EXHIBIT
10.26
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION
OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
ACCESS
PHARMACEUTICALS, INC.
7.5%
SECURED CONVERTIBLE PROMISSORY NOTE
U.S.
$__________Dallas,
Texas
No.:
PN-2006-_____
October 24, 2006
FOR
VALUE RECEIVED,
the
undersigned, Access Pharmaceuticals, Inc., a Delaware corporation (the
“Company”),
hereby promises to pay to the order of
_____________________ such
other amount as may be outstanding hereunder, together with all accrued but
unpaid interest, in such coin or currency of the United States of America as
at
the time shall be legal tender for the payment of public and private debts
and
in immediately available funds, as provided in this promissory note (the
“Note”).
This
Note
is one of a duly authorized issue of 7.5% Secured Convertible Promissory Notes
of the Company, in aggregate principal amount of up to ________________ Dollars
($_________) (the “Promissory
Notes”)
issued
pursuant to the Convertible Note
and
Warrant Purchase Agreement of even date herewith (the “Purchase
Agreement”).
The
Promissory Notes rank equally and ratably without priority over one another.
No
payment, including any prepayment, shall be made hereunder unless payment,
including any prepayment, is offered with respect to the other Promissory Notes
in an amount which bears the same ratio to the then unpaid principal amount
of
such Promissory Notes as the payment made hereon bears to the then unpaid
principal amount under this Note.
1. Principal
and Interest Payments.
(a) The
Company shall repay in full the entire principal balance then outstanding under
this Note plus all accrued and unpaid interest on the first to occur (the
“Maturity
Date”)
of:
(i) March 31, 2007; (ii) such time as there occurs a Sale Transaction (as
defined below) unless the resulting successor or acquiring entity in such Sale
Transaction (if not the Company) and, if an entity different from the successor
or acquiring entity, the entity whose capital stock or assets the holders of
the
Common Stock are entitled to receive as a result of such Sale Transaction,
(A)
assumes by written instrument all of the obligations of the Promissory Notes
and
the Transaction Documents (as defined in the Purchase Agreement) as more fully
set
forth
in
Section 1(d) below and (B) the entity whose securities into which this Note
shall become convertible in such transaction is a publicly traded corporation
whose common stock is listed for trading on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, the Nasdaq Capital Market,
the OTC Bulletin Board or Pink Sheets or (iii) the acceleration of the
obligations as contemplated by this Note.
“Sale
Transaction”
shall
mean any transaction or series of related transactions, other than the
conversion of convertible securities of the Company outstanding as of the date
hereof or the exercise of options or warrants of the Company, in each case,
outstanding as of the date hereof, which result in the (i) acquisition by an
individual or legal entity or group (as set forth in Section 13(d) of the
Exchange Act) of more than one-half of the voting rights or equity interests
in
the Company; or (ii) sale, conveyance, or other disposition of all or
substantially all of the assets, property or business of the Company or the
merger into or consolidation with any other corporation (other than a wholly
owned subsidiary corporation) or effectuation of any transaction or series
of
related transactions where holders of the Company’s voting securities prior to
such transaction or series of transactions fail to continue to hold at least
50%
of the voting power of the Company (or, if other than the Company, the successor
or acquiring entity) immediately following such transaction.
(b) Interest
on the outstanding principal balance of this Note shall accrue at a rate of
seven and one-half percent (7.5%) per annum, compounded quarterly. Interest
on
the outstanding principal balance of the Note shall be computed on the basis
of
the actual number of days elapsed and a year of three hundred and sixty (360)
days and shall be payable on the Maturity Date, upon earlier prepayment of
this
Note or in the form of shares of common stock, par value $0.01 per share, of
the
Company (the “Common
Stock”)
upon
conversion of this note as set forth in Section 8 below. Furthermore, upon
the
occurrence of an Event of Default, then to the extent permitted by law, the
Company will pay interest to the Payee, payable on demand, on the outstanding
principal balance of the Note from the date of the Event of Default until
payment in full at the rate of twelve percent (12%) per annum.
