective May 25, 2007, so as to fully comply with the applicable
provisions of Section 409A of the Internal Revenue Code of 1986, as amended,
and
the final treasury regulations and any guidance promulgated thereunder (“Section
409A”). The Retention Agreement is not otherwise being revised and
the rights and obligations of Executive and the Company remain in full force
and
effect as set forth below.
WHEREAS,
the Company desires to retain the services of Executive as set forth in this
Agreement and Executive desires to provide services to the Company, upon the
terms and conditions set forth herein; and
WHEREAS,
the Company desires to ensure that Executive does not compete with and is
available to provide services to the Company for the period of time set forth
herein;
NOW,
THEREFORE, in consideration of the covenants and agreements hereinafter
set forth, the parties hereto agree as follows:
1. Term
of Agreement. This Agreement shall commence on the Effective Date
and shall end on (i) December 31, 2006, and shall be automatically
renewed for additional one-year periods without any action required of either
party unless not later than four months prior to the end of any calendar year
either party gives to the other party notice in writing that it intends to
terminate the Agreement at the end of the calendar year. The Company
and Executive agree that this Agreement shall govern the terms and conditions
of
Executive’s provision of services to the Company during the term of this
Agreement.
2. Title
and Responsibilities. From and after the Effective Date until the
commencement of any Part-Time Employment Term (as defined in Section 6 of
this Agreement) (the “Full-Time Employment Period”), the Company shall employ
Executive as the President and Chief Executive Officer of the Company reporting
to the Board of Directors. As President and Chief Executive Officer
of the Company, Executive shall have the duties and responsibilities customarily
associated with such position and as determined from time to time by the Board
of Directors of the Company. It is understood and agreed that
Executive will be considered an employee of the Company for tax withholding
purposes for the duration of both the Full-Time Employment Period and the
Part-Time Employment Term. Executive acknowledges that as a Part-Time
Employee he shall not have the power to bind the Company.
3. Obligations. Executive
agrees, during the Full-Time Employment Period, not to actively engage in any
other employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board; provided, however, that
Executive may serve in any capacity with any civic, educational, or charitable
organization.
4. Employee
Benefits. During the Full-Time Employment Period and Part-Time
Employment Period, Executive shall be eligible to participate in (i) all
employee benefit plans currently and hereafter maintained by the Company for
senior management according to their terms, and (ii) such other employee
benefits as are set forth in this Agreement.
5. Full-Time
Employment Period Compensation.
(a) Base
Salary. During the Full-Time Employment Period, and during
certain Part-Time Employment Terms, as specified in Section 6 hereof, the
Company shall pay Executive as compensation for his services a base salary
at an
initial annualized rate recommended by the Compensation Committee of the Board
and approved by the Board (which rate shall in no event be less than Executive’s
base salary on the Effective Date as adjusted from time to time by the Board
or
its Compensation Committee (the “Base Salary”). The Base Salary shall
be paid periodically in accordance with normal Company payroll practices and
subject to the usual required withholding. Notwithstanding the
foregoing, during the Full-Time Employment Period, Executive’s Base Salary shall
be reviewed annually for possible adjustments in light of Executive’s
performance of his duties, as determined by the Board or its Compensation
Committee.
(b) Bonus. During
the Full-Time Employment Period and during Part-Time Employment Terms as
specified in Section 6 hereof, Executive shall be eligible to receive bonuses
as
determined by the Board or its Compensation Committee.
6. Termination
of Employment; Transition to Part-Time Employment.
(a) Part-Time
Employment Term Definition; Obligations. The periods of part-time
employment specified in this Section 6 shall be defined as the “Part-Time
Employment Term” for the purposes of this Agreement. During any
Part-Time Employment Term, Executive shall be required to devote such time
in
rendering services to the Company as shall be reasonably agreed upon and
acceptable to the Executive and the Company, but in any event, not less than
ten
hours per month. During the Part-Time Employment Term, Executive
shall be free to serve as a director, employee, consultant or advisor to any
other corporation or other business enterprise without the prior written consent
of the Company so long as such activities do not interfere with his duties
and
obligations under this Agreement, including without limitation, Executive’s
obligations under Section 9 hereof. In consideration of Executive’s
not working for a “Drug Delivery Company” (as such term is defined in Section 9)
and being available to provide the mutually agreed upon services required
hereunder during the Part-Time Employment Term, the Executive shall receive
the
compensation specified in this Section 6.
