EXHIBIT
3.10
CERTIFICATE
OF DESIGNATIONS, RIGHTS AND PREFERENCES
of
SERIES
A CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
ACCESS
PHARMACEUTICALS, INC.
ACCESS
PHARMACEUTICALS, INC.,
a
Delaware corporation (the “Corporation”),
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
does hereby make this Certificate of Designations, Rights and Preferences and
does hereby state and certify that pursuant to the authority expressly vested
in
the Board of Directors of the Corporation (the “Board”)
by the
Certificate of Incorporation of the Corporation, as amended to date (the
“Certificate”),
which
authorizes the issuance of 2,000,000 shares of preferred stock, $0.01 par value
per share, in one or more series, the Board duly adopted the following
resolutions, which resolutions remain in full force and effect as of the date
hereof:
RESOLVED,
that,
pursuant to Article V of the Certificate, the Board hereby authorizes the
issuance of, and fixes the designation and preferences and relative, optional
and other special rights, and qualifications, limitations and restrictions,
of a
series of preferred stock of the Corporation consisting of 4,000 shares, par
value $0.01 per share, to be designated “Series A Cumulative Convertible
Preferred Stock” (hereinafter, the “Series
A Preferred Stock”);
and
be it
RESOLVED,
that
each share of Series A Preferred Stock shall rank equally in all respects and
shall be subject to the following terms and provisions:
1. Dividends
in Cash or in Kind.
Holders
shall be entitled to receive, and the Corporation shall pay, cumulative
dividends at the rate per share of 6% per annum,
payable
semi-annually on June 30 and December 31of each year, beginning on the first
such date after Original Issue Date and on each Conversion Date (with respect
only to Series A Preferred Stock being converted) (each such date, a
“Dividend
Payment Date”)
(if
any Dividend Payment Date is not a Trading Day, the applicable payment shall
be
due on the next succeeding Trading Day) in cash, or at the Corporation’s option,
in duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock as set forth in this Section 1, or a combination thereof (the
amount to be paid in shares of Common Stock, the “Dividend
Share Amount”).
The
form of dividend payments to each Holder shall be determined in the following
order of priority: (i) if funds are legally available for the payment of
dividends and the Equity Conditions have not been met during the 20 consecutive
Trading Days immediately prior to the applicable Dividend Payment Date, in
cash
only; (ii) if funds are legally available for the payment of dividends and
the
Equity Conditions have been met during the 20 consecutive Trading Days
immediately prior to the applicable Dividend Payment Date, at the sole election
of the Corporation, in cash or shares of Common Stock which shall be valued
solely for such purpose at the Current Market Price ending on the Trading Day
that is immediately prior to the Dividend Payment Date; (iii) if funds are
not
legally available for the payment of dividends and the Equity Conditions have
been met during the 20 consecutive Trading Days immediately prior to the
applicable Dividend Payment Date, in shares of Common Stock which shall be
valued solely for such purpose at the Current Market Price ending on the Trading
Day that is immediately prior to the Dividend
Payment
Date; (iv) if funds are not legally available for the payment of dividends
and
the Equity Condition relating to an effective Registration Statement has been
waived by such Holder, as to such Holder only, in unregistered shares of Common
Stock which shall be valued solely for such purpose at the Current Market Price
ending on the Trading Day that is immediately prior to the Dividend Payment
Date; and (v) if funds are not legally available for the payment of dividends
and the Equity Conditions have not been met during the 20 consecutive Trading
Days immediately prior to the applicable Dividend Payment Date, then, at the
election of such Holder, such dividends shall accrue to the next Dividend
Payment Date or shall be accreted to, and increase, the outstanding Liquidation
Preference per share of Series A Preferred Stock of such Holder. The Holders
shall have the same rights and remedies with respect to the delivery of any
such
shares as if such shares were being issued pursuant to Section 5. On the Closing
Date the Corporation shall have notified the Holders whether or not it may
legally pay cash dividends as of the Closing Date. The Corporation shall
promptly notify the Holders at any time the Corporation shall become able or
unable, as the case may be, to legally pay cash dividends. If at any time the
Corporation has the right to pay dividends in cash or Common Stock, the
Corporation must provide the Holders with at least 20 Trading Days’ notice of
its election to pay a regularly scheduled dividend in Common Stock (the
Corporation may indicate in such notice that the election
contained
in such notice shall continue for later periods until revised by a subsequent
notice). Dividends on the Series A Preferred Stock shall accrue daily commencing
on the Original Issue Date, and shall be deemed to accrue from such date whether
or not earned or declared and whether or not there are profits, surplus or
other
funds of the Corporation legally available for the payment of dividends. Except
as otherwise provided herein, if at any time the Corporation pays dividends
partially in cash and partially in shares, then such payment shall be
distributed ratably among the Holders based upon the number of shares of Series
A Preferred Stock held by each Holder on such Dividend Payment Date. Any
dividends, whether paid in cash or shares of Common Stock, that are not paid
within three Trading Days following a Dividend Payment Date shall continue
to
accrue and shall entail a late fee, which must be paid in cash, at the rate
of
18% per annum or the lesser rate permitted by applicable law (such fees to
accrue daily, from the Dividend Payment Date through and including the date
of
payment). If at any time the Corporation delivers a notice to the Holders of
its
election to pay the dividends in shares of Common Stock, the Corporation shall
timely file a prospectus supplement pursuant to Rule 424 disclosing such
election.
(b) Dividend
Periods; Dividend Rate; Calculation of Dividends.
(i) Dividend
Periods.
The
dividend periods (each, a “Dividend
Period”)
shall
be as follows: The initial Dividend Period shall begin on the Date of Original
Issue and end on the Initial Dividend Payment Date, and each Dividend Period
thereafter shall commence on the day following the last day of the preceding
Dividend Period and shall end on the next Dividend Payment Date.
(ii) Dividend
Rate.
The
dividend rate on each share of Series A Preferred Stock (the “Dividend
Rate”),
to be
paid per annum on the Liquidation Preference (as defined below) shall be
6%.
(iii) Calculation
of Dividends.
(A) The
amount of dividends per share of Series A Preferred Stock payable for each
Dividend Period or part thereof shall be computed by multiplying the Liquidation
Preference by the Dividend Factor (as defined below).
(B) The
“Dividend
Factor”
shall
be the Dividend Rate multiplied by a fraction, the numerator of which is the
number of days in the applicable Dividend Period or part thereof on which the
share of Series A Preferred Stock was outstanding, and the denominator of which
is 365.
“Current
Market Price”
means,
in respect of any share of Common Stock on any date herein
specified:
(1)
if
there shall not then be a public market for the Common Stock, the fair market
value per share of Common Stock as determined in good faith by an independent
appraiser selected by the Holders of a majority of the then outstanding Series
A
Preferred Stock; or
(2)
if
there shall then be a public market for the Common Stock, the average of the
daily market prices for the 20 consecutive trading days immediately before
such
date. The daily market price (the “Daily
Market Price”)
for
each such trading day shall be (i) the closing sale price on such day on the
principal stock exchange (including Nasdaq) on which such Common Stock is then
listed or admitted to trading, or quoted, as applicable, (ii) if no sale takes
place on such day on any such exchange, the last reported closing sale price
on
such day as officially quoted on any such exchange (including Nasdaq), (iii)
if
the Common Stock is not then listed or admitted to trading on any stock
exchange, the last reported closing sale price on such day in the
over-the-counter market, as furnished by the National Association of Securities
Dealers Automatic Quotation System or the Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.), (iv) if neither such corporation at the time is engaged
in the business of reporting such prices, as furnished by any similar firm
then
engaged in such business, or (v) if there is no such firm, as furnished by
any
member of the Financial Industry Regulatory Authority (“FINRA”)
selected mutually by holders of a majority of the Series A Preferred Stock
and
the Corporation or, if they cannot agree upon such selection, as selected by
two
such members of the FINRA, one of which shall be selected by holders of a
majority of the Series A Preferred Stock and one of which shall be selected
by
the Corporation.