(c) The
Company may not prepay the outstanding principal amount of this Note or the
interest thereon prior to the Maturity Date (a “Prepayment”)
without the written consent of the Payee, unless the Company shall provide
at
least sixty (60) days, but not more than ninety (90) days, prior written notice
of the date on which the Company intends to make such Prepayment (a
“Prepayment
Notice”).
Nothing in this Section 1(c) shall limit the right of the Payee to convert
this
Note into Common Stock at any time after receipt of the Prepayment Notice and
prior to the time at which such Prepayment is made. Notwithstanding the
limitations in Section 8(g), the Payee may deliver a Conversion Notice with
respect to all of the outstanding Principal Amount and interest accrued thereon,
in which case, to the extent that Section 8(g) limits the conversion of this
Note, this Note shall not be subject to Prepayment and shall be converted as
set
forth in Section 8(c)(v).
(d) If
the
Promissory Notes and Transaction Documents are to be assumed as described in
Section 1(a)(ii)(A), the applicable assuming corporation shall expressly assume
the due and punctual observance and performance of each and every covenant
and
condition contained in the Promissory Notes and the Transaction Documents to
be
performed
and
observed by the Company and all the obligations and liabilities thereunder,
subject to such modifications as may be deemed appropriate (as determined by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of the Common Stock into which the Promissory Notes are
convertible which shall be as nearly equivalent as practicable to the
adjustments provided for in Section 8. The provisions of Section 1(a) and this
Section 1(d) shall similarly apply to successive Sale Transactions.
2. Non-Business
Days.
Whenever any payment to be made shall be due on a Saturday, Sunday or a public
holiday under the laws of the State of Texas, such payment may be due on the
next succeeding business day and such next succeeding day shall be included
in
the calculation of the amount of accrued interest payable on such
date.
3. Security.This
Note
is secured pursuant to the terms of a Security Agreement dated as of February
16, 2006, between the Company and the holders of the Secured Convertible
Promissory Notes issued by the Company on February 16, 2006 (the “February
Notes”)
as
amended pursuant to a Security Agreement Amendment between the Company, the
holders of the February Notes and the holders of the Promissory Notes, of even
date herewith (such Security Agreement, as so amended, the “Security
Agreement”)
by a
security interest in the Collateral (as such term is defined in the Security
Agreement). The Note is subject to the provisions of the Security
Agreement.
4. Subordination
of Future Debt; Payment of Common Stock Dividends.
Any
debt incurred after the date hereof to any creditor shall be subordinated to
the
indebtedness evidenced by this Note. The Company shall not declare or pay any
dividend or distribution with respect to any common stock of the Company other
than a pro rata dividend payable solely in shares of Common Stock.
5. Representations
and Warranties of the Company.
The
Company represents and warrants to the Payee as follows:
(a) The
Company has been duly incorporated and is validly existing and in good standing
under the laws of the state of Delaware, with full corporate power and authority
to own, lease and operate its properties and to conduct its business as
currently conducted.
(b) This
Note
has been duly authorized, validly executed and delivered on behalf of the
Company and is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to limitations on enforcement
by general principles of equity and by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, and the Company has full power
and
authority to execute and deliver this Note and to perform its obligations
hereunder.
(c) The
execution, delivery and performance of this Note will not (i) conflict with
or
result in a breach of or a default under any of the terms or provisions of,
(A)
the Company’s articles of incorporation or by-laws, or (B) any material
provision of any indenture, mortgage, deed of trust or other material agreement
or instrument to which the Company is
a
party
or by which it or any of its material properties or assets is bound, (ii) result
in a violation of any material provision of any law, statute, rule, regulation,
or any existing applicable decree, judgment or order by any court, Federal
or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company, or any of its material properties or assets
or
(iii) result in the creation or imposition of any material lien, charge or
encumbrance upon any material property or assets of the Company or any of its
subsidiaries pursuant to the terms of any other agreement or instrument to
which
any of them is a party or by which any of them may be bound or to which any
of
their property or any of them is subject.
