Document:

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 OfficerPrepared by MERRILL CORPORATION

Exhibit 10.78

 

PROMISSORY NOTE

 

$512,000.00

 

	

  Dated: July

  23, 2001

  	

  At: South El

  Monte, California

  

 

                FOR VALUE RECEIVED, the undersigned LEE

PHARMACEUTICALS INC., a California corporation with its principal place of

business located at 1444 Santa Anita Avenue, South El Monte, California 91733

("Maker"), promises to pay to the order of AP PHARMA, INC.

(formerly Advanced Polymer Systems, Inc.), a corporation with its principal

place of business located at 123 Saginaw Drive, Redwood City, California 94063

("Lender"), the principal sum of Five Hundred Twelve Thousand

Dollars ($512,000.00) (the "Principal Sum"), with interest

thereon at the rate equal to the prime rate as it may exist from time to time

which is equal to the highest prime rate reported from time to time by

Citibank, N.A. (but in no case more than any interest rate permitted by law)

from the date set forth above, to be paid in lawful money of the United States

of America, at Lender's address set forth above or such other place as Lender

may from time to time designate in writing. All references to Lender in this

Note shall be deemed to mean and include any subsequent holder hereof

 

                1.             Payment

of Principal and Interest. The indebtedness evidenced hereby shall be

repaid in equal monthly installments of principal in the amount of Twelve

Thousand Dollars ($12,000.00) each, commencing on July 25, 2001 and continuing

monthly thereafter until and including September 25, 2001 whereupon the

indebtedness evidenced hereby shall be repaid in equal monthly installments of

principal in the amount of Twenty Two Thousand Dollars ($22,000.00) each,

commencing on October 25, 2001 and continuing monthly thereafter until December

25, 2002, whereupon the remaining principal and interest on this Note shall be

due and payable in full. Interest shall accrue on all of the unpaid outstanding

principal balance of this Promissory Note and shall be paid monthly commencing

July 25, 2001, at a rate equal to the highest prime rate published by Citibank,

N.A. during the month preceding the month in which the interest payment is due

and continuing, until the entire outstanding principal amount of this

Promissory Note shall have been paid in full. In no case, however, shall the

interest rate be higher than that rate permitted by applicable law.

 

                2.             Security.

This Note and all the obligations of Maker hereunder are secured by the

security interests granted pursuant to the original Security Agreement, dated

as of June 29, 1999 and executed by Maker, as amended and restated by the

Amended and Restated Security Agreement dated as of July 23, 2001 (the "Security

Agreement"). This Note, and the Security Agreement, together, with all

other documents now or at any time hereafter creating, evidencing or securing,

the indebtedness evidenced by this Note, are herein referred to collectively as

the "Loan Documents."

 

                3.             Application

of Proceeds. Maker is giving this Note to Lender pursuant to that certain

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

promissory notes originally issued pursuant to the Asset Purchase and Sale

Agreement dated as of June 29, 1999 among Maker, Lender and Premier Consumer

Products, Inc. (the "Asset Purchase Agreement") in connection

with the purchase of Assets (as that term is defined in the Asset Purchase

Agreement).

 

                4.             Prepayment

Rights. Maker shall have the right to prepay at any time and from time to

time all or any portion of the entire principal balance of this Note and

interest thereon, together with all other indebtedness evidenced hereby,

without penalty, provided that Lender shall have received at least ten (10)

days prior written notice of prepayment and Maker shall pay all accrued and

unpaid interest thereon and all other fees and costs, if any, due to Lender

under this Note. Any partial prepayment will be applied first against any fees

or charges due under the Loan Documents, if applicable, and then against

accrued and unpaid interest and then against the principal of this Note.

No partial prepayment will excuse any future payment of principal or interest

as long as any amounts remain unpaid.

