**Exhibit 10.76**

** **

**RESTRUCTURING AND**

**OFFSET AGREEMENT**

 

                ThisRESTRUCTURING AND OFFSET AGREEMENT (the "Agreement") isentered into by and among AP Pharma, Inc. (formerly Advanced Polymer Systems,Inc.), a Delaware corporation ("AP"), Premier ConsumerProducts, Inc., a Delaware Corporation ("Premier") and LeePharmaceuticals, Inc., a California company ("Lee") as of this__ day of July 23, 2001.

 

RE C I T A L S

 

                A.            WHEREAS, AP, Premier and Lee enteredinto that certain Asset Purchase and Sale Agreement, dated as of June 29, 1999(the "Purchase Agreement"), pursuant to which Lee purchasedcertain assets of Premier (the "Asset Sale"); and

 

                B.            WHEREAS, pursuant to the PurchaseAgreement, payment due upon the closing of the Asset Sale was evidenced bypromissory notes in an amount of $500,000 in favor of AP (the "AP Note")and $300,000 in favor of Premier (the "Premier Note"), eachdated as of June 29, 1999, and with a specified maturity date of September 15,2001 (collectively the "Old Notes"); and

 

                C.            WHEREAS, there remains anoutstanding principal balance on the AP Note of $320,000 and an outstandingprincipal balance on the Premier Note of $192,000, the combined monthlypayments of principal of which equals $32,000; and

 

                D.            WHEREAS, pursuant to that certainLetter Agreement, by and between AP and Premier, dated as of June 30, 1999 (the"Letter Agreement") Premier is entitled to offset, againstminimum royalties payable to AP, any payments of principal under the PremierNote which are not paid by Lee; and

 

                E.             WHEREAS, no payments have been madeby Lee under the Old Notes since May 25, 2000; and

 

                F.             WHEREAS, pursuant to that certainModification Agreement, by and between AP and Premier, dated as of January 1,1999 (the " Modification Agreement") Premier has an outstandingobligation which is due and payable to AP, in the amount of $174,312; and

 

                G.            WHEREAS, AP, Lee and Premier desireto restructure the obligations of Lee to AP and Premier by restructuring thosepayments due under the Old Notes and to offset the amount which is due andpayable by Lee to Premier with the amount which is due and payable by Premierto AP, all upon the terms and conditions hereinafter set forth.

                NOW,THEREFORE, in consideration of the premises and the mutual covenants,representations and warranties herein contained, and other good and valuableconsideration, the receipt and sufficiency of which is hereby acknowledged, theparties hereto intending to be bound hereby agree as follows:

 

**SECTION I**

**OFFSET OF OBLIGATIONS**

 

                1.1           Offset of Obligations. AP herebyagrees that, as consideration for Premier's restructuring of the amount due andpayable by Lee to Premier under the Premier Note, to be an amount payable to APpursuant to Section 2.1, AP hereby agrees that the minimum royalties due andpayable by Premier to AP through July 25, 2000, pursuant to the ModificationAgreement, shall be deemed paid.

 

                1.2           Premier Release of Claims.Premier hereby agrees that, as consideration for the offsetting of obligationsas described in Section 1.1 herein, Premier releases, discharges andrelinquishes any and all claims and actions, both known and unknown, that nowexist, that Premier may have against Lee under the Premier Note and allliabilities, damages, losses, costs and expenses related thereto (the "PremierRelease").

 

                1.3           AP Release of Claims. APhereby agrees that, as consideration for the offsetting of obligations asdescribed in Section 1.1 herein, AP releases, discharges and relinquishes anyand all claims and actions, both known and unknown, that now exist that AP mayhave against Premier under the Modification Agreement and all liabilities,damages, losses, costs and expenses related thereto (the "AP Release").

 

                1.4           New Claims. Notwithstandinganything herein to the contrary, neither the Premier Release nor the AP releaseshall apply to any claims, actions, liabilities, damage, losses, costs andexpenses based on breaches of this Agreement that occur after the date hereof.

 

**SECTION 2**

**RESTRUCTURING OF OBLIGATIONS**

 

                2.1           Restructuring of Old Notes.Lee hereby agrees that, in consideration for the restructuring of theobligation as provided in Section 1.1 and for AP's agreement to extend therepayment of the obligation due by Lee under the Old Notes, the indebtednessrepresented by the Old Notes shall be amended and restated to be an amountpayable by Lee to AP and represented by a secured promissory note in theprincipal amount of Five Hundred and Twelve Thousand dollars ($512,000) insubstantially the form of Exhibit A hereto (the "New Note").