(b) Termination
of Full-Time Employment for Cause. The Company may at any time
terminate Executive’s full-time employment hereunder for “Cause.” For
the purposes of this Agreement, “Cause” shall mean (i) Executive’s gross
negligence or willful misconduct in connection with the performance of his
duties, (ii) Executive’s conviction of, or plea of nolo contendere to, any
felony in a court of competent jurisdiction, or (iii) Executive’s embezzlement
or misappropriation of Company property.
(c) Termination
of Full-Time Employment by Company Other than for Cause. If the
Company desires to terminate Executive’s full-time employment with the Company
other than for Cause, then the Company shall provide Executive with written
notice of such termination. If the Executive’s full-time employment
is terminated by the Company other than for Cause, then, subject to Executive
entering into a Release, the Executive shall remain employed by the Company
as a
part-time employee for a period of 24 months from the date upon which the
Executive is given such written notice from the Company, after which period
Executive’s employment with the Company shall terminate.
In
connection with the Part-Time Employment Term arising in connection with
termination of Executive’s full-time employment by Company other than for Cause,
Executive shall be paid (i) Base Salary, payable 50% at time of
commencement of Part-Time Employment and the balance in accordance with the
Company’s normal payroll practices and (ii) an annual bonus for the
24-month period (prorated for any partial year) equal to the bonus paid to
Executive during the immediately preceding 12-month period.
(d) Voluntary
Termination of Full-Time Employment by Executive for Good
Reason. If Executive desires to voluntarily terminate his
full-time employment with the Company for Good Reason, then Executive shall
provide the Company with written notice of such termination within ninety (90)
days of the occurrence of the event that provides Good Reason under this
Agreement, provided however that Executive shall provide the Company the
opportunity to remedy the event within 30 days after receipt of notice thereof
given by the Executive. Subject to Executive entering into a release
in usual form of the Company and its directors and officers, the Executive
shall
remain employed by the Company as a part-time employee for a period of
24 months from the date upon which the Company is given such written notice
from Executive, after which period Executive’s employment with the Company shall
terminate. For the purposes of this Agreement, “Good Reason” shall
mean, during the Full-Time Employment Period, the occurrence of one of the
following events without the prior written consent of Executive: (i) a material
reduction in Executive’s authority or responsibility which (x) is inconsistent
with his position and/or title with the Company, or (y) diminishes or changes
the Executive’s substantive authority or responsibility relative to Executive’s
authority and responsibility immediately prior to such reduction, (ii) a
material reduction in Executive’s Base Salary (a reduction of more than ten
percent (10%) in any one year), (iii) a material reduction in the kind or level
of employee benefits to which the Executive is entitled which is different
from
the level of benefits to which other similar employees are entitled or any
action taken that materially and adversely affects the Executive’s participation
in any employee benefit plan on a basis different from that applicable to other
employees of similar rank, or (iv) Executive’s notification in writing from the
Company that his principal place of work will be relocated by a distance of
40
miles or more from the Company’s present headquarters.
The
Parties acknowledge that Executive
is currently on a medical leave of absence from his position as President and
Chief Executive Officer of the Company. For the avoidance of doubt,
if at such time as Executive is ready and able to assume all of the duties
and
responsibilities of the position of President and Chief Executive Officer of
the
Company, the Company does not return him to that position, such action shall
constitute Good Reason under this Agreement.
In
connection with the Part-Time Employment Term arising in connection with a
termination of employment by the Executive for Good Reason, Executive shall
be
paid (i) Base Salary for the 24-month period, payable 50% at time of
commencement of Part-Time Employment and the balance in equal installments
in
accordance with the Company’s normal payroll practices and (ii) an annual bonus
for the 24-month period (prorated for any partial year) equal to the bonus
paid
to Executive during the immediately preceding 12-month period.
(e) Stock
Option Vesting During Part-Time Employment Term or upon Change of
Control.
(i) During
any Part-Time Employment Term provided for in this Agreement, stock options
that
were granted to Executive by the Company (“Options”) shall continue to vest in
accordance with the terms and conditions of the original option agreements
relating to such Options.
(ii) Upon
a
Change of Control of the Company followed by termination of the Executive’s
employment by the Company without Cause or by the Executive for Good Reason,
all
outstanding stock options previously granted to Executive shall become 100%
vested.
(f) Lapse
of Restrictions on Restricted Stock. Upon a Change in Control
provided for in this Agreement, all forfeiture and transfer restrictions on
shares of restricted stock awarded to Executive by the Company (“Restricted
Stock”) shall lapse in accordance with the terms and conditions of the original
restricted stock award agreements relating to such Restricted
Stock.