 

                5.             Default

Provision. The occurrence of any one or more of the following events shall

constitute an Event of Default under this Note: (a) failure of Maker to pay

when due any amount required to be paid; (b) the Maker shall be adjudicated a

bankrupt or insolvent, or admit in writing its inability to pay its debts as

they mature, or make an assignment for the benefit of creditors, or the Maker

shall apply for or consent to the appointment of a receiver, trustee, or

similar officer for it or for all or any substantial part of its property, or

such receiver, trustee or similar officer shall be appointed without the

application or consent of the Maker and such appointment shall continue

undischarged for a period of ninety (90) days, or the Maker shall institute (by

petition, application, answer, consent or otherwise) any bankruptcy,

insolvency, reorganization, arrangement, readjustment of debt, dissolution,

liquidation or similar proceeding relating to it under the laws of any

jurisdiction, or any such proceeding shall be instituted (by petition,

application or otherwise) against the Maker and shall remain undismissed for a

period of ninety (90) days, or (c) any default under the Security 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 Maker and with respect to

the proper amount payable by Maker in respect of this Note or (b) if there

exists a good faith disagreement during the term of this Note regarding the

Assets conveyed to Maker as purchaser under the Asset Purchase and Sale

Agreement. Whenever there is an Event of Default under this Note, Lender shall

give Maker written notice of such Event of Default and if such Event of Default

is not cured within thirty (30) days of receipt of such written notice, Lender

may, at its option, declare the unpaid balance of the principal amount,

together with all accrued and unpaid interest and all other indebtedness

evidenced hereby, to be immediately due and payable, and exercise any and all

rights and remedies available to Lender hereunder, under applicable laws and

under any of the other Loan Documents, all of which rights and remedies are

cumulative.

 

                6.             Payment

of Collection Costs. If Lender required the services of an Attorney to

enforce the payment of this Note or the performance of the other Loan

Documents, or if this Note is collected through any lawsuit, bankruptcy, or

other proceeding, Maker agrees to pay Lender reasonable attorneys' fees and

other actual collection costs.

 

                7.             Waiver

of Certain Rights of Maker. As to this Note and the Security Agreement, and

all other Loan Documents, the undersigned waives all applicable exemption

rights, whether under any State Constitution or otherwise, and also waives

valuation and appraisement, presentment, protest and demand, notice of protest,

demand and dishonor and nonpayment of this Note, and expressly agrees that the

maturity of this Note, or any payment hereunder, may be extended from time to

time without in any way affecting the liability of Maker.

 

                8.             Non–Waiver

of Certain Rights of Holder. Any failure by the holder hereof to insist

upon the strict performance of any of the terms and provisions of this Note or

of any of the other Loan Documents shall not be deemed to be a waiver of any of

the terms and provisions hereof, and the holder hereof, notwithstanding any

such failure, shall have the right thereafter to insist upon the strict

performance by maker of any and all of the terms and provisions of this Note

and the other Loan Documents.

 

                9.             Invalidity

of Provisions. In the event that any one or more of the provisions

contained in this Note or any of the other Loan Documents shall for any reason

be held to be invalid, illegal or unenforceable in any respect, such

invalidity, illegality or unenforceability shall not affect any other provision

of this Note or any of the other Loan Documents, and each term and provision of

this Note and the other Loan Documents shall be valid and enforceable to the

fullest extent permitted by law.

 

                10.           Amendments

Must be in Writing. This Note may not be changed orally, but only by an

agreement in writing signed by Maker.

 

                11.           Governing

Law. This Note is to be construed according to the laws of the State of

California and shall be binding upon and inure to the benefit of Maker and

Lender and their respective successors and assigns.

 

                12.           Captions.

The captions of this Note are for convenience only and shall neither limit nor

enlarge the provisions hereof.

 

Executed as of the day and year

first above written.

 

LEE PHARMACEUTICALS, INC.

 

	

  By:

  	

  /s/ Ronald

  G. Lee

  
	

   

  	

   

  
	

  Date:

  	

  9/4/01

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