(d) No
consent, approval or authorization of or designation, declaration or filing
with
any governmental authority on the part of the Company is required in connection
with the valid execution and delivery of this Note.
6. Events
of Default.
The
occurrence of any of the following events shall be an “Event
of Default”
under
this Note:
(a) the
Company shall fail to make the payment of any amount of any principal
outstanding for a period of two (2) business days after the date such payment
shall become due and payable hereunder; or
(b) the
Company shall fail to make any payment of interest for a period of two (2)
business days after the date such interest shall become due and payable
hereunder; or
(c) if
default shall be made in the performance or observance of any representation,
warranty, covenant, or agreement contained in this Note, in the Security
Agreement, in the Purchase Agreement or in the Investor Rights Agreement (as
defined in the Purchase Agreement), or in any other agreement between the
Company and the Payee relating to indebtedness of the Company to the Payee
or
any of its affiliates for borrowed money and such default shall have continued
for a period of five (5) days after Company’s receipt of written notice of such
default (unless such default is on account of failure to give a required notice,
in which event such 5 day cure period shall commence with the date of such
default); or
(d) the
holder of any indebtedness of the Company or any of its subsidiaries shall
accelerate any payment of any amount or amounts of principal or interest on
any
indebtedness (“Indebtedness”)
(other
than the Indebtedness hereunder) prior to its stated maturity or payment date,
the aggregate principal amount of which Indebtedness of all such persons is
in
excess of $100,000, whether such Indebtedness now exists or shall hereafter
be
created, and such accelerated payment entitles the holder thereof to immediate
payment of such Indebtedness which is due and owing and such indebtedness has
not been discharged in full or such acceleration has not been stayed, rescinded
or annulled within five (5) business days of such acceleration; or
(e) A
judgment or order for the payment of money shall be rendered against the Company
or any of its subsidiaries in excess of $100,000 in the aggregate (net of any
applicable insurance coverage) for all such judgments or orders against all
such
persons (treating
any
deductibles, self insurance or retention as not so covered) that shall not
be
discharged, and all such judgments and orders remain outstanding, and there
shall be any period of sixty (60) consecutive days following entry of the
judgment or order in excess of $100,000 or the judgment or order which causes
the aggregate amount described above to exceed $100,000 during which a stay
of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(f) the
Company shall (i) apply for or consent to the appointment of, or the taking
of
possession by, a receiver, custodian, trustee or liquidator of itself or of
all
or a substantial part of its property or assets, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a voluntary case under the
United States Bankruptcy Code (the “Bankruptcy
Code”)
or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file
a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against it
in
an involuntary case under the Bankruptcy Code or under the comparable laws
of
any jurisdiction (foreign or domestic), or (vi) take any action under the laws
of any jurisdiction (foreign or domestic) analogous to any of the foregoing;
or
(g) a
proceeding or case shall be commenced in respect of the Company or any of its
subsidiaries without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii)
the
appointment of a trustee, receiver, custodian, liquidator or the like of it
or
of all or any substantial part of its assets or (iii) similar relief in respect
of it under any law providing for the relief of debtors, and such proceeding
or
case described in clause (i), (ii) or (iii) shall continue undismissed, or
unstayed and in effect, for a period of thirty (30) consecutive days or any
order for relief shall be entered in an involuntary case under the Bankruptcy
Code or under the comparable laws of any jurisdiction (foreign or domestic)
against the Company or any of its subsidiaries or action under the laws of
any
jurisdiction (foreign or domestic) analogous to any of the foregoing shall
be
taken with respect to the Company or any of its subsidiaries and shall continue
undismissed, or unstayed and in effect for a period of thirty (30) consecutive
days;
(h) the
suspension from listing or the failure of the Company’s common stock to be
listed on any of the Pink Sheets, OTC Bulletin Board, American Stock Exchange,
New York Stock Exchange, Nasdaq National Market or Nasdaq Capital Market for
a
period of five (5) consecutive trading days;
(i) the
declaration or payment by the Company of any dividend or distribution with
respect to its common stock other than a pro rata dividend payable solely in
shares of Common Stock; or
(j) the
failure by the Company to comply with the requirements of Section 4.11 of the
Purchase Agreement.