(g) For
purposes of this Agreement, “Change of Control”: shall be deemed to have
occurred if (i) any person or group (within the meaning of Rule 13d-3 of the
rules and regulations promulgated under the Securities Exchange Act of 1934,
as
amended) shall acquire, in one or a series of transactions, whether through
sale
of stock or merger, ownership of stock of APP that possesses fifty percent
or
more of the total fair market value or total voting power of the stock of APP
or
any successor to APP; (ii) a merger in which APP is a party after which merger
the stockholders of APP immediately before the sale do not retain, directly
or
indirectly, at least a majority of the beneficial interest in the voting stock
of the surviving company; or (iii) the sale, exchange or transfer of all or
substantially all of APP’s assets (other than a sale, exchange or transfer to
one or more corporations where the stockholders of APP immediately before and
after such sale, exchange or transfer, directly or indirectly, are the
beneficial owners of at least a majority of the voting stock of the
corporation(s) to which the assets were transferred).
7. Termination
of Employment Relationship. Executive’s part-time employment
relationship with the Company may not be terminated by the Company prior to
the
end of the Part-Time Employment Term, except by written agreement between both
of the parties hereto; provided, however, that Executive’s employment with the
Company, whether full-time or part-time, shall immediately and automatically
terminate upon Executive’s breach of Section 9 hereof or for
Cause. No additional benefits or payments will become payable to
Executive hereunder upon a termination of Executive’s Part-Time Employment
Term.
8. Covenant
Not to Compete.
(a) Covenant
Not to Compete. During the Full-Time Employment Period and the
Part-Time Employment Term, Executive will not render services as an employee
or
as a consultant providing more than an average of 20 hours per month, or
participate as more than a 5% owner in, any Drug Delivery Company in the
Restricted Territory, as such terms are defined immediately below.
(b) Drug
Delivery Company. “Drug Delivery Company” shall mean each company
listed on Exhibit A hereto so long as such company is engaged in the development
or application of drug delivery technology. For purposes of this
definition, “drug delivery technology” shall mean technology designed to deliver
pharmacologically active substances into an organism in a manner that is
controlled as to time and/or location of release as compared with bolus
injections or standard oral nasal or rectal dosage forms. In no event
shall delivery of genetic materials be considered delivery for purposes of
this
Section 9.
(c) Restricted
Territory. “Restricted Territory” means any county in the State
of California, each state in the United States and each country in the
world.
9. Assignment. Executive’s
rights and obligations under this Agreement shall not be assignable by
Executive. The Company’s rights and obligations under this Agreement
shall not be assignable by the Company except as incident to the transfer,
by
merger, liquidation, or otherwise, of all or substantially all of the business
of the Company.
10. Notices. Any
notice required or permitted under this Agreement shall be given in writing
and
shall be deemed to have been effectively made or given if personally delivered,
or if sent by facsimile, or mailed or sent via overnight courier to the other
party at its address may designate by written notice to the other party
hereto. Any effective notice hereunder shall be deemed given on the
date personally delivered or on the date sent by facsimile or deposited in
the
United States mail (sent by certified mail, return receipt requested), as the
case may be, at the following addresses:
(i) If
to the
Company:
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A.P. Pharma,
Inc.
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123
Saginaw Drive
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Redwood
City, California 94063
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Attn:
Chairman of the Board
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(ii) If
to the
Executive:
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Michael
P.J. O’Connell
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XXXX
XXXXXX XX
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XXXX,
XX XXXXX
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11. Arbitration. The
parties hereto agree that any dispute or controversy arising out of, relating
to, or in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be finally
settled by binding arbitration to be held in San Mateo County, California under
the Employment Dispute Resolution Rules of the American Arbitration Association
as then in effect (the “Rules”). The arbitrator(s) may grant
injunctions or other relief in such dispute or controversy. The
decision of the arbitrator(s) shall be final, conclusive and binding on the
parties to the arbitration, and judgment may be entered on the decision of
the
arbitrator(s) in any court having jurisdiction.
The
arbitrator(s) shall apply California law to the merits of any dispute or claim,
without reference to rules of conflicts of law, and the arbitration proceedings
shall be governed by federal arbitration law and by the Rules, without reference
to state arbitration law.
The
parties shall each pay one-half of the costs and expenses of such arbitration,
and each party shall pay its own counsel fees and expense.