 

                2.2           Cancellation of Old Notes.Upon execution and delivery of this Agreement and the New Note by Lee, AP andPremier agree that the indebtedness previously represented by the Old Notesshall be replaced by the New Note and that they shall surrender the Old Notesto Lee.

 

**SECTION 3**

**REPRESENTATIONS AND WARRANTIES**

 

                3.1           Representations and Warranties ofLee. Lee hereby represents and warrants to AP and Premier that:

 

                Allcorporate action on the part of Lee, its officers, directors and shareholdersnecessary for the authorization, execution, delivery and performance of allobligations under this Agreement, has been taken.

 

                3.2           Representations and Warranties ofPremier. Premier hereby represents and warrants to Lee and AP that:

 

                Allcorporate action on the part of Premier and its officers, directors andshareholders necessary for the authorization, execution, delivery andperformance of all obligations under this Agreement, has been taken.

 

                3.3           Representations and Warranties ofAP. AP hereby represents and warrants to Lee and Premier that:

 

                Allcorporate action on the part of the AP, its officers, directors andshareholders necessary for the authorization, execution, delivery andperformance of all obligations under this Agreement, has been taken.

 

**SECTION 4**

**MISCELLANEOUS**

 

                4.1           Modification. Neither thisAgreement nor any provisions hereof shall be modified, discharged or terminatedexcept by an instrument in writing signed by the party against whom anymodification, discharge or termination is sought.

 

                4.2.          Notices. Any notice, demand orother communication that any party hereto may be required, or may elect, togive to anyone interested hereunder shall be sufficiently given if deposited,postage prepaid, in a United States mail letter box, registered or certifiedmail, return receipt requested, addressed to the address set forth for noticeto the appropriate party in this Agreement.

 

                4.3           Binding Effect. Except asotherwise provided herein, this Agreement shall be binding upon and inure tothe benefit of the parties and their heirs, executors, administrators,successors, legal representatives and assigns.

 

                4.4           Entire Agreement; Successors andAssigns. This Agreement, including Exhibit A hereto, which is incorporatedherein by reference, constitutes the entire agreement among and between theparties with respect to the specific subject matter hereof, superseding intheir entirety all prior and contemporaneous agreements, discussions,understandings or correspondences between or among the parties regarding the specificsubject matter hereof and there are no representations, covenants or otheragreements except as stated or referred to herein.

 

                4.5           Assignability. This Agreementis not transferable or assignable except as may be provided herein.

 

                4.6           Governing Law. This Agreementwill be governed by, and construed in accordance with, the laws of the State ofCalifornia excluding those laws that direct the application of the laws ofanother jurisdiction.

 

                4.7           Severability. If any provisionhereof is held to be invalid, illegal or unenforceable, such provision will beenforced to the maximum extent legally possible, and the validity, legality andenforceability of the remaining provisions will not in any way be affected orimpaired thereby.

 

                4.8           Counterparts. This Agreementmay be executed in two or more counterparts, each of which will be deemed anoriginal, but all of which together will constitute one and the sameinstrument.

 

                4.9           Headings. The headings of theSections hereof are for convenience and will not by themselves determine theinterpretation of this Agreement.

 

                4.10.        Expenses. Each party to thisAgreement shall bear its own costs and expenses related to the preparation ofthis Agreement.

 

                INWITNESS WHEREOF, the parties have executed this Loan Restructuring and OffsetAgreement as of the date and year first set forth above.

 
| AP PHARMA, INC.                  |
|----------------------------------|
|                             |   |
| By:                              | /s/ Gordon Sangster |
| Name:                            | Gordon Sangster |
| Title:                           | Chief Financial  Officer |
|                             |   |
| PREMIER CONSUMER  PRODUCTS, INC. |
|                             |   |
| By:                              | /s/ John P. Boylen |
| Name:                            | John P. Boylen |
| Title:                           | Treasurer |
|                             |   |
| LEE PHARMACEUTICALS,  INC        |
|                             |   |
| By:                              | /s/ Ronald G. Lee |
| Name:                            | Ronald G. Lee |
| Title:                           | Chairman |

 

**EXHIBIT A**

** **

**NEW NOTE**