7. Remedies
Upon An Event of Default.
If an
Event of Default shall have occurred and shall be continuing, the Payee of
this
Note may at any time at its option, (a) declare the entire unpaid principal
balance of this Note, together with all interest accrued hereon, due and
payable, and thereupon, the same shall be accelerated and so due and payable;
provided,
however,
that
upon the occurrence of an Event of Default described in (i) Sections 6(f) and
(g), without presentment, demand, protest, or notice, all of which are hereby
expressly unconditionally and irrevocably waived by the Company, the outstanding
principal balance and accrued interest hereunder shall be automatically due
and
payable, and (ii) Sections 6(a) through (e) and Sections 6(h) through (j),
the
Payee may exercise or otherwise enforce any one or more of the Payee's rights,
powers, privileges, remedies and interests under this Note or applicable law.
No
course of delay on the part of the Payee shall operate as a waiver thereof
or
otherwise prejudice the right of the Payee. No remedy conferred hereby shall
be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.
8. Conversion.
(a) Optional
Conversion.
Subject
to the limitations set forth in Sections 8(g) hereof, the holder of this Note
shall have the right at any time, at such holder’s option, to convert all or any
lesser portion of the Principal Amount plus accrued and unpaid interest thereon
into such number of fully paid and non-assessable shares of Common Stock as
is
determined by dividing (i) the portion of the Principal Amount to be converted
plus accrued and unpaid interest thereon by (ii) the Conversion Rate (as defined
below) then in effect for this Note. The initial conversion rate shall be $1.10,
such rate to be subject to adjustment in accordance with the provisions of
this
Section 8. Such conversion rate in effect from time to time, as adjusted
pursuant to this Section 8, is referred to herein as a “Conversion
Rate.”
All
of
the remaining provisions of this Section 8 shall apply separately to each
Conversion Rate in effect from time to time with respect to this
Note.
(b) Mandatory
Conversion.
If a
Conversion Triggering Event (as defined below) shall occur and within 5 business
days following such occurrence, the Company shall deliver a written notice
to
the holders of the Promissory Notes (the “Notice”)
that
the Company intends to convert all of the outstanding Promissory Notes into
Common Stock, then, subject to the limitations set forth in Section 8(g) hereof,
as of the date that is sixty-five days following the date that such Notice
is
given (the “Mandatory
Conversion Date”),
this
Note shall be converted into such number of fully paid and non-assessable shares
of Common Stock as is determined by dividing (i) the Principal Amount plus
accrued and unpaid interest thereon by (ii) the Conversion Rate then in effect
(the “Mandatory
Conversion”).
Nothing in this Section 8(b) shall be construed so as to limit the right of
a
holder of this Note to convert pursuant to Section 8(a) at any time. If the
Maturity Date occurs after the Notice is duly delivered to the Payee, but prior
to the Mandatory Conversion Date or the earlier conversion in full of this
Note,
then the Company shall not be obligated to repay in cash the Principal Amount,
together with all accrued and unpaid interest thereon, and this Note shall
remain outstanding, as more fully described in Section 8(c)(v), until such
time
as it is fully converted.
“Conversion
Triggering Event”
shall
mean, such time as:
(i) The
Registration Statement (as defined below) covering all of the shares of Common
Stock into which this Note is convertible is effective and sales may be made
pursuant thereto (or all of the shares of Common Stock into which this Note
is
convertible 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”));
(ii) The
Daily
Market Price of the Common Stock is at least $7.50 (subject to adjustment for
stock splits, reverse splits, stock dividends and the like) for any period
of 20
consecutive trading days; and
(iii) The
Company has a sufficient number of authorized and unissued shares of Common
Stock reserved for issuance upon the conversion of the Promissory Notes to
convert all of the Promissory Notes in full.