EXECUTIVE
HAS READ AND UNDERSTANDS THIS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION,
PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT
THIS
ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE’S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO EXECUTIVE’S EMPLOYMENT
RELATIONSHIP WITH THE COMPANY.
12. Withholding. The
Company shall be entitled to withhold, or cause to be withheld, from payment
any
amount of withholding taxes required by law with respect to payments made to
Executive in connection with his employment hereunder.
13. Section
409A.
(a) Distributions. Notwithstanding
anything to the contrary in this Agreement, if Executive is a “specified
employee” within the meaning of Section 409A at the time of
Executive’s termination of Full-Time Employment, and the benefits payable to
Executive, if any, pursuant to this Agreement, when considered together with
any
other payments or separation benefits which may be considered deferred
compensation under Section 409A (together, the “Deferred Compensation Separation
Benefits”) will not and could not under any circumstances, regardless of when
such termination occurs, be paid in full by March 15 of the year following
Executive’s termination, then only that portion of the Deferred Compensation
Separation Benefits which do not exceed the Section 409A Limit (as defined
below) may be made within the first six (6) months following Employee’s
termination of employment in accordance with the payment schedule applicable
to
each payment or benefit. For these purposes, each severance
payment is hereby designated as a separate payment and will not collectively
be
treated as a single payment. Any portion of the Deferred Compensation
Separation Benefits in excess of the Section 409A Limit shall accrue and, to
the
extent such portion of the Deferred Compensation Separation Benefits would
otherwise have been payable within the first six (6) months following
Executive’s termination of Full-Time employment, will become payable on the
first payroll date that occurs on or after the date six (6) months and one
(1)
day following the date of Executive’s termination of Full-Time
employment. All subsequent Deferred Compensation Separation Benefits,
if any, will be payable in accordance with the payment schedule applicable
to
each payment or benefit.
(b) Amendment. This
provision is intended to comply with the requirements of Section 409A so that
none of the payments and separation benefits to be provided hereunder will
be
subject to the additional tax imposed under Section 409A, and any ambiguities
herein will be interpreted to so comply. The Company and Executive
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 Executive under Section 409A.
(c) Section
409A Limit. For purposes of this Agreement, “Section 409A Limit”
will mean the lesser of two (2) times: (i) Executive’s annualized compensation
based upon the annual rate of pay paid to Executive during the Company’s taxable
year preceding the Company’s taxable year of Executive’s termination of
Full-Time employment as determined under Treasury Regulation
1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued
with
respect thereto; or (ii) the maximum amount that may be taken into account
under
a qualified plan pursuant to Section 401(a)(17) of the Code for the year in
which Executive’s Full-Time employment is terminated.
14. Severability. If
any term or provision of this Agreement shall to any extent be declared illegal
or unenforceable by arbitrator(s) or by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement or the application of such
term or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, each term
and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law and the illegal or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes to expressing the intention of the invalid or unenforceable term of
provision.
15. Entire
Agreement. This Agreement and the agreements relating to the
Options and Restricted Stock represent the entire agreement of the parties
with
respect to the matters set forth herein, and to the extent inconsistent with
other prior contracts, arrangements or understandings between the parties,
supersedes all such previous contracts, arrangements or understandings between
the Company and the Executive. The Agreement may be amended at any
time only by mutual written agreement signed by the parties hereto.
16. Headings. The
headings of sections herein are included solely for convenience of reference
and
shall not control the meaning or interpretation of any of the provisions of
this
Agreement.
17. Counterparts. This
Agreement may be executed by either of the parties hereto in counterparts,
each
of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day
and year first above written.
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EXECUTIVE
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A.P.
Pharma, Inc.
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By:
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Name:
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Name:
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Title:
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EXHIBIT
A
3M
Pharmaceuticals
Alcon
Alkermes,
Inc.
Alza
Corporation
Andrx
Corporation
Aradigm
Corporation
Biovail
Corporation International
Cardinal
Health
Cima
Labs, Inc.
Dura
Pharmaceuticals, Inc.
Durect
Corporation
Eurand
Faulding
Inc.
Inhale
Therapeutic Systems, Inc.
K-V
Pharmaceutical Company
Lohmann
Therapie Systeme GmbH
Noven
Pharmaceuticals, Inc.
Penwest
Pharmaceuticals Co.
Research
Triangle Pharmaceuticals
SkyePharma
plc
Teva
Pharmaceuticals
Watson
Pharmaceuticals, Inc.
Yamanouchi
Pharmaceutical Co., Ltd.
1. Including
any and all successors and divisions or subsidiaries of such
Persons.