(c) No
dividends shall be declared or paid or set apart for payment on the shares
of
Common Stock or any other class or series of capital stock of the Corporation
for any dividend period unless full cumulative dividends have been or
contemporaneously are declared and paid on the Series A Preferred Stock through
the most recent Dividend Payment Date. Without prejudice to the foregoing,
if
full cumulative dividends have not been paid on shares of the Series A Preferred
Stock, all dividends declared on shares of the Series A Preferred Stock shall
be
paid pro rata to the holders of outstanding shares of the Series A Preferred
Stock.
(d) The
holders of the Series A Preferred Stock shall each be entitled to receive any
dividends or distributions (other than dividends payable solely in additional
Common Stock), declared by the Board and paid to the holders of Common Stock,
out of any assets legally available therefor, pari passu, with the amount of
such dividends to be distributed to the holders of Series A Preferred Stock
on
an As-Converted Basis (as defined below) immediately prior to the declaration
of
such dividend or distribution. “As-Converted
Basis”
means,
as of the time of determination, that number of shares of Common Stock which
a
holder of Series A Preferred Stock would hold if all shares of Series A
Preferred Stock held by such holder were converted into shares of Common Stock
pursuant to Section 5 hereof (regardless of the number of shares of Common
Stock
that the Corporation is then authorized to issue) at the then applicable
Conversion Value (as defined below) regardless of whether such shares of Common
Stock are then authorized for issuance.
(e) The
Corporation acknowledges and agrees that the capital of the Corporation (as
such
term is used in Section 154 of the Delaware General Corporation Law) in respect
of the Series A Preferred Stock and any future issuances of the Corporation’s
capital stock shall be equal to the aggregate par value of such Series A
Preferred Stock or capital stock, as the case may be, and that, on or after
the
date of the Purchase Agreement, it shall not increase the capital of the
Corporation with respect to any shares of the Corporation’s capital stock issued
and outstanding on such date. The Corporation also acknowledges and agrees
that
it shall not create any special reserves under Section 171 of the Delaware
General Corporation Law without the prior written consent of each
Holder.
2. Voting
Rights.
Except
as otherwise provided herein or as provided by law, the holders of the Series
A
Preferred Stock shall have full voting rights and powers, subject to the
Beneficial Ownership Cap as defined in Section 5(i), if applicable, equal to
the
voting rights and powers of holders of Common Stock and shall be entitled to
notice of any stockholders meeting in accordance with the Bylaws of the
Corporation, and shall be entitled to vote, with respect to any question upon
which holders of Common Stock are entitled to vote, including, without
limitation, the right to vote for the election of directors, voting together
with the holders of Common Stock as one class. Each holder of shares of Series
A
Preferred Stock shall be entitled to vote on an As-Converted Basis, determined
on the record date for the taking of a vote, subject to the applicable
Beneficial Ownership Cap limitations set forth in Section 5(i), or, if no record
date is established, at the day prior to the date such vote is taken or any
written consent of stockholders is first executed. Fractional votes shall not,
however, be permitted and any fractional voting rights resulting from the above
formula (after aggregating all shares into which shares of Series A Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
3. Rights
on Liquidation.
(a) In
the
event of any voluntary or involuntary liquidation, dissolution or winding up
of
the Corporation (any such event being hereinafter referred to as a “Liquidation”),
before any distribution of assets of the Corporation shall be made to or set
apart for the holders of the Common Stock or any other class of preferred stock,
the holders of Series A Preferred Stock shall be entitled to receive payment
out
of such assets of the Corporation in an amount equal to the greater of (i)
the
Liquidation Preference for the Series A Preferred Stock plus any accumulated
and
unpaid dividends (whether or not declared) on the Series A Preferred Stock,
or
(ii) the
cash
or other property distributable upon such Liquidation with respect to the shares
of Common Stock into which such shares of Series A Preferred Stock, including
any accrued dividends thereon, could have been converted immediately prior
to
such payment.
“Liquidation
Preference”
shall
mean $10,000 per share of Series A Preferred Stock. If the assets of the
Corporation available for distribution to the holders of Series A Preferred
Stock shall not be sufficient to make in full the payment herein required,
such
assets shall be distributed pro-rata among the holders of Series A Preferred
Stock based on the aggregate Liquidation Preferences of the shares of Series
A
Preferred Stock held by each such holder.
(b) If
the
assets of the Corporation available for distribution to stockholders exceed
the
aggregate amount of the Liquidation Preferences payable with respect to all
shares of Series A Preferred Stock then outstanding, then, after the payment
required by paragraph 3(a) above shall have been made or irrevocably set aside,
the holders of Common Stock shall be entitled to receive, payment of a pro
rata
portion of such remaining assets based on the aggregate number of shares of
Common Stock held by such holder.
(c) A
Change
of Control (as defined below) of the Corporation shall not be deemed a
Liquidation, but shall instead be governed by the terms of Section 7
below.
4. Actions
Requiring the Consent of Holders of Series A Preferred Stock.
As long
as any of the shares of Series A Preferred Stock issued pursuant to the Purchase
Agreement remain outstanding, the consent of the holders of at least 66% of
the
shares of Series A Preferred Stock at the time outstanding, given in accordance
with the Certificate of Incorporation and Bylaws of the Corporation, as amended
from time to time, shall be necessary for effecting or validating any of the
following transactions or acts, whether by merger, consolidation or otherwise
(for the avoidance of doubt, no such consent shall be required for the
Corporation to amend the Certificate merely to increase the Corporation’s
authorized shares of Common Stock or undesignated preferred stock):
(a) Any
amendment, alteration or repeal of any of the provisions of this Certificate
of
Designation;
(b) Any
amendment, alteration or repeal of (i) the Certificate or (ii) the Bylaws of
the
Corporation that will adversely affect the rights of the holders of the Series
A
Preferred Stock;
(c) The
authorization or creation by the Corporation of, or the increase in the number
of authorized shares of, any stock of any class, or any security convertible
into stock of any class, or the authorization or creation of any new class
of
preferred stock (or any action which would result in another series of preferred
stock), in each case, ranking in terms of liquidation preference, redemption
rights or dividend rights, pari passu with or senior to, the Series A Preferred
Stock in any manner;
(d) The
redemption, purchase or other acquisition, directly or indirectly, of any shares
of capital stock of the Corporation or any of its subsidiaries or any option,
warrant or other right to purchase or acquire any such shares, or any other
such
security, other than (A) the redemption of Series A Preferred Stock pursuant
to
the terms hereof, (B) pursuant to the repurchase rights of the Corporation
under
options or restricted stock grants to directors, employees or consultants of
the
Corporation, in each case, granted under equity incentive plans or agreements
approved by the Board or (C) the repayment (but not prepayment) of debt of
the
Corporation in existence on the Date of Original Issue or payment of interest
thereon in accordance with the terms of such debt;
(e) The
declaration or payment of any dividend or other distribution (whether in cash,
stock or other property, but excluding a split or reverse split with respect
to
the Common Stock) with respect to the capital stock of the Corporation or any
subsidiary, other than a dividend or other distribution pursuant to the terms
of
the Series A Preferred Stock;
(f) If
the
Corporation or any of its subsidiaries enters into, creates, incurs, assumes,
guarantees or suffers to exist any indebtedness for borrowed money of any kind,
including but not limited to, a guarantee, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or
any income or profits therefrom, other than such indebtedness that exists as
of
the Closing Date (as defined in the Purchase Agreement);
(g) If
the
Corporation or any of its subsidiaries enters into, creates, incurs, assumes
or
suffers to exist any liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or
any income or profits therefrom, other than such liens that exist as of the
Closing Date (as defined in the Purchase Agreement); or
(h) If
the
Corporation or any of its subsidiaries enters
into any agreement or understanding with respect to any of the
foregoing.
5. Conversion.
(a) Right
to Convert.
Subject
to the limitations set forth in Section 5(i) hereof, the holder of any share
or
shares of Series A Preferred Stock shall have the right at any time, at such
holder’s option, to convert all or any lesser portion of such holder’s shares of
Series A Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing (i) the aggregate
Liquidation Preference of the shares of Series A Preferred Stock to be converted
plus accrued and unpaid dividends thereon by (ii) the Conversion Value (as
defined below) then in effect for such Series A Preferred Stock. No fractional
shares or scrip representing fractional shares shall be issued upon the
conversion of any Series A Preferred Stock. With respect to any fraction of
a
share of Common Stock called for upon any conversion, the Corporation shall
pay
to the holder an amount in cash equal to such fraction multiplied by the Current
Market Price per share of the Common Stock.
(b) Mandatory
Conversion.
If a
Conversion Triggering Event (as defined below) has occurred, and provided that
the Corporation has delivered a written notice to the holders of the Series
A
Preferred Stock (the “Notice”)
that
the Corporation intends to convert all of the outstanding Series A Preferred
Stock into Common Stock, then, subject to the limitations set forth in Section
5(i) hereof, as of the date that is sixty-five days following the date that
such
Notice is given (the “Mandatory
Conversion Date”),
the
Series A Preferred Stock shall be converted into such number of fully paid
and
non-assessable shares of Common Stock as is determined by dividing (i) the
aggregate Liquidation Preference of the shares of Series A Preferred Stock
to be
converted plus accrued and unpaid dividends thereon by (ii) the applicable
Conversion Value (as hereinafter defined) then in effect for such Series A
Preferred Stock (the “Mandatory
Conversion”).
Nothing in this Section 5(b) shall be construed so as to limit the right of
a
holder of Series A Preferred Stock to convert pursuant to Section 5(a) at any
time. The Corporation may not deliver a Notice, and any Mandatory Conversion
delivered by the Corporation shall not be effective, unless all of the Equity
Conditions have been met on each Trading Day during the twenty day period prior
to and including the later of the Mandatory Conversion Date and the Trading
Day
after the date that the Conversion Shares issuable pursuant to such conversion
are actually delivered to the Holders pursuant to the Notice.
“Conversion
Triggering Event”
shall
mean, such time as:
(i) The
Registration Statement (as hereinafter defined) covering all of the shares
of
Common Stock into which the Series A Preferred Stock is convertible and into
which the Warrants (as defined below) are exercisable, is effective and sales
may be made pursuant thereto (or all of the shares of Common Stock into which
the Series A Preferred Stock is convertible and into which the Warrants are
exercisable may be sold without restriction pursuant to Rule 144(k) promulgated
by the Securities and Exchange Commission under the Securities Act of 1933,
as
amended (the “Securities
Act”));
and
(ii) either:
(A)
The
Daily Market Price of the Common Stock exceeds $7.00 (subject to adjustment
for
stock splits, reverse splits, stock dividends and the like) or more per share
and has been at or above such price per share for twenty (20) of the thirty
(30)
consecutive trading days immediately prior to the date on which the Corporation
gives the Notice, and the average daily volume of Common Stock traded on the
applicable stock exchange (including Nasdaq) for twenty (20) of the thirty
(30)
consecutive trading days immediately prior to the date on which the Corporation
gives the Notice is not less than 100,000 shares (subject to adjustment for
stock splits, reverse splits, stock dividends and the like); or
(B)
The
Corporation shall have closed a sale of Common Stock by the Corporation in
which
the aggregate gross cash proceeds of the offering to the Corporation are equal
to or greater than $10,000,000 (without giving effect to the possible conversion
or exercise of any warrant, convertible security or other derivative security
included in such offering) (a “Qualified
Financing”).
Notwithstanding the foregoing, prior to exercising a Mandatory Conversion as
a
result of the Conversion Triggering Event described in this Section, the
Conversion Value shall be adjusted pursuant to the terms hereof if the
securities issued and issuable in a Qualified Financing are issued for
consideration per share less than the Conversion Value.
“Registration
Statement”
shall
have the meaning established in the Investor Rights Agreement dated on or about
the date this Certificate of Designation is filed with the Secretary of State
of
the State of Delaware (the “Filing
Date”),
by
and among the Corporation and the other parties signatory thereto.
(c) Mechanics
of Conversion.
(i) Such
right of conversion (other than mandatory conversion) shall be exercised by
the
holder of shares of Series A Preferred Stock by delivering to the Corporation
a
conversion notice in the form attached hereto as Exhibit
A
(the
“Conversion
Notice”),
appropriately completed and duly signed and specifying the number of shares
of
Series A Preferred Stock that the holder elects to convert (the “Converting
Shares”)
into
shares of Common Stock, and by surrender not later than two (2) business days
thereafter of the certificate or certificates representing such Converting
Shares. The Conversion Notice shall also contain a statement of the name or
names (with addresses and tax identification or social security numbers) in
which the certificate or certificates for Common Stock shall be issued, if
other
than the name in which the Converting Shares are registered. Promptly after
the
receipt of the Conversion Notice, the Corporation shall issue and deliver,
or
cause to be delivered, to the holder of the Converting Shares or such holder’s
nominee, a certificate or certificates for the number of shares of Common Stock
issuable upon the conversion of such Converting Shares. Such conversion shall
be
deemed to have been effected as of the close of business on the date of receipt
by the Corporation of the Conversion Notice (the “Conversion
Date”),
and
the person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the holder or holders
of
record of such shares of Common Stock as of the close of business on the
Conversion Date.
(ii) The
Corporation shall issue certificates representing the shares of Common Stock
to
be received upon conversion of the Series A Preferred Stock (the “Conversion
Shares”)
(and
certificates for unconverted Series A Preferred Stock) within three (3) business
days of the Conversion Date and shall transmit the certificates by messenger
or
reputable overnight delivery service to reach the address designated by such
holder within three (3) business days after the receipt by the Corporation
of
such Conversion Notice (the third business day, the “Share
Delivery Date”).
If
certificates evidencing the Conversion Shares are not received by the holder
within five (5) business days of the Conversion Notice, then the holder will
be
entitled to revoke and withdraw its Conversion Notice, in whole or in part,
at
any time prior to its receipt of those certificates. In lieu of delivering
physical certificates representing the Conversion Shares or in payment of
dividends hereunder, provided the Corporation’s transfer agent is participating
in the Depository Trust Company (“DTC”)
Fast
Automated Securities Transfer (“FAST”)
program, upon request of the holder, the Corporation shall use its best efforts
to cause its transfer agent to electronically transmit the Common Stock issuable
upon conversion or dividend payment to the holder, by crediting the account
of
the holder’s prime broker with DTC through its Deposit Withdrawal Agent
Commission (“DWAC”)
system. The time periods for delivery described above, and for delivery of
Common Stock in payment of dividends hereunder, shall apply to the electronic
transmittals through the DWAC system. Such holder and the Corporation agree
to
coordinate with DTC to accomplish this objective. The person or persons entitled
to receive the Common Stock issuable upon such conversion shall be treated
for
all purposes as the record holder or holders of such Common Shares at the close
of business on the Conversion Date. If the conversion has not been rescinded
in
accordance with this paragraph and the Corporation fails to deliver to the
holder such certificate or certificates (or shares through DTC) pursuant to
this
Section 5 (free of any restrictions on transfer or legends, if such shares
have
been registered) in accordance herewith, prior to the seventh trading day after
the Conversion Date (assuming timely surrender of the Series A Preferred Stock
certificates), as the remedy for such failure, the Corporation shall pay to
such
holder, in cash, on a per diem basis, an amount equal to 2% of the Liquidation
Preference of all Series A Preferred Stock elected to be converted into
Conversion Shares by such holder and with respect to which the Conversion Shares
have not been so timely delivered, per month until such delivery takes place.
Payment of such amount as the remedy for such failure shall not limit the
obligation of the Corporation to deliver such Conversion Shares or the right
of
the holder to take any action that such holder deems necessary or appropriate
to
enforce such obligation.
(iii) The
Corporation’s obligation to issue Common Stock upon conversion of Series A
Preferred Stock in accordance with this Certificate of Designation shall be
absolute, is independent of any covenant of any holder of Series A Preferred
Stock, and shall not be subject to: (A) any offset or defense; or (B) any claims
against the holders of Series A Preferred Stock whether pursuant to this
Certificate of Designation, the Preferred Stock and Warrant Purchase Agreement
(the “Purchase
Agreement”)
entered into among the Corporation and the purchasers of the Series A Preferred
Stock on or about the Filing Date, the Investor Rights Agreement, the Warrants
or otherwise.
(iv) Subject
to the provisions of Section 5(i), in the event that a Conversion Triggering
Event has occurred and the Corporation has given the Notice as required by
Section 5(b), all the shares of Series A Preferred Stock shall be converted
on
the Mandatory Conversion Date as if the holders thereof had delivered a
Conversion Notice with respect to such shares on such date. Promptly thereafter,
the holders of the Series A Preferred Stock shall deliver their certificates
evidencing the Series A Preferred Stock to the Corporation or its duly
authorized transfer agent, and upon receipt thereof, the Corporation shall
issue
or cause its transfer agent to issue certificates evidencing the Common Stock
into which the shares Series A Preferred Stock have been converted.
(v) If
the
Corporation fails to deliver to a Holder the applicable certificate or
certificates by the Share Delivery Date pursuant to Section 5(c)(i), and if
after such Share Delivery Date such Holder is required by its brokerage firm
to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm purchases, shares of Common Stock to deliver in satisfaction of a sale
by
such Holder of the Conversion Shares which such Holder was entitled to receive
upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then
the Corporation shall (A) pay in cash to such Holder (in addition to any other
remedies available to or elected by such Holder) the amount by which (x) such
Holder’s total purchase price (including any brokerage commissions) for the
shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale price at which the
sell order giving rise to such purchase obligation was executed (including
any
brokerage commissions) and (B) at the option of such Holder, either reissue
(if
surrendered) the shares of Series A Preferred Stock equal to the number of
shares of Series A Preferred Stock submitted for conversion or deliver to such
Holder the number of shares of Common Stock that would have been issued if
the
Corporation had timely complied with its delivery requirements under Section
5(c)(i). For example, if a Holder purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Series A Preferred Stock with respect to which the
actual sale price (including any brokerage commissions) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Corporation shall be required to pay such Holder $1,000.
The Holder shall provide the Corporation written notice indicating the amounts
payable to such Holder in respect of the Buy-In and, upon request of the
Corporation, evidence of the amount of such loss. Nothing herein shall limit
a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Corporation’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Series A Preferred Stock as required pursuant to the terms
hereof.
(d) Adjustment
Upon Issuance of Additional Shares of Common Stock.
(i) Adjustment
to Conversion Value.
If at
any time while any Series A Preferred Stock is outstanding the Corporation
shall
issue or sell any additional shares of Common Stock (“Additional
Common Stock”)
in
exchange for consideration in an amount per share of Additional Common Stock
(the “Additional
Common Stock Price”)
less
than the Conversion Value at the time the shares of Additional Common Stock
are
issued or sold, then the Conversion Value immediately prior to such issue or
sale shall be reduced to an amount equal to the Additional Common Stock
Price.
(ii) Issuance
of Common Stock Equivalents.
If at
any time while the Series A Preferred Stock is outstanding the Corporation
shall
issue or sell any warrants or other rights to subscribe for or purchase any
additional shares of Common Stock (regardless of the number of shares of Common
Stock that the Corporation is then authorized to issue) or any securities
convertible, directly or indirectly, into shares of Common Stock (collectively,
“Common
Stock Equivalents”),
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the effective price per share for which Common Stock is
issuable upon the exercise, exchange or conversion of such Common Stock
Equivalents (the “Common
Stock Equivalent Price”)
shall
be less than the current Conversion Value in effect immediately prior to the
time of such issue or sale, then the current Conversion Value shall be adjusted
as provided in Section 5(d)(i) on the basis that the additional shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed
to
have been issued at the Common Stock Equivalent Price, as of the date of the
actual issuance of such Common Stock Equivalents. No further adjustments to
the
current Conversion Value shall be made under this Section 5(d) upon the actual
issue of such Common Stock upon the exercise, conversion or exchange of such
Common Stock Equivalents.
(iii) Certain
Issues of Common Stock or Common Stock Equivalents Excepted.
The
provisions of Paragraph 5(d) shall not apply to any issuance of Additional
Common Stock for which an adjustment is provided under Paragraph 5(g). The
Corporation shall not be required to make any adjustment of the Conversion
Value
pursuant to Paragraph 5(d) in the case of the issuance of (A) shares of Common
Stock upon the conversion of the Series A Preferred Stock, the exercise of
the
Warrants issued pursuant to the Purchase Agreement (the “Warrants”)
or as
payment of dividends on the Series A Preferred Stock, (B) shares of Common
Stock
upon the exercise of any warrants or options or upon conversion of any
convertible promissory notes, in each case, outstanding on the Filing Date;
provided that such securities have not been amended since the date of date
of
the Purchase Agreement to increase the number of such securities or to decrease
the exercise, exchange or conversion price of such securities, (C) shares of
Common Stock, stock awards or options under, or the exercise of any options
granted pursuant to, any stock-based compensation plans of the Corporation
duly
adopted by a majority of the non-employee members of the Board of Directors
of
the Corporation or a majority of the members of a committee of non-employee
directors established for such purpose (in each case, at issuance or exercise
prices at or above fair market value), (D) shares of Common Stock pursuant
to a
stock split, combination or subdivision of the outstanding shares of Common
Stock, (E) shares of Common Stock or Common Stock Equivalents issued in
connection with a bona-fide strategic transaction approved by the Board, the
primary purpose of which is not to provide financing to the Corporation or
(F)
shares of Series A Preferred Stock and warrants to purchase Common Stock, in
each case, issued pursuant to the Purchase Agreement) ((A) through (F)
collectively, “Permitted
Issuances”).
(iv) Superseding
Adjustment.
If, at
any time after any adjustment to the current Conversion Value shall have been
made pursuant to Section 5(d) as the result of any issuance of Common Stock
Equivalents, (x) the right to exercise, exchange or convert all of the Common
Stock Equivalents shall expire unexercised, or (y) the conversion rate or
consideration per share for which shares of Common Stock are issuable pursuant
to such Common Stock Equivalents shall be increased solely by virtue of
provisions therein contained for an automatic increase in such conversion rate
or consideration per share, as the case may be, upon the occurrence of a
specified date or event, then, unless any of such Common Stock Equivalents
have
previously been converted or exercised at the original price, any such previous
adjustments to the Conversion Value shall be rescinded and annulled and the
additional shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Upon the occurrence of an event set forth in this Section 5(d)(iv)
above, there shall be a recomputation made of the effect of such Common Stock
Equivalents on the basis of treating any such Common Stock Equivalents which
then remain outstanding as having been granted or issued immediately after
the
time of such increase of the conversion rate or consideration per share for
which shares of Common Stock or other property are issuable under such Common
Stock Equivalents; whereupon a new adjustment to the current Conversion Value
shall be made, which new adjustment shall supersede the previous adjustment
so
rescinded and annulled; provided, however, such readjustment to the Conversion
Value described in this Section shall not effect any conversions of the Series
A
Preferred Stock effected at any time prior to such readjustment.
(e) Beneficial
Ownership Cap.
To the
extent that any shares of Series A Preferred Stock are not automatically
converted upon the occurrence of a Mandatory Conversion on account of the
application of Section 5(i), such shares of Series A Preferred Stock shall
be
deemed converted automatically under this Section 5 at the first moment
thereafter when Section 5(i) would not prevent such conversion. Notwithstanding
the preceding sentence, upon the occurrence of the Mandatory Conversion, the
right to: (a) accrue dividends on Series A Preferred Stock (other than dividends
pursuant to Section 1(e) hereof); (b) the Liquidation Preference of the Series
A
Preferred Stock, including, without limitation, the right to be treated as
holders of Series A Preferred Stock in the event of a merger or consolidation;
(c) the veto rights described in Section 4 hereof; (d) the participation rights
provided in Section 10 hereof; and (e) the redemption rights in Section 13
hereof shall cease immediately.
(f) Conversion
Value.
The
initial conversion value for the Series A Preferred Stock shall be $3.00 per
share, such value to be subject to adjustment in accordance with the provisions
of this Section 5. Such conversion value in effect from time to time, as
adjusted pursuant to this Section 5, is referred to herein as a “Conversion
Value.”
All
of
the remaining provisions of this Section 5 shall apply separately to each
Conversion Value in effect from time to time with respect to Series A Preferred
Stock.
(g) Stock
Dividends, Subdivisions and Combinations.
If at
any time while the Series A Preferred Stock is outstanding, the Corporation
shall:
(i) cause
the
holders of its Common Stock to be entitled to receive a dividend payable in,
or
other distribution of, additional shares of Common Stock,
(ii) subdivide
its outstanding shares of Common Stock into a larger number of shares of Common
Stock, or
(iii) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock,
then
in
each such case the Conversion Value shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of
this
Paragraph 5(g) shall become effective immediately after the record date for
the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clauses (ii) or (iii) of this Paragraph 5(g)
shall become effective immediately after the effective date of such subdivision
or combination. If any event requiring an adjustment under this paragraph occurs
during the period that a Conversion Value is calculated hereunder, then the
calculation of such Conversion Value shall be adjusted appropriately to reflect
such event.
(h) Certain
Other Distributions.
If at
any time while the Series A Preferred Stock is outstanding the Corporation
shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(i) cash,
(ii) any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property or assets of any nature whatsoever (other than cash
or
additional shares of Common Stock as provided in Section 5(g) hereof), or
(iii) any
warrants or other rights to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property or assets of any nature whatsoever (in each case set forth in
subparagraphs 5(h)(i), 5(h)(ii) and 5(h)(iii) hereof, the “Distributed
Property”),
then,
except to the extent that the holder of Series A Preferred Stock has previously
received such Distributed Property pursuant to Section 1(d) hereof, upon any
conversion of Series A Preferred Stock that occurs after such record date,
the
holder of Series A Preferred Stock shall be entitled to receive, in addition
to
the Conversion Shares, the Distributed Property that such holder would have
been
entitled to receive in respect of such number of Conversion Shares had the
holder been the record holder of such Conversion Shares as of such record date.
Such distribution shall be made whenever any such conversion is made. In the
event that the Distributed Property consists of property other than cash, then
the fair value of such Distributed Property shall be as determined in good
faith
by the Board and set forth in reasonable detail in a written valuation report
(the “Valuation
Report”)
prepared by the Board. The Corporation shall give written notice of such
determination and a copy of the Valuation Report to all holders of Series A
Preferred Stock, and if the holders of a majority of the outstanding Series
A
Preferred Stock object to such determination within twenty (20) business days
following the date such notice is given to all of the holders of Series A
Preferred Stock, the Corporation shall submit such valuation to an investment
banking firm of recognized national standing selected by not less than a
majority of the holders of the Series A Preferred Stock and acceptable to the
Corporation in its reasonable discretion, whose opinion shall be binding upon
the Corporation and the Series A Preferred Stockholders. A reclassification
of
the Common Stock (other than a change in par value, or from par value to no
par
value or from no par value to par value) into shares of Common Stock and shares
of any other class of stock shall be deemed a distribution by the Corporation
to
the holders of its Common Stock of such shares of such other class of stock
within the meaning of this Section 5(h) and, if the outstanding shares of Common
Stock shall be changed into a larger or smaller number of shares of Common
Stock
as a part of such reclassification, such change shall be deemed a subdivision
or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 5(g).
(i) Blocking
Provision.
(i) Except
as
provided otherwise in this Section 5(i)(i), the number of Conversion Shares
that
may be acquired by any holder, and the number of shares of Series A Preferred
Stock that shall be entitled to voting rights under Section 2 hereof, shall
be
limited to the extent necessary to insure that, following such conversion (or
deemed conversion for voting purposes), the number of shares of Common Stock
then beneficially owned by such holder and its Affiliates and any other persons
or entities whose beneficial ownership of Common Stock would be aggregated
with
the holder’s for purposes of Section 13(d) of the Exchange Act (including shares
held by any “group” of which the holder is a member, but excluding shares
beneficially owned by virtue of the ownership of securities or rights to acquire
securities that have limitations on the right to convert, exercise or purchase
similar to the limitation set forth herein) does not exceed 4.99% of the total
number of shares of Common Stock of the Corporation then issued and outstanding
(the “Beneficial
Ownership Cap”).