“Registration
Statement”
shall
have the meaning established in the Investor Rights Agreement dated on or about
the date hereof, by and among the Company and the other parties signatory
thereto.
(c) Mechanics
of Conversion.
(i) Such
right of conversion shall be exercised by the Payee by delivering to the Company
a conversion notice in the form attached hereto as Exhibit
A
(the
“Conversion
Notice”),
appropriately completed and duly signed, and by surrender not later than two
(2)
business days thereafter of this Note. 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 this Note is registered.
Promptly after the receipt of the Conversion Notice, the Company shall issue
and
deliver, or cause to be delivered, to the Payee or such Payee’s nominee, a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion. Such conversion shall be deemed to have been effected
as
of the close of business on the date of receipt by the Company 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. If the Payee has not converted the entire amount of the Note
pursuant to the Conversion Notice, then the Company shall execute and deliver
to
the Payee a new Note instrument identical in terms to this Note, but with a
principal amount reflecting the unconverted portion of this Note. The new Note
instrument shall be delivered subject to the same timing terms as the
certificates for the Common Stock.
(ii) The
Company shall effect such issuance of Common Stock within three (3) trading
days
following 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) trading days after the receipt by the Company of such
Conversion Notice. Provided that the holder complies with all of the provisions
of this Note relating to the conversion hereof, if certificates evidencing
the
Common Stock are not received by the holder (through no fault or
negligence
of the holder) within five (5) Business Days following the Conversion Date,
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. If
the
conversion has not been rescinded in accordance with this paragraph and the
Company fails to deliver to the holder such certificate or certificates pursuant
to this Section 8 in accordance herewith, prior to the seventh (7th)
Business Day after the Conversion Date (assuming timely surrender of the Note
and compliance with the other provisions of this Note that relate to the
conversion hereof), the Company shall pay to such Payee, in cash, on a per
diem
basis, an amount equal to 0.2% of the principal amount and all interest accrued
thereon of the Note until such delivery takes place and interest shall continue
to accrue as provided in Section 2 as if no Conversion Notice had been
delivered.
(iii) The
Company’s obligation to issue Common Stock upon conversion of this Note shall be
absolute, is independent of any covenant of any Payee, and shall not be subject
to: (i) any offset or defense; or (ii) any claims against the holders of the
Promissory Notes whether pursuant to this Note, the Certificate of Incorporation
of the Company, the Purchase Agreement, the Investor Rights Agreement (as
defined in the Purchase Agreement), the Warrants (as defined in the Purchase
Agreement) or otherwise.
(iv) Subject
to the provisions of Section 8(g), in the event that a Conversion Triggering
Event has occurred and the Company has given the Notice as required by Section
8(b), this Note shall be converted in full on the Mandatory Conversion Date
as
if the holder hereof had delivered a Conversion Notice with respect to this
Note
on such date. Promptly thereafter, the holder of this Note shall deliver this
Note to the Company or its duly authorized transfer agent, and upon receipt
thereof, the Company shall issue or cause its transfer agent to issue
certificates evidencing the Common Stock into which this Note has been
converted.
(v) Beneficial
Ownership Cap.
