Amended And Restated Retention And Non-competition Agreement

EXHIBIT 10.11


AMENDED AND RESTATED


RETENTION AND NON-COMPETITION AGREEMENT


THIS RETENTION AND NON-COMPETITION AGREEMENT (this "Agreement"), is entered into by and between A.P. Pharma, Inc. (the "Company"), and Michael P.J. O92Connell ("Executive"), 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.


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 Executive92s 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


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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 Executive92s 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, Executive92s Base Salary shall be reviewed annually for possible adjustments in light of Executive92s 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, Executive92s obligations under Section 9 hereof. In consideration of Executive92s 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 Executive92s full-time employment hereunder for "Cause." For the purposes of this Agreement, "Cause" shall mean (i) Executive92s gross negligence or willful misconduct in connection with the performance of his duties, (ii) Executive92s conviction of, or plea of nolo contendere to, any felony in a court of competent jurisdiction, or (iii) Executive92s embezzlement or misappropriation of Company property.


(c) Termination of Full-Time Employment by Company Other than for Cause. If the Company desires to terminate Executive92s full-time employment with the Company other


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than for Cause, then the Company shall provide Executive with written notice of such termination. If the Executive92s 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 Executive92s employment with the Company shall terminate.


In connection with the Part-Time Employment Term arising in connection with termination of Executive92s 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 Emp ...