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Separation And Release Agreement

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Exhibit 10.1



SEPARATION AGREEMENT AND GENERAL RELEASE



For good and valuable consideration, rendered to resolve and settle finally, fully, and completely all matters that now or may exist between them, the parties below enter this Agreement and General Release (" Agreement ").



1. Parties. The Parties to this Agreement are Ronald J. Prentki, his heirs, representatives, successors and assigns (hereinafter referred to collectively as " Executive ") and A.P. Pharma, Inc., and/or any of its predecessors, successors, subsidiaries, affiliates, parents, and related companies (hereinafter referred to collectively as the " Company ").



2. Separation from Employment. Executive has resigned as a member of the Company's Board of Directors (the " Board ") and from his officer positions as Chief Executive Officer and President of the Company, effective May 25, 2010, and resigned his employment and all other positions that he holds with the Company and any of its subsidiaries and affiliates, effective June 15, 2010 (the " Resignation Date "). During the period beginning May 25, 2010 and the Resignation Date, Executive shall work diligen tly to transfer his duties, responsibilities and knowledge to Paul Goddard and John Whelan.



3. Severance Payments and Benefits. As consideration for the promises and covenants of Executive set forth in this Agreement, the Company agrees to provide him with the severance payments and benefits as set forth in his Employment Letter with the Company dated July 2, 2008, as amended December 29, 2008 (the " Employment Letter ").   ;Such payments and benefits shall be made following the Effective Date of this Agreement, as follows:



(a) The Company will pay to the Executive in a lump sum twenty-four (24) months of base pay at the annual rate of $425,000, for a total payment of $850,000 (the " Severance Payment "), less all applicable taxes and other authorized deductions. The Severance Payment shall be paid in a lump sum on July 15, 2010.



(b) Provided that the Executive elects to receive continued health insurance benefits pursuant to COBRA, the Company shall continue to pay to the Executive its portion of the health insurance benefits provided to the Executive immediately prior to his resignation for himself and his eligible dependents, from the Resignation Date through the earlier of (i) June 15, 2011, or (ii) the date Executive becomes eligible for health insurance coverage from another source, whichever occurs earlier. The Executive agrees to promptly inform the Company in writing if he becomes eligible for health insurance coverage from another source prior to June 15, 2011. In addition, the Executive shall be able to utilize the appr oximately $2,500 in Flex Plan contributions that he has made prior to his resignation, consistent with the provisions thereof.



(c) The Company shall accelerate the vesting of all equity awards granted to Executive such that Executive will be treated as vested in the number of options or other equity incentive shares equal to the total number that would have vested in accordance with their terms in the twelve (12) month period following the Resignation Date had the Executive continued employment through such period. The number of options or other equity incentive shares in which the Executive shall be vested, after giving effect to the preceding sentence, as of the Resignation Date is reflected in Exhi bit A hereto. The Executive shall have until September 13, 2010 in which to exercise vested incentive stock options and until June 15, 2011 in which to exercise vested non-qualified stock options. Except as expressly provided herein, all options or other equity incentive shares shall be treated in accordance with the applicable Plan, Notice of Grant and applicable option or other equity incentive share Agreement.



(d) Executive acknowledges that the Company will not have responsibility to reimburse the Executive for any relocation and related expenses not previously submitted to the Company and paid to the Executive prior to the date hereof, except for $1,780 of storage expenses related to Executive's original relocation, providing Executive submits an associated documented expense report prior to the Resignation Date.


4. No Other Payments Due. On the Resignation Date, the Executive shall be paid an amount equal to all accrued, unpaid wages through the Resignation Date plus the $1,780 cited in 3(d) above. Executive acknowledges and agrees that he has heretofore received all bonuses, or other such sums due to him, and that the only further payments to which he will be entitled, assuming he signs this Agreement, will be the Severance Payments and Benefits to be provided under the Employment Letter, as reflected in Section 3 of this Agreement.



5. Release of Claims. As further consideration for the promises and covenants of the Company set forth in this Agreement, Executive hereby fully and forever releases and discharges the Company and its current and former owners, shareholders, members of the Board, officers of the Company, agents, employee benefit plans, representatives, employees, attorneys, parties, successors, predecessors, related companies, and assigns (hereinafter collectively called the "Released Parties"), from all claims and causes of action, whether known or unknown, including but not limited to those arising out of or relating in any way to Executive's employment with the Company, including the separation of his employment, based on any acts or events occurring up until the date of Executive's signature below. Executive understands and agrees that this Release is a full and complete waiver of all claims,


















including, but not limited to, any claims with respect to Executive's entitlement to any wages, bonuses or other forms of compensation; any claims of wrongful discharge, breach of contract, breach of the covenant of good faith and fair dealing, violation of public policy, defamation, personal injury, emotional distress; any claims under Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, the Age Discrimination in Employment Act of 1967, the Employee Retirement Income Security Act of 1974, as amended (" ERISA "), as related to severance benefits, the California Fair Employment and Housing Act, California Government Code a7 12900 et seq., the California Labor Code, the California Business & Professions Code, the Equal Pay Act of 1963, the Americans With Disabilities Act, the Civil Rights Act of 1991; and any claims under any other federal, state, and local laws and regulations. This Agreement does not release claims that cannot be released as a matter of law, including, but not limited to, claims under Division 3, Article 2 of the California Labor Code (which includes indemnification rights).



6. Outstanding Claims. As further consideration and inducement for this Agreement, Executive represents that he has not filed or otherwise pursued any charges, complaints or claims of any nature that are in any way pending against the Company or any of the Released Parties with any court or administrative agency with respect to any matter covered by this Agreement and that, to the extent permitted by law, he will no t do so in the future. If any government agency or court assumes jurisdiction of any charge, complaint, cause of action, or claim covered by this Agreement against the Company or any of the Released Parties, Executive will withdraw from and/or dismiss the matter with prejudice, as to any claims he might have. Executive agrees that he will not participate or cooperate in such matter(s) except as required by law.

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