To the
extent that (A) all of the outstanding principal and interest due on this Note
is not automatically converted in full upon the occurrence of a Mandatory
Conversion on account of the application of Section 8(g), (B) a Notice has
been
duly delivered to the Payee and the Maturity Date has occurred prior to the
Mandatory Conversion Date specified in such Notice or (C) the Payee elects
to
convert all of the outstanding principal and interest due on this Note following
a Prepayment Notice and prior to Prepayment, but all of such amounts are not
converted in full on account of the application of Section 8(g) (each of the
events referred to in clauses (A), (B) and (C), a “Limited
Conversion”),
this
Note shall remain outstanding with respect to the amounts of unpaid principal
and unpaid interest remaining and such amounts remaining shall be deemed
converted automatically under this Section 8 at the first moment thereafter
either when the Mandatory Conversion Date occurs in the case of a Limited
Conversion pursuant to clause (B) above (except that such conversion shall
remain subject to Section 8(g), and if Section 8(g) applies, such conversion
shall become a clause (A) Limited Conversion following the Mandatory Conversion
Date), or, in all other cases, when Section 8(g) would not prevent such
conversion. Notwithstanding the preceding sentence, upon the occurrence of
the
Limited Conversion, the rights of the Payee pursuant to Sections 1, 2, 3, 4,
5,
6 and 7, including, without limitation, the right to be repaid principal and
interest in cash, shall be terminated immediately and all other rights and
obligations (including, without limitation, the rights hereunder to adjustments
to the Conversion Rate) shall remain in full force and effect (the “Remaining
Rights”);
provided that, upon the occurrence of a Sale Transaction,
the
resulting successor or acquiring entity in such Sale Transaction (if not the
Company) and, if an entity different from the successor or acquiring entity,
the
entity whose capital stock or assets the holders of the Common Stock are
entitled to receive as a result of such Sale Transaction, shall assume by
written instrument all of the Remaining Rights (but not the rights that have
been terminated as provided above) under the Promissory Notes and all of the
rights and obligations of the Company under Transaction Documents.
(d) Fractional
Shares.
The
Company shall not be required to issue a fractional share of Common Stock upon
conversion of this Note. As to any fraction of a share which the holder of
this
Note would otherwise be entitled to acquire upon such conversion, the Company
shall pay an amount in cash equal to the Current Market Price (as defined below)
per share of Common Stock on the date of conversion, multiplied by such
fraction.
“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 higher of (a) the
book value per share of Common Stock at such date, and (b) the fair market
value
per share of Common Stock as determined in good faith by the Board,
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 for each such trading day shall be (i) the closing bid
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 bid 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 bid 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, (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
National Association of Securities Dealers, Inc. (the “NASD”)
selected mutually by holders of a majority in interest of the Promissory Notes
and the Company or, if they cannot agree upon such selection, as selected by
two
such members of the NASD, one of which shall be selected by holders of a
majority in interest of the Promissory Notes and one of which shall be selected
by the Company (as applicable, the “Daily
Market Price”).
(e) Stock
Dividends, Subdivisions and Combinations.
If at
any time while the this Note is outstanding, the Company 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 Rate 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
Section 8(e) 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 Section 8(e) 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 Rate is calculated hereunder, then the
calculation of such Conversion Rate shall be adjusted appropriately to reflect
such event.
(f) Certain
Other Distributions.
If at
any time while this Note is outstanding the Company 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 8(e) 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 8(f)(i), 8(f)(ii) and 8(f)(iii) hereof, the “Distributed
Property”),
then
upon
any conversion of this Note that occurs after such record date, the holder
of
this Note 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 Company shall give written notice of such
determination and a copy of the Valuation Report to the holder of this Note,
and
if the holder objects to such determination within twenty (20) business days
following the date such notice is given, the Company shall submit such valuation
to an investment banking firm of recognized national standing selected by the
holder of this Note and acceptable to the
Company
in its reasonable discretion, whose opinion shall be binding upon the Company
and the holder of this Note. 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 Company to the holders of its Common
Stock
of such shares of such other class of stock within the meaning of this Section
8(f) 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 8(e).
(g) Blocking
Provision.
(i) Except
as
provided otherwise in this Section 8(g)(i), the number of Conversion Shares
that
may be acquired by any holder shall be limited to the extent necessary to insure
that, following such conversion, 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 Company 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.
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 the holder of this Note, 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 the holder of this Note 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 of 1934, as
amended (the “Exchange
Act”)
by the
Company with respect to the outstanding Common Stock of the Company, 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 Company 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 Company 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 Promissory Notes.
(iii) Notwithstanding
the foregoing provisions of Section 8(g), any holder of Promissory Notes shall
have the right prior to the time of the Closing (as defined in the Purchase
Agreement) upon written notice to the Company, or after the time of the Closing
upon (x) 61 days prior written notice to the Company or (y) upon
a
Sale Transaction, to choose not to be governed by the Beneficial Ownership
Cap
provided herein.