For
purposes hereof, “group” has the meaning set forth in Section 13(d) of the
Exchange Act and applicable regulations of the Securities and Exchange
Commission, and the percentage held by the holder shall be determined in a
manner consistent with the provisions of Section 13(d) of the Exchange Act.
Except as set forth in the preceding sentence, for purposes of this Section,
the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Stock with respect to which such determination
is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (A) exercise of the remaining, nonconverted portion of the
Preferred Stock beneficially owned by the Holder or any of its Affiliates and
(B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its
affiliates. For purposes of this Section, in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding. As used herein, the term “Affiliate”
means
any person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
a
person or entity, as such terms are used in and construed under Rule 144 under
the Securities Act. With respect to a holder of Series A Preferred Stock, any
investment fund or managed account that is managed on a discretionary basis
by
the same investment manager as such holder will be deemed to be an Affiliate
of
such holder. Each delivery of a Conversion Notice by a holder of Series A
Preferred Stock will constitute a representation by such Holder that it has
evaluated the limitation set forth in this paragraph and determined, subject
to
the accuracy of information filed under the Securities Act and the Exchange
Act
by the Corporation with respect to the outstanding Common Stock of the
Corporation, that the issuance of the full number of shares of Common Stock
requested in such Conversion Notice is permitted under this paragraph. This
paragraph shall be construed and administered in such manner as shall be
consistent with the intent of the first sentence of this paragraph. Any
provision hereof which would require a result that is not consistent with such
intent shall be deemed severed herefrom and of no force or effect with respect
to the conversion contemplated by a particular Conversion Notice.
(ii) In
the
event the Corporation is prohibited from issuing shares of Common Stock as
a
result of any restrictions or prohibitions under applicable law or the rules
or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization, the Corporation shall as soon as possible seek
the
approval of its stockholders and take such other action to authorize the
issuance of the full number of shares of Common Stock issuable upon the full
conversion of the then outstanding shares of Series A Preferred
Stock.
(iii) Notwithstanding
the foregoing provisions of Section 5(i), any holder of Series A Preferred
Stock
shall have the right prior to the Date of Original Issue upon written notice
to
the Corporation, or after the Date of Original Issue upon (x) 61 days prior
written notice to the Corporation or (y) upon a Change of Control the terms
of
which require the conversion of the Series A Preferred Stock into Common Stock,
to choose not to be governed by the Beneficial Ownership Cap provided
herein.
(j) Common
Stock Reserved.
The
Corporation shall at all times reserve and keep available out of its authorized
but unissued Common Stock, solely for issuance upon the conversion of shares
of
Series A Preferred Stock as herein provided, such number of shares of Common
Stock as shall from time to time be issuable upon the conversion of all the
shares of Series A Preferred Stock at the time outstanding (without regard
to
any ownership limitations provided in Section 5(i)).
6. Other
Provisions Applicable to Adjustments.
The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock into which the Series A Preferred Stock is
convertible and the current Conversion Value provided for in Section
5:
(a) When
Adjustments to Be Made.
The
adjustments required by Section 5 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any adjustment
to the Conversion Value that would otherwise be required may be postponed
(except in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 5(g)) up to, but not beyond the Conversion
Date if such adjustment either by itself or with other adjustments not
previously made adds or subtracts less than 1% of the shares of Common Stock
into which the Series A Preferred Stock is convertible immediately prior to
the
making of such adjustment. Any adjustment representing a change of less than
such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by Section 5 and not previously made, would result in a minimum
adjustment or on the Conversion Date. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the
date of its occurrence.
(b) Fractional
Interests.
In
computing adjustments under Section 5, fractional interests in Common Stock
shall be taken into account to the nearest 1/100th of a share.
(c) When
Adjustment Not Required.
If the
Corporation undertakes a transaction contemplated under Section 5(h) and as
a
result takes a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or purchase
rights or other benefits contemplated under Section 5(h) and shall, thereafter
and before the distribution to stockholders thereof, legally abandon its plan
to
pay or deliver such dividend, distribution, subscription or purchase rights
or
other benefits contemplated under Section 5(h), then thereafter no adjustment
shall be required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) Escrow
of Stock.
If
after any property becomes distributable pursuant to Section 5 by reason of
the
taking of any record of the holders of Common Stock, but prior to the occurrence
of the event for which such record is taken, a holder of the Series A Preferred
Stock either converts the Series A Preferred Stock or there is a Mandatory
Conversion during such period, or in either case such holder is unable to
convert shares pursuant to Section 5(i), such holder of Series A Preferred
Stock
shall continue to be entitled to receive any shares of Common Stock issuable
upon conversion under Section 5 by reason of such adjustment (as if such Series
A Preferred Stock were not yet converted) and such shares or other property
shall be held in escrow for the holder of the Series A Preferred Stock by the
Corporation to be issued to holder of the Series A Preferred Stock upon and
to
the extent that the event actually takes place. Notwithstanding any other
provision to the contrary herein, if the event for which such record was taken
fails to occur or is rescinded, then such escrowed shares shall be canceled
by
the Corporation and escrowed property returned to the Corporation.
7. Merger,
Consolidation or Disposition of Assets.
(a) If,
after
the Date of Original Issue and while any share or shares of Series A Preferred
Stock are outstanding, there occurs, other than as a result of the sale of
securities pursuant to the Purchase Agreement: (i) an acquisition by an
individual or legal entity or group (as set forth in Section 13(d) of the
Exchange Act) of more than 50% of the voting rights or equity interests in
the
Corporation, whether in one transaction or in a series of related transactions
or (ii) a merger or consolidation of the Corporation where the holders of the
Corporation’s voting securities prior to such transaction fail to continue to
hold at least 50% of the voting power of the Corporation or a sale, transfer
or
other disposition of all or substantially all the Corporation’s property, assets
or business to another corporation and such transaction is approved by the
Board
(each, a “Change
of Control”),
and,
pursuant to the terms of such Change of Control, shares of common stock of
the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock
of
the successor or acquiring corporation (“Other
Property”),
are
to be received by or distributed to the holders of Common Stock of the
Corporation then the successor or acquiring corporation (if other than the
Corporation) shall assume the Series A Preferred Stock pursuant to Section
7(b)
below.
(b) In
case
of any such Change of Control, the successor or acquiring corporation (if other
than the Corporation) shall expressly assume the due and punctual observance
and
performance of each and every covenant and condition contained in this
Certificate of Designation to be performed and observed by the Corporation
and
all the obligations and liabilities hereunder, subject to such modifications
as
may be deemed appropriate (as determined by resolution of the Board) in order
to
provide for adjustments of shares of the Common Stock into which the Series
A
Preferred Stock is convertible which shall be as nearly equivalent as
practicable to the adjustments provided for in Section 5. For purposes of
Section 5, common stock of the successor or acquiring corporation shall include
stock of such corporation of any class which is not preferred as to dividends
or
assets on liquidation over any other class of stock of such corporation and
which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into
or
exchangeable for any such stock, either immediately or upon the arrival of
a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock.
(c) The
foregoing provisions of this Section 7 shall similarly apply to successive
Change of Control transactions.
8. Other
Action Affecting Common Stock.
In case
at any time or from time to time the Corporation shall take any action in
respect of its Common Stock, other than the payment of dividends permitted
by
Section 5 or any other action described in Section 5, then, unless such action
will not have a materially adverse effect upon the rights of the holder of
Series A Preferred Stock, the number of shares of Common Stock or other stock
into which the Series A Preferred Stock is convertible and/or the purchase
price
thereof shall be adjusted in such manner as may be equitable in the
circumstances; provided, that the mere authorization or issuance of additional
shares of capital stock of the Corporation (other than pursuant to a stock
dividend) shall not be considered any action in respect of its Common Stock
for
purposes of this Section 8.
9. Certain
Limitations.
Notwithstanding anything herein to the contrary, the Corporation agrees not
to
enter into any transaction which, by reason of any adjustment hereunder, would
cause the current Conversion Value to be less than the par value per share
of
Common Stock.
10. Participation
Rights.
(a)
Subject to the terms and conditions specified in this Section 10, at any time
while Series A Preferred Stock is outstanding, the holders of shares of Series
A
Preferred Stock shall have a right to participate with respect to the issuance
or possible issuance by the Corporation of any future equity or equity-linked
securities or debt which is convertible into equity or in which there is an
equity component (as the case may be, “Additional
Securities”)
on the
same terms and conditions as offered by the Corporation to the other purchasers
of such Additional Securities. Each time the Corporation proposes to offer
any
Additional Securities, the Corporation shall make an offering of such Additional
Securities to each holder of shares of Series A Preferred Stock in accordance
with the following provisions:
(i) The
Corporation shall deliver a notice (the “Issuance
Notice”)
to the
holders of shares of Series A Preferred Stock stating (a) its bona fide
intention to offer such Additional Securities, (b) the approximate number of
such Additional Securities to be offered, (c) the price (or pricing formula)
and
terms, if any, upon which it proposes to offer such Additional Securities,
and
(d) the anticipated closing date of the sale of such Additional
Securities.
(ii) By
written notification received by the Corporation, within five (5) days after
giving of the Issuance Notice, any holder of shares of Series A Preferred Stock
may elect to purchase or obtain, at the price and on the terms specified in
the
Issuance Notice, up to that number of such Additional Securities which equals
such holder’s Pro Rata Amount (as defined below). The “Pro
Rata Amount”
for
any
given holder of shares of Series A Preferred Stock shall equal that portion
of
the Additional Securities that the Corporation proposes to offer which equals
the proportion that the number of shares of Common Stock that such holder owns
or has the right to acquire (without giving effect to the limitations contained
in Section 5(i)) bears to the total number of shares of Common Stock then
outstanding (assuming in each case the full conversion and exercise of all
convertible and exercisable securities then outstanding).
(iii) If
all
Additional Securities which the holders of shares of Series A Preferred Stock
are entitled to obtain pursuant to Section 10(a)(ii) are not elected to be
obtained as provided in Section 10(a)(ii) hereof, the Corporation may, at its
option, during the 75-day period following the expiration of the period provided
in Section 10(a)(ii) hereof, offer the remaining unsubscribed portion of such
Additional Securities to any person or persons at a price not less than, and
upon terms no more favorable to the offeree than, those specified in the
Issuance Notice. If the Corporation does not consummate the sale of such
Additional Securities within such period, the right provided hereunder shall
be
deemed to be revived and such Additional Securities shall not be offered or
sold
unless first reoffered to the holders of shares of Series A Preferred Stock
in
accordance herewith.
(b) The
rights of the holders of Series A Preferred Stock under this Section 10 shall
not apply to any of the Permitted Issuances.
(c) The
participation right set forth in this Section 10 may not be assigned or
transferred, except in connection with a permitted assignment or transfer of
the
holder’s shares of Series A Preferred Stock and except that such right is
assignable by each holder of shares of Series A Preferred Stock to any
wholly-owned subsidiary or parent of, or to any corporation or entity that
is,
within the meaning of the Securities Act, controlling, controlled by or under
common control with, any such holder.
11. Certificate
as to Adjustments.
Upon
the occurrence of each adjustment or readjustment of the Conversion Value,
the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment
or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Value at the time in effect for the Series
A
Preferred Stock and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of Series A Preferred Stock owned by such holder (without regard
to
the ownership limitations set forth in Section 5(i)).
12. Notices
of Record Date.
In the
event of any fixing by the Corporation of a record date for the holders of
any
class of securities for the purpose of determining the holders thereof who
are
entitled to receive any dividend (other than a cash dividend or a dividend
set
forth in Section 1 hereof) or other distribution, any shares of Common Stock
or
other securities, or any right to subscribe for, purchase or otherwise acquire,
or any option for the purchase of, any shares of stock of any class or any
other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of Series A Preferred Stock at least twenty (20) days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or rights,
and the amount and character of such dividend, distribution or
right.
13. Redemption.
(a) Redemption
at the Holders’ Elections.
If a
Redemption Triggering Event (as defined below) has occurred, and a holder has
so
elected, the Corporation shall redeem the Series A Preferred Stock of any holder
who gives a Demand for Redemption (as defined below). The Corporation shall,
promptly thereafter, redeem the shares of Series A Preferred Stock as set forth
in the Demand for Redemption. The Corporation shall effect such redemption
on
the Redemption Date by paying in cash for each such share to be redeemed an
amount equal to the greater of (i) the Redemption Price (as defined below)
or
(ii) the total number of shares of Common Stock into which such Series A
Preferred Stock is convertible multiplied by the Current Market Price at the
time of the Redemption Triggering Event. “Redemption
Triggering Event”
means
the Corporation’s willful failure or refusal to convert any shares of Series A
Preferred Stock in accordance with Section 5 hereof, or the Corporation’s
providing of written notice to such effect. “Redemption
Price”
means
(i) all accrued but unpaid dividends as of the date of Demand for Redemption
with respect to each share to be redeemed, plus (ii) 100% of the Liquidation
Preference of each share to be redeemed.
(b) Demand
for Redemption.
A
holder desiring to elect a redemption as herein provided shall deliver a notice
(the “Demand
for Redemption”)
to the
Corporation while such Redemption Triggering Event continues specifying the
following:
(i) The
approximate date and nature of the Redemption Triggering Event;
(ii) The
number of shares of Series A Preferred Stock to be redeemed; and
(iii) The
address to which the payment of the Redemption Price shall be delivered, or,
at
the election of the holder, wire instructions with respect to the account to
which payment of the Redemption Price shall be required.
A
holder
may deliver the certificates evidencing the Series A Preferred Stock to be
redeemed with the Demand for Redemption or under separate cover. Payment of
the
Redemption Price shall be made not later than two (2) business days after the
date on which a holder has delivered a Demand for Redemption and the
certificates evidencing the shares of Series A Preferred Stock to be
redeemed.
(c) Status
of Redeemed or Purchased Shares.
Any
shares of the Series A Preferred Stock at any time purchased, redeemed or
otherwise acquired by the Corporation shall not be reissued and shall be
retired.
(d) Status
of Authorized, but Unissued Shares Preferred Stock.
Shares
of Series A Preferred Stock shall be issued only pursuant to the terms of the
Purchase Agreement. Any attempt of the Corporation to issue shares of Series
A
Preferred Stock other than in accordance with the Purchase Agreement shall
be
null and void.
14. Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section
prior to 5:00 p.m. (Eastern Standard Time) on a business day, (b) the next
business day after the date of transmission, if such notice or communication
is
delivered via facsimile at the facsimile number specified in this Section on
a
day that is not a business day or later than 5:00 p.m. (Eastern Standard Time)
on any business day, or (c) the business day following the date of mailing,
if
sent by U.S. nationally recognized overnight courier service such as Federal
Express. The address for such notices and communications shall be as follows:
(i) if to the Corporation, to Access Pharmaceuticals, Inc., 2600 Stemmons
Freeway, Suite 176, Dallas, Texas 75207, Attention: President, Facsimile No.:
(214) 905-5101, or (ii) if to a holder of Series A Preferred Stock, to the
address or facsimile number appearing on the Corporation’s stockholder records
or, in either case, to such other address or facsimile number as the Corporation
or a holder of Series A Preferred Stock may provide to the other in accordance
with this Section.
15. Stock
Transfer Taxes.
The
issue of stock certificates upon conversion of the Series A Preferred Stock
shall be made without charge to the converting holder for any tax in respect
of
such issue; provided, however, that the Corporation shall be entitled to
withhold any applicable withholding taxes with respect to such issue, if any.
The Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
in any name other than that of the holder of any of the Series A Preferred
Stock
converted, and the Corporation shall not be required to issue or deliver any
such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Corporation the amount of such tax or
shall
have established to the satisfaction of the Corporation that such tax has been
paid.
16. Definitions.
Capitalized terms used and not otherwise defined herein that are defined in
the
Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. In addition, for the purposes hereof, the following terms shall
have
the following meanings:
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) an acquisition after the
date
hereof by an individual, legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act), other than SCO Capital Partners
LLC and its Affiliates, of effective control (whether through legal or
beneficial ownership of capital stock of the Corporation, by contract or
otherwise) of in excess of 50% of the voting securities of the Corporation
(other than by means of conversion or exercise of Preferred Stock and the
Securities issued together with the Preferred Stock), or (ii) the Corporation
merges into or consolidates with any other Person, or any Person merges into
or
consolidates with the Corporation and, after giving effect to such transaction,
the stockholders of the Corporation immediately prior to such transaction own
less than 66% of the aggregate voting power of the Corporation or the successor
entity of such transaction, or (iii) the Corporation sells or transfers all
or
substantially all of its assets to another Person and the stockholders of the
Corporation immediately prior to such transaction own less than 66% of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a one year period
of
more than one-half of the members of the Corporation’s board of directors which
is not approved by a majority of those individuals who are members of the board
of directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board
of
directors was approved by a majority of the members of the board of directors
who are members on the date hereof), or (v) the execution by the Corporation
of
an agreement to which the Corporation is a party or by which it is bound,
providing for any of the events set forth in clauses (i) through (iv)
above.
“Common
Stock”
means
the Corporation’s common stock, par value $0.01 per share, and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed into.
“Equity
Conditions”
means,
during the period in question, (i)
the
Corporation shall have duly honored all conversions scheduled to occur or
occurring by virtue of one or more Conversion Notices of the applicable Holder
on or prior to the dates so requested or required, if any, (ii) the Corporation
shall have paid all liquidated damages and other amounts owing to the applicable
Holder in respect of the Preferred Stock, (iii)
there is an effective Registration Statement pursuant to which the Holders
are
permitted to utilize the prospectus thereunder to resell all of the shares
of
Common Stock issuable pursuant to the Transaction Documents (and the Corporation
believes, in good faith, that such effectiveness will continue uninterrupted
for
the foreseeable future) or all of the shares of Common Stock issuable pursuant
to the Transaction Documents may be sold without restriction pursuant to Rule
144(k), (iv) the Common Stock is trading on a Trading Market and all of the
shares issuable pursuant to the Transaction Documents are listed for trading
on
such Trading Market (and the Corporation believes, in good faith, that trading
of the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized, but
unissued and otherwise unreserved, shares of Common Stock for the issuance
of
all of the shares of Common Stock issuable pursuant to the Transaction
Documents, (vi) there is no existing Triggering Event or no existing event
which, with the passage of time or the giving of notice, would constitute a
Triggering Event, (vii) there
has
been no public announcement of a pending or proposed Fundamental Transaction
or
Change of Control Transaction that has not been consummated, (viii) the
applicable Holder is not in possession of any information that constitutes,
or
may constitute, material non-public information.
“Holder”
means
any holder of shares of Series A Preferred Stock.
“Original
Issue Date”
means
the date of the first issuance of any shares of the Series A Preferred Stock
regardless of the number of transfers of any particular shares of Series A
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series A Preferred Stock.
[signature
page follows]
IN
WITNESS WHEREOF, the undersigned being a duly authorized officer of the
Corporation, does file this Certificate of Designations, Rights and Preferences,
hereby declaring and certifying that the facts stated herein are true and
accordingly has hereunto set his hand this 9th day of November
2007.
ACCESS
PHARMACEUTICALS, INC.
By:
/s/
Stephen B. Thompson_____________
Name:
Stephen B. Thompson
Title:
Vice President, Chief Financial Officer, Treasurer and Secretary
EXHIBIT
A
FORM
OF
CONVERSION NOTICE
(To
be
executed by the registered Holder in order to convert shares of Series A
Preferred Stock)
The
undersigned hereby irrevocably elects to convert the number of shares of Series
A Cumulative Convertible Series A Preferred Stock (the “Series
A Preferred Stock”)
indicated below into shares of common stock, par value $0.01 per share (the
“Common
Stock”),
of
Access Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”),
according to the Certificate of Designations, Rights and Preferences of the
Series A Preferred Stock and the conditions hereof, as of the date written
below. The undersigned hereby requests that certificates for the shares of
Common Stock to be issued to the undersigned pursuant to this Conversion Notice
be issued in the name of, and delivered to, the undersigned or its designee
as
indicated below. If the shares of Common Stock are to be issued in the name
of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. A copy of the certificate representing the Series
A Preferred Stock being converted is attached hereto, the original of which
will
be delivered to the Corporation promptly following the date hereof.
______________________________________________________________________________
Date
of
Conversion (Date of Notice)
______________________________________________________________________________
Number
of
shares of Series A Preferred Stock owned prior to Conversion
______________________________________________________________________________
Number
of shares of Series A Preferred Stock to be Converted
______________________________________________________________________________
Stated
Value of Series A Preferred Stock to be Converted
______________________________________________________________________________
Amount
of
accumulated and unpaid dividends on shares of Series A Preferred Stock to be
Converted
______________________________________________________________________________
Number
of
shares of Common Stock to be Issued (including conversion of accrued but unpaid
dividends
on
shares
of Series A Preferred Stock to be Converted)
______________________________________________________________________________
Applicable
Conversion Value
______________________________________________________________________________
Number
of
shares of Series A Preferred Stock owned subsequent to Conversion
Conversion
Information:[NAME OF HOLDER]
_______________________________
Address
of Holder:
___________________________________
___________________________________
Issue
Common Stock to (if different than above):
Name:_______________________________
Address:____________________________
____________________________
Tax
ID
#:_____________________
The
undersigned represents, subject to the accuracy of information filed under
the
Securities Act and the Exchange Act by the Corporation with respect to the
outstanding Common Stock of the Corporation, as of the date hereof that, after
giving effect to the conversion of Preferred Shares pursuant to this Conversion
Notice, the undersigned will not exceed the “Beneficial Ownership Cap” contained
in Section 5(i) of the Certificate of Designation of the Series A Preferred
Stock.
________________________________________________
Name
of
Holder
By:_____________________________________________
Name:
Title: