Prepared by MERRILL CORPORATION









Exhibit 10.77




 




AMENDED AND RESTATED




SECURITY AGREEMENT




 




                This AMENDED AND RESTATED SECURITY AGREEMENT

(the "Agreement") is made as of July 23, 2001, by and between

LEE PHARMACEUTICALS, INC., a California corporation ("Grantor")

and AP PHARMA, INC. (formerly Advanced Polymer Systems, Inc.), a Delaware

corporation ("AP" or "Secured Party").




 




PRELIMINARY STATEMENT




 




                A.            Pursuant

to the Asset Purchase and Sale Agreement dated as of June 29, 1999 (the "Asset

Purchase Agreement") by and among Secured Party, Grantor and Premier

Consumer Products, Inc., a Delaware corporation ("Premier"),

Premier sold to Grantor its right, title and interest in and to the Assets

(such terms, and all other capitalized terms used but not defined herein, shall

have the meanings assigned thereto in the Asset Purchase Agreement).




 




                B.            The

Asset Purchase Agreement provided for a Deferred Payment according to the terms

and conditions of Promissory Notes executed by Grantor.




 




                C.            Pursuant

to the Restructuring and Offset Agreement dated as of July 23, 2001 by and

among Grantor, Secured Party and Premier (the "Restructuring Agreement"),

the indebtedness of Grantor to Premier and Secured party, as evidenced by the

Promissory Notes, has been restructured and replaced with the New Note (as

defined in the Restructuring Agreement) issued in favor of Secured Party (such

payment obligations on the part of Grantor under the New Note is referred to in

this Amended and Restated Security Agreement as the "Obligations").













 




                NOW THEREFORE, in order to induce Secured

Party to enter into the Restructuring Agreement and to agree to the

aforementioned restructuring of its indebtedness, Grantor hereby agrees with

Secured Party as follows:




 




                1.             Grant

of Security. To secure the prompt and complete payment, observance and

performance of the Obligations, Grantor hereby creates a security interest with

power of sale, and the right and power to repossess, as hereinafter provided,

to the extent permitted by law, and grants, bargains, assigns, mortgages,

pledges, sells, transfers and conveys said security interest with power of sale

and right and power to repossess to Secured Party, for its sole benefit, in and

to all of Grantor's right, title, and interest in and to all of Grantor's

general intangibles, licenses, copyrights, trademark rights, trade names, trade

name rights and trade secrets, patents, and patent rights related to the

Product (defined in the Asset Purchase Agreement) and rights to payment of any

kind and all proceeds arising at any time related in any way to the foregoing,

whether such proceeds arise voluntarily or involuntarily (all of the foregoing

shall hereinafter be referred to collectively as the "Collateral").




 




                2.             Certain

Covenants. Grantor agrees that, for so long as any part of the Obligations

remain outstanding, it will:




 




                                (a)           Maintain

the Collateral in accordance with its customary practice and not voluntarily

withdraw the marketing of the Products, or lessen the permitted indications or

labeling requirements in any material respect, with respect to the Product,

unless required to do so by law or by direction of any governmental agency or

if the continued marketing of the Product does not make reasonable economic

sense;




 




                                (b)           Not

abandon any trademarks associated with the Product;




 




                                (c)           Not

enter into any agreement or other consensual arrangement which is inconsistent

with Secured Parties' rights under this Agreement; and




 




                                (d)           Execute

and deliver to Secured Party concurrently with the execution of this Agreement,

and at any time or times hereafter at the request of Secured Party, all

financing statements (including a UCC– 1 Financing Statement),

continuations statements, security agreements, assignments, affidavits,

reports, notices, and any other documents that Secured Party may reasonably

request in a form satisfactory to Secured Party, to maintain Secured Party's

security interest in the Collateral and to consummate fully all of the

transactions contemplated under this Agreement.













 




                3.             Representations

and Warranties. Grantor hereby represents and warrants to Secured Party as

follows:




 




                                (a)           Grantor

has the full right and power to grant the security interest in the Collateral;

and




 




                                (b)           Grantor

has not made any assignment, transfer or agreement in conflict herewith or

constituting a present or future assignment, transfer or encumbrance on any

part of the Collateral.




 




                4.             Termination.

This Agreement is made for collateral purposes only. Upon payment in full of

the Obligations, Secured Party shall execute and deliver to Grantor all

termination statements, assignments and other instruments as may be necessary

or proper to discharge all security interests, liens and encumbrances arising

from this Agreement and to revest in Grantor full title to the Collateral.




 




                5.             Right

to Sue. Upon the occurrence and during the continuance of an Event of

Default, Secured Party shall have the right, but not the obligation, to bring

suit in its own name to enforce its rights hereunder, but only after giving written notice of

such Event of Default to Grantor and Grantor shall have failed to cure such

Event of Default within 30 days after receipt of any such notice. If Secured

Party shall commence any such suit, Grantor shall do any and all lawful acts

and execute any and all proper documents required in aid of such enforcement.

As used in this Agreement, "Event of Default" shall have the

same meaning as set forth in the New Note which is part of the Restructuring

Agreement; provided, however, that no Event of Default shall be deemed to have

occurred if: (a) there continues to exist a good faith disagreement between

Grantor and Secured Party with respect to the proper amount payable by Grantor

in respect of the Obligation or (b) if there exists a good faith disagreement

during the period of the Obligation's existence regarding the Assets conveyed

by Grantee as Seller to Grantor as Purchaser under the Asset Purchase and Sale

Agreement.













 




                6.             Remedy;

Power of Attorney.




 




                                (a)           Upon

the occurrence and during the continuance of any period Secured Party has the

right to sue pursuant to the first sentence of Section 5 hereof, Grantor hereby

authorizes Secured Party to make, constitute and appoint any officer or agent

of Secured Party as Secured Party may select in its sole discretion as

Grantor's attorney–in–fact with power to endorse Grantor's name,

and otherwise to act in the name and on behalf of Grantor, with respect to all

applications, documents, papers, instruments, transfers, assignment and

conveyances as necessary or appropriate for Secured Party in the use of the

Assets.




 




                                (b)           Following

any repossession by Secured Party of any part of the Collateral as provided in

Section 6 (a) and the sale or other disposition of such repossessed Collateral,

Secured Party shall apply the entire proceeds of such sale or other

disposition, first, to the reimbursement of Secured Party for its expenses of

enforcement, and second, to pay the outstanding Obligation under the New Note,

and third, to pay over to Grantor any and all excess amounts remaining.




 




                7.             Miscellaneous.




 




                                (a)           Assignment.

This Agreement shall be binding upon the successors and permitted assigns of

the parties.




 




                                (b)           Notices.

All notices and other communications hereunder shall be in writing and shall be

deemed given if delivered personally or by facsimile transmission (receipt

verified), mailed by registered or certified mail (return receipt requested),

postage prepaid, or sent by overnight courier service to the parties at the

following addresses (or at such other address for a party as shall be specified

by like notice; provided that notices of a change of address shall be effective

only upon receipt thereof):




 




If to Grantor,

addressed to:




 




LEE

PHARMACEUTICALS, INC.




1444 Santa

Anita Ave. 




South El

Monte, CA 91733




Attn:




Fax:     626–575–0513




 




If to AP,

addressed to:




 




AP PHARMA,

INC. 




123 Saginaw

Drive 




Redwood City,

CA 94063 




Attn: 




Fax:     650–365–6490




 




                                (c)           Amendment.

No amendment, modification or supplement of any provision of this Agreement

shall be valid or effective unless, made in writing and signed by all parties.




 




                                (d)           Waiver.

No provision of this Agreement shall be waived by any act, omission or

knowledge of a party or its agents or employees except by an instrument in

writing expressly waiving such provision and signed by the waiving party.




 




                                (e)           Governing

Law. This Agreement shall be governed by, and interpreted, construed, and

enforced in accordance with, the laws of the State of California, without

giving effect to conflict of laws principles.




 




                                (f)            Severability.

Whenever possible, each provision of this Agreement will be interpreted in such

manner as to be effective and valid under applicable law, but if any provision

of this Agreement is held to be prohibited by or invalid under applicable law,

such provision will be ineffective only to the extent of such prohibition or

invalidity, without invalidating the remainder of this Agreement.













 




                IN WITNESS WHEREOF, the parties hereto have

caused this Agreement to be duly executed as of the date first above written.




 




LEE PHARMACEUTICALS, INC.




 




 




	

  By:


  	

  /s/ Ronald

  G. Lee


  
	

   


  	

   


  
	

  Name:


  	

  Ronald G.

  Lee


  
	

  Title:


  	

  Chairman


  





 




AP PHARMA, INC.




 




	

  By:


  	

  /s/ Gordon

  Sangster


  
	

   


  	

   


  
	

  Name:


  	

  Gordon

  Sangster


  
	

  Title:


  	

  Chief

  Financial Officer