(h) Common
Stock Reserved.
The
Company shall at all times reserve and keep available out of its authorized
but
unissued Common Stock, solely for issuance upon the conversion of the Promissory
Notes, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the Promissory Notes at the time outstanding
(without regard to any ownership limitations provided in Section
8(g)).
9. 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 this Note is convertible and the
current Conversion Rate provided for in Section 8:
(a) When
Adjustments to Be Made.
The
adjustments required by Section 8 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any adjustment
to the Conversion Rate 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 8(e)) 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 this Note
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 8 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 8, 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
Company undertakes a transaction contemplated under Section 8(f) 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 8(f) 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 8(f), 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 8 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 this Note converts
the
Note during such period or such holder is unable to convert pursuant to Section
8(g), the holder of this Note shall continue to be entitled to receive any
shares of Common Stock issuable upon conversion under Section 8 by reason of
such adjustment (as if this Note were not yet converted) and such shares or
other property shall be held in escrow for the holder of this Note by the
Company to be issued to holder of this Note 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 Company and
escrowed property returned to the Company.
10. Replacement.
Upon
receipt of a duly executed, notarized and unsecured written statement from
the
Payee with respect to the loss, theft or destruction of this Note (or any
replacement hereof), and, if requested by the Company, an indemnity bond
customary in the industry, or, in the case of a mutilation of this Note, upon
surrender and cancellation of such Note, the Company shall issue a new Note,
of
like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated
Note.
11. Parties
in Interest, Transferability.
This
Note shall be binding upon the Company and its successors and permitted assigns
and the terms hereof shall inure to the benefit of the Payee and its successors
and assigns. This Note may be transferred or sold, subject to the provisions
of
Section 19 of this Note, or pledged, hypothecated or otherwise granted as
security by the Payee.
12. Amendments.
This
Note may not be modified or amended in any manner except in writing executed
by
the Company and the Payee.
13. Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telecopy or facsimile at the address or number designated below
(if
delivered on a business day during normal business hours where such notice
is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The Company will
give written notice to the Payee at least twenty (20) days prior to the date
on
which dissolution, liquidation or winding-up will take place and in no event
shall such notice be provided to the Payee prior to such information being
made
known to the public. Notices to the Payee shall be made to the address set
forth
in the Purchase Agreement. Notices to the Company shall be made to the
following:
Address
of the Company:
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
Attention:
President
Facsimile
No.: (214) 905-5101
with
a
copy to:
Bingham
McCutchen LLP
150
Federal Street
Boston,
Massachusetts 02110
Attention:
John J. Concannon, III
Facsimile
No.: (617) 951-8736
14. Governing
Law.
This
Note shall be governed by and construed in accordance with the internal laws
of
the State of New York, without giving effect to the choice of law provisions.
This Note shall not be interpreted or construed with any presumption against
the
party causing this Note to be drafted.
15. Headings.
Article
and section headings in this Note are included herein for purposes of
convenience of reference only and shall not constitute a part of this Note
for
any other purpose.
16. Remedies,
Characterizations, Other Obligations, Breaches and Injunctive
Relief.
The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note, at law or in equity (including, without
limitation, a decree of specific performance and/or other injunctive relief),
no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a Payee’s
right to pursue actual damages for any failure by the Company to comply with
the
terms of this Note. Amounts set forth or provided for herein with respect to
payments and the like (and the computation thereof) shall be the amounts to
be
received by the Payee and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof).
The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable and material harm to the Payee and that the remedy at law for any
such breach may be inadequate. Therefore the Company agrees that, in the event
of any such breach or threatened breach, the Payee shall be entitled, in
addition to all other available rights and remedies, at law or in equity, to
such equitable relief, including but not limited to an injunction restraining
any such breach or threatened breach, without the necessity of showing economic
loss and without any bond or other security being required.
17. Failure
or Indulgence Not Waiver.
No
failure or delay on the part of the Payee in the exercise of any power, right
or
privilege hereunder shall operate as a waiver thereof, nor shall any single
or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
18. Enforcement
Expenses.
The
Company agrees to pay all costs and expenses of enforcement of this Note,
including, without limitation, reasonable attorneys' fees and
expenses.
19. Compliance
with Securities Laws.
The
Payee of this Note acknowledges that this Note is being acquired solely for
the
Payee’s own account and not as a nominee for any other party, and for
investment, and that the Payee shall not offer, sell or otherwise dispose of
this Note other than in compliance with the laws of the United States of America
and as guided by the rules of the Securities and Exchange Commission. This
Note
and any Note issued in substitution or replacement therefore shall be stamped
or
imprinted with a legend in substantially the following form:
“THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION
OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.”
20. Severability.
The
provisions of this Note are severable, and if any provision shall be held
invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall not in any manner affect such provision
in
any other jurisdiction or any other provision of this Note in any
jurisdiction.
21. Consent
to Jurisdiction.
Each of
the Company and the Payee (i) hereby irrevocably submits to the jurisdiction
of
the United States District Court sitting in the Southern District of New York
and the courts of the State of New York located in New York county for the
purposes of any suit, action or proceeding arising out of or relating to this
Note and (ii) hereby waives, and agrees not to assert in any such suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction
of such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each
of
the Company and the Payee consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address
set
forth in Section 13 hereof and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
21
shall affect or limit any right to serve process in any other manner permitted
by law.
22. Company
Waivers.
Except
as otherwise specifically provided herein, the Company and all others that
may
become liable for all or any part of the obligations evidenced by this Note,
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands and notices in connection with the delivery, acceptance, performance
and
enforcement of this Note, and do hereby consent to any number of renewals of
extensions of the time or payment hereof and agree that any such renewals or
extensions may be made without notice to any such persons and without affecting
their liability herein and do further consent to the release of any person
liable hereon, all without affecting the liability of the other persons, firms
or Company liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY
JURY.
(a) No
delay
or omission on the part of the Payee in exercising its rights under this Note,
or course of conduct relating hereto, shall operate as a waiver of such rights
or any other right of the Payee, nor shall any waiver by the Payee of any such
right or rights on any one occasion be deemed a waiver of the same right or
rights on any future occasion.
(b) THE
COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY
WHICH THE PAYEE OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
the
Company has executed and delivered this Promissory Note as of the date first
written above.
ACCESS
PHARMACEUTICALS, INC.
Name:
Title:
EXHIBIT
A
FORM
OF
CONVERSION NOTICE
(To
be
executed by the registered holder in order to convert the Note)
The
undersigned hereby irrevocably elects to convert the 7.5% Secured Convertible
Promissory Note (the “Note”)
of
Access Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
due
March 31, 2007 held
by
the undersigned into shares of Common Stock, according to the terms and
conditions of the Note 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 Note being converted is attached hereto
(and
the original Note shall be transmitted to the Company pursuant to the terms
thereof). All capitalized terms used in this Conversion Notice, but not
otherwise defined herein shall have the meanings assigned in the
Note.
______________________________________________________________________________
Date
of
Conversion (Date of Notice)
______________________________________________________________________________
Principal
Amount of Note to be Converted
______________________________________________________________________________
Principal
Amount of Note not to be Converted (Principal Amount Remaining after Conversion)
______________________________________________________________________________
Amount
of
accumulated and unpaid interest on principal amount of Note to be
Converted
______________________________________________________________________________
of
shares
of Common Stock to be Issued (including conversion of accrued but unpaid
interest on Notes to be Converted)
______________________________________________________________________________
Applicable
Conversion Value
Conversion
Information:[NAME OF HOLDER]
___________________________________
Address
of Holder:
__________________________________
___________________________________
Issue
Common Stock to (if different than above):
Name:_______________________________
Address:____________________________
____________________________
Tax
ID
#:_____________________
________________________________________________
Name
of
Holder
By:_____________________________________________
Name:
Title: