As
filed with the Securities and Exchange Commission on
__________
Registration
Number 333-____
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ACCESS
PHARMACEUTICALS, INC.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
|
|
3841
|
|
83-0221517
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
No.)
|
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
(214)
905-5100
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of
Registrant’s Principal Executive Offices)
|
Stephen
B. Thompson
Chief
Financial Officer
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
(214)
905-5100
(Name,
Address, Including Zip Code, and Telephone Number, Including Area
Code, of
Agent for Service)
|
with
a copy to:
|
John
J. Concannon III, Esq.
Bingham
McCutchen LLP
150
Federal Street
Boston,
MA 02110
(617)
951-8000
|
|
Approximate
date of commencement of proposed sale to public:
As
soon as practicable after the effective date hereof.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act, check the
following box.
þ
If
this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ྑ
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
ྑ
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
ྑ
If
delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. ྑ
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of
Securities
to be Registered
|
|
Amount
to
be
Registered
|
|
Proposed
Maximum
Offering
Price
Per
Security
|
|
Proposed
Maximum
Aggregate
Offering
Price
|
|
Amount
of
Registration
Fee
|
|
Common
stock, $0.01 par value per share
|
|
10,757,864
(1)
|
|
$2.60
(5)
|
|
$27,970,447
|
|
$
859 (5)
|
Common
stock, $0.01 par value per share
|
|
3,649,880
(2)
|
|
$2.60
(5)
|
|
$
9,489,688
|
|
$
292 (5)
|
Common
stock, $0.01 par value per share
|
|
772,728 (3)
|
|
$2.60
(5)
|
|
$
2,009,093
|
|
$ 62
(5)
|
Common
stock, $0.01 par value per share
|
|
1,380,047
(4)
|
|
$2.60 (5)
|
|
$
3,588,123
|
|
$
111 (5)
|
|
|
|
|
|
|
|
|
|
Total
Common stock, $0.01 par value per share
|
|
16,560,519
|
|
|
|
$43,057,351
|
|
$
1,324 (5)
|
|
(1)
10,757,864
shares
are
issuable to selling stockholders upon
conversion of Series A Preferred Stock
.
(2)
3,649,880
shares
are issuable to selling stockholders upon
exercise
of warrants for the purchase of shares of the Registrant's Common Stock at
$3.50
.
(3) 772728
shares
are issuable to selling stockholders upon
exercise
of warrants for the purchase of shares of the Registrant's Common Stock at
$1.35
per share
.
(4)
1,380,047 shares of Common Stock that may be issued as
dividends on the Series A Preferred Stock.
(5)
Estimated
solely for the purpose of calculating the registration fee pursuant to Rule
457(c) under the Securities Act of 1933. For the purposes of this table, we
have
used the average of the high and low prices as
reported
on the OTC Bulletin Board on December 7, 2007.
Pursuant
to Rule 416, there are also being registered such additional securities as
may
be issued to prevent dilution resulting from stock splits, stock dividends
or
similar transactions as a result of the anti-dilution provisions contained
in
the warrants and certificate of the Series A Preferred Stock.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A),
MAY DETERMINE
.
INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL AND IS NOT A
SOLICITATION OF AN OFFER TO BUY IN ANY STATE IN WHICH AN OFFER, SOLICITATION,
OR
SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED ________, 2007
PROSPECTUS
ACCESS
PHARMACEUTICALS, INC.
16,560,519
Shares of Common Stock
This
Prospectus relates to the offer and sale of up to 16,560,519 shares of common
stock, $0.01 par value per share, of Access Pharmaceuticals, Inc. (“Access”) by
certain stockholders of Access, namely SCO Capital Partners LLC, (“SCO”) and
affiliates (SCO Capital Partners LP and Beach Capital LLC), Credit Suisse
Securities (USA) LLC, Enable Growth Partners LP, Dennis Lavalle, Lake End
Capital LLC, Midsummer Investment, Ltd., Oracle Partners LP and affiliates
(Oracle Institutional Partners LP, Oracle Offshore Ltd., SAM Oracle Investments,
Inc.) Perceptive Life Sciences Master Fund Ltd., Rockmore Investment Master
Fund
Ltd., Brio Capital LP, Catalytix LDC Life Science Hedge AC, Cobblestone Asset
Management LLC, Cranshire Capital LP and Rodman and Renshaw LLC.
Access
is
not selling any shares of common stock in this offering and therefore will
not
receive any of the proceeds from this offering. However, if the warrants are
exercised, Access will receive the proceeds from such exercise if payment is
made in cash. All costs associated with this registration will be borne by
Access.
The
shares of common stock are being offered for sale by the selling stockholders
at
prices established on the OTC Bulletin Board during the term of this offering.
On December 7, 2007, the last reported sale price of our common stock was $2.57
per share. Our common stock is presently listed on the OTC Bulletin Board under
the symbol “ACCP”. These prices will fluctuate based on the demand for the
shares of common stock.
Brokers
or dealers effecting transactions in these shares should confirm that the shares
are registered under the applicable state law or that an exemption from
registration is available.
No
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. None of the proceeds from the sale of stock
by
the selling stockholders will be placed in escrow, trust or any similar
account.
These
securities are speculative and involve a high degree of
risk.
You
should purchase securities only if you can afford a complete loss of your
investment.
See
“Risk factors” beginning on page 6.
These
securities have not been approved or disapproved by the Securities and Exchange
Commission or any state securities commission nor has the Securities and
Exchange Commission or any state securities commission passed upon the accuracy
or adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
THE
DATE
OF THIS PROSPECTUS IS , 2007.
|
Page
|
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|
PROSPECTUS SUMMARY
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1
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EXPLANATORY
NOTE
|
1
|
ABOUT
ACCESS
|
1
|
SUMMARY
OF THE OFFERING
|
4
|
SUMMARY
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
|
5
|
|
|
RISK FACTORS
|
6
|
FORWARD-LOOKING STATEMENTS
|
15
|
SELLING STOCKHOLDERS
|
16
|
USE OF PROCEEDS
|
18
|
PLAN OF DISTRIBUTION
|
18
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
|
|
RESULTS
OF OPERATIONS
|
21
|
DESCRIPTION OF BUSINESS
|
32
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MANAGEMENT - DIRECTORS AND EXECUTIVE OFFICERS
|
45
|
LEGAL PROCEEDINGS
|
57
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
57
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|
62
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MARKET FOR OUR COMMON STOCK
|
63
|
SELECTED CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
|
65
|
SUPPLEMENTARY FINANCIAL INFORMATION
|
65
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
|
65
|
DESCRIPTION OF SECURITIES
|
67
|
EXPERTS
|
69
|
LEGAL MATTERS
|
69
|
WHERE YOU CAN FIND MORE INFORMATION
|
69
|
FINANCIAL STATEMENTS
|
F-1
|
WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
OR
ANY PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL OR
A
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION
WHERE AN OFFER OR SOLICITATION IS NOT PERMITTED. NO SALE MADE PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS
NOT BEEN ANY CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS
PROSPECTUS.
PROSPECTUS
SUMMARY
This
summary highlights selected information contained elsewhere in this Prospectus.
This summary does not contain all the information you should consider before
investing in shares of our common stock. You should read this entire Prospectus
carefully, including “Risk Factors” beginning on page 6 and our financial
statements and the notes to those financial statements beginning on F-1 before
making an investment decision.
EXPLANATORY
NOTE
Of
the
16,560,519 shares being registered for sale in this offering:
(1)
7,242,200 of such shares relate to shares of common stock underlying Series
A
Preferred Stock and common stock warrants which were issued to SCO and
affiliates on November 13, 2007 in exchange for the cancellation of $6,000,000
of principal amount of convertible promissory notes plus interest originally
issued to Lake End Capital LLC and SCO and affiliates on February 16, 2006
($5,000,000), October 24, 2006 ($500,000) and December 6, 2006, ($500,000).
The
Company had previously registered the common stock underlying $5,000,000 of
the
convertible notes issued on a registration statement on Form S-1 Registration
Statement No. 333-135734, which was declared effective on August 7,
2006.
(2)
2,186,549 of such shares relate to shares of common stock underlying Series
A
Preferred Stock and common stock warrants which were issued to Oracle and
affiliates on November 13, 2007 in exchange for the cancellation of $4,015,000
of principal amount of convertible promissory notes plus interest as amended,
originally issued to Oracle on September 13, 2000. The Company had previously
registered the common stock underlying such convertible notes on a registration
statement on Form S-1 Registration Statement No. 333-135734 which was declared
effective on August 7, 2006.
(3)
4,978,995 of such shares relate to shares of common stock underlying Series
A
Preferred Stock and common stock warrants acquired by new and certain previously
existing investors. Such shares include 1,499,999 shares underlying Series
A
Preferred Stock and common stock warrants by purchased by SCO and affiliates
and
3,478,996 shares underlying Series A Preferred Stock and common stock warrants
purchased by new investors.
(4)
1,380,047 of such shares relate to common stock dividends
which may be paid on the Series A Preferred Stock. The Series A Preferred Stock
accrues dividends at the rate of 6% per annum. Subject to certain conditions
being met, Access in its sole discretion may choose to pay these dividends
in
shares of common stock rather than cash. The common stock dividend shares being
resitered represents anticipated dividends on the Series A Preferred Stock
over
2 years assuming a fixed market price of $2.70 per share for Access common
stock.
(5)
772,728 of such shares relate to shares of common stock
underlying common stock warrants acquired by Lake End Capital LLC and SCO and
affiliates in October and December 2006 for the aggregate issuance of $1,000,000
of convertible prommissory notes.
ABOUT
ACCESS
Company
Overview
Access
Pharmaceuticals, Inc. (“Access”) is a Delaware corporation. Access is an
emerging biopharmaceutical company developing products for use in the treatment
of cancer, the supportive care of cancer, and other disease states. Access’
product for the management of oral mucositis, MuGard™, has received marketing
clearance by the FDA as a device. Access’ lead clinical development program for
the drug candidate ProLindac™ (formerly known as AP5346) is in Phase 2 clinical
testing. Access also has advanced drug delivery technologies including
Cobalamin™ mediated oral drug delivery and targeted delivery.
Together
with Access’ subsidiaries, Access has proprietary patents or rights to one
technology approved for marketing and three drug delivery technology
platforms:
• MuGard™
(mucoadhesive liquid technology),
•
synthetic polymer targeted delivery,
•
Cobalamin-mediated oral delivery,
•
Cobalamin-mediated targeted delivery.
Products
Access
used its drug delivery technologies to develop the following products and
product candidates:
Access
Drug Portfolio
Compound
|
|
Originator
|
|
Technology
|
|
Indication
|
|
Clinical
Stage
(1)
|
|
|
|
|
|
|
|
|
|
MuGard™
|
|
Access
|
|
Mucoadhesive
liquid
|
|
Mucositis
|
|
Marketing
clearance received
|
ProLindac
TM
(Polymer
Platinate,
AP5346) (2)
|
|
Access
- U London
|
|
Synthetic
polymer
|
|
Cancer
|
|
Phase
2
|
Oral
Insulin
|
|
Access
|
|
Cobalamin
|
|
Diabetes
|
|
Pre-Clinical
|
Oral
Delivery System
|
|
Access
|
|
Cobalamin
|
|
Various
|
|
Pre-Clinical
|
Cobalamin-Targeted
Therapeutics
|
|
Access
|
|
Cobalamin
|
|
Anti-tumor
|
|
Pre-Clinical
|
|
|
|
|
|
|
|
|
|
(1)
|
For
more information, see “Government Regulation” for description of clinical
stages.
|
(2)
|
Licensed
from the School of Pharmacy, The University of London. Subject to
a 1%
royalty and milestone payments on
sales.
|
Other
Key Developments
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,001. The shares of Series A Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per
share.
As
a
condition to closing, SCO Capital Partners, LLC and affiliates, along with
the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest
for
437.3104 shares of the Series A Preferred Stock and were issued warrants to
purchase 728,850 shares of our common stock at an exercise price of $3.50 per
share. SCO Capital Partners, LLC currently has two designees serving on our
Board of Directors. In connection with the exchange of the notes, all security
interests and liens relating thereto were terminated.
As
a
condition to closing, we entered into an Investor Rights Agreement with each
of
the investors purchasing shares of Series A Preferred Stock our Board of
Directors approved with respect to the shareholder rights plan any action
necessary under our shareholder rights plan to accommodate the issuance of
the
Series A Preferred Stock
and
warrants without triggering the applicability of the shareholder rights
plan.
The
Investor Rights Agreement grants certain registration and other rights to each
of the investors.
In
connection with the sale and issuance of Series A Preferred Stock and warrants,
we entered into a Director Designation Agreement whereby we agreed to continue
SCO’s right to designate two individuals to serve on the Board of Directors of
Access.
On
August
27, 2007, we signed a definitive licensing agreement with SpePharm Holding,
B.V.
under which SpePharm will market Access’ product MuGard in Europe.
On
August
1, 2007, we announced that Esteban Cvitkovic, a member of our board of directors
as Vice Chairman Europe, agreed to an expanded role as Senior Director, Oncology
Clinical R&D.
On
April
19, 2007, we announced we had entered into an agreement to acquire Somanta
Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement, upon
consummation of the acquisition, Somanta’s preferred and common shareholders
would receive an aggregate of 1.5 million shares of Access’ common stock. The
Somanta stockholders approved the proposed transaction at the stockholders’
meeting on August 17, 2007. The closing of the transaction is subject to
numerous conditions including receipt of necessary approvals. There can be
no
assurance that the transaction will be consummated or if consummated that it
will be on the terms described herein. Each of the parties currently has the
right to terminate the Merger Agreement.
On
April
26, 2007, we entered into a Note Purchase Agreement with Somanta
Pharmaceuticals, Inc. in order for Access to loan Somanta amounts to keep
certain of their licenses and vendors current. As of September 30, 2007 we
have
loaned Somanta $859,000.
All
shares and per share information reflect a one for five reverse stock split
effected June 5, 2006.
On
December 8, 2006 Access amended its 2005 Asset Sale Agreement with Uluru, Inc.
Access received from Uluru an upfront payment of $4.9 million, received an
additional $350,000 on April 9, 2007 and in the future could receive potential
milestones of up to $4.8 million based on Uluru sales. The amendment agreement
included the anniversary payment due October 12, 2006, the early payment of
the
two year anniversary payment, and a payment in satisfaction of certain future
milestones. Access also transferred to Uluru certain patent applications that
Access had previously licensed to Uluru under the 2005 License Agreement. Under
a new agreement, Access has acquired a license from Uluru to utilize the
nanoparticle aggregate technology contained in the transferred patent
applications for subcutaneous, intramuscular, intra-peritoneal and intra-tumoral
drug delivery. Additionally, one future milestone was increased by
$125,000.
On
October 12, 2005, Access sold its oral/topical care business unit to Uluru,
Inc,
a private Delaware corporation, for up to $18.8 million to focus on Access’
technologies in oncology and oral drug delivery. The products and technologies
sold to Uluru included amlexanox 5% paste (marketed under the trade names
Aphthasol® and Aptheal®), OraDisc
TM
,
Zindaclin® and Residerm® and all of Access’ assets related to these products. In
addition, Access sold to Uluru its nanoparticle hydrogel aggregate technology
which could be used for applications such as local drug delivery and tissue
filler in dental and soft tissue applications. Access received a license from
Uluru for certain applications of the technology. The CEO of Uluru is Kerry
P.
Gray, the former CEO of Access. In conjunction with the sale transaction, Access
received a fairness opinion from a nationally recognized investment banking
firm.
At
the
closing of the sale to Uluru, Access received $8.7 million. In addition, in
connection with the Amended Asset Sale Agreement in December 2006, Access
received $4.9 million and received an additional $350,000 on April 9, 2007
for
the first and second anniversary payments and settlement of certain milestones.
Access recorded $550,000 less $173,000 tax expense as revenue from the
discontinued operations in 2006.
Access
was incorporated in Wyoming in 1974 as Chemex Corporation, and in 1983 Access
changed its name to Chemex Pharmaceuticals, Inc. Access changed its state of
incorporation from Wyoming to Delaware on June 30, 1989. In 1996 Access merged
with Access Pharmaceuticals, Inc., a private Texas corporation, and changed
its
name to Access Pharmaceuticals, Inc. Access’ principal executive office is
located at 2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207; Access’
telephone number is (214) 905-5100.
SUMMARY
OF THE OFFERING
This
offering relates to the sale of common stock by certain persons who are the
selling stockholders who intend to sell up to 16,560,519 shares of common stock,
consisting of (1) 10,757,864 shares are issuable to selling stockholders
upon conversion of Series A Preferred Stock, (2) 3,649,880 shares are
issuable to selling stockholders upon exercise of warrants for the
purchase of shares of the Registrant's Common Stock at
$3.50, including shares issuable to selling stockholders upon exercise
of warrants for the purchase of shares of the Registrant's Common Stock at
$3.50 received as placement agent fees pursuant to the sale of Series A
Preferred Stock, (3) 772,728 shares are issuable to selling stockholders upon
the exercise of warrants for the purchase of shares of the Registrant's Common
Stock at $1.35 per share and (4) 1,380,047 shares of Common Stock that may
be ssued as dividends on the Series A Preferred Stock.
In
connection with the Closing, our Board of Directors approved any actions
necessary to cancel, redeem or amend our shareholders rights plan to accommodate
the issuance of the Series A Preferred Stock and warrants.
Unless
a
holder of Series A Preferred Stock either elected otherwise prior to the
purchase of such preferred stock or elects otherwise upon not less than 61
days
prior written notice, its ability to convert its Series A Preferred Stock
into
common stock or to vote on an as-if-converted to common stock basis is
restricted pursuant to a beneficial ownership cap to the extent that such
conversion would result in the holder owning more than 4.99% of our issued
and
outstanding common stock or voting together with the common stock on an
as-if-converted to common stock basis in respect of more than 4.99% of our
issued and outstanding common stock. The warrants issued in
connection with the Series A Preferred Stock are subject to a similar beneficial
ownership cap restriction on their exercise. SCO Capital Partners
LLC, SCO Capital Partners, L.P. and Beach Capital LLC have elected not to
be
governed by these restrictions.
Our
registration of these shares does not necessarily mean that the selling
shareholders will convert or exercise the any of these shares or warrants or
sell any or all of the shares of our common stock that we are
registering.
Common
stock offered by Access:
|
None.
|
Common
stock offered by selling shareholders:
|
16,560,519
shares, which includes 10,757,864 shares issuable upon conversion
of
Series A Preferred Stock, 3,649,880 issuable upon exercise of
warrants, 1,380,047 shares to be issued as dividends and 772,728
issuable
upon exercise of warrants as described
above.
|
Common
stock outstanding:
|
As
of December 10, 2007, 3,575,114 shares of our common stock were
issued and outstanding.
|
Offering
Price:
|
To
be determined by the prevailing market price for the shares at the
time of
the sale or in negotiated
transactions.
|
Proceeds
to Access:
|
We
will not receive proceeds from the resale of shares by the selling
shareholders. If the warrants described herein are fully exercised
without
using any applicable cashless exercise provisions, we will receive
approximately $13,817,763 in cash from the warrant
holders.
|
Use
of proceeds:
|
We
will not receive any of the proceeds from the sale by any selling
shareholder of our common stock offered hereby, although in the event
that
the warrants are fully exercised without using any applicable cashless
exercise provisions, we will receive approximately $13,817,763 in
cash. We
intend to use these proceeds, if any, for general corporate
purposes.
|
OTC
Bulletin Board Symbol:
|
ACCP:OB
|
SUMMARY
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The
following summary condensed consolidated financial information as of and for
the
years ended December 31, 2006, 2005, 2004, 2003, and 2002 have been derived
from our audited financial statements. The financial information as of and
for
the nine months ended September 30, 2007 and 2006 is derived from our unaudited
condensed financial statements. The summary condensed consolidated financial
information set forth below should be read in conjunction with “Management's
Discussion and Analysis of Financial Condition and Results of Operations” and
the financial statements and notes thereto included elsewhere in this
Prospectus.
|
For
the Nine Months
Ended
September
30
|
For
the Year Ended December 31,
|
|
2007
|
2006
|
2006
|
2005
|
2004
|
2003
|
2002
|
|
|
|
(in
thousands, except amounts per
share)
|
Consolidated
Statement of Operations and Comprehensive Loss
Data:
|
|
Total
revenues
|
|
$
|
6
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
89
|
|
Operating
loss
|
|
|
(4,988
|
)
|
|
(4,129
|
)
|
|
(5,175
|
)
|
|
(9,622
|
)
|
|
(6,003
|
)
|
|
(5,426
|
)
|
|
(5,925
|
)
|
Interest
and miscellaneous income
|
|
|
72
|
|
|
278
|
|
|
294
|
|
|
100
|
|
|
226
|
|
|
279
|
|
|
594
|
|
Interest
and other expense
|
|
|
(3,277
|
)
|
|
(5,244
|
)
|
|
(7,436
|
)
|
|
(2,100
|
)
|
|
(1,385
|
)
|
|
(1,281
|
)
|
|
(1,278
|
)
|
Unrealized
loss on fair value of warrants
|
|
|
-
|
|
|
(1,107
|
)
|
|
(1,107
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Income
tax benefit
|
|
|
-
|
|
|
-
|
|
|
173
|
|
|
4,067
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Loss
from continuing operations
|
|
|
(8,193
|
)
|
|
(10,202
|
)
|
|
(13,251
|
)
|
|
(7,555
|
)
|
|
(7,162
|
)
|
|
(6,428
|
)
|
|
(6,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($173
in 2006 and $4,067 in 2005)
|
|
|
-
|
|
|
-
|
|
|
377
|
|
|
5,855
|
|
|
(3,076
|
)
|
|
(507
|
)
|
|
(2,864
|
)
|
Net
loss
|
|
|
(8,193
|
)
|
|
(10,202
|
)
|
|
(12,874
|
)
|
|
(1,700
|
)
|
|
(10,238
|
)
|
|
(6,935
|
)
|
|
(9,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per basic and
diluted
common share
|
|
$
|
(2.31
|
)
|
$
|
(2.89
|
)
|
$
|
(3.65
|
)
|
$
|
(0.53
|
)
|
$
|
(3.38
|
)
|
$
|
(2.61
|
)
|
$
|
(3.58
|
)
|
Weighted
average basic and
diluted
common shares
outstanding
|
|
|
3,544
|
|
|
3,531
|
|
|
3,532
|
|
|
3,237
|
|
|
3,032
|
|
|
2,653
|
|
|
2,621
|
|
|
|
|
|
|
|
|
|
|
September
30
,
|
December
31,
|
|
2007
|
2006
|
2006
|
2005
|
2004
|
2003
|
2002
|
|
|
|
(in
thousands)
|
Consolidated
Balance Sheet Data:
|
|
|
Cash,
cash equivalents and
short
term investments
|
|
$
|
1,176
|
|
$
|
705
|
|
$
|
4,389
|
|
$
|
474
|
|
$
|
2,261
|
|
$
|
2,587
|
|
$
|
9,776
|
|
Restricted
cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
103
|
|
|
1,284
|
|
|
649
|
|
|
468
|
|
Total
assets
|
|
|
3,500
|
|
|
7,073
|
|
|
6,426
|
|
|
7,213
|
|
|
11,090
|
|
|
11,811
|
|
|
19,487
|
|
Deferred
revenue
|
|
|
1,167
|
|
|
173
|
|
|
173
|
|
|
173
|
|
|
1,199
|
|
|
1,184
|
|
|
1,199
|
|
Convertible
notes, net of discount
|
|
|
16,906
|
|
|
17,608
|
|
|
8,833
|
|
|
7,636
|
|
|
13,530
|
|
|
13,530
|
|
|
13,530
|
|
Total
liabilities
|
|
|
20,691
|
|
|
21,272
|
|
|
16,313
|
|
|
11,450
|
|
|
17,751
|
|
|
17,636
|
|
|
18,998
|
|
Total
stockholders' equity (deficit)
|
|
|
(17,191
|
)
|
|
(14,199
|
)
|
|
(9,887
|
)
|
|
(4,237
|
)
|
|
(6,661
|
)
|
|
(5,825
|
)
|
|
489
|
|
RISK
FACTORS
Any
investment in our securities involves a high degree of risk. You should
carefully consider the risks described below, which we believe represent certain
of the material risks to our business, together with the information contained
elsewhere in this Prospectus, before you make a decision to invest in our
company.
Without
obtaining adequate capital funding, Access may not be able to continue as a
going concern.
The
report of Access’ independent registered public accounting firm for the fiscal
year ended December 31, 2006 contained a fourth explanatory paragraph to reflect
its significant doubt about Access’ ability to continue as a going concern as a
result of Access’ history of losses and Access’ liquidity position. If Access is
unable to obtain adequate capital funding in the future, Access may not be
able
to continue as a going concern, which would have an adverse effect on Access’
business and operations, and investors’ investment in Access may
decline.
Access
has experienced a history of losses, Access expects to incur future losses
and
Access may be unable to obtain necessary additional capital to fund operations
in the future.
Access
has recorded minimal revenue to date and Access has incurred a cumulative
operating loss of approximately $8.2 million for the nine months ended September
30, 2007. Net losses for the years ended 2006, 2005 and 2004 were $12,874,000,
$1,700,000 and $10,238,000, respectively. Access’ losses have resulted
principally from costs incurred in research and development activities related
to Access’ efforts to develop clinical drug candidates and from the associated
administrative costs. Access expects to incur additional operating losses over
the next several years. Access also expects cumulative losses to increase if
Access expands research and development efforts and preclinical and clinical
trials. Access’ net cash burn rate for the nine months ended September 30, 2007
was approximately $435,000 per month. Access projects its net cash burn rate
from operations for the next 13 months to be approximately $525,000 per month.
Capital expenditures are forecasted to be minor for the next 13 months.
Access
requires substantial capital for its development programs and operating
expenses, to pursue regulatory clearances and to prosecute and defend its
intellectual property rights. Access believes that its existing capital
resources, interest income, product sales, royalties and revenue from possible
licensing agreements and collaborative agreements will be sufficient to fund
its
currently expected operating expenses and capital requirements through the
end
of 2008. Access will need to raise substantial additional capital to support
its
ongoing operations.
If
Access
does raise additional funds by issuing equity securities, further dilution
to
existing stockholders would result and future investors may be granted rights
superior to those of existing stockholders. If adequate funds are not available
to Access through additional equity offerings, Access may be required to delay,
reduce the scope of or eliminate one or more of its research and development
programs or to obtain funds by entering into arrangements with collaborative
partners or others that require Access to issue additional equity securities
or
to relinquish rights to certain technologies or drug candidates that Access
would not otherwise issue or relinquish in order to continue independent
operations.
Access
has issued and outstanding shares of Series A Preferred Stock with rights and
preferences superior to those of its common stock.
The
issued and outstanding shares of Series A Preferred Stock grants the holders
of
such preferred stock anti-dilution, dividend and liquidations rights that are
superior to those held by the holders of our common stock. Should Access issue
additional shares of common stock for a price below $3.00 per share, the
conversion price of the Series A Preferred Stock shall be lowered to the lowest
issue price below $3.00 per share which will have the effect of diluting the
holders of our common stock.
Access
does not have operating revenue and it may never attain
profitability.
To
date,
Access has funded its operations primarily through private sales of common
stock, preferred stock and convertible notes. Contract research payments and
licensing fees from corporate alliances and mergers have also provided funding
for its operations.
Its
ability to achieve significant revenue or profitability depends upon its ability
to successfully complete the development of drug candidates, to develop and
obtain patent protection and regulatory approvals for Access’ drug candidates
and to manufacture and commercialize the resulting drugs. Access sold its only
revenue producing assets to Uluru, Inc. in October 2005. Access is not expecting
any revenues in the short-term from its other assets. Furthermore, Access may
not be able to ever successfully identify, develop, commercialize, patent,
manufacture, obtain required regulatory approvals and market any additional
products. Moreover, even if Access does identify, develop, commercialize,
patent, manufacture, and obtain required regulatory approvals to market
additional products, Access may not generate revenues or royalties from
commercial sales of these products for a significant number of years, if at
all.
Therefore, its proposed operations are subject to all the risks inherent in
the
establishment of a new business enterprise. In the next few years, its revenues
may be limited to minimal product sales and royalties, any amounts that Access
receives under strategic partnerships and research or drug development
collaborations that Access may establish and, as a result, Access may be unable
to achieve or maintain profitability in the future or to achieve significant
revenues in order to fund its operations.
Although
Access and Somanta expect that the merger will result in benefits to the
combined company, if the merger is consummated, the combined company may not
realize those benefits because of integration and other challenges.
Access’
ability to realize the anticipated benefits of the merger will depend, in part,
on the ability of Access to integrate the business of Somanta with the business
of Access. The combination of two independent companies is a complex, costly
and
time-consuming process. This process may disrupt the business of either or
both
of the companies, and may not result in the full benefits expected by Access
and
Somanta. The difficulties of combining the operations of the companies include,
among others:
|
•
|
|
unanticipated
issues in integrating information, communications and other systems;
|
|
•
|
|
retaining
key employees;
|
|
•
|
|
consolidating
corporate and administrative infrastructures;
|
|
•
|
|
the
diversion of management’s attention from ongoing business concerns; and
|
|
•
|
|
coordinating
geographically separate organizations.
|
We
cannot
assure you that the combination of Somanta with Access will be completed, and
if
it is whether it will result in the realization of the full benefits anticipated
from the merger. At this time each of Access and Somanta may terminate the
Merger Agreement.
Access
may not successfully commercialize its drug candidates.
Access’
drug candidates are subject to the risks of failure inherent in the development
of pharmaceutical products based on new technologies, and its failure to develop
safe commercially viable drugs would severely limit its ability to become
profitable or to achieve significant revenues. Access may be unable to
successfully commercialize Access’ drug candidates because:
-
some
or
all of its drug candidates may be found to be unsafe or ineffective or
otherwise fail to meet applicable regulatory standards or receive necessary
regulatory clearances;
-
its
drug candidates, if safe and effective, may be too difficult to develop
into
commercially viable drugs;
-
it
may
be difficult to manufacture or market its drug candidates on a large
scale;
-
proprietary
rights of third parties may preclude it from marketing its drug candidates;
and
-
third
parties may market superior or equivalent drugs.
The
success of Access’ research and development activities, upon which Access
primarily focuses, is uncertain.
Access’
primary focus is on its research and development activities and the
commercialization of compounds covered by proprietary biopharmaceutical patents
and patent applications. Research and development activities, by their nature,
preclude definitive statements as to the time required and costs involved in
reaching certain objectives. Actual research and development costs, therefore,
could exceed budgeted amounts and estimated time frames may require extension.
Cost overruns, unanticipated regulatory delays or demands, unexpected adverse
side effects or insufficient therapeutic efficacy will prevent or substantially
slow Access’ research and development effort and Access’ business could
ultimately suffer. Access anticipates that it will remain principally engaged
in
research and development activities for an indeterminate, but substantial,
period of time.
Access
may be unable to successfully develop, market, or commercialize its products
or
its product candidates without establishing new relationships and maintaining
current relationships.
Access’
strategy for the research, development and commercialization of its potential
pharmaceutical products may require it to enter into various arrangements with
corporate and academic collaborators, licensors, licensees and others, in
addition to its existing relationships with other parties. Specifically, Access
may seek to joint venture, sublicense or enter other marketing arrangements
with
parties that have an established marketing capability or Access may choose
to
pursue the commercialization of such products on its own. Access may, however,
be unable to establish such additional collaborative arrangements, license
agreements, or marketing agreements as Access may deem necessary to develop,
commercialize and market Access’ potential pharmaceutical products on acceptable
terms. Furthermore, if Access maintains and establishes arrangements or
relationships with third parties, its business may depend upon the successful
performance by these third parties of their responsibilities under those
arrangements and relationships.
Access’
ability to successfully commercialize, and market Access’ product candidates
could be limited if a number of these existing relationships were
terminated.
Furthermore,
its strategy with respect to its polymer platinate program is to enter into
a
licensing agreement with a pharmaceutical company pursuant to which the further
costs of developing a product would be shared with its licensing partner.
Although Access has had discussions with potential licensing partners with
respect to its polymer platinate program, to date Access has not entered into
any licensing arrangement. Access may be unable to execute its licensing
strategy for polymer platinate.
Access
may be unable to successfully manufacture its products and its product
candidates in clinical quantities or for commercial purposes without the
assistance of contract manufacturers, which may be difficult for it to obtain
and maintain.
Access
has limited experience in the manufacture of pharmaceutical products in clinical
quantities or for commercial purposes and Access may not be able to manufacture
any new pharmaceutical products that Access may develop. As a result, Access
has
established, and in the future intends to establish arrangements with contract
manufacturers to supply sufficient quantities of products to conduct clinical
trials and for the manufacture, packaging, labeling and distribution of finished
pharmaceutical products if any of its potential products are approved for
commercialization. If Access is unable to contract for a sufficient supply
of
its potential pharmaceutical products on acceptable terms, its preclinical
and
human clinical testing schedule may be delayed, resulting in the delay of its
clinical programs and submission of product candidates for regulatory approval,
which could cause its business to suffer. Its business could suffer if there
are
delays or difficulties in establishing relationships with manufacturers to
produce, package, label and distribute its finished pharmaceutical or other
medical products, if any, market introduction and subsequent sales of such
products. Moreover, contract manufacturers that Access may use must adhere
to
current Good Manufacturing Practices, as required by the FDA. In this regard,
the FDA will not issue a pre-market approval or product and establishment
licenses, where applicable, to a manufacturing facility for the products until
the manufacturing facility passes a pre-approval plant inspection. If Access
is
unable to obtain or retain third party manufacturing on commercially acceptable
terms, Access may not be able to commercialize its products as planned. Its
potential dependence upon third parties for the manufacture of its products
may
adversely affect its ability to generate profits or acceptable profit margins
and its ability to develop and deliver such products on a timely and competitive
basis.
ProLindac™
is manufactured by third parties for Access’ Phase 2 clinical trials.
Manufacturing is ongoing for the current clinical trials. Certain manufacturing
steps are conducted by the Company to enable significant cost savings to be
realized.
Access
is subject to extensive governmental regulation which increases its cost of
doing business and may affect its ability to commercialize any new products
that
Access may develop.
The
FDA
and comparable agencies in foreign countries impose substantial requirements
upon the introduction of pharmaceutical products through lengthy and detailed
laboratory, preclinical and clinical testing procedures and other costly and
time-consuming procedures to establish its safety and efficacy. All of its
drugs
and drug candidates require receipt and maintenance of governmental approvals
for commercialization. Preclinical and clinical trials and manufacturing of
its
drug candidates will be subject to the rigorous testing and approval processes
of the FDA and corresponding foreign regulatory authorities. Satisfaction of
these requirements typically takes a significant number of years and can vary
substantially based upon the type, complexity and novelty of the product. The
status of Access’ principal products is as follows:
-
A
mucoadhesive liquid technology product, MuGard™, has received marketing
approval by the FDA.
-
ProLindac™
is currently in a Phase 2 trial in Europe.
-
ProLindac™
has been approved for an additional Phase 1 trial in the US by the
FDA.
-
Cobalamin™
mediated delivery technology is currently in the pre-clinical
phase.
-
Access
also has other products in the preclinical phase.
Due
to
the time consuming and uncertain nature of the drug candidate development
process and the governmental approval process described above, Access cannot
assure you when Access, independently or with its collaborative partners, might
submit a NDA, for FDA or other regulatory review.
Government
regulation also affects the manufacturing and marketing of pharmaceutical
products. Government regulations may delay marketing of Access’ potential drugs
for a considerable or indefinite period of time, impose costly procedural
requirements upon its activities and furnish a competitive advantage to larger
companies or companies more experienced in regulatory affairs. Delays in
obtaining governmental regulatory approval could adversely affect Access’
marketing as well as its ability to generate significant revenues from
commercial sales. Access’ drug candidates may not receive FDA or other
regulatory approvals on a timely basis or at all. Moreover, if regulatory
approval of a drug candidate is granted, such approval may impose limitations
on
the indicated use for which such drug may be marketed. Even if Access obtains
initial regulatory approvals for its drug candidates, Access’ drugs and its
manufacturing facilities would be subject to continual review and periodic
inspection, and later discovery of previously unknown problems with a drug,
manufacturer or facility may result in restrictions on the marketing or
manufacture of such drug, including withdrawal of the drug from the market.
The
FDA and other regulatory authorities stringently apply regulatory standards
and
failure to comply with regulatory standards can, among other things, result
in
fines, denial or withdrawal of regulatory approvals, product recalls or
seizures, operating restrictions and criminal prosecution.
The
uncertainty associated with preclinical and clinical testing may affect Access’
ability to successfully commercialize new products.
Before
Access can obtain regulatory approvals for the commercial sale of any of its
potential drugs, the drug candidates will be subject to extensive preclinical
and clinical trials to demonstrate their safety and efficacy in humans.
Preclinical or clinical trials of any of its future drug candidates may not
demonstrate the safety and efficacy of such drug candidates at all or to the
extent necessary to obtain regulatory approvals. In this regard, for example,
adverse side effects can occur during the clinical testing of a new drug on
humans which may delay ultimate FDA approval or even lead it to terminate its
efforts to develop the drug for commercial use. Companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after demonstrating promising results in earlier trials. In particular, polymer
platinate has taken longer to progress through clinical trials than originally
planned. This extra time has not been related to concerns of the formulations
but rather due to the lengthy regulatory process. The failure to adequately
demonstrate the safety and efficacy of a drug candidate under development could
delay or prevent regulatory approval of the drug candidate. A delay or failure
to receive regulatory approval for any of Access’ drug candidates could prevent
Access from successfully commercializing such candidates and Access could incur
substantial additional expenses in its attempts to further develop such
candidates and obtain future regulatory approval.
Access
may incur substantial product liability expenses due to the use or misuse of
its
products for which Access may be unable to obtain insurance
coverage.
Access’
business exposes it to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. These risks
will expand with respect to its drug candidates, if any, that receive regulatory
approval for commercial sale and Access may face substantial liability for
damages in the event of adverse side effects or product defects identified
with
any of its products that are used in clinical tests or marketed to the public.
Access generally procures product liability insurance for drug candidates that
are undergoing human clinical trials. Product liability insurance for the
biotechnology industry is generally expensive, if available at all, and as
a
result, Access may be unable to obtain insurance coverage at acceptable costs
or
in a sufficient amount in the future, if at all. Access may be unable to satisfy
any claims for which Access may be held liable as a result of the use or misuse
of products which Access has developed, manufactured or sold and any such
product liability claim could adversely affect its business, operating results
or financial condition.
Access
may incur significant liabilities if it fails to comply with stringent
environmental regulations or if Access did not comply with these regulations
in
the past.
Access’
research and development processes involve the controlled use of hazardous
materials. Access is subject to a variety of federal, state and local
governmental laws and regulations related to the use, manufacture, storage,
handling and disposal of such material and certain waste products. Although
Access believes that its activities and its safety procedures for storing,
using, handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination
or
injury from these materials cannot be completely eliminated. In the event of
such accident, Access could be held liable for any damages that result and
any
such liability could exceed its resources.
Intense
competition may limit Access’ ability to successfully develop and market
commercial products.
The
biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Access’ competitors in
the United States and elsewhere are numerous and include, among others, major
multinational pharmaceutical and chemical companies, specialized biotechnology
firms and universities and other research institutions.
The
following products may compete with polymer platinate:
•
Cisplatin, marketed by Bristol-Myers Squibb, the originator of the drug, and
several generic manufacturers;
•
Carboplatin, marketed by Bristol-Myers Squibb in the US; and
•
Oxaliplatin, marketed exclusively by Sanofi-Aventis.
The
following companies are working on therapies and formulations that may be
competitive with Access’ polymer platinate:
• Antigenics
and Regulon are developing liposomal platinum formulations;
•
Spectrum Pharmaceuticals and GPC Biotech are developing oral platinum
formulations;
•
Poniard Pharmaceuticals is developing both i.v. and oral platinum
formulations;
•
Nanocarrier and Debio are developing micellar nanoparticle platinum
formulations; and
• American
Pharmaceutical Partners, Cell Therapeutics, Daiichi, and Enzon are developing
alternate drugs in combination with polymers and other drug delivery
systems.
Companies
working on therapies and formulations that may be competitive with Access’
vitamin mediated drug delivery system are Bristol-Myers Squibb, Centocor
(acquired by Johnson & Johnson), Endocyte, GlaxoSmithKline, Imclone and Xoma
which are developing targeted monoclonal antibody therapy.
Amgen,
Carrington Laboratories, CuraGen Corporation, Cytogen Corporation, Endo
Pharmaceuticals, MGI Pharma, Nuvelo, Inc. and OSI Pharmaceuticals are developing
products to treat mucositis that may compete with Access’ mucoadhesive liquid
technology.
BioDelivery
Sciences International, Biovail Corporation, Cellgate, CIMA Labs, Inc., Cytogen
Corporation, Depomed Inc., Emisphere Technologies, Inc., Eurand, Flamel
Technologies, Nobex and Xenoport are developing products which compete with
Access’ oral drug delivery system.
Many
of
these competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing
organizations. As a result, Access’ competitors may successfully develop
technologies and drugs that are more effective or less costly than any that
Access is developing or which would render Access’ technology and future
products obsolete and noncompetitive.
In
addition, some of Access’ competitors have greater experience than Access does
in conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, Access’ competitors may succeed in obtaining
FDA or other regulatory approvals for drug candidates more rapidly than Access
does. Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage. Drugs resulting from Access’
research and development efforts or from its joint efforts with collaborative
partners therefore may not be commercially competitive with its competitors'
existing products or products under development.
Access’
ability to successfully develop and commercialize its drug candidates will
substantially depend upon the availability of reimbursement funds for the costs
of the resulting drugs and related treatments.
The
successful commercialization of, and the interest of potential collaborative
partners to invest in the development of its drug candidates, may depend
substantially upon reimbursement of the costs of the resulting drugs and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, including health maintenance organizations,
or
HMOs. Limited reimbursement for the cost of any drugs that Access develops
may
reduce the demand for, or price of such drugs, which would hamper its ability
to
obtain collaborative partners to commercialize its drugs, or to obtain a
sufficient financial return on its own manufacture and commercialization of
any
future drugs.
The
market may not accept any pharmaceutical products that Access successfully
develops.
The
drugs
that Access is attempting to develop may compete with a number of
well-established drugs manufactured and marketed by major pharmaceutical
companies. The degree of market acceptance of any drugs developed by it will
depend on a number of factors, including the establishment and demonstration
of
the clinical efficacy and safety of its drug candidates, the potential advantage
of its drug candidates over existing therapies and the reimbursement policies
of
government and third-party payers. Physicians, patients or the medical community
in general may not accept or use any drugs that Access may develop independently
or with its collaborative partners and if they do not, its business could
suffer.
Trends
toward managed health care and downward price pressures on medical products
and
services may limit its ability to profitably sell any drugs that Access may
develop.
Lower
prices for pharmaceutical products may result from:
·
|
third-party
payers' increasing challenges to the prices charged for medical products
and services;
|
·
|
the
trend toward managed health care in the United States and the concurrent
growth of HMOs and similar organizations that can control or significantly
influence the purchase of healthcare services and products;
and
|
·
|
legislative
proposals to reform healthcare or reduce government insurance
programs.
|
The
cost
containment measures that healthcare providers are instituting, including
practice protocols and guidelines and clinical pathways, and the effect of
any
healthcare reform, could limit Access’ ability to profitably sell any drugs that
Access may successfully develop. Moreover, any future legislation or regulation,
if any, relating to the healthcare industry or third-party coverage and
reimbursement, may cause its business to suffer.
Access
may not be successful in protecting its intellectual property and proprietary
rights.
Access’
success depends, in part, on its ability to obtain U.S. and foreign patent
protection for its drug candidates and processes, preserve its trade secrets
and
operate its business without infringing the proprietary rights of third parties.
Legal standards relating to the validity of patents covering pharmaceutical
and
biotechnological inventions and the scope of claims made under such patents
are
still developing and there is no consistent policy regarding the breadth of
claims allowed in biotechnology patents. The patent position of a biotechnology
firm is highly uncertain and involves complex legal and factual questions.
Access cannot assure you that any existing or future patents issued to, or
licensed by, it will not subsequently be challenged, infringed upon, invalidated
or circumvented by others. As a result, although Access, together with its
subsidiaries, are either the owner or licensee to 13 U.S. patents and to 9
U.S.
patent applications now pending, and 4 European patents and 12 European patent
applications, Access cannot assure you that any additional patents will issue
from any of the patent applications owned by, or licensed to, it. Furthermore,
any rights that Access may have under issued patents may not provide it with
significant protection against competitive products or otherwise be commercially
viable.
Access’
patents for the following technologies expire in the years and during the date
ranges indicated below:
·
|
Mucoadhesive
technology in 2021,
|
·
|
Cobalamin
mediated technology between 2008 and
2019
|
In
addition to issued patents, Access has a number of pending patent applications.
If issued, the patents underlying theses applications could extend the patent
life of its technologies beyond the dates listed above.
Patents
may have been granted to third parties or may be granted covering products
or
processes that are necessary or useful to the development of Access’ drug
candidates. If Access’ drug candidates or processes are found to infringe upon
the patents or otherwise impermissibly utilize the intellectual property of
others, Access’ development, manufacture and sale of such drug candidates could
be severely restricted or prohibited. In such event, Access may be required
to
obtain licenses from third parties to utilize the patents or proprietary rights
of others. Access cannot assure you that it will be able to obtain such licenses
on acceptable terms, if at all. If Access becomes involved in litigation
regarding its intellectual property rights or the intellectual property rights
of others, the potential cost of such litigation, regardless of the strength
of
its legal position, and the potential damages that Access could be required
to
pay could be substantial.
Access’
business could suffer if Access loses the services of, or fail to attract,
key
personnel.
Access
is
highly dependent upon the efforts of its senior management and scientific team,
including its President and Chief Executive Officer, Stephen R. Seiler. The
loss
of the services of one or more of these individuals could delay or prevent
the
achievement of its research, development, marketing, or product
commercialization objectives. While Access has employment agreements with
Stephen R. Seiler, David P. Nowotnik, PhD its Senior Vice President Research
and
Development, and Stephen B. Thompson, its Vice President and Chief Financial
Officer, their employment may be terminated by them or Access at any time.
Mr.
Seiler’s, Dr. Nowotnik's and Mr. Thompson’s agreements expire within one year
and are extendable each year on the anniversary date. Access does not have
employment contracts with its other key personnel. Access does not maintain
any
"key-man" insurance policies on any of its key employees and Access does not
intend to obtain such insurance. In addition, due to the specialized scientific
nature of its business, Access is highly dependent upon its ability to attract
and retain qualified scientific and technical personnel. In view of the stage
of
its development and its research and development programs, Access has restricted
its hiring to research scientists and a small administrative staff and Access
has made only limited investments in manufacturing, production, sales or
regulatory compliance resources. There is intense competition among major
pharmaceutical and chemical companies, specialized biotechnology firms and
universities and other research institutions for qualified personnel in the
areas of Access’ activities, however, and Access may be unsuccessful in
attracting and retaining these personnel.
An
investment in Access’ common stock may be less attractive because it is not
traded on a recognized public market.
Access’
common stock has traded on the OTC Bulletin Board, or OTCBB since June 5, 2006.
From February 1, 2006 until June 5, 2006 Access traded on the “Pink Sheets”
after its common stock was de-listed from trading on AMEX. The OTCBB and Pink
Sheets are viewed by most investors as a less desirable, and less liquid,
marketplace. As a result, an investor may find it more difficult to purchase,
dispose of or obtain accurate quotations as to the value of its common
stock.
Access’
common stock is subject to Rules 15g-1 through 15g-9 under the Exchange Act,
which imposes certain sales practice requirements on broker-dealers who sell
its
common stock to persons other than established customers and "accredited
investors" (as defined in Rule 501(c) of the Securities Act). For transactions
covered by this rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to the sale. This rule adversely affects the
ability of broker-dealers to sell Access’ common stock and purchasers of its
common stock to sell their shares of Access’ common stock.
Additionally,
Access’ common stock is subject to SEC regulations applicable to "penny stock."
Penny stock includes any non-NASDAQ equity security that has a market price
of
less than $5.00 per share, subject to certain exceptions. The regulations
require that prior to any non-exempt buy/sell transaction in a penny stock,
a
disclosure schedule proscribed by the SEC relating to the penny stock market
must be delivered by a broker-dealer to the purchaser of such penny stock.
This
disclosure must include the amount of commissions payable to both the
broker-dealer and the registered representative and current price quotations
for
Access’ common stock. The regulations also require that monthly statements be
sent to holders of penny stock that disclose recent price information for the
penny stock and information of the limited market for penny stocks. These
requirements adversely affect the market liquidity of Access’common
stock.
Ownership
of Access’ shares is concentrated in the hands of a few investors which could
limit the ability of Access’ other stockholders to influence the direction of
the company.
As
calculated by the SEC rules of beneficial ownership, SCO Capital Partners LLC
and affiliates, Larry N. Feinberg (Oracle Partners LP, Oracle Institutional
Partners LP and Oracle Investment Management Inc.), Lake End Capital LLC,
Perceptive Life Sciences Master Fund Ltd. and Midsummer Investment,
Ltd. each beneficially owned approximately 77.0%, 43.0%, 2835&, 21.9%
and 17.3%, respectively, of Access’ common stock as of December 10, 2007.
Accordingly,
they collectively may have the ability to significantly influence or determine
the election of all of Access’ directors or the outcome of most corporate
actions requiring stockholder approval. They may exercise this ability in a
manner that advances their best interests and not necessarily those of Access’
other stockholders.
Access
may be required to pay liquidated damages to certain investors if it does not
maintain an effective registration statement relating to common stock issuable
upon conversion of Series A Preferred stock or upon exercise of certain
warrants.
Pursuant
to issuing Series A Preferred Stock and warrants, Access entered into an
Investor Rights Agreement with the purchasers of Series A Preferred Stock.
The
Investor Rights Agreement requires, among other things, that Access maintain
an
effective registration statement for common stock issuable upon conversion
of
Series A Preferred Stock or upon exercise of certain warrants. If Access fails
to maintain such an effective registration statement it may be required to
pay
liquidated damages to the holders of such Series A Preferred Stock and warrants
for the period of time in which an effective registration statement was not
in
place.
Provisions
of Access’ charter documents could discourage an acquisition of our company that
would benefit its stockholders
and
may have the effect of entrenching, and making it difficult to remove,
management
.
Provisions
of Access’ Certificate of Incorporation, By-laws and Stockholders Rights Plan
may make it more difficult for a third party to acquire control of the Company,
even if a change in control would benefit Access stockholders. In particular,
shares of Access preferred stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as Access’ Board of Directors may determine,
including, for example, rights to convert into Access common stock. The rights
of the holders of Access common stock will be subject to, and may be adversely
affected by, the rights of the holders of any of Access’ preferred stock that
may be issued in the future. The issuance of Access preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for
a third party to acquire control of Access. This could limit the price that
certain investors might be willing to pay in the future for shares of Access
common stock and discourage these investors from acquiring a majority of Access
common stock. Further, the existence of these corporate governance provisions
could have the effect of entrenching management and making it more difficult
to
change Access’ management.
Substantial
sales of Access common stock could lower its stock price.
The
market price for Access common stock could drop as a result of sales of a large
number of its presently outstanding shares
or
shares
that Access may issue or be obligated to issue in the future
.
All of
the 3,575,114 shares of Access common stock that are outstanding as of
December 10, 2007, are unrestricted and freely tradable or tradable pursuant
to
a resale registration statement or under Rule 144 of the Securities Act or
are
covered by a registration rights agreement.
Failure
to achieve and maintain effective internal controls could have a material
adverse effect on Access’ business.
Effective
internal controls are necessary for Access to provide reliable financial
reports. If Access cannot provide reliable financial reports, Access’ operating
results could be harmed. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined
to
be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
While
Access continues to evaluate and improve its internal controls, Access cannot
be
certain that these measures will ensure that Access implements and maintains
adequate controls over its financial processes and reporting in the future.
Any
failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm its operating results or cause
Access to fail to meet its reporting obligations.
Failure
to achieve and maintain an effective internal control environment could cause
investors to lose confidence in Access’ reported financial information, which
could have a material adverse effect on its stock price.
Future
sales by our stockholders may adversely affect our stock price and our ability
to raise funds in new stock offerings.
Sales
of
our common stock in the public market following this offering could lower the
market price of our common stock. Sales may also make it more difficult for
us
to sell equity securities or equity-related securities in the future at a time
and price that our management deems acceptable or at all. Of the 3,575,114
shares of common stock outstanding as of December 10, 2007, 3,575,114 shares
are, or will be, freely tradable without restriction, unless held by our
“affiliates.” Some of these shares may be resold under Rule 144. The sale of the
10,757,864 shares issuable upon conversion of our outstanding preferred stock
and 8,376,397 shares issuable upon exercise of outstanding warrants could also
lower the market price of our common stock.
The
selling stockholders intend to sell their shares of common stock in the market,
which sales may cause our stock price to decline.
The
selling stockholders intend to sell in the public market 16,560,519 shares
of
our common stock being registered in this offering. That means that up to
16,560,519 shares may be sold pursuant to this registration statement. Such
sales may cause our stock price to decline. Our officers and directors and our
shareholders who are significant shareholders, as defined by the SEC, will
continue to be subject to the provisions of various insider trading and rule
144
regulations.
The
price you pay in this offering will fluctuate and may be higher or lower than
the prices paid by other people participating in this
offering.
The
price
in this offering will fluctuate based on the prevailing market price of our
common stock on the OTC Bulletin Board. Accordingly, the price you pay in this
offering may be higher or lower than the prices paid by other people
participating in this offering.
FORWARD-LOOKING
STATEMENTS
This
Prospectus contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and that involve risks and
uncertainties. These statements include, without limitation, statements relating
to uncertainties associated with research and development activities, clinical
trials, our ability to raise capital, the timing of and our ability to achieve
regulatory approvals, dependence on others to market our licensed products,
collaborations, future cash flow, the timing and receipt of licensing and
milestone revenues, the future success of our marketed products and products
in
development, our sales projections, and the sales projections of our licensing
partners, our ability to achieve licensing milestones, our ability to continue
as a going concern, anticipated payments to be received from Uluru, anticipated
product approvals and timing thereof, product opportunities, clinical trials
and
U.S. Food and Drug Administration (“FDA”) applications, as well as our drug
development strategy, our clinical development organization expectations
regarding our rate of technological developments and competition, our plan
not
to establish an internal marketing organization, our expectations regarding
minimizing development risk and developing and introducing technology, the
terms
of future licensing arrangements, our ability to secure additional financing
for
our operations and our expected cash burn rate. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as “may,” “will,”
“should,” “expects,” “plans,” “could,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of such terms or other
comparable terminology. We intend the forward-looking statements to be covered
by the safe harbor for forward-looking statements in these sections. The
forward-looking information is based on various factors and was derived using
numerous assumptions.
Forward-looking
statements necessarily involve risks and uncertainties, and our actual results
could differ materially from those anticipated in the forward-looking statements
due to a number of factors, including those set forth above under “Risk Factors”
and elsewhere in this Prospectus. The factors set forth above under “Risk
Factors” and other cautionary statements made in this Prospectus should be read
and understood as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The forward-looking statements
contained in this Prospectus represent our judgment as of the date of this
Prospectus. We caution readers not to place undue reliance on such statements.
Except as required by law, we undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
SELLING
STOCKHOLDERS
The
following table presents information regarding the selling stockholders. The
selling shareholders are the entities who have assisted in or provided financing
to us. A description of each selling shareholder's relationship to us and how
each selling shareholder acquired the shares to be sold in this offering is
detailed in the information immediately following this table. The shares listed
in the table do not include the shares of common stock that may be paid as
a
dividend on outstanding shares of Series A Preferred Stock.
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Percentage
of
Outstanding
Shares
Beneficially
Owned
Before
Offering
|
Shares
to
be Sold in the
Offering
|
Percentage
of
Outstanding
Shares
Beneficially
Owned
After
Offering
|
|
|
|
|
|
Mark
J. Alvino (2)
|
80,525
|
2.2%
|
9,091
|
2.0%
|
Beach
Capital LLC (3)
|
1,040,405
|
22.5%
|
608,587
|
10.8%
|
Brio
Capital LP (4)
|
75,000
|
2.1%
|
75,000
|
-
|
Catalytix
LDC Life Science
Hedge AC (5)
|
24,999
|
*
|
24,999
|
-
|
Cobblestone
Asset Mangement LLC (6)
|
155,450
|
4.2%
|
125,000
|
*
|
Cranshire
Capital, LP (7)
|
250,000
|
6.5%
|
250,000
|
-
|
Credit
Suisse Securities (USA) LLC (8)
|
500,000
|
12.3%
|
500,000
|
-
|
Enable
Growth Partners LP (9)
|
249,999
|
6.5%
|
249,999
|
-
|
Howard
Fischer (10)
|
54,545
|
1.5%
|
9,091
|
1.3%
|
Lake
End Capital LLC (11)
|
1,426,216
|
28.5%
|
994,398
|
10.8%
|
Dennis
Lavalle (12)
|
45,000
|
1.2%
|
45,000
|
-
|
Midsummer
Investment, Ltd (13)
|
750,000
|
17.3%
|
750,000
|
-
|
Oracle
Institutional Partners LP (14)
|
390,828
|
9.9%
|
380,399
|
*
|
Oracle
Offshore Ltd. (15)
|
76,893
|
2.1%
|
71,886
|
*
|
Oracle
Partners, LP (16)
|
1,622,482
|
32.8%
|
1,374,831
|
6.9%
|
Perceptive
Life Sciences
Master Fund Ltd (17)
|
999,999
|
21.9%
|
999,999
|
-
|
Rockmore
Investment
Master Fund Ltd (18)
|
249,999
|
6.5%
|
249,999
|
-
|
Rodman
& Renshaw LLC (19)
|
109,000
|
3.0%
|
109,000
|
-
|
SAM
Oracle Investments, Inc (20)
|
389,169
|
9.9%
|
359,433
|
*
|
SCO
Capital Partners, LLC (21)
|
9,993,760
|
73.7%
|
6,993,761
|
45.6%
|
SCO Capital Partners LP
(22)
|
999,999
|
21.9%
|
999,999
|
-
|
|
|
|
|
|
|
|
|
|
|
Total:
|
19,484,268
|
|
15,180,472
|
|
--------------------
(1)
|
Applicable
percentage of ownership is based on 3,575,114 shares of common stock
outstanding as of December 10, 2007, together with securities exercisable
or convertible into shares of common stock within 60 days of December
10,
2007, for each stockholder.
Beneficial
ownership is determined in accordance with Rule 13d-3(d) promulgated
by the Commission under the Securities and Exchange Act of 1934,
as
amended. Shares of common stock issuable pursuant to options, warrants
and
convertible securities are treated as outstanding for computing the
percentage of the person holding such securities but are not treated
as
outstanding for computing the percentage of any other person. Unless
otherwise noted, each person or group identified possesses sole voting
and
investment power with respect to shares, subject to community property
laws where applicable. Shares not outstanding but deemed beneficially
owned by virtue of the right of a person or group to acquire them
within
60 days are treated as outstanding only for purposes of determining
the number of and percent owned by such person or group.
Unless
a holder of Series A Cumulative Convertible Preferred Stock either
elected
otherwise prior to the purchase of such preferred stock or elects
otherwise upon not less than 61 days prior written notice, its ability
to
convert its Series A Cumulative Convertible Preferred Stock into
common
stock or to vote on an as-if-converted to common stock basis is
restricted pursuant to a beneficial ownership cap to the extent
that such conversion would result in the holder owning more than
4.99% of
our issued and outstanding common stock or voting together with the
common
stock on an as-if-converted to common stock basis in respect of more
than
4.99% of our issued and outstanding common stock. The warrants
issued in connection with the Series A Cumulative Convertible Preferred
Stock are subject to a similar beneficial ownership cap restriction
on
their exercise. SCO Capital Partners LLC, SCO Capital Partners,
L.P. and Beach Capital LLC, have elected not to be governed by these
restrictions. For purposes of the table, beneficial ownership
has been calculated as if there were no such beneficial ownership
cap.
|
(2)
|
Mark
J. Alvino is Managing Director of Griffin Securities
LLC. Mr. Alvino is a director of Access designated by SCO Capital
Partners
LLC pursuant to an agreement between SCO Capital Partners LLC and
Access.
Mr. Alvino is known to beneficially own warrants to purchase an
aggregate
of 55,525 shares of Access’ Common Stock and options to purchase 25,000
shares of Access’ Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(3)
|
Beach
Capital LLC is known to directly beneficially own warrants to purchase
an
aggregate of 435,197 shares of Access’ Common Stock and Series A Preferred
Stock which may be converted into an aggregate of 514,299 shares
of
Access’ Common Stock. Beach Capital LLC and affiliates (SCO Capital
Partners LP and SCO Capital Partners LLC) are known to beneficially
own
warrants to purchase an aggregate of 5,551,770 shares of Access’ Common
Stock and 6,410,436 shares of Common Stock issuable to them upon
conversion of Series A Preferred Stock. Steven H. Rouhandeh, in
his
capacity as managing member of Beach Capital LLC has the power
to direct
the vote and disposition of the shares owned by Beach Capital
LLC. Beach Capital LLC has opted out of the beneficial
ownership cap described above. Each of Mr. Davis and Mr. Alvino,
Access’
directors and Mr. Davis an executive with SCO Capital Partners
LLC,
disclaim beneficial ownership of such shares except to the extent
of his
pecuniary interest therein.
|
(4)
|
Brio
Capital LP is known to beneficially own an aggregate of warrants
to
purchase and aggregate of 25,000 shares of Access’ Common Stock and Series
A Preferred Stock which may be converted into an aggregate of 50,000
shares of Access’ Common Stock.
|
(5)
|
Catalytix
LDC Life Science Hedge AC is known to beneficially
own warrants to purchase an aggregate of 8,333 shares of Access’ Common
Stock and Series A Preferred Stock which may be converted into
an
aggregate of 16,666 shares of Access’ Common
Stock.
|
(6)
|
Cobblestone
Asset Management LLC is known to beneficially own an aggregate
of 30,450
shares of Access’ Common Stock, warrants to purchase an aggregate of
41,667 shares of Access’ Common Stock and Series A Preferred Stock which
may be converted into an aggregate of 83,333 shares of Access’ Common
Stock.
|
(7)
|
Cranshire
Capital, LP is known to beneficially own warrants to purchase an
aggregate
of 83,333 shares of Access’ Common Stock and Series A Preferred Stock
which may be converted into an aggregate of 166,667 shares of Access’
Common Stock. Michael P. Koplin, the president of Downsview Capital,
Inc.,
the general partner of Cranshire Capital, L.P., has sole voting
control
and investment discretion over securities held by Cranshire Capital,
L.P.
Each of Michael P. Koplin and Downsview Capital, Inc. disclaims
beneficial
ownership of shares held by Cranshire Capital,
L.P.
|
(8)
|
Credit
Suisse Securities (USA) LLC is known to beneficially
own warrants to purchase an aggregate of 166,667 shares of Access’ Common
Stock and Series A Preferred Stock which may be converted into
an
aggregate of 333,333 shares of Access’ Common
Stock.
|
(9)
|
Enable
Growth Partners LP is known to beneficially own warrants to purchase
an
aggregate of 83,333 shares of Access’ Common Stock and Series A Preferred
Stock which may be converted into an aggregate of 166,666 shares
of
Access’ Common Stock.
|
(10)
|
Howard
Fischer is known to beneficially own warrants to
purchase an aggregate of 54,545 shares of Access’ Common
Stock.
|
(11)
|
Lake
End Capital LLC is known to beneficially own warrants to purchase
an
aggregate of 716,482 shares of Access’ Common Stock and Series A Preferred
Stock which may be converted into an aggregate of 709,734 shares
of
Access’ Common Stock. Lake End Capital LLC and Mr. Davis are known to
beneficially own warrants and options to purchase an aggregate
of 747,302
of Access’ Common Stock and 709,734 shares of Common Stock issuable upon
conversion of Series A Preferred Stock. Jeffrey B. Davis, in his
capacity as managing member of Lake End Capital LLC, has the power
to
direct the vote and disposition of the shares owned by Lake End
Capital
LLC. Mr. Davis is President of SCO Securities LLC, a wholly-owned
subsidiary of SCO Financial Group LLC. Mr. Davis is a director
of Access
designated by SCO Capital Partners LLC pursuant to an agreement
between
SCO Capital Partners LLC and
Access.
|
(12)
|
Dennis
Lavalle is known to beneficially own warrants to purchase an aggregate
of
15,000 shares of Access’ Common Stock and Series A Preferred Stock which
may be converted into an aggregate of 30,000 shares of Access’ Common
Stock.
|
(13)
|
Midsummer
Investment, Ltd. is known to beneficially own
warrants to purchase an aggregate of 250,000 shares of Access’ Common
Stock and Series A Preferred Stock which may be converted into
an
aggregate of 500,000 shares of Access’ Common
Stock.
|
(14)
|
Oracle
Institutional Partners LP is known to beneficially own an aggregate
of
10,429 shares of Access’ Common Stock, warrants to purchase an aggregate
of 126,800 shares of Access’ Common Stock and Series A Preferred Stock
which may be converted into an aggregate of 253,599 shares of Access’
Common Stock. Larry N. Feinberg is a partner in Oracle Partners,
L.P.
Oracle Partners, L.P. and affiliates (Oracle Institutional Partners,
L.P.,
Oracle Investment Management, Inc., SAM Oracle Fund, Inc. and Mr.
Feinberg) are known to beneficially own an aggregate of 292,823
shares of
Access’ Common Stock, warrants to purchase an aggregate of 728,850 shares
of Access’ Common Stock and Series A Preferred Stock which may be
converted into an aggregate of 1,457,699 shares of Access’ Common
Stock.
|
(15)
|
Oracle
Offshore Ltd is known to beneficially own an aggregate of 5,007
shares of
Access’ Common Stock, warrants to purchase an aggregate of 23,962 shares
of Access’ Common Stock and Series A Preferred Stock which may be
converted into an aggregate of 47,924 shares of Access’ Common Stock.
Larry N. Feinberg is a partner in Oracle Partners, L.P. Oracle
Partners,
L.P. and affiliates (Oracle Institutional Partners, L.P., Oracle
Investment Management, Inc., SAM Oracle Fund, Inc. and Mr. Feinberg)
are
known to beneficially own an aggregate of 292,823 shares of Access’ Common
Stock, warrants to purchase an aggregate of 728,850 shares of Access’
Common Stock and Series A Preferred Stock which may be converted
into an
aggregate of 1,457,699 shares of Access’ Common
Stock.
|
(16)
|
Oracle
Partners, LP is known to beneficially own an
aggregate of 247,651 shares of Access’ Common Stock, warrants to purchase
an aggregate of 458,277 shares of Access’ Common Stock and Series A
Preferred Stock which may be converted into an aggregate of 916,554
shares
of Access’ Common Stock. Larry N. Feinberg is a partner in Oracle
Partners, L.P. Oracle Partners, L.P. and affiliates (Oracle Institutional
Partners, L.P., Oracle Investment Management, Inc., SAM Oracle
Fund, Inc.
and Mr. Feinberg) are known to beneficially own an aggregate of
292,823
shares of Access’ Common Stock, warrants to purchase an aggregate of
728,850 shares of Access’ Common Stock and Series A Preferred Stock which
may be converted into an aggregate of 1,457,699 shares of Access’ Common
Stock.
|
(17)
|
Perceptive
Life Sciences Master Fund Ltd is known to beneficially own warrants
to
purchase an aggregate of 333,333 shares of Access’ Common Stock and Series
A Preferred Stock which may be converted into an aggregate of 666,666
shares of Access’ Common Stock.
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(18)
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Rockmore
Investment Master Fund Ltd is known to beneficially own warrants
to
purchase an aggregate of 83,333 shares of Access’ Common Stock and Series
A Preferred Stock which may be converted into an aggregate of 166,666
shares of Access’ Common Stock. Rockmore Capital, LLC (“Rockmore Capital”)
and Rockmore Partners, LLC (“Rockmore Partners”), each a limited liability
company formed under the laws of the State of Delaware, serve as
the
investment manager and general partner, respectively, to Rockmore
(US) LP,
a Delaware limited partnership, which invests all of its assets
through
Rockmore Investment Master Fund Ltd., an exempted company formed
under the
laws of Bermuda (“Rockmore Master Fund”). By reason of such relationships,
Rockmore Capital and Rockmore Partners may be deemed to share dispositive
power over shares of our common stock owned by Rockmore Master
Fund.
Rockmore Capital and Rockmore Partners disclaim beneficial ownership
of
such shares of our common stock. Rockmore Partners has delegated
authority
to Rockmore Capital regarding portfolio management decisions with
respect
to the shares of common stock owned by Rockmore Master Fund and,
as of
December 10, 2007, Mr. Bruce T. Bernstein and Mr. Brian Daly, as
officers
of Rockmore Capital, are responsible for the portfolio management
decisions of the shares of common stock owned by Rockmore Master
Fund. By
reason of such authority, Messsrs. Bernstein and Daly may be deemed
to
share dispositive power over the shares of our common stock owned
by
Rockmore Master Fund. Messrs. Bernstein and Daly disclaim beneficial
ownership of such shares of our common stock and neither of such
persons
has any legal right to maintain such authority. No other person
has sole
or shared voting or dispositive power with respect to the shares
of our
common stock as those terms are used for purposes under Regulation
13D-G
of the Securities Exchange Act of 1934, as amended. No person or
“group”
(as that term is used in Section 13(d) of the Securities Act of
1934, as
amended, or the SEC’s Regulation 13D-G) controls Rockmore Master
Fund.
|
(19)
|
Rodman
& Renshaw LLC is known to beneficially own warrants to purchase an
aggregate of 109,000 shares of Access’ Common
Stock.
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(20)
|
SAM
Oracle Investments, Inc. is known to beneficially own an aggregate
of
29,736 shares of Access’ Common Stock, warrants to purchase an aggregate
of 119,811 shares of Access’ Common Stock and Series A Preferred Stock
which may be converted into an aggregate of 239,622 shares of Access’
Common Stock. Larry N. Feinberg is a partner in Oracle Partners,
L.P.
Oracle Partners, L.P. and affiliates (Oracle Institutional Partners,
L.P.,
Oracle Investment Management, Inc., Sam Oracle Fund, Inc. and Mr.
Feinberg) are known to beneficially own an aggregate of 292,823
shares of
Access’ Common Stock, warrants to purchase an aggregate of 728,850 shares
of Access’ Common Stock and Series A Preferred Stock which may be
converted into an aggregate of 1,457,699 shares of Access’ Common
Stock.
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(21)
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SCO
Capital Partners LLC is known to directly beneficially own warrants
to
purchase an aggregate of 4,783,240 shares of Access’ Common Stock and
Series A Preferred Stock which may be converted into an aggregate
of
5,229,470 shares of Access’ Common Stock. SCO Capital Partners LLC and
affiliates (SCO Capital Partners, L.P. and Beach Capital LLC) are
known to
beneficially own warrants to purchase an aggregate of 5,551,770
shares of
Access’ Common Stock and 6,410,436 shares of Common Stock issuable to them
upon conversion of Series A Preferred Stock. Steven H. Rouhandeh,
in his
capacity as chairman and managing member of SCO Capital Partners
LLC, has
the power to direct the vote and disposition of the shares owned
by SCO
Capital Partners LLC. SCO Capital Partners LLC has opted out of
the beneficial ownership cap described
above.
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(22)
|
SCO
Capital Partners, L.P. is known to directly beneficially own warrants
to
purchase an aggregate of 333,333 shares of Access’ Common Stock and Series
A Preferred Stock which may be converted into an aggregate of 666,666
shares of Access’ Common Stock. SCO Capital Partners, L.P. and affiliates
(SCO Capital Partners LLC and Beach Capital LLC) are known to beneficially
own warrants to purchase an aggregate of 5,551,770 shares of Access’
Common Stock and 6,410,436 shares of Common Stock issuable to them
upon
conversion of Series A Preferred Stock. Steven H. Rouhandeh, in
his
capacity as managing member of the entity that serves as general
partner
of SCO Capital Partners, L.P. has the power to direct the vote
and
disposition of the shares owned by SCO Capital Partners,
L.P.. SCO Capital Partners, L.P. has opted out of the
beneficial ownership cap described
above.
|
The
following information contains a description of each selling shareholder's
relationship to us and how each selling shareholder acquired the shares to
be
sold in this offering is detailed below. None of the selling stockholders
have
held a position or office, or had any other material relationship, with us,
except as follows:
SCO
Capital Partners LLC and affiliates
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise
price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,001.
The
Series A Preferred Stock has a liquidation preference of $10,000 per share,
is
entitled to a dividend of 6% per annum, payable in shares of our common
stock at
our option. The number of shares of common stock into which each
share of Series A Preferred Stock is convertible is determined by dividing
the
liquidation preference per share plus all accrued and unpaid dividends
thereon
by $3.00. Unless a holder of Series A Preferred Stock either elected
otherwise prior to the purchase of such preferred stock or elects otherwise
upon
not less than 61 days prior written notice, its ability to convert its
Series A
Preferred Stock into common stock or to vote on an as-if-converted to common
stock basis is restricted pursuant to a beneficial ownership cap to the
extent
that such conversion would result in the holder owning more than 4.99%
of our
issued and outstanding common stock or voting together with the common
stock on
an as-if-converted to common stock basis in respect of more than 4.99%
of our
issued and outstanding common stock. The warrants issued in
connection with the Series A Preferred Stock are subject to a similar beneficial
ownership cap restriction on their exercise. SCO Capital Partners
LLC, SCO Capital Partners, L.P. and Beach Capital LLC have elected not
to be
governed by these restrictions.
As
a
condition to closing, SCO Capital Partners LLC and affiliates, along with
the
other holders of an aggregate of $6,000,000 Secured Convertible Notes,
also
exchanged their notes and accrued interest for an additional 1,836.0512
shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share. In
connection with the exchange of the notes, all security interests and liens
relating thereto were terminated.
In
connection with its sale and issuance of Series A Preferred Stock and warrants,
Access entered into an investor rights agreement whereby it granted registration
rights with respect to the shares of common stock of Access underlying
the
Series A Preferred Stock and warrants. In addition, in connection
with the sale and issuance of Series A Preferred Stock and warrants, we
entered
into a Director Designation Agreement whereby we agreed to continue SCO’s right
to designate two individuals to serve on the Board of Directors of
Access.
On
December 6, 2006, we entered into a note and warrant purchase agreement
pursuant
to which we sold and issued an aggregate of $500,000 of 7.5% convertible
notes
due November 15, 2007 and warrants to purchase 386,364 shares of common
stock of
Access. Net proceeds to Access were $450,000. The notes and warrants were
sold
in a private placement to a group of accredited investors led by SCO Capital
Partners LLC and affiliates. All of the principal and interest under these
notes
were exchanged for shares of our Series A Preferred Stock and warrants
as
described above. The warrants associated with the notes are currently
outstanding.
On
October 24, 2006, we entered into a note and warrant purchase agreement
pursuant
to which we sold and issued an aggregate of $500,000 of 7.5% convertible
notes
due November 15, 2007 and warrants to purchase 386,364 shares of common
stock of
Access. Net proceeds to Access were $450,000. The notes and warrants were
sold
in a private placement to a group of accredited investors led by SCO and
affiliates. All of the principal and interest under these notes were exchanged
for shares of our Series A Preferred Stock and warrants as described above.
The
warrants associated with the notes are currently outstanding.
On
February 16, 2006, we entered into a note and warrant purchase agreement
pursuant to which we sold and issued an aggregate of $5,000,000 of 7.5%
convertible notes due November 15, 2007 and warrants to purchase an aggregate
of
3,863,634 shares of common stock of Access. Net proceeds to Access were
$4.5
million. The notes and warrants were sold in a private placement to a group
of
accredited investors led by SCO and affiliates. All of the principal and
interest under these notes were exchanged for shares of our Series A Preferred
Stock and warrants as described above. The warrants associated with the
notes
are currently outstanding.
Each
noteholder received a warrant to purchase a number of shares of common
stock of
Access equal to 75% of the total number shares of Access common stock into
which
such holder's note is convertible. Each warrant has an exercise price of
$1.32
per share and is exercisable at any time prior to February 16, 2012, October
24,
2012 and December 6, 2012.
In
connection with its sale and issuance of notes and warrants, Access entered
into
an investors rights agreement whereby it granted SCO the right to designate
two
individuals to serve on the Board of Directors of Access while the notes
are
outstanding, and also granted registration rights with respect to the shares
of
common stock of Access underlying the notes and warrants. In connection
with its
sale and issuance of notes and warrants, Access entered into an investor
rights
agreement whereby it granted registration rights with respect to the shares
of
common stock of Access underlying the notes and warrants. In
addition, pursuant to the purchase agreements in connection with each of
the
note and warrant financings, Access granted SCO the right to designate
two
individuals to serve on the Board of Directors of Access while the notes
are
outstanding, and also granted. This right has now terminated in
accordance with its terms and as been replaced by a similar right pursuant
to
the Director Designation Agreement described above.
Oracle
Partners LP and affiliates
As
a
condition to the closing of the sale of the Series A Preferred Stock and
warrants, Oracle Partners LP and affiliates, along with the other holders
of an
aggregate of $4,015,000 Convertible Notes also exchanged their notes and
accrued
interest for 437.3104 shares of the Series A Preferred Stock and were issued
warrants to purchase 728,850 shares of our common stock at an exercise
price of
$3.50 per share.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of shares by the selling stockholders.
We
will receive proceeds from the exercise of warrants if payment of the exercise
price is made in cash. All such proceeds will be used for general corporate
purposes.
PLAN
OF DISTRIBUTION
We
are
registering the shares of common stock on behalf of the selling security
holders. Sales of shares may be made by selling security holders, including
their respective donees, transferees, pledgees or other successors-in-interest
directly to purchasers or to or through underwriters, broker-dealers or through
agents. Sales may be made from time to time on the OTC Bulletin Board, any
other
exchange or market upon which our shares may trade in the future, in the
over-the-counter market or otherwise, at market prices prevailing at the time
of
sale, at prices related to market prices, or at negotiated or fixed prices.
The
shares may be sold by one or more of, or a combination of, the
following:
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a
block trade in which the broker-dealer so engaged will attempt to
sell the
shares as agent but may position and resell a portion of the block
as
principal to facilitate the transaction (including crosses in which
the
same broker acts as agent for both sides of the
transaction);
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purchases
by a broker-dealer as principal and resale by such broker-dealer,
including resales for its account, pursuant to this
prospectus;
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ordinary
brokerage transactions and transactions in which the broker solicits
purchases;
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through
options, swaps or derivatives;
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in
privately negotiated transactions;
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in
making short sales or in transactions to cover short sales; and
|
-
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put
or call option transactions relating to the shares.
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-
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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-
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a
combination of any such methods of sale;
or
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-
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any
other method permitted pursuant to applicable
law.
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The
selling security holders may effect these transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. These broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling security holders and/or
the purchasers of shares for whom such broker-dealers may act as agents or
to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The selling security
holders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities.
The
selling security holders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with those transactions, the
broker-dealers or other financial institutions may engage in short sales of
the
shares or of securities convertible into or exchangeable for the shares in
the
course of hedging positions they assume with the selling security holders.
The
selling security holders may also enter into options or other transactions
with
broker-dealers or other financial institutions which require the delivery of
shares offered by this prospectus to those broker-dealers or other financial
institutions. The broker-dealer or other financial institution may then resell
the shares pursuant to this prospectus (as amended or supplemented, if required
by applicable law, to reflect those transactions).
The
selling security holders and any broker-dealers that act in connection with
the
sale of shares may be deemed to be “underwriters” within the meaning of Section
2(11) of the Securities Act of 1933, and any commissions received by
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals may be deemed to be underwriting discounts or commissions
under the Securities Act. The selling security holders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares against liabilities, including liabilities arising under
the
Securities Act. We have agreed to indemnify each of the selling security holders
and each selling security holder has agreed, severally and not jointly, to
indemnify us against some liabilities in connection with the offering of the
shares, including liabilities arising under the Securities Act.
The
selling security holders will be subject to the prospectus delivery requirements
of the Securities Act. We have informed the selling security holders that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act of 1934 may apply to their sales in the market.
Selling
security holders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act, provided they
meet the criteria and conform to the requirements of Rule 144.
Upon
being notified by a selling security holder that a material arrangement has
been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file a supplement to this prospectus, if required
pursuant to Rule 424(b) under the Securities Act, disclosing:
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the
name of each such selling security holder and of the participating
broker-dealer(s);
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the
number of shares involved;
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the
initial price at which the shares were
sold;
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the
commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
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that
such broker-dealer(s) did not conduct any investigation to verify
the
information set out or incorporated by reference in this prospectus;
and
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other
facts material to the transactions.
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In
addition, if required under applicable law or the rules or regulations of the
Commission, we will file a supplement to this prospectus when a selling security
holder notifies us that a donee or pledgee intends to sell more than 500 shares
of common stock.
We
are
paying all expenses and fees customarily paid by the issuer in connection with
the registration of the shares. The selling security holders will bear all
brokerage or underwriting discounts or commissions paid to broker-dealers in
connection with the sale of the shares.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion should be read in conjunction with our consolidated
financial statements and related notes included in this Prospectus.
Overview
Access
Pharmaceuticals, Inc. (“Access” or the “Company”) is a Delaware corporation. We
are an emerging biopharmaceutical company developing products for use in the
treatment of cancer, the supportive care of cancer, and other disease states.
Our product for the management of oral mucositis, MuGard™, has received
marketing clearance by the FDA as a device. Our lead clinical development
program for the drug candidate ProLindac™ (formerly known as AP5346) is in Phase
2 clinical testing. Access also has advanced drug delivery technologies
including Cobalamin™-mediated oral drug delivery and targeted
delivery.
Together
with our subsidiaries, we have proprietary patents or rights to one technology
approved for marketing and three drug delivery technology
platforms:
• MuGard
(mucoadhesive liquid technology),
•
synthetic polymer targeted delivery,
•
Cobalamin-mediated oral delivery,
•
Cobalamin-mediated targeted delivery.
Products
We
have
used our drug delivery technologies to develop the following products and
product candidates:
ACCESS
PRODUCT PORTFOLIO
Compound
|
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Originator
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Technology
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Indication
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FDA
Filing
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Clinical
Stage
(1)
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MuGard™
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Access
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Mucoadhesive
Liquid
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Mucositis
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510(k)
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Marketing
clearance
received
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ProLindac
TM
(Polymer
Platinate,
AP5346) (2)
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Access
- U London
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Synthetic
polymer
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Cancer
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Clinical
Development(3)
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Phase
2
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Oral
Insulin
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Access
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Cobalamin
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Diabetes
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Research
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Pre-Clinical
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Oral
Delivery System
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Access
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Cobalamin
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Various
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Research
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Pre-Clinical
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Cobalamin-Targeted
Therapeutics
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Access
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Cobalamin
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Anti-tumor
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Research
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Pre-Clinical
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(1)
For more information, see “Form 10-KSB, Government Regulation” for description
of clinical stages.
(2)
Licensed from the School of Pharmacy, The University of London. Subject to
a 1%
royalty and milestone payments on sales.
(3)
Clinical study being conducted in Europe.
Approved
Products
MuGard™
- Mucoadhesive Liquid Technology (MLT)
Access’
MuGard is a viscous polymer solution which provides a coating for the oral
cavity. MuGard is dispensed in a ready to use form. A multi-site, randomized
clinical study was performed in the United States testing MuGard and MuGard
containing an anti-inflammatory drug to determine the effect of these products
on the prevention and treatment of mucositis. The data from this trial indicated
that the patients using MuGard displayed a lower incidence of mucositis than
is
typically seen in the studied population with no additional benefit from the
drug.
Access
is
currently seeking marketing partners to market MuGard™ in the United States and
in other territories worldwide.
In
August
2007, we signed a definitive licensing agreement with SpePharm Holding, B.V.
under which SpePharm will market Access’ product MuGard in Europe.
Products
in Development Status
ProLindac™
(Polymer Platinate, AP5346) DACH Platinum
We
have
commenced a European Phase 2 ProLindac trial in ovarian cancer patients who
have
relapsed after first line platinum therapy. The primary aim of the study is
to
determine the response rate of ProLindac monotherapy in this patient population.
The response rates for other platinum compounds in this indication are well
known, and will be used for comparison.
We
have
submitted an IND application to the US Food and Drug Administration, and have
received clearance from the agency to proceed with a Phase 2 clinical study
of
ProLindac in combination with fluorouracil and leucovorin. The study is designed
to evaluate the safety of ProLindac in combination with two standard drugs
used
to treat colorectal cancer and to establish a safe dose for further clinical
studies of this combination in colorectal cancer. We are currently evaluating
whether clinical development of ProLindac in this indication might proceed
more
rapidly by utilizing an alternative clinical strategy and/or conducting studies
in the US and/or elsewhere in the world.
Recent
Events
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,001. The shares of Series A Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per
share.
As
a
condition to closing, SCO Capital Partners, LLC and affiliates, along with
the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest
for
437.3104 shares of the Series A Preferred Stock and were issued warrants to
purchase 728,850 shares of our common stock at an exercise price of $3.50 per
share. SCO Capital Partners, LLC currently has two designees serving on our
Board of Directors. In connection with the exchange of the notes, all security
interests and liens relating thereto were terminated.
On
August
27, 2007, we signed a definitive licensing agreement with SpePharm Holding,
B.V.
under which SpePharm will market Access’ product MuGard in Europe.
On
August
1, 2007, we announced that Esteban Cvitkovic, a member of our board of directors
as Vice Chairman Europe, agreed to an expanded role as Senior Director, Oncology
Clinical R&D.
On
April
19, 2007, we announced we had entered into an agreement to acquire Somanta
Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement, upon
consummation of the acquisition, Somanta’s preferred and common shareholders
would receive an aggregate of 1.5 million shares of Access’ common
stock. The Somanta stockholders approved the proposed transaction at the
stockholders’ meeting on August 17, 2007. The closing of the transaction is
subject to numerous conditions including receipt of necessary approvals. There
can be no assurance that the transaction will be consummated or if consummated
that it will be on the terms described herein. Each of the parties currently
has
the right to terminate the Merger Agreement.
On
April
26, 2007, we entered into a Note Purchase Agreement with Somanta
Pharmaceuticals, Inc. in order for Access to loan Somanta amounts to keep
certain of their licenses and vendors current. As of September 30, 2007 we
have
loaned Somanta $859,000.
Results
of Operations
Comparison
of Third Quarter 2007 Compared To Third Quarter 2006
Our
licensing revenue in the third quarter of 2007 was $6,000. We recognize
licensing revenue over the period of the performance obligation under our
licensing agreement. We received a $1.0 million upfront licensing payment in
August 2007 from SpePharm Holding, B.V. for marketing MuGard in Europe. We
will
recognize the upfront licensing fee over 14 ¾ years, the license
term.
Total
research spending for the third quarter of 2007 was $596,000, as compared to
$379,000 for the same period in 2006, an increase of $217,000. The increase
in
expenses was primarily due to:
·
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costs
for product manufacturing for a new ProLindac clinical trial expected
to
start in 2008 ($214,000);
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·
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higher
salary and related cost due to the hiring of additional scientific
staff
($30,000); and
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·
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other
net increases ($25,000).
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The
increase in research spending is partially offset by lower clinical development
costs ($52,000). We incurred start-up costs for the clinical trial in early
2006.
Total
general and administrative expenses were $1,000,000 for the third quarter of
2007, an increase of $200,000 as compared to the same period in 2006. The
increase in spending was due primarily to the following:
·
|
higher
investor relations expenses ($149,000) due to our increased investor
relations efforts;
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·
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higher
salary related expenses due to stock option expenses ($156,000);
and
|
·
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higher
salary expenses ($65,000).
|
The
increase in general and administrative spending is partially offset by:
·
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lower
patent expenses ($90,000);
|
·
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lower
professional fees ($59,000); and
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·
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other
net decreases ($21,000).
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Depreciation
and amortization was $61,000 for the third quarter of 2007 as compared to
$77,000 for the same period in 2006 reflecting a decrease of $16,000. The
decrease in depreciation and amortization was due to assets becoming fully
depreciated.
Total
operating expenses in the third quarter of 2007 were $1,657,000 as compared
to
total operating expenses of $1,256,000 for the same period in 2006, an increase
of $401,000.
Interest
and miscellaneous income was $12,000 for the third quarter of 2007 as compared
to $86,000 for the same period in 2006, a decrease of $74,000. The decrease
in
interest income was due to accretion of the receivable due from Uluru that
was
recorded in 2006.
Interest
and other expense was $318,000 for the third quarter of 2007 as compared to
$1,976,000 the same period in 2006, a decrease of $1,658,000. The decrease
in
interest and other expense was due to amortization of the discount on the Oracle
convertible notes and the amortization of the SCO notes recognized in
2006.
In
2006,
there was an unrealized loss on fair value of warrants of $1,131,000 due to
the
warrants issued to SCO and affiliates. We changed our accounting for the
warrants in the fourth quarter of 2006 and there are no unrealized losses or
gains in 2007.
Net
loss
in the third quarter of 2007 was $1,957,000, or a $0.55 basic and diluted loss
per common share, compared with a loss of $2,015,000, or a $0.57 basic and
diluted loss per common share for the same period in 2006, a decreased loss
of
$58,000.
Comparison
of Nine
Months Ended September 30, 2007 Compared To Nine Months Ended September 30,
2006
Our
licensing revenue in the first nine months of 2007 was $6,000. We recognize
licensing revenue over the period of the performance obligation under our
licensing agreement. We received a $1.0 million upfront licensing payment in
August 2007 from SpePharm Holding, B.V. for marketing MuGard in Europe. We
will
recognize the upfront licensing fee over 14 ¾ years, the license
term.
Total
research spending for the first nine months of 2007, was $1,532,000, as compared
to $1,769,000 for the same period in 2006, a decrease of $237,000. The decrease
in expenses was
primarily
due to
·
|
lower
costs for product manufacturing for ProLindac ($198,000). Product
manufacturing was completed early in 2006 which we believe is adequate
to
supply drug product for our current ovarian cancer
trial;
|
·
|
lower
costs of clinical trials for ProLindac
($170,000). We incurred start-up costs for the clinical trial in
early
2006; and
|
·
|
other
net decreases ($53,000).
|
The
decrease in research spending is partially offset by
·
|
higher
salary and related cost due to the hiring of additional scientific
staff
($121,000); and
|
·
|
higher
scientific consulting costs
($63,000).
|
Total
general and administrative expenses were $3,252,000 for the first nine months
of
2007, an increase of $1,123,000 as compared to the same period in 2006. The
increase in general and administrative expenses was due primarily to the
following:
·
|
higher
salary related expenses due mainly to stock option expenses
($580,000);
|
·
|
higher
investor relations expenses ($368,000) due to our increased investor
relations efforts;
|
·
|
higher
salary and related costs ($178,000);
and
|
·
|
higher
travel costs ($58,000).
|
The
increase in general and administrative expenses is partially offset
by:
·
|
lower
patent expenses ($45,000); and
|
·
|
other
net decreases ($16,000).
|
Depreciation
and amortization was $210,000 for the first nine months of 2007 as compared
to
$231,000 for the same period in 2006 reflecting a decrease of $21,000.
The
decrease in depreciation and amortization was due to assets becoming fully
depreciated.
Interest
and miscellaneous income was $72,000 for the first nine months of 2007 as
compared to $278,000 for the same period in 2006, a decrease of $206,000.
The
decrease in interest income was due to accretion of the receivable due from
Uluru that was recorded in 2006.
Interest
and other expense was $3,277,000 for the first nine months of 2007 as compared
to $5,244,000 for the same period in 2006, a decrease of $1,967,000.
The
decrease in interest and other expense was due to amortization of the discount
on the Oracle convertible notes and the amortization of the SCO notes recognized
in 2006.
In
2006
there was an unrealized loss on fair value of warrants of $1,107,000 due to
the
warrants issued to SCO and affiliates. We changed our accounting for the
warrants in the fourth quarter of 2006 and there is no unrealized losses or
gains in 2007.
Net
loss
in the first nine months of 2007 was $8,193,000, or a $2.31 basic and diluted
loss per common share, compared with a loss of $10,202,000, or a $2.89 basic
and
diluted loss per common share for the same period in 2006, a decreased loss
of
$2,009,000.
Comparison
of Years Ended December 31, 2006 and 2005
Our
total
research spending for continuing operations for the year ended December 31,
2006
was $2,053,000, as compared to $2,783,000 in 2005, a decrease of $730,000.
The
decrease in expenses was the result of Phase 2 clinical trial start-up costs,
including manufacturing costs for ProLindac™ in 2005 whereas 2006 costs were
primarily clinical trial costs.
Our
total
general and administrative expenses were $2,813,000 for 2006, a decrease of
$1,825,000 over 2005 expenses of $4,638,000, due to lower:
·
|
Salary
expenses due to the separation agreement in 2005 with our former
CEO
($909,000);
|
·
|
Professional
fees for investment strategies and fairness opinions in 2005
($397,000);
|
·
|
Patent
and license fees ($194,000);
|
·
|
Compensation
paid to Chairman in 2005 ($140,000)
and
|
·
|
Other
net decreases ($41,000).
|
The
decrease in general and administrative expenses is offset partially by
higher:
·
|
Salary
related costs due to the expensing of stock options ($180,000);
and
|
·
|
Investor/public
relations fees ($102,000).
|
Depreciation
and amortization was $309,000 in 2006 as compared to $333,000 in 2005, a
decrease of $24,000 due to the lower depreciation expense.
In
2005
we wrote off our goodwill of $1,868,000 following an impairment
analysis.
Our
loss
from operations in 2006 was $5,175,000 as compared to a loss of $9,622,000
in
2005.
Interest
and miscellaneous income was $294,000 for 2006 as compared to $100,000 for
2005,
an increase of $194,000, relating to interest recognized on the Uluru receivable
and higher cash balances in 2006 as compared with 2005.
Interest
and other expense was $7,436,000 for 2006 as compared to $2,100,000 for the
same
period in 2005, an increase of $5,336,000. The increase was due to amortization
of the discount of the Secured Convertible Notes and to amortization of the
discount on the extension of a convertible note.
We
had
$550,000 less $173,000 tax expense in 2006 in milestone revenues from our oral
care assets that we sold to Uluru, Inc. due to the amended 2005 Asset Sale
Agreement. We had no milestone revenues in 2005.
The
Secured Convertible Notes include warrants and a conversion feature. Until
September 30, 2006 we accounted for the warrants and conversion feature as
liabilities and recorded at fair value. From the date of issuance to September
30, 2006, the fair value of these instruments increased resulting in a net
unrealized loss of $1.1 million. On October 1, 2006, we adopted the
provisions of Financial Accounting Standards Board Staff Position EITF No.
00-19-2,
“Accounting
for Registration Payment Arrangements”
(EITF
00-19-2), which requires that contingent obligations to make future payments
under a registration payment arrangement be recognized and measured separately
in accordance with SFAS No. 5,
“Accounting
for Contingencies.”
Under
previous guidance, the fair value of the warrant was recorded as a current
liability in our balance sheet, due to a potential cash payment feature in
the
warrant. The current liability was marked-to-market at each quarter end, using
the Black-Scholes option-pricing model, with the change being recorded to
general and administrative expenses. Under the new guidance in EITF 00-19-2,
as
we believe the likelihood of such a cash payment to not be probable, have not
recognized a liability for such obligations. Accordingly, a cumulative-effect
adjustment of $1.4 million was made as of October 1, 2006 to accumulated
deficit, representing the difference between the initial value of this warrant
and its fair value as of this date and recorded to equity.
Net
loss
for 2006 was $12,874,000, or $3.65 basic and diluted loss per common share
compared with a loss of $1,700,000, or a $0.53 basic and diluted loss per common
share, for 2005.
Comparison
of Years Ended December 31, 2005 and 2004
Our
total
research spending for continuing operations for the year ended December 31,
2005
was $2,783,000, as compared to $2,335,000 in 2004, an increase of $448,000.
The
increase in expenses was the result of Phase 2 start-up costs including
manufacturing and clinical costs for ProLindac™ clinical trials ($674,000) and
other net costs ($20,000) offset by lower salary costs due to cutbacks in
scientific staff ($246,000).
Our
total
general and administrative expenses were $4,638,000 for 2005, an increase of
$1,439,000 over 2004 expenses of $3,199,000, due to:
·
|
Expenses
due to the separation agreement with our former CEO
($909,000);
|
·
|
Professional
fees for investment banking and financing decisions
($397,000);
|
·
|
Higher
legal fees due to changes in our convertible debt and legal fees
associated with merger candidates ($161,000);
and
|
·
|
Royalty
license fee ($150,000).
|
The
increases in general and administrative expenses is offset by:
·
|
Lower
investor relations costs ($90,000);
|
·
|
Lower
patent expenses ($61,000); and
|
·
|
Lower
net other increases ($27,000).
|
Depreciation
and amortization was $333,000 in 2005 as compared to $469,000 in 2004, a
decrease of $136,000 due to the impairment of a license which is no longer
effective ($109,000) plus lower depreciation.
In
addition we wrote off our goodwill in 2005 of $1,868,000 following an impairment
analysis.
Our
loss
from continuing operations in 2005 was $9,622,000 as compared to a loss of
$6,003,000 in 2004.
Interest
and miscellaneous income was $100,000 for 2005 as compared to $226,000 for
2004,
a decrease of $126,000, relating to interest income due to lower cash balances
in 2005 as compared with 2004.
Interest
and miscellaneous expense was $2,100,000 for 2005 as compared to $1,385,000
for
the same period in 2004, an increase of $715,000. The increase was due to
repayment of the secured convertible notes and contractually accelerated
interest and penalty and due to amortization of the discount on the extension
on
of the convertible note.
Net
loss
for 2005 was $1,700,000, or a $0.53 basic and diluted loss per common share
compared with a loss of $10,238,000, or a $3.38 basic and diluted loss per
common share, for 2004.
Discontinued
Operations
In
October 2005 we sold our oral/topical care business to Uluru, Inc. for a gain
of
$12,891,000 less $4,067,000 tax expense and we closed down our Australian
operations. The loss from our discontinued operations of our oral/topical care
business and our Australian operation was $2,969,000.
Liquidity
and Capital Resources
We
have
funded our operations primarily through private sales of common stock and
convertible notes and our principal source of liquidity is cash and cash
equivalents. Licensing fees provided funding for operations during the quarter
ended September 30, 2007.
As
of
November 30, 2007, our cash and cash equivalents and short-term investments
were
$7,271,000 and our net cash burn rate for the nine months ending September
30,
2007 was approximately $435,000 per month. As of September 30, 2007 our working
capital deficit was $12,624,000. Our working capital at September 30, 2007
represented a decrease of $6,842,000 as compared to our working capital deficit
as of December 31, 2006 of $5,782,000. Our working capital as of September
30,
2007 was negative reflecting approximately $11.4 million of debt that was a
current liability at September 30, 2007 and $1.0 million of accrued interest
payments accrued at September 30, 2007. As of December 10, 2007 we have
convertible notes outstanding due of $5.6 million, in the principle amount
of
$5.5 million which are due September 13, 2011.
As
of
December 10, 2007, the Company did not have enough capital to achieve its
long-term goals. If we raise additional funds by selling equity securities,
the
relative equity ownership of our existing investors would be diluted and the
new
investors could obtain terms more favorable than previous investors. A failure
to obtain necessary additional capital in the future could jeopardize our
operations.
We
have
generally incurred negative cash flows from operations since inception, and
have
expended, and expect to continue to expend in the future, substantial funds
to
complete our planned product development efforts. Since inception, our expenses
have significantly exceeded revenues, resulting in an accumulated deficit as
of
September 30, 2007 of $85,865,000. We expect that our capital resources will
be
adequate to fund our current level of operations through December 2008. However,
our ability to fund operations over this time could change significantly
depending upon changes to future operational funding obligations or capital
expenditures. As a result we may be required to seek additional financing
sources within the next twelve months. We cannot assure you that we will ever
be
able to generate significant product revenue or achieve or sustain
profitability.
All
shares and per share information reflect a one for five reverse stock split
effected June 5, 2006.
Currently,
one noteholder holding $5.5 million worth of 7.7% convertible notes has amended
their note to a new maturity date, September 13, 2011.
Since
our
inception, we have devoted our resources primarily to fund our research and
development programs. We have been unprofitable since inception and to date
have
received limited revenues from the sale of products. We cannot assure you that
we will be able to generate sufficient product revenues to attain profitability
on a sustained basis or at all. We expect to incur losses for the next several
years as we continue to invest in product research and development, preclinical
studies, clinical trials and regulatory compliance.
We
plan
to expend substantial funds to conduct research and development programs,
preclinical studies and clinical trials of potential products, including
research and development with respect to our acquired and developed technology.
Our future capital requirements and adequacy of available funds will depend
on
many factors, including:
·
|
the
successful development and commercialization of ProLindac™, MuGard™ and
our other product candidates;
|
·
|
the
ability to convert, repay or restructure our outstanding convertible
notes
and debentures;
|
·
|
the
ability to merge with Somanta Pharmaceuticals, Inc. and integrate
their
assets and programs with ours;
|
·
|
the
ability to establish and maintain collaborative arrangements with
corporate partners for the research, development and commercialization
of
products;
|
·
|
continued
scientific progress in our research and development
programs;
|
·
|
the
magnitude, scope and results of preclinical testing and clinical
trials;
|
·
|
the
costs involved in filing, prosecuting and enforcing patent
claims;
|
·
|
the
costs involved in conducting clinical
trials;
|
·
|
competing
technological developments;
|
·
|
the
cost of manufacturing and scale-up;
|
·
|
the
ability to establish and maintain effective commercialization arrangements
and activities; and
|
·
|
successful
regulatory filings.
|
We
have
devoted substantially all of our efforts and resources to research and
development conducted on our own behalf. The following table summarizes research
and development spending by project category (in thousands), which spending
includes, but is not limited to, payroll and personnel expense, lab supplies,
preclinical expense, development cost, clinical trial expense, outside
manufacturing expense and consulting expense:
|
|
|
Twleve
Months ended
|
|
|
Nine
Months ended
|
|
|
Inception
To
|
|
|
|
|
December
31,
|
|
|
September 30
,
|
|
|
Date
(1)
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
|
|
Polymer
Platinate
(ProLindac™)
|
|
$
|
2,043
|
|
$
|
2,653
|
|
$
|
1,433
|
|
$
|
21,087
|
|
Mucoadhesive
Liquid
Technology
(MLT)
|
|
|
10
|
|
|
-
|
|
|
21
|
|
|
1,511
|
|
Others
(2)
|
|
|
-
|
|
|
130
|
|
|
78
|
|
|
5,122
|
|
Total
|
|
$
|
2,053
|
|
$
|
2,783
|
|
$
|
1,532
|
|
$
|
27,720
|
|
(1)
|
Cumulative
spending from inception of the Company or project through September
30,
2007.
|
(2)
|
Includes:
Vitamin Mediated Targeted Delivery, carbohydrate targeting, amlexanox
cream and gel and other related
projects.
|
Due
to
uncertainties and certain of the risk factors described above, including those
relating to our ability to successfully commercialize our drug candidates,
our
ability to obtain necessary additional capital to fund operations in the future,
our ability to successfully manufacture our products and our product candidates
in clinical quantities or for commercial purposes, government regulation to
which we are subject, the uncertainty associated with preclinical and clinical
testing, intense competition that we face, market acceptance of our products
and
protection of our intellectual property, it is not possible to reliably predict
future spending or time to completion by project or product category or the
period in which material net cash inflows from significant projects are expected
to commence. If we are unable to timely complete a particular project, our
research and development efforts could be delayed or reduced, our business
could
suffer depending on the significance of the project and we might need to raise
additional capital to fund operations, as discussed in the risk factors above,
including without limitation those relating to the uncertainty of the success
of
our research and development activities and our ability to obtain necessary
additional capital to fund operations in the future. As discussed in such risk
factors, delays in our research and development efforts and any inability to
raise additional funds could cause us to eliminate one or more of our research
and development programs.
We
plan
to continue our policy of investing any available funds in certificates of
deposit, money market funds, government securities and investment-grade
interest-bearing securities. We do not invest in derivative financial
instruments.
Critical
Accounting Policies and Estimates
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United State of America requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amount of revenues and expenses during
the reported period. In applying our accounting principles, we must often make
individual estimates and assumptions regarding expected outcomes or
uncertainties. As you might expect, the actual results or outcomes are often
different than the estimated or assumed amounts. These differences are usually
minor and are included in our consolidated financial statements as soon as
they
are known. Our estimates, judgments and assumptions are continually evaluated
based on available information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results could differ from
those estimates.
Asset
Impairment
On
January 1, 2002, we adopted SFAS 142,
“Goodwill
and Other Intangible Assets.”
Upon
adoption, we performed a transitional impairment test on our recorded intangible
assets that consisted primarily of acquisition related goodwill and license
intangibles. We also performed an annual impairment test in the fourth quarter
of 2005. The analysis compared the Company’s market capitalization with net
asset value resulting in an impairment charge in 2005 of $1,868,000.
Our
intangible assets at December 31, 2006 consist primarily of patents
acquired in acquisitions and licenses which were recorded at fair value on
the
acquisition date. We perform an impairment test on at least an annual basis
or
when indications of impairment exist. At December 31, 2006, Management believes
no impairment of our intangible assets exists.
Based
on
an assessment of our accounting policies and underlying judgments and
uncertainties affecting the application of those policies, we believe that
our
consolidated financial statements provide a meaningful and fair perspective
of
us. We do not suggest that other general factors, such as those discussed
elsewhere in this report, could not adversely impact our consolidated financial
position, results of operations or cash flows. The impairment test involves
judgment on the part of management as to the value of goodwill, licenses and
intangibles.
Stock
Based Compensation Expense
On
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “
Share-Based
Payment
,”
(“SFAS
123(R)”), which requires the measurement and recognition of all share-based
payment awards made to employees and directors including stock options based
on
estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting
under Accounting Principles Board (“APB”) Opinion No. 25, “
Accounting
for Stock Issued to Employees
”
(“APB
25”), for periods beginning in fiscal year 2006. In March 2005, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB
107”) relating to SFAS 123(R). We applied the provisions of SAB 107 in its
adoption of SFAS 123(R).
We
adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006,
the first day of the Company’s 2006 fiscal year. Our consolidated financial
statements for the year ended December 31, 2006, reflect the impact of SFAS
123(R). In accordance with the modified prospective transition method, our
consolidated financial statements for prior periods have not been restated
to
include the impact of SFAS 123(R). Stock-based compensation expense recognized
under SFAS 123(R) for the year ended December 31, 2006 was approximately
$248,000. Stock-based compensation expense which would have been recognized
under the fair value based method would have been approximately $750,000 during
the year ended December 31, 2005.
SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service period in the company’s Statement of
Operations. Prior to the adoption of SFAS 123(R), we accounted for stock-based
awards to employees and directors using the intrinsic value method in accordance
with APB No. 25 as allowed under SFAS No. 123, “
Accounting
for Stock-Based Compensation
”
(“SFAS
123”). Under the intrinsic value method, no stock-based compensation expense for
stock option grants was recognized because the exercise price of our stock
options granted to employees and directors equaled the fair market value of
the
underlying stock at the date of grant. In 2005, we did recognize stock
compensation expense for restricted stock awards based on the fair value of
the
underlying stock on date of grant and this expense was amortized over the
requisite service period. There were no restricted stock awards granted in
2006
and therefore no stock compensation expense is recognized in 2006 for these
awards.
Stock-based
compensation expense recognized in our Statement of Operations for the first
year ended December 31, 2006 includes compensation expense for share-based
payment awards granted prior to, but not yet vested as of December 31,
2005, based on the grant date fair value estimated in accordance with the pro
forma provisions of SFAS 123 and compensation expense for the share-based
payment awards granted subsequent to December 31, 2005, based on the grant
date
fair value estimated in accordance with the provisions of SFAS 123(R).
Stock-based compensation expense recognized in the Company’s Statement of
Operations for the year ended December 31, 2006 is based on awards ultimately
expected to vest and has been reduced for estimated forfeitures, which currently
is nil. SFAS 123(R) requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. In the Company’s pro forma information required under SFAS
123 for periods prior to fiscal year 2006, forfeitures have been accounted
for
as they occurred.
We
use
the Black-Scholes option-pricing model (“Black-Scholes”) as its method of
valuation under SFAS 123(R) in fiscal year 2006 and a single option award
approach. This fair value is then amortized on a straight-line basis over the
requisite service periods of the awards, which is generally the vesting period.
Black-Scholes was also previously used for our pro forma information required
under SFAS 123 for periods prior to fiscal year 2006. The fair value of
share-based payment awards on the date of grant as determined by the
Black-Scholes model is affected by our stock price as well as other assumptions.
These assumptions include, but are not limited to the expected stock price
volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157,
“Fair
Value Measurements”
(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157
is effective for fiscal years beginning after November 15, 2007. We are
evaluating the potential impact of the implementation of SFAS 157 on our
financial position and results of operations.
In
2006,
the Financial Accounting Standards Board issued FASB Interpretation No. 48
(FIN 48)
,
which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
that
we recognize in our financial statements the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the
technical merits of the position. We adopted the provisions of FIN 48 as of
the
beginning of our 2007 fiscal year. There was no effect as a result of our
adoption of FIN 48.
As
of the
beginning of our 2007 fiscal year, due to our cumulative net losses we do not
have any reserves for income taxes because no taxes are due.
We
file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. A number of years may elapse before an uncertain tax position
is
audited and finally resolved. While it is often difficult to predict the final
outcome or the timing of resolution of any particular uncertain tax position,
we
believe that our reserves for income taxes reflect the most probable outcome.
We
adjust these reserves, as well as the related interest, in light of changing
facts and circumstances. Settlement of any particular position would usually
require the use of cash. The resolution of a matter would be recognized as
an
adjustment to our provision for income taxes and our effective tax rate in
the
period of resolution.
Off-Balance
Sheet Transactions
None
Contractual
Obligations
The
Company’s contractual obligations as of November 30, 2007 are set forth below.
|
|
|
|
Payment
Due by
Period
|
|
|
|
|
|
|
|
|
|
Less
Than 1
|
|
|
|
|
|
|
|
Total
|
|
|
Year
|
|
|
1-4
Years
|
|
Long-Term
Debt
Obligations
|
|
$
|
5,564,000
|
|
$
|
64,000
|
|
$
|
5,500,000
|
|
Interest
|
|
|
1,976,000
|
|
|
522,000
|
|
|
1,454,000
|
|
Lease
Obligations
|
|
|
125,000
|
|
|
90,000
|
|
|
35,000
|
|
Total
|
|
$
|
7,665,000
|
|
$
|
676,000
|
|
$
|
6,89,000
|
|
DESCRIPTION
OF BUSINESS
Business
Access
Pharmaceuticals, Inc. (“Access” or the “Company”) is a Delaware corporation. We
are an emerging biopharmaceutical company developing products for use in the
treatment of cancer, the supportive care of cancer, and other disease states.
Our product for the management of oral mucositis, MuGard™, has received
marketing clearance by the FDA as a device. Our lead clinical development
program for the drug candidate ProLindac™ (formerly known as AP5346) is in Phase
2 clinical testing. Access also has advanced drug delivery technologies
including Cobalamin™-mediated oral drug delivery and targeted
delivery.
Together
with our subsidiaries, we have proprietary patents or rights to one technology
approved for marketing and three drug delivery technology
platforms:
• MuGard™
(mucoadhesive liquid technology),
•
synthetic polymer targeted delivery,
•
Cobalamin-mediated oral delivery,
•
Cobalamin-mediated targeted delivery.
Products
We
have
used our drug delivery technologies to develop the following products and
product candidates:
ACCESS
DRUG PORTFOLIO
Compound
|
|
Originator
|
|
Technology
|
|
Indication
|
|
FDA
Filing
|
|
Clinical
Stage
(1)
|
|
|
|
|
|
|
|
|
|
|
|
MuGard™
|
|
Access
|
|
Mucoadhesive
liquid
|
|
Mucositis
|
|
510(k)
|
|
Marketing
clearance
received
|
ProLindac
TM
(Polymer
Platinate,
AP5346) (2)
|
|
Access
- U London
|
|
Synthetic
polymer
|
|
Cancer
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Clinical
Development(3)
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Phase
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Oral
Insulin
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Access
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Cobalamin
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Diabetes
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Research
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Pre-Clinical
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Oral
Delivery System
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Access
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Cobalamin
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Various
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Research
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Pre-Clinical
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Cobalamin-Targeted
Therapeutics
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Access
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Cobalamin
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Anti-tumor
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Research
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Pre-Clinical
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(1)
For more information, see “Government Regulation” for description of clinical
stages.
(2)
Licensed from the School of Pharmacy, The University of London. Subject to
a 1%
royalty and milestone payments on sales.
(3)
Clinical studies being conducted in Europe and US.
Approved
Products
MuGard™
- Mucoadhesive Liquid Technology (MLT)
Mucositis
is a debilitating condition involving extensive inflammation of mouth tissue
that affects annually an estimated 400,000 cancer patients in the United States
undergoing chemotherapy and radiation treatment. Any treatment that would
accelerate healing and/or diminish the rate of appearance of mucositis would
have a significant beneficial impact on the quality of life of these patients
and may allow for more aggressive chemotherapy. We believe the potential
addressable market for a mucositis product could be over $1 billion
world-wide.
Access’
MuGard is a viscous polymer solution which provides a coating for the oral
cavity. MuGard is dispensed in a ready to use form. A multi-site, randomized
clinical study was performed in the United States testing MuGard and MuGard
containing an anti-inflammatory drug to determine the effect of these products
on the prevention and treatment of mucositis. The data from this trial indicated
that the patients using MuGard displayed a lower incidence of mucositis than
is
typically seen in the studied population with no additional benefit from the
drug.
The
data
were retrospectively compared with two historical patient databases to evaluate
the potential advantages MuGard may represent in the prevention, treatment
and
management of mucositis. The patient evaluation was conducted using the oral
mucositis assessment scale, which qualifies the disease severity on a scale
of
0-5. Key highlights of the comparison with the historical patient databases
are
as follows:
•
the average severity of the disease was reduced by approximately
40%;
•
the maximum intensity of the mucositis was approximately 35% lower;
and
•
the median peak intensity was approximately 50% lower.
These
data confirmed that fact that MuGard could represent an important advancement
in
the management and prevention of mucositis. On September 20, 2006, we announced
that we had submitted a Premarket Notification 510(k) application to the United
States Food and Drug Administration (FDA) announcing the Company’s intent to
market MuGard. On December 13, 2006, we announced that we had received marketing
clearance for MuGard from FDA for the indication of the management of oral
wounds including mucositis, aphthous ulcers and traumatic ulcers.
Access
is
currently seeking marketing partners to market MuGard in the United States
and
in other territories worldwide. In August 2007, we signed a definitive licensing
agreement with SpePharm Holding, B.V. under which SpePharm will market Access’
product MuGard in Europe.
Products
in Development Status
ProLindac™
(Polymer Platinate, AP5346) DACH Platinum
Chemotherapy,
surgery and radiation are the major components in the clinical management of
cancer patients. Chemotherapy serves as the primary therapy for some solid
tumors and metastases and is increasingly used as an adjunct to radiation and
surgery to improve their effectiveness. For chemotherapeutic agents to be
effective in treating cancer patients, however, the agent must reach the target
cells in effective quantities with minimal toxicity in normal
tissues.
The
current optimal strategy for chemotherapy involves exposing patients to the
most
intensive cytotoxic regimens they can tolerate and clinicians attempt to design
a combination of chemotherapeutic drugs, a dosing schedule and a method of
administration to increase the probability that cancerous cells will be
destroyed while minimizing the harm to healthy cells. Notwithstanding
clinicians’ efforts, most current chemotherapeutic drugs have significant
shortcomings that limit the efficacy of chemotherapy. For example, certain
cancers are inherently unresponsive to chemotherapeutic agents. Alternatively,
other cancers may initially respond, but subgroups of cancer cells acquire
resistance to the drug during the course of therapy and the resistant cells
may
survive and cause a relapse. Serious toxicity, including bone marrow
suppression, renal toxicity, neuropathy, or irreversible cardiotoxicity, are
some of the limitations of current anti-cancer drugs that can prevent their
administration in curative doses.
Oxaliplatin,
a formulation of DACH platinum, is a chemotherapeutic which was initially
approved in France and in Europe in 1999 for the treatment of colorectal cancer.
It is now also being marketed in the United States and is generating worldwide
sales in excess of $2 billion in 2006. Carboplatin and Cisplatin, two other
approved platinum chemotherapy drugs, are not indicated for the treatment of
metastatic colorectal cancer. Oxaliplatin, in combination with 5-flurouracil
and
folinic acid (known as the FOLFOX regime) is indicated for the first-line
treatment of metastatic colorectal cancer in Europe and the U.S. The colorectal
cancer market is a significant opportunity as there are over 940,000 reported
new cases annually worldwide, increasing at a rate of approximately three
percent per year, and 500,000 deaths.
Currently,
platinum compounds are one of the largest selling categories of chemotherapeutic
agents, with annual sales in excess of $3.0 billion in 2006. As is the case
with
all chemotherapeutic drugs, the use of such compounds is associated with serious
systemic side effects. The drug development goal therefore is to enhance
delivery of the active drug to the tumor and minimize the amount of active
drug
affecting normal organs in the body.
Utilizing
a biocompatible water-soluble polymer HPMA as a drug carrier, Access’ drug
candidate ProLindac, links DACH platinum to a polymer in a manner which permits
the selective release of active drug to the tumor by several mechanisms,
including taking advantage of the differential pH in tumor tissue compared
to
healthy tissue. The polymer also capitalizes on the biological differences
in
the permeability of blood vessels at tumor sites versus normal tissue. In this
way, tumor selective delivery and platinum release is achieved. The ability
of
ProLindac to inhibit tumor growth has been evaluated in more than ten
preclinical models. Compared with the marketed product oxaliplatin, ProLindac
showed either marked superiority or superiority in most of these models.
Preclinical studies of the delivery of platinum to tumors in an animal model
have shown that, compared with oxaliplatin at equitoxic doses, ProLindac
delivers in excess of 16 times more platinum to the tumor. An analysis of tumor
DNA, which is the main target for anti-cancer platinum agents, has shown that
ProLindac
delivers
approximately 14 times more platinum to tumor DNA than oxaliplatin. Results
from
preclinical efficacy studies conducted in the B16 and other tumor models have
also shown that ProLindac is superior to oxaliplatin in inhibiting the growth
of
tumors. An extensive preclinical package has been developed supporting the
development of ProLindac.
In
2005
we completed a Phase 1 multi-center clinical study conducted in Europe, which
enrolled 26 patients. The study was reported at the AACR-NCI-EORTC conference
in
Philadelphia in November 2005. The European trial was designed to identify
the maximum tolerated dose, dose limiting toxicities, the pharmacokinetics
of
the platinum in plasma and the possible anti-tumor activity of ProLindac. The
open-label, non-randomized, dose-escalation Phase 1 study was performed at
two
European centers. ProLindac was administered as an intravenous infusion over
one
hour, once a week on days 1, 8 and 15 of each 28-day cycle to patients with
solid progressive tumors. We obtained results in 26 patients with a broad
cross-section of tumor types, with doses ranging from 80-1,280 mg
Pt/m
2
.
Of
the 26
patients, 10 were not evaluable for tumor response, principally due to
withdrawal from the study prior to completing the required cycle. Of the 16
evaluable patients, 2 demonstrated a partial response, 1 experienced a partial
response based on a biomarker and 4 experienced stable disease. One of the
patients who attained a partial response had a melanoma with lung metastasis;
a
CT scan revealed a tumor decrease of greater than 50%. The other patient who
responded had ovarian cancer; she had a reduction in lymph node metastasis
and
remission of a liver metastasis. The patient who experienced a partial response
based on a biomarker was an ovarian cancer patient for whom CA-125 levels
returned to normal. Also of note, a patient with cisplatin resistant cervical
cancer showed a short lasting significant reduction in lung metastasis after
3
doses. However, due to toxicity, the patient could not be retreated to determine
whether the partial response could be maintained.
We
have
commenced a European Phase 2 ProLindac trial in ovarian cancer patients who
have
relapsed after first line platinum therapy. The primary aim of the study is
to
the determine the response rate of ProLindac monotherapy in this patient
population. The response rates for other platinum compounds in this indication
are well known, and will be used for comparison.
The
company has submitted an IND application to the US Food and Drug Administration,
and has received clearance from the agency to proceed with a Phase 1 clinical
study of ProLindac in combination with fluorouracil and leucovorin. The study
is
designed to evaluate the safety of the ProLindac in combination with two
standard drugs used to treat colorectal cancer and to establish a safe dose
for
Phase 2 clinical studies of this combination in colorectal cancer. The company
is currently evaluating whether clinical development of ProLindac in this
indication might proceed more rapidly by utilizing an alternative clinical
strategy and/or conducting studies in the US and/or elsewhere in the
world.
Research
Projects, Products and Products in Development
Drug
Development Strategy
A
part of
our integrated drug development strategy is to form alliances with centers
of
excellence in order to obtain alternative lead compounds while minimizing the
overall cost of research. The Company does not spend significant resources
on
fundamental biological research but rather focuses on its chemistry expertise
and clinical development. For example, certain of our polymer platinate
technology has resulted in part from a research collaboration with The School
of
Pharmacy, University of London.
Our
strategy is to focus on our polymer therapeutic program for the treatment of
cancer while continuing to develop technologies such as MuGard and
Cobalamin-mediated oral drug delivery which could provide us with a revenue
stream in the short term through commercialization or outlicensing to fund
our
longer-term polymer development program. To reduce financial risk and equity
financing requirements, we are directing our resources to the preclinical and
early clinical phases of development. Where the size of the necessary clinical
studies and cost associated with the later clinical development phases are
significant, we plan to co-develop with or to outlicense to marketing partners
our therapeutic product candidates. By forming strategic alliances with
pharmaceutical and/or biotech companies, we believe that our technology can
be
more rapidly developed and successfully introduced into the
marketplace.
We
will
continue to evaluate the most cost-effective methods to advance our programs.
We
will contract certain research and development, manufacturing and manufacturing
scaleup, certain preclinical testing and product production to research
organizations, contract manufacturers and strategic partners. As appropriate
to
achieve cost savings and accelerate our development programs, we will expand
our
internal core capabilities and infrastructure in the areas of chemistry,
formulation, analytical methods development, clinical development, biology
and
project management to maximize product opportunities in a timely manner.
Process
We
begin
the product development effort by screening and formulating potential product
candidates, selecting an optimal active component, developing a formulation,
and
developing the processes and analytical methods. Pilot stability, toxicity
and
efficacy testing are conducted prior to advancing the product candidate into
formal preclinical development. Specialized skills are required to produce
these product candidates utilizing our technology. We have a limited core
internal development capability with significant experience in developing these
formulations, but also depend upon the skills and expertise of our
contractors.
Once
the
product candidate has been successfully screened in pilot testing, our
scientists, together with external consultants, assist in designing and
performing the necessary preclinical efficacy, pharmacokinetic and toxicology
studies required for IND submission. External investigators and scaleup
manufacturing facilities are selected in conjunction with our consultants.
The
initial Phase 1 and Phase 2 studies are conducted by institutions and
investigators supervised and monitored by our employees and contract research
organizations. We do not plan to have an extensive clinical development
organization as we plan to have the advance phases of this process conducted
by
a development partner. Should we conduct Phase 3 clinical studies we expect
to
engage a contract research organization to perform this work.
We
contract with third party contract research organizations to complete our large
clinical trials and for data management of all of our clinical trials.
Generally, we manage the smaller Phase 1 and 2 trials ourselves. Currently,
we
have one Phase 2 trial in process continuing into 2008 and a new Phase 2 trial
planned for next year subject to preliminary findings in other trials and our
ability to fund such trials.
With
all
of our product development candidates, we cannot assure you that the results
of
the in vitro or animal studies are or will be indicative of the results that
will be obtained if and when these product candidates are tested in humans.
We
cannot assure you that any of these projects will be successfully completed
or
that regulatory approval of any product will be obtained.
We
expended approximately $2,053,000, $2,783,000 and $2,335,000 on research and
development during the years 2006, 2005 and 2004, respectively.
Scientific
Background
The
ultimate criteria for effective drug delivery is to control and optimize the
localized release of the drug at the target site and rapidly clear the
non-targeted fraction. Conventional drug delivery systems such as controlled
release, sustained release, transdermal systems and others are designed for
delivering active product into the systemic circulation over time with the
objective of improving patient compliance. These systems do not address the
biologically relevant issues such as site targeting, localized release and
clearance of drug. The major factors that impact the achievement of this
ultimate drug delivery goal are the physical characteristics of the drug and
the
biological characteristics of the disease target sites. The physical
characteristics of the drug affect solubility in biological systems, its
biodistribution throughout the body, and its interactions with the intended
pharmacological target sites and undesired areas of toxicity. The biological
characteristics of the diseased area impact the ability of the drug to
selectively interact with the intended target site to allow the drug to express
the desired pharmacological activity.
We
believe our drug delivery technologies are differentiated from conventional
drug
delivery systems in that they seek to apply a disease-specific approach to
improve the drug delivery process with formulations to significantly enhance
the
therapeutic efficacy and reduce toxicity of a broad spectrum of
products.
Core
Drug Delivery Technology Platforms
Our
current drug delivery technology platforms for use in cancer chemotherapy
are:
•
Synthetic Polymer Targeted Drug Delivery Technology;
•
Cobalamin™-Mediated Oral Delivery Technology; and
•
Cobalamin™-Mediated Targeted Delivery Technology.
Each
of these platforms is discussed below:
Synthetic
Polymer Targeted Drug Delivery Technology
In
collaboration with The School of Pharmacy, University of London, we have
developed a synthetic polymer technology, which utilizes
hydroxypropylmethacrylamide with platinum, designed to exploit enhanced
permeability and retention, or EPR, at tumor sites to selectively accumulate
drug and control drug release. This technology is employed in our lead clinical
program, ProLindac. Many solid tumors possess vasculature that is
hyperpermeable, or leaky, to macromolecules. In addition to this enhanced
permeability, tumors usually lack effective lymphatic and/or capillary drainage.
Consequently, tumors selectively accumulate circulating macromolecules,
including, for example, up to 10% of an intravenous dose in mice. This effect
has been termed EPR, and is thought to constitute the mechanism of action of
styrene-maleic/anhydride-neocarzinostatin, or SMANCS, which is in regular
clinical use in Japan for the treatment of hepatoma. These polymers take
advantage of endothelial permeability as the drug carrying polymers are trapped
in tumors and then taken up by tumor cells. Linkages between the polymer and
drug can be designed to be cleaved extracellularly or intracellularly. Utilizing
the principles of prodrugs, the drug is essentially inert while attached to
the
polymer, but is released inside the tumor mass while polymer/drug not delivered
to tumors is renally cleared from the body. For example, ProLindac is attached
to a pH-sensitive linker which releases the platinum cytotoxic agent much faster
in the low pH environments found typically outside of tumor cells and within
specific compartments inside of tumor cells. Data generated in animal studies
have shown that the polymer/drug complexes are far less toxic than free drug
alone and that greater efficacy can be achieved. Thus, these polymer complexes
have demonstrated significant improvement in the therapeutic index of
anti-cancer drugs, including, for example, platinum.
Cobalamin™
- Mediated Oral Delivery Technology
Oral
delivery is the preferred method of administration of drugs where either
long-term or daily use (or both) is required. However many therapeutics,
including peptide and protein drugs, are poorly absorbed when given orally.
With
more and more peptide and protein based biopharmaceuticals entering the market,
there is an increasing need to develop an effective oral delivery system for
them, as well as for long-standing injected drugs such as insulin.
The
difficulty in administering proteins orally is their susceptibility to
degradation by digestive enzymes, their inability to cross the intestinal wall
and their rapid excretion by the body. Over the years, many different
methodologies for making protein drugs available orally have been attempted.
Most of the oral protein delivery technologies involve protecting the protein
degradation in the intestine. More recently, strategies have been developed
that
involve attaching the protein or peptide to a molecule that transports the
protein across the gut wall. However, the field of oral drug delivery of
proteins and peptides has yet to achieve successful commercialization of a
product (although positive results have been achieved in early clinical trials
for some products under development).
Many
pharmaceutically active compounds such as proteins, peptides and cytotoxic
agents cannot be administered orally due to their instability in the
gastrointestinal tract or their inability to be absorbed and transferred to
the
bloodstream. A technology that would allow many of these actives to be taken
orally would greatly enhance their acceptance and value. Several technologies
for the protection of sensitive actives in the gastro-intestinal tract and/or
enhancement of gastro-intestinal absorption have been explored and many have
failed.
Our
proprietary technology for oral drug delivery utilizes the body’s natural
vitamin B12 (VB12) transport system in the gut. The absorption of VB12 in the
intestine occurs by way of a receptor-mediated endocytosis. Initially, VB12
binds to intrinsic factor (IF) in the small intestine, and the VB12-IF complex
then binds to the IF receptor on the surface of the intestine. Receptor-mediated
endocytosis then allows the transport of VB12 across the gut wall. After binding
to another VB12-binding protein, transcobalamin II (TcII), VB12 is transferred
to the bloodstream.
Our
scientists discovered that Cobalamin (analogs of VB12) will still be transported
by this process even when drugs, macromolecules, or nanoparticles are coupled
to
the Cobalamin. Thus Cobalamin serves as a carrier to transfer these
materials from the intestinal lumen to the bloodstream. For drugs and
macromolecules that are stable in the gastro-intestinal tract, the drug or
macromolecule can be coupled directly (or via a linker) to Cobalamin. If the
capacity of the Cobalamin transport system is inadequate to provide an effective
blood concentration of the active, transport can be amplified by attaching
many
molecules of the drug to a polymer, to that Cobalamin is also attached. A
further option, especially for drugs and macromolecules that are unstable in
the
intestine, is to formulate the drug in a nanoparticle which is then coated
with
Cobalamin. Once in the bloodstream, the active is released by diffusion and/or
erosion of the nanoparticle. Utilization of nanoparticles also serves to
‘amplify’ delivery by transporting many molecules at one time due to the
inherently large nanoparticle volume compared with the size of the
drug.
Our
proprietary position in this technology involves the conjugation of Cobalamin
and/or folic acid and/or biotin (or their analogs) to a polymer to which is
also
attached the drug to be delivered, or attached to a nanoparticle in which the
drug is incorporated. Since many molecules of the drug are attached to a single
polymer strand, or are incorporated in a single nanoparticle, disease targeting
is amplified compared to simpler conjugates involving one molecule of the
vitamin with one drug molecule. However, in situations when such a simple
conjugate might be preferred, our patents also encompass these Cobalamin-drug
conjugates.
Cobalamin™
- Mediated Targeted Delivery Technology
Most
drugs are effective only when they reach a certain minimum concentration in
the
region of disease, yet are well distributed throughout the body contributing
to
undesirable side effects. It is therefore advantageous to alter the natural
biodistribution of a drug to have it more localized where it is needed. Our
Cobalamin-mediated targeted delivery technology utilizes the fact that in many
diseases where there is rapid growth and/or cell division, the demand for
certain vitamins increases. By coupling the drug to a vitamin analog, the analog
serves as a carrier to increase the amount of drug at the disease site relative
to its normal distribution.
One
application of this technology is in tumor targeting. The use of cytotoxic
drugs
is one of the most common methods for treating a variety of malignancies
including solid and non-solid tumors. The drawbacks of chemotherapeutic
treatments, which include tumor resistance, cancer relapse and toxicity from
severe damage to healthy tissues, has fuelled a scientific quest for novel
treatments that are specifically targeted to malignant cells thus reducing
damage to collateral tissues.
The
design of targeted therapies involves exploitation of the difference between
the
structure and function of normal cells compared with malignant cells.
Differences include the increased levels of surface molecules on cancer cells,
which makes them more sensitive to treatment regimes that target surface
molecules and differences in blood supply within and around tumor cells compared
with normal cells.
Two
basic
types of targeting approaches are utilized, passive tumor targeting and active
tumor targeting.
•
passive tumor targeting involves transporting anti-cancer agents through the
bloodstream to tumor cells using a “carrier” molecule. Many different carrier
molecules, which can take a variety of forms (micelles, nanoparticles, liposomes
and polymers), are being investigated as each provides advantages such as
specificity and protection of the anti-cancer drug from degradation due to
their
structure, size (molecular weights) and particular interactions with tumor
cells. Our polymer platinate program is a passive tumor targeting
technology.
•
active tumor targeting involves attaching an additional fragment to the
anticancer drug and the carrier molecule to create a new “targeted” agent that
will actively seek a complementary surface molecule to which it binds
(preferentially located on the exterior of the tumor cells). The theory is
that
the targeting of the anti-cancer agent through active means to the affected
cells should allow more of the anti-cancer drug to enter the tumor cell, thus
amplifying the response to the treatment and reducing the toxic effect on
bystander, normal tissue.
Examples
of active targeting fragments include antibodies, growth factors and vitamins.
Our scientists have specifically focused on using Cobalamin compounds (analogs
of vitamin B12), but we have also used and have certain intellectual property
protection for the use of folate and biotin which may more effectively target
anti-cancer drugs to solid tumors.
It
has
been known for some time that vitamin B12 and folic acid are essential for
tumor
growth and as a result, receptors for these vitamins are up-regulated in certain
tumors. Vitamin B12 receptor over-expression occurs in breast, lung, leukemic
cells, lymphoma cells, bone, thyroid, colon, prostate and brain cancers and
some
other tumor lines, while folate receptor over-expression occurs in breast,
lung,
ovarian, endometrial, renal, colon, brain and cancers of myeloid hemotopoietic
cells and methotrexate-sensitive tumors.
Other
Key Developments
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,001. The shares of Series A Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per
share.
As
a
condition to closing, SCO Capital Partners, LLC and affiliates, along with
the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest
for
437.3104 shares of the Series A Preferred Stock and were issued warrants to
purchase 728,850 shares of our common stock at an exercise price of $3.50 per
share. SCO Capital Partners, LLC currently has two designees serving on our
Board of Directors. In connection with the exchange of the notes, all security
interests and liens relating thereto were terminated.
As
a
condition to closing, we entered into an Investor Rights Agreement with each
of
the investors purchasing shares of Series A Preferred Stock our Board of
Directors approved with respect to the shareholder rights plan any action
necessary under our shareholder rights plan to accommodate the issuance of
the
Series A Preferred Stock
and
warrants without triggering the applicability of the shareholder rights
plan.
The
Investor Rights Agreement grants certain registration and other rights to
each
of the investors.
In
connection with the sale and issuance of Series A Preferred Stock and warrants,
we entered into a Director Designation Agreement whereby we agreed to continue
SCO’s right to designate two individuals to serve on the Board of Directors of
Access.
On
August
27, 2007, we signed a definitive licensing agreement with SpePharm Holding,
B.V.
under which SpePharm will market Access’ product MuGard in Europe.
On
August
1, 2007, we announced that Esteban Cvitkovic, a member of our board of directors
as Vice Chairman Europe, agreed to an expanded role as Senior Director, Oncology
Clinical R&D.
On
April
19, 2007, we announced we had entered into an agreement to acquire Somanta
Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement, upon
consummation of the acquisition, Somanta’s preferred and common shareholders
would receive an aggregate of 1.5 million shares of Access’ common stock. The
Somanta stockholders approved the proposed transaction at the stockholders’
meeting on August 17, 2007. The closing of the transaction is subject to
numerous conditions including receipt of necessary approvals. There can be
no
assurance that the transaction will be consummated or if consummated that it
will be on the terms described herein. Each of the parties currently has the
right to terminate the Merger Agreement.
On
April
26, 2007, we entered into a Note Purchase Agreement with Somanta
Pharmaceuticals, Inc. in order for Access to loan Somanta amounts to keep
certain of their licenses and vendors current. As of September 30, 2007 we
have
loaned Somanta $859,000.
All
shares and per share information reflect a one for five reverse stock split
effected June 5, 2006.
On
December 8, 2006 Access amended its 2005 Asset Sale Agreement with Uluru, Inc.
Access received from Uluru an upfront payment of $4.9 million, received an
additional $350,000 on April 9, 2007 and in the future could receive potential
milestones of up to $4.8 million based on Uluru sales. The amendment agreement
included the anniversary payment due October 12, 2006, the early payment of
the
two year anniversary payment, and a payment in satisfaction of certain future
milestones. Access also transferred to Uluru certain patent applications that
Access had previously licensed to Uluru under the 2005 License Agreement. Under
a new agreement, Access has acquired a license from Uluru to utilize the
nanoparticle aggregate technology contained in the transferred patent
applications for subcutaneous, intramuscular, intra-peritoneal and intra-tumoral
drug delivery. Additionally, one future milestone was increased by
$125,000.
On
October 12, 2005, Access sold its oral/topical care business unit to Uluru,
Inc,
a private Delaware corporation, for up to $18.8 million to focus on Access’
technologies in oncology and oral drug delivery. The products and technologies
sold to Uluru included amlexanox 5% paste (marketed under the trade names
Aphthasol® and Aptheal®), OraDisc
TM
,
Zindaclin® and Residerm® and all of Access’ assets related to these products. In
addition, Access sold to Uluru its nanoparticle hydrogel aggregate technology
which could be used for applications such as local drug delivery and tissue
filler in dental and soft tissue applications. Access received a license from
Uluru for certain applications of the technology. The CEO of Uluru is Kerry
P.
Gray, the former CEO of Access. In conjunction with the sale transaction, Access
received a fairness opinion from a nationally recognized investment banking
firm.
At
the
closing of the sale to Uluru, Access received $8.7 million. In addition, in
connection with the Amended Asset Sale Agreement in December 2006, Access
received $4.9 million and received an additional $350,000 on April 9, 2007
for
the first and second anniversary payments and settlement of certain milestones.
Access recorded $550,000 less $173,000 tax expense as revenue from the
discontinued operations in 2006.
Access
was incorporated in Wyoming in 1974 as Chemex Corporation, and in 1983 Access
changed its name to Chemex Pharmaceuticals, Inc. Access changed its state of
incorporation from Wyoming to Delaware on June 30, 1989. In 1996 Access merged
with Access Pharmaceuticals, Inc., a private Texas corporation, and changed
its
name to Access Pharmaceuticals, Inc. Access’ principal executive office is
located at 2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207; Access’
telephone number is (214) 905-5100.
Patents
We
believe that the value of technology both to us and to our potential corporate
partners is established and enhanced by our broad intellectual property
positions. Consequently, we have already been issued and seek to obtain
additional U.S. and foreign patent protection for products under development
and
for new discoveries. Patent applications are filed with the U.S. Patent and
Trademark Office and, when appropriate, with the Paris Convention's Patent
Cooperation Treaty (PCT) Countries (most major countries in Western Europe
and
the Far East) for our inventions and prospective products.
One
U.S.
patent has issued and one U.S. patent application and two European patent
applications are under review for our mucoadhesive liquid technology. Our patent
applications cover a
range of
products utilizing our mucoadhesive liquid technology for the management of
the
various phases of mucositis.
Three
U.S. patents and two European patents have issued and one U.S. patent and two
European patent applications are pending for polymer platinum compounds. The
two
patents and patent applications are the result in part of our collaboration
with
The School of Pharmacy, University of London, from which the technology has
been
licensed and include a synthetic polymer, hydroxypropylmethacrylamide
incorporating platinates, that can be used to exploit enhanced permeability
and
retention in tumors and control drug release. The patents and patent
applications include a pharmaceutical composition for use in tumor treatment
comprising a polymer-platinum compound through linkages that are designed to
be
cleaved under selected conditions to yield a platinum which is selectively
released at a tumor site. The patents and patent applications also include
methods for improving the pharmaceutical properties of platinum compounds.
We
have
three
patented Cobalamin-mediated targeted therapeutic technologies:
-
|
folate
conjugates of polymer therapeutics, to enhance tumor delivery by
targeting
folate receptors, which are upregulated in certain tumor types with
two
U.S. and two European patent
applications;
|
-
|
the
use of vitamin B12 to target the transcobalamin II receptor which
is
upregulated in numerous diseases including cancer, rheumatoid arthritis,
certain neurological and autoimmune disorders with two U.S. patents
and
three U.S. and four European patent applications;
and
|
-
|
oral
delivery of a wide variety of molecules which cannot otherwise be
orally
administered, utilizing the active transport mechanism which transports
vitamin B12 into the systemic circulation with six U.S. patents and
two
European patents and one U.S. and one European patent
application.
|
Our
patents for the following technologies expire in the years and during the date
ranges indicated below:
·
|
Mucoadhesive
technology in 2021,
|
·
|
Cobalamin
mediated technology between 2008 and
2019
|
In
addition to issued patents, we have a number of pending patent applications.
If
issued, the patents underlying theses applications could extend the patent
life
of our technologies beyond the dates listed above.
We
have a
strategy of maintaining an ongoing line of patent continuation applications
for
each major category of patentable carrier and delivery technology. By this
approach, we are extending the intellectual property protection of our basic
targeting technology and initial agents to cover additional specific carriers
and agents, some of which are anticipated to carry the priority dates of the
original applications.
Government
Regulation
We
are
subject to extensive regulation by the federal government, principally by the
FDA, and, to a lesser extent, by other federal and state agencies as well as
comparable agencies in foreign countries where registration of products will
be
pursued. Although a number of our formulations incorporate extensively tested
drug substances, because the resulting formulations make claims of enhanced
efficacy and/or improved side effect profiles, they are expected to be
classified as new drugs by the FDA.
The
Federal Food, Drug and Cosmetic Act and other federal, state and foreign
statutes and regulations govern the testing, manufacturing, safety, labeling,
storage, shipping and record keeping of our products. The FDA has the authority
to approve or not approve new drug applications and inspect research, clinical
and manufacturing records and facilities.
Among
the
requirements for drug approval and testing is that the prospective
manufacturer's facilities and methods conform to the FDA's Code of Good
Manufacturing Practices regulations, which establish the minimum requirements
for methods to be used in, and the facilities or controls to be used during,
the
production process. Such facilities are subject to ongoing FDA inspection to
insure compliance.
The
steps
required before a pharmaceutical product may be produced and marketed in the
U.S. include preclinical tests, the filing of an IND with the FDA, which must
become effective pursuant to FDA regulations before human clinical trials may
commence, numerous phases of clinical testing and the FDA approval of a New
Drug
Application (“NDA”) prior to commercial sale.
Preclinical
tests are conducted in the laboratory, usually involving animals, to evaluate
the safety and efficacy of the potential product. The results of preclinical
tests are submitted as part of the IND application and are fully reviewed by
the
FDA prior to granting the sponsor permission to commence clinical trials in
humans. All trials are conducted under International Conference on
Harmonization, or ICH, good clinical practice guidelines. All investigator
sites
and sponsor facilities are subject to FDA inspection to insure compliance.
Clinical trials typically involve a three-phase process. Phase 1 the initial
clinical evaluations, consists of administering the drug and testing for safety
and tolerated dosages and in some indications such as cancer and HIV, as
preliminary evidence of efficacy in humans. Phase 2 involves a study to evaluate
the effectiveness of the drug for a particular indication and to determine
optimal dosage and dose interval and to identify possible adverse side effects
and risks in a larger patient group. When a product is found safe, an initial
efficacy is established in Phase 2, it is then evaluated in Phase 3 clinical
trials. Phase 3 trials consist of expanded multi-location testing for efficacy
and safety to evaluate the overall benefit to risk index of the investigational
drug in relationship to the disease treated. The results of preclinical and
human clinical testing are submitted to the FDA in the form of an NDA for
approval to commence commercial sales.
The
process of forming the requisite testing, data collection, analysis and
compilation of an IND and an NDA is labor intensive and costly and may take
a
protracted time period. In some cases, tests may have to be redone or new tests
instituted to comply with FDA requests. Review by the FDA may also take
considerable time and there is no guarantee that an NDA will be approved.
Therefore, we cannot estimate with any certainty the length of the approval
cycle.
We
are
also governed by other federal, state and local laws of general applicability,
such as laws regulating working conditions, employment practices, as well as
environmental protection.
Competition
The
pharmaceutical and biotechnology industry is characterized by intense
competition, rapid product development and technological change. Competition
is
intense among manufacturers of prescription pharmaceuticals and other product
areas where we may develop and market products in the future. Most of our
potential competitors are large, well established pharmaceutical, chemical
or
healthcare companies with considerably greater financial, marketing, sales
and
technical resources than are available to us. Additionally, many of our
potential competitors have research and development capabilities that may allow
such competitors to develop new or improved products that may compete with
our
product lines. Our potential products could be rendered obsolete or made
uneconomical by the development of new products to treat the conditions to
be
addressed by our developments, technological advances affecting the cost of
production, or marketing or pricing actions by one or more of our potential
competitors. Our business, financial condition and results of operation could
be
materially adversely affected by any one or more of such developments. We cannot
assure you that we will be able to compete successfully against current or
future competitors or that competition will not have a material adverse effect
on our business, financial condition and results of operations. Academic
institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or with the assistance
of
major health care companies in areas where we are developing product candidates.
We are aware of certain development projects for products to treat or prevent
certain diseases targeted by us, the existence of these potential products
or
other products or treatments of which we are not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of products developed by us.
Our
principal competitors in the polymer area are Cell Therapeutics, Daiichi, Enzon,
Polytherics Ltd, and Inhale which are developing alternate drugs in combination
with polymers. We believe we are the only company conducting clinical studies
in
the polymer drug delivery of platinum compounds. We believe that the principal
current competitors to our polymer targeting technology fall into two
categories: monoclonal antibodies and liposomes. We believe that our technology
potentially represents a significant advance over these older technologies
because our technology provides a system with a favorable pharmacokinetic
profile.
A
number
of companies are developing or may in the future engage in the development
of
products competitive with the Access polymer delivery system. Several companies
are working on targeted monoclonal antibody therapy including Bristol-Myers
Squibb, Centocor (acquired by Johnson & Johnson), GlaxoSmithKline, Imclone
and Xoma. Currently, liposomal formulations being developed by Gilead Sciences
and Alza Corporation (acquired by Johnson & Johnson), are the major
competing intravenous drug delivery formulations that deliver similar drug
substances.
In
the
area of advanced drug delivery, which is the focus of our early stage research
and development activities, a number of companies are developing or evaluating
enhanced drug delivery systems. We expect that technological developments will
occur at a rapid rate and that competition is likely to intensify as various
alternative delivery system technologies achieve similar if not identical
advantages.
Even
if
our products are fully developed and receive required regulatory approval,
of
which there can be no assurance, we believe that our products can only compete
successfully if marketed by a company having expertise and a strong presence
in
the therapeutic area. Consequently, we do not currently plan to establish an
internal marketing organization. By forming strategic alliances with major
and
regional pharmaceutical companies, management believes that our development
risks should be minimized and that the technology potentially could be more
rapidly developed and successfully introduced into the marketplace.
Employees
As
of
December 10, 2007, we had nine full time employees, four of whom have advanced
scientific degrees. We have never experienced employment-related work stoppages
and consider that we maintain good relations with our personnel. In addition,
to
complement our internal expertise, we have contracts with scientific
consultants, contract research organizations and university research
laboratories that specialize in various aspects of drug development including
clinical development, regulatory affairs, toxicology, process scale-up and
preclinical testing.
Web
Availability
We
make
available free of charge through our web site, www.accesspharma.com, our annual
reports on Form 10-KSB and other reports required under the Securities and
Exchange Act of 1934, as amended, as soon as reasonably practicable after such
reports are filed with, or furnished to, the Securities and Exchange Commission
(the “SEC”). These documents are also available through the SEC’s website at
www.sec.gov
certain
of our corporate governance policies, including the charters for the Board
of
Directors’ audit, compensation and nominating and corporate governance
committees and our code of ethics, corporate governance guidelines and
whistleblower policy. We will provide to any person without charge, upon
request, a copy of any of the foregoing materials. Any such request must be
made
in writing to Access Pharmaceuticals, Inc., 2600 Stemmons Freeway, Suite 176,
Dallas, TX 75207 attn: Investor Relations.
Access
maintains one facility of approximately 9,000 square feet for administrative
offices and laboratories in Dallas, Texas. Access has a lease agreement for
the
facility, which terminates in December 2007. Adjacent space may be available
for
expansion which Access believes would accommodate growth for the foreseeable
future. Access anticipates renewing its current lease for an additional one
year
on terms substantially similar to those in the current lease
agreement.
Access
believes that its existing properties are suitable for the conduct of its
business and adequate to meet its present needs.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Grant
Thornton LLP ("Grant Thornton") was previously the principal accountants for
Access. On September 15, 2006, Grant Thornton resigned as our independent
registered public accounting firm.
In
connection with the audits of fiscal years ended December 31, 2005 and 2004
and
the subsequent interim period through September 15, 2006, (i) there have been
no
disagreements with Grant Thornton on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreement(s), if not resolved to Grant Thornton's satisfaction, would have
caused Grant Thornton to make reference to the subject matter of the
disagreement(s) in connection with its reports for such year, and (ii) there
were no "reportable events" as such term is defined in Item 304(a)(1)(v) of
Regulation S-K. However, as reported in Access’ Form 10-K for the year ended
December 31, 2005, Grant Thornton has communicated to Access’ audit committee
the existence of material weaknesses in its system of internal control over
financial reporting related to the inadequacy of staffing and a lack of
segregation of duties.
Grant
Thornton's reports did not contain an adverse opinion or disclaimer of opinion,
but the 2005 report was modified to include an explanatory paragraph related
to
uncertainties about Access’ ability to continue as a going concern.
Effective
September 20, 2006, the Audit Committee of the Board of Directors of Access
approved the engagement of Whitley Penn LLP (“Whitley Penn”) as our
independent registered public accounting firm to audit the Access’ financial
statements for the year ended December 31, 2006. On October 2, 2006, Whitley
Penn formally advised Access that it was accepting the position as Access’
independent registered public accounting firm for the year ending December
31,
2006.
During
the years ended December 31, 2005 and 2004, and the interim period through
October 2, 2006, Whitley Penn was not engaged as an independent registered
public accounting firm to audit either the financial statements of Access or
any
of its subsidiaries, nor has Access or anyone acting on its behalf consulted
with Whitley Penn regarding: (i) the application of accounting principles to
a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on Access’ financial statements; or (ii) any
matter that was the subject of a disagreement or reportable event as set forth
in Item 304(a)(2)(ii) of Regulation S-K.
The
following table sets forth the Directors, Executive Officers, and Key Employees
of Access along with their respective ages and positions and is as
follows:
Jeffrey B. Davis
|
44
|
|
Chairman of the Board
|
Stephen R. Seiler
|
51
|
|
President, Chief Executive Officer, Director
|
Rosemary Mazanet, M.D., Ph.D.
|
52
|
|
Vice Chairman
|
Esteban Cvitkovic
,
M.D.
|
58
|
|
Vice Chairman - Europe
|
Mark J. Ahn, Ph.D.
|
45
|
|
Director
|
Mark J. Alvino
|
40
|
|
Director
|
Stephen B. Howell, M.D.
|
63
|
|
Director
|
David P. Luci
|
41
|
|
Director
|
John J. Meakem, Jr.
|
71
|
|
Director
|
David P. Nowotnik, Ph.D.
|
58
|
|
Senior Vice President Research &
Development
|
Phillip S. Wise
|
49
|
|
Vice President, Business Development &
Strategy
|
Stephen B. Thompson
|
54
|
|
Vice President, Chief Financial Officer,
Treasurer,
|
|
|
|
Secretary
|
No
director, officer, affiliate or promoter of Access has, within the past five
years, filed any bankruptcy petition, been convicted in or been the subject
of
any pending criminal proceedings, or is any such person the subject or any
order, judgment or decree involving the violation of any state or federal
securities laws.
The
following is a brief account of the business experience during the past five
years of each director and executive officer of Access, including principal
occupations and employment during that period and the name and principal
business of any corporation or other organization in which such occupation
and
employment were carried on.
Mr.
Jeffrey B. Davis
became a director in March 2006. Mr. Davis is
Chairman of the Board, member of the Executive Committee and a Chairman of
the
Compensation Committee of the Board. Mr. Davis currently serves as
President of SCO Financial Group LLC. Previously, Mr. Davis served in
senior management at a publicly traded healthcare technology company. Prior
to
that, Mr. Davis was an investment banker with various Deutsche Bank banking
organizations, both in the U.S. and Europe. Mr. Davis also served in senior
marketing and product management positions at AT&T Bell Laboratories, where
he was also a member of the technical staff, and at Philips Medical Systems
North America. Mr. Davis is currently on the board of MacroChem
Corporation, Uluru, Inc. and Virium Pharmaceuticals, Inc., a private
biotechnology company. Mr. Davis holds a B.S. in biomedical engineering
from Boston University and an M.B.A. degree from the Wharton School, University
of Pennsylvania.
Mr.
Stephen R. Seiler
has
been
Access’ President and Chief Executive Officer and a Director since January 2007.
Mr. Seiler is also a member of the Executive Committee. Prior thereto, Mr.
Seiler had been Acting Chief Executive Officer of Effective Pharmaceuticals,
Inc. and advising other companies in the healthcare field. From 2001 until
2004
he was Chief Executive Officer of Hybridon, Inc. (now Idera Pharmaceuticals,
Inc.). Mr. Seiler was Executive Vice President, Planning, Investment &
Development at Elan Corporation plc from 1995 until 2001. He also worked as
an
investment banker at Paribas Capital Markets in both London and New York from
1991 to 1995 where he was founder and head of Paribas’ pharmaceutical investment
banking group. Mr. Seiler holds a BA (Summa Cum Laude) from the University
of
Notre Dame and a JD (Honors) from Georgetown University.
Rosemary
Mazanet, M.D.
became
a
director of the Company in May 2006. Dr. Mazanet currently serves as Chief
Executive Officer of Breakthrough Therapeutics, LLC, a privately held
development stage biotechnology company. From May 2005 to January 2007 she
served as Access’ Acting Chief Executive Officer. From June 1998 to February
2004, Dr. Mazanet served as Chief Scientific Officer and a General Partner
of
Oracle Partners, L.P., a healthcare investment firm. Dr. Mazanet also serves
as
an independent director at GTx, Inc (Nasdaq: GTXI), Aksys, Ltd. and is a trustee
at the University of Pennsylvania, School of Medicine. Prior to joining Oracle,
Dr. Mazanet was the Director of Clinical Research at Amgen, Inc. She has over
20
years experience in the pharmaceutical industry, and was trained as a Medical
Oncologist/Hematologist in the Harvard Medical System, and holds an M.D. and
Ph.D. from University of Pennsylvania.
Dr.
Esteban Cvitkovic
became a
director in February 2007 as Vice Chairman (Europe) and is also a consultant
to
the Company as Senior Director, Oncology Clinical Research & Development.
Recently, the oncology-focused CRO, Cvitkovic & Associés Consultants (CAC),
founded by Dr. Cvitkovic 11 years ago and which he developed from a small
oncology consultancy to a full-service CRO, was sold to AAIPharma to become
AAIOncology. Dr. Cvitkovic is currently a Senior Medical Consultant to
AAIOncology. In addition, he maintains a part-time academic practice including
teaching at the hospitals Beaujon and St Louis in Paris. Dr. Cvitkovic is
Scientific President of the FNAB, a foundation devoted to the furthering of
personalised cancer treatments. Together with a small number of collaborators
he
has recently co-founded Oncoethix, a biotech company focused on licensing and
co-development of anti-cancer molecules. Dr. Cvitkovic has authored more than
200 peer-reviewed articles and 600 abstracts focused on therapeutic oncology
development. His international career includes staff and academic appointments
at Memorial Sloan Kettering Cancer Center (New York), Columbia Presbyterian
(New
York), Instituto Mario Negri (Milan), Institut Gustave Roussy (Villejuif),
Hôpital Paul Brousse (Villejuif) and Hôpital St. Louis (Paris).
Dr.
Mark J. Ahn
became a
director in September 2006 and is a member of the Executive Committee and the
Nominating & Corporate Governance Committee. Dr. Ahn is Professor and Chair,
Science & Technology Faculties of Commerce & Administration Science at
Victoria University of Welling, New Zealand since September 2007. Dr. Ahn was
President
and Chief Executive Officer and a member of the board of directors of Hana
Biosciences, Inc. from November 2003 to September 2007. Prior to joining Hana,
from December 2001 to November 2003, he served as Vice President, Hematology
and
corporate officer at Genentech, Inc. where he was responsible for commercial
and
clinical development of the Hematology franchise. From February 1991 to February
1997 and from February 1997 to December 2001, Dr. Ahn was employed by Amgen
and
Bristol-Myers Squibb Company, respectively, holding a series of positions of
increasing responsibility in strategy, general management, sales &
marketing, business development, and finance. He has also served as an officer
in the U.S. Army. Dr. Ahn is a Henry Crown Fellow at the Aspen Institute,
founder of the Center for Non-Profit Leadership, a director of TransMolecular,
Inc., a privately held biotechnology company focused on neuroncology, and a
member of the Board of Trustees for the MEDUNSA (Medical University of South
Africa) Trust. Dr. Ahn received a B.A. in History and an M.B.A. in Finance
from
Chaminade University. He was a graduate fellow in Economics at Essex University,
and has a Ph.D. in Business Administration from the University of South
Australia.
Mr.
Mark J. Alvino
became
a
director in March 2006 as a designee of SCO Capital Partners LLC and is a member
of the Nominating and Corporate Governance Committee. Mr. Alvino is currently
Managing Director for Griffin Securities since May 2007.
Mr.
Alvino was Managing Director for SCO Financial Group LLC from July 2002 to
May
2007. He is currently on the board of directors of MacroChem Corporation. He
previously worked at Feinstein Kean Healthcare, an Ogilvy Public Relations
Worldwide Company. There he was Senior Vice President, responsible for managing
both investor and corporate communications programs for many private and public
companies and acted as senior counsel throughout the agency's network of
offices. Prior to working at FKH, Mr. Alvino served as Vice President of
Investor Relations and managed the New York Office of Allen & Caron, Inc.,
an investor relations agency. His base of clients included medical devices,
biotechnology, and e-healthcare companies. Mr. Alvino also spent several years
working with Wall Street brokerages including Ladenburg, Thallman & Co. and
Martin Simpson & Co.
Stephen
B. Howell, M.D.
has
served as one of Access’ directors since 1996. Dr. Howell is a member of the
Compensation Committee of the Board and a scientific consultant to the Company.
Dr. Howell is a Professor of Medicine at the University of California, San
Diego, and director of the Cancer Pharmacology Program of the UCSD Cancer
Center. Dr. Howell is a recipient of the Milken Foundation prize for his
contributions to the field of cancer chemotherapy. He has served on the National
Research Council of the American Cancer Society and is on the editorial boards
of multiple medical journals. Dr. Howell founded DepoTech, Inc. and served
as a
member of its board of directors from 1989 to 1999. Dr. Howell served on the
board of directors of Matrix Pharmaceuticals from 2000 to 2002. Dr. Howell
received his A.B. at the University of Chicago and his M.D. from Harvard Medical
School.
Mr.
David P. Luci
has
served as one of Access’ directors since January 2007 and is also chairman of
the Audit and Finance Committee and a member of the Compensation Committee.
Mr.
Luci is currently General Counsel and Vice President of Corporate
Development of MacroChem Corporation. Mr. Luci was Executive Vice President
of
Bioenvision, Inc. until August 2007. He has also served as Bioenvision’s chief
financial officer, general counsel and corporate secretary since July 2004,
after serving as director of finance, general counsel and corporate secretary
since July 2002. From September 1994 to July 2002, Mr. Luci served as a
corporate associate at Paul, Hastings, Janofsky & Walker LLP (New York
office). Prior to that, Mr. Luci served as a senior auditor at Ernst & Young
LLP (New York office). Mr. Luci is a certified public accountant. He holds
a
Bachelor of Science in Business Administration with a concentration in
accounting from Bucknell University and a J.D. (cum laude) from Albany Law
School of Union University.
Mr.
John J. Meakem, Jr.
has
been
one of Access’ directors since 2001. Mr. Meakem is also the chairman of the
Nominating and Corporate Governance Committee of the Board and a member of
the
Audit and Finance Committee of the Board. Mr. Meakem is a private investor
with
portfolio holdings in innovative companies with a particular focus on
healthcare. Most recently Mr. Meakem served as Chairman of the Board, President
and Chief Executive Officer of Advanced Polymer Systems, Inc. from 1991 to
2000.
Prior to 1991, he was Corporate Executive Vice President of Combe, Inc. and
President of Combe North America. Prior to 1970, Mr. Meakem was with Vick
Chemical Company, a division of Richardson Merrell Drug Corporation, for ten
years as Vice President of Marketing, New Products &
Acquisitions.
David
P. Nowotnik, Ph.D
.
has
been Senior Vice President Research and Development since January 2003 and
was
Vice President Research and Development from 1998. From 1994 until 1998, Dr.
Nowotnik had been with Guilford Pharmaceuticals, Inc. in the position of Senior
Director, Product Development and was responsible for a team of scientists
developing polymeric controlled-release drug delivery systems. From 1988 to
1994
he was with Bristol-Myers Squibb researching and developing technetium
radiopharmaceuticals and MRI contrast agents. From 1977 to 1988 he was with
Amersham International leading the project which resulted in the discovery
and
development of Ceretec.
Mr.
Phillip S. Wise
has been
Access’ Vice President Business Development since June 2006. Mr. Wise was Vice
President of Commercial and Business Development for Enhance Pharmaceuticals,
Inc. and Ardent Pharmaceuticals, Inc. from 2000 until 2006. Prior to that time
he was with Glaxo Wellcome, from 1990 to 2000 in various
capacities.
Mr.
Stephen B. Thompson
has been
Vice President since 2000 and Access’ Chief Financial Officer since 1996. From
1990 to 1996, he was Controller and Administration Manager of Access
Pharmaceuticals, Inc., a private Texas corporation. Previously, from 1989 to
1990, Mr. Thompson was Controller of Robert E. Woolley, Inc., a hotel real
estate company where he was responsible for accounting, finances and investor
relations. From 1985 to 1989, he was Controller of OKC Limited Partnership,
an
oil and gas company, where he was responsible for accounting, finances and
SEC
reporting. Between 1975 and 1985 he held various accounting and finance
positions with Santa Fe International Corporation.
Code
of Business Conduct and Ethics
In
October 2004, Access adopted a written Code of Business Conduct and Ethics
for
Employees, Executive Officers and Directors, applicable to all employees,
management, and directors, designed to deter wrongdoing and promote honest
and
ethical conduct, full, fair and accurate disclosure, compliance with laws,
prompt internal reporting and accountability to adherence to the Code of
Business Conduct and Ethics.
The
following executive compensation disclosure reflects compensation awarded to,
earned by or paid to Access’ Chief Executive Officer and each of Access’ other
executive officers listed below whose total compensation exceeded $100,000
for
the fiscal year ended December 31, 2006. Access refers to Access’ Chief
Executive Officer and these other executive officers as Access’ "named executive
officers" elsewhere in this prospectus.
Summary
Compensation Table
Name
and Principal Position (7)
|
|
Year
|
|
Salary
($) (1)
|
|
Bonus
($)
|
|
Stock
Awards ($) (2)
|
|
Option
Awards ($) (3)
|
|
All
Other Compensation (4)
|
|
Total
($)
|
|
Rosemary
Mazanet
(5)(8)
Acting
CEO
|
|
2006
2005
|
|
$
|
357,385
217,500
|
|
$
|
100,000
30,000
|
|
$
|
-
-
|
|
$
|
81,464
168,468
|
|
$
|
2,594
1,297
|
|
$
|
541,443
248,797
|
|
Kerry
P. Gray
(6)
Former
President and
CEO
|
|
2005
|
|
$
|
133,332
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,505
|
|
$
|
136,837
|
|
David
P. Nowotnik, Ph.D.
Senior
Vice President Research
and
Development
|
|
2006
2005
|
|
$
|
253,620
250,710
|
|
$
|
20,000
25,408
|
|
$
|
-
24,154
|
|
$
|
40,732
67,619
|
|
$
|
7,152
7,094
|
|
$
|
321,504
374,985
|
|
Phillip
S. Wise
(7)
Vice
President, Business
Development
|
|
2006
|
|
$
|
116,667
|
|
$
|
25,000
|
|
$
|
-
|
|
$
|
40,732
|
|
$
|
358
|
|
$
|
182,757
|
|
Stephen
B. Thompson
Vice
President, Chief Financial Officer
|
|
2006
2005
|
|
$
|
154,080
152,310
|
|
$
|
20,000
15,435
|
|
$
|
-
14,704
|
|
$
|
40,732
42,262
|
|
$
|
4,508
4,455
|
|
$
|
219,320
229,166
|
|
____________________
(1)
|
Includes
amounts deferred under Access’ 401(k)
Plan.
|
(2)
|
There
were no stock awards granted in 2006 and no restricted stock outstanding
at December 31, 2006.
|
(3)
|
The
value listed in the above table represents the fair value of the
options
granted in prior years that were recognized in 2006 under FAS 123R.
Fair
value is calculated as of the grant date using a Black-Sholes
option-pricing model. The determination of the fair value of share-based
payment awards made on the date of grant is affected by Access’ stock
price as well as assumptions regarding a number of complex and subjective
variables. Access’ assumptions in determining fair value are described in
note 10 to Access’ audited financial statements for the year ended
December 31, 2006, included in Access’ Annual Report on Form
10-KSB.
|
(4)
|
Amounts
reported for fiscal years 2006 and 2005 consist of: (i) amounts Access
contributed to its 401(k) Plan with respect to each named individual,
(ii)
amounts Access paid for group term life insurance for each named
individual, and (iii) for Mr. Gray, premiums paid by Access each
year for
life insurance for Mr. Gray.
|
(5)
|
Amounts
listed in 2006 and 2005 for Dr. Mazanet indicate compensation paid
to her
in connection with her services as Access’ Acting CEO commencing on May
11, 2005.
|
(6)
|
Amounts
listed in 2005 for Mr. Gray indicate compensation paid to him in
connection with his services as Access’ President and CEO through May 10,
2005. In addition to such amounts listed in the table above, Mr.
Gray also
received a total of $333,333 and $488,335 per the terms of his Separation
Agreement in 2006 and 2005,
respectively.
|
(7)
|
Phillip
S. Wise became Access’ Vice President Business Development June 1,
2006.
|
(8)
|
Stephen
R. Seiler became Access’ President and Chief Executive Officer effective
January 4, 2007 and is not included in this table.
|
Employment
Agreements
President
and Chief Executive Officer
Access
is
a party to an employment arrangement with Stephen R. Seiler, who was named
by
the Board as Access’ President and Chief Executive Officer and director,
effective as of January 4, 2007 (the "Effective Date"). Mr. Seiler is paid
an
annual salary of $350,000 and was granted stock options to purchase 500,000
shares of Common Stock with an exercise price equal to the closing price of
Common Stock on the day preceding the Effective Date. Mr. Seiler's options
vest
25% on January 4, 2008 and monthly thereafter over a 36 month period. The stock
options are granted under Access’ 2005 Equity Incentive Plan and the 2007
Special Stock Option Plan. Mr. Seiler is entitled to similar employee benefits
as Access’ other executive officers. Under certain circumstances relating to a
change of control of Access, Mr. Seiler may be entitled to receive a payment
equal to his annual salary, acceleration of options and extension of health
care
benefits.
Access
was a party to an employment arrangement with Rosemary Mazanet, Access’ former
Acting Chief Executive Officer. Dr. Mazanet reported directly to, and was
subject to the direction of, the Board. Dr. Mazanet salary was set at $25,000
monthly. Dr. Mazanet was granted a non-qualified stock option of 6,000 shares
of
Common Stock, vesting over a six month period. In November 2005, Dr. Mazanet
was
also granted 50,000 options under Access’ 2005 Equity Incentive Plan. Of the
options granted, 14,000 options vested on grant, the rest vest upon attainment
of preset milestones. Dr. Mazanet also received similar employee benefits as
Access’ other executive officers, D&O insurance coverage and received a
signing bonus of $30,000. The Board granted Dr. Mazanet an additional 200,000
options in 2006. Additionally, Dr. Mazanet was awarded a bonus of $100,000
in
April 2007.
Senior
Vice President
Access
is
a party to an employment agreement with David P. Nowotnik, Ph.D., Access’ Senior
Vice President, Research and Development, which renews automatically for
successive one-year periods, with the current term extending until November
16,
2007. Under this agreement, Dr. Nowotnik is currently entitled to receive an
annual base salary of $253,620, subject to adjustment by the Board. Dr. Nowotnik
is eligible to participate in all of Access’ employee benefit programs available
to executives. Dr. Nowotnik is also eligible to receive:
·
|
a
bonus payable in cash and Common Stock related to the attainment
of
reasonable performance goals specified by the
Board;
|
·
|
stock
options at the discretion of the
Board;
|
·
|
long-term
disability insurance to provide compensation equal to at least $60,000
annually; and
|
·
|
term
life insurance coverage of $254,000.
|
Dr.
Nowotnik is entitled to certain severance benefits in the event that Access
terminates his employment without cause or if Dr. Nowotnik terminates his
employment following a change of control. In the event that Access terminates
the employment agreement for any reason, other than for cause, Dr. Nowotnik
will
receive his salary for six months. Access will also continue benefits for such
period. In the event that Dr. Nowotnik's employment is terminated within six
months following a change in control or by Dr. Nowotnik upon the occurrence
of
certain events following a change in control, Dr. Nowotnik will receive twelve
months salary and his stock options will become immediately exercisable. Access
will also continue payment of benefits for such period.
Vice
President - Chief Financial Officer
Access
is
party to an employment agreement with Stephen B. Thompson, Access’ Vice
President and Chief Financial Officer, which renews automatically for successive
one-year periods. Mr. Thompson is entitled to an annual base salary of $154,080,
subject to adjustment by the Board. The employment agreement also grants Mr.
Thompson similar employee benefits as Access’ other executive officers. Mr.
Thompson is also eligible to receive:
·
|
a
bonus payable in cash and Common Stock related to the attainment
of
reasonable performance goals specified by the
Board;
|
·
|
stock
options at the discretion of the
Board;
|
·
|
long-term
disability insurance to provide compensation equal to at least $90,000
annually; and
|
·
|
term
life insurance coverage of
$155,000.
|
Mr.
Thompson is entitled to certain severance benefits in the event that Access
terminates his employment without cause or if Mr. Thompson terminates his
employment following a change of control. In the event that Access terminates
the employment agreement for any reason, other than cause, Mr. Thompson will
receive salary for six months. Access will also continue benefits for such
period. In the event that Mr. Thompson's employment is terminated within six
months following a change of control or by Mr. Thompson upon the occurrence
of
certain events following a change in control, Mr. Thompson will receive twelve
months salary and his stock options will become immediately exercisable. Access
will also continue payment of benefits for such period.
2005
Equity Incentive Plan
Access’
board of directors adopted and Access’ stockholders approved Access’ 2005 Equity
Incentive Plan in May 2005. As of December 31, 2006, options to purchase 802,672
shares of common stock were outstanding at a weighted average exercise price
of
$1.04 per share and 197,328 shares remained available for future grant.
Purpose.
The
purpose of the Plan is to attract and retain the best available personnel for
positions of substantial responsibility and to provide additional incentive
to
employees and directors of and advisers and consultants to the Company. The
purpose of the proposed amendment is to provide the Company with additional
capacity to award stock options to existing personnel and to attract qualified
new employees, directors, advisers and consultants through grants of stock
options.
Administration.
The
Plan
is administered by the Compensation Committee. During 2006, the Compensation
Committee was composed of four directors, Jeffrey B. Davis, Herbert H. McDade,
Jr., J. Michael Flinn and Max Link. The Compensation Committee presently is
composed of Jeffrey B. Davis, David P. Luci and Stephen B. Howell, MD. Subject
to the provisions of the Plan, the Compensation Committee has discretion to
determine when awards are made, which employees are granted awards, the number
of shares subject to each award and all other relevant terms of the awards.
The
Compensation Committee also has broad discretion to construe and interpret
the
Plan and adopt rules and regulations thereunder. The Compensation Committee
approved the 2007 Special Stock Option Plan and the grant of 450,000 options
to
Access’ new President and Chief Executive Officer in January 2007.
Eligibility.
Awards
may be granted to persons who are employees of Access whether or not officers
or
members of the Board and directors of or advisers or consultants to Access
or of
any of Access’ subsidiaries. No election by any such person is required to
participate in the Plan.
Shares
Subject to the Plan.
The
shares issued or to be issued under the Plan are shares of Common Stock, which
may be newly issued shares or shares held in the treasury or acquired in the
open market. Previously, no more than 1,000,000 shares could be issued under
the
Plan. The foregoing limit is subject to adjustment for stock dividends, stock
splits or other changes in the Company’s capitalization.
Stock
Options.
The
Compensation Committee in its discretion may issue stock options which qualify
as incentive stock options under the Internal Revenue Code or non-qualified
stock options. The Compensation Committee will determine the time or times
when
each stock option becomes exercisable, the period within which it remains
exercisable and the price per share at which it is exercisable, provided that
no
incentive stock option shall be exercised more than 10 years after it is granted
and no other options shall be exercised more than 10 years and one day after
it
is granted, and further provided that the exercise price of any incentive stock
option shall not be less than the fair market value of the Common Stock on
the
date of grant. The closing price of the Common Stock on the OTC Bulletin Board
on December 10, 2007 was $2.57 per share.
Payment
for shares purchased upon exercise of an option must be made in full in cash
or
check, by payment through a broker in accordance with Regulation T of the
Federal Reserve Board or by such other mode of payment as the Committee may
approve, including payment in whole or in part in shares of the Common Stock,
when the option is exercised. No option is transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order, as defined by the Code or in Title I of the Employee Retirement Income
Security Act of 1974, as amended.
Notwithstanding
any other provision of the Plan, each non-employee director is also entitled
to
receive options to purchase 2,500 shares of Common Stock on the date of each
annual meeting of stockholders and options to purchase 25,000 shares of Common
Stock when he or she is first appointed as a director.
Tax
Considerations.
The
following is a brief and general discussion of the federal income tax rules
applicable to awards under the Plan. With respect to an incentive stock option,
an employee will generally not be taxed at the time of grant or exercise,
although exercise of an incentive option will give rise to an item of tax
preference that may result in an alternative minimum tax. If the employee holds
the shares acquired upon exercise of an incentive stock option until at least
one year after issuance and two years after the option grant, he or she will
have long-term capital gain (or loss) based on the difference between the amount
realized on the sale or disposition and his or her option price. If these
holding periods are not satisfied, then upon disposition of the shares the
employee will recognize ordinary income equal, in general, to the excess of
the
fair market value of the shares at time of exercise over the option price,
plus
capital gain in respect of any additional appreciation. With respect to a
non-qualified option, an employee will not be taxed at the time of grant; upon
exercise, he or she will generally realize compensation income to the extent
the
then fair market value of the stock exceeds the option price. Access will
generally have a tax deduction to the extent that, and at the time that, an
employee realizes compensation income with respect to an award.
Any
tax
deductions Access may be entitled to in connection with awards under the Plan
may be limited by the $1 million limitation under Section 162(m) of the Code
on
compensation paid to any of Access’ chief executive officer or other named
officers. This limitation is further discussed in the Compensation Committee
Discussion on Executive Compensation.
For
purposes of this summary, Access has assumed that no award will be considered
“
deferred
compensation
”
as that
term is defined for purposes of the federal tax rules governing nonqualified
deferred compensation arrangements, Section 409A of the Code, or, if any award
were considered to any extent to constitute deferred compensation, its terms
would comply with the requirements of that legislation (in general, by limiting
any flexibility in the time of payment). For example, the award of a
non-qualified stock option with an exercise price which is less than the market
value of the stock covered by the option would constitute deferred compensation.
If an award includes deferred compensation, and its terms do not comply with
the
requirements of these tax rules, then any deferred compensation component of
the
award will be taxable when it is earned and vested (even if not then payable)
and the recipient will be subject to a 20% additional tax.
In
all
cases, recipients of awards should consult their tax advisors regarding the
tax
treatment of any awards received by them.
401(k)
Plan
Access
maintains a defined contribution employee retirement plan, or 401(k) plan,
for
Access’ employees. Access’ executive officers are also eligible to participate
in the 401(k) plan on the same basis as Access’ other employees. The plan is
intended to qualify as a tax-qualified plan under Section 401(k) of the Internal
Revenue Code. The plan provides that each participant may contribute up to
the
statutory limit, which is $15,500 for calendar year 2007. Participants who
are
50 years or older can also make "catch-up" contributions, which in calendar
year
2007 may be up to an additional $5,000 above the statutory limit. Under the
plan, each participant is fully vested in his or her deferred salary
contributions, including any matching contributions by us, when contributed.
Participant contributions are held and invested by the participants in the
plan's investment options. The plan also permits Access to make discretionary
contributions and matching contributions, subject to established limits and
a
vesting schedule. In 2006, Access matched 100% of participant contributions
up
to the first two percent of eligible compensation. Access matches participant
contributions at the first four percent of eligible compensation in
2007.
Outstanding
Equity Awards at December 31, 2006
The
following table sets forth certain information regarding outstanding equity
awards held by Access’ named executive officers at December 31,
2006.
|
Option
Awards
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Grant
Date
(5)
|
Rosemary
Mazanet
(2)
(4)
|
50,000
39,796
6,000
|
150,000
10,204
|
-
|
0.63
5.45
12.50
|
08/17/06
11/02/05
05/11/05
|
Kerry
P. Gray
(3)
|
20,000
28,000
32,000
32,000
20,000
100,000
32,000
32,000
|
|
-
|
29.25
11.50
18.65
34.38
27.50
12.50
10.00
15.00
|
01/23/04
05/19/03
03/22/02
11/20/00
10/12/00
03/01/00
07/20/99
06/18/98
|
David
P. Nowotnik, Ph.D.
|
25,000
3,167
3,646
6,854
10,000
10,000
10,000
10,000
|
75,000
4,833
1,354
146
|
-
|
0.63
11.60
29.25
10.10
18.65
12.50
10.00
15.00
|
08/17/06
05/23/05
01/23/04
01/30/03
03/22/02
03/01/00
07/20/99
11/16/98
|
Phillip
S. Wise
|
25,000
|
75,000
|
-
|
0.63
|
08/17/06
|
Stephen
B. Thompson
|
25,000
1,979
2,187
3,917
6,000
9,000
4,000
4,000
|
75,000
3,021
813
83
|
-
|
0.63
11.60
29.25
10.10
18.65
12.50
10.00
15.00
|
08/17/06
05/23/05
01/23/04
01/30/03
03/22/02
03/01/00
07/20/99
06/18/98
|
|
|
|
|
|
|
____________________
(1)
|
On
December 31, 2006, the closing price of Access’ Common Stock as quoted on
the OTC Bulletin Board was $2.80.
|
(2)
|
Options
listed for Dr. Mazanet include options paid to her in connection
with her
services as Access’ Acting CEO commencing on May 11,
2005.
|
(3)
|
Options
listed for Mr. Gray include options paid to him in connection with
his
services as Access’ President and CEO through May 10, 2005. Mr. Gray
resigned as CEO on May 10, 2005.
|
(4)
|
Stephen
R. Seiler became Access’ President and Chief Executive Officer effective
January 4, 2007 and is not included in this
table.
|
(5)
|
All
options expire 10 years after the grant
date.
|
Board
Committees
The
Board
established an Audit and Finance Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee. Each of the committees of the
Board acts pursuant to a separate written charter adopted by the Board. On
February 8, 2007, the Board also established an Executive Committee consisting
of Mr. Davis, Mr. Seiler and Dr. Ahn.
The
Audit
and Finance Committee is currently comprised of David P. Luci (chairman) and
John J. Meakem, Jr. During 2006, the Audit and Finance Committee was composed
of
four directors,
Max
Link,
Ph.D., Stuart M. Duty, John J. Meakem, Jr., and Jeffrey B. Davis.
All of
the current members of the Audit and Finance Committee are independent under
applicable SEC and AMEX rules and regulations. During 2006 Dr. Link, Mr. Duty
and Mr. Meakem were independent under applicable SEC and AMEX rules and
regulations. The Board has determined that Mr. Luci, the chairman of the Audit
and Finance Committee, is an “audit committee financial expert,” under
applicable SEC rules and regulations. The Audit and Finance Committee’s
responsibilities and duties are a
mong
other things to engage the independent auditors, review the audit fees,
supervise matters relating to audit functions and review and set internal
policies and procedure regarding audits, accounting and other financial
controls.
The
Compensation Committee is currently comprised of Jeffrey B. Davis (chairman),
Mr. David P. Luci and Dr. Stephen B. Howell.
Mr.
Luci
is
independent
under
applicable AMEX rules and regulations
and is a
non-employee director under applicable SEC rules and “outside” under Internal
Revenue Code Section 162(m). Mr. Davis and Mr. Howell are not independent under
applicable AMEX rules and regulations.
During
2006, the Compensation Committee was composed of Herbert H. McDade, Jr., Jeffrey
B. Davis, J. Michael Flinn and Stephen B. Howell, MD.
The
Nominating and Corporate Governance Committee is currently comprised of John
J.
Meakem, Jr. (chairman), Mark Ahn, PhD and Mark J. Alvino. During 2006 Stuart
M.
Duty was also a member of the committee. Mr. Meakem and Mr. Ahn are
independent
under
applicable AMEX rules and regulations.
Mr.
Alvino is not independent under applicable AMEX rules and regulations.
The
Nominating and Corporate Governance Committee is responsible for, among other
things, considering potential Board members, making recommendations to the
full
Board as to nominees for election to the Board, assessing the effectiveness
of
the Board and implementing Access’ corporate governance guidelines.
Compensation
of Directors
Each
director who is not also an Access employee receives a quarterly fee of $3,000
and $1,000 per quarter per committee (aggregate for all committees) in which
he/she is a member. The Chairman of the Board is paid an additional $1,000
per
quarter and the Chairman of each of the Audit and Finance and Compensation
Committee is paid an additional $500 per quarter. Mr. Flinn was paid $183,000
in
2006 for serving as Chairman of the Board for 2005 and 2006. Each director
will
have $2,000 deducted from his or her fee if the director misses more than one
Board meeting, and $1,000 deducted per committee meeting not attended. In
addition, Access reimbursed each director, whether an employee or not, the
expenses of attending Board and committee meetings. Each non-employee director
is also entitled to receive options to purchase 2,500 shares of Common Stock
on
the date of each annual meeting of stockholders and options to purchase 25,000
shares of Common Stock when he/she is first appointed as a director.
Director
Compensation Table - 2006
The
table
below represents the compensation paid to Access’ outside directors during the
year ended December 31, 2006:
Name
|
Fees
earned or
Paid
in Cash ($)
|
Option
Awards
($)(1)
|
All
Other Compensation ($)
|
Total
($)
|
Mark
J. Ahn, PhD (2)
|
4,000
|
7,592
|
-
|
11,592
|
Mark
J. Alvino (3)
|
13,000
|
5,581
|
-
|
18,581
|
Esteban
Cvitkovic, MD (8)
|
-
|
-
|
-
|
-
|
Jeffrey
B. Davis (3)
|
16,650
|
5,581
|
-
|
22,231
|
Stuart
M. Duty (4)
|
16,000
|
8,379
|
-
|
24,379
|
J.
Michael Flinn (5)
|
17,525
|
15,411
|
183,333
|
216,269
|
Stephen
B. Howell, MD (6)
|
12,000
|
6,137
|
-
|
18,137
|
David
P. Luci (8)
|
-
|
-
|
-
|
-
|
Rosemary
Mazanet, MD, PhD (9)
|
-
|
-
|
-
|
-
|
Max
Link, PhD (9)
|
12,000
|
556
|
-
|
12,557
|
Herbert
H. McDade, Jr. (6)
|
17,200
|
6,137
|
-
|
23,338
|
John
J. Meakem, Jr. (4)
|
16,000
|
8,379
|
-
|
24,380
|
|
(1)
|
|
The
value listed in the above table represents the fair value of the
options
recognized as expense under FAS 123R during 2006, including unvested
options granted before 2006 and those granted in 2006. Fair value
is
calculated as of the grant date using a Black-Scholes (“Black-Scholes”)
option-pricing model. The determination of the fair value of share-based
payment awards made on the date of grant is affected by Access’ stock
price as well as assumptions regarding a number of complex and subjective
variables. Access’ assumptions in determining fair value are described in
note 10 to Access’ audited financial statements for the year ended
December 31, 2006, included in Access’ Annual Report on Form
10-KSB.
|
|
(2)
|
|
Represents
expense recognized in 2006 in respect of option to purchase 25,000
shares
based on a grant date fair value of $7,592.
|
|
(3)
|
|
Represents
expense recognized in 2006 in respect of option to purchase 25,000
shares
based on grant date fair value of $5,581.
|
|
(4)
|
|
Represents
expense recognized in 2006 in respect of option to purchase 25,000
shares
based on a grant date fair value of $5,581; option to purchase 1,200
shares based on a grant date fair value of $556; and option to purchase
4,836 shares based on a grant date fair value of
$2,242.
|
|
(5)
|
|
Represents
expense recognized in 2006 in respect of option to purchase 25,000
shares
based on a grant date fair value of $5,581; option to purchase 1,200
shares based on a grant date fair value of $556; and option to purchase
20,000 shares based on a grant date fair value of
$9,274.
|
|
(6)
|
|
Represents
expense recognized in 2006 in respect of option to purchase 25,000
shares
based on a grant date fair value of $5,581 and option to purchase
1,200
shares based on a grant date fair value of $556.
|
|
(7)
|
|
Represents
expense recognized in 2006 in respect of option to purchase 1,200
shares
based on grant date fair value of $556.
|
|
(8)
|
|
Dr.
Cvitkovic and Mr. Luci became directors in 2007.
|
|
(9)
|
|
Dr.
Mazanet was an inside director during 2006 and was not paid directors
fees. She became an outside director in January
2007.
|
The
following table summarizes the aggregate number of option awards held by each
director at December 31, 2006. There were no outstanding stock awards held
by
any director at December 31, 2006:
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
Mark
J. Ahn, PhD
|
-
|
25,000
|
-
|
0.85
|
09/01/16
|
Mark
J. Alvino
|
-
|
25,000
|
-
|
0.63
|
08/17/16
|
Jeffrey
B. Davis
|
-
|
25,000
|
-
|
0.63
|
08/17/16
|
Esteban
Cvitkovic, MD (1)
|
-
|
-
|
-
|
-
|
-
|
Stuart
M. Duty
|
2,500
4,836
1,200
|
25,000
|
-
|
0.63
12.40
3.15
3.15
|
08/17/16
5/12/15
2/05/16
2/05/16
|
J.
Michael Flinn
|
2,000
2,000
1,000
2,000
2,000
2,500
2,500
2,500
1,200
20,000
|
25,000
|
-
|
0.63
15.00
10.00
17.81
23.05
14.05
11.50
28.50
12.40
3.15
3.15
|
08/17/16
06/18/08
07/20/09
06/26/10
05/21/11
05/20/12
05/19/13
05/19/14
05/12/15
02/05/16
02/05/16
|
Stephen
B. Howell, MD (3)
|
417
1,000
2,000
2,000
2,500
2,500
2,500
1,200
|
25,000
|
-
|
0.63
15.00
17.81
23.05
14.05
11.50
28.50
12.40
3.15
|
08/17/16
06/18/08
06/26/10
05/21/11
05/20/12
05/19/13
05/19/14
05/12/15
02/05/16
|
David
P. Luci (1)
|
-
|
-
|
-
|
-
|
-
|
Rosemary
Mazanet, MD, PhD (2)
|
|
|
-
|
|
|
Max
Link, PhD
|
1,200
|
|
-
|
0.63
|
08/17/16
|
Herbert
H. McDade, Jr.
|
2,500
1,000
2,000
2,000
2,500
2,500
1,200
|
25,000
|
-
|
0.63
15.00
17.81
23.05
14.05
28.50
12.40
3.15
|
08/17/16
06/18/08
06/26/10
05/21/11
05/20/12
05/19/14
05/12/15
02/05/16
|
John
J. Meakem, Jr.
|
4,000
2,000
2,500
2,500
2,500
4,836
1,200
|
25,000
|
-
|
0.63
20.25
14.05
11.50
28.50
12.40
3.15
3.15
|
08/17/16
02/16/11
05/20/12
05/19/13
05/19/14
05/12/15
02/05/16
02/05/16
|
____________________
(1)
|
Dr.
Cvitkovic and Mr. Luci became directors in 2007.
|
(2)
|
Since
Dr. Mazanet became an outside director in January 2007, her options
are
reported in the executive compensation tables.
|
(3)
|
Dr.
Howell also has a warrant to purchase 3,000 shares of Access Common
Stock
at an exercise price of $15.00 per share, and a warrant to purchase
2,000
shares of Access Common Stock at an exercise price of $24.80 per
share.
|
|
LEGAL
PROCEEDINGS
The
Company is not currently subject to any material pending legal
proceedings.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based
solely upon information made available to Access, the following table sets
forth
certain information with respect to the beneficial ownership of Access’ Common
Stock as of December 10, 2007 by (i) each person who is known by Access to
beneficially own more than five percent of Access’ Common Stock; (ii) each of
Access’ directors; (iii) each of Access’ named executive officers; and (iv) all
Access’ executive officers and directors as a group. Beneficial ownership as
reported in the following table has been determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended. The address of
each
holder listed below, except as otherwise indicated, is c/o Access
Pharmaceuticals, Inc., 2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207.
Common
Stock Beneficially Owned
|
Name
of Beneficial Owner
|
Number
of Shares
(1)
|
%
of Class
|
Jeffery
B. Davis
(2)
|
30,820
|
*
|
Stephen
R. Seiler
(3
|
135,417
|
3.7%
|
Mark
J. Ahn, Ph. D.
(4)
|
25,000
|
*
|
Mark
J. Alvino
(5)
|
80,525
|
2.2%
|
Esteban
Cvitkovic, M.D.
(6)
|
37,500
|
1.0%
|
Stephen
B. Howell, M.D.
(7)
|
53,839
|
1.5%
|
David
P. Luci
(8)
|
25,000
|
*
|
Rosemary
Mazanet, M.D., Ph.D.
(9)
|
228,376
|
6.0%
|
John
J. Meakem, Jr.
(10)
|
53,536
|
1.5%
|
David
P. Nowotnik, Ph.D.
(11)
|
149,849
|
4.0%
|
Phillip
S. Wise
(12)
|
75,000
|
2.0%
|
Stephen
B. Thompson
(13)
|
117,854
|
3.2%
|
SCO Capital Partners LLC, SCO Capital
Partners LP, and Beach Capital LLC
(14)
|
12,034,164
|
77.0%
|
Larry
N. Feinberg
(15)
|
2,479,372
|
43.0%
|
Lake
End Capital LLC
(16)
|
1,426,216
|
28.5%
|
Perceptive
Life Sciences
Master
Fund, Ltd.
(17)
|
999,999
|
21.9%
|
Midsummer
Investment, Ltd.
(18)
|
750,000
|
17.3%
|
All
Directors and Executive
Officers
as a group
(consisting
of 12 persons)
(19)
|
1,012,717
|
22.3%
|
*
- Less
than 1%
(1)
|
Includes
Access’ outstanding shares of Common Stock held plus all shares of Common
Stock issuable upon conversion of Series A Preferred Stock, exercise
of
options, warrants and other rights exercisable within 60 days of
December
10, 2007.
|
(2)
|
Includes
5,820 shares underlying warrants held directly by Mr. Davis and
presently
exercisable options for the purchase of 25,000 shares of Access’ Common
Stock pursuant to the 2005 Equity Incentive Plan. Mr. Davis is
President of SCO Securities LLC, a wholly owned subsidiary of SCO
Financial Group. His address is c/o SCO Capital Partners LLC, 1285
Avenue
of the Americas, 35
th
Floor, New York, NY 10019. SCO Securities
LLC and affiliates (SCO Capital Partners LP and Beach Capital LLC)
are
known to beneficially own warrants to purchase an aggregate
of 5,623,730 shares of Access’ Common Stock and 6,410,434 shares
of Common Stock are issuable to them upon conversion of Series
A Preferred
Stock. Mr. Davis disclaims beneficial ownership of all such shares
except
to the extent of his pecuniary interest
therein.
|
(3)
|
Includes
presently exercisable options for the purchase of 13,542 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive Plan and 121,875
shares
of Access’ Common Stock pursuant to the 2007 Special Stock Option
Plan.
|
(4)
|
Includes
presently exercisable options for the purchase of 25,000 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(5)
|
Includes
55,525 shares of Common Stock underlying warrants held by Mr. Alvino
and
presently exercisable options for the purchase of 25,000 shares
of Access’
Common Stock pursuant to the 2005 Equity Incentive Plan. Mr. Alvino
is
Managing Director of Griffin Securities LLC. His address is c/o
Griffin
Securities LLC, 17 State St., 3
rd
Floor, New York, NY 10004.
Mr. Alvino is a designated director of SCO Securities LLC. SCO
Securities
LLC and affiliates (SCO Capital Partners LP and Beach Capital LLC)
are
known to beneficially own warrants to purchase an aggregate
of 5,623,730 shares of Access’ Common Stock and 6,410,434 shares of
Common Stock are issuable to them upon conversion of Series A Preferred
Stock. Mr. Alvino disclaims beneficial ownership of all such shares
except
to the extent of his pecuniary interest therein. Mr. Alvino disclaims
beneficial ownership of all such shares except to the extent of
his
pecuniary interest therein.
|
(6)
|
Includes
presently exercisable options for the purchase of 37,500 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(7)
|
Includes
presently exercisable options for the purchase of 26,200 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive Plan, 12,917 shares
of
Access’ Common Stock pursuant to the 1995 Stock Option Plan, a warrant to
purchase 3,000 shares of Access’ Common Stock at an exercise price of
$15.00 per share, and a warrant to purchase 2,000 shares of Access’ Common
Stock at an exercise price of $24.80 per
share.
|
(8)
|
Includes
presently exercisable options for the purchase of 25,000 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(9)
|
Includes
presently exercisable options for the purchase of 222,376 shares
of
Access’ Common Stock pursuant to the 2005 Equity Incentive Plan and 6,000
shares of Access’ Common Stock pursuant to the 1995 Stock Option
Plan.
|
(10)
|
Includes
presently exercisable options for the purchase of 31,036 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive Plan and 13,500
shares
of Access’ Common Stock pursuant to the 1995 Stock Option
Plan.
|
(11)
|
Includes
presently exercisable options for the purchase of 75,000 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive Plan and 57,333
shares
of Access’ Common Stock pursuant to the 1995 Stock Option
Plan.
|
(12)
|
Includes
presently exercisable options for the purchase of 75,000 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(13)
|
Includes
presently exercisable options for the purchase of 75,000 shares of
Access’
Common Stock pursuant to the 2005 Equity Incentive Plan and 33,333
shares
of Access’ Common Stock pursuant to the 1995 Stock Option
Plan.
|
(14)
|
SCO
Capital Partners LLC, SCO Capital Partner LP and Beach Capital LLC's
address is 1285 Avenue of the Americas, 35
th
Floor, New York,
NY 10019. SCO Capital Partners LLC and affiliates (SCO Capital Partners
LP
and Beach Capital LLC) are known to beneficially own warrants to purchase
an aggregate of 5,623,730 shares of Access’ Common Stock
and 6,410,434 shares of Common Stock issuable to them upon conversion
of Series A Preferred Stock. Each of Mr. Davis and Mr. Alvino, Access’
directors and Mr. Davis an executive with SCO Capital Partners LLC,
disclaim beneficial ownership of such shares except to the extent of
his
pecuniary interest therein.
|
(15)
|
Larry
N. Feinberg is a partner in Oracle Partners, L.P. His address is
c/o
Oracle Partners, L.P., 200 Greenwich Avenue, 3
rd
Floor, Greenwich, CT 06830. Oracle Partners, L.P. and affiliates
(Oracle
Institutional Partners, L.P., Oracle Investment Management, Inc.,
Sam
Oracle Fund, Inc. and Mr. Feinberg) are known to beneficially own
an
aggregate of 339,964 shares of Access’ Common Stock, warrants to purchase
an aggregate of 728,850 shares of Access’ Common Stock and Series A
Preferred Stock which may be converted into an aggregate of 1,457,699
shares of Access’ Common Stock.
|
(16)
|
Lake
End Capital LLC's address is 1285 Avenue of the Americas,
35
th
Floor, New York, NY 10019. Lake End Capital LLC is
known to beneficially own warrants to purchase an aggregate of 716,482
shares of Access’ Common Stock and 709,734 shares of Common Stock
issuable to them upon conversion of Series A Preferred Stock.
|
(17)
|
Perceptive
Life Sciences Master Fund, Ltd.’s address is 499 Park Ave., 25
th
Fl., New York, NY 10022. Perceptive Life Sciences Master Fund is
known to
beneficially own warrants to purchase an aggregate of 333,333 shares
of
Access’ Common Stock and Series A Preferred Stock which may be converted
into an aggregate of 666,666 shares of Access’ Common
Stock.
|
(18)
|
Midsummer
Investment, Ltd.’s address is 295 Madison Ave., 38
th
Fl., New York, NY 10017. Midsummer Investment is known to beneficially
own
warrants to purchase an aggregate of 250,000 shares of Access’ Common
Stock and Series A Preferred Stock which may be converted into
an
aggregate of 500,000 shares of Access’ Common
Stock.
|
(18)
|
Does
not include shares held by SCO Securities LLC and
affiliates.
|
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Access
adopted its 2005 Equity Incentive Plan in May 2005, as amended, authorizing
1,675,000 shares under the plan. Access issued 1,589,053 options or rights
under
this plan as of December 10, 2007. The balance of the options outstanding as
of
December 10, 2007 is 85,947. Access adopted its 2001 Restricted Stock Plan
in
May 2001, authorizing 80,000 shares of its authorized but unissued common stock
were reserved for issuance to certain employees, directors, consultants and
advisors. Access issued 27,182 shares and 52,818 shares available for
grant.
The
following table sets forth information as of December 31, 2006 about shares
of
Common Stock outstanding and available for issuance under Access’ equity
compensation plans existing as of such date.
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding
options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options,
warrants
and rights
|
Number
of securities remaining available for future issuance under
equity
compensation
plans
(excluding
securities
reflected in
column (a))
|
|
(a)
|
(b)
|
(c)
|
|
Equity
compensation plans approved by security holders
|
2005
Equity Incentive Plan
1995
Stock Awards Plan
2001
Restricted Stock Plan
|
802,672
360,917
-
|
$
1.04
$18.03
-
|
197,328
-
52,818
|
|
Equity
compensation plans not approved by security holders
|
2000
Special Stock Option Plan*
|
100,000
|
$
12.50
|
-
|
Total
|
1,263,589
|
$
6.80
|
250,146
|
*
expired unexercised June 30, 2007
The
2007 Special Stock Option Plan
The
2007
Special Stock Option Plan (the "Plan") was adopted by the Board in January
2007.
The Plan is not intended to be an incentive stock option plan within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
The Plan allows for the issuance of up to 450,000 options to acquire Access’
stock all of which have been issued. The purpose of the Plan is to encourage
ownership of Common Stock by employees, consultants, advisors and directors
of
Access and its affiliates and to provide additional incentive for them to
promote the success of Access’ business. The Plan provides for the grant of
non-qualified stock options to employees (including officers, directors,
advisors and consultants). The Plan will expire in January 2017, unless earlier
terminated by the Board. All of the options have been granted in the Plan in
January 2007.
Annual
Incentive
Each
year, the Compensation Committee evaluates the performance of the Company as
a
whole, as well as the performance of each individual executive. Factors
considered include Company development, performance against objectives,
advancement of our research and development programs, commercial operations,
product acquisition, and in-licensing and out-licensing agreements. The
Compensation Committee does not utilize formalized mathematical formulas, nor
does it assign weightings to these factors. The Compensation Committee, in
its
sole discretion, determines the amount, if any, of incentive payments to be
awarded to each executive based on an individual’s targeted incentive payment.
The Compensation Committee believes that analysis of our corporate growth
requires subjectivity on the part of the Compensation Committee when determining
incentive payments. The Compensation Committee believes that specific formulas
restrict flexibility. Based on this criteria, for the 2006 fiscal year Dr.
Mazanet was granted options to purchase 200,000 shares of Common Stock under
the
2005 Equity Incentive Plan.
Stock
Option Plans
The
Board
has adopted and our stockholders have approved our 2005 Equity Incentive Plan
and 1995 Stock Awards Plan. The 2005 Equity Incentive Plan currently provides
for the issuance of up to a maximum of 1,000,000 shares of our Common Stock
to
our employees, directors and consultants or any of our subsidiaries. The 1995
Stock Awards Plan provided for the issuance of up to a maximum of 500,000 shares
of our Common Stock to our employees, directors and consultants or any of our
subsidiaries. A total of 474,044 options were granted under the 1995 Stock
Awards Plan before it terminated. Options granted under both plans may be either
incentive stock options or options which do not qualify as incentive stock
options. In 2000, the Board adopted the 2000 Special Stock Option Plan and
Agreement (the
“
2000
Plan
”
).
The
2000 Plan provides for the award of options to purchase a maximum of 100,000
shares of our Common Stock. In 2007, the Board adopted the 2007 Special Stock
Option Plan and Agreement (the “2007 Plan”). The 2007 Plan provides for the
award of options to purchase a maximum of 450,000 shares of our Common
Stock.
The
stock
option plans are administered by a committee of non-employee members of the
Board, chosen by the Board, and is currently administered by the Compensation
Committee. During 2006, the Compensation Committee was composed of four
directors, Herbert H. McDade, Jr., Jeffrey B. Davis, J. Michael Flinn and
Stephen B. Howell, MD. The Compensation Committee presently is composed of
Jeffrey B. Davis and Stephen B. Howell, MD. The Compensation Committee has
the
authority to determine those individuals to whom stock options are granted,
the
number of shares to be covered by each option, the option price, the type of
option, the option period, the vesting restrictions, if any, with respect to
exercise of each option, the terms for payment of the option price and other
terms and conditions of each option.
Our
non-employee directors, who include members of the Compensation Committee,
are
eligible to receive options under the 2005 Equity Incentive Plan. Each
non-employee director is entitled to receive options to purchase 2,500 shares
of
our Common Stock on the date of each annual meeting of stockholders and options
to purchase 25,000 shares of Common Stock when he/she is first appointed as
a
director.
Dr.
Mazanet received options to purchase 6,000 shares of Common Stock in the 2005
fiscal year under the 1995 Stock Awards Plan and options to purchase 50,000
shares of Common Stock in the 2005 fiscal year under the 2005 Equity Incentive
Plan. Dr. Mazanet also received options to purchase 200,000 shares of Common
Stock in the 2006 fiscal year under the 2005 Equity Incentive Plan. As of
December 31, 2005, we had granted to Mr. Gray options under the 1995 Stock
Awards Plan and the 2000 Plan to purchase an aggregate of 1,480,000 shares
of
Common Stock at a weighted average exercise price per share of $17.60. All
1,480,000 of such options expired on June 30, 2007.
We
also
have a restricted stock plan, the 2001 Restricted Stock Plan under which 80,000
shares of our Common Stock have been reserved for issuance to certain employees,
directors, consultants and advisors. The restricted stock granted under the
plan
generally vests over five years, 25% two years after the grant date with an
additional 25% vesting on the next three anniversary dates. All stock is vested
after five years. At December 31, 2006 there were 27,182 shares granted and
52,818 shares available for grant under the 2001 Restricted Stock Plan.
Section
162(m)
Section
162(m) of the Internal Revenue Code of 1986, as amended, currently imposes
a $1
million limitation on the deductibility of certain compensation paid to each
of
our five highest paid executives. Excluded from this limitation is compensation
that is
“
performance
based.
”
For
compensation to be performance based it must meet certain criteria, including
being based on predetermined objective standards approved by stockholders.
In
general, we believe that compensation relating to options granted under the
1995
Stock Awards Plan and 2000 Plan should be excluded from the $1 million
limitation calculation. Compensation relating to our incentive compensation
awards do not currently qualify for exclusion from the limitation, given the
discretion that is provided to the Compensation Committee in establishing the
performance goals for such awards. The Compensation Committee believes that
maintaining the discretion to evaluate the performance of our management is
an
important part of its responsibilities and inures to the benefit of our
stockholders. The Compensation Committee, however, intends to take into account
the potential application of Section 162(m) with respect to incentive
compensation awards and other compensation decisions made by it in the future.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) (
“
Section
16(a)
”
)
of the
Securities Exchange Act of 1934, as amended, requires our directors, executive
officers and holders of more than ten percent of our Common Stock to file with
the SEC initial reports of ownership and reports of changes in ownership of
such
securities. Directors, officers and 10% holders are required by SEC rules to
furnish us with copies of all of the Section 16(a) reports they file.
Based
solely on a review of reports furnished to us during the 2006 fiscal year or
written representations from our directors and executive officers, none of
our
directors, executive officers and 10% holders failed to file on a timely basis
reports required by Section 16(a) during the 2006 fiscal year or in prior years,
except for Dr. Mazanet who filed one late Form 4, reporting one transaction.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Dr.
Esteban Cvitkovic, one of our directors, also serves as a consultant as Senior
Director, Oncology Clinical Research & Development to the Company since
August 2007. Dr. Cvitkovic receives $12,500 per month plus $2,500 for office
expenses until March 31, 2008. Dr. Cvitkovic received warrants to purchase
25,000 shares of our Common Stock at $4.35 per share with 12,500 options
immediately in August 2007 and 12,500 options will vest in March 2008 based
on
the completion of certain defined tasks.
In
the
event SCO Capital Partners LLC (“SCO”) and its affiliates were to convert all of
their shares of Series A Preferred Stock and exercise all of their warrants,
they would own approximately 77.0% of the voting securities of Access. During
2006 SCO and affiliates were paid $415,000 in fees relating to the issuance
of
convertible notes and were paid $131,000 in investor relations
fees.
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,001. The shares of Series A Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per
share.
As
a
condition to closing, SCO Capital Partners, LLC and affiliates, along with
the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest
for
437.3104 shares of the Series A Preferred Stock and were issued warrants to
purchase 728,850 shares of our common stock at an exercise price of $3.50 per
share. SCO Capital Partners, LLC currently has two designees serving on our
Board of Directors. In connection with the exchange of the notes, all security
interests and liens relating thereto were terminated.
As
a
condition to closing, we entered into an Investor Rights Agreement with each
of
the investors purchasing shares of Series A Preferred Stock our Board of
Directors approved with respect to the shareholder rights plan any action
necessary under our shareholder rights plan to accommodate the issuance of
the
Series A Preferred Stock
and
warrants without triggering the applicability of the shareholder rights
plan.
The
Investor Rights Agreement grants certain registration and other rights to
each
of the investors.
In
connection with the sale and issuance of Series A Preferred Stock and warrants,
we entered into a Director Designation Agreement whereby we agreed to continue
SCO’s right to designate two individuals to serve on the Board of Directors of
Access.
Dr.
Howell, one of our directors, also serves as a scientific consultant to the
Company pursuant to a consulting agreement that provides for a minimum of two
days consulting during 2007 at a rate of $5,880 per month plus expenses. Dr.
Howell received warrants to purchase 2,000 shares of our Common Stock at $24.80
per share that can be exercised until January 1, 2009; and warrants to purchase
3,000 shares of our Common Stock at $15.00 per share that can be exercised
until
January 1, 2008. During 2006, Dr. Howell was paid $69,000 in consulting fees;
during 2005, Dr. Howell was paid $79,000 in consulting fees; and during 2004
Dr.
Howell was paid $58,000 in consulting fees. Dr. Howell’s agreement with us
expires March 1, 2008.
On
January 20, 2006, Board approved the payment of a fee of $140,000 to J. Michael
Flinn, our former Chairman of the Board, for services as Chairman of the Board
for fiscal 2005. The $140,000 fee was paid on the completion of a financing.
The
Board also approved the grant of options to purchase 20,000 shares of Common
Stock at an exercise price of $3.15 per share to J. Michael Flinn for services
as Chairman of the Board. In May 2006, the Board also approved the payment
of a
fee of $43,333 to Mr. Flinn for services as Chairman of the Board for 2006.
The
Board also approved the grant of options to purchase 4,836 shares of Common
Stock at an exercise price of $3.15 per share to Messrs. Duty and Meakem,
members of the then existing Merger and Acquisitions Committee of the Board,
for
services in connection therewith. The Board also approved the grant of options
to purchase 1,200 shares of Common Stock at an exercise price of $3.15 per
share
to each member of the Board, for services as members of the Board.
In
August
2006, the Board approved the grant of options to purchase 25,000 shares of
Common Stock at an exercise price of $0.63 per share to each member of the
Board.
On
October 12, 2000, the Board authorized a restricted stock purchase program.
Under the program, our executive officers were given the opportunity to purchase
shares of Common Stock in an individually designated amount per participant
determined by our Compensation Committee. A total of 36,000 shares were
purchased by such officers at $27.50 per share, the fair market value of the
Common Stock on October 12, 2000, for an aggregate consideration of $990,000.
The purchase price was paid through the participant’s delivery of a 50%-recourse
promissory note payable to us. Each note bears interest at 5.87% compounded
semi-annually and has a maximum term of ten years. The notes are secured by
a
pledge to us of the purchased shares. We recorded the notes receivable of
$990,000 from participants in this program as a reduction of equity in the
Consolidated Balance Sheet. As of December 31, 2006, principal and interest
on
the notes was: Mr. Gray - $809,000; Dr. Nowotnik - $404,000; and Mr. Thompson
-
$243,000. In accordance with the Sarbanes-Oxley Act of 2002, we no longer make
loans to our executive officers.
MARKET
FOR COMMON STOCK
Price
Range of Common Stock and Dividend Policies
Access’
common stock has traded on the OTC Bulletin Board, or OTCBB, under the trading
symbol ACCP since June 5, 2006. From February 1, 2006 until June 5, 2006 Access
traded on the “Pink Sheets” under the trading symbol AKCA. From March 30, 2000
until January 31, 2006 Access traded on the American Stock Exchange, or AMEX,
under the trading symbol AKC.
The
following table sets forth, for the periods indicated, the high and low closing
prices as reported by OTCBB, the Pink Sheets and AMEX for Access’ common stock
for fiscal years 2006 and 2005, and for each of the first three quarters of
fiscal year 2007 and as the most recent date of the fourth quarter 2007. The
OTCBB and Pink Sheet quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
All
per
share information reflect a one for five reverse stock split effected June
5,
2006.
|
|
Common
Stock
|
|
|
|
|
High
|
|
|
Low
|
|
Period
Ended
|
|
|
|
|
|
|
|
|
First
quarter March 31, 2007
|
|
$
|
10.66
|
|
$
|
2.50
|
|
Second
quarter June 30, 2007
|
|
|
6.75
|
|
|
4.30
|
|
Third
quarter September 30, 2007
|
|
|
5.16
|
|
|
2.10
|
|
Fourth
quarter to December 7, 2007
|
|
|
4.48
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
First
quarter
|
|
$
|
2.65
|
|
$
|
0.80
|
|
Second
quarter
|
|
|
1.50
|
|
|
0.10
|
|
Third
quarter
|
|
|
1.30
|
|
|
0.45
|
|
Fourth
quarter
|
|
|
3.00
|
|
|
1.05
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
First
quarter
|
|
$
|
18.30
|
|
$
|
11.00
|
|
Second
quarter
|
|
|
15.05
|
|
|
8.80
|
|
Third
quarter
|
|
|
9.95
|
|
|
2.80
|
|
Fourth
quarter
|
|
|
8.65
|
|
|
2.60
|
|
Holders
The
number of record holders of Access common stock at December 10, 2007 was
approximately 3,000. On December 7, 2007, the closing price for the common
stock
as quoted on the OTCBB was $2.57. There were 3,575,114 shares of common stock
outstanding at December 10, 2007.
Options
and Warrants
There
are
8,376,397 outstanding warrants and 1,589,053 outstanding options to
purchase Access’ common equity as of December 10, 2007.
Shares
Eligible for Future Sales
Access
has issued 3,575,114 shares of its common stock as of December 10, 2007. Of
these shares, all shares are unrestricted and held by non-affiliates, and are
freely tradable without restriction under the Securities Act. These shares
will
be eligible for sale in the public market, subject to certain volume limitations
and the expiration of applicable holding periods under Rule 144 under the
Securities Act. In general, under Rule 144 as currently in effect, a person
(or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least one year (including the holding period of any prior owner
or
affiliate) would be entitled to sell within any three-month period a number
of
shares that does not exceed the greater of one percent (1%) of the number of
shares of common stock then outstanding or (2) the average weekly trading volume
of the common stock during the four calendar weeks preceding the filing of
a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about us. Under Rule 144(k), a person
who is not deemed to have been an affiliate of Access at any time during the
three months preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of
any
prior owner except an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Dividends
Access
never declared or paid any cash dividends on its preferred stock or common
stock
and Access does not anticipate paying any cash dividends in the foreseeable
future on its common stock. The payment of dividends on common stock, if any,
in
the future is within the discretion of Access’ Board of Directors and will
depend on its earnings, capital requirements and financial condition and other
relevant facts. Access currently intends to retain all future earnings, if
any,
to finance the development and growth of its business.
The
holders of Series A Preferred Stock are entitled to receive dividends of 6%
per
annum on their shares Series A Preferred Stock. The dividends are payable by
Access semi-annually and may be paid by Access either in cash, or if certain
conditions are met, at Access’ option, in shares of Access’ common stock. To be
eligible to pay dividends in shares of common stock, among other things, there
must be in place a registration statement pursuant to which the holders of
the
Series A Preferred Stock are permitted to utilize the prospectus thereunder
to
resell all of the shares of common stock issuable in relation to the Series
A
Preferred Stock.
SELECTED
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The
following summary condensed consolidated financial information as of and for
the
years ended December 31, 2006, 2005, 2004, 2003, and 2002 have been derived
from our audited financial statements. The financial information as of and
for
the nine months ended September 30, 2007 and 2006 is derived from our unaudited
condensed financial statements. The summary condensed consolidated financial
information set forth below should be read in conjunction with “Management's
Discussion and Analysis of Financial Condition and Results of Operations” and
the financial statements and notes thereto included elsewhere in this
Prospectus.
|
For
the Nine Months
Ended
September
30
|
For
the Year Ended December 31,
|
|
2007
|
2006
|
2006
|
2005
|
2004
|
2003
|
2002
|
|
|
|
(in
thousands, except amounts per share)
|
Consolidated
Statement of Operations and Comprehensive Loss
Data:
|
|
Total
revenues
|
|
$
|
6
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
89
|
|
Operating
loss
|
|
|
(4,988
|
)
|
|
(4,129
|
)
|
|
(5,175
|
)
|
|
(9,622
|
)
|
|
(6,003
|
)
|
|
(5,426
|
)
|
|
(5,925
|
)
|
Interest
and miscellaneous income
|
|
|
72
|
|
|
278
|
|
|
294
|
|
|
100
|
|
|
226
|
|
|
279
|
|
|
594
|
|
Interest
and other expense
|
|
|
(3,277
|
)
|
|
(5,244
|
)
|
|
(7,436
|
)
|
|
(2,100
|
)
|
|
(1,385
|
)
|
|
(1,281
|
)
|
|
(1,278
|
)
|
Unrealized
loss on fair value of warrants
|
|
|
-
|
|
|
(1,107
|
)
|
|
(1,107
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Income
tax benefit
|
|
|
-
|
|
|
-
|
|
|
173
|
|
|
4,067
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Loss
from continuing operations
|
|
|
(8,193
|
)
|
|
(10,202
|
)
|
|
(13,251
|
)
|
|
(7,555
|
)
|
|
(7,162
|
)
|
|
(6,428
|
)
|
|
(6,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($173
in 2006 and $4,067 in 2005)
|
|
|
-
|
|
|
-
|
|
|
377
|
|
|
5,855
|
|
|
(3,076
|
)
|
|
(507
|
)
|
|
(2,864
|
)
|
Net
loss
|
|
|
(8,193
|
)
|
|
(10,202
|
)
|
|
(12,874
|
)
|
|
(1,700
|
)
|
|
(10,238
|
)
|
|
(6,935
|
)
|
|
(9,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per basic and
diluted
common share
|
|
$
|
(2.31
|
)
|
$
|
(2.89
|
)
|
$
|
(3.65
|
)
|
$
|
(0.53
|
)
|
$
|
(3.38
|
)
|
$
|
(2.61
|
)
|
$
|
(3.58
|
)
|
Weighted
average basic and
diluted
common shares
outstanding
|
|
|
3,544
|
|
|
3,531
|
|
|
3,532
|
|
|
3,237
|
|
|
3,032
|
|
|
2,653
|
|
|
2,621
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
December
31,
|
|
2007
|
2006
|
2006
|
2005
|
2004
|
2003
|
2002
|
|
|
|
(in
thousands)
|
Consolidated
Balance Sheet Data:
|
|
|
Cash,
cash equivalents and
short
term investments
|
|
$
|
1,176
|
|
$
|
705
|
|
$
|
4,389
|
|
$
|
474
|
|
$
|
2,261
|
|
$
|
2,587
|
|
$
|
9,776
|
|
Restricted
cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
103
|
|
|
1,284
|
|
|
649
|
|
|
468
|
|
Total
assets
|
|
|
3,500
|
|
|
7,073
|
|
|
6,426
|
|
|
7,213
|
|
|
11,090
|
|
|
11,811
|
|
|
19,487
|
|
Deferred
revenue
|
|
|
1,167
|
|
|
173
|
|
|
173
|
|
|
173
|
|
|
1,199
|
|
|
1,184
|
|
|
1,199
|
|
Convertible
notes, net of discount
|
|
|
16,906
|
|
|
17,608
|
|
|
8,833
|
|
|
7,636
|
|
|
13,530
|
|
|
13,530
|
|
|
13,530
|
|
Total
liabilities
|
|
|
20,691
|
|
|
21,272
|
|
|
16,313
|
|
|
11,450
|
|
|
17,751
|
|
|
17,636
|
|
|
18,998
|
|
Total
stockholders' equity (deficit)
|
|
|
(17,191
|
)
|
|
(14,199
|
)
|
|
(9,887
|
)
|
|
(4,237
|
)
|
|
(6,661
|
)
|
|
(5,825
|
)
|
|
489
|
|
SUPPLEMENTARY
FINANCIAL INFORMATION
The
information required by this item is set forth in Note 12, Quarterly Financial
Data (unaudited) of the notes to our Consolidated Financial Statements appearing
elsewhere in this Prospectus.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
invest
any excess cash in certificates of deposit, corporate securities with high
quality ratings, and U.S. government securities. These investments are not
held
for trading or other speculative purposes. These financial investment securities
all mature in 2007 and their estimated fair value approximates cost. Changes
in
interest rates affect the investment income we earn on our investments and,
therefore, impact our cash flows and results of operations. A hypothetical
50
basis point decrease in interest rates would result in a decrease in annual
interest income and a corresponding increase in net loss of approximately
$2,000. The estimated effect assumes no changes in our short-term investments
from December 31, 2006. We do not believe that we are exposed to any market
risks, as defined. We are not exposed to risks for changes in commodity prices,
or any other market risks.
Access’
certificate of incorporation authorizes the issuance of 100,000,000 shares
of
its common stock, $.01 par value per share, and 2,000,000 shares of preferred
stock, $.01 par value per share, which may be issued in one or more series.
Currently, 4,000 shares of preferred stock are designated as Series A Preferred
Stock. As of December 10, 2007 there were 3,575,114 shares of Access’
common stock outstanding and held of record by approximately 3,000 stockholders,
and there were 3,227.3617 shares of its preferred stock
outstanding.
Common
Stock
Holders
of Access’ common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and have the right to vote
cumulatively for the election of directors. This means that in the voting at
Access’ annual meeting, each stockholder or his proxy, may multiply the number
of his shares by the number of directors to be elected then cast the resulting
total number of votes for a single nominee, or distribute such votes on the
ballot among the nominees as desired. Holders of Access’ common stock are
entitled to receive ratably such dividends, if any, as may be declared by
Access’ Board of Directors out of funds legally available therefor, subject to
any preferential dividend rights for Access’ outstanding preferred stock. Upon
Access’ liquidation, dissolution or winding up, the holders of Access’ common
stock are entitled to receive ratably Access’ net assets available after the
payment of all debts and other liabilities and subject to the prior rights
of
any of Access’ outstanding preferred stock. Holders of Access’ common stock have
no preemptive, subscription, redemption or conversion rights. The outstanding
shares of Access’ common stock are, and the shares offered by the selling
stockholders in this offering will be, fully paid and nonassessable. The rights,
preferences and privileges of holders of Access’ common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Access’ preferred stock which Access may designate and issue in the
future.
Preferred
Stock
Access’
Board of Directors is authorized, subject to certain limitations prescribed
by
law, without further stockholder approval, to issue from time to time up to
an
aggregate of 2,000,000 shares of preferred stock in one or more series and
to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights and terms
of redemption of shares constituting any series or designations of such series.
The issuance of preferred stock may have the effect of delaying, deferring
or
preventing a change of control. The fact that Access’ board of directors has the
right to issue preferred stock without stockholder approval could be used to
institute a “poison pill” that would work to dilute the stock ownership of a
potential hostile acquirer, effectively preventing acquisitions that have not
been approved by Access’ board of directors.
Access’
Board of Directors has designated 4,000 shares of preferred stock as Series
A
Preferred Stock. The shares of Series A Preferred are convertible at the option
of the holder into shares of our common stock at a conversion price of $3.00
per
share of common stock.
The
Series A Preferred Stock is entitled to a liquidation preference equal to
$10,000 per share and is entitled to a dividend of 6% per annum, payable
semi-annually in cash or if certain conditions are met, in common stock, at
the
option of the Company at time of payment. Our ability to pay dividends in shares
of common stock is limited by among other things a requirement that (i) there
is
an effective registration statement on the shares of common stock, issuable
to
the holders of Series A Preferred Stock, in the 20 day period immediately prior
to such dividend or (ii) that such shares of common stock referred to in (i)
may
be sold without restriction pursuant to Rule 144(k) during the 20 day
period immediately prior to such dividend.
The
Company has the right, but not the obligation, to force conversion of all,
and
not less than all, of the outstanding Series A Preferred Stock into common
stock
(i) as long as the closing price of our common stock exceeds $7.00 for at least
20 of the 30 consecutive trading days immediately prior to the conversion and
the average daily trading volume is greater than 100,000 shares per day for
at
least 20 of the 30 consecutive trading days immediately prior to such
conversion, in each case, immediately prior to the date on which we gives notice
of such conversion or (ii) if we close a sale of common stock in which the
aggregate proceeds are equal to or greater than $10,000,000. Our
ability to cause a mandatory conversion is subject to certain other conditions,
including that a registration statement covering the common stock issuable
upon
such mandatory conversion is in effect and able to be used.
The
conversion price of the Series A Preferred Stock is subject to a price
adjustment upon the issuance of additional shares of common stock for a price
below $3.00 per share and equitable adjustment for stock splits, dividends,
combinations, reorganizations and the like.
The
Series A Preferred Stock will vote together with the common stock on an
as-if-converted basis.
Holders
of Series A Preferred Stock are entitled to purchase their pro rata share of
additional stock issuances in certain future financings.
Transfer
Agent and Registrar
The
transfer agent and registrar of our common stock is American Stock Transfer
& Trust Company, New York, New York.
Delaware
Law and Certain Charter and By-Law Provisions
Certain
anti-takeover provisions.
We
are
subject to the provisions of Section 203 of the General Corporation Law of
Delaware. Section 203 prohibits certain publicly held Delaware corporations
from
engaging in a "business combination" with an "interested stockholder," for
a
period of three years after the date of the transaction in which the person
became an "interested stockholder", unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is
a
person or entity who, together with affiliates and associates, owns (or within
the preceding three years, did own) 15% or more of the corporation's voting
stock. The statute contains provisions enabling a corporation to avoid the
statute's restrictions if the stockholders holding a majority of the
corporation's voting stock approve our Certificate of Incorporation provides
that our directors shall be divided into three classes, with the terms of each
class to expire on different years.
In
addition, our Certificate of Incorporation, in order to combat "greenmail,"
provides in general that any direct or indirect purchase by us of any of our
voting stock or rights to acquire voting stock known to be beneficially owned
by
any person or group which holds more than five percent of a class of our voting
stock and which has owned the securities being purchased for less than two
years
must be approved by the affirmative vote of at least two-thirds of the votes
entitled to be cast by the holders of voting stock, subject to certain
exceptions. The prohibition of "greenmail" may tend to discourage or foreclose
certain acquisitions of our securities which might temporarily increase the
price of our securities. Discouraging the acquisition of a large block of our
securities by an outside party may also have a potential negative effect on
takeovers. Parties seeking control of us through large acquisitions of its
securities will not be able to resort to "greenmail" should their bid fail,
thus
making such a bid less attractive to persons seeking to initiate a takeover
effort.
We
are a
party to a Rights Agreement pursuant to which we agree to provide holders of
our
common stock with the right to buy shares of preferred stock should a party
acquire or beneficially own more than 15% of our common stock without first
being exempted by us. Such shares of preferred stock will entitle to the holder
to certain voting, dividend and liquidation preferences and is designed to
discourage take-over attempts not previously approved by our Board of Directors.
Elimination
of Monetary Liability for Officers and Directors
Our
Certificate of Incorporation incorporates certain provisions permitted under
the
General Corporation Law of Delaware relating to the liability of directors.
The
provisions eliminate a director's liability for monetary damages for a breach
of
fiduciary duty, including gross negligence, except in circumstances involving
certain wrongful acts, such as the breach of director's duty of loyalty or
acts
or omissions, which involve intentional misconduct or a knowing violation of
law. These provisions do not eliminate a director's duty of care. Moreover,
these provisions do not apply to claims against a Director for certain
violations of law, including knowing violations of federal securities law.
Our
Certificate of Incorporation also contains provisions to indemnify the
directors, officers, employees or other agents to the fullest extent permitted
by the General Corporation Law of Delaware. We believe that these provisions
will assist us in attracting and retaining qualified individual to serve as
directors.
Indemnification
of Officers and Directors
Our
Certificate of Incorporation also contains provisions to indemnify the
directors, officers, employees or other agents to the fullest extent permitted
by the General Corporation Law of Delaware. These provisions may have the
practical effect in certain cases of eliminating the ability of shareholders
to
collect monetary damages from directors. We believe that these provisions will
assist us in attracting or retaining qualified individuals to serve as our
directors.
EXPERTS
The
consolidated financial statements for the years ended December 31, 2006 and
December 31, 2005 included in this prospectus and Registration Statement, were
audited by Whitley Penn LLP and Grant Thornton LLP, respectively, each is an
independent registered public accounting firm, as stated in their reports
appearing with the consolidated financial statements herein and included in
this Registration Statement, and are included in reliance upon the report of
such firms given upon their authority as experts in accounting and auditing.
None of the independent public registered accounting firms named above have
any
interest in the prospectus.
LEGAL
MATTERS
Bingham
McCutchen LLP will pass upon the validity of the shares of common stock offered
hereby. Several partners and attorneys of Bingham McCutchen LLP are also
shareholders of Access.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the Securities and Exchange Commission, Washington, D.C. 20549,
under
the Securities Act of 1933, a registration statement on Form S-1 relating to
the
shares of common stock offered hereby. This Prospectus does not contain all
of
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to our company and
the
shares we are offering by this Prospectus you should refer to the registration
statement, including the exhibits and schedules thereto. You may inspect a
copy
of the registration statement without charge at the Public Reference Section
of
the Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation
of
the Public Reference Room by calling the Securities and Exchange Commission.
The
Securities and Exchange Commission also maintains an Internet site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address
is
http://www.sec.gov.
We
file
periodic reports, proxy statements and other information with the Securities
and
Exchange Commission in accordance with requirements of the Exchange Act. These
periodic reports, proxy statements and other information are available for
inspection and copying at the regional offices, public reference facilities
and
Internet site of the Securities and Exchange Commission referred to above.
In
addition, you may request a copy of any of our periodic reports filed with
the
Securities and Exchange Commission at no cost, by writing or telephoning us
at
the following address:
Investor
Relations
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
(214)
905-5100
Information
contained on our website is not a prospectus and does not constitute a part
of
this Prospectus.
You
should rely only on the information contained in or incorporated by reference
or
provided in this Prospectus. We have not authorized anyone else to provide
you
with different information. We are not making an offer of these securities
in
any state where the offer is not permitted. You should not assume the
information in this Prospectus is accurate as of any date other than the date
on
the front of this Prospectus.
|
PAGE
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
|
Consolidated
Balance Sheets at December 31, 2006 and 2005
|
F-4
|
|
|
Consolidated
Statements of Operations and Comprehensive Loss for 2006, 2005
and
2004
|
F-5
|
|
|
Consolidated
Statement of Stockholders' Equity (Deficit) for 2006, 2005 and
2004
|
F-6
|
|
|
Consolidated
Statements of Cash Flows for 2006, 2005 and 2004
|
F-7
|
|
|
Notes
to Consolidated Financial Statements (Three years ended December
31,
2006)
|
F-8
|
|
|
Condensed
Consolidated Balance Sheets at September 30, 2007
(unaudited)
|
F-18
|
|
|
Condensed
Consolidated Statements of Operations for September 30, 2007 and
2006
(unaudited)
|
F-19
|
|
|
Condensed
Consolidated Statements of Cash Flows for September 30, 2007 and
2006
(unaudited)
|
F-20
|
|
|
Notes
to Condensed Consolidated Financial Statements (Nine Months Ended
September 30, 2007 and 2006) (unaudited)
|
F-21
|
|
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders of Access Pharmaceuticals, Inc. and
Subsidiaries
We
have
audited the accompanying consolidated balance sheet of Access Pharmaceuticals,
Inc. and Subsidiaries, as of December 31, 2006, and the related consolidated
statements of operations, changes in stockholders’ deficit, and cash flows for
the year then ended. These financial statements are the responsibility
of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control
over
financial reporting. An audit includes consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of Access
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2006, and the
consolidated results of their operations and their cash flows for the year
then
ended in conformity with accounting principles generally accepted in the
United
States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2 to
the
consolidated financial statements, the Company has had recurring losses
from
operations and a net working capital deficiency and accumulated deficit
that
raises substantial doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 2.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. These consolidated financial statements do not include
any
adjustments to reflect the possible future effects on the recoverability
and
classification of assets or the amounts and classification of liabilities
that
may result from the outcome of this uncertainty.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 123(R),
“Share-Based Payment”, effective January 1, 2006. As discussed in Note 7 to
the consolidated financial statements the Company adopted Financial Accounting
Standards Board Staff Position No. EITF 00-19-2, “Accounting for
Registration Payment Arrangements”, effective October 1, 2006.
/s/
WHITLEY PENN LLP
Dallas,
Texas
March
30,
2007
Report
of Independent Registered Public Accounting Firm
Board
of Directors and
Shareholders
of
Access
Pharmaceuticals, Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of Access Pharmaceuticals,
Inc. (the “Company”), as of December 31, 2005, and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit),
and cash flows for each of the two years in the period ended December 31,
2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of Access
Pharmaceuticals, Inc., as of December 31, 2005, and the results of their
consolidated operations and their consolidated cash flows for each of the
two
years in the period ended December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2 to
the
consolidated financial statements the Company has incurred significant
losses in
each of the two years in the period ended December 31, 2005 in the amounts
of
$1.7 million and $10.2 million, respectively; the Company’s total liabilities
exceeded its assets by $4.2 million at December 31, 2005; and its operating
cash
flows were negative $7.3 million and negative $9.1 million for the years
ended
December 31, 2005 and 2004, respectively. These matters, among others describes
in Note 2, raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
GRANT
THORNTON LLP
Dallas,
Texas
April
25,
2006
Access
Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
December
31, 2006
|
|
December
31, 2005
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,194,000
|
|
$
|
349,000
|
|
Short
term investments, at cost
|
|
|
3,195,000
|
|
|
125,000
|
|
Receivables
|
|
|
359,000
|
|
|
4,488,000
|
|
Prepaid
expenses and other current assets
|
|
|
283,000
|
|
|
197,000
|
|
Total
current assets
|
|
|
5,031,000
|
|
|
5,159,000
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
212,000
|
|
|
300,000
|
|
Debt
issuance costs, net
|
|
|
158,000
|
|
|
-
|
|
Patents,
net
|
|
|
878,000
|
|
|
1,046,000
|
|
Licenses,
ne
|
|
|
25,000
|
|
|
75,000
|
|
Restricted
cash and other assets
|
|
|
122,000
|
|
|
633,000
|
|
Total
assets
|
|
$
|
6,426,000
|
|
$
|
7,213,000
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,226,000
|
|
$
|
2,883,000
|
|
Accrued
interest payable
|
|
|
581,000
|
|
|
652,000
|
|
Deferred
revenues
|
|
|
173,000
|
|
|
173,000
|
|
Current
portion long-term debt,
net
of discount $2,062,000 in 2006
|
|
|
8,833,000
|
|
|
106,000
|
|
Total
current liabilities
|
|
|
10,813,000
|
|
|
3,814,000
|
|
Long-term
debt, net of discount $1,879,000 in 2005
|
|
|
5,500,000
|
|
|
7,636,000
|
|
Total
liabilities
|
|
|
16,313,000
|
|
|
11,450,000
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
|
|
|
|
|
Preferred
stock - $.01 par value; authorized 2,000,000 shares;
none
issued or outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
3,535,108 at December 31, 2006 and authorized
50,000,000
shares; issued 3,528,108 at December 31, 2005
|
|
|
35,000
|
|
|
35,000
|
|
Additional
paid-in capital
|
|
|
68,799,000
|
|
|
62,942,000
|
|
Notes
receivable from stockholders
|
|
|
(1,045,000
|
)
|
|
(1,045,000
|
)
|
Treasury
stock, at cost - 163 shares
|
|
|
(4,000
|
)
|
|
(4,000
|
)
|
Accumulated
deficit
|
|
|
(77,672,000
|
)
|
|
(66,165,000
|
)
|
Total
stockholders' deficit
|
|
|
(9,887,000
|
)
|
|
(4,237,000
|
)
|
Total
liabilities and stockholders' deficit
|
|
$
|
6,426,000
|
|
$
|
7,213,000
|
|
The
accompanying notes are an integral part of these consolidated
statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
Year
ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Expenses
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
2,053,000
|
|
$
|
2,783,000
|
|
$
|
2,335,000
|
|
General
and administrative
|
|
|
2,813,000
|
|
|
4,638,000
|
|
|
3,199,000
|
|
Depreciation
and amortization
|
|
|
309,000
|
|
|
333,000
|
|
|
469,000
|
|
Write
off of goodwill
|
|
|
-
|
|
|
1,868,000
|
|
|
-
|
|
Total
expenses
|
|
|
5,175,000
|
|
|
9,622,000
|
|
|
6,003,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(5,175,000
|
)
|
|
(9,622,000
|
)
|
|
(6,003,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and miscellaneous income
|
|
|
294,000
|
|
|
100,000
|
|
|
226,000
|
|
Interest
and other expense
|
|
|
(7,436,000
|
)
|
|
(2,100,000
|
)
|
|
(1,385,000
|
)
|
Unrealized
loss on fair value of warrants and beneficial
conversion
feature
|
|
|
(1,107,000
|
)
|
|
-
|
|
|
-
|
|
|
|
|
(8,249,000
|
)
|
|
(2,000,000
|
)
|
|
(1,159,000
|
|
Loss
before discontinued operations and before tax benefit
|
|
|
(13,424,000
|
)
|
|
(11,622,000
|
)
|
|
(7,162,000
|
)
|
Income
tax benefit
|
|
|
173,000
|
|
|
4,067,000
|
|
|
-
|
|
Loss
from continuing operations
|
|
|
(13,251,000
|
)
|
|
(7,555,000
|
)
|
|
(7,162,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations, net of taxes of $173,000 in 2006 and $4,067,000
in
2005
|
|
|
377,000
|
|
|
5,855,000
|
|
|
(3,076,000
|
)
|
Net
loss
|
|
$
|
(12,874,000
|
)
|
$
|
(1,700,000
|
)
|
$
|
(10,238,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations allocable to common
stockholders
|
|
|
(3.75
|
)
|
|
(2.34
|
)
|
|
(2.36
|
)
|
Discontinued
operations
|
|
|
0.11
|
|
|
1.81
|
|
|
(1.02
|
)
|
Net
loss allocable to common stockholders
|
|
$
|
(3.65
|
)
|
$
|
(0.53
|
)
|
$
|
(3.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic and diluted common shares
outstanding
|
|
|
3,531,934
|
|
|
3,237,488
|
|
|
3,032,451
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(12,874,000
|
)
|
$
|
(
1,700,000
|
)
|
$
|
(10,238,000
|
)
|
Other
comprehensive loss
Foreign
currency translation adjustment
|
|
|
-
|
|
|
3,000
|
|
|
(17,000
|
)
|
Comprehensive
loss
|
|
$
|
(12,874,000
|
)
|
$
|
(1,697,000
|
)
|
$
|
(10,255,000
|
)
|
The
accompanying notes are an integral part of these consolidated
statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
paid in capital
|
|
Notes
receivable from stockholders
|
|
Unamortized
value
of restricted stock grants
|
|
Treasury
stock
|
|
Accumulated
other
comprehensive
income
(loss)
|
|
Accumulated
deficit
|
Balance,
December 31, 2003
|
2,679,000
|
|
$
27,000
|
|
$
49,704,000
|
|
(1,045,000)
|
|
$(294,000)
|
|
$
(4,000)
|
|
$14,000
|
|
$(54,227,000)
|
Common
stock issued
for
cash, net of offering
costs
|
359,000
|
|
4,000
|
|
9,012,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Common
stock issued for
cash
exercise of
warrants
and options
|
23,000
|
|
-
|
|
283,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Common
stock issued for
cashless
exercise
of
warrants
|
42,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Issuance
of restricted
stock
grants
|
2,000
|
|
-
|
|
135,000
|
|
-
|
|
(135,000)
|
|
-
|
|
-
|
|
-
|
Other
comprehensive
loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(17,000)
|
|
-
|
Amortization
of restricted stock grants
|
-
|
|
-
|
|
-
|
|
-
|
|
120,000
|
|
-
|
|
-
|
|
-
|
Net
loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(10,238,000)
|
Balance,
December 31, 2004
|
3
,105,000
|
|
31,000
|
|
59,134
000
|
|
(1,045,000)
|
|
(309,000)
|
|
(4,000)
|
|
(3,000)
|
|
(64,465,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued,
net
of offering costs
|
237,000
|
|
2,000
|
|
1,119,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Common
stock issued
for
payment of interest
|
190,000
|
|
2,000
|
|
616,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Other
comprehensive
income
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,000
|
|
-
|
Discount
on convertible
note
extension
|
-
|
|
-
|
|
2,109,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Amortization
and
forfeiture
of restricted
stock
grants
|
(4,000)
|
|
-
|
|
(36,000)
|
|
-
|
|
309,000
|
|
-
|
|
-
|
|
-
|
Net
loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,700,000)
|
Balance,
December 31, 2005
|
3,528,000
|
|
35,000
|
|
62,942,000
|
|
(1,045,000)
|
|
-
|
|
(4,000)
|
|
-
|
|
(66,165,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for
compensation
|
7,000
|
|
-
|
|
77,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Warrants
issued
|
-
|
|
-
|
|
100,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Stock
option
compensation
expense
|
-
|
|
-
|
|
248,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Issuance
of convertible
debt
with warrants
|
-
|
|
-
|
|
5,432,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cumulative
effect of
change
in accounting
principle
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,367,000
|
Net
loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(12,874,000)
|
Balance,
December 31, 2006
|
3,535,000
|
|
$
35,000
|
|
$
68,799,000
|
|
(1,045,000
)
|
|
$
-
|
|
$
(4,000)
|
|
$
-
|
|
$
(77,672,000)
|
The
accompanying notes are an integral part of these consolidated
statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(12,874,000
|
)
|
$
|
(1,700,000
|
)
|
$
|
(10,238,000
|
)
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Loss
|
|
|
1,107,000
|
|
|
-
|
|
|
-
|
|
Loss
on sale Australia assets
|
|
|
-
|
|
|
208,000
|
|
|
-
|
|
Impairment
of investment
|
|
|
-
|
|
|
-
|
|
|
112,000
|
|
Write
off of goodwill
|
|
|
-
|
|
|
1,868,000
|
|
|
-
|
|
Amortization
of restricted stock grants
|
|
|
-
|
|
|
309,000
|
|
|
120,000
|
|
Stock
option expense
|
|
|
248,000
|
|
|
-
|
|
|
-
|
|
Stock
issued for compensation
|
|
|
77,000
|
|
|
42,000
|
|
|
-
|
|
Stock
issued for interest
|
|
|
-
|
|
|
618,000
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
309,000
|
|
|
570,000
|
|
|
773,000
|
|
Amortization
of debt costs and discounts
|
|
|
6,749,
000
|
|
|
695,000
|
|
|
183,000
|
|
Gain
on sale of assets
|
|
|
(550,000)
|
|
|
(12,891,000
|
)
|
|
-
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
4,129,000
|
|
|
622,000
|
|
|
358,000
|
|
Inventory
|
|
|
-
|
|
|
104,000
|
|
|
60,000
|
|
Prepaid
expenses and other current assets
|
|
|
|
|
|
817,000
|
|
|
(195,000
|
)
|
Restricted
cash and other assets
|
|
|
127,000
|
|
|
-
|
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
(1,657,000
|
)
|
|
490,000
|
|
|
401,000
|
|
Accrued
interest payable
|
|
|
|
|
|
341,000
|
|
|
-
|
|
Deferred
revenues
|
|
|
-
|
|
|
606,000
|
|
|
15,000
|
|
Net
cash used in operating activities
|
|
|
(1,958,000
|
)
|
|
(7,301,000
|
)
|
|
(8,411,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(3,000
|
)
|
|
(28,000
|
)
|
|
(221,000
|
)
|
Proceeds
from sale of equipment
|
|
|
-
|
|
|
355,000
|
|
|
-
|
|
Proceeds
from sale of patents
|
|
|
-
|
|
|
974,000
|
|
|
-
|
|
Proceeds
from sale of oral/topical care assets
|
|
|
550,000
|
|
|
7,391,000
|
|
|
-
|
|
Restricted
cash and other assets
|
|
|
|
|
|
684,000
|
|
|
(666,000
|
)
|
Redemptions
of short-term investments
|
|
|
|
|
|
|
|
|
|
|
and
certificates of deposit, net
|
|
|
(3,070,000
|
)
|
|
361,000
|
|
|
1,374,000
|
|
Net
cash provided by (used in) investing activities
|
|
|
(2,523,000
|
)
|
|
9,717,000
|
|
|
487,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Payments
of notes payable
|
|
|
(106,000
|
)
|
|
(407,000
|
)
|
|
(310,000
|
)
|
Payment
of secured notes payable and convertible notes
|
|
|
-
|
|
|
(6,648,000
|
)
|
|
-
|
|
Proceeds
from secured notes payable
|
|
|
5,432,000
|
|
|
2,633,000
|
|
|
-
|
|
Proceeds
from stock issuances, net of costs
|
|
|
-
|
|
|
577,000
|
|
|
9,299,000
|
|
Net
cash provided by (used in) financing activities
|
|
|
5,326,000
|
|
|
(3,845,000
|
)
|
|
8,989,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
845,000
|
|
|
(1,429,000
|
)
|
|
1,065,000
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
3,000
|
|
|
(17,000
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
349,000
|
|
|
1,775,000
|
|
|
727,000
|
|
Cash
and cash equivalents at end of year
|
|
$
|
1,194,000
|
|
$
|
349,000
|
|
$
|
1,775,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
|
|
$
|
445,000
|
|
$
|
1,073,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash transactions
|
|
|
|
|
|
|
|
|
|
|
Value
of restricted stock grants
|
|
|
-
|
|
|
-
|
|
|
135,000
|
|
Assets
acquired under capital leases
|
|
|
-
|
|
|
-
|
|
|
59,000
|
|
Common
stock issued for SEDA and
|
|
|
|
|
|
|
|
|
|
|
Secured
Convertible Notes
|
|
|
-
|
|
|
502,000
|
|
|
-
|
|
Discount
on convertible note extension
|
|
|
-
|
|
|
2,109,000
|
|
|
-
|
|
Debt
issuance costs
|
|
|
568,000
|
|
|
|
|
|
|
|
Accrued
interest capitalized
|
|
|
433,000
|
|
|
|
|
|
|
|
Warrants
issued per professional agreement of consulting
services
|
|
|
100,000
|
|
|
|
|
|
|
|
Cumulative
change of accounting principle
|
|
|
1,367,000
|
|
|
|
|
|
|
|
Issuance
of convertible debt with warrants
|
|
|
5,432,000
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Three
years ended December 31, 2006
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature
of Operations
Access
Pharmaceuticals, Inc. is an emerging pharmaceutical company engaged in
the
development of novel therapeutics for the treatment of cancer and supportive
care of cancer patients. This development work is based primarily on the
adaptation of existing therapeutic agents using the Company’s proprietary drug
delivery technology. Our efforts have been principally devoted to research
and
development, resulting in significant losses since inception on February
24,
1988.
A
summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
Principles
of Consolidation
The
consolidated financial statements include the financial statements of Access
Pharmaceuticals, Inc. and our wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Use
of
Estimates
In
preparing consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management
is
required to make estimates and assumptions that affect the reported amounts
of
assets and liabilities, the disclosure of contingent assets and liabilities
at
the date of the financial statements, and the reported amounts of revenues
and
expenses during the reporting period. Actual results could differ from
those
estimates.
We
tested
intangible assets for impairment based on estimates of fair value. It is
at
least reasonably possible that the estimates used by us will be materially
different from actual amounts. These differences could result in the impairment
of all or a portion of our intangible assets, which could have a materially
adverse effect on our results of operations.
Cash
and Cash Equivalents
We
consider all highly liquid instruments purchased with a maturity of three
months
or less to be cash equivalents for purposes of the statements of cash flows.
Cash and cash equivalents consist primarily of cash in banks, money market
funds
and short-term corporate securities. We invest any excess cash in government
and
corporate securities. All other investments are reported as short-term
investments.
Short-term
Investments
Short-term
investments consist of certificates of deposit. All short term investments
are
classified as held to maturity. The cost of debt securities is adjusted
for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. The cost of securities sold
is
based on the specific identification method.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is provided using the
straight-line method over estimated useful lives ranging from three to
seven
years. Expenditures for major renewals and betterments that extend the
useful
lives are capitalized. Expenditures for normal maintenance and repairs are
expensed as incurred. The cost of assets sold or abandoned and the related
accumulated depreciation are eliminated from the accounts and any gains
or
losses are recognized in the accompanying consolidated statements of operations
of the respective period.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-
Continued
Research
and Development Expenses
Pursuant
to SFAS No. 2,
“Accounting
for Research and Development Costs,”
our
research and development costs are expensed as incurred. Research and
development expenses include, but are not limited to, payroll and personnel
expense, lab supplies, preclinical, development cost, clinical trial expense,
outside manufacturing and consulting. The cost of materials and equipment
or
facilities that are acquired for research and development activities and
that
have alternative future uses are capitalized when acquired.
Fair
Value of Financial Instruments
The
carrying value of cash, cash equivalents, short-term investments and accounts
payable approximates fair value due to the short maturity of these items.
It is
not practical to estimate the fair value of the Company’s long-term debt because
quoted market prices do not exist and there were no available securities
with
similar terms to use as a basis to value our debt.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred
tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities
are
measured using enacted tax rates expected to apply to taxable income in
the
years in which those temporary differences are expected to be recovered
or
settled. The effect on deferred tax assets and liabilities of a change
in tax
rates is recognized in income in the period that includes the enactment
date. A
valuation allowance is provided for deferred tax assets to the extent their
realization is in doubt.
Loss
Per Share
We
have
presented basic loss per share, computed on the basis of the weighted average
number of common shares outstanding during the year, and diluted loss per
share,
computed on the basis of the weighted average number of common shares and
all
dilutive potential common shares outstanding during the year. Potential
common
shares result from stock options, vesting of restricted stock grants,
convertible notes and warrants. However, for all years presented, all
outstanding stock options, restricted stock grants, convertible notes and
warrants are anti-dilutive due to the losses for the periods. Anti-dilutive
common stock equivalents of 12,548,342; 1,730,135; and 1,114,122 were excluded
from the loss per share computation for 2006, 2005 and 2004,
respectively.
Restricted
Cash
Restricted
cash is cash that is or may be committed for a particular purpose. We had
restricted cash in 2005 as collateral for a note payable of $103,000. The
note
was paid in full in 2006 and there is no restricted cash in 2006.
Intangible
Assets
We
expense internal patent and application costs as incurred because, even
though
we believe the patents and underlying processes have continuing value,
the
amount of future benefits to be derived therefrom are uncertain. Purchased
patents are capitalized and amortized over the life of the patent. We recognize
the purchase cost of licenses and amortize them over their estimated useful
lives.
The
Company operates in a single segment. In 2005, the Company wrote off its
goodwill as determined by comparing the Company’s market capitalization with its
net asset value resulting in an impairment charge of $1,868,000. In 2005,
the
Company sold one of its patents for $974,000 and the Company believes the
fair
value of the remaining patents based on discounted cash flow analysis exceeds
the carry value.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-
Continued
Intangible
assets consist of the following (in thousands):
|
|
December
31, 2006
|
|
December
31, 2005
|
|
December
31, 2004
|
|
|
|
Gross
carrying
value
|
|
A
ccumulated
amortization
|
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
Amortizable
intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
1,680
|
|
$
|
802
|
|
$
|
1,680
|
|
$
|
634
|
|
$
|
3,179
|
|
$
|
864
|
|
Licenses
|
|
|
500
|
|
|
475
|
|
|
500
|
|
|
425
|
|
|
500
|
|
|
375
|
|
Total
|
|
$
|
2,180
|
|
$
|
1,277
|
|
$
|
2,180
|
|
$
|
1,059
|
|
$
|
3,679
|
|
$
|
1,239
|
|
Amortization
expense related to intangible assets totaled $218,000, $345,000 and $421,000
for
the years ended December 31, 2006, 2005 and 2004, respectively. The aggregate
estimated amortization expense for intangible assets remaining as of December
31, 2006 is as follows (in thousands):
2007
|
|
$
|
193
|
|
2008
|
|
|
168
|
|
2009
|
|
|
168
|
|
2010
|
|
|
168
|
|
2011
|
|
|
168
|
|
Thereafter
|
|
|
38
|
|
|
|
|
|
|
Total
|
|
$
|
903
|
|
Stock-Based
Compensation
On
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “
Share-Based
Payment
,”
(“SFAS
123(R)”), which requires the measurement and recognition of all share-based
payment awards made to employees and directors including stock options
based on
estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting
under Accounting Principles Board (“APB”) Opinion No. 25, “
Accounting
for Stock Issued to Employees
”
(“APB
25”), for periods beginning in fiscal year 2006. In March 2005, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB
107”) relating to SFAS 123(R). We applied the provisions of SAB 107 in its
adoption of SFAS 123(R).
We
adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006,
the first day of the Company’s 2006 fiscal year. Our consolidated financial
statements for the year ended December 31, 2006, reflect the impact of SFAS
123(R). In accordance with the modified prospective transition method,
our
consolidated financial statements for prior periods have not been restated
to
include the impact of SFAS 123(R). Stock-based compensation expense recognized
under SFAS 123(R) for the year ended December 31, 2006 was approximately
$248,000. Stock-based compensation expense which would have been recognized
under the fair value based method would have been approximately $750,000
during
the year ended December 31, 2005.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-
Continued
SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of
the
portion of the award that is ultimately expected to vest is recognized
as
expense over the requisite service period in the company’s Statement of
Operations. Prior to the adoption of SFAS 123(R), we accounted for stock-based
awards to employees and directors using the intrinsic value method in accordance
with APB No. 25 as allowed under SFAS No. 123, “
Accounting
for Stock-Based Compensation
”
(“SFAS
123”). Under the intrinsic value method, no stock-based compensation expense
for
stock option grants was recognized because the exercise price of our stock
options granted to employees and directors equaled the fair market value
of the
underlying stock at the date of grant. In 2005, we did recognize stock
compensation expense for restricted stock awards based on the fair value
of the
underlying stock on date of grant and this expense was amortized over the
requisite service period. There were no restricted stock awards granted
in 2006
and therefore no stock compensation expense is recognized in 2006.
Stock-based
compensation expense recognized in our Statement of Operations for the
first
year ended December 31, 2006 includes compensation expense for share-based
payment awards granted prior to, but not yet vested as of December 31,
2005, based on the grant date fair value estimated in accordance with the
pro
forma provisions of SFAS 123 and compensation expense for the share-based
payment awards granted subsequent to December 31, 2005, based on the grant
date
fair value estimated in accordance with the provisions of SFAS 123(R).
Stock-based compensation expense recognized in the Company’s Statement of
Operations for the year ended December 31, 2006 is based on awards ultimately
expected to vest and has been reduced for estimated forfeitures, which
currently
is nil. SFAS 123(R) requires forfeitures to be estimated at the time of
grant
and revised, if necessary, in subsequent periods if actual forfeitures
differ
from those estimates. In the Company’s pro forma information required under SFAS
123 for periods prior to fiscal year 2006, forfeitures have been accounted
for
as they occurred.
We
use
the Black-Scholes option-pricing model (“Black-Scholes”) as its method of
valuation under SFAS 123(R) in fiscal year 2006 and a single option award
approach. This fair value is then amortized on a straight-line basis over
the
requisite service periods of the awards, which is generally the vesting
period.
Black-Scholes was also previously used for our pro forma information required
under SFAS 123 for periods prior to fiscal year 2006. The fair value of
share-based payment awards on the date of grant as determined by the
Black-Scholes model is affected by our stock price as well as other assumptions.
These assumptions include, but are not limited to the expected stock price
volatility over the term of the awards, and actual and projected employee
stock
option exercise behaviors.
During
2006, 753,872 stock options were granted and 50,000 stock options were
granted
during 2005 under the 2005 Equity Incentive Plan. In addition, 49,700 stock
options were granted during 2005 under the 1995 Stock Award Program. Assumptions
for 2006 are:
·
|
127%
- the expected volatility assumption was based upon a combination
of
historical stock price volatility measured on a twice a month
basis and is
a reasonable indicator of expected volatility.
|
·
|
4.85%
(average) - the risk-free interest rate assumption is based upon
U.S.
Treasury bond interest rates appropriate for the term of the
Company’s
employee stock options.
|
·
|
None
- the dividend yield assumption is based on our history and expectation
of
dividend payments.
|
·
|
1.6
years - the estimated expected term (average of 1.6 years) is
based on
employee exercise behavior.
|
At
December 31, 2006, the balance of unearned stock-based compensation to
be
expensed in future periods related to unvested share-based awards, as adjusted
for expected forfeitures, is approximately $360,000. The period over which
the
unearned stock-based compensation is expected to be recognized is approximately
three years. We anticipate that we will grant additional share-based awards
to
employees in the future, which will increase our stock-based compensation
expense by the additional unearned compensation resulting from these grants.
The
fair value of these grants is not included in the amount above, because
the
impact of these grants cannot be predicted at this time due to the dependence
on
the number of share-based payments granted. In addition, if factors change
and
different assumptions are used in the
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-
Continued
application
of SFAS 123(R) in future periods, stock-based compensation expense recorded
under SFAS 123(R) may differ significantly from what has been recorded in
the current period.
Our
Employee Stock
Option
Plans
have been deemed compensatory in accordance with SFAS 123(R). Stock-based
compensation relating to this plan was computed using the Black-Scholes
model
option-pricing formula with interest rates, volatility and dividend assumptions
as of the respective grant dates of the purchase rights provided to employees
under the plan. The weighted-average fair value of options existing under
all
plans during 2006 was $5.00.
The
following table summarizes stock-based compensation in accordance with
SFAS
123(R) for the year ended December 31, 2006, which was allocated as follows
(in thousands):
|
|
Year ended
December 31,
2006
|
Research
and development
|
|
$
|
68
|
General
and administrative
|
|
|
180
|
|
|
|
|
Stock-based
compensation expense included in operating expenses
|
|
|
248
|
|
|
|
|
Total
stock-based compensation expense
|
|
|
248
|
Tax
benefit
|
|
|
—
|
|
|
|
|
Stock-based
compensation expense, net of tax
|
|
$
|
248
|
|
|
|
|
The
following table reflects net income and diluted earnings per share for
the year
ended December 31, 2006, compared with proforma information for the year
ended December 31, 2005, had compensation cost been determined in
accordance with the fair value-based method prescribed by SFAS 123(R).
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-
Continued
(in
thousands)
|
|
Year
ended
December
31,
|
|
|
|
2006
|
|
|
2005
|
|
Net
loss, as reported under APB 25 for the prior period
(1)
|
|
$
|
N/A
|
|
$
|
(1,700
|
)
|
Add
back stock based employee compensation expense in
reported
net loss, net of related tax effects
|
|
|
-
|
|
|
-
|
|
Subtract
total stock-based compensation expense determined
under
fair value-based method for all awards, net of related tax
effects
(2)
|
|
|
(248
|
)
|
|
(750
|
)
|
Net
loss including the effect of stock-based compensation expense
(3)
|
|
$
|
(12,874
|
)
|
$
|
(2,450
|
)
|
Loss
per share:
|
|
|
|
|
|
|
|
Basic
and diluted, as reported for the prior period
(1)
|
|
$
|
(3.65
|
)
|
$
|
(0.53
|
)
|
Basic
and diluted, including the effect of stock-based
compensation
expense
(3)
|
|
$
|
(3.65
|
)
|
$
|
(0.76
|
)
|
(1)
|
Net
loss and loss per share for periods prior to year 2006 does not
include
stock-based compensation expense under SFAS 123 because the Company
did
not adopt the recognition provisions of SFAS 123.
|
(2)
|
Stock-based
compensation expense for periods prior to year 2006 was calculated
based
on the pro forma application of SFAS 123.
|
(3)
|
Net
loss and loss per share for periods prior to year 2006 represent
pro forma
information based on SFAS 123.
|
Stock
compensation expense for options granted to nonemployees has been determined
in
accordance with SFAS 123 and EITF 96-18,
“Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services,”
as
the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measured.
Recent
Accounting Pronouncement
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157,
“Fair
Value Measurements”
(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157
is effective for fiscal years beginning after November 15, 2007. We are
evaluating the potential impact of the implementation of SFAS 157 on our
financial position and results of operations.
In
June
2006, the FASB issued FASB Interpretation No. 48,
“Accounting
for Income Tax Uncertainties
”
(FIN 48). FIN 48 defines the threshold for recognizing the benefits of
tax return positions in the financial statements as “more-likely-than-not” to be
sustained by the taxing authority. The recently issued literature also
provides
guidance on the derecognition, measurement and classification of income
tax
uncertainties, along with any related interest and penalties. FIN 48 also
includes guidance concerning accounting for income tax uncertainties in
interim
periods and increases the level of disclosures associated with any recorded
income tax uncertainties. FIN 48 is effective for Access as of
January 1, 2007. Any differences between the amounts recognized in the
balance sheets prior to the adoption of FIN 48 and the amounts reported
after adoption will be accounted for as a cumulative-effect adjustment
recorded
to the beginning balance of retained earnings. We are evaluating the potential
impact of the implementation of FIN 48 on our financial position and
results of operations.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
2 - LIQUIDITY
The
Company incurred significant losses from continuing operations of $13.4
million
for the year ended December 31, 2006 and $7.6 million for the year ended
December 31, 2005. Additionally, at December 31, 2006, we had negative
working
capital of $5.8 million. As of December 31, 2006, we did
not have
sufficient funds to repay our convertible notes at their maturity and support
our working capital and operating requirements.
We
do not
have funds to pay our debt obligations which are due in March, April and
September 2007 and will have to raise more funds or attempt to restructure
the
convertible notes.
SCO
Capital Partners LLC Note and Warrant Purchase Agreement
On
December 6, 2006, we entered into a note and warrant purchase agreement
pursuant
to which we sold and issued an aggregate of $500,000 of 7.5% convertible
notes
due March 31, 2007 and warrants to purchase 386,364 shares of common stock
of
Access. Net proceeds to Access were $450,000. The notes and warrants were
sold
in a private placement to a group of accredited investors led by SCO Capital
Partners LLC (“SCO”) and affiliates.
On
October 24, 2006, we entered into a note and warrant purchase agreement
pursuant
to which we sold and issued an aggregate of $500,000 of 7.5% convertible
notes
due March 31, 2007 and warrants to purchase 386,364 shares of common stock
of
Access. Net proceeds to Access were $450,000. The notes and warrants were
sold
in a private placement to a group of accredited investors led by SCO and
affiliates.
On
February 16, 2006, we entered into a note and warrant purchase agreement
pursuant to which we sold and issued an aggregate of $5,000,000 of 7.5%
convertible notes due March 31, 2007 and warrants to purchase an aggregate
of
3,863,634 shares of common stock of Access. Net proceeds to Access were
$4.5
million. The notes and warrants were sold in a private placement to a group
of
accredited investors led by SCO and affiliates.
All
of
the notes mature on March 31, 2007, are convertible into Access common
stock at
a fixed conversion rate of $1.10 per share, bear interest of 7.5% per annum
and
are secured by certain assets of Access. Each note may be converted at
the
option of the noteholder or Access under certain circumstances as set forth
in
the notes.
Each
noteholder received a warrant to purchase a number of shares of common
stock of
Access equal to 75% of the total number shares of Access common stock into
which
such holder's note is convertible. Each warrant has an exercise price of
$1.32
per share and is exercisable at any time prior to February 16, 2012, October
24,
2012 and December 6, 2012. In the event SCO and its affiliates were to
convert
all of their notes and exercise all of their warrants, they would own
approximately 74.1% of the voting securities of Access.
In
connection with its sale and issuance of notes and warrants, Access entered
into
an investors rights agreement whereby it granted SCO the right to designate
two
individuals to serve on the Board of Directors of Access while the notes
are
outstanding, and also granted registration rights with respect to the shares
of
common stock of Access underlying the notes and warrants.
The
Company believes that based on the funds available the Company will have
the
ability to pay its projected net cash burn rate of $750,000 per month for
seven
months. We will have to raise more funds to cover future months net cash
burn
rate and to pay our debt service or attempt to restructure the convertible
notes.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
3 - RELATED PARTY TRANSACTIONS
Stephen
B. Howell, M.D., a Director, receives payments for consulting services
and
reimbursement of direct expenses and has also received warrants for his
consulting services. Dr. Howell’s payments for consulting services, expense
reimbursements and warrants are as follows:
Year
|
|
|
Consulting
Fees
|
|
|
Expense
Reimbursement
|
|
2006
|
|
$
|
69,000
|
|
$
|
5,000
|
|
2005
|
|
|
79,000
|
|
|
5,000
|
|
2004
|
|
|
58,000
|
|
|
9,000
|
|
In
the
event SCO Capital Partners LLC (“SCO”) and its affiliates were to convert all of
their notes and exercise all of their warrants, they would own approximately
74.1% of the voting securities of Access. During 2006 SCO and affiliates
were
paid $415,000 in fees for the convertible notes that Access issued and
were paid
$131,000 in investor relations fees.
See
Note
9 for a discussion of our Restricted Stock Purchase Program.
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
|
|
December
31,
|
|
|
|
2006
|
|
|
2005
|
|
Laboratory
equipment
|
|
$
|
1,090,000
|
|
$
|
1,090,000
|
|
Laboratory
and building improvements
|
|
|
167,000
|
|
|
167,000
|
|
Furniture
and equipment
|
|
|
134,000
|
|
|
138,000
|
|
|
|
|
1,391,000
|
|
|
1,395,000
|
|
Less
accumulated depreciation and amortization
|
|
|
1,179,000
|
|
|
1,095,000
|
|
Net
property and equipment
|
|
$
|
212,000
|
|
$
|
300,000
|
|
Depreciation
and amortization on property and equipment was $91,000, $225,000, and $244,000
for the years ended December 31, 2006, 2005 and 2004, respectively.
NOTE
5 - 401(k) PLAN
We
have a
tax-qualified employee savings and retirement plan (the “401(k) Plan”) covering
all our employees. Pursuant to the 401(k) Plan, employees may elect to
reduce
their current compensation by up to the statutorily prescribed annual limit
($15,000 in 2006; $14,000 in 2005; and $13,000 in 2004) and to have the
amount
of such reduction contributed to the 401(k) Plan. We have a 401(k) matching
program whereby we contribute for each dollar a participant contributes
a like
amount, with a maximum contribution of 2% of a participant’s earnings. The
401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code so that contributions by employees or by us to the 401(k) Plan, and
income
earned on 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by us, if any,
will be
deductible by us when made. At the direction of each participant, we invest
the
assets of the 401(k) Plan in any of 23 investment options. Company contributions
under the 401(k) Plan were approximately $11,000 in 2006; $31,000 in 2005;
and
$46,000 in 2004.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
6 - DISCONTINUED OPERATIONS
In
October 2005 we sold our oral/topical care business to Uluru, Inc. for
up to
$18.6 million. At the closing of this agreement we received $8.7 million.
In
addition, due to the Amended Asset Sale Agreement in December 2006, we
received
$4.9 million and an obligation to receive from Uluru $350,000 on April
8, 2007
for the first and second anniversary payments and settlement of certain
milestones. We recorded $550,000 as revenue for the discontinued operations
in
2006. Any contingent liabilities arise in the future relating to our former
business could reduce future receipts. Additional payments of up to $4.8
million, as amended by the Amended Asset Sale Agreement may be made upon
the
achievement of certain additional sales milestones.
In
September 2005 we closed our Australian laboratory and office, keeping
the
vitamin B12 technology.
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” operating
results for assets sold or held for sale are presented as discontinued
operations for current and all prior years presented. In accordance with
SFAS
No. 144 the operating results of these assets, along with the gain on sale,
have
been presented in discontinued operations for all periods
presented.
|
|
2006
|
|
2005
|
|
2004
|
|
Revenues
|
|
$
|
550,000
|
|
$
|
781,000
|
|
$
|
549,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Cost
of
product sales
|
|
|
|
|
|
(1,012,000
|
)
|
|
(239,000
|
)
|
Research
and
development
|
|
|
|
|
|
(2,501,000
|
)
|
|
(3,082,000
|
)
|
Depreciation
|
|
|
|
|
|
(237,000
|
)
|
|
(304,000
|
)
|
Total
expenses
|
|
|
-
|
|
|
(3,750,000
|
)
|
|
(3,625,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income/loss
from discontinued operations
|
|
|
550,000
|
|
|
(2,969,000
|
)
|
|
(3,076,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of assets
|
|
|
-
|
|
|
12,891,000
|
|
|
-
|
|
Tax expense
|
|
|
(173,000
|
)
|
|
(4,067,000
|
)
|
|
-
|
|
Discontinued operations
|
|
$
|
377,000
|
|
$
|
5,855,000
|
|
$
|
(3,076,000
|
)
|
We
previously had licenses for the oral/topical assets. These licenses were
sold to
Uluru, Inc. in October 2005. In the Asset Sale Agreement between us and
Uluru
certain refunds and receipts were incurred before the date of sale and
were
assigned to either us or to Uluru. We have $173,000 recorded as a deferred
gain
on the sale until such time as approvals are received.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
7 - DEBT
On
September 20, 2000, we completed a $13.5 million convertible note offering.
The
offering was placed with three investors. One investor was repaid in 2005,
$4,015,000. Our other convertible notes are due in two parts. The notes
bear
interest at 7.7% per annum with $733,000 of interest due annually on September
13th.
$4,015,000
due on April 28, 2007.
This
investor’s notes have a fixed conversion price of $5.00 per share of common
stock and may be converted by the note holder or us under certain circumstances
as defined in the note. Upon a change of control, this investor is not
required
to automatically convert the note unless the amount payable to the investor
upon
change of control, issuable upon conversion of the note equals or exceeds
$7.50.
If the notes are not converted we will have to repay the notes on the due
dates.
The investor’s notes were amended November 3, 2005 extending the term and
adjusting the conversion price from $27.50 to $5.00 per common share. The
amendment and modification resulted in us recording additional debt discount
of
$2.1 million, which will be accreted to interest expense to the revised
maturity
date. The interest due at December 31, 2006 was $92,000.
$5,500,000
due on September 13, 2010
.
This
investor delayed his interest payment which was due in 2005 and 2006 until
September 13, 2007 or earlier if the Company raises more than $5.0 million
in
funds. The capitalized interest was $880,000 and interest on the capitalized
interest was $26,000 at December 31, 2006. The interest due on the convertible
note was $126,000 at December 31, 2006. This note has a fixed conversion
price
of $27.50 per share of common stock and may be converted by the note holder
or
us under certain circumstances as defined in the note. If the notes are
not
converted we will have to repay the notes on the due dates.
$6,000,000
due on March 31, 2007
.
The
notes were sold in February 2006 in a private placement to a group of accredited
investors led by SCO Capital Partners LLC and affiliates. We entered into
a note
and purchase agreement to which we sold and issued an aggregate of $5 million
of
7.5% convertible notes due March 31, 2007 and warrants to purchase 3,863,634
shares of common stock of Access. Net proceeds to Access were $4.5
million.
On
October 24, 2006, we entered into a note and warrant purchase agreement
pursuant
to which we sold and issued an aggregate of $500,000 of 7.5% convertible
notes
due March 31, 2007 and warrants to purchase 386,364 shares of common stock
of
Access. Net proceeds to Access were $450,000. On December 6, 2006, we entered
into a note and warrant purchase agreement pursuant to which we sold and
issued
an aggregate of $500,000 of 7.5% convertible notes due March 31, 2007 and
warrants to purchase 386,364 shares of common stock of Access. Net proceeds
to
Access were $450,000. Interest due at December 31, 2006 on all notes with
SCO
and affiliates was $336,000.
All
these
notes with SCO and affiliates have a fixed conversion price of $1.10 per
share
of common stock and may be converted by the note holder or us under certain
circumstances as defined in the note. If the notes are not converted we
will
have to repay the notes on the due dates.
The
Secured Convertible Notes include warrants and a conversion feature. Until
September 30, 2006 we accounted for the warrants and conversion feature
as
liabilities and recorded at fair value. From the date of issuance to September
30, 2006, the fair value of these instruments increased resulting in a
net
unrealized loss of $1.1 million. On October 1, 2006, we adopted the
provisions of EITF 00-19-2,
“Accounting
for Registration Payment Arrangements”
(EITF
00-19-2), which requires that contingent obligations to make future payments
under a registration payment arrangement be recognized and measured separately
in accordance with SFAS No. 5,
“Accounting
for Contingencies.”
Under
previous guidance, the fair value of the warrant was recorded as a current
liability in our balance sheet, due to a potential cash payment feature
in the
warrant. Access may be required to pay in cash, up to 2% per month, as
defined,
as liquidated damages for failure to file a registration statement timely
as
required by an investor rights agreement. The current liability was
marked-to-market at each quarter end, using the Black-Scholes option-pricing
model, with the change being recorded to general and administrative expenses.
Under the new guidance in EITF 00-19-2, as we believe the likelihood of
such a
cash payment to
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
7 - DEBT - continued
not
be
probable, have not recognized a liability for such obligations. Accordingly,
a
cumulative-effect adjustment of $1.4 million was made as of October 1, 2006
to accumulated deficit, representing the difference between the initial
value of
this warrant and its fair value as of this date and recorded to equity.
Subsequent
to the adoption of EITF 00-19-2 on October 1, 2006, the Company has accounted
for the $6,000,000 notes under EITF Issue No. 00-27,
Application
of Issue No. 98-5 to Certain Instruments.
The
value of the warrants was valued using a Black-Scholes option-pricing model
with
the following assumptions with a weighted average volatility of
120%,
expected
life of 6 years, expected yield of 0% and risk free rate of 5.0%. At December
31, 2006, approximately $1.6M of
debt
discount related to the warrants and embedded conversion feature had not
been
amortized to interest expense. This will be amortized over the remaining
life of
the debt through March 31, 2007.
On
September 20, 2001, we completed a $600,000 installment loan with a bank.
The
note was paid in full in 2006.
NOTE
8 - COMMITMENTS AND CONTINGENCIES
Future
maturities of the note payable and other obligations are as
follows:
Future
|
|
Debt
|
2007
|
|
10,895,000
|
2010
|
|
5,500,000
|
The
debt
of $4,015,000 is discounted and at December 31, 2006 is on the balance
sheet as
$3,559,000.
The
debt
of $6,000,000 is discounted and at December 31, 2006 is on the balance
sheet as
$4,394,000.
Operating
Leases
At
December 31, 2006, we have commitments under noncancelable operating leases
for
office and research and development facilities until December 31, 2007
totaling
$75,000. Rent expense for the years ended December 31, 2006, 2005 and 2004
was
$94,000, $168,000 and $166,000, respectively. We also have two other
noncancelable operating leases - one lease for a fire alarm system totaling
$12,000 ending in 2008 (expensing $7,000 in 2007 and $5,000 in 2008) and
one lease for a copier totaling $48,000 ending in 2011 (with $9,600
expensed each year).
Legal
The
Company is not currently subject to any material pending legal
proceedings.
NOTE
9 - STOCKHOLDERS' EQUITY
Restricted
Stock Purchase Program
On
October 12, 2000, the Board of Directors authorized a Restricted Stock
Purchase
Program. Under the Program, the Company’s executive officers and corporate
secretary were given the opportunity to purchase shares of common stock
in an
individually designated amount per participant determined by the Compensation
Committee of the Board of Directors. A total of 38,000 shares were purchased
under the Program by
four
eligible participants at $27.50 per share, the fair market value of the
common
stock on October 12, 2000, for an aggregate consideration of $1,045,000.
The
purchase price was paid through the participants’ delivery of a 50%-recourse
promissory note payable to the Company for three
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
9 - STOCKHOLDERS' EQUITY - Continued
executive
officer participants and a full-recourse promissory note payable to the
Company
for one participant. Each note bears interest at 5.87% compounded semi-annually
and has a maximum term of ten years. The notes are secured by a pledge
of the
purchased shares to the Company. The Company recorded the notes receivable
from
participants in this Program of $1,045,000 as a reduction of equity in
the
Consolidated Balance Sheet. Interest on the notes is neither being collected
nor
accrued. The stock granted under the Program is fully vested at December
31,
2006.
Warrants
There
were warrants to purchase a total of 4,826,517 shares of common stock
outstanding at December 31, 2006. All warrants were exercisable at December
31,
2006. The warrants had various prices and terms as follows:
Summary
of Warrants
|
|
|
Outstanding
|
|
Exercise
Price
|
|
Expiration
Date
|
|
2006
convertible note (a)
|
|
|
|
3,863,634
|
|
$
|
1.32
|
|
|
2/16/12
|
|
2006
convertible note (a)
|
|
|
|
386,364
|
|
|
1.32
|
|
|
10/24/12
|
|
2006
convertible note (a)
|
|
|
|
386,364
|
|
|
1.32
|
|
|
12/06/12
|
|
2006
investor relations advisor (b)
|
|
|
|
50,000
|
|
|
2.70
|
|
|
12/27/11
|
|
2004
offering (c)
|
|
|
|
89,461
|
|
|
35.50
|
|
|
2/24/09
|
|
2004
offering (c)
|
|
|
|
31,295
|
|
|
27.00
|
|
|
2/24/09
|
|
2003
financial advisor (d)
|
|
|
|
14,399
|
|
|
19.50
|
|
|
10/30/08
|
|
2002
scientific consultant (e)
|
|
|
|
2,000
|
|
|
24.80
|
|
|
2/01/09
|
|
2001
scientific consultant (f)
|
|
|
|
3,000
|
|
|
15.00
|
|
|
1/1/08
|
|
Total
|
|
|
|
4,826,517
|
|
|
|
|
|
|
|
a)
|
In
connection with the convertible note offerings in 2006, warrants
to
purchase a total of 4,636,362 shares of common stock were issued.
All of
the warrants are exercisable immediately and expire six years
from date of
issue.
|
b)
|
During
2006, an investor relations advisor received warrants to purchase
50,000
shares of common stock at an exercise price of $2.70 per share
at any time
from December 27, 2006 until December 27, 2011, for investor
relations
consulting services to be rendered in 2007. All of the warrants
were
exercisable at December 31, 2006. The fair value of the warrants
was $2.00
per share on the date of the grant using the Black-Scholes pricing
model
with the following assumptions: expected dividend yield 0.0%,
risk-free
interest rate 4.58%, expected volatility 138% and a term of 2.5
years.
|
c)
|
In
connection with offering of common stock in 2004, warrants to
purchase a
total of 120,756 shares of common stock were issued. All of the
warrants
are exercisable and expire five years from date of
issuance.
|
d)
|
During
2003, financial advisors received warrants to purchase 14,399
shares of
common stock at any time until October 30, 2008, for financial
consulting
services rendered in 2003 and 2004. All the warrants are exercisable.
The
fair value of the warrants was $14.10 per share on the date of
the grant
using the Black-Scholes pricing model with the following assumptions:
expected dividend yield 0.0%, risk-free interest rate 2.9%, expected
volatility 92% and a term of 5 years.
|
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
9 - STOCKHOLDERS' EQUITY - Continued
e)
|
During
2002, a director who is also a scientific advisor received warrants
to
purchase 2,000 shares of common stock at an exercise price of
$24.55 per
share at any time until February 1, 2009, for scientific consulting
services rendered in 2002. The fair value of the warrants was
$18.50 per
share on the date of the grant using the Black-Scholes pricing
model with
the following assumptions: expected dividend yield 0.0%, risk-free
interest rate 3.90%, expected volatility 81% and a term of 7
years.
|
f)
|
During
2001, a director who is also a scientific advisor received warrants
to
purchase 3,000 shares of common stock at an exercise price of
$15.00 per
share at any time until January 1, 2008, for scientific consulting
services rendered in 2001. The fair value of the warrants was
$13.70 per
share on the date of the grant using the Black-Scholes pricing
model with
the following assumptions: expected dividend yield 0.0%, risk-free
interest rate 5.03%, expected volatility 118% and a term of 7
years.
|
2001
Restricted Stock Plan
We
have a
restricted stock plan, the 2001 Restricted Stock Plan, as amended, under
which
80,000 shares of our authorized but unissued common stock were reserved
for
issuance to certain employees, directors, consultants and advisors. The
restricted stock granted under the plan generally vests, 25% two years
after the
grant date with additional 25% vesting every anniversary date. All stock
is
vested after five years. At December 31, 2006 there were 27,182 shares
issued
and 52,818 shares available for grant under the 2001 Restricted Stock
Plan.
NOTE
10 - STOCK OPTION PLANS
We
have
various stock-based employee compensation plans described below:
2005
Equity Incentive Plan
We
have a
stock awards plan, (the “2005 Equity Incentive Plan”), under which 1,000,000
shares of our authorized but unissued common stock were reserved for issuance
to
employees of, or consultants to, one or more of the Company and its affiliates,
or to non-employee members of the Board or of any board of directors (or
similar
governing authority) of any affiliate of the Company. The 2005 Equity Incentive
Plan replaced the previously approved stock option plan (the 1995 Stock
Awards
Plan").
For
the
2005 Equity Incentive Plan, the fair value of options was estimated at
the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in fiscal 2006: dividend yield
of
0%; volatility of 127%; risk-free interest rate of 4.85%; and expected
lives of
1.6 years. The weighted average fair value of options granted was $0.36
per
share during 2006. The assumptions for grants in fiscal 2005 were: dividend
yield of 0%; volatility of 113%; risk-free interest rate of 4.71%; and
expected
lives of four years. The weighted average fair value of options granted
was
$8.50 per share during 2005.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
10 - STOCK OPTION PLANS - Continued
Summarized
information for the 2005 Equity Incentive Plan is as follows:
|
|
|
Weighted-
|
|
|
|
average
|
|
|
|
exercise
|
|
Options
|
|
price
|
Outstanding
options at January 1, 2005
|
-
|
|
$
-
|
Granted,
fair value of $8.50 per share
|
50,000
|
|
5.45
|
Outstanding
options at December 31, 2005
|
50,000
|
|
5.45
|
|
|
|
|
Granted,
fair value of $ 0.36 per share
|
753,872
|
|
1.32
|
Forfeited
|
(1,200)
|
|
3.15
|
Outstanding
options at December 31, 2006
|
802,672
|
|
1.04
|
Exercisable
at December 31, 2005
|
14,000
|
|
5.45
|
Exercisable
at December 31, 2006
|
204,718
|
|
2.00
|
The
intrinsic value of options under this plan related to the outstanding and
exercisable options were $1,554,000 and $281,000, respectively, at December
31,
2006.
Further
information regarding options outstanding under the 2005 Equity Incentive
Plan
at December 31, 2006 is summarized below:
|
Number
of
|
Weighted
average
|
Number
of
|
Weighted
aververage
|
|
options
|
Remaining
|
Exercise
|
options
|
Remaining
|
Exercise
|
Range
of excercise prices
|
outstanding
|
life
in years
|
price
|
exerciseable
|
life
in years
|
price
|
|
|
|
|
|
|
|
$0.63
- 0.85
|
717,000
|
9.6
|
$0.63
|
129,250
|
9.6
|
$0.63
|
$3.15
- 5.45
|
85,672
|
8.9
|
4.49
|
75,468
|
8.9
|
4.36
|
|
802,672
|
|
|
204,718
|
|
|
2000
Special Stock Option Plan
On
February 11, 2000 we adopted the 2000 Special Stock Option Plan and Agreement
(the “Plan”). The Plan provides for the award of options to purchase 100,000
shares of the authorized but unissued shares of common stock of the Company.
At
December 31, 2006, there were no additional shares available for grant
under the
Plan.
Under
the
2000 Special Stock Option Plan, 100,000 options were issued in 2000 and
are
outstanding at December 31, 2006. All of the options in the 2000 Special
Stock
Option Plan were exercisable at December 31, 2006, 2005 and 2004. All of
the
options expire on June 30, 2007 and have an exercise price of $12.50 per
share.
1995
Stock Awards Plan
Under
the
1995 Stock Awards Plan, as amended, 500,000 shares of our authorized but
unissued common stock were reserved for issuance to optionees including
officers, employees, and other individuals performing services for us.
At
December 31, 2006, there were no additional shares available for grant
under the
1995 Stock Awards Plan. A total of 360,917 options were outstanding under
this
plan at December 31, 2006.
Options
granted under all the plans generally vest ratably over a four to five
year
period and are generally exercisable over a ten-year period from the date
of
grant. Stock options were generally granted with an exercise price equal
to the
market value at the date of grant.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
10 - STOCK OPTION PLANS - Continued
Under
the
1995 Stock Awards Plan, the fair value of options was estimated at the
date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in fiscal 2005 and 2004, respectively:
dividend yield of 0% for both periods; volatility of 104% and 41%; risk-free
interest rates of 4.15% and 3.61%, respectively, and expected lives of
four
years for all periods. The weighted average fair values of options granted
were
$6.45 and $10.90 per share during 2005 and 2004, respectively.
|
|
Weighted-
|
|
|
average
|
|
|
exercise
|
|
Options
|
price
|
|
|
|
Outstanding
options at January 1, 2004
|
410,725
|
$
17.25
|
Granted,
fair value of $10.90 per share
|
62,840
|
28.75
|
Exercised
|
(21,939)
|
11.90
|
Forfeited
|
(15,196)
|
21.05
|
Outstanding
options at December 31, 2004
|
436,430
|
18.80
|
|
|
|
Granted,
fair value of $6.45 per share
|
49,700
|
12.05
|
Forfeited
|
(55,859)
|
17.30
|
Outstanding
options at December 31, 2005
|
430,271
|
18.20
|
|
|
|
Forfeited
|
(69,354)
|
19.12
|
Outstanding
options at December 31, 2006
|
360,917
|
18.03
|
|
|
|
Exercisable
at December 31, 2004
|
334,232
|
18.20
|
Exercisable
at December 31, 2005
|
406,760
|
18.40
|
Exercisable
at December 31, 2006
|
349,990
|
18.12
|
There
was
no intrinsic value related to outstanding or exercisable options under
this plan at December 31, 2006.
Further
information regarding options outstanding under the 1995 Stock Awards Plan
at
December 31, 2006 is summarized below:
Range
of
|
Number
of
|
Weighted
average
|
Number
of
|
Weighted
average
|
exercise
|
shares
|
Remaining
|
Exercise
|
shares
|
Remaining
|
Exercise
|
prices
|
outstanding
|
life
in years
|
price
|
exercisable
|
life
in years
|
Price
|
|
|
|
|
|
|
|
$10.00
- 12.50
|
147,640
|
3.6
|
$11.15
|
139,032
|
3.3
|
$11.12
|
$14.05
- 18.65
|
112,717
|
1.9
|
16.61
|
112,717
|
1.9
|
16.61
|
$20.25
- 34.38
|
100,560
|
2.1
|
29.73
|
98,241
|
2.0
|
29.74
|
|
|
|
|
|
|
|
|
360,917
|
|
|
349,990
|
|
|
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
11 - INCOME TAXES
Income
tax expense differs from the statutory amounts as follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Income
taxes at U.S. statutory rate
|
|
|
|
|
$
|
(438,000
|
)
|
$
|
(3,442,000
|
)
|
Change
in valuation allowance
|
|
|
3,972,000
|
|
|
(2,051,000
|
)
|
|
895,000
|
|
Change
in miscellaneous items
|
|
|
(130,000)
|
|
|
397,000
|
|
|
598,000
|
|
Benefit
of foreign losses not recognized
|
|
|
58,000
|
|
|
304,000
|
|
|
-
|
|
Expenses
not deductible
|
|
|
240,000
|
|
|
738,000
|
|
|
7,000
|
|
Expiration
of net operating loss and general
|
|
|
|
|
|
|
|
|
|
|
business
credit carryforwards, net of revisions
|
|
|
|
|
|
1,050,000
|
|
|
1,942,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
tax expense
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes are provided for the temporary differences between the financial reporting
bases and the tax bases of our assets and liabilities. The temporary differences
that give rise to deferred tax assets were as follows:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Deferred
tax assets (liabilities)
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
|
$
20,261,000
|
|
$
20,808,000
|
|
General
business credit carryforwards
|
|
|
2,402,000
|
|
|
2,261,000
|
|
|
2,094,000
|
|
Deferred
gain on sale of oral/topical care assets
|
|
|
-
|
|
|
(1,490,000
|
)
|
|
-
|
|
Property,
equipment and goodwill
|
|
|
|
|
|
78,000
|
|
|
259,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
deferred tax assets
|
|
|
25,082,000
|
|
|
21,110,000
|
|
|
23,161,000
|
|
Valuation
allowance
|
|
|
(25,082,000
|
)
|
|
(21,110,000
|
)
|
|
(23,161,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2006, we had approximately $66,569,000 of net operating loss
carryforwards and approximately $2,402,000 of general business credit
carryforwards. These carryforwards expire as follows:
|
|
Net
operating
loss
carryforwards
|
|
General
business
credit
carryforwards
|
|
2007
|
|
$
|
994,000
|
|
$
|
26,000
|
|
2008
|
|
|
4,004,000
|
|
|
138,000
|
|
2009
|
|
|
1,661,000
|
|
|
185,000
|
|
2010
|
|
|
2,171,000
|
|
|
140,000
|
|
2011
|
|
|
4,488,000
|
|
|
13,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a
result of a merger on January 25, 1996, a change in control occurred for
federal
income tax purposes which limits the utilization of pre-merger net operating
loss carryforwards of approximately $3,100,000 to approximately $530,000
per
year.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Our
results of operations by quarter for the years ended December 31, 2006
and 2005
were as follows (in thousands, except per share amounts):
|
|
2006
Quarter Ended
|
|
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
Loss
from operations
|
|
$
|
(4,856
|
)
|
$
|
(3,331
|
)
|
$
|
(2,015
|
)
|
$
|
(3,222
|
)
|
Discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
550
|
|
Net
loss
|
|
$
|
(4,856
|
)
|
$
|
(3,331
|
)
|
$
|
(2,015
|
)
|
$
|
(2,672
|
)
|
Basic
and diluted income/loss per common share
|
|
$
|
(1.38
|
)
|
$
|
(0.94
|
)
|
$
|
(0.57
|
)
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Quarter Ended
|
|
|
|
March
31
|
|
|
June
30
|
|
|
September30
|
|
|
December31
|
|
Loss
from operations
|
|
$
|
(1,616
|
)
|
$
|
(2,988
|
)
|
$
|
(1,612
|
)
|
$
|
(1,339
|
)
|
Discontinued
operations
|
|
|
(806
|
)
|
|
(798
|
)
|
|
(451
|
)
|
|
7,910
|
|
Net
loss/income
|
|
$
|
(2,422
|
)
|
$
|
(3,786
|
)
|
$
|
(2,063
|
)
|
$
|
6,571
|
|
Basic
and diluted loss per
common
share
|
|
|
(0.78
|
)
|
|
(1.21
|
)
|
|
(0.65
|
)
|
|
2.11
|
|
NOTE
13 - SUBSEQUENT EVENTS (UNAUDITED)
On
March 30, 2007, Access Pharmaceuticals, Inc. ("Access")
and SCO Capital Partners LLC and affiliates ("SCO") agreed to extend the
maturity date of an aggregate of $6,000,000 of 7.5% convertible notes to
April
27, 2007 from March 31, 2007.
On
April
19, 2007, we announced we had entered into an agreement to acquire Somanta
Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement,
upon
consummation of the acquisition, Somanta’s preferred and common shareholders
would receive an aggregate of 1.5 million shares of Access’ common stock. The
Somanta stockholders approved the proposed transaction at the stockholders’
meeting on August 17, 2007. The closing of the transaction is subject
to
numerous conditions including receipt of necessary approvals. There can
be no
assurance that the transaction will be consummated or if consummated
that it
will be on the terms described herein. Each of the parties currently
has the
right to terminate the Merger Agreement.
On
April
26, 2007, we entered into a Note Purchase Agreement with Somanta
Pharmaceuticals, Inc. in order for Access to loan Somanta amounts to
keep
certain of their licenses and vendors current. As of September 30, 2007
we have
loaned Somanta $859,000.
On
November 7, 2007, we entered into securities purchase agreements (the
“Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise
price
of $3.50 per share, for an aggregate purchase price of $9,540,001.
Access
Pharmaceuticals, Inc. and Subsidiaries
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three
years ended December 31, 2006
NOTE
13 - SUBSEQUENT EVENTS (UNAUDITED) - Continued
As
a
condition to closing on the Series A Preferred Stock, SCO Capital
Partners, LLC
and affiliates, along with the other holders of an aggregate of $6,000,000
Secured Convertible Notes, also exchanged their notes and accrued
interest for
an additional 1,836.0512 shares of Series A Preferred Stock and were
issued
warrants to purchase 1,122,031 shares of our common stock at an exercise
price
of $3.50 per share, and Oracle Partners LP and affiliates, along
with the other
holders of an aggregate of $4,015,000 Convertible Notes also exchanged
their
notes and accrued interest for 437.3104 shares of the Series A Preferred
Stock
and were issued warrants to purchase 728,850 shares of our common
stock at an
exercise price of $3.50 per share. SCO capital Partner, LLC currently
has two
designees serving on our Board of Directors. In connection with the
exchange of
the notes, all security interests and liens relating thereto were
terminated.
Access
Pharmaceuticals, Inc. and
Subsidiaries
Condensed
Consolidated Balance Sheets
|
|
September
30, 2007
|
|
December
31, 2006
|
|
ASSETS
|
|
(unaudited)
|
|
(audited)
|
|
Current
assets
Cash
and cash equivalents
Short
term investments, at cost
Receivables
Prepaid
expenses and other current assets
|
|
$
|
661,000
515,000
861,000
530,000
|
|
$
|
1,194,000
3,195,000
359,000
283,000
|
|
Total
current assets
|
|
|
2,567,000
|
|
|
5,031,000
|
|
Property
and equipment, net
|
|
156,000
|
|
212,000
|
|
Debt
issuance costs, net
|
|
-
|
|
158,000
|
|
Patents,
net
|
|
752,000
|
|
878,000
|
|
Licenses,
net
|
|
|
-
|
|
|
25,000
|
|
Other
assets
|
|
|
25,000
|
|
|
122,000
|
|
Total
assets
|
|
$
|
3,500,000
|
|
$
|
6,426,000
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities
Accounts
payable and accrued expenses
Accrued
interest payable
Deferred
revenues
Current
portion of long-term debt, net of discount $0 at
September
30, 2007 and $2,062,000 at December 31, 2006
|
|
$
|
1,595,000
1,023,000
1,167,000
11,406,000
|
|
$
|
1,226,000
581,000
173,000
8,833,000
|
|
Total
current liabilities
|
|
|
15,191,000
|
|
|
10,813,000
|
|
Long-term
debt
|
|
|
5,500,000
|
|
|
5,500,000
|
|
Total
liabilities
|
|
|
20,691,000
|
|
|
16,313,000
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
-
|
|
Stockholders'
deficit
Preferred
stock - $.01 par value; authorized 2,000,000 shares;
none
issued or outstanding
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
3,575,114 at September 30, 2007 and 3,535,108 at
December
31, 2006
Additional
paid-in capital
Notes
receivable from stockholders
Treasury
stock, at cost - 163 shares
Accumulated
deficit
|
|
|
-
36,000
69,687,000
(1,045,000
(4,000
(85,865,000
|
)
)
)
|
|
-
35,000
68,799,000
(1,045,000
(4,000
(77,672,000
|
)
)
)
|
Total
stockholders' deficit
|
|
|
(17,191,000
|
)
|
|
(9,887,000
|
)
|
Total
liabilities and stockholders' deficit
|
|
$
|
3,500,000
|
|
$
|
6,426,000
|
|
The
accompanying notes are an integral part of these statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(unaudited)
|
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
|
September
30,
|
|
|
September
30
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
revenues
|
|
$
|
6,000
|
|
$
|
-
|
|
$
|
6,000
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
596,000
|
|
|
379,000
|
|
|
1,532,000
|
|
|
1,769,000
|
|
General
and administrative
|
|
|
1,000,000
|
|
|
800,000
|
|
|
3,252,000
|
|
|
2,129,000
|
|
Depreciation
and amortization
|
|
|
61,000
|
|
|
77,000
|
|
|
210,000
|
|
|
231,000
|
|
Total
expenses
|
|
|
1,657,000
|
|
|
1,256,000
|
|
|
4,994,000
|
|
|
4,129,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,651,000
|
)
|
|
(1,256,000
|
)
|
|
(4,988,000
|
)
|
|
(4,129,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and miscellaneous income
|
|
|
12,000
|
|
|
86,000
|
|
|
72,000
|
|
|
278,000
|
|
Interest
and other expense
|
|
|
(318,000
|
)
|
|
(1,976,000
|
)
|
|
(3,277,000
|
)
|
|
(5,244,000
|
)
|
Unrealized
gain (loss) on fair value of
warrants
and conversion feature
|
|
|
-
|
|
|
1,131,000
|
|
|
-
|
|
|
(1,107,000
|
)
|
|
|
|
(306,000
|
)
|
|
(759,000
|
)
|
|
(3,205,000
|
)
|
|
(6,073,000
|
)
|
Net
loss
|
|
$
|
(1,957,000
|
)
|
$
|
(2,015,000
|
)
|
$
|
(8,193,000
|
)
|
$
|
(10,202,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
Net
loss allocable to common
shareholders
|
|
$
|
(0.55
|
)
|
$
|
(0.57
|
)
|
$
|
(2.31
|
)
|
$
|
(2.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic and diluted
common
shares outstanding
|
|
|
3,575,114
|
|
|
3,534,408
|
|
|
3,544,181
|
|
|
3,530,941
|
|
The
accompanying notes are an integral part of these statements.
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(unaudited)
|
|
Nine
months ended September 30,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,193,000
|
)
|
$
|
(10,202,000
|
)
|
Adjustments
to reconcile net loss to cash used
in
operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
210,000
|
|
|
230,000
|
|
Stock
option expense
|
|
|
810,000
|
|
|
171,000
|
|
Stock
compensation expense
|
|
|
-
|
|
|
69,000
|
|
Stock
issued for compensation
|
|
|
44,000
|
|
|
-
|
|
Amortization
of debt costs and discounts
|
|
|
2,316,000
|
|
|
4,192,000
|
|
Unrealized
loss on fair value of warrants and
conversion
feature
|
|
|
-
|
|
|
1,107,000
|
|
Loss on
sale of asset
|
|
|
2,000
|
|
|
-
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Receivables
|
|
|
(502,000
|
)
|
|
14,000
|
|
Prepaid
expenses and other current assets
|
|
|
(247,000
|
)
|
|
143,000
|
|
Other
assets
|
|
|
1,000
|
|
|
128,000
|
|
Accounts
payable and accrued expenses
|
|
|
369,000
|
|
|
(849,000
|
)
|
Accrued
interest payable
|
|
|
953,000
|
|
|
805,000
|
|
Deferred
revenue
|
|
|
994,000
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(3,243,000
|
)
|
|
(4,192,000
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(18,000
|
)
|
|
(3,000
|
)
|
Proceeds
from sale of asset
|
|
|
13,000
|
|
|
-
|
|
Redemptions
of short term investments and
certificates
of deposit, net
|
|
|
2,680,000
|
|
|
(98,000
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
2,675,000
|
|
|
(101,000
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Payments
of notes payable
|
|
|
-
|
|
|
(106,000
|
)
|
Proceeds
from secured convertible notes payable
|
|
|
-
|
|
|
4,532,000
|
|
Exercise
of stock options
|
|
|
35,000
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
35,000
|
|
|
4,426,000
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(533,000
|
)
|
|
133,000
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,194,000
|
|
|
349,000
|
|
Cash
and cash equivalents at end of period
|
|
$
|
661,000
|
|
$
|
482,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
5,000
|
|
$
|
5,000
|
|
Accrued
interest capitalized
|
|
|
511,000
|
|
|
-
|
|
The
accompanying notes are an integral part of these statements
Access
Pharmaceuticals, Inc. and Subsidiaries
Notes
to
Condensed Consolidated Financial Statements
Nine
Months Ended September 30, 2007 and 2006
(unaudited)
(1)
|
Interim
Financial Statements
|
The
consolidated balance sheet as of September 30, 2007 and the consolidated
statements of operations and cash flows for the three and nine months
ended
September 30, 2007 and 2006 were prepared by management without audit.
In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, except as otherwise disclosed, necessary for the fair
presentation
of the financial position, results of operations, and changes in financial
position for such periods, have been made. All share and per share
information
reflect a one for five reverse stock split effected on June 5,
2006.
Certain
information and footnote disclosures normally included in financial
statements
prepared in accordance with accounting principles generally accepted
in the
United States of America have been condensed or omitted. It is suggested
that
these interim financial statements be read in conjunction with the
consolidated
financial statements and notes thereto included in our Annual Report
on Form
10-KSB for the year ended December 31, 2006. The results of operations
for the
period ended September 30, 2007 are not necessarily indicative of the
operating
results which may be expected for a full year. The consolidated balance
sheet as
of December 31, 2006 contains financial information taken from the
audited
financial statements as of that date.
The
report of our independent registered public accounting firm for the
fiscal year
ended December 31, 2006 contained a fourth explanatory paragraph to
reflect its
significant doubt about our ability to continue a going concern as
a result of
our history of losses and our liquidity position, as discussed herein
and in
this Form 10-QSB. If we are unable to obtain adequate capital funding
in the
future, we may not be able to continue as a going concern, which would
have an
adverse effect on our business and operations, and investors’ investment in us
may decline.
(2)
Intangible
Assets
Intangible
assets consist of the following (in thousands):
|
|
September
30, 2007
|
|
December
31, 2006
|
|
|
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
Gross
carrying
value
|
|
Accumulated
amortization
|
|
Amortizable
intangible assets
Patents
Licenses
|
|
$
|
1,680
-
|
|
$
|
928
-
|
|
$
|
1,680
500
|
|
$
|
802
475
|
|
Total
|
|
$
|
$
1,680
|
|
$
|
928
|
|
$
|
2,180
|
|
$
|
1,277
|
|
Amortization
expense related to intangible assets totaled $42,000 and $54,000 for
each of the
three months ended September 30, 2007 and 2006, respectively and totaled
$151,000 and $163,000 for each of the nine months ended September 30,
2007 and
2006. The aggregate estimated amortization expense for intangible assets
remaining as of September 30, 2007 is as follows (in
thousands):
2007
|
|
$
|
42
|
|
2008
|
|
|
168
|
|
2009
|
|
|
168
|
|
2010
|
|
|
168
|
|
2011
|
|
|
168
|
|
Thereafter
|
|
|
38
|
|
|
|
|
|
|
Total
|
|
$
|
752
|
|
(3)
Liquidity
The
Company incurred significant losses from continuing operations of $2.0
million
for the quarter ended September 30, 2007, $8.2 million for the nine
months ended
September 30, 2007, $13.3 million for the year ended December 31, 2006
and $7.6
million for the year ended December 31, 2005. Additionally, at September
30,
2007, our working capital deficit is $12.6 million. As of September
30, 2007, we
did
not have
sufficient funds to repay our convertible notes at their maturity and
support
our working capital and operating requirements. See Note (7) Subsequent
Events for the changes in our cash position and convertible notes.
Our
funds at November 14, 2007 will allow us to support our working capital and
operating requirements through December 2008.
(4)
Stock
Based Compensation
For
the
third quarter, we recognized stock-based compensation expense of $207,000
in
2007 and $49,000 in 2006. For the nine months we recognized stock-based
compensation expense of $810,000 in 2007 and $171,000 in 2006. For
the third
quarter of 2007, we granted 25,000 stock options under our 2005 Equity
Incentive
Plan at a weighted average exercise price of $3.03.
Our
weighted average Black-Scholes fair value assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
9/30/07
|
|
Expected
life
|
|
2.0
yrs.
|
|
Risk
free interest rate
|
|
4.63
|
%
|
Expected
volatility
(a)
|
|
141
|
%
|
Expected
dividend yield
|
|
0.0
|
%
|
|
|
|
|
(a)
|
Reflects
movements in our stock price over the most recent historical
period
equivalent to the expected life.
|
(5)
Income
Taxes
In
2006,
the Financial Accounting Standards Board issued FASB Interpretation
No. 48
(FIN 48)
,
which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
that
we recognize in our financial statements the impact of a tax position,
if that
position is more likely than not of being sustained on audit, based
on the
technical merits of the position. We adopted the provisions of FIN
48 as of the
beginning of our 2007 fiscal year. There was no effect as a result
of our
adoption of FIN 48.
As
of the
beginning of our 2007 fiscal year, due to our cumulative net losses
we do not
have any reserves for income taxes because no taxes are due.
We
file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. A number of years may elapse before an uncertain tax
position is
audited and finally resolved. While it is often difficult to predict
the final
outcome or the timing of resolution of any particular uncertain tax
position, we
believe that our reserves for income taxes reflect the most probable
outcome. We
adjust these reserves, as well as the related interest, in light of
changing
facts and circumstances. Settlement of any particular position would
usually
require the use of cash. The resolution of a matter would be recognized
as an
adjustment to our provision for income taxes and our effective tax
rate in the
period of resolution.
(6)
Debt
|
|
September
30,
2007
|
|
December
31,
2006
|
|
Convertible
note - Oracle and affiliates
|
|
$
|
4,015,000
|
|
$
|
4,015,000
|
|
Convertible
note
|
|
|
5,500,000
|
|
|
5,500,000
|
|
Convertible
note
|
|
|
1,391,000
|
|
|
880,000
|
|
|
|
|
10,906,000
|
|
|
10,395,000
|
|
Discount
|
|
|
-
|
|
|
(456,000
|
)
|
|
|
|
10,906,000
|
|
|
9,939,000
|
|
|
|
|
|
|
|
|
|
Convertible
note - SCO and affiliates
|
|
|
6,000,000
|
|
|
6,000,000
|
|
Discount
|
|
|
-
|
|
|
(1,606,000
|
)
|
|
|
|
6,000,000
|
|
|
4,394,000
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,906,000
|
|
$
|
14,333,000
|
|
|
|
|
|
|
|
|
|
Short
term
|
|
$
|
11,406,000
|
|
$
|
8,833,000
|
|
Long
term
|
|
|
5,500,000
|
|
|
5,500,000
|
|
Total
|
|
$
|
16,906,000
|
|
$
|
14,333,000
|
|
|
|
|
|
|
|
|
|
(7)
Subsequent
Events
On
October 24, 2007, Access and SCO Capital Partners LLC and affiliates
(“SCO”)
agreed to extend the maturity date of an aggregate principal amount
of
$6,000,000 of 7.5% convertible notes to November 15, 2007 from October
25,
2007.
On
October 24, 2007, Access and Oracle Partners LP and affiliates (“Oracle”) agreed
to extend the maturity date of an aggregate principal amount of $4,015,000
of
7.7% convertible notes to November 16, 2007 from October 26, 2007.
On
November 7, 2007, we entered into securities purchase agreements
(the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise
price
of $3.50 per share, for an aggregate purchase price of $9,540,001.
As
a
condition to closing, SCO Capital Partners, LLC and affiliates, along
with the
other holders of an aggregate of $6,000,000 Secured Convertible Notes,
also
exchanged their notes and accrued interest for an additional 1,836.0512
shares
of Series A Preferred Stock and were issued warrants to purchase
1,122,031
shares of our common stock at an exercise price of $3.50 per share,
and Oracle
Partners LP and affiliates, along with the other holders of an aggregate
of
$4,015,000 Convertible Notes also exchanged their notes and accrued
interest for
437.3104 shares of the Series A Preferred Stock and were issued warrants
to
purchase 728,850 shares of our common stock at an exercise price
of $3.50 per
share. SCO Capital Partners, LLC currently has a designee serving
on our Board
of Directors. In connection with the exchange of the notes, all security
interests and liens relating thereto were terminated.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers
Section 145
of the Delaware General Corporation law empowers a Delaware corporation
to
indemnify its officers and directors and certain other persons to the extent
and
under the circumstances set forth therein.
The
Registrant’s Certificate of Incorporation, as amended, and By-laws, as amended,
provide for indemnification of officers and directors of the Registrant
and
certain other persons against liabilities and expenses incurred by any
of them
in certain stated proceedings and under certain stated conditions.
The
above
discussion of the Registrant's Certificate of Incorporation, as amended,
By-laws, as amended, and Section 145 of the Delaware General Corporation
Law is not intended to be exhaustive and is qualified in its entirety by
such
Certificate of Incorporation, By-Laws and statute.
Item
25. Other Expenses of Issuance and Distribution
Expenses
of the Registrant in connection with the issuance and distribution of the
securities being registered, are estimated as follows:
SEC
Registration Fee
|
|
$
|
1,324
|
Printing
and Engraving Expenses
|
|
$
|
2,500
|
Legal
Fees and Expenses
|
|
$
|
20,000
|
Accountants'
Fees and Expenses
|
|
$
|
25,000
|
Miscellaneous
Costs
|
|
$
|
2,176
|
Total
|
|
$
|
51,000
|
Item
26: Recent Sales of Unregistered Securities
On
December 6, 2006, we entered into a note and warrant purchase agreement
pursuant
to which we sold and issued an aggregate of $500,000 of 7.5% convertible
notes
due November 15, 2007 and warrants to purchase 386,364 shares of common
stock of
Access. Net proceeds to Access were $450,000. The notes and warrants
were sold
in a private placement to a group of accredited investors led by SCO
Capital
Partners LLC (“SCO”) and affiliates.
On
October 24, 2006, we entered into a note and warrant purchase agreement
pursuant
to which we sold and issued an aggregate of $500,000 of 7.5% convertible
notes
due November 15, 2007 and warrants to purchase 386,364 shares of common
stock of
Access. Net proceeds to Access were $450,000. The notes and warrants
were sold
in a private placement to a group of accredited investors led by SCO
and
affiliates.
On
February 16, 2006, the Registrant entered into a note and warrant purchase
agreement pursuant to which it sold and issued an aggregate of $5,000,000
of
7.5% convertible notes due March 31, 2007 and warrants to purchase an aggregate
of 3,863,634 shares of common stock of Access. Net proceeds to Access were
$4.557 million. The notes and warrants were sold in a private placement
to a
group of accredited investors led by SCO and its affiliates.
All
of
the above-described issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act or Rule 506 of Regulation D
promulgated thereunder, as transactions not involving a public offering.
Item
27. Exhibits
The
following is a list of exhibits filed as a part of this registration statement:
Number
|
Description
of Document
|
2.1
|
Amended
and Restated Agreement of Merger and Plan of Reorganization between
Access
Pharmaceuticals, Inc. and Chemex Pharmaceuticals, Inc., dated
as of
October 31, 1995 (Incorporated by reference to Exhibit A of the
our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031)
|
2.2
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc.,
Somanta
Acquisition Corporation, Somanta Pharmaceuticals, Inc. Somanta
Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated
by
reference to Exhibit 2.1 to our Form 8-K dated April 18,
2007)
|
3.0
|
Articles
of incorporation and bylaws
|
3.1
|
Certificate
of Incorporation (Incorporated by Reference to Exhibit 3(a) of
our Form
8-B dated July 12, 1989, Commission File Number
9-9134)
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation filed August 21,
1992
|
3.3
|
Certificate
of Merger filed January 25, 1996. (Incorporated by reference
to Exhibit E
of our Registration Statement on Form S-4 dated December 21,
1995,
Commission File No. 33-64031)
|
3.4
|
Certificate
of Amendment of Certificate of Incorporation filed January 25,
1996.
(Incorporated by reference to Exhibit E of our Registration Statement
on
Form S-4 dated December 21, 1995, Commission File No.
33-64031)
|
3.5
|
Certificate
of Amendment of Certificate of Incorporation filed July 18, 1996.
(Incorporated by reference to Exhibit 3.8 of our Form 10-K for
the year
ended December 31, 1996)
|
3.6
|
Certificate
of Amendment of Certificate of Incorporation filed June 18, 1998.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for
the quarter
ended June 30, 1998
|
3.7
|
Certificate
of Amendment of Certificate of Incorporation filed July 31, 2000.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for
the quarter
ended March 31, 2001)
|
3.8
|
Certificate
of Designations of Series A Junior Participating Preferred Stock
filed
November 7, 2001 (Incorporated by reference to Exhibit 4.1.h
of our
Registration Statement on Form S-8, dated December 14, 2001,
Commission
File No. 333-75136)
|
3.9
|
Amended
and Restated Bylaws (Incorporated by reference to Exhibit 3.1
of our Form
10-Q for the quarter ended June 30,
1996)
|
3.10
|
Certificate
of Designation of Series A Cumulative Convertible Preferred Stock
filed
November 9, 2007
|
5.1
|
Opinion
of Bingham McCutchen LLP regarding the legality of the
securities
|
10.1*
|
1995
Stock Option Plan (Incorporated by reference to Exhibit F of
our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031
|
10.2*
|
Amendment
to 1995 Stock Option Plan (Incorporated by reference to Exhibit
10.25 of
our Form 10-K for the year ended December 31,
2001)
|
10.3
|
Lease
Agreement between Pollock Realty Corporation and us dated July
25, 1996
(Incorporated by reference to Exhibit 10.19 of our Form 10-Q
for the
quarter ended September 30, 1996)
|
10.4
|
Platinate
HPMA Copolymer Royalty Agreement between The School of Pharmacy,
University of London and the Company dated November 19, 1996
(Incorporated
by reference to Exhibit 10.11 of our Form 10-K for the year ended
December
31, 1996)
|
10.5*
|
Employment
Agreement of David P. Nowotnik, PhD (Incorporated by reference
to Exhibit
10.19 of our Form 10-K for the year ended December 31,
1999)
|
10.6*
|
401(k)
Plan (Incorporated by reference to Exhibit 10.20 of our Form
10K for the
year ended December 31, 1999)
|
10.7
|
Form
of Convertible Note (Incorporated by reference to Exhibit 10.24
of our
Form 10-Q for the quarter ended September 30,
2000)
|
10.8
|
Rights
Agreement, dated as of October 31, 2001 between the us and American
Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference
to Exhibit 99.1 of our Current Report on Form 8-K dated October
19,
2001)
|
10.9
|
Amendment
to Rights Agreement, dated as of February 16, 2006 between us
and American
Stock Transfer & Trust Company, as Rights Agent
(2)
|
10.10*
|
2001
Restricted Stock Plan (Incorporated by reference to Appendix
A of our
Proxy Statement filed on April 16,
2001)
|
10.11*
|
2005
Equity Incentive Plan (Incorporated by reference to Exhibit 1
of our Proxy
Statement filed on April 18, 2005
(2)
|
10.12*
|
Employment
Agreement, dated as of June 1, 2005 by and between us and Stephen
B.
Thompson (1)
|
10.13
|
Asset
Sale Agreement, dated as of October 12, 2005, between us and
Uluru, Inc.
(1)
|
10.14
|
Amendment
to Asset Sale Agreement, dated as of December 8, 2006, between
us and
Uluru, Inc. (3)
|
10.15
|
License
Agreement, dated as of October 12, 2005, between us and Uluru,
Inc.
(1)
|
10.16
|
Form
of Warrant, dated February 16, 2006, issued by us to certain
Purchasers
(2)
|
10.17
|
Form
of Warrant, dated October 24, 2006, issued by us to certain Purchasers
(3)
|
10.18
|
Investor
Rights Agreement, dated October 24, 2006, between us and certain
Purchasers
|
10.19
|
Form
of Warrant, December 6, 2006, issued by us to certain Purchasers
(3)
|
10.20
|
Investor
Rights Agreement, dated December 6, 2006, between us and
certain Purchasers
|
10.21*
|
2007
Special Stock Option Plan and Agreement, dated January 4, 2007,
by and
between us and Stephen R. Seiler, President and Chief Executive
Officer
(4)
|
10.22*
|
Employment
Agreement, dated January 4, 2007 by and between us and Stephen
R. Seiler,
President and Chief Executive Officer
(4)
|
10.23
|
Note
Purchase Agreement dated April 26, 2007 between us and Somanta
Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.42
of our
Form 10-Q for the quarter ended June 30 30,
2007)
|
10.24
|
Preferred
Stock and Warrant Purchase Agreement, dated November 7,
2007, between us and certain
Purchasers
|
10.25
|
Investor
Rights Agreement, dated November 10, 2007, between us and certain
Purchasers
|
10.26
|
Form
of Warrant Agreement dated November 10, 2007, between us and
certain Purchasers
|
10.27
|
Board
Designation Agreement, dated November 15, 2007, between us and
SCO Capital
Partners LLC
|
23.1
Consent
of Whitley Penn LLP
23.2
Consent
of Grant Thornton LLP
23.3
Opinion
of Bingham McCutchen LLP regarding the legality of the securities
E
*
|
[Management
contract or compensatory plan required to be filed as an Exhibit
to this
Form pursuant to Item 15(c) of the report.]
|
(1)
|
Incorporated
by reference to our Form 10-K for the year ended December 31,
2005.
|
(2)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2006.
|
(3)
|
Incorporated
by reference to our Form 10-KSB for the year ended December 31,
2006.
|
(4)
|
Incorporated
by reference to our Form 10-QSB for the quarter ended March 31,
2007.
|
Item
28. Undertakings
The
undersigned Registrant hereby undertakes:
(1)
To
file,
during any period in which offers or sales are being made pursuant to this
Registration Statement, a post-effective amendment to this Registration
Statement:
(i)
to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933.
(ii)
to
reflect in the prospectus any facts or events arising after the effective
date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if
the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
(iii)
to
include any material information with respect to the plan of distribution
not
previously disclosed in this Registration Statement or any material change
to
such information in this Registration Statement.
(2)
That,
for
the purpose of determining any liability under the Securities Act of 1933,
each
such post-effective amendment shall be deemed to be a new Registration
Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions described in Item 24 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other
than the
payment by the Registrant of expenses incurred or paid by a director, officer
or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person
in connection with the securities being registered, the Registrant will,
unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on
Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is
first
used after effectiveness. Provided, however, that no statement made in
a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference
into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant
has duly caused this Registration Statement on Form SB-2 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Dallas,
State of Texas, on this 10th day of December, 2007.
ACCESS
PHARMACEUTICALS, INC.
Date
December
10,
2007
|
|
By:
|
/s/ Stephen
R. Seiler
|
|
|
|
Stephen R. Seiler
|
|
|
|
President and Chief Financial
|
|
|
|
Officer
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/ Stephen
B. Thompson
|
|
|
|
Stephen B. Thompson
|
|
|
|
Vice President, Chief Financial
|
|
|
|
Officer and Treasurer
|
POWER
OF ATTORNEY
We,
the
undersigned directors of Access Pharmaceuticals, Inc., hereby severally
constitute and appoint Stephen R. Seiler and Stephen B. Thompson, and both
or
either one of them, our true and lawful attorneys-in-fact and agents, with
full
power of substitution and re-substitution in for him and in his name, place
and
stead, and in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any subsequent
registration statements pursuant to Rule 462 of the Securities Act, and
to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do
and perform each and every act and thing requisite and necessary to be
done in
and about the premises, as fully to all intents and purposes as he might
or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may lawfully do or
cause to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement on Form SB-2 has been signed below by the following persons in
the capacities and on the dates indicated:
Date
December
10,
2007
|
|
By:
|
/s/ Mark
J. Ahn
|
|
|
|
|
Mark J. Ahn, Director
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/ Mark
J.
Alvino
|
|
|
|
|
Mark J. Alvino, Director
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/
Esteban Cvitkovic
|
|
|
|
|
Esteban Cvitkovic, Director
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/
Jeffrey B. Davis
|
|
|
|
|
Jeffrey B. Davis, Director
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/ Stephen
B.
Howell
|
|
|
|
|
Stephen B. Howell, Director
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/ David
P.
Luci
|
|
|
|
|
David P. Luci, Director
|
|
|
|
|
Date
December
10,
2007
|
|
By:
|
/s/
Rosemary
Mazanet
|
|
|
|
|
Rosemary Mazanet, Director
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/
John J.
Meakem
|
|
|
|
|
John J. Meakem, Jr., Director
|
|
|
|
|
Date
December 10, 2007
|
|
By:
|
/s/
Stephen R.
Seiler
|
|
|
|
|
Stephen R. Seiler
|
|
|
|
President and Chief Executive,
Officer,
and
Director
|
Exhibit
Number
|
Description
of Document
|
2.1
|
Amended
and Restated Agreement of Merger and Plan of Reorganization between
Access
Pharmaceuticals, Inc. and Chemex Pharmaceuticals, Inc., dated
as of
October 31, 1995 (Incorporated by reference to Exhibit A of the
our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031)
|
2.2
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc.,
Somanta
Acquisition Corporation, Somanta Pharmaceuticals, Inc. Somanta
Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated
by
reference to Exhibit 2.1 to our Form 8-K dated April 18,
2007)
|
3.0
|
Articles
of incorporation and bylaws
|
3.1
|
Certificate
of Incorporation (Incorporated by Reference to Exhibit 3(a) of
our Form
8-B dated July 12, 1989, Commission File Number
9-9134)
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation filed August 21,
1992
|
3.3
|
Certificate
of Merger filed January 25, 1996. (Incorporated by reference
to Exhibit E
of our Registration Statement on Form S-4 dated December 21,
1995,
Commission File No. 33-64031)
|
3.4
|
Certificate
of Amendment of Certificate of Incorporation filed January 25,
1996.
(Incorporated by reference to Exhibit E of our Registration Statement
on
Form S-4 dated December 21, 1995, Commission File No.
33-64031)
|
3.5
|
Certificate
of Amendment of Certificate of Incorporation filed July 18, 1996.
(Incorporated by reference to Exhibit 3.8 of our Form 10-K for
the year
ended December 31, 1996)
|
3.6
|
Certificate
of Amendment of Certificate of Incorporation filed June 18, 1998.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for
the quarter
ended June 30, 1998
|
3.7
|
Certificate
of Amendment of Certificate of Incorporation filed July 31, 2000.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for
the quarter
ended March 31, 2001)
|
3.9
|
Amended
and Restated Bylaws (Incorporated by reference to Exhibit 3.1
of our Form
10-Q for the quarter ended June 30,
1996)
|
3.10
|
Certificate
of Designation of Series A Cumulative Convertible Preferred Stock
filed
November 9, 2007
|
5.1
|
Opinion
of Bingham McCutchen LLP regarding the legality of the
securities
|
10.1*
|
1995
Stock Option Plan (Incorporated by reference to Exhibit F of
our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031
|
10.2*
|
Amendment
to 1995 Stock Option Plan (Incorporated by reference to Exhibit
10.25 of
our Form 10-K for the year ended December 31,
2001)
|
10.3
|
Lease
Agreement between Pollock Realty Corporation and us dated July
25, 1996
(Incorporated by reference to Exhibit 10.19 of our Form 10-Q
for the
quarter ended September 30, 1996)
|
10.4
|
Platinate
HPMA Copolymer Royalty Agreement between The School of Pharmacy,
University of London and the Company dated November 19, 1996
(Incorporated
by reference to Exhibit 10.11 of our Form 10-K for the year ended
December
31, 1996)
|
10.5*
|
Employment
Agreement of David P. Nowotnik, PhD (Incorporated by reference
to Exhibit
10.19 of our Form 10-K for the year ended December 31,
1999)
|
10.6*
|
401(k)
Plan (Incorporated by reference to Exhibit 10.20 of our Form
10K for the
year ended December 31, 1999)
|
10.7
|
Form
of Convertible Note (Incorporated by reference to Exhibit 10.24
of our
Form 10-Q for the quarter ended September 30,
2000)
|
10.8
|
Rights
Agreement, dated as of October 31, 2001 between the us and American
Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference
to Exhibit 99.1 of our Current Report on Form 8-K dated October
19,
2001)
|
10.9
|
Amendment
to Rights Agreement, dated as of February 16, 2006 between us
and American
Stock Transfer & Trust Company, as Rights Agent
(2)
|
10.10*
|
2001
Restricted Stock Plan (Incorporated by reference to Appendix
A of our
Proxy Statement filed on April 16,
2001)
|
10.11*
|
2005
Equity Incentive Plan (Incorporated by reference to Exhibit 1
of our Proxy
Statement filed on April 18, 2005
(2)
|
10.12*
|
Employment
Agreement, dated as of June 1, 2005 by and between us and Stephen
B.
Thompson (1)
|
10.13
|
Asset
Sale Agreement, dated as of October 12, 2005, between us and
Uluru, Inc.
(1)
|
10.14
|
Amendment
to Asset Sale Agreement, dated as of December 8, 2006, between
us and
Uluru, Inc. (3)
|
10.15
License
Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
10.16
|
Form
of Warrant, dated February 16, 2006, issued by us to certain
Purchasers
(2)
|
10.17
|
Form
of Warrant, dated October 24, 2006, issued by us to certain Purchasers
(3)
|
10.18
|
Investor
Rights Agreement, dated October 24, 2006, between us and
certain Purchasers
|
10.19
|
Form
of Warrant, December 6, 2006, issued by us to certain Purchasers
(3)
|
10.20
|
Investor
Rights Agreement, dated December 6, 2006, between us and
certain Purchasers
|
10.21*
|
2007
Special Stock Option Plan and Agreement, dated January 4, 2007,
by and
between us and Stephen R. Seiler, President and Chief Executive
Officer
(4)
|
10.22*
|
Employment
Agreement, dated January 4, 2007 by and between us and Stephen
R. Seiler,
President and Chief Executive Officer
(4)
|
10.23
|
Note
Purchase Agreement dated April 26, 2007 between us and Somanta
Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.42
of our
Form 10-Q for the quarter ended June 30 30,
2007)
|
10.24
|
Preferred
Stock and Warrant Purchase Agreement, dated November 7, 2007, between
us
and certain Purchasers
|
10.25
|
Investor
Rights Agreement, dated November 10, 2007, between us and certain
Purchasers
|
10.26
|
Form
of Warrant Agreement dated November 10, 2007, between us and certain
Purchasers
|
10.27
|
Board
Designation Agreement, dated November 15, 2007, between us and
SCO Cpaital
Partners LLC
|
23.1
|
Consent
of Whitley Penn LLP
|
23.2
|
Consent
of Grant Thornton LLP
|
23.3
|
Opinion
of Bingham McCutchen LLP regarding the legality of the
securities
|
*
|
[Management
contract or compensatory plan required to be filed as an Exhibit
to this
Form pursuant to Item 15(c) of the report.]
|
(5)
|
Incorporated
by reference to our Form 10-K for the year ended December 31,
2005.
|
(6)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2006.
|
(7)
|
Incorporated
by reference to our Form 10-KSB for the year ended December 31,
2006.
|
(8)
|
Incorporated
by reference to our Form 10-QSB for the quarter ended March 31,
2007.
|
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:
EXHIBIT
5.1
December
10, 2007
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
TX 75207
Re:
Registration
Statement on Form SB-2 under the Securities Act of
1933
Dear
Ladies and Gentlemen:
We
have acted as counsel to Access
Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”), in
connection with the registration under the Securities Act of 1933, as amended,
on Form SB-2, of
16,560,519
shares of the
Company’s Common Stock, $0.01 par value per share (“
Common Stock
”),
consisting of (i) 10,757,864 shares of Common Stock (the “
Conversion
Shares
”) issuable upon conversion of Series A Cumulative Convertible
Preferred Stock (“
Series A Preferred Stock
”), (ii) 3,440,880 shares of
Common Stock, 386,364 shares of Common Stock and 386,364 shares of Common Stock
(the “
Warrant
Shares
”), issuable upon the exercise of Common Stock
Purchase Warrants dated November 10, 2007, October 24, 2006 and December 6,
2006, respectively (the “Warrants”), issued in conjunction with the purchase of
Series A Preferred Stock and certain note and warrant purchase agreements dated
October 24, 2006 and December 6, 2006, respectively, (iii) 1,380,047 shares
of
Common Stock (the “
Dividend Shares
”), issuable to the holders of Series A
Preferred Stock on the payment of dividends which may, under certain
circumstances, be paid in shares of common stock, and (iv) 209,000 shares of
Common Stock (the “
Placement Agent Shares
”), issuable to the placement
agents upon the exercise of common stock warrants (the “Placement Agent
Warrants”) issued as a placement agent fee in conjunction with the offering of
Series A Preferred Stock.
As
such counsel, we have reviewed
certain corporate proceedings of the Company with respect to the authorization
of the issuance of the Shares. We have also examined and relied upon
originals or copies of such corporate records, instruments, agreements or other
documents of the Company, and certificates of officers of the Company as to
certain factual matters, and have made such investigation of law and have
discussed with officers and representatives of the Company such questions of
fact, as we have deemed necessary or appropriate as a basis for the opinions
hereinafter expressed. In our examination, we have assumed the
genuineness of all signatures, the conformity to the originals of all documents
reviewed by us as copies, the authenticity and completeness of all original
documents reviewed by us in original or copy form and the legal competence
of
each individual executing any document.
For
purposes of this opinion, we have made such examination of law as we have deemed
necessary. This opinion is limited solely to the Delaware General
Corporation Law, as applied by courts located in Delaware, and the applicable
provisions of the Delaware Constitution and the reported judicial decisions
interpreting those laws, and we express no opinion as to the laws of any other
jurisdiction.
Based
upon and subject to the
foregoing, we are of the opinion that the Conversion Shares, the Warrant Shares,
the Dividend Shares and the Placement Agent Shares have been duly authorized
and, when and if issued, (i) upon conversion of the Series A Preferred Stock,
(ii) upon the exercise of the Warrants and the Placement Agent Warrants or
(iii)
upon the payment of duly declared common stock dividends on the Series A
Preferred Stock, will be validly issued, fully paid and
nonassessable.
We
consent to the filing of this
opinion with the Securities and Exchange Commission as an exhibit to the
Registration Statement and the reference to us under the heading “Legal Matters”
in the related prospectus.
Very
truly yours,
/s/
Bingham McCutchen LLP
BINGHAM
McCUTCHEN LLP
EXHIBIT
10.24
_____________________________________________________________________________
PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
by
and
among
Access
Pharmaceuticals, Inc.
and
the
parties named herein on Schedule 1, as Purchasers
November
7, 2007
_____________________________________________________________________________
This
PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
(this
“
Agreement
”)
is
dated as of November 7, 2007, among Access Pharmaceuticals, Inc., a Delaware
corporation (the “
Company
”),
and
the purchasers identified on
Schedule
1
hereto
(each a “
Purchaser
”
and
collectively the “
Purchasers
”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated
thereunder, the Company desires to issue and sell to the Purchasers, and the
Purchasers, severally and not jointly, desire to purchase from the Company,
in
the aggregate, (i) up to 3,227.3617 shares of the Company’s Series A Cumulative
Convertible Preferred Stock, and (ii) Common Stock Purchase Warrants (the
“
Warrants
”)
entitling the holders thereof to purchase up to 3,440,882
shares
of
the Company’s Common Stock as more fully set forth herein.
NOW,
THEREFORE, in consideration of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I
DEFINITIONS
AND TERMS OF PREFERRED STOCK AND WARRANTS
1.1
Certain
Definitions; Terms of Preferred Stock and Warrants
.
In
addition to the terms defined elsewhere in this Agreement, for all purposes
of
this Agreement, the following terms have the meanings indicated in this Section
1.1:
“
Action
”
shall
have the meaning ascribed to such term in
Section
3.1(j).
“
Affiliate
”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144. With respect to a Purchaser,
any
investment fund or managed account that is managed on a discretionary basis
by
the same investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.
“
Agreement
”
shall
have the meaning ascribed to such term in the Preamble.
“
Business
Day
”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which banking institutions in the State of Texas are
authorized or required by law or other governmental action to
close.
“
Certificate
of Designation
”
shall
have the meaning ascribed to such term in Section 1.2.
“
Closing
”
shall
have the meaning ascribed to such term in Section 2.1(a).
“
Closing
Date
”
shall
have the meaning ascribed to such term in Section 2.1(a).
“
Closing
Escrow Agreement
”
shall
have the meaning ascribed to such term in Section 2.1(b).
“
Commission
”
means
the Securities and Exchange Commission.
“
Common
Stock
”
means
the common stock of the Company, $0.01 par value per share, and any securities
into which such common stock may hereafter be reclassified.
“
Common
Stock Equivalents
”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
“
Company
”
shall
have the meaning ascribed to such term in the Preamble.
“
Conversion
Shares
”
means
the shares of Common Stock issuable or issued upon conversion of the Preferred
Stock.
“
Disclosure
Schedules
”
means
the Disclosure Schedules concurrently delivered herewith.
“
Effective
Date
”
means
the date that the Registration Statement is first declared effective by the
Commission.
“
Environmental
Laws
”
shall
have the meaning ascribed to such term in Section 3.1(y).
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
“
FDC
Act
”
shall
have the meaning ascribed to such term in Section 3.1(m).
“
GAAP
”
shall
have the meaning ascribed to such term in Section 3.1(h).
“
Governmental
Authorizations
”
shall
have the meaning ascribed to such term in Section 3.1(m).
“
Hazardous
Substances
”
shall
have the meaning ascribed to such term in Section 3.1(y).
“
Indemnified
Party
”
shall
have the meaning ascribed to such term in Section 5.3.
“
Indemnifying
Party
”
shall
have the meaning ascribed to such term in Section 5.3.
“
Intellectual
Property
”
shall
have the meaning ascribed to such term in Section 3.1(o).
“
Investor
Rights Agreement
”
means
the Investor Rights Agreement, dated as of the date of this Agreement, between
the Company and each of the Purchasers, in the form of
Exhibit
A
hereto.
“
Lien
”
means
a
lien, charge, security interest, encumbrance, right of first refusal or other
restriction, except for a lien for current taxes not yet due and payable and
a
minor imperfection of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company.
“
Material
Adverse Effect
”
shall
have the meaning ascribed to such term in Section 3.1(b).
“
Per
Share Purchase Price
”
equals
$10,000.
“
Person
”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
“
Placement
Agents
”
means
Rodman & Renshaw, LLC and Dawson James Securities, Inc.
“
Placement
Agent Warrants
”
shall
mean the common stock purchase warrants to be issued to the Placement Agents
and/or their designees as compensation for services rendered in connection
with
the transaction set forth herein as provided on
Schedule
1
attached
hereto, which warrants shall be in the form of
Exhibit
D
hereto.
“
Preferred
Shares
”
means
the shares of Preferred Stock issued to each Purchaser pursuant to this
Agreement.
“
Preferred
Stock
”
means
the Company’s Series A Cumulative Convertible Preferred Stock, par value $0.01
per share.
“
Premises
”
shall
have the meaning ascribed to such term in Section 3.1(y).
“
Promissory
Notes
”
shall
have shall have the meaning ascribed to such term in Section
2.1(c).
“Purchase
Price”
means
the aggregate purchase price paid by each Purchaser for the shares of Preferred
Stock and Warrants purchased by such Purchaser hereunder.
“
Purchaser
”
shall
have the meaning ascribed to such term in the Preamble.
“
Registration
Statement
”
means
a
registration statement meeting the requirements set forth in the Investor Rights
Agreement and covering the resale by the Purchasers of the Conversion Shares
and
the Warrant Shares.
“
Required
Minimum
”
means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and shares of Preferred Stock, ignoring any conversion
or exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the fifth anniversary
of
the Closing Date and all dividends are paid in shares of Common Stock until
such
fifth anniversary
“
Rights
”
shall
have the meaning ascribed to such term in Section 3.1(o).
“
Rule
144
”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
SEC
Reports
”
shall
have the meaning ascribed to such term in Section 3.1(h).
“
Securities
”
means
the Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares.
“
Securities
Act
”
means
the Securities Act of 1933, as amended.
“
Short
Sales
”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“
Subscription
Amount
”
means,
as to each Purchaser, the amount set forth beside such Purchaser's name on
Schedule
1
hereto,
in United States dollars and in immediately available funds.
“
Subsidiary
”
means,
with respect to any entity, any corporation or other organization of which
securities or other ownership interests having ordinary voting power to elect
a
majority of the board of directors or other persons performing similar
functions, are directly or indirectly owned by such entity or of which such
entity is a partner or is, directly or indirectly, the beneficial owner of
50%
or more of any class of equity securities or equivalent profit participation
interests.
“
Trading
Day
”
means
(i) a day on which the Common Stock is traded on a Trading Market, or (ii)
if
the Common Stock is not listed on a Trading Market, a day on which the Common
Stock is traded on the over-the-counter market, as reported by the OTC Bulletin
Board, or (iii) if the Common Stock is not listed on a Trading Market or quoted
on the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as
set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business
Day.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market, the Nasdaq Capital Market or the
OTC
Bulletin Board.
“
Transaction
Documents
”
means
this Agreement, the Certificate of Designation, the Investor Rights Agreement,
the Warrants and any other documents or agreements executed in connection with
the transactions contemplated hereunder.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion of the Preferred
Stock, upon exercise of the Warrants and issued and issuable in lieu of the
cash
payment of dividends on the Preferred Stock in accordance with the terms of
the
Certificate of Designation.
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time); (v) if the
Common Stock is not then quoted for trading on any Trading Market and if prices
for the Common Stock are then reported in the “Pink Sheets” published by Pink
Sheets, LLC (or a similar organization or agency succeeding to its functions
of
reporting prices), the most recent bid price per share of the Common Stock
so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith
by
the Purchasers of a majority in interest of the Securities then outstanding
and
reasonably acceptable to the Company.
“
Warrants
”
shall
have the meaning ascribed to such term in the recitals hereto. The Placement
Agent Warrants shall also constitute “Warrants” for all purposes hereunder and
the Placement Agents and/or their designees and such other persons or entities
shall constitute “Purchasers” for all purposes hereunder.
“
Warrant
Shares
”
means
the shares of Common Stock issuable upon exercise of the Warrants.
1.2
Terms
of the Preferred Stock and Warrants
.
The
terms and provisions of the Preferred Stock are set forth in the form of
Certificate of Designations of Rights and Preferences of Series A Convertible
Preferred Stock, attached hereto as Exhibit B (the “
Certificate
of Designation
”).
The
terms and provisions of the Warrants are as set forth in the form of Common
Stock Purchase Warrant, attached hereto as
Exhibit
C
(and
Exhibit
D
in the
case of the Placement Agent Warrants).
ARTICLE
II
PURCHASE
AND SALE
2.1
Closing
.
(a)
The
closing of the transactions contemplated under this Agreement (the “
Closing
”)
will
take place upon the execution of this Agreement by the Company and the
Purchasers immediately following satisfaction or waiver of the conditions set
forth in Sections 2.2 and 2.3 (other than those conditions which by their terms
are not to be satisfied or waived until the Closing), at the offices of Wiggin
and Dana LLP, 400 Atlantic Street, Stamford, CT 06901 (or remotely via exchange
of documents and signatures) or at such other place or day as may be mutually
acceptable to the Purchasers and the Company. The date on which the Closing
occurs is the “
Closing
Date
”.
(b)
At
the
Closing, the Purchasers shall purchase, severally and not jointly, and the
Company shall issue and sell, in the aggregate, 3,227.3617 shares of Preferred
Stock and Warrants to purchase 3,440,882 shares of Common Stock. Each Purchaser
shall purchase from the Company, and the Company shall issue and sell to each
Purchaser, a number of Preferred Shares equal to such Purchaser's Subscription
Amount divided by the Per Share Purchase Price and a Warrant to purchase 50%
of
the number of Conversion Shares into which the Preferred Shares purchased by
such Purchaser are initially convertible. Except to the extent paid in the
form
of surrender and cancellation of Promissory Notes (as defined below) pursuant
to
Section 2.1(c), the Subscription Amount paid by each Purchaser shall be placed
in escrow pending the Closing pursuant to a Closing Escrow Agreement among
the
Company, SCO Capital Partners LLC and Wiggin and Dana LLP (the “
Escrow
Agent
”),
which
agreement shall be in the form attached hereto as
Exhibit
E
(the
“
Closing
Escrow Agreement
”).
(c)
All
or a
portion of the Subscription Amount payable by certain Purchasers for the
Preferred Stock and Warrants purchased pursuant to this Agreement shall be
payable by the surrender and cancellation of promissory notes of the Company
held by such Purchasers, representing an aggregate principal amount of
$10,015,000 plus accrued and unpaid interest thereon and described next to
such
Purchaser’s name in
Schedule
1
hereto
(the “
Promissory
Notes
”),
with
the value of such Promissory Notes toward such Purchaser’s Subscription Amount
also described in
Schedule
1
.
The
value of each Promissory Note toward the Subscription Amount shall be determined
according to whether the Promissory Note is an “A” Promissory Note (a
“
Category
A Note
”)
or a
“B” Promissory Note (a “
Category
B Note
”),
in
each case, as set forth on
Schedule
1
under
the heading “Promissory Note Category”. Category A Notes shall be valued toward
each applicable Purchaser’s Subscription Amount at a dollar amount equal to (i)
the number of shares of Common Stock into which such Category A Note is
convertible immediately prior to the Closing (without giving effect to any
limitations on beneficial ownership contained therein) multiplied by (ii) the
Conversion Value (as defined in the Certificate of Designation); provided that,
notwithstanding any other provision of this Agreement, the Warrants issuable
to
the Category A Note holders in respect of Category A Notes exchanged by them
shall be exercisable for a number of shares of Common Stock determined as if
the
principal and interest on such Category A Notes were exchanged on a
dollar-for-dollar basis and as set forth next to the name of such Category
A
Note holder on
Schedule
1
.
Category B Notes shall be valued toward each applicable Purchaser’s Subscription
Amount at a dollar amount equal to the outstanding principal amount of such
Category B Note plus all accrued and unpaid interest thereon. Each Purchaser
surrendering Promissory Notes for cancellation in payment of any portion of
such
Purchaser’s Subscription Amount hereby agrees that such Promissory Notes shall
be cancelled and that all liens held by such Purchaser in connection with such
Promissory Notes shall be terminated, in each case, as of the
Closing.
2.2
Conditions
to Obligations of Purchasers to Effect the Closing
.
The
obligations of each Purchaser to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, by such Purchaser:
(a)
At
the
Closing (unless otherwise specified below) the Company shall deliver or cause
to
be delivered to each Purchaser the following:
(i)
this
Agreement, duly executed by the Company;
(ii)
a
certificate evidencing a number of Preferred Shares equal to such Purchaser's
Subscription Amount divided by the Per Share Purchase Price as set forth on
Schedule
1
hereto,
registered in the name of such Purchaser;
(iii)
a
Warrant, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire up to the number of shares of Common
Stock equal to 50% of the shares of Common Stock initially issuable upon
conversion of the Preferred Shares to be issued to such Purchaser at such
Closing (except with respect to Warrants issued upon exchange of Category A
Notes, the number of which shall be determined in accordance with Section
2.1(c)), as set forth on
Schedule
1
hereto;
(iv)
the
Investor Rights Agreement, duly executed by the Company;
(v)
a
legal opinion of Bingham McCutchen LLP,
counsel
to the Company, in the form of
Exhibit
F
hereto;
(vii)
a
certificate of the Secretary of the Company (the “
Secretary’s
Certificate
”),
attaching a true copy of the Certificate of Incorporation and Bylaws of the
Company, as amended to the Closing Date, and attaching true and complete copies
of the resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement and the other Transaction
Documents; and
(vii)
evidence
satisfactory to the Purchasers that the Certificate of Designation was duly
filed with, and accepted by, the Secretary of State of the State of
Delaware.
(b)
The
Company shall have entered into the Closing Escrow Agreement.
(c)
All
representations and warranties of the Company contained herein shall remain
true
and correct as of the Closing Date as though such representations and warranties
were made on such date (except those representations and warranties that address
matters only as of a particular date will remain true and correct as of such
date).
(d)
All
of
the Promissory Notes shall have been surrendered for cancellation in partial
payment of the Subscription Amount for the Purchasers holding such
notes;
(e)
As
of the
Closing Date, there shall have been no Material Adverse Effect with respect
to
the Company since the date hereof.
(f)
From
the
date hereof to the Closing Date, trading in the Common Stock shall not have
been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior
to
the Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States
or
New York State authorities.
(g)
All
Purchasers surrendering Promissory Notes for cancellation in payment of any
portion of their Subscription Amount shall have executed this
Agreement.
(i)
The
minimum aggregate cash Subscription Amount hereunder shall be
$7,500,000.
2.3.
Conditions
to Obligations of the Company to Effect the Closing
.
The
obligations of the Company to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, by the Company.
(a)
At
the Closing, each Purchaser shall deliver or cause to be delivered to the
Company the following:
(i)
this
Agreement, duly executed by such Purchaser;
(ii)
such
Purchaser's Subscription Amount, as applicable, (A) by wire transfer of
immediately available funds as provided in the Closing Escrow Agreement and/or
(B) in the case of Purchasers paying all or a portion of their Subscription
Amount by the cancellation of the Promissory Notes held by them, by the
cancellation of such Promissory Notes pursuant to Section 2.1(c);
and
(iii)
the
Investor Rights Agreement, duly executed by such Purchaser.
(b)
All
representations and warranties of each of the Purchasers contained herein shall
remain true and correct as of the Closing Date as though such representations
and warranties were made on such date.
(c)
The
Certificate of Designation shall have been duly filed with, and accepted by,
the
Secretary of State of the State of Delaware.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
3.1
Representations
and Warranties of the Company
.
Except
as
set forth under the corresponding section of the Disclosure Schedules delivered
concurrently herewith, the Company hereby makes the following representations
and warranties as of the date hereof and as of the Closing Date to each
Purchaser:
(a)
Subsidiaries
.
Except
as listed in Schedule 3.1(a), the Company has no direct or indirect
Subsidiaries.
(b)
Organization
and Qualification
.
Each of
the Company and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted. Neither the Company nor
any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
have or result in (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse effect
on
the business or financial condition of the Company and the Subsidiaries, taken
as a whole, or (iii) a material adverse effect on the Company's ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a “
Material
Adverse Effect
”).
(c)
Authorization;
Enforceability
.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby (including, but
not
limited to, the sale and delivery of the Preferred Stock and Warrants) have
been
duly authorized by all necessary corporate action on the part of the Company
and
no further corporate action is required by the Company in connection therewith.
The issuance and delivery of the Conversion Shares upon conversion of the
Preferred Stock and the Warrant Shares upon exercise of the Warrants have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly executed
by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors’ rights generally and rules of law governing specific
performance, injunctive relief, or other equitable remedies.
(d)
No
Conflicts
.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby
do
not and will not (i) conflict with or violate any provision of the Company's
or
any Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company
or
any Subsidiary is a party or by which any property or asset of the Company
or
any Subsidiary is bound or affected, or (iii) result in a violation of any
law,
rule, regulation, order, judgment, injunction, decree or other restriction
of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected,
except, in the cases of clause (ii), where such conflict, default or violation
would not have or result in a Material Adverse Effect.
(e)
Filings,
Consents and Approvals
.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of the
Registration Statement, the application(s) to each Trading Market for the
listing of the Conversion Shares and Warrant Shares for trading thereon in
the
time and manner required thereby, Form D and applicable Blue Sky filings, (ii)
such as have already been obtained or such exemptive filings as are required
to
be made under applicable securities laws and (iii) the filing of the Certificate
of Designation with the Secretary of State of the State of
Delaware.
(f)
Issuance
of the Securities
.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens, other than any Liens created by
or
imposed on the holders thereof through no action of the Company. The Company
has
reserved from its duly authorized capital stock (i) the maximum number of shares
of Preferred Stock issuable pursuant to this Agreement and (ii) the maximum
number of shares of Common Stock issuable upon conversion of the Preferred
Stock
and exercise of the Warrants.
(g)
Capitalization
.
(i)
The
authorized and outstanding capitalization of the Company is set forth on
Schedule 3.1(g) hereto. All shares of the Company’s issued and outstanding
capital stock have been duly authorized, are validly issued and outstanding,
and
are fully paid and nonassessable. No securities issued by the Company from
March
1, 2002 to the date hereof were issued in violation of any statutory or common
law preemptive rights. There are no dividends which have accrued or been
declared but are unpaid on the capital stock of the Company. All taxes required
to be paid by the Company in connection with the issuance and any transfers
of
the Company’s capital stock have been paid. The holders of the Company’s Common
Stock have certain rights under the company’s Rights Agreement dated as of
October 31, 2001 by and between the Company and American Stock Transfer as
Rights Agent. All outstanding securities of the Company have been issued in
all
material respects in accordance with the provisions of all applicable securities
and other laws.
(ii)
No
Person
has any right of first refusal, preemptive right, right of participation, or
any
similar right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities and
except for employee and director stock options under the Company's equity
compensation plans and as set forth on Schedule 3.1(h)(ii) hereto, there are
no
outstanding options, warrants, rights to subscribe to, calls or commitments
of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or
may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issue and sale
of
the Securities will not obligate the Company to issue shares of Common Stock
or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities other than the Purchasers to
adjust the exercise, conversion, exchange or reset price under such
securities.
(h)
SEC
Reports; Financial Statements; Liabilities
.
(i)
The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) of the
Exchange Act, for the 24 months preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to herein
as the “
SEC
Reports
”)
on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As
of
their respective filing dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations of the Commission promulgated thereunder,
as applicable, and none of the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii)
The
Company’s (A) audited financial statements for the fiscal years ended December
31, 2006 and 2005 included in the Company’s annual reports on Form 10-KSB and
Form 10-K, respectively, filed with the Commission and (B) the financial
statements included in the Company’s quarterly reports on Form 10-QSB filed with
the Commission for the first two fiscal quarters of 2007 comply with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing of such reports. Such
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States, applied on a consistent basis during
the periods involved (“
GAAP
”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, subject to normal year-end audit adjustments. Such
financial statements fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries, if any, as of and
for
the dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal year-end
audit adjustments.
(iii)
Except
for liabilities and obligations incurred since June 30, 2007 in the ordinary
course of business, consistent with past practice, as of the date hereof: (i)
the Company and its Subsidiaries do not have any material liabilities or
obligations (absolute, accrued, contingent or otherwise) and (ii) there has
not
been any aspect of the prior or current conduct of the business of the Company
or its Subsidiaries which may form the basis for any material claim by any
third
party which if asserted could result in a Material Adverse Effect.
(i)
Material
Changes
.
Except
as set forth on Schedule 3.1(i), since June 30, 2007, the Company has conducted
its business only in the ordinary course, consistent with past practice, and
since such date there has not occurred:
(i)
any
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect on the Company or any of its
Subsidiaries;
(ii)
any
amendments or changes in the charter documents of the Company and its
Subsidiaries;
(iii)
any:
(A)
incurrence, assumption or guarantee by the Company or its Subsidiaries of any
debt for borrowed money other than (i) equipment leases made in the ordinary
course of business, consistent with past practice and (ii) any such incurrence,
assumption or guarantee with respect to an amount of $25,000 or less that has
been disclosed in the SEC Reports;
(B)
other
than as set forth on Schedule 3.1(i)(iii)(A) hereto, issuance or sale of any
securities convertible into or exchangeable for securities of the Company other
than to directors, employees and consultants pursuant to existing equity
compensation or stock purchase plans of the Company;
(C)
issuance or sale of options or other rights to acquire from the Company or
its
Subsidiaries, directly or indirectly, securities of the Company or any
securities convertible into or exchangeable for any such securities, other
than
options issued to directors, employees and consultants in the ordinary course
of
business, consistent with past practice;
(D)
issuance or sale of any stock, bond or other corporate security other than
to
directors, employees and consultants pursuant to existing equity compensation
or
stock purchase plans of the Company;
(E)
discharge or satisfaction of any material Lien;
(F)
declaration or making any payment or distribution to stockholders or purchase
or
redemption of any share of its capital stock or other security other than to
directors, officers and employees of the Company or its Subsidiaries as
compensation for services rendered to the Company or its Subsidiary (as
applicable) or for reimbursement of expenses incurred on behalf of the Company
or its Subsidiary (as applicable);
(G)
sale,
assignment or transfer of any of its intangible assets except in the ordinary
course of business, consistent with past practice, or cancellation of any debt
or claim except in the ordinary course of business, consistent with past
practice;
(H)
waiver of any right of substantial value whether or not in the ordinary course
of business;
(I)
material change in officer compensation, except in the ordinary course of
business and consistent with past practice; or
(J)
other
commitment (contingent or otherwise) to do any of the foregoing.
(iv)
other
than as set forth on Schedule 3(i)(iv) hereto, any creation, sufferance or
assumption by the Company or any of its Subsidiaries of any Lien on any asset
or
any making of any loan, advance or capital contribution to or investment in
any
Person, in an aggregate amount which exceeds $25,000 outstanding at any
time;
(v)
any
entry
into, amendment of, relinquishment, termination or non-renewal by the Company
or
its Subsidiaries of any material contract, license, lease, transaction,
commitment or other right or obligation, other than in the ordinary course
of
business, consistent with past practice; or
(vi)
other than as set forth on Schedule 3(i)(vi) hereto, any transfer or grant
of a
right with respect to the patents, trademarks, trade names, service marks,
trade
secrets, copyrights or other intellectual property rights owned or licensed
by
the Company or its Subsidiaries, except as among the Company and its
Subsidiaries.
(j)
Litigation
.
There
is no action, suit, inquiry, notice of violation, proceeding or, to the
knowledge of the Company, investigation pending nor, to the knowledge of the
Company, is any of the above threatened against the Company, any Subsidiary
or
any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “
Action
”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if there
were
an unfavorable decision, have or result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor, to the knowledge of the Company, any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws
or a
claim of breach of fiduciary duty within the past five (5) years. To the
knowledge of the Company, there has not been and there is not pending or
contemplated, any investigation by the Commission involving the Company or
any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act within the past eight (8) years.
(k)
Labor
Relations
.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could have or result
in a Material Adverse Effect.
(l)
Compliance
.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
currently in default under or that it is in violation of, any indenture, loan
or
credit agreement or any other agreement or instrument to which it is a party
or
by which it or any of its properties is bound (whether or not such default
or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business, except in the case of clauses (i) and (iii) as would not have or
reasonably be expected to result in a Material Adverse Effect.
(m)
Licenses;
Compliance With FDA and Other Regulatory Requirements.
(i)
The
Company holds all material authorizations, consents, approvals, franchises,
licenses and permits required under applicable law or regulation for the
operation of the business of the Company and its Subsidiaries as presently
operated (the “
Governmental
Authorizations
”).
All
the Governmental Authorizations have been duly issued or obtained and are in
full force and effect, and the Company and its Subsidiaries are in material
compliance with the terms of all the Governmental Authorizations. The Company
and its Subsidiaries have not engaged in any activity that, to their knowledge,
would cause revocation or suspension of any such Governmental Authorizations.
Neither the execution, delivery nor performance of this Agreement shall
adversely affect the status of any of the Governmental
Authorizations.
(ii)
Without
limiting the generality of the representations and warranties made in
sub-paragraph (i) above, the Company represents and warrants that (i) the
Company and each of its Subsidiaries is in material compliance with all
applicable provisions of the United States Federal Food, Drug, and Cosmetic
Act
and the rules and regulations promulgated thereunder (the “
FDC
Act
”)
and
equivalent laws, rules and regulations in jurisdictions outside the United
States in which the Company or its Subsidiaries do business, (ii) its products
and those of each of its Subsidiaries that are in the Company’s control are not
adulterated or misbranded and are in lawful distribution, (iii) all of the
products marketed by and within the control of the Company comply in all
material respects with any conditions of approval and the terms of the
application by the Company to the appropriate Regulatory Authorities, (iv)
no
Regulatory Authority has initiated legal action with respect to the
manufacturing of the Company’s products, such as seizures or required recalls,
and the Company is in compliance with applicable good manufacturing practice
regulations, (v) its products are labeled and promoted by the Company and its
representatives in substantial compliance with the applicable terms of the
marketing applications submitted by the Company to the Regulatory Authorities
and the provisions of the FDC Act and foreign equivalents, (vi) all adverse
events that were known to and required to be reported by Company to the
Regulatory Authorities have been reported to the Regulatory Authorities in
a
timely manner, (vii) neither the Company nor any of its Subsidiaries is, to
their knowledge, employing or utilizing the services of any individual who
has
been debarred under the FDC Act or foreign equivalents, (viii) all stability
studies required to be performed for products distributed by the Company or
any
of its Subsidiaries have been completed or are ongoing in material compliance
with the applicable Regulatory Authority requirements, (ix) any products
exported by the Company or any of its Subsidiaries have been exported in
compliance with the FDC Act and (x) the Company and its Subsidiaries are in
compliance in all material respects with all applicable provisions of the
Controlled Substances Act. For purposes of this Section 3.1(m), “
Regulatory
Authority
”
means
any governmental authority in a country or region that regulates the manufacture
or sale of Company’s products, including, but not limited to, the United States
Food and Drug Administration.
(n)
Title
to Assets
.
The
Company and the Subsidiaries do not own any real property, and have good and
marketable title to all personal property owned by them that is material to
the
business of the Company and the Subsidiaries, taken as a whole, in each case
free and clear of all Liens, except those, if any, reflected in the Company’s
financial statements or incurred in the ordinary course of business consistent
with past practice or which would not cause a Material Adverse Effect. Any
real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases (subject to laws
of
general application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally and rules
of law governing specific performance, injunctive relief, or other equitable
remedies) with which the Company and the Subsidiaries are in material
compliance.
(o)
Intellectual
Property.
(i)
The
Company or a Subsidiary thereof has the right to use or is the sole and
exclusive owner of all right, title and interest in and to all material foreign
and domestic patents, patent rights, trademarks, service marks, trade names,
brands and copyrights (whether or not registered and, if applicable, including
pending applications for registration) owned, used or controlled by the Company
and its Subsidiaries (collectively, the “
Rights
”)
and in
and to each material invention, software, trade secret, technology, product,
composition, formula and method of process used by the Company or its
Subsidiaries (the Rights and such other items, the “
Intellectual
Property
”),
and,
to the Company’s knowledge, has the right to use the same, free and clear of any
claim or conflict with the rights of others (subject to the provisions of any
applicable license agreement) except as would not cause a Material Adverse
Effect;
(ii)
other
than in the ordinary course of business, no royalties or fees (license or
otherwise) are payable by the Company or its Subsidiaries to any Person by
reason of the ownership or use of any of the Intellectual Property;
(iii)
there
have been no written claims made against the Company or its Subsidiaries
asserting the invalidity, abuse, misuse, or unenforceability of any of the
Intellectual Property, and, to the best of the Company’s knowledge, there are no
reasonable grounds for any such claims which would cause a Material Adverse
Effect;
(iv)
neither
the Company nor its Subsidiaries have made any claim of any violation or
infringement by others of its rights in the Intellectual Property, and to the
best of the Company’s knowledge, no reasonable grounds for such claims exist;
and
(v)
neither
the Company nor its Subsidiaries have received written notice that it is in
conflict with or infringing upon the asserted rights of others in connection
with the Intellectual Property which would cause a Material Adverse
Effect.
(p)
Insurance
.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage in the amount set forth on
Schedule
3.1(p)
attached
hereto. All of the insurance policies of the Company and its Subsidiaries are
in
full force and effect and are valid and enforceable in accordance with their
terms, and the Company and its Subsidiaries have complied with all material
terms and conditions thereof. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(q)
Transactions
With Affiliates and Employees
.
Except
as provided in the SEC Reports, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the Company
is
presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to
or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the
knowledge of the Company, any entity in which any officer, director, or any
such
employee has a substantial interest or is an officer, director, trustee or
partner, other than (a) for payment of salary or consulting fees for services
rendered, (b) reimbursement for expenses incurred on behalf of the Company
and
(c) for other employee benefits, including stock option agreements and other
stock awards under any equity compensation plan of the Company.
(r)
Internal
Accounting Controls
.
The
Company is in material compliance with all provisions of the Sarbanes-Oxley
Act
of 2002 which are applicable to it as of the Closing Date. The Company and
each
of the Subsidiaries maintains a system of internal accounting controls
sufficient in the judgment of the Company’s management to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that the Company
is
able to collect the information that it is required to disclose in the reports
it files with the Commission and to process, summarize and disclose this
information in the time periods specified in the Commission’s rules. The
Company's certifying officers have evaluated the effectiveness of the Company's
controls and procedures as of June 30, 2007 (such date, the “
Evaluation
Date
”).
The
Company presented in its Form 10-QSB for the quarter ended June 30, 2007, the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in the
Company's internal control over financial reporting (as such term is defined
in
Exchange Act Rule 13a-15) or, to the Company's knowledge, in other factors
that
could significantly affect the Company's internal controls.
(s)
Certain
Fees
.
Except
for fees payable to the Placement Agents, no brokerage or finder's fees or
commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other
Person with respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with respect
to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.
(t)
Private
Placement; Integrated Offering
.
Assuming the accuracy of the Purchasers representations and warranties set
forth
in Section 3.2, no registration under the Securities Act is required for the
offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does
not
contravene the rules and regulations of the Trading Market. Neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act and would as a result require registration
under the Securities Act or trigger any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations
of
any exchange or automated quotation system on which any of the securities of
the
Company are listed or designated.
(u)
Charter,
Bylaws and Corporate Records.
The
minute books of the Company and its Subsidiaries contain in all material
respects complete and accurate records of all meetings and other corporate
actions of the board of directors, committees of the board of directors,
incorporators and stockholders of the Company and its Subsidiaries from the
date
of incorporation of each such entity to the date hereof. All material corporate
decisions and actions have been validly made or taken. All corporate books,
including without limitation the share transfer register, comply in all material
respects with applicable laws and regulations and have been regularly
updated.
(v)
Registration
Rights
.
Except
as set forth in Schedule 3.1(v), no Person has any right to cause the Company
to
effect the registration under the Securities Act of any securities of the
Company.
(w)
Listing
and Maintenance Requirements
.
Except
as set forth on Schedule 3(w), the Company has not, in the 12 months preceding
the date hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not
in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.
(x)
Taxes.
All
tax
returns and tax reports required to be filed with respect to the income,
operations, business or assets of the Company and its Subsidiaries have been
timely filed (or appropriate extensions have been obtained) with the appropriate
governmental agencies in all jurisdictions in which such returns and reports
are
required to be filed, and all of the foregoing as filed are, in all material
respects, correct and complete and, in all material respects, reflect accurately
all liability for taxes of the Company and its Subsidiaries for the periods
to
which such returns relate, and all amounts shown as owing thereon have been
paid. All income, profits, franchise, sales, use, value added, occupancy,
property, excise, payroll, withholding, FICA, FUTA and other taxes (including
interest and penalties), if any, collectible or payable by the Company and
its
Subsidiaries or relating to or chargeable against any of its material assets,
revenues or income or relating to any employee, independent contractor,
creditor, stockholder or other third party through the Closing Date, were fully
collected and paid by such date if due by such date or provided for by adequate
reserves in the financial statements contained in the SEC Reports as of and
for
the periods ended September 30, 2005 (other than taxes accruing after such
date)
and all similar items due through the Closing Date will have been fully paid
by
that date or provided for by adequate reserves, whether or not any such taxes
were reported or reflected in any tax returns or filings. No taxation authority
has sought to audit the records of the Company or any of its Subsidiaries for
the purpose of verifying or disputing any tax returns, reports or related
information and disclosures provided to such taxation authority, or for the
Company’s or any of its Subsidiaries’ alleged failure to provide any such tax
returns, reports or related information and disclosure. No material claims
or
deficiencies have been asserted against or inquiries raised with the Company
or
any of its Subsidiaries with respect to any taxes or other governmental charges
or levies which have not been paid or otherwise satisfied, including claims
that, or inquiries whether, the Company or any of its Subsidiaries has not
filed
a tax return that it was required to file, and, to the best of the Company’s
knowledge, there exists no reasonable basis for the making of any such claims
or
inquiries. Neither the Company nor any of its Subsidiaries has waived any
restrictions on assessment or collection of taxes or consented to the extension
of any statute of limitations relating to taxation.
(y)
Environmental
Matters.
None
of
the premises or any properties owned, occupied or leased by the Company or
its
Subsidiaries (the “
Premises
”)
has
been used by the Company or the Subsidiaries or, to the Company’s knowledge, by
any other Person, to manufacture, treat, store, or dispose of any substance
that
has been designated to be a “hazardous substance” under applicable Environmental
Laws (hereinafter defined) (“
Hazardous
Substances
”)
in
violation of any applicable Environmental Laws. To its knowledge, the Company
has not disposed of, discharged, emitted or released any Hazardous Substances
which would require, under applicable Environmental Laws, remediation,
investigation or similar response activity. No Hazardous Substances are present
as a result of the actions of the Company or, to the Company’s knowledge, any
other Person, in, on or under the Premises which would give rise to any
liability or clean-up obligations of the Company under applicable Environmental
Laws. The Company and, to the Company’s knowledge, any other Person for whose
conduct it may be responsible pursuant to an agreement or by operation of law,
are in compliance with all laws, regulations and other federal, state or local
governmental requirements, and all applicable judgments, orders, writs, notices,
decrees, permits, licenses, approvals, consents or injunctions in effect on
the
date of this Agreement relating to the generation, management, handling,
transportation, treatment, disposal, storage, delivery, discharge, release
or
emission of any Hazardous Substance (the “
Environmental
Laws
”).
Neither the Company nor, to the Company’s knowledge, any other Person for whose
conduct it may be responsible pursuant to an agreement or by operation of law
has received any written complaint, notice, order, or citation of any actual,
threatened or alleged noncompliance with any of the Environmental Laws, and
there is no proceeding, suit or investigation pending or, to the Company’s
knowledge, threatened against the Company or, to the Company’s knowledge, any
such Person with respect to any violation or alleged violation of the
Environmental Laws, and, to the knowledge of the Company, there is no basis
for
the institution of any such proceeding, suit or investigation.
(z)
Disclosure
.
The
Company confirms that neither the Company nor any other Person acting on its
behalf and at the direction of the Company, has provided any Purchaser or its
agents or counsel with any information that in the Company’s reasonable
judgment, at the time such information was furnished, constitutes or might
constitute material, non-public information, other than information relating
to
the fact that the Company was considering and engaged in the transactions
contemplated by the Transaction Documents and unless prior thereto such
Purchaser shall have consented in writing to the receipt of such information.
The Company understands and confirms that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions in securities
of the Company. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company are true
and correct in all material respects and do not contain any untrue statement
of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were
made, not misleading.
(aa)
No
Additional Representations.
Each
Purchaser acknowledges and agrees that the Company does not make and has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.1
or in any Transaction Document.
(bb)
Poison
Pill.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under this Agreement and the Transaction Documents, including
without limitation the Company's issuance of the Securities and the Purchasers’
ownership of the Securities.
(cc)
Solvency.
Based on
the consolidated financial condition of the Company as of the Closing Date
after
giving effect to the receipt by the Company of the proceeds from the sale of
the
Securities hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof, and (iii)
the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account
all
anticipated uses of the cash, would be sufficient to pay all amounts on or
in
respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts
as
they mature (taking into account the timing and amounts of cash to be payable
on
or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization
or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date.
Schedule
3.1(cc)
sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary
has
commitments. For the purposes of this Agreement, “
Indebtedness
”
means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect
of
indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease
payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP.
Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(dd)
Accountants.
The
Company’s accounting firm is set forth on
Schedule
3.1(dd)
of the
Disclosure Schedule. To the knowledge and belief of the Company, such accounting
firm (i) is a registered public accounting firm as required by the Exchange
Act
and (ii) shall express its opinion with respect to the financial statements
to
be included in the Company’s Annual Report for the year ending December 31,
2007.
(ee)
Seniority.
As of
the Closing Date, no Indebtedness or other claim against the Company is senior
to the Preferred Stock in right of payment, whether with respect to interest
or
upon liquidation or dissolution, or otherwise, other than indebtedness secured
by purchase money security interests (which is senior only as to underlying
assets covered thereby) and capital lease obligations (which is senior only
as
to the property covered thereby).
(ff)
No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers which could affect
the
Company’s ability to perform any of its obligations under any of the Transaction
Documents.
(gg)
Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by
any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on
the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
(hh)
Acknowledgement
Regarding Purchasers’ Trading Activity.
Notwithstanding anything in this Agreement or elsewhere herein to the contrary,
it is understood and acknowledged by the Company that (i) none of the Purchasers
has been asked to agree by the Company, nor has any Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term, (ii) past or future open market or other
transactions by any Purchaser, specifically including, without limitation,
Short
Sales or “derivative” transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price
of
the Company’s publicly-traded securities, (iii) any Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a
party, directly or indirectly, may presently have a “short” position in the
Common Stock; and (iv) each Purchaser shall not be deemed to have any
affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
(a) one or more Purchasers may engage in hedging activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined, and (b) such
hedging activities (if any) could reduce the value of the existing stockholders'
equity interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.
(ii)
Regulation
M Compliance
.
The Company has not, and to its knowledge no one acting on its behalf has,
(i)
taken, directly or indirectly, any action designed to cause or to result in
the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
securities of the Company, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation paid
to
the Company’s placement agent in connection with the placement of the
Securities.
(jj)
No
General Solicitation
.
Neither
the Company nor any person acting on behalf of the Company has offered or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(kk)
Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.
3.2
Representations
and Warranties of the Purchasers
.
Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a)
Organization;
Authority; Enforceability
.
Such
Purchaser (other than individuals) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization
with
full power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement has been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors’ rights
generally and rules of law governing specific performance, injunctive relief,
or
other equitable remedies.
(b)
General
Solicitation
.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
(c)
No
Public Sale or Distribution
.
Such
Purchaser is (i) acquiring the Preferred Shares and Warrants and (ii) upon
conversion of the Preferred Stock will acquire the Conversion Shares and upon
exercise of the Warrants will acquire the Warrant Shares, as applicable, for
its
own account and not with a view towards, or for resale in connection with,
the
public sale or distribution thereof;
provided,
however
,
that by
making the representations herein, such Purchaser does not agree to hold any
of
the Securities for any minimum or other specific term and reserves the right
to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(d)
Accredited
Investor Status
.
Such
Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.
(e)
Residency
.
Such
Purchaser is a resident of the jurisdiction set forth below such Purchaser’s
name on
Schedule
1
attached
hereto.
(f)
Reliance
on Exemptions
.
Such
Purchaser understands that the Preferred Shares and Warrants are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Purchaser set forth herein in order to determine
the
availability of such exemptions and the eligibility of such Purchaser to acquire
the Preferred Shares and Warrants.
(g)
Information
.
Such
Purchaser and its advisors, if any, have been furnished with all publicly
available materials (or such materials have been made available to such
Purchaser) relating to the business, finances and operations of the Company
and
such other publicly available materials relating to the offer and sale of the
Preferred Shares and Warrants as have been requested by such Purchaser,
including without limitation the Company’s Form 10-KSB for the period ended
December 31, 2006, Forms 10-QSB for the periods ended March 31, 2007 and June
30, 2007 and Forms 8-K filed by the Company since January 1, 2007. Each
Purchaser acknowledges that it has read and understands the risk factors set
forth in such Form 10-KSB, Forms 10-QSB and Forms 8-K. Neither such review
nor
any other due diligence investigations conducted by such Purchaser or its
advisors, if any, or its representatives shall modify, amend or affect such
Purchaser's right to rely on the Company's representations and warranties
contained herein. Such Purchaser understands that its investment in the
Preferred Shares and Warrants involves a high degree of risk.
(h)
No
Governmental Review
.
Such
Purchaser understands that no United States federal or state agency or any
other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Preferred Shares and Warrants or the fairness or suitability
of the investment in the Preferred Shares and Warrants, nor have such
authorities passed upon or endorsed the merits of the offering of the Preferred
Shares and Warrants.
(i)
Experience
of Such Purchaser
.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters,
including investing in companies engaged in the business in which the Company
is
engaged, so as to be capable of evaluating the merits and risks of the
prospective investment in the Preferred Shares and Warrants, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Preferred Shares and Warrants
and, at the present time, is able to afford a complete loss of such
investment.
The
Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this
Section 3.2.
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
4.1
Transfer
Restrictions
.
(a)
The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement, to the Company, to an Affiliate
of a Purchaser (who is an accredited investor and executes a customary
representation letter) or in connection with a pledge as contemplated in Section
4.1(b), the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor and reasonably satisfactory
to
the Company (it being understood that Wiggin and Dana LLP is reasonably
satisfactory), the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities
Act,
provided, however
,
that in
the case of a transfer pursuant to Rule 144, no opinion shall be required if
the
transferor provides the Company with a customary seller’s representation letter,
and if such sale is not pursuant to subsection (k) of Rule 144, a customary
broker’s representation letter and a Form 144.
Any such
transferee that agrees in writing to be bound by the terms of this Agreement
and
the Investor Rights Agreement shall have the rights of a Purchaser under this
Agreement and the Investor Rights Agreement. Except as required by federal
securities laws and the securities law of any state or other jurisdiction within
the United States, the Securities may be transferred, in whole or in part,
by
any of the Purchasers at any time. The Company shall reissue certificates
evidencing the Securities upon surrender of certificates evidencing the
Securities being transferred in accordance with this Section
4.1(a).
(b)
The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Securities in substantially the following
form:
THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “
SECURITIES
ACT
”),
AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, SUCH COUNSEL AND THE SUBSTANCE OF SUCH OPINION SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. UNLESS PROHIBITED BY APPLICABLE LAW, RULE OR
REGULATION, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “
ACCREDITED
INVESTOR
”
AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
The
Company acknowledges and agrees that, unless prohibited by applicable law,
rule
or regulation, a Purchaser may from time to time pledge pursuant to a bona
fide
margin agreement with a registered broker-dealer or grant a security interest
in
some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in connection
therewith; provided, however, that such Purchaser shall provide the Company
with
such documentation as is reasonably requested by the Company to ensure that
the
pledge is pursuant to a bona fide margin agreement with a registered
broker-dealer or a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act. The Company will execute and deliver such
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.
(c)
Certificates
evidencing the Conversion Shares and the Warrant Shares shall not contain any
legend (including the legend set forth in Section 4.1(b) hereof): (i) while
a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such
Underlying Shares are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff
of
the Commission). The Company shall cause its counsel to issue a legal opinion
to
the Transfer Agent promptly after the Effective Date if required by the Transfer
Agent to effect the removal of the legend hereunder. If all or any shares of
Preferred Stock or any portion of a Warrant is converted or exercised (as
applicable) at a time when there is an effective registration statement to
cover
the resale of the Underlying Shares, or if such Underlying Shares may be sold
under Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then such Underlying
Shares shall be issued free of all legends. The Company agrees that following
the Effective Date or at such time as such legend is no longer required under
this Section 4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Transfer Agent of a certificate
representing Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the “
Legend
Removal Date
”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company
may
not make any notation on its records or give instructions to the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section.
Certificates for Underlying Shares subject to legend removal hereunder shall
be
transmitted by the Transfer Agent to the Purchaser by crediting the account
of
the Purchaser’s prime broker with the Depository Trust Company System as
directed by such Purchaser.
(d)
In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on
the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have begun
to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree
of
specific performance and/or injunctive relief.
(e)
Each
Purchaser, severally and not jointly, agrees that the removal of the restrictive
legend from certificates representing Securities as set forth in this Section
4.1 is predicated upon the Company's reliance on, and the Purchaser's agreement
that, and each Purchaser hereby agrees that, the Purchaser will not sell any
Securities except pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an
exemption therefrom.
4.2
Furnishing
of Information
.
As
long
as any Purchaser owns Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. Upon the request of any such holder of Securities,
the Company shall deliver to such holder a written certification of a duly
authorized officer as to whether it has complied with the preceding sentence.
As
long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c), such
information as is required for the Purchasers to sell the Securities under
Rule
144. The Company further covenants that it will take such further action as
any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
4.3
Integration
.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Purchasers or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market.
4.4
Publicity
.
The
Company shall, by 8:30 a.m. (New York City time) on the Trading Day immediately
following the date hereof, issue a press release disclosing the material terms
of the transactions contemplated hereby, and within two Business Days following
the Closing Date, file a Current Report on Form 8-K, disclosing the transactions
contemplated hereby and make such other filings and notices in the manner and
time required by the Commission. The Company and the Placement Agents shall
consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
nor
any of the Placement Agents shall issue any such press release or otherwise
make
any such public statement without the prior consent of the Company, with respect
to any press release of any Purchaser or any of the Placement Agents, or without
the prior consent of the Placement Agents, with respect to any press release
of
the Company, except if such disclosure is required by applicable law, rule
or
regulation, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication.
4.5
Non-Public
Information
.
The
Company covenants and agrees that neither it nor any other Person acting on
its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.
4.6
Use
of Proceeds
.
The
Company covenants and agrees that the proceeds from the sale of the Preferred
Stock and Warrants shall be used by the Company for working capital and general
corporate purposes; under no circumstances shall any portion of the proceeds
be
applied to:
(i)
accelerated
repayment of debt existing on the date hereof (other than payment of trade
payables in the ordinary course of the Company’s business and consistent with
prior practices);
(ii)
the
payment of dividends or other distributions on any capital stock of the Company;
(iii)
the
purchase of debt or equity securities of any Person for cash, including the
Company and its Subsidiaries, except in connection with investment of excess
cash in high quality (A1/P1 or better) money market instruments having
maturities of one year or less;
(iv)
any
expenditure not directly related to the business of the Company; or
(v)
the
redemption of any Company equity or equity-equivalent securities.
4.7
Reservation
of Preferred Stock and Common Stock
.
As
of the
date hereof, the Company has reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, a sufficient number
of shares of (a) Preferred Stock for the purpose of enabling the Company to
issue Preferred Shares pursuant to this Agreement and (b) Common Stock for
the
purpose of enabling the Company to issue Conversion Shares issuable upon
conversion of the Preferred Stock and Warrant Shares issuable upon exercise
of
the Warrants. If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock plus the number of shares of
authorized but unissued Common Stock reserved for issuance upon conversion
of
the Preferred Stock and exercise of the Warrants is less than 130% of
(i) the Required Minimum on such date, minus (ii) the number of shares of
Common Stock previously issued pursuant to the Transaction Documents, then
the
Board of Directors shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required Minimum
at such time (minus the number of shares of Common Stock previously issued
pursuant to the Transaction Documents), as soon as possible and in any event
not
later than the 75th day after such date; provided that the Company will not
be
required at any time to authorize a number of shares of Common Stock greater
than the maximum remaining number of shares of Common Stock that could possibly
be issued after such time pursuant to the Transaction Documents.
4.8
Listing
of Common Stock
.
The
Company hereby agrees that, from time to time, if the Company applies to have
the Common Stock traded on any Trading Market, it will include in such
application the Conversion Shares and the Warrant Shares, and will take such
other action as is necessary to cause the Conversion Shares and Warrant Shares
to be listed on such Trading Market as promptly as possible.
4.9
Business
Operations
.
Until
the earlier of: (i) the third anniversary of the Closing Date and (ii) the
date
that the Purchasers own less than 10% of the Preferred Shares originally issued
pursuant to this Agreement or Conversion Shares issuable upon conversion
thereof, the Company shall comply with the following covenants:
(a)
Insurance
.
The
Company and its Subsidiaries shall maintain insurance policies such that the
representations contained in the first sentence of Section 3.1(p) hereof
continue to be true and correct and shall, from time to time upon the written
request of the Purchasers, promptly furnish or cause to be furnished to the
Purchasers evidence, in form and substance reasonably satisfactory to the
Purchasers, of the maintenance of all insurance maintained by it.
(b)
Corporate
Existence; Licenses.
The
Company shall preserve and maintain and cause its Subsidiaries to preserve
and
maintain their corporate existence and good standing in the jurisdiction of
their incorporation and the rights, privileges and franchises of the Company
and
its Subsidiaries (except, in each case, in the event of a merger or
consolidation in which the Company or its Subsidiaries, as applicable, is not
the surviving entity) in each case where the failure to so preserve or maintain
could have a Material Adverse Effect on the financial condition, business or
operations of the Company and its Subsidiaries taken as a whole. The Company
shall, and shall cause its Subsidiaries to, maintain at all times all material
licenses or permits necessary to the conduct of its business and as required
by
any governmental agency or instrumentality thereof, including without limitation
all Food and Drug Administration clearances and approvals.
(c)
Taxes
and Claims.
The
Company and its Subsidiaries shall duly pay and discharge (a) all taxes,
assessments and governmental charges upon or against the Company or its
properties or assets prior to the date on which penalties attach thereto, unless
and to the extent that such taxes are being diligently contested in good faith
and by appropriate proceedings, and appropriate reserves therefor have been
established, and (b) all lawful claims, whether for labor, materials, supplies,
services or anything else which might or could, if unpaid, become a lien or
charge upon the properties or assets of the Company or its Subsidiaries, unless
and to the extent only that the same are being contested in good faith and
by
appropriate proceedings and appropriate reserves therefor have been
established.
(d)
Affiliate
Transactions
.
Except
for transactions approved by the Company’s Audit Committee or a majority of the
disinterested members of the board of directors of the Company, neither the
Company nor any of its Subsidiaries shall enter into any transaction with any
(i) director, officer, employee or holder of more than 5% of the outstanding
capital stock of any class or series of capital stock of the Company or any
of
its Subsidiaries, (ii) member of the immediate family of any such person, or
(iii) corporation, partnership, trust or other entity in which any such person,
or member of the immediate family of any such person, is a director, officer,
trustee, partner or holder of more than 5% of the outstanding capital stock
thereof.
4.10
Securities
Law Compliance
.
(a)
Securities
Act
.
The
Company shall timely prepare and file with the Securities and Exchange
Commission the form of notice of the sale of securities pursuant to the
requirements of Regulation D regarding the sale of the Preferred Stock and
Warrants under this Agreement.
(b)
State
Securities Law Compliance -- Sale
.
The
Company shall timely prepare and file such applications, consents to service
of
process (but not including a general consent to service of process) and similar
documents and take such other steps and perform such further acts as shall
be
required by the state securities law requirements of each jurisdiction where
a
Purchaser resides, as indicated on
Schedule
1
,
with
respect to the sale of the Preferred Stock and Warrants under this Agreement.
(c)
State
Securities Law Compliance --Resale
.
Beginning no later than 30 days following any date, from time to time, on which
the Common Stock is no longer a “covered security” under Section 18(b)(1)(A) of
the Securities Act and continuing until either (i) the Purchasers have sold
all
of their Conversion Shares and Warrant Shares under a registration statement
pursuant to the Investor Rights Agreement or (ii) the Common Stock becomes
a
“covered security” under Section 18(b)(1)(A) of the Securities Act, the Company
shall maintain within either Moody’s Industrial Manual or Standard and Poor’s
Standard Corporation Descriptions (or any successors to these manuals which
are
similarly qualified as “recognized securities manuals” under state Blue Sky
laws) an updated listing containing (i) the names of the officers and directors
of the Company, (ii) a balance sheet of the Company as of a date that is at
no
time older than eighteen months and (iii) a profit and loss statement of the
Company for either the preceding fiscal year or the most recent year of
operations.
4.11
Poison
Pill
.
From
time to time, for as long as any Purchaser holds any Securities, the Company
and
its Board of Directors shall take all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is
or
could become applicable to the Purchasers as a result of the Purchasers and
the
Company fulfilling their obligations or exercising their rights under this
Agreement and the Transaction Documents, including without limitation the
Company's issuance of the Securities and the Purchasers’ ownership of the
Securities.
4.12
Surrender
of Promissory Notes
.
Each
Purchaser surrendering Promissory Notes for cancellation in payment of any
portion of such Purchaser’s Subscription Amount that does not deliver such
original Promissory Notes to the Company prior to the Closing, hereby covenants
to deliver such original Promissory Notes to the Company as soon as practicable
following the Closing Date.
4.13
Subsequent
Equity Sales
.
(a)
From
the
date hereof until 45 days after the Effective Date, neither the Company nor
any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 45 day period set forth in this Section 4.13 shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Purchasers for
the
resale of the Underlying Shares;
provided
,
however
that the
Company may issue shares of Common Stock or Common Stock Equivalents, with
an
aggregate purchase price not to exceed $15,000,000 (including the purchase
price
of the Securities sold pursuant to this Agreement) and on terms that are no
less
favorable to the Company than the terms of the transactions contemplated by
this
Agreement, at any time from the date hereof until the date that the Initial
Registration Statement (as defined in the Investor Rights Agreement) is filed.
(b)
From
the
date hereof until such time as no Purchaser holds any of the Securities, the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a Variable Rate Transaction.
“
Variable
Rate Transaction
”
means
a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line
of
credit, whereby the Company may sell securities at a future determined price.
4.14
Equal
Treatment of Purchasers.
No
consideration shall be offered or paid to any Person to amend or consent to
a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. For clarification purposes, this provision constitutes
a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the
Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.
ARTICLE
V
INDEMNIFICATION,
TERMINATION AND DAMAGES
5.1
Survival
of Representations
.
Except
as
otherwise provided herein, the representations and warranties of the Company
and
the Purchasers contained in or made pursuant to this Agreement shall survive
the
execution and delivery of this Agreement and the Closing Date and shall continue
in full force and effect for a period of three (3) years from the Closing Date.
The Company’s and the Purchasers’ warranties and representations shall in no way
be affected or diminished in any way by any investigation of (or failure to
investigate) the subject matter thereof made by or on behalf of the Company
or
the Purchasers.
5.2
Indemnification
.
The
Company agrees to indemnify and hold harmless the Purchasers, their Affiliates,
each of their officers, directors, employees and agents and their respective
successors and assigns, from and against any losses, damages, or expenses which
are caused by or arise out of (i) any breach or default in the performance
by
the Company of any covenant or agreement made by the Company in this Agreement
or in any of the Transaction Documents; (ii) any breach of warranty or
representation made by the Company in this Agreement or in any of the
Transaction Documents; (iii) any and all third party actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees and expenses) incident to any of the foregoing; and/or(iv)
any action instituted against a Purchaser in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon
a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state
or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance).
5.3
Indemnity
Procedure
.
A
party
or parties hereto agreeing to be responsible for or to indemnify against any
matter pursuant to this Agreement is referred to herein as the “
Indemnifying
Party
”
and
the
other party or parties claiming indemnity is referred to as the “
Indemnified
Party
”.
An
Indemnified Party under this Agreement shall, with respect to claims asserted
against such party by any third party, give written notice to the Indemnifying
Party of any liability which might give rise to a claim for indemnity under
this
Agreement within sixty (60) Business Days of the receipt of any written claim
from any such third party, but not later than twenty (20) days prior to the
date
any answer or responsive pleading is due, and with respect to other matters
for
which the Indemnified Party may seek indemnification, give prompt written notice
to the Indemnifying Party of any liability which might give rise to a claim
for
indemnity;
provided,
however
,
that
any failure to give such notice will not waive any rights of the Indemnified
Party except to the extent the rights of the Indemnifying Party are materially
prejudiced.
The
Indemnifying Party shall have the right, at its election, to take over the
defense or settlement of such claim by giving written notice to the Indemnified
Party at least fifteen (15) days prior to the time when an answer or other
responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, it may conduct the defense of such
claim
through counsel of its choosing (subject to the Indemnified Party’s approval of
such counsel, which approval shall not be unreasonably withheld or delayed),
shall be solely responsible for the expenses of such defense and shall be bound
by the results of its defense or settlement of the claim. The Indemnifying
Party
shall not settle any such claim without prior notice to and consultation with
the Indemnified Party, and no such settlement involving any equitable relief
or
which might have an adverse effect on the Indemnified Party may be agreed to
without the written consent of the Indemnified Party (which consent shall not
be
unreasonably withheld or delayed). So long as the Indemnifying Party is
diligently contesting any such claim in good faith, the Indemnified Party may
pay or settle such claim only at its own expense and the Indemnifying Party
will
not be responsible for the fees of separate legal counsel to the Indemnified
Party, unless the named parties to any proceeding include both parties or
representation of both parties by the same counsel would be inappropriate in
the
reasonable opinion of counsel to the Indemnified Party, due to conflicts of
interest or otherwise. If the Indemnifying Party does not make such election,
or
having made such election does not, in the reasonable opinion of the Indemnified
Party proceed diligently to defend such claim, then the Indemnified Party may
(after written notice to the Indemnifying Party), at the expense of the
Indemnifying Party, elect to take over the defense of and proceed to handle
such
claim in its discretion and the Indemnifying Party shall be bound by any defense
or settlement that the Indemnified Party may make in good faith with respect
to
such claim. In connection therewith, the Indemnifying Party will fully cooperate
with the Indemnified Party should the Indemnified Party elect to take over
the
defense of any such claim. The parties agree to cooperate in defending such
third party claims and the Indemnified Party shall provide such cooperation
and
such access to its books, records and properties (subject to the execution
of
appropriate non-disclosure agreements) as the Indemnifying Party shall
reasonably request with respect to any matter for which indemnification is
sought hereunder; and the parties hereto agree to cooperate with each other
in
order to ensure the proper and adequate defense thereof.
With
regard to claims of third parties for which indemnification is payable
hereunder, such indemnification shall be paid by the Indemnifying Party upon
the
earlier to occur of: (i) the entry of a judgment against the Indemnified Party
and the expiration of any applicable appeal period, or if earlier, five (5)
days
prior to the date that the judgment creditor has the right to execute the
judgment; (ii) the entry of an unappealable judgment or final appellate decision
against the Indemnified Party; or (iii) a settlement of the claim.
Notwithstanding the foregoing, the reasonable expenses of counsel to the
Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party. With regard to other claims for which indemnification is payable
hereunder, such indemnification shall be paid promptly by the Indemnifying
Party
upon demand by the Indemnified Party.
ARTICLE
VI
MISCELLANEOUS
6.1
Fees
and Expenses
.
The
Company shall be responsible for the payment of the Purchasers’ reasonable and
documented legal fees and other third-party expenses relating to the
preparation, negotiation and execution of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated
herein.
6.2
Entire
Agreement
.
The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
6.3
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 on the signature
pages attached hereto prior to 5:00 p.m. (New York City time) on a Trading
Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number on the
signature pages attached hereto on a day that is not a Trading Day or later
than
5:00 p.m. (New York City time) on any Trading Day, (c) the Trading Day following
the date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The address for such notices and communications shall be as
follows:
If
to the
Purchasers, at each Purchaser’s address set forth under its name on
Schedule
1
attached
hereto, or with respect to the Company, addressed to:
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
Attention:
President
Facsimile
No.: (214) 905-5101
or
to
such other address or addresses or facsimile number or numbers as any such
party
may most recently have designated in writing to the other parties hereto by
such
notice. Copies of notices to the Company shall be sent to:
Bingham
McCutchen LLP
150
Federal Street
Boston,
Massachusetts 02110
Attention:
John J. Concannon, III
Facsimile
No.: (617) 951-8736
Copies
of
notices to any Purchaser shall be sent to the addresses, if any, listed on
Schedule
1
attached
hereto.
6.4
Amendments;
Waivers
.
No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and the
Purchasers holding 66% in interest of the Securities then outstanding or, in
the
case of a waiver, by the party against whom enforcement of any such waiver
is
sought; provided, however that any such amendment or waiver that has a
disproportionately adverse effect on any Purchaser shall require the consent
of
such Purchaser. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.
6.5
Construction
.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
6.6
Successors
and Assigns
.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser. Any Purchaser may assign any or all of its rights
under this Agreement to any Person, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the Purchasers.
6.7
No
Third-Party Beneficiaries
.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set
forth
in Article V.
6.8
Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced
in
accordance with the internal laws of the State of New York, without regard
to
the principles of conflicts of law thereof.
6.9
Jurisdiction;
Venue; Service of Process
.
This
Agreement shall be subject to the exclusive jurisdiction of the Federal District
Court, Southern District of New York and if such court does not have proper
jurisdiction, the State Courts of New York County, New York. The parties to
this
Agreement agree that any breach of any term or condition of this Agreement
shall
be deemed to be a breach occurring in the State of New York by virtue of a
failure to perform an act required to be performed in the State of New York
and
irrevocably and expressly agree to submit to the jurisdiction of the Federal
District Court, Southern District of New York and if such court does not have
proper jurisdiction, the State Courts of New York County, New York for the
purpose of resolving any disputes among the parties relating to this Agreement
or the transactions contemplated hereby. The parties irrevocably waive, to
the
fullest extent permitted by law, any objection which they may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of
or
relating to this Agreement, or any judgment entered by any court in respect
hereof brought in New York County, New York, and further irrevocably waive
any
claim that any suit, action or proceeding brought in Federal District Court,
Southern District of New York and if such court does not have proper
jurisdiction, the State Courts of New York County, New York has been brought
in
an inconvenient forum. Each of the parties hereto consents to process being
served in any such suit, action or proceeding, by mailing a copy thereof to
such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this Section 6.9 shall affect or limit any right
to
serve process in any other manner permitted by law.
6.10
Execution
.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
6.11
Severability
.
If
any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and
the
parties will attempt to agree upon a valid and enforceable provision that is
a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
6.12
Replacement
of Securities
.
If
any
certificate or instrument evidencing any of the Securities is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt
of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity (but no bond shall be
required), if requested by the Company.
6.13
Remedies
.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be
adequate.
6.14
Payment
Set Aside
.
To
the
extent that the Company makes a payment or payments to any Purchaser pursuant
to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall, to the extent permissible under
applicable law, be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not
occurred.
6.15
Independent
Nature of Purchasers' Obligations and Rights
.
The
obligations of each Purchaser under any Transaction Document are several and
not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out
of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through Wiggin and Dana LLP, but such
counsel does not represent any of the Purchasers in this transaction other
than
SCO Capital Partners LLC. The Company has elected to provide all Purchasers
with
the same terms and Transaction Documents for the convenience of the Company
and
not because it was required or requested to do so by the
Purchasers.
6.16
Waiver
of Trial by Jury
.
THE
PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.17
Further
Assurances
.
Each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement, and further agrees
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
law
to consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings, and to remove any injunctions or other impediments
or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to
the
parties hereto the benefits contemplated by this Agreement.
6.18
Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before the fifth business
day following the date hereof; provided, however, that such termination will
not
affect the right of any party to sue for any breach by the other party (or
parties).
[Signature
pages follow.]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first above written.
COMPANY:
ACCESS
PHARMACEUTICALS, INC.
By:
/S/ Stephen R. Seiler
Name:
Stephen R. Seiler
Title:
President and CEO
PURCHASERS:
|
|
|
|
Print Exact
Name :
|
Beach Capital
LLC
|
|
|
By:
|
/s/
Steven H. Rouhandeh
|
Name:
|
Steven H. Rouhandeh
|
Title:
|
Managing Member
|
|
|
Address:
|
1285
Avenue of the Americas
|
|
35th
Floor
|
|
New
York, NY 10019
|
Telephone:
|
212-554-4158
|
Facsimile:
|
212-554-4058
|
Email:
|
srouhandeh@scogroup.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
7.5 % secured
promissary note
|
# PN-2006-2 for $500,000.00 + accrued
interest
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS:
|
|
|
|
Print Exact
Name :
|
Brio Capital
L.P.
|
|
|
By:
|
/s/
Shaye
Hirsch
|
Name:
|
Shaye Hirsch
|
Title:
|
Manager of the General Partner
|
|
|
Address:
|
401
E 34th St.
|
|
Suite
South 33C
|
|
New
York, NY 10016
|
Telephone:
|
212-842-0733
|
Facsimile:
|
646-390-2158
|
Email:
|
shaye@briocapital.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
150,000.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS:
|
|
|
|
Print Exact
Name :
|
Catalytix Life
Sciences Hedge AC
|
|
|
By:
|
/s/
Ken
Sorensen
|
Name:
|
Ken Sorensen
|
Title:
|
PM, DIR
|
|
|
Address:
|
c/o
Array Capital Management
|
|
425
Fifth Ave Ste 28D
|
|
NY,
NY 10016
|
Telephone:
|
212-481-1394
|
Facsimile:
|
212-481-1396
|
Email:
|
ksorensen@arraycap.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
50,000.00
US
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS:
|
|
|
|
Print Exact
Name :
|
Cobblestone
Asset
Management LLC
|
|
|
By:
|
/s/
Michael J. Palazzi
|
Name:
|
Michael J. Palazzi
|
Title:
|
Managing Member
|
|
|
Address:
|
11
Lakeview Ave
|
|
Sleepy
Hollow, NY 10591
|
|
|
Telephone:
|
914-631-8087
|
Facsimile:
|
212-259-2093
|
Email:
|
mpalazzi@palicapital.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
250,000
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS:
|
|
|
|
Print Exact
Name :
|
Cranshire Capita,
L.P.
|
|
|
By:
|
/s/
Lawrence A. Prosser
|
Name:
|
Lawrence A. Prosser
|
Title:
|
CFO-Downsview Capital, Inc.
|
|
The General Partner
|
Address:
|
3100
Dundee Road, Suite 703
|
|
Northbrook,
IL 60062
|
|
|
Telephone:
|
847-562-9030
|
Facsimile:
|
847-562-9031
|
Email:
|
mkopin@cranshirecapital.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
500,001.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS:
|
|
|
|
Print Exact
Name :
|
Credit Suisse
Securities (USA) LLC
|
|
|
By:
|
/s/
Jeffrey B. Andreski
|
Name:
|
Jeffrey B. Andreski
|
Title:
|
Managing Director
|
|
|
Address:
|
c/o
Greg Grimaldi
|
|
11
Madison Ave 3rd Floor
|
|
New
York, NY 10010
|
Telephone:
|
212-325-7408
|
Facsimile:
|
646-935-7716
|
Email:
|
gregory.grimaldi@credit-suisse.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
1,000,000.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
Enable
Growth
Partners LP
|
|
|
By:
|
/s/
Brendan O'Neil
|
Name:
|
Brendan O'Neil
|
Title:
|
Prinicipal and Portfolio Manager
|
|
|
Address:
|
One
Ferry Building, Suite 255
|
|
San
Francisco, CA 94111
|
|
|
Telephone:
|
415-677-1578
|
Facsimile:
|
415-677-1580
|
Email:
|
boneil@enablecapital.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
500,000
|
Common Shares:166,666
|
Warrants: 83,333
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
Lake
End Capital
LLC
|
|
|
By:
|
/s/
Jeffrey B. Davis
|
Name:
|
Jeffrey B. Davis
|
Title:
|
Managing Member
|
|
|
Address:
|
33
Tall
Oaks Dr.
|
|
Summitt,
NJ 07901
|
|
|
Telephone:
|
212-554-4158
|
Facsimile:
|
|
Email:
|
jdavis@scogroup.com
|
SSN/EIN:
|
|
|
|
Amount
of
Investment:
|
$ 700,000.00
+
|
|
* Conversion of Outstanding notes
into
convertible preferred stock_________________
|
|
+ To include Acumulated Interest
___________
|
|
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print
Exact
Name :
|
Dennis
LaValle
|
|
|
By:
|
/s/
Dennis LaValle
|
Name:
|
|
Title:
|
|
|
|
Address:
|
1201
Yale Place #1409
|
|
Minneapolis,
MN 55403
|
|
|
Telephone:
|
612-455-5776
|
Facsimile:
|
612-455-5600
|
Email:
|
dlavalle@________
|
SSN/EIN:
|
|
|
|
Amount
of
Investment:
|
$
90,000.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print
Exact
Name :
|
Midsummer
Investment, Ltd.
|
|
|
By:
|
/s/
Michel Amsalem
|
Name:
|
Michel Amsalem
|
Title:
|
Director
|
|
|
Address:
|
295
Madison Avenue, 38th Floor
|
|
New
York, NY 10017
|
|
|
Telephone:
|
212-624-5030
|
Facsimile:
|
212-624-5040
|
Email:
|
MA@midsummercapital.com
|
SSN/EIN:
|
|
|
|
Amount
of
Investment:
|
$
1,500,000
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS:
|
|
|
|
Print
Exact
Name :
|
Oracle
Institutional Partners L.P.
|
|
|
By:
|
/s/
Joel
Liffmann
|
Name:
|
Joel Liffmann
|
Title:
|
Authorized Agent
|
|
|
Address:
|
200
Greenwich Ave
|
|
Greenwich,
CT 06830
|
|
|
Telephone:
|
203-862-7900
|
Facsimile:
|
|
Email:
|
|
SSN/EIN:
|
|
|
|
Amount
of
Investment:
|
$
698,500.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
Oracle Offshore
LTD
|
|
|
By:
|
/s/
Joel
Liffmann
|
Name:
|
Joel Liffmann
|
Title:
|
Authorized Agent
|
|
|
Address:
|
200
Greenwich Ave
|
|
Greenwich,
CT 06830
|
|
|
Telephone:
|
203-862-7900
|
Facsimile:
|
|
Email:
|
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
132,000
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
Oracle Partners,
LP
|
|
|
By:
|
/s/
Joel
Liffmann
|
Name:
|
Joel Liffmann
|
Title:
|
Authoriced Agent
|
|
|
Address:
|
200
Greenwich Ave
|
|
Greenwich,
CT 06830
|
|
|
Telephone:
|
203-286-7900
|
Facsimile:
|
|
Email:
|
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$2,524,500
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
Perceptive
Life
Sciences Master Fund LTD
|
|
|
By:
|
/s/
__________________________
|
Name:
|
|
Title:
|
|
|
|
Address:
|
499
Park Ave, 25th Fl
|
|
New
York, NY 10022
|
|
|
Telephone:
|
646-205-5342
|
Facsimile:
|
646-205-5301
|
Email:
|
BERGER@perceptivelife.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
2,000,000
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
Rockmore
Investment
Master Fund Ltd.
|
|
|
By:
|
/s/
Michael Clateman
|
Name:
|
Michael Clateman
|
Title:
|
Managing Director
|
|
|
Address:
|
c/o
Rockmore Capital LLC
|
|
150
E 58th St.
|
|
New
York, NY 10155
|
Telephone:
|
212-258-2300
|
Facsimile:
|
212-258-2315
|
Email:
|
as@rockmorecapital.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
500,000.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
SCO Capital
Partners LLC
|
|
|
By:
|
/s/
Steve
H. Rouhandeh
|
Name:
|
|
Title:
|
|
|
|
Address:
|
1285
Avenue of the Americas
|
|
35th
Floor
|
|
New
York, NY 10019
|
Telephone:
|
212-554-4158
|
Facsimile:
|
212-554-4058
|
Email:
|
srouhandeh@scogroup.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
1,000,000.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS:
|
|
|
|
Print Exact
Name :
|
SCO Capital
Partners, L.P.
|
|
|
By:
|
Steven
H.
Rouhandeh
|
Name:
|
|
Title:
|
|
|
|
Address:
|
1285
Avenue of the Americas
|
|
35th
Floor
|
|
New
York, NY 10019
|
Telephone:
|
212-554-4158
|
Facsimile:
|
212-554-4058
|
Email:
|
srouhandeh@scogroup.com
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$2,000,000.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
PURCHASERS
:
|
|
|
|
Print Exact
Name :
|
SAM Oracle
Investments, Inc.
|
|
|
By:
|
/s/
Joel
Liffmann
|
Name:
|
Joel Liffmann
|
Title:
|
Authorized Agent
|
|
|
Address:
|
200
Greenwich Ave
|
|
Greenwich,
CT 06830
|
|
|
Telephone:
|
203-862-7900
|
Facsimile:
|
|
Email:
|
|
SSN/EIN:
|
|
|
|
Amount of
Investment:
|
$
660,000.00
|
|
[Omnibus
Access Pharmaceuticals, Inc.
Preferred
Stock and Warrant Purchase Agreement Signature Page]
Schedule
1
to
Preferred Stock and Warrant Purchase Agreement
Purchasers,
Shares of Preferred Stock and Warrants
Name,
Address and Fax Number of Purchaser
|
Shares
of Preferred Stock Purchased
|
Common
Stock Underlying Warrants
|
Description
of Promissory Notes to be Cancelled including Actual Principal
Amount
|
Promissory
Note Category [Deemed Value of Notes for Purposes of Exchange for
Preferred Stock
|
Purchase
Price and Value of Promissory Notes Cancelled as
Applicable
|
Beach
Capital LLC
1285
Avenue of the Americas, 35
th
Fl.
New
York, NY 10019
Fax:
212-554-4058
|
154.2898
|
94,288
|
Amended
and Restated 7.5% Secured Convertible Promissory Note Due November
15,
2007, Dated March 30, 2007 (No. PN-2006-2-1AR) (Original Principal
Amt:
$500.000.00) (Interest Amt: $65,729.17)
|
A
[$1,542,897.73]
|
$565,729.17
|
Brio
Capital L.P.
401
E. 34
th
St.
Suite
South 33C
New
York, NY 10016
Fax:
646-390-2158
|
15
|
25,000
|
n/a
|
n/a
|
$150,000.00
|
Catalytix
LDC Life Science Hedge AC
CIBC
Bank and Trust Company (Cayman) Ltd.
CIBC
Financial Centre
11
Roy’s Drive
P.O.
Box 694 GT
Grand
Cayman
Cayman
Islands
B.W.I.
Attn:
Martin Laidlaw
With
a copy to:
Theodore
E. Kalem
Array
Capital Management LLC
425
5
th
Ave, Ste. 28D
New
York, NY 10016
|
5
|
8,333
|
n/a
|
n/a
|
$50,000.00
|
Cobblestone
Asset Management LLC
11
Lakeview Ave.
Sleepy
Hollow, NY 10591
Fax:
212-259-2093
|
25
|
41,667
|
n/a
|
n/a
|
$250,000.00
|
Cranshire
Capital, L.P.
3100
Dundee Rd., #703
Northbrook,
IL 60062
Fax:
847-562-9031
|
50.0001
|
83,333
|
n/a
|
n/a
|
$500,001.00
|
Credit
Suisse Securities (USA) LLC
c/o
Greg Grimaldi
11
Madison Ave., 3d Fl.
New
York, NY 100100
Fax:
212-935-7716
|
100
|
166,667
|
n/a
|
n/a
|
$1,000,000.00
|
Enable
Growth Partners LP
One
Ferry Building, Suite 255
San
Francisco, CA 94111
Fax:
415-677-1580
|
50
|
83,333
|
n/a
|
n/a
|
$500,000.00
|
Lake
End Capital LLC
33
Tall Oaks Dr.
Summit,
NJ 07901
Fax:
|
154.2898
29.4375
29.1932
|
94,288
17,990
17,840
|
Amended
and Restated 7.5% Secured Convertible Promissory Note Due November
15,
2007, Dated March 30, 2007 (No. PN-2006-3-1AR) (Original Principal
Amt.:
$500,000.00) (Interest Amt: $ 65,729.17)
Amended
and Restated 7.5% Secured Convertible Promissory Note Due November
15,
2007, Dated March 30, 2007 (No. PN-2006-FO2-1AR) (Original Principal
Amt:
$100,000.00) (Interest Amt: $7937.50)
Amended
and Restated 7.5% Secured Convertible Promissory Note Due November
15,
2007, Dated March 30, 2007 (No. PN-2006-DEC-2-1AR) (Original Principal
Amt.: $100,000.00) (Interest Amt: $7,041.67)
|
A
[$1,542,897.73]
A
[$294,375.00]
A
[$291,931.83]
|
$565,729.17
107,937.50
107,041.67
|
Dennis
Lavalle
1201
Yale Place #1409
Minneapolis,
MN 55403
Fax:
612-455-5600
|
9
|
15,000
|
n/a
|
n/a
|
$90,000.00
|
Midsummer
Investment, Ltd.
295
Madison Ave., 38
th
Fl.
New
York, NY 10017
Fax:
212-624-5040
|
150
|
250,000
|
n/a
|
n/a
|
$1,500,000.00
|
Oracle
Institutional Partners LP
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
76.0800
|
126,800
|
7.0%
(Subject to Adjustment) Convertible Promissory Note Due November
16, 2007
(Original Principal Amt.: $698,500.00) (Interest Amt:
$62,300.38)
|
B
|
$760,800.38
|
Oracle
Offshore Ltd.
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
14.3773
|
23,962
|
7.0%
(Subject to Adjustment) Convertible Promissory Note Due November
16, 2007
(Original Principal Amt: $132,000.00) (Interest Amt.:
$11,773.50)
|
B
|
$143,773.30
|
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
274.9664
|
458,277
|
7.0%
(Subject to Adjustment) Convertible Promissory Note Due November
16, 2007
(Original Principal Amt.: $2,524,500.00) (Interest Amt.:
$225,164.36)
|
B
|
$2,749,664.36
|
Perceptive
Life Sciences Master Fund Ltd.
499
Park Ave., 25
th
Fl.
New
York, NY 10022
Fax:
646-205-5301
|
200
|
333,333
|
n/a
|
n/a
|
$2,000,000.00
|
Rockmore
Investment Master Fund Ltd.
c/o
Rockmore Capital LLC 150 E. 58
th
St.
New
York, NY 10155
Fax:
212-258-2315
|
50
|
83,333
|
n/a
|
n/a
|
$500,000.00
|
SAM
Oracle Investments, Inc.
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
71.8867
|
119,811
|
7.0%
(Subject to Adjustment) Covertible Promissory Note Due November 16,
2007
(Original Principal Amt.: $660,000.00) (Interest Amt.:
$58,866.50)
|
B
|
$718,866.50
|
SCO
Capital Partners LLC
1285
Avenue of the Americas
35
th
Fl.
New
York, NY 10019
Fax:
212-554-4058
With
a copy to:
Michael
Grundei, Esq.
400
Atlantic St.
P.O.
Box 110325
Stamford,
CT 06911-0325
|
1,234.3182
117.7500
116.7727
100
|
754,306
71,958
71,361
166,667
|
Amended
and Restated 7.5% Secured Convertible Promissory Note Due November
15,
2007, Dated March 30, 2007 (No. PN-2006-1-1AR) (Original Principal
Amt.:
$4,000,000.00) (Interest Amt.: $525,833.33)
Amended
and Restated 7.5% Secured Convertible Promissory Note Due November
15,
2007, Dated March 30, 2007 (No. PN-2006-FO1-1AR) (Original Principal
Amt.:
$400,000.00) (Interest Amt.: $31,750.00)
Amended
and Restated 7.5% Secured Convertible Promissory Note Due November
15,
2007, Dated March 30, 2007 (No. PN-2006-DEC -1-1AR) (Original Principal
Amt.: $400,000.00) (Interest Amt.: $28,166.67)
n/a
|
A
[$12,343,181.81]
A
[$1,177,500.00]
A
[$1,167,727.28]
n/a
|
$4,525,833.33
$431,750.00
428,166.67
$1,000,000.00
|
SCO
Capital Partners, L.P.
1285
Avenue of the Americas
35
th
Fl.
New
York, NY 10019
Fax:
212-554-4058
With
a copy to:
Michael
Grundei, Esq.
400
Atlantic St.
P.O.
Box 110325
Stamford,
CT 06911-0325
|
200
|
333,333
|
n/a
|
n/a
|
$2,000,000.00
|
Totals:
|
3,227.3617
|
3,440,880
|
|
|
$20,645,293.05
|
Placement
Agent Warrants
|
|
|
|
|
Name,
Address and Fax Number
|
Copies
of Notice to
|
|
Common
Stock Underlying Placement Agent Warrants
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
EXHIBIT
10.25
INVESTOR
RIGHTS AGREEMENT
This
Investor Rights Agreement (this “
Agreement
”)
is
made and entered into as of November 10, 2007 among Access Pharmaceuticals,
Inc., a Delaware corporation (the “
Company
”),
and
each of the purchasers executing this Agreement and listed on
Schedule
1
attached
hereto (collectively, the “
Purchasers
”).
This
Agreement is being entered into pursuant to the Preferred Stock and Warrant
Purchase Agreement, dated as of November 7, 2007, by and among the Company
and
the Purchasers (the “
Purchase
Agreement
”).
The
Company and the Purchasers hereby agree as follows:
1.
Definitions
.
Capitalized
terms used and not otherwise defined herein shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:
“
Advice
”
shall
have the meaning set forth in Section 3(m).
“
Affiliate
”
means,
with respect to any Person, any other Person that directly or indirectly
controls or is controlled by or under common control with such Person. For
the
purposes of this definition, “control,” when used with respect to any Person,
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; and the terms of
“affiliated,” “controlling” and “controlled” have meanings correlative to the
foregoing.
“
Blackout
Period
”
shall
have the meaning set forth in Section 3(n).
“
Board
”
shall
have the meaning set forth in Section 3(n).
“
Business
Day
”
means
any day except Saturday, Sunday and any day which shall be a legal holiday
or a
day on which banking institutions in the State of Texas generally are authorized
or required by law or other government actions to close.
“
Commission
”
means
the Securities and Exchange Commission.
“
Common
Stock
”
means
the Company’s Common Stock, par value $0.01 per share.
“
Conversion
Shares
”
means
the shares of Common Stock issuable upon conversion of the Preferred Stock
and
Warrants purchased by the Purchasers pursuant to the Purchase Agreement,
including, without limitation, shares of Common Stock issued in payment of
dividends due on the Preferred Stock.
“
Effectiveness
Date
”
means,
with respect to the Initial Registration Statement required to be filed
hereunder, the 90
th
calendar
day following the date hereof (or, in the event of a “review” by the Commission,
the 120th calendar day following the date hereof) and with respect to any
additional Registration Statements which may be required pursuant to Section
3(b), the 30
th
calendar
day following the date on which an additional Registration Statement is required
to be filed hereunder;
provided
,
however
,
that in
the event the Company is notified by the Commission that one or more of the
above Registration Statements will not be reviewed or is no longer subject
to
further review and comments, the Effectiveness Date as to such Registration
Statement shall be no later than the fifth trading day following the date on
which the Company is so notified if such date precedes the dates otherwise
required above.
“
Effectiveness
Period
”
shall
have the meaning set forth in Section 2.
“
Event
”
shall
have the meaning set forth in Section 7(e).
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
“
Filing
Date
”
means
the 30th day following the Closing Date and, with respect to any additional
Registration Statements which may be required pursuant to Section 3(b), the
earliest practical date on which the Company is permitted by SEC Guidance to
file such additional Registration Statement related to the Registrable
Securities.
“
Holder
”
or
“
Holders
”
means
the holder or holders, as the case may be, from time to time of Registrable
Securities, including without limitation the Purchasers and their assignees.
“
Indemnified
Party
”
shall
have the meaning set forth in Section 5(c).
“
Indemnifying
Party
”
shall
have the meaning set forth in Section 5(c).
“
Initial
Registration Statement
”
means
the initial Registration Statement which includes the Initial Shares filed
pursuant to this Agreement.
“
Initial
Shares
”
means
a
number of Registrable Securities equal to the lesser of (i) the total number
of
Registrable Securities and (ii) one-third of the number of issued and
outstanding shares of Common Stock that are held by non-affiliates of the
Company on the day immediately prior to the filing date of the Initial
Registration Statement.
“
Losses
”
shall
have the meaning set forth in Section 5(a).
“
Person
”
means
an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
“
Preferred
Stock
”
means
the Company’s Series A Cumulative Convertible Preferred Stock, par value $0.01
per share.
“
Proceeding
”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“
Prospectus
”
means
the prospectus included in any Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a
prospectus filed as part of an effective registration statement in reliance
upon
Rule 430A promulgated under the Securities Act), as amended or supplemented
by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement,
and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference in such
Prospectus.
“
Purchased
Shares
”
means
the shares of Preferred Stock purchased by the Purchasers pursuant to the
Purchase Agreement.
“
Registrable
Securities
”
means
(a) the Conversion Shares and the Warrant Shares (without regard to any
limitations on beneficial ownership contained in the Preferred Stock or the
Warrants) or other securities issued or issuable to each Purchaser or its
transferee or designee (i) upon conversion of the Purchased Shares and/or upon
exercise of the Warrants, or (ii) upon any dividend or distribution with respect
to, any exchange for or any replacement of such Purchased Shares, Conversion
Shares, Warrants or Warrant Shares or (iii) upon any conversion, exercise or
exchange of any securities issued in connection with any such distribution,
exchange or replacement; or (iv) in connection with any anti-dilution provisions
in the Certificate of Designation or the Warrants without giving effect to
any
limitations on conversion set forth in the Certificate of Designation or
limitations on exercise set forth in the Warrants; (b) securities issued or
issuable upon any stock split, stock dividend, recapitalization or similar
event
with respect to the foregoing; and (c) any other security issued as a dividend
or other distribution with respect to, in exchange for, in replacement or
redemption of, or in reduction of the liquidation value of, any of the
securities referred to in the preceding clauses; provided, however, that such
securities shall cease to be Registrable Securities when such securities have
been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction or when such securities may
be
sold without any restriction pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter, addressed to the
Company’s transfer agent to such effect as described in Section 2 of this
Agreement.
“
Registration
Statement
”
means
the registration statements and any additional registration statements
contemplated by Section 2, including (in each case) the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre-
and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference in such registration statement.
“
Rule
144
”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
Rule
158
”
means
Rule 158 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
Rule
415
”
means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
Rule
424
”
means
Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“
SEC
Guidance
”
means
(i) any publicly-available written or oral guidance, comments, requirements
or
requests of the Commission staff and (ii) the Securities Act.
“
Securities
Act
”
means
the Securities Act of 1933, as amended.
“
Special
Counsel
”
means
Wiggin and Dana LLP.
“
Warrants
”
means
the Common Stock purchase warrants issued pursuant to the Purchase Agreement,
including, without limitation the Placement Agent Warrants.
“
Warrant
Shares
”
means
the shares of Common Stock issuable upon the exercise of the Warrants
(including, without limitation, the Placement Agent Warrants) issued or to
be
issued to the Purchasers or their assignees or designees in connection with
the
offering consummated under the Purchase Agreement.
2.
Registration
.
As soon
as possible following the Closing Date (but not later than the Filing Date),
the
Company shall prepare and file with the Commission a “shelf” Registration
Statement for the resale of all or such maximum portion of the Registrable
Securities as permitted by SEC Guidance (provided that the Company shall use
diligent efforts to advocate with the Commission for the registration of all
of
the Registrable Securities in accordance with the SEC Guidance, including
without limitation, the Manual of Publicly Available Telephone Interpretations
D.29) that are not then registered on an effective Registration Statement for
an
offering to be made on a continuous basis pursuant to Rule 415. The Registration
Statement shall be on Form S-3 (or if such form is not available to the Company
on another form appropriate for such registration in accordance herewith).
The
Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act not later than ninety (90) days
after the Filing Date (including filing with the Commission a request for
acceleration of effectiveness in accordance with Rule 461 promulgated under
the
Securities Act within five (5) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that
a
Registration Statement will not be “reviewed,” or not be subject to further
review) and to keep such Registration Statement continuously effective under
the
Securities Act until such date as is the earlier of (x) the date when all
Registrable Securities covered by such Registration Statement have been sold
or
(y) with respect to such Holder, such time as all Registrable Securities held
by
such Holder may be sold without any restriction pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company’s transfer agent to such effect (the “
Effectiveness
Period
”).
The
Company shall telephonically request effectiveness of a Registration Statement
as of 5:00 p.m. New York City time on a Trading Day. The Company shall
immediately notify the Holders via facsimile or by e-mail of the effectiveness
of a Registration Statement on the same Trading Day that the Company
telephonically confirms effectiveness with the Commission, which shall be the
date requested for effectiveness of such Registration Statement. The Company
shall, by 9:30 a.m. New York City time on the Trading Day after the effective
date of such Registration Statement, file a final Prospectus with the Commission
as required by Rule 424. For purposes of the obligations of the Company under
this Agreement, no Registration Statement shall be considered “effective” with
respect to any Registrable Securities unless such Registration Statement lists
the Holders of such Registrable Securities as “Selling Stockholders” and
includes such other information as is required to be disclosed with respect
to
such Holders to permit them to sell their Registrable Securities pursuant to
such Registration Statement, unless any such Holder is not included as a
“Selling Stockholder” pursuant to Section 3(m). Such Registration Statement also
shall cover, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Securities Act Rule 416), such indeterminate
number of additional shares of Common Stock resulting from stock splits, stock
dividends or similar transactions with respect to the Registrable Securities.
Notwithstanding the foregoing or any other provision of this Agreement, and
subject to the payment of liquidated damages pursuant to Section 7(e), if any
SEC Guidance sets forth a limitation on the number of Registrable Securities
permitted to be registered on a particular Registration Statement (and
notwithstanding that the Company used diligent efforts to advocate with the
Commission for the registration of all or a greater portion of Registrable
Securities), unless otherwise directed in writing by a Holder as to its
Registrable Securities, the number of Registrable Securities to be registered
on
such Registration Statement will first be reduced by the Common Stock underlying
the Placement Agent Warrants and second by Registrable Securities represented
by
Warrant Shares (applied, in the case that some Warrant Shares may be registered,
to the Holders on a pro rata basis based on the total number of unregistered
Warrant Shares held by such Holders); provided, however, that, prior to any
reduction in the number of Registrable Securities included in a Registration
Statement as set forth in this sentence, the number of shares of Common Stock
that are not Registrable Securities and which shall have been included on such
Registration Statement shall be reduced by up to 100%.
3.
Registration
Procedures
.
In
connection with the Company’s registration obligations hereunder, the Company
shall:
(a)
Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement on Form S-3 (or if such form is not available to the
Company on another form appropriate for such registration in accordance
herewith) (which shall include a Plan of Distribution substantially in the
form
of
Exhibit
A
attached
hereto), and cause the Registration Statement to become effective and remain
effective as provided herein; provided, however, that not less than three (3)
Business Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto, the Company shall (i) furnish
to the each Holder and the Special Counsel, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the review of such Special Counsel, and (ii)
at
the request of any Holder cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of counsel to such Holders, to conduct
a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities or the Special Counsel shall reasonably object within
three (3) Business Days after their receipt thereof. In the event of any such
objection, the Holders shall provide the Company with any requested revisions
to
such prospectus or supplement within two (2) Business Days after such
objection.
(b)
(i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and to the extent any Registrable
Securities are not included in such Registration Statement for reasons other
than the failure of the Holder to comply with Section 3(m) hereof, shall prepare
and file with the Commission such amendments to the Registration Statement
or
such additional Registration Statements as are appropriate in order to register
for resale under the Securities Act all Registrable Securities; (ii) cause
the
related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule
424
(or any similar provisions then in force) promulgated under the Securities
Act;
(iii) respond as promptly as reasonably practicable, and in no event later
than
ten (10) Business Days to any comments received from the Commission with respect
to the Registration Statement or any amendment thereto and as promptly as
reasonably practicable provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement, but not, without the prior written consent of the Holders, any
comments that would result in the disclosure to the Holders of material and
non-public information concerning the Company; and (iv) comply in all material
respects with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
Subject to the payment of any liquidated damages that may be payable pursuant
to
Section 7(e), the Company shall not be deemed to be in breach of this Section
3(b) if it fails to register any Registrable Securities or file a Registration
Statement, in either case, in order to comply with any SEC Guidance; provided
that the Company uses diligent efforts to advocate with the Commission for
the
registration of all or a greater portion of Registrable Securities.
(c)
Notify
Holders of Registrable Securities to be sold and the Special Counsel as promptly
as reasonably practicable (A) when a Prospectus or any Prospectus supplement
or
post-effective amendment to the Registration Statement is proposed to be filed
(but in no event in the case of this subparagraph (A), less than three (3)
Business Days prior to date of such filing); (B) when the Commission notifies
the Company whether there will be a “review” of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement;
and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective, and after the effectiveness thereof: (i)
of
any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (iv) if the financial statements included in the Registration
Statement become ineligible for inclusion therein or of the occurrence of any
event that makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case
of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
Without limitation to any remedies to which the Holders may be entitled under
this Agreement, if any of the events described in Section 3(c)(C)(i),
3(c)(C)(ii), 3(c)(C)(iii) or 3(c)(C)(iv) occur, the Company shall use its best
efforts to respond to and correct the event.
(d)
Use
its
best efforts to avoid the issuance of, or, if issued, use best efforts to obtain
the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable time.
(e)
If
requested by any Holder of Registrable Securities, (i) promptly incorporate
in a
Prospectus supplement or post-effective amendment to the Registration Statement
such information as the Company reasonably agrees should be included therein
and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as reasonably practicable after the Company
has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(f)
Furnish
to each Holder and the Special Counsel, without charge, at least one conformed
copy of each Registration Statement and each amendment thereto, including
financial statements and schedules, and all exhibits to the extent requested
by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g)
Promptly
deliver to each Holder and the Special Counsel, without charge, as many copies
of the Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request; and
the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus
and
any amendment or supplement thereto.
(h)
Prior
to
any public offering of Registrable Securities, use its best efforts to register
or qualify or cooperate with the selling Holders and the Special Counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and
sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Holder requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable
the
disposition in such jurisdictions of the Registrable Securities covered by
a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not
then so qualified or to take any action that would subject it to general service
of process in any jurisdiction where it is not then so subject or subject the
Company to any material tax in any such jurisdiction where it is not then so
subject.
(i)
Cooperate
with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law and the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any Holder may request at least two (2) Business
Days prior to any sale of Registrable Securities. In connection therewith,
the
Company shall promptly after the effectiveness of the Registration Statement
cause an opinion of counsel to be delivered to and maintained with its transfer
agent, together with any other authorizations, certificates and directions
required by the transfer agent, which authorize and direct the transfer agent
to
issue such Registrable Securities without legend upon sale by the Holder of
such
shares of Registrable Securities under the Registration Statement.
(j)
Following
the occurrence of any event contemplated by Section 3(c)(C)(iv), as promptly
as
possible, prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein
by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(k)
Cause
all
Registrable Securities relating to such Registration Statement to be listed
on
any United States securities exchange, quotation system, market or
over-the-counter bulletin board on which similar securities issued by the
Company are then listed.
(l)
Comply
in
all material respects with all applicable rules and regulations of the
Commission and make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act
and
Rule 158 not later than 45 days after the end of any 3-month period (or 90
days
after the end of any 12-month period if such period is a fiscal year) commencing
on the first day of the first fiscal quarter of the Company after the effective
date of the Registration Statement, which statement shall conform to the
requirements of Rule 158.
(m)
The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by
such
Holder and, if required by the Commission, the natural persons thereof that
have
voting and dispositive control over the shares. During any periods that the
Company is unable to meet its obligations hereunder with respect to the
registration of the Registrable Securities solely because any Holder fails
to
furnish such information within three Trading Days of the Company’s request, any
liquidated damages that are accruing at such time as to such Holder only shall
be tolled, and the Company may exclude from such registration the Registrable
Securities of any such Holder who fails to furnish such information within
a
reasonable time prior to the filing of each Registration Statement, supplemented
Prospectus and/or amended Registration Statement, until such information is
delivered to the Company. Each Holder agrees to furnish to the Company a
completed questionnaire in the form attached to this Agreement as
Annex
B
(a
“
Selling
Shareholder Questionnaire
”)
not
less than two (2) Trading Days prior to the Filing Date or by the end of the
fourth (4
th
)
Trading
Day following the date on which such Holder receives draft materials in
accordance with this Section.
If
the
Registration Statement refers to any Holder by name or otherwise as the holder
of any securities of the Company, then such Holder shall have the right to
require (if such reference to such Holder by name or otherwise is not required
by the Securities Act or any similar federal statute then in force) the deletion
of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each
Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the
kind
described in Section 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv), or
3(n), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder’s receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the
“
Advice
”)
by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement; provided, that, notwithstanding the foregoing provisions
of this Section 3(m), the Holders shall not be prohibited from selling
Registrable Securities under the Registration Statement as a result of any
event
of the kind described in this Section 3(m) for more than an aggregate of 60
days
in any 12-month period.
(n)
If
(i)
there is material non-public information regarding the Company which the
Company’s Board of Directors (the “
Board
”)
reasonably determines not to be in the Company’s best interest to disclose and
which the Company is not otherwise required to disclose, or (ii) there is a
significant business opportunity (including, but not limited to, the acquisition
or disposition of assets (other than in the ordinary course of business) or
any
merger, consolidation, tender offer or other similar transaction) available
to
the Company which the Board reasonably determines not to be in the Company’s
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may (i) postpone or suspend
filing or effectiveness of a registration statement or (ii) notify the Holders
that the Registration Statement may not be used in connection with any sales
of
the Company’s securities, in each case, for a period not to exceed 30
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 60 days in the aggregate during
any 12 month period (each, a “
Blackout
Period
”).
4.
Registration
Expenses
.
All
fees
and expenses incident to the performance of or compliance with this Agreement
by
the Company shall be borne by the Company whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with each
securities exchange, quotation system, market or over-the-counter bulletin
board
on which Registrable Securities are required hereunder to be listed, (B) with
respect to filings required to be made with the Commission, and (C) in
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable and documented fees and disbursements of Special Counsel
in connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and
of
printing or photocopying prospectuses), (iii) messenger, telephone and delivery
expenses, (iv) Securities Act liability insurance, if the Company so desires
such insurance, (v) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated
by
this Agreement, including, without limitation, the Company’s independent public
accountants (including, in the case of an underwritten offering, the expenses
of
any comfort letters or costs associated with the delivery by independent public
accountants of a comfort letter or comfort letters) and legal counsel, and
(vi)
reasonable and documented fees and expenses of the Special Counsel in connection
with any Registration Statement hereunder. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5.
Indemnification
.
(a)
Indemnification
by the Company
.
The
Company shall, notwithstanding any termination of this Agreement, indemnify
and
hold harmless each Holder, the officers, directors, agents, brokers (including
brokers who offer and sell Registrable Securities as principal as a result
of a
pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees of each of them, each Person who controls
any
such Holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and employees of
each such controlling Person, to the fullest extent permitted by applicable
law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and reasonable attorneys’
fees) and expenses (collectively, “
Losses
”),
as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained or incorporated by reference in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to
be
stated therein or necessary to make the statements therein (in the case of
any
Prospectus or form of prospectus or amendment or supplement thereto, in the
light of the circumstances under which they were made) not misleading, except
to
the extent, but only to the extent, that (i) such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writing
to
the Company by such Holder expressly for use therein, which information was
reasonably relied on by the Company for use therein or to the extent that such
information relates to (x) such Holder and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement,
such
Prospectus or such form of prospectus or in any amendment or supplement thereto
or (y) such Holder’s proposed method of distribution of Registrable Securities
as set forth in
Exhibit
A
(or as
such Holder otherwise informs the Company in writing); or (ii) in the case
of an
occurrence of an event of the type described in Section 3(c)(C)(ii),
3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or
defective Prospectus after the delivery to the Holder of written notice from
the
Company that the Prospectus is outdated or defective and prior to the receipt
by
such Holder of the Advice contemplated in Section 3(m); provided, however,
that
the indemnity agreement contained in this Section 5(a) shall not apply to
amounts paid in settlement of any Losses if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is
aware
in connection with the transactions contemplated by this Agreement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of an Indemnified Party (as defined in Section 5(c) to
this
Agreement) and shall survive the transfer of the Registrable Securities by
the
Holders.
(b)
Indemnification
by Holders
.
Each
Holder shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who controls
the Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, agents and employees
of
such controlling Persons, to the fullest extent permitted by applicable law,
from and against all Losses, as incurred, arising solely out of or based solely
upon any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that (i) such
untrue statement or omission is contained in or omitted from any information
so
furnished in writing by such Holder to the Company specifically for inclusion
in
the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus, or in any amendment or supplement thereto, or to the extent
that such information relates to (x) such Holder and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus, or such form of prospectus or in any amendment
or
supplement thereto or (y) such Holder’s proposed method of distribution of
Registrable Securities as set forth in
Exhibit
A
(or as
such Holder otherwise informs the Company in writing), (ii) in the case of
an
occurrence of an event of the type described in Section 3(c)(C)(ii),
3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or
defective Prospectus after the delivery to the Holder of written notice from
the
Company that the Prospectus is outdated or defective and prior to the receipt
by
such Holder of the Advice contemplated in Section 3(m) or (iii) such Holder’s
failure to comply with the Prospectus delivery requirements of the Securities
Act through no fault of the Company; provided, however, that the indemnity
agreement contained in this Section 5(b) shall not apply to amounts paid in
settlement of any Losses if such settlement is effected without the prior
written consent of the Holder, which consent shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained herein, the Holder shall
be
liable under this Section 5(b) for only that amount as does not exceed the
net
proceeds to such Holder as a result of the sale of Registrable Securities
pursuant to such Registration Statement.
(c)
Conduct
of Indemnification Proceedings
.
If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “
Indemnified
Party
”),
such
Indemnified Party promptly shall notify the Person from whom indemnity is sought
(the “
Indemnifying
Party
”)
in
writing, and the Indemnifying Party shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all reasonable fees and expenses incurred
in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced
the
Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume
the
defense of such Proceeding and to employ counsel reasonably satisfactory to
such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
in writing by counsel that a conflict of interest is likely to exist if the
same
counsel were to represent such Indemnified Party and the Indemnifying Party
(in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the reasonable expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not
be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from
all
liability on claims that are the subject matter of such Proceeding and does
not
impose any monetary or other obligation or restriction on the Indemnified Party.
All
reasonable fees and expenses of the Indemnified Party (including reasonable
fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party, which notice
shall be delivered no more frequently than on a monthly basis (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled
to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses
to
the extent it is finally judicially determined that such Indemnified Party
is
not entitled to indemnification hereunder).
(d)
Contribution
.
If a
claim for indemnification under Section 5(a) or 5(b) is unavailable to an
Indemnified Party because of a failure or refusal of a governmental authority
to
enforce such indemnification in accordance with its terms (by reason of public
policy or otherwise), then each Indemnifying Party, in lieu of indemnifying
such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates
to
information supplied by, such Indemnifying Party or Indemnified Party, and
the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees
or
expenses if the indemnification provided for in this Section was available
to
such party in accordance with its terms. Notwithstanding anything to the
contrary contained herein, the Holder shall be required to contribute under
this
Section 5(d) for only that amount as does not exceed the net proceeds to such
Holder as a result of the sale of Registrable Securities pursuant to such
Registration Statement.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by
any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties. The indemnity and contribution agreements herein are in addition to
and
not in diminution or limitation of any indemnification provisions under the
Purchase Agreement.
6.
Rule
144
.
As
long
as any Holder owns Purchased Shares, Conversion Shares, Warrants or Warrant
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to
be
filed by the Company after the date hereof pursuant to Section 13(a) or 15(d)
of
the Exchange Act. As long as any Holder owns Purchased Shares, Conversion
Shares, Warrants or Warrant Shares, if the Company is not required to file
reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare
and furnish to the Holders and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Person to sell Purchased Shares, Conversion Shares,
Warrants and Warrant Shares without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including compliance with the provisions of the Purchase
Agreement relating to the transfer of the Purchased Shares, Conversion Shares,
Warrants and Warrant Shares. Upon the request of any Holder, the Company shall
deliver to such Holder a written certification of a duly authorized officer
as
to whether it has complied with such requirements.
7.
Miscellaneous
.
(a)
Remedies
.
In the
event of a breach by the Company or by a Holder, of any of their obligations
under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under
this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense
that
a remedy at law would be adequate.
(b)
No
Inconsistent Agreements
.
Except
as otherwise disclosed in the Purchase Agreement, neither the Company nor any
of
its subsidiaries is a party to an agreement currently in effect, nor shall
the
Company or any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof. Without limiting the generality of the foregoing,
other than with respect to the rights of the holders of the Company’s currently
outstanding warrants and convertible notes and the common stock underlying
such
warrants and convertible notes, without the written consent of the Holders
of a
majority of the then outstanding Registrable Securities, the Company shall
not
grant to any Person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the rights of the Holders set forth herein, and are not
otherwise in conflict with the provisions of this Agreement.
(c)
Notice
of Effectiveness
.
Within
two (2) Business Days after the Registration Statement which includes the
Registrable Securities is ordered effective by the Commission, the Company
shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Holders
whose
Registrable Securities are included in such Registration Statement) confirmation
that the Registration Statement has been declared effective by the Commission
in
the form attached hereto as
Exhibit
B
.
(d)
Piggy-Back
Registrations
.
If at
any time when there is not an effective Registration Statement covering all
of
the Registrable Securities, the Company shall determine to prepare and file
with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to
be
issued solely in connection with any acquisition of any entity or business
or
equity securities issuable in connection with stock option or other employee
benefit plans and other than with respect to the rights of the holders of the
Company’s currently outstanding warrants and convertible notes and the common
stock underlying such warrants and convertible notes, the Company shall send
to
each Holder of Registrable Securities written notice of such determination
and,
if within seven (7) Business Days after receipt of such notice, any such Holder
shall so request in writing (which request shall specify the Registrable
Securities intended to be disposed of by the Holder), the Company will cause
the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the Holder, to the extent required
to permit the disposition of the Registrable Securities so to be registered,
provided that if at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to such Holder and, thereupon, (i) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation
to
pay expenses in accordance with Section 4 hereof), and (ii) in the case of
a
determination to delay registering, shall be permitted to delay registering
any
Registrable Securities being registered pursuant to this Section 7(d) for the
same period as the delay in registering such other securities. The Company
shall
include in such registration statement all or any part of such Registrable
Securities such Holder requests to be registered. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in
such
registration statement, and based on such determination recommends inclusion
in
such registration statement of fewer or none of the Registrable Securities
of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or
(y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of
other
persons or entities as well as the Company, such reduction shall not represent
a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).
(e)
Failure
to File Registration Statement; Failure to Become Effective and Other
Events
.
The
Company and the Holders agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and
maintained in the manner contemplated herein during the Effectiveness Period.
The Company and the Holders further agree that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
Registration Statement is not filed on or prior to the Filing Date, or (ii)
the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 461 promulgated under the Securities Act within five (5)
Business Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will
not
be “reviewed,” or not subject to further review, or (iii) a Registration
Statement registering for resale all of the Initial Shares is not declared
effective by the Commission by the Effectiveness Date of the Initial
Registration Statement with the aggregate number of such Initial Shares divided
among all Holders on a pro-rata basis based on their purchase of the Securities
pursuant to the Purchase Agreement, or (iv) all of the Registrable Securities
are not registered for resale pursuant to one or more effective Registration
Statements on or before October 30, 2008, or (v) the Registration Statement
is
filed with and declared effective by the Commission but thereafter ceases to
be
effective as to all applicable Registrable Securities at any time prior to
the
expiration of the Effectiveness Period, without being succeeded immediately
by a
subsequent Registration Statement filed with the Commission, except as otherwise
permitted by this Agreement, including pursuant to Section 3(n), or (vi) trading
in the Common Stock shall be suspended or if the Common Stock is delisted from
each securities exchange, quotation system, market or over-the-counter bulletin
board on which Registrable Securities are required hereunder to be listed (each
an “
Exchange
”),
without immediately being listed on any other Exchange, for any reason for
more
than five (5) Business Days, other than pursuant to Section 3(n), or (vii)
the
Company refuses or fails to effect any exercise of Warrants into Warrant Shares
in accordance with the terms of the Warrants for any reason without the consent
of the particular Holder (any such failure or breach being referred to as an
“
Event
”),
the
Company shall, as the remedy for same, pay in cash as liquidated damages for
such failure and not as a penalty to each Holder an amount equal to one percent
(1%) of such Holder’s Subscription Amount for the initial thirty (30) day period
until the applicable Event has been cured, which shall be pro rated for such
periods less than thirty (30) days and one percent (1%) of such Holder’s
Subscription Amount for each subsequent thirty (30) day period until the
applicable Event has been cured which shall be pro rated for such periods less
than thirty days (the “
Periodic
Amount
”).
Payments to be made pursuant to this Section 7(e) shall be due and payable
immediately upon demand in immediately available cash funds. The parties agree
that the Periodic Amount represents a reasonable estimate on the part of the
parties, as of the date of this Agreement, of the amount of damages that may
be
incurred by the Holders if the Registration Statement is not filed on or prior
to the Filing Date and maintained in the manner contemplated herein during
the
Effectiveness Period or if any other Event as described herein has occurred.
The
parties further agree that the maximum aggregate liquidated damages payable
to a
Holder under this Section 7(e) shall be 10% of the aggregate Subscription Amount
paid by such Holder pursuant to the Purchase Agreement. Notwithstanding the
foregoing, the Company shall remain obligated to cure the breach or correct
the
condition that caused the Event, and the Holder shall have the right to take
any
action necessary or desirable to enforce such obligation. Each Holder of
Registrable Securities acknowledges that, notwithstanding any provision of
this
Agreement, no damages shall be payable in connection with the Company’s
imposition of a Blackout Period in accordance with Section 3(n) of this
Agreement.
(f)
Specific
Enforcement, Consent to Jurisdiction
.
(i)
The
Company and the Holders acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.
(ii)
Each
of
the Company and the Holders (i) hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts located in New York City, New
York
for the purposes of any suit, action or proceeding arising out of or relating
to
this Agreement 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 Holders consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees
that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 7(f) shall affect or limit any right to serve
process in any other manner permitted by law.
(g)
Amendments
and Waivers
.
The
provisions of this Agreement, including the provisions of this sentence, may
not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in writing
and
signed by the Company and the Holders of at least 66% or more of the Registrable
Securities (including, for this purpose, any Registrable Securities issuable
upon conversion or exercise (as applicable) of any Preferred Stock or Warrant).
If a Registration Statement does not register all of the Registrable Securities
pursuant to a waiver or amendment done in compliance with the previous sentence,
then the number of Registrable Securities to be registered for each Holder
shall
be reduced pro rata among all Holders and each Holder shall have the right
to
designate which of its Registrable Securities shall be omitted from such
Registration Statement. Notwithstanding the foregoing, a waiver or consent
to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of the Registrable
Securities to which such waiver or consent relates; provided, however, that
the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding
sentence.
(h)
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 earlier of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified for
notice prior to 5:00 p.m., New York City time, on a Business Day, (ii) 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., New York City time,
on
any date and earlier than 11:59 p.m., New York City time, on such date, (iii)
the Business Day following the date of mailing, if sent by nationally recognized
overnight courier service such as Federal Express or (iv) actual receipt by
the
party to whom such notice is required to be given. The addresses for such
communications shall be with respect to each Holder at its address set forth
under its name on
Schedule
1
attached
hereto, or with respect to the Company, addressed to:
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
Attention:
President
Facsimile
No.: (214) 905-5101
or
to
such other address or addresses or facsimile number or numbers as any such
party
may most recently have designated in writing to the other parties hereto by
such
notice. Copies of notices to the Company shall be sent to:
Bingham
McCutchen LLP
150
Federal Street
Boston,
Massachusetts 02110
Attention:
John J. Concannon, III
Facsimile
No.: (617) 951-8736
Copies
of
notices to any Holder shall be sent to the addresses, if any, listed on
Schedule
1
attached
hereto.
(i)
Successors
and Assigns
.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns and shall inure to the benefit of each
Holder and its successors and assigns; provided, that the Company may not assign
this Agreement or any of its rights or obligations hereunder without the prior
written consent of each Holder; and provided, further, that each Holder may
assign its rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.
(j)
Assignment
of Registration Rights
.
The
rights of each Holder hereunder, including the right to have the Company
register for resale Registrable Securities in accordance with the terms of
this
Agreement, shall be automatically assignable by each Holder to any transferee
of
such Holder of all or a portion of the Purchased Shares, the Warrants, the
Warrant Shares or the Registrable Securities if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer
or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section 7(j), the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
The
Company may require, as a condition of allowing such assignment in connection
with a transfer of Purchased Shares, Warrants, Warrant Shares or Registrable
Securities (i) that the Holder or transferee of all or a portion of the
Purchased Shares, the Warrants, the Warrant Shares or the Registrable Securities
as the case may be, furnish to the Company a written opinion of counsel that
is
reasonably acceptable to the Company to the effect that such transfer may be
made without registration under the Securities Act, (ii) that the Holder or
transferee execute and deliver to the Company an investment letter in form
and
substance acceptable to the Company and (iii) that the transferee be an
“accredited investor” as defined in Rule 501(a) promulgated under the Securities
Act.
(k)
Counterparts;
Facsimile
.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature
is
delivered by electronic means or facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
(l)
Governing
Law
.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York, without regard to principles of conflicts of law
thereof.
(m)
Cumulative
Remedies
.
Unless
otherwise provided herein, the remedies provided herein are cumulative and
not
exclusive of any remedies provided by law.
(n)
Severability
.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions
set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
(o)
Headings
.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
(p)
Obligations
of Purchasers
.
The
Company acknowledges that the obligations of each Purchaser under this
Agreement, are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the performance
of the obligations of any other Purchaser under this Agreement. The decision
of
each Purchaser to enter into to this Agreement has been made by such Purchaser
independently of any other Purchaser. The Company further acknowledges that
nothing contained in this Agreement, and no action taken by any Purchaser
pursuant hereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated hereby. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement, and
it
shall not be necessary for any other Purchaser to be joined as an additional
party in any proceeding for such purpose.
Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of this Agreement and with respect to the transactions
contemplated hereby. For reasons of administrative convenience only, this
Agreement has been prepared by Special Counsel (counsel for SCO Capital Partners
LLC) and the Special Counsel will perform certain duties under this Agreement.
Such counsel does not represent all of the Purchasers but only SCO Capital
Partners LLC. The Company has elected to provide all Purchasers with the same
terms and Agreement for the convenience of the Company and not because it was
required or requested to do so by the Purchasers. The Company acknowledges
that
such procedure with respect to this Agreement in no way creates a presumption
that the Purchasers are in any way acting in concert or as a group with respect
to this Agreement or the transactions contemplated hereby or
thereby.
(q)
No
Other Shares on Registrations; Prohibition on Filing Other Registration
Statements
.
Neither
the Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in any
Registration Statements other than the Registrable Securities. The Company
shall
not file any other registration statements until all Registrable Securities
are
registered pursuant to a Registration Statement that is declared effective
by
the Commission, provided that this Section 7(q) shall not prohibit the Company
from filing amendments to registration statements filed prior to the date of
this Agreement.
[signature
page follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement
to be duly executed by their respective authorized persons as of the date
first
indicated above.
COMPANY
:
ACCESS
PHARMACEUTICALS, INC.
|
|
By:
|
/s/
Stephen B. Thompson
|
Name:
|
Stephen
B. Thompson
|
Title:
|
Vice
President, CFO
|
PURCHASERS:
Print
Exact Name
:
|
Beach
Capital LLC
|
|
|
By:
|
/s/
Steven H. Rouhandeh
|
Name:
|
Steven
H. Rouhandeh
|
Title:
|
Managing
Member Beach Capital LLC
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Brio
Capital L.P.
|
|
|
By:
|
/s/
Shaye Hirsch
|
Name:
|
Shaye
Hirsch
|
Title:
|
Manager
of the General Partner
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Catalytix
Life Science Hedge AC
|
|
|
By:
|
/s/
Ken Sorensen
|
Name:
|
KEN
SORENSEN
|
Title:
|
PM,
DIR
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Cranshire
Capital, L.P.
|
|
|
By:
|
/s/
Lawrence A. Prosser
|
Name:
|
Lawrence
A. Prosser
|
Title:
|
CFO-Downsview
Capital, Inc.
|
|
The
General Partner
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Credit
Suisse Securities (USA) LLC
|
|
|
By:
|
/s/
Jeffrey B. Andreski
|
Name:
|
Jeffrey
B. Andreski
|
Title:
|
Managing
Director
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Enable
Growth Partners LP
|
|
|
By:
|
/s/
Brenden O’Neil
|
Name:
|
Brenden
O’Neil
|
Title:
|
Principal
and Portfolio Manager
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Lake
End Capital LLC
|
|
|
By:
|
/s/
Jeffrey B. Davis
|
Name:
|
Jeffrey
B. Davis
|
Title:
|
Managing
Member
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Dennis
LaValle
|
|
|
By:
|
/s/
Dennis LaValle
|
Name:
|
|
Title:
|
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Midsummer
Investment, Ltd.
|
|
|
By:
|
/s/
Michel Amsalem
|
Name:
|
Michel
Amsalem
|
Title:
|
Director
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Oracle
Investment Partners LP
|
|
|
By:
|
/s/
Joel Liffmann
|
Name:
|
Joel
Liffmann
|
Title:
|
Authorized
Agent
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Oracle
Offshore LTD
|
|
|
By:
|
/s/
Joel Liffmann
|
Name:
|
Joel
Liffmann
|
Title:
|
Authorized
Agent
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Oracle
Partners, L.P.
|
|
|
By:
|
/s/
Joel Liffmann
|
Name:
|
Joel
Liffmann
|
Title:
|
Authorized
Agent
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Perceptive
Life Sciences Master Fund LTD
|
|
|
By:
|
/s/
J Edelman
|
Name:
|
J Edelman
|
Title:
|
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
Rockmore
Investment Master Fund Ltd.
|
|
|
By:
|
/s/
Michael Clateman
|
Name:
|
Michael
Clateman
|
Title:
|
Managing
Director
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
PURCHASERS:
Print
Exact Name
:
|
SAM
Oracle Investments, INC.
|
|
|
By:
|
/s/
Joel Liffmann
|
Name:
|
Joel
Liffmann
|
Title:
|
Authorized
Agent
|
|
|
[Omnibus
Access Pharmaceuticals, Inc. Investor Rights Agreement (2007) Signature
Page]
SCHEDULE
1
PURCHASERS
Name
and Address
:
|
Beach
Capital LLC
1285
Avenue of the Americas, 35
th
Fl.
New
York, NY 10019
Fax:
212-554-4058
|
Brio
Capital L.P.
401
E. 34
th
St.
Suite
South 33C
New
York, NY 10016
Fax:
646-390-2158
|
Catalytix
LDC Life Science Hedge AC
CIBC
Bank and Trust Company (Cayman) Ltd.
CIBC
Financial Centre
11
Roy’s Drive
P.O.
Box 694 GT
Grand
Cayman
Cayman
Islands
B.W.I.
Attn:
Martin Laidlaw
With
a copy to
:
Theodore
E. Kalem
Array
Capital Management LLC
425
5
th
Ave, Ste. 28D
New
York, NY 10016
|
Cobblestone
Asset Management LLC
11
Lakeview Ave.
Sleepy
Hollow, NY 10591
Fax:
212-259-2093
|
Cranshire
Capital, L.P.
3100
Dundee Rd., #703
Northbrook,
IL 60062
Fax:
847-562-9031
|
Credit
Suisse Securities (USA) LLC
c/o
Greg Grimaldi
11
Madison Ave., 3d Fl.
New
York, NY 100100
Fax:
212-935-7716
|
Enable
Growth Partners LP
One
Ferry Building, Suite 255
San
Francisco, CA 94111
Fax:
415-677-1580
|
Lake
End Capital LLC
33
Tall Oaks Dr.
Summit,
NJ 07901
Fax:
|
Dennis
Lavalle
1201
Yale Place #1409
Minneapolis,
MN 55403
Fax:
612-455-5600
|
Midsummer
Investment, Ltd.
295
Madison Ave., 38
th
Fl.
New
York, NY 10017
Fax:
212-624-5040
|
Oracle
Institutional Partners LP
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
Oracle
Offshore Ltd.
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
Perceptive
Life Sciences Master Fund Ltd.
499
Park Ave., 25
th
Fl.
New
York, NY 10022
Fax:
646-205-5301
|
Rockmore
Investment Master Fund Ltd.
c/o
Rockmore Capital LLC 150 E. 58
th
St.
New
York, NY 10155
Fax:
212-258-2315
|
SAM
Oracle Investments, Inc.
Oracle
Partners, LP
200
Greenwich Ave.
Greenwich,
CT 06830
Fax:
|
SCO
Capital Partners LLC
1285
Avenue of the Americas
35
th
Fl.
New
York, NY 10019
Fax:
212-554-4058
With
a copy to
:
Michael
Grundei, Esq.
400
Atlantic St.
P.O.
Box 110325
Stamford,
CT 06911-0325
|
|
SCO
Capital Partners, L.P.
1285
Avenue of the Americas
35
th
Fl.
New
York, NY 10019
Fax:
212-554-4058
With
a copy to
:
Michael
Grundei, Esq.
400
Atlantic St.
P.O.
Box 110325
Stamford,
CT 06911-0325
|
EXHIBIT
A
PLAN
OF
DISTRIBUTION
We
are
registering the shares of common stock on behalf of the selling security
holders. Sales of shares may be made by selling security holders, including
their respective donees, transferees, pledgees or other successors-in-interest
directly to purchasers or to or through underwriters, broker-dealers or through
agents. Sales may be made from time to time on the ________________, any other
exchange or market upon which our shares may trade in the future, in the
over-the-counter market or otherwise, at market prices prevailing at the time
of
sale, at prices related to market prices, or at negotiated or fixed prices.
The
shares may be sold by one or more of, or a combination of, the
following:
-
|
a
block trade in which the broker-dealer so engaged will attempt to
sell the
shares as agent but may position and resell a portion of the block
as
principal to facilitate the transaction (including crosses in which
the
same broker acts as agent for both sides of the
transaction);
|
-
|
purchases
by a broker-dealer as principal and resale by such broker-dealer,
including resales for its account, pursuant to this
prospectus;
|
-
|
ordinary
brokerage transactions and transactions in which the broker solicits
purchases;
|
-
|
through
options, swaps or derivatives;
|
-
|
in
privately negotiated transactions;
|
-
|
in
making short sales or in transactions to cover short sales;
|
-
put
or
call option transactions relating to the shares;
-
through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
-
a
combination of any such methods of sale; or
-
any
other
method permitted pursuant to applicable law.
The
selling security holders may effect these transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. These broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling security holders and/or
the purchasers of shares for whom such broker-dealers may act as agents or
to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The selling security
holders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities.
The
selling security holders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with those transactions, the
broker-dealers or other financial institutions may engage in short sales of
the
shares or of securities convertible into or exchangeable for the shares in
the
course of hedging positions they assume with the selling security holders.
The
selling security holders may also enter into options or other transactions
with
broker-dealers or other financial institutions which require the delivery of
shares offered by this prospectus to those broker-dealers or other financial
institutions. The broker-dealer or other financial institution may then resell
the shares pursuant to this prospectus (as amended or supplemented, if required
by applicable law, to reflect those transactions).
The
selling security holders and any broker-dealers that act in connection with
the
sale of shares may be deemed to be “underwriters” within the meaning of Section
2(11) of the Securities Act of 1933, and any commissions received by
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals may be deemed to be underwriting discounts or commissions
under the Securities Act. The selling security holders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares against liabilities, including liabilities arising under
the
Securities Act. We have agreed to indemnify each of the selling security holders
and each selling security holder has agreed, severally and not jointly, to
indemnify us against some liabilities in connection with the offering of the
shares, including liabilities arising under the Securities Act.
The
selling security holders will be subject to the prospectus delivery requirements
of the Securities Act. We have informed the selling security holders that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act of 1934 may apply to their sales in the market.
Selling
security holders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act, provided they
meet the criteria and conform to the requirements of Rule 144.
Upon
being notified by a selling security holder that a material arrangement has
been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file a supplement to this prospectus, if required
pursuant to Rule 424(b) under the Securities Act, disclosing:
-
|
the
name of each such selling security holder and of the participating
broker-dealer(s);
|
-
|
the
number of shares involved;
|
-
|
the
initial price at which the shares were
sold;
|
-
|
the
commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
|
-
|
that
such broker-dealer(s) did not conduct any investigation to verify
the
information set out or incorporated by reference in this prospectus;
and
|
-
|
other
facts material to the transactions.
|
In
addition, if required under applicable law or the rules or regulations of the
Commission, we will file a supplement to this prospectus when a selling security
holder notifies us that a donee or pledgee intends to sell more than 500 shares
of common stock.
We
are
paying all expenses and fees customarily paid by the issuer in connection with
the registration of the shares. The selling security holders will bear all
brokerage or underwriting discounts or commissions paid to broker-dealers in
connection with the sale of the shares.
EXHIBIT
B
FORM
OF
NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
[Name
and
Address of Transfer Agent]
Re:
Access Pharmaceuticals, Inc.
Dear
[______]:
We
are
counsel to Access Pharmaceuticals, Inc., a Delaware corporation (the
“
Company
”),
and
have represented the Company in connection with that certain Convertible
Preferred Stock and Warrant Purchase Agreement (the “
Purchase
Agreement
”)
dated
as of __________________, 2007 by and among the Company and the buyers named
therein (collectively, the “
Holders
”)
pursuant to which the Company issued to the Holders its Series A convertible
preferred stock (the “
Preferred
Stock
”)
convertible into shares of its Common Stock, par value $0.01 per share (the
“
Common
Stock
”),
and
warrants to purchase shares of the Common Stock (the “
Warrants
”).
Pursuant to the Purchase Agreement, the Company has also entered into an
Investor Rights Agreement with the Holders (the “
Investor
Rights Agreement
”)
pursuant to which the Company agreed, among other things, to register the shares
of Common Stock issuable upon conversion of the Preferred Stock, in payment
of
dividends on the Preferred stock and upon exercise of the Warrants, under the
Securities Act of 1933, as amended (the “1933 Act”). In connection with the
Company’s obligations under the Investor Rights Agreement, on ____________ ___,
2006, the Company filed a Registration Statement on Form S-__ (File No.
333-_____________) (the “Registration Statement”) with the Securities and
Exchange Commission (the “
SEC
”)
relating to the Registrable Securities which names each of the Holders as a
selling securityholder thereunder.
In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very
truly yours,
By:__________________________________
cc:
[LIST
NAMES OF HOLDERS]
Annex
B
[__________
Selling
Securityholder Notice and Questionnaire
The
undersigned beneficial owner of common stock (the “
Registrable
Securities
”)
of
[_______, a [_______ corporation (the “
Company
”),
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “
Commission
”)
a
registration statement (the “
Registration
Statement
”)
for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “
Securities
Act
”),
of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement (the “
Registration
Rights Agreement
”)
to
which this document is annexed. A copy of the Registration Rights Agreement
is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain
legal consequences arise from being named as a selling securityholder in the
Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.
NOTICE
The
undersigned beneficial owner (the “
Selling
Securityholder
”)
of
Registrable Securities hereby elects to include the Registrable Securities
owned
by it in the Registration Statement.
The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1.
Name.
|
(a)
|
Full
Legal Name of Selling
Securityholder
|
|
(b)
|
Full
Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities are
held:
|
|
(c)
|
Full
Legal Name of Natural Control Person (which means a natural person
who
directly or indirectly alone or with others has power to vote or
dispose
of the securities covered by this
Questionnaire):
|
2.
Address for Notices to Selling Securityholder:
|
|
|
Telephone:
|
Fax:
|
Contact
Person:
|
3.
Broker-Dealer Status:
|
(a)
|
Are
you a broker-dealer?
|
Yes
No
|
(b)
|
If
“yes” to Section 3(a), did you receive your Registrable Securities as
compensation for investment banking services to the
Company?
|
Yes
No
|
Note:
|
If
“no” to Section 3(b), the Commission’s staff has indicated that you should
be identified as an underwriter in the Registration
Statement.
|
|
(c)
|
Are
you an affiliate of a
broker-dealer?
|
Yes
No
|
(d)
|
If
you are an affiliate of a broker-dealer, do you certify that you
purchased
the Registrable Securities in the ordinary course of business, and
at the
time of the purchase of the Registrable Securities to be resold,
you had
no agreements or understandings, directly or indirectly, with any
person
to distribute the Registrable
Securities?
|
Yes
No
|
Note:
|
If
“no” to Section 3(d), the Commission’s staff has indicated that you should
be identified as an underwriter in the Registration
Statement.
|
4.
Beneficial Ownership of Securities of the Company Owned by the Selling
Securityholder.
Except
as set forth below in this Item 4, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.
|
(a)
|
Type
and Amount of other securities beneficially owned by the Selling
Securityholder:
|
5.
Relationships with the Company:
Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.
State
any
exceptions here:
The
undersigned agrees to promptly notify the Company of any inaccuracies or changes
in the information provided herein that may occur subsequent to the date hereof
at any time while the Registration Statement remains effective.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus
and
any
amendments or supplements thereto
.
The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
and Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
Date:
Beneficial
Owner:
By:
Name:
Title:
PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:
EXHIBIT
10.26
THIS
WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED
OR
TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.
Warrant
No. W-__
COMMON
STOCK PURCHASE WARRANT
To
Purchase
[50%
X (Issue Amount)/(Conversion Price)]
Shares
of
Common Stock of
ACCESS
PHARMACEUTICALS, INC.
THIS
IS
TO CERTIFY THAT _______________, or registered assigns (the “
Holder
”),
is
entitled, during the Exercise Period (as hereinafter defined), to purchase
from
Access Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”),
the
Warrant Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, at a purchase price of $4.00
per
share
(as adjusted herein), all on and subject to the terms and conditions hereinafter
set forth.
1.
Definitions
.
As used
in this Warrant, the following terms have the respective meanings set forth
below:
“
Additional
Shares of Common Stock
”
means
any shares of Common Stock issued by the Company after the Closing Date other
than: (A) shares of Common Stock issued upon the conversion of the Preferred
Stock, the exercise of the warrants issued pursuant to the Purchase Agreement
or
payment of dividends on the Preferred Stock, (B) shares of Common Stock issued
upon the exercise of any warrants or options (collectively, the “
Existing
Warrants
”)
outstanding on the date hereof; provided that such securities have not been
amended since the 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 issued, stock awards or options under,
or
the exercise of any options granted pursuant to, any stock-based compensation
plans of the Company duly adopted by a majority of the non-employee members
of
the Board of Directors of the Company 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 of Directors of the Company, the primary purpose of which is not
to
provide financing to the Company or (F) shares of Preferred Stock and warrants
to purchase Common Stock, in each case, issued pursuant to the Purchase
Agreement.
“
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 Warrants, 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.
“
Appraised
Value
”
means,
in respect of any share of Common Stock on any date herein specified, the fair
saleable value of such share of Common Stock (determined without giving effect
to the discount for (i) a minority interest or (ii) any lack of liquidity of
the
Common Stock or to the fact that the Company may have no class of equity
registered under the Exchange Act) as of the last day of the most recent fiscal
month ending prior to such date specified, based on the value of the Company
on
a fully-diluted basis, as determined by a nationally recognized investment
banking firm selected by the Company’s Board of Directors and having no prior
relationship with the Company.
“
Business
Day
”
means
any day except Saturday, Sunday and any day which shall be a legal holiday
or a
day on which banking institutions in the State of Texas generally are authorized
or required by law or other government actions to close.
“
Change
of Control
”
means
the (i) acquisition by an individual or legal entity or group (as set forth
in
Section 13(d) of the Exchange Act), other than SCO Capital Partners LLC and
its
Affiliates, of more than one-half of the voting rights or equity interests
in
the Company other than in connection with the exercise or conversion of
currently outstanding warrants or convertible securities; 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; or (iii) any tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property.
“
Closing
Date
”
means
November 10, 2007.
“
Commission
”
means
the Securities and Exchange Commission or any other federal agency then
administering the Securities Act and other federal securities laws.
“
Common
Stock
”
means
(except where the context otherwise indicates) the Common Stock, $0.01 par
value
per share, of the Company as constituted on the Closing Date, and any capital
stock into which such Common Stock may thereafter be changed or converted,
and
shall also include (i) capital stock of the Company of any other class
(regardless of how denominated) issued to the holders of shares of Common Stock
upon any reclassification thereof which is also not preferred as to dividends
or
assets on liquidation over any other class of stock of the Company and which
is
not subject to redemption and (ii) shares of common stock of any successor
or
acquiring corporation received by or distributed to the holders of Common Stock
of the Company in the circumstances contemplated by Section 4.6.
“
Common
Stock Equivalents
”
has
the
meaning set forth in Section 4.3.
“
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
Appraised Value per share of Common Stock at such date,
or
(2)
if
there
shall then be a public market for the Common Stock, the average of the daily
market prices for the trading day 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 FINRA selected in good faith by
the
Holder and reasonably acceptable to the Company.
“
Current
Warrant Price
”
means,
in respect of a share of Common Stock at any date herein specified, the price
at
which a share of Common Stock may be purchased pursuant to this Warrant on
such
date. Unless and until the Current Warrant Price is adjusted pursuant to the
terms herein, the initial Current Warrant Price shall be $4.00 per share of
Common Stock.
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended, or any similar federal statute,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
“
Exercise
Period
”
means
the period during which this Warrant is exercisable pursuant to Section 2.1.
“
Expiration
Date
”
means
November 10, 2013.
“
GAAP
”
means
generally accepted accounting principles in the United States of America as
from
time to time in effect.
“
FINRA
”
means
the Financial Industry Regulatory Authority, or any successor entity thereto.
“
Other
Property
”
has
the
meaning set forth in Section 4.6.
“
Person
”
means
any individual, sole proprietorship, partnership, joint venture, trust,
incorporated organization, association, corporation, limited liability company,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation,
any
instrumentality, division, agency, body or department thereof).
“
Preferred
Stock
”
shall
mean the Company’s Series A Cumulative Convertible Preferred Stock, par value
$0.01 per share, issued pursuant to the Purchase Agreement.
“
Purchase
Agreement
”
means
that certain Preferred Stock and Warrant Purchase Agreement dated as of November
7, 2007
among
the
Company and the other parties named therein, pursuant to which this Warrant
was
originally issued.
“
Restricted
Common Stock
”
means
shares of Common Stock which are, or which upon their issuance upon the exercise
of any Warrant would be required to be, evidenced by a certificate bearing
the
restrictive legend set forth in Section 3.2.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, or any similar federal statute, and
the
rules and regulations of the Commission thereunder, all as the same shall be
in
effect at the time.
“
Trading
Day
”
means
any day on which the primary market on which shares of Common Stock are listed
or quoted is open for trading, or, if the Common Stock is no then listed or
quoted for trading on any public market, Trading Day shall mean a Business
Day.
“
Transfer
”
means
any disposition of any Warrant or Warrant Stock or of any interest in either
thereof, which would constitute a sale thereof within the meaning of the
Securities Act.
“
Warrants
”
means
this Warrant and all warrants issued upon transfer, division or combination
of,
or in substitution for, any thereof. All Warrants shall at all times be
identical as to terms and conditions and date, except as to the number of shares
of Common Stock for which they may be exercised.
“
Warrant
Price
”
means
an amount equal to (i) the number of shares of Common Stock being purchased
upon
exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current
Warrant Price.
“
Warrant
Stock
”
means
the ____________ shares of Common Stock to be purchased upon the exercise
hereof, subject to adjustment as provided herein.
2.
Exercise
of Warrant
.
2.1.
Manner
of Exercise
.
From
and after the Closing Date, and until 5:00 P.M., New York time, on the
Expiration Date (the “
Exercise
Period
”),
the
Holder may exercise this Warrant, on any Business Day, for all or any part
of
the number of shares of Warrant Stock purchasable hereunder. The exercise price
per share of the Common Stock under this Warrant shall be the Current Warrant
Price, subject to adjustment hereunder.
(i)
In
order
to exercise this Warrant, in whole or in part, the Holder shall deliver to
the
Company at its principal office or at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder’s election to
exercise this Warrant, which notice shall specify the number of shares of
Warrant Stock to be purchased, and (ii) payment of the Warrant Price as provided
herein. Such notice shall be substantially in the form of the subscription
form
appearing at the end of this Warrant as
Exhibit
A
,
duly
executed by the Holder or its agent or attorney.
(ii)
Upon
receipt thereof, the Company shall, as promptly as practicable, and in any
event
within three Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of full shares of Warrant Stock issuable
upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the Holder
shall request in the notice and shall be registered in the name of the Holder
or
if permitted pursuant to the terms of this Warrant such other name as shall
be
designated in the notice. Certificates for shares purchased hereunder shall
be
transmitted by the transfer agent of the Company to the Holder by crediting
the
account of the Holder’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission (“
DWAC
”)
system
if the Company is a participant in such system and there is an effective
Registration Statement permitting the resale of the Warrant Stocks by the
Holder, and otherwise by physical delivery to the address specified by the
Holder in the exercise notice within 3 Trading Days from the delivery to the
Company of the exercise notice, surrender of this Warrant (if required) and
payment of the aggregate Exercise Price as set forth above (“
Warrant
Share Delivery Date
”).
This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder or any other
Person so designated to be named therein shall be deemed to have become a Holder
of record of such shares for all purposes, as of the date when the notice,
together with the payment of the Warrant Price and this Warrant, is received
by
the Company as described above. If the Company fails for any reason to deliver
to the Holder certificates evidencing the Warrant Stock subject to a Notice
of
Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000
of
Warrant Stock subject to such exercise (based on the VWAP of the Common Stock
on
the date of the applicable Notice of Exercise), $10 per Trading Day (increasing
to $20 per Trading Day on the fifth Trading Day after such liquidated damages
begin to accrue) for each Trading Day after such Warrant Share Delivery Date
until such certificates are delivered.
(iii)
If
the
Company fails to cause its transfer agent to transmit to the Holder a
certificate or certificates representing the Warrant Stock pursuant to an
exercise on or before the Warrant Share Delivery Date, and if after such date
the Holder is required by its broker to purchase (in an open market transaction
or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Stock which the Holder anticipated receiving upon such exercise (a “
Buy-In
”),
then
the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Stock that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion
of
the Warrant and equivalent number of Warrant Stock for which such exercise
was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In and, upon request of
the
Company, 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 Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant
as
required pursuant to the terms hereof.
(iv)
Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of
the
Warrant Stock available hereunder and the Warrant has been exercised in full,
in
which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final exercise notice is
delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Stock available hereunder
shall have the effect of lowering the outstanding number of Warrant Stock
purchasable hereunder in an amount equal to the applicable number of Warrant
Stock purchased. If this Warrant shall have been exercised in part, the Company
shall, at the request of a Holder and upon surrender of this Warrant
certificate, at the time of delivery of the certificate or certificates
representing Warrant Stock, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.
(v)
Payment
of the Warrant Price may be made at the option of the Holder by: (i) certified
or official bank check payable to the order of the Company, (ii) wire transfer
of immediately available funds to the account of the Company or (iii) the
surrender and cancellation of a portion of shares of Common Stock then held
by
the Holder or issuable upon such exercise of this Warrant, which shall be valued
and credited toward the total Warrant Price due the Company for the exercise
of
the Warrant based upon the Current Market Price of the Common Stock. All shares
of Common Stock issuable upon the exercise of this Warrant pursuant to the
terms
hereof shall be validly issued and, upon payment of the Warrant Price, shall
be
fully paid and nonassessable and not subject to any preemptive
rights.
(vi)
If
the
Company fails to cause its transfer agent to transmit to the Holder a
certificate or certificates representing the Warrant Stock pursuant to Section
2.1(ii) by the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
(vii)
The
Holder and the Company shall maintain records showing the number of Warrant
Stock purchased and the date of such purchases. The Company shall deliver any
objection to any exercise notice within 1 Business Day of receipt of such
notice. In the event of any dispute or discrepancy, the records of the Holder
shall be controlling and determinative in the absence of manifest error.
The
Holder and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a
portion of the Warrant Stock hereunder, the number of Warrant Stock available
for purchase hereunder at any given time may be less than the amount stated
on
the face hereof.
2.2.
Fractional
Shares
.
The
Company shall not be required to issue a fractional share of Common Stock upon
exercise of any Warrant. As to any fraction of a share which the Holder of
one
or more Warrants, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Company shall
pay an amount in cash equal to the Current Market Price per share of Common
Stock on the date of exercise multiplied by such fraction.
2.3.
Continued
Validity
.
A
Holder of shares of Common Stock issued upon the exercise of this Warrant,
in
whole or in part (other than a Holder who acquires such shares after the same
have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder), shall continue to
be
entitled with respect to such shares to all rights to which it would have been
entitled as the Holder under Sections 10 and 13 of this Warrant.
2.4.
Restrictions
on Exercise Amount
.
(i)
Unless
a
Holder delivers to the Company irrevocable written notice prior to the date
of
issuance hereof or sixty-one days prior to the effective date of such notice
that this Section 2.4(i) shall not apply to such Holder, the Holder may not
acquire a number of shares of Warrant Stock to the extent that, upon such
exercise, 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) exceeds 4.99% of the total number of shares of Common Stock of the
Company then issued and outstanding. For purposes hereof, “group” has the
meaning set forth in Section 13(d) of the Exchange Act and applicable
regulations of the 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 exercise of this Warrant 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, nonexercised portion
of
this Warrant 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 the Preferred
Stock) 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. Each delivery of a notice of exercise by a Holder will
constitute a representation by such Holder that it has evaluated the limitation
set forth in this paragraph and determined, based on the most recent public
filings by the Company with the Commission, that the issuance of the full number
of shares of Warrant Stock requested in such notice of exercise is permitted
under this paragraph.
(ii)
In
the
event the Company is prohibited from issuing shares of Warrant 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 exercise
of
this Warrant.
3.
Transfer,
Division and Combination
.
3.1.
Transfer
.
The
Warrants and the Warrant Stock shall be freely transferable, subject to
compliance with this Section 3.1 and all applicable laws, including, but not
limited to the Securities Act. If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant or the resale of the Warrant
Stock, this Warrant or the Warrant Stock, as applicable, shall not be registered
under the Securities Act, the Company may require, as a condition of allowing
such transfer (i) that the Holder or transferee of this Warrant or the Warrant
Stock as the case may be, furnish to the Company a written opinion of counsel
that is reasonably acceptable to the Company to the effect that such transfer
may be made without registration under the Securities Act, (ii) that the Holder
or transferee execute and deliver to the Company an investment representation
letter in form and substance acceptable to the Company and substantially in
the
form attached as
Exhibit
C
hereto
and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a) promulgated under the Securities Act. Transfer of this Warrant and all
rights hereunder, in whole or in part, in accordance with the foregoing
provisions, shall be registered on the books of the Company to be maintained
for
such purpose, upon surrender of this Warrant at the principal office of the
Company referred to in Section 2.1 or the office or agency designated by the
Company pursuant to Section 12, together with a written assignment of this
Warrant substantially in the form of
Exhibit
B
hereto
duly executed by the Holder or its agent or attorney and funds sufficient to
pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to
the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. Following a transfer that complies
with the requirements of this Section 3.1, the Warrant may be exercised by
a new
Holder for the purchase of shares of Common Stock regardless of whether the
Company issued or registered a new Warrant on the books of the Company.
3.2.
Restrictive
Legends
.
Each
certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, unless, in each case, such Warrant Stock
is
eligible for resale without registration pursuant to Rule 144(k) under the
Exchange Act or such Warrant Stock is registered for sale under an effective
registration statement filed under the Securities Act, shall bear the following
legend:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE OPINION
OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT
REQUIRED.”
In
addition, the legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Warrant Stock
upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, such Warrant Stock is registered for sale under an effective
registration statement filed under the Securities Act.
3.3.
Division
and Combination; Expenses; Books
.
This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. The Company shall prepare, issue and deliver at its own
expense the new Warrant or Warrants under this Section 3. The Company agrees
to
maintain, at its aforesaid office or agency, books for the registration and
the
registration of transfer of the Warrants.
4.
Adjustments
.
The
number of shares of Common Stock for which this Warrant is exercisable, and
the
price at which such shares may be purchased upon exercise of this Warrant,
shall
be subject to adjustment from time to time as set forth in this Section 4.
The
Company shall give the Holder notice of any event described below which requires
an adjustment pursuant to this Section 4 in accordance with Sections 5.1 and
5.2.
4.1.
Stock
Dividends, Subdivisions and Combinations
.
If at
any time while this Warrant is outstanding the Company shall:
(i)
declare
a
dividend or make a distribution on its outstanding shares of Common Stock in
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:
(1)
the
number of shares of Common Stock acquirable upon exercise of this Warrant
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock which a record holder of the same number
of
shares of Common Stock that would have been acquirable under this Warrant
immediately prior to the record date for such dividend or distribution or the
effective date of such subdivision or combination would own or be entitled
to
receive after such record date or the effective date of such subdivision or
combination, as applicable, and
(2)
the
Current Warrant Price shall be adjusted to equal:
(A)
the
Current Warrant Price in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision or combination,
multiplied by the number of shares of Common Stock into which this Warrant
is
exercisable immediately prior to the adjustment, divided by
(B)
the
number of shares of Common Stock into which this Warrant is exercisable
immediately after such adjustment.
Any
adjustment made pursuant to clause (i) of this paragraph 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 shall become effective immediately after the
effective date of such subdivision or combination.
4.2.
Issuance
of Additional Shares of Common Stock
.
(i)
If,
at
any time while this Warrant is outstanding, the Company shall issue or sell
any
Additional Shares of Common Stock in exchange for consideration in an amount
per
Additional Share of Common Stock less than the Current Warrant Price at the
time
the Additional Shares of Common Stock are issued or sold, then the Current
Warrant Price immediately prior to such issue or sale shall be reduced to a
price equal to the lowest price per share of the Additional Shares of Common
Stock received by or to be received by the Company upon such issue or sale
of
such Additional Shares of Common Stock.
(ii)
The
provisions of paragraph 4.2(i) shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under Section 4.1.
4.3.
Issuance
of Common Stock Equivalents
.
If, at
any time while this Warrant is outstanding, the Company shall issue or sell
any
warrants or rights to subscribe for or purchase any Additional Shares of Common
Stock or any securities exchangeable or convertible into Additional Shares
of
Common Stock (regardless of the number of shares of Common Stock that the
Company is then authorized to issue) (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 shall be less than the Current Warrant Price in effect immediately
prior to the time of such issue or sale, then the Current Warrant Price shall
be
adjusted as provided in Section 4.2 on the basis that the Additional Shares
of
Common Stock issuable pursuant to such Common Stock Equivalents shall be deemed
to have been issued and the Company shall be deemed to have received all of
the
consideration payable therefor, if any, as of the date of the actual issuance
of
such Common Stock Equivalents. No further adjustments to the Current Warrant
Price shall be made under this Section 4.3 upon the actual issue of such Common
Stock upon the exercise, conversion or exchange of such Common Stock
Equivalents.
4.4.
Superseding
Adjustment
.
(i)
If,
at
any time after any adjustment of the Current Warrant Price shall have been
made
pursuant to Section 4.3 as the result of any issuance of Common Stock
Equivalents, (x) the right to exercise, convert or exchange all of such 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 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 Current
Warrant Price 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, provided, however,
such readjustment to the Current Warrant Price described in this Section shall
not effect any exercises of this Warrant effected at any time prior to such
readjustment.
(ii)
Upon
the occurrence of an event set forth in Section 4.4(i) 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 Warrant Price shall be made, which new adjustment
shall supersede the previous adjustment so rescinded and annulled.
4.5.
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 Warrant is exercisable and
the
Current Warrant Price provided for in Section 4:
(a)
When
Adjustments to Be Made
.
The
adjustments required by Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any 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 4.1)
up
to, but not beyond the date of exercise 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 Warrant is exercisable 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 this Section 4 and not previously made, would result
in
a minimum adjustment or on the date of exercise. 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 this Section 4, 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 this Section 4 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 this Section 4 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 this Section 4, 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 4 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 Warrant exercises
the Warrant during such time, then such holder shall continue to be entitled
to
receive any shares of Common Stock issuable upon exercise hereunder by reason
of
such adjustment and such shares or other property shall be held in escrow for
the holder of this Warrant by the Company to be issued to holder of this Warrant
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.
4.6.
Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets
.
(b)
(a)
If
there shall occur 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 Company,
then the Holder of this Warrant shall have the right thereafter to receive,
upon
the exercise of the Warrant, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and the Other Property receivable upon or as a result of such
Change of Control by a holder of the number of shares of Common Stock into
which
this Warrant is exercisable immediately prior to such event. The Company shall
not effect any Change of Control without the prior written consent of the
holders of a majority in interest of the Warrants (as defined in the Purchase
Agreement) (in addition to any other consent or voting rights with respect
to
such Change of Control that such holders may have pursuant to this Warrant
or
applicable law) unless the resulting successor or acquiring entity (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 Change of Control, assumes by written
instrument all of the obligations of this Warrant and the Transaction Documents
(as defined in the Purchase Agreement). Notwithstanding anything to the
contrary, in the event of a Change of Control that is (1) an all cash
transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the
Exchange Act, or (3) a Change of Control involving a person or entity not traded
on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq
Global Market, or the Nasdaq Capital Market, the Company or any successor entity
shall pay at the Holder’s option, exercisable at any time concurrently with or
within 30 days after the consummation of the Change of Control, an amount of
cash equal to the value of this Warrant as determined in accordance with the
Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
L.P. using (i) a price per share of Common Stock equal to the VWAP of the Common
Stock for the Trading Day immediately preceding the date of consummation of
the
applicable Change of Control, (ii) a risk-free interest rate corresponding
to
the U.S. Treasury rate for a period equal to the remaining term of this Warrant
as of the date of consummation of the applicable Change of Control and (iii)
an
expected volatility equal to the 100 day volatility obtained from the “HVT”
function on Bloomberg L.P. determined as of the Trading Day immediately
following the public announcement of the applicable Change of
Control.
(b)
In
case of any such Change of Control described in Section 4.6(a) above, the
resulting, successor or acquiring entity (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 Change of Control, shall assume by written instrument all of the
obligations of this Warrant and the Transaction Documents (as defined in the
Purchase Agreement), 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 this Warrant
is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in Section 4. For purposes of Section 4, 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. The foregoing provisions of this
Section 4 shall similarly apply to successive Change of Control transactions.
4.7.
Other
Action Affecting Common Stock
.
In case
at any time or from time to time the Company shall take any action in respect
of
its Common Stock, other than the payment of dividends permitted by Section
4 or
any other action described in Section 4, then, unless such action will not
have
a materially adverse effect upon the rights of the holder of this Warrant,
the
number of shares of Common Stock or other stock into which this Warrant is
exercisable and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.
4.8.
Certain
Limitations
.
Notwithstanding anything herein to the contrary, the Company agrees not to
enter
into any transaction which, by reason of any adjustment hereunder, would cause
the Current Warrant Price to be less than the par value per share of Common
Stock.
4.9.
Stock
Transfer Taxes
.
The
issue of stock certificates upon exercise of this Warrant shall be made without
charge to the holder for any tax in respect of such issue. The Company 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 this Warrant, and the Company 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 Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
5.
Notices
to Warrant Holders
.
5.1.
Certificate
as to Adjustments
.
Upon
the occurrence of each adjustment or readjustment of the Current Warrant Price,
the Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
the
Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of the Holder of this Warrant, furnish or cause to be furnished to such Holder
a
like certificate setting forth (i) such adjustments and readjustments, (ii)
the
Current Warrant Price at the time in effect and (iii) the number of shares
of
Common Stock and the amount, if any, or other property which at the time would
be received upon the exercise of Warrants owned by such Holder.
5.2.
Notice
of Corporate Action
.
If at
any time:
(a)
the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend (other than a cash dividend payable
out
of earnings or earned surplus legally available for the payment of dividends
under the laws of the jurisdiction of incorporation of the Company) or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b)
there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all
or
substantially all the property, assets or business of the Company to, another
corporation, or
(c)
there
shall be a voluntary or involuntary dissolution, liquidation or winding up
of
the Company; or
(d)
the
Company shall cause the holders of its Common Stock to be entitled to receive
(i) any dividend or other distribution of cash, (ii) any evidences of its
indebtedness, or (iii) 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 4.1 hereof and the rights under
the Company’s Rights Agreement, dated as of October 31, 2001, by and between the
Company and American Stock Transfer & Trust Company as Rights Agent (the
“
Rights
Agreement
”));
or
(iv) 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;
then,
in
any one or more of such cases, the Company shall give to the Holder (i) at
least
15 days’ prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights
to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 15 days’ prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to the
Holder at the last address of the Holder appearing on the books of the Company
and delivered in accordance with Section 15.2. Notwithstanding the forgoing
provisions of this Section 5.2, the Company shall give to the Holder at least
seven (7) Business Days prior written notice of the occurrence of any
Distribution Date (as defined in the Rights Agreement).
5.3.
No
Rights as Stockholder
.
This
Warrant does not entitle the Holder to any voting or other rights as a
stockholder of the Company prior to exercise and payment for the Warrant Price
in accordance with the terms hereof.
6.
No
Impairment
.
The
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may
be
necessary or appropriate to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company will (a) not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of
this Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant. Upon the request of the Holder, the Company will at any
time
during the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7.
Reservation
and Authorization of Common Stock; Registration With Approval of Any
Governmental Authority
.
From
and after the Closing Date, the Company shall at all times reserve and keep
available for issue upon the exercise of Warrants such number of its authorized
but unissued shares of Common Stock as will be sufficient to permit the exercise
in full of all outstanding Warrants (without regard to any ownership limitations
provided in Section 2.4(i)). All shares of Common Stock which shall be so
issuable, when issued upon exercise of any Warrant and payment therefor in
accordance with the terms of such Warrant, shall be duly and validly issued
and
fully paid and nonassessable, and not subject to preemptive rights. Before
taking any action which would cause an adjustment reducing the Current Warrant
Price below the then par value, if any, of the shares of Common Stock issuable
upon exercise of the Warrants, the Company shall take any corporate action
which
may be necessary in order that the Company may validly and legally issue fully
paid and non-assessable shares of such Common Stock at such adjusted Current
Warrant Price. Before taking any action which would result in an adjustment
in
the number of shares of Common Stock for which this Warrant is exercisable
or in
the Current Warrant Price, the Company shall obtain all such authorizations
or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof. If any shares of Common
Stock required to be reserved for issuance upon exercise of Warrants require
registration or qualification with any governmental authority under any federal
or state law before such shares may be so issued (other than as a result of
a
prior or contemplated distribution by the Holder of this Warrant), the Company
will in good faith and as expeditiously as possible and at its expense endeavor
to cause such shares to be duly registered.
8.
Taking
of Record; Stock and Warrant Transfer Books
.
In the
case of all dividends or other distributions by the Company to the holders
of
its Common Stock with respect to which any provision of Section 4 refers to
the
taking of a record of such holders, the Company will in each such case take
such
a record and will take such record as of the close of business on a Business
Day. The Company will not at any time, except upon dissolution, liquidation
or
winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of
any
Warrant.
9.
Registration
Rights
.
The
resale of the Warrant Stock shall be registered in accordance with the terms
and
conditions contained in that certain Investor Rights Agreement dated of even
date hereof, among the Holder, the Company and the other parties named therein
(the “
Investor
Rights Agreement
”).
The
Holder acknowledges that pursuant to the Investor Rights Agreement, the Company
has the right to request that the Holder furnish information regarding such
Holder and the distribution of the Warrant Stock as is required by law or the
Commission to be disclosed in the Registration Statement (as such term is
defined in the Investor Rights Agreement), and the Company may exclude from
such
registration the shares of Warrant Stock acquirable hereunder if Holder fails
to
furnish such information within a reasonable time prior to the filing of each
Registration Statement, supplemented prospectus included therein and/or amended
Registration Statement.
10.
Supplying
Information
.
Upon
any default by the Company of its obligations hereunder or under the Investor
Rights Agreement, the Company shall cooperate with the Holder in supplying
such
information as may be reasonably necessary for such Holder to complete and
file
any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Common Stock.
11.
Loss
or Mutilation
.
Upon
receipt by the Company from the Holder of evidence reasonably satisfactory
to it
of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity or security reasonably satisfactory to it and
reimbursement to the Company of all reasonable expenses incidental thereto
and
in case of mutilation upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to the Holder;
provided, however, that in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company
for
cancellation.
12.
Office
of the Company
.
As long
as any of the Warrants remain outstanding, the Company shall maintain an office
or agency (which may be the principal executive offices of the Company) where
the Warrants may be presented for exercise, registration of transfer, division
or combination as provided in this Warrant.
13.
Financial
and Business Information
.
13.1.
Quarterly
Information
.
The
Company will deliver to the Holder, as soon as available and in any event within
45 days after the end of each of the first three quarters of each fiscal year
of
the Company, one copy of an unaudited consolidated balance sheet of the Company
and its subsidiaries as at the end of such quarter, and the related unaudited
consolidated statements of income, retained earnings and cash flow of the
Company and its subsidiaries for such quarter and, in the case of the second
and
third quarters, for the portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year. Such financial statements shall be prepared
by the Company in accordance with GAAP (except as may be indicated thereon
or in
the notes thereto) and accompanied by the certification of the Company’s chief
executive officer or chief financial officer that such financial statements
present fairly the consolidated financial position, results of operations and
cash flow of the Company and its subsidiaries as at the end of such quarter
and
for such year-to-date period, as the case may be; provided, however, that the
Company shall have no obligation to deliver such quarterly information under
this Section 13.1 to the extent it is publicly available; and provided further,
that if such information contains material non-public information, the Company
shall so notify the Holder prior to delivery thereof and the Holder shall have
the right to refuse delivery of such information.
13.2.
Annual
Information
.
The
Company will deliver to the Holder as soon as available and in any event within
90 days after the end of each fiscal year of the Company, one copy of an audited
consolidated balance sheet of the Company and its subsidiaries as at the end
of
such year, and audited consolidated statements of income, retained earnings
and
cash flow of the Company and its subsidiaries for such year; setting forth
in
each case in comparative form the figures for the corresponding periods in
the
previous fiscal year; all prepared in accordance with GAAP, and which audited
financial statements shall be accompanied by an opinion thereon of the
independent certified public accountants regularly retained by the Company,
or
any other firm of independent certified public accountants of recognized
national standing selected by the Company; provided, however, that the Company
shall have no obligation to deliver such annual information under this Section
13.2 to the extent it is publicly available; and provided further, that if
such
information contains material non-public information, the Company shall so
notify the Holder prior to delivery thereof and the Holder shall have the right
to refuse delivery of such information.
13.3.
Filings
.
The
Company will file on or before the required date all regular or periodic reports
(pursuant to the Exchange Act) with the Commission and will deliver to Holder
promptly upon their becoming available one copy of each report, notice or proxy
statement sent by the Company to its stockholders generally.
14.
Limitation
of Liability
.
No
provision hereof, in the absence of affirmative action by the Holder to purchase
shares of Common Stock, and no enumeration herein of the rights or privileges
of
the Holder hereof, shall give rise to any liability of the Holder for the
purchase price of any Common Stock, whether such liability is asserted by the
Company or by creditors of the Company.
15.
Miscellaneous
.
15.1.
Nonwaiver
and Expenses
.
No
course of dealing or any delay or failure to exercise any right hereunder on
the
part of the Holder shall operate as a waiver of such right or otherwise
prejudice the Holder’s rights, powers or remedies. If the Company fails to make,
when due, any payments provided for hereunder, or fails to comply with any
other
material provision of this Warrant, the Company shall pay to the Holder such
amounts as shall be sufficient to cover any third party costs and expenses
including, but not limited to, reasonable attorneys’ fees, including those of
appellate proceedings, incurred by the Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
15.2.
Notice
Generally
.
All
notices, requests, demands or other communications provided for herein shall
be
in writing and shall be given in the manner and to the addresses set forth
in
the Purchase Agreement.
15.3.
Successors
and Assigns
.
Subject
to compliance with the provisions of Section 3.1, this Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of the Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant, and shall be enforceable by any such Holder.
15.4.
Amendment
.
This
Warrant may be modified or amended or the provisions of this Warrant waived
with
the written consent of both the Company and the Holder.
15.5.
Severability
.
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be modified to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Warrant.
15.6.
Headings
.
The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
15.7.
Governing
Law
.
This
Warrant and the transactions contemplated hereby shall be deemed to be
consummated in the State of New York and shall be governed by and interpreted
in
accordance with the local laws of the State of New York without regard to the
provisions thereof relating to conflicts of laws. The Company hereby irrevocably
consents to the exclusive jurisdiction of the State and Federal courts located
in New York City, New York in connection with any action or proceeding arising
out of or relating to this Warrant. In any such litigation the Company agrees
that the service thereof may be made by certified or registered mail directed
to
the Company pursuant to Section 15.2.
15.8.
Remedies
.
Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of
the
provisions of this Warrant and hereby agrees to waive and not to assert the
defense in any action for specific performance that a remedy at law would be
adequate.
15.9.
Saturdays,
Sundays, Holidays, etc
.
If the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then such action
may be taken or such right may be exercised on the next succeeding Business
Day.
[Signature
Page Follows]
IN
WITNESS WHEREOF, Access Pharmaceuticals, Inc. has caused this Warrant to be
executed by its duly authorized officer and attested by its
Secretary.
Dated:
___, 2007
ACCESS
PHARMACEUTICALS, INC.
By:______________________________
Name:
Title:
Attest:
By:______________________________
Name:
Title:
Secretary
EXHIBIT
A
SUBSCRIPTION
FORM
[To
be
executed only upon exercise of Warrant]
1.
The
undersigned hereby elects to purchase
shares
of the Common Stock of Access Pharmaceuticals, Inc. pursuant to the terms of
the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2.
The
undersigned hereby elects to convert the attached Warrant into Common Stock
of
Access Pharmaceuticals, Inc. through “cashless exercise” in the manner specified
in the Warrant. This conversion is exercised with respect to
_____________________ of the Shares covered by the Warrant.
3.
Please
issue a certificate or certificates representing said shares in the name of
the
undersigned or in such other name as is specified below:
[and,
if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and
date
for the balance of the shares of Common Stock issuable hereunder be delivered
to
the undersigned.]
_____________________________________
(Name
of
Registered Owner)
_____________________________________
(Signature
of Registered Owner)
_____________________________________
(Street
Address)
_____________________________________
(State)
(Zip Code)
NOTICE:
The signature on this subscription must correspond with the name as written
upon
the face of the Warrant in every particular, without alteration or enlargement
or any change whatsoever.
EXHIBIT
B
ASSIGNMENT
FORM
FOR
VALUE
RECEIVED the undersigned registered owner of this Warrant for the purchase
of
shares of common stock of Access Pharmaceuticals, Inc. hereby sells, assigns
and
transfers unto the Assignee named below all of the rights of the undersigned
under this Warrant, with respect to the number of shares of common stock set
forth below:
_______________________________________
_______________________________________
_______________________________________
(Name
and
Address of Assignee)
_______________________________________
(Number
of Shares of Common Stock)
and
does
hereby irrevocably constitute and appoint ____________ attorney-in-fact to
register such transfer on the books of the Company, maintained for the purpose,
with full power of substitution in the premises.
Dated:_________________________________
______________________________________
(Print
Name and Title)
______________________________________
(Signature)
______________________________________
(Witness)
NOTICE:
The signature on this assignment must correspond with the name as written upon
the face of the Warrant in every particular, without alteration or enlargement
or any change whatsoever.
EXHIBIT
C
FORM
OF
INVESTMENT REPRESENTATION LETTER
In
connection with the acquisition of [warrants (the “Warrants”) to purchase ____
shares of common stock of Access Pharmaceuticals, Inc. (the “Company”), par
value $0.01 per share (the “Common Stock”)][___shares of common stock of Access
Pharmaceuticals, Inc. (the “Company”), par value $0.01 per share (the “Common
Stock”) upon the exercise of warrants by ________], by _______________ (the
“Holder”) from _____________, the Holder hereby represents and warrants to the
Company as follows:
The
Holder (i) is an “Accredited Investor” as that term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
“Act”); and (ii) has the ability to bear the economic risks of such Holder’s
prospective investment, including a complete loss of Holder’s investment in the
Warrants and the shares of Common Stock issuable upon the exercise thereof
(collectively, the “Securities”).
The
Holder, by acceptance of the Warrants, represents and warrants to the Company
that the Warrants and all securities acquired upon any and all exercises of
the
Warrants are purchased for the Holder’s own account, and not with view to
distribution of either the Warrants or any securities purchasable upon exercise
thereof in violation of applicable securities laws.
[The
Holder acknowledges that (i) the Securities have not been registered under
the
Act, (ii) the Securities are “restricted securities” and the certificate(s)
representing the Securities shall bear the following legend, or a similar legend
to the same effect, until (i) in the case of the shares of Common Stock
underlying the Warrants, such shares shall have been registered for resale
by
the Holder under the Act and effectively been disposed of in accordance with
a
registration statement that has been declared effective; or (ii) in the opinion
of counsel for the Company such Securities may be sold without registration
under the Act:
“[NEITHER]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE [NOR THE SECURITIES INTO WHICH
THEY ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), AND ALL SUCH SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. [NEITHER]
THE
SECURITIES REPRESENTED HEREBY [NOR THE SECURITIES INTO WHICH THEY ARE
EXERCISABLE] MAY [NOT] BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION
OF
COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT
THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT
REGISTRATION UNDER THE ACT.”]
*
*
Bracketed language to be inserted if applicable.
IN
WITNESS WHEREOF, the Holder has caused this Investment Representation Letter
to
be executed this __ day of __________ 200_.
[Name]
By:______________________________
Name:
Title:
EXHIBIT
10.27
DIRECTOR
DESIGNATION AGREEMENT
THIS
DIRECTOR DESIGNATION AGREEMENT
,
dated
as of November 15, 2007 (this “
Agreement
”),
is
entered into by and between Access Pharmaceuticals, Inc., a Delaware corporation
(the “
Company
”)
and
SCO Capital Partners LLC (“
SCO
”).
WHEREAS,
pursuant to the terms of the Preferred Stock and Warrant Purchase Agreement
dated as of February 16, 2006, by and among the Company, SCO and the other
parties set forth therein as purchasers (the “
Purchase
Agreement
”),
SCO
was given the right to designate two individuals to serve as directors of the
Company (the “
Designation
Right
”);
WHEREAS,
the Designation Right will expire according to its terms if the Secured
Convertible Promissory Notes (the “
Notes
”)
issued
pursuant to the Purchase Agreement no longer remain outstanding;
WHEREAS,
the parties anticipate that all of the Notes will be exchanged (the
“
Note
Exchange
”)
into
the Series A Cumulative Convertible Preferred Stock, par value $0.01 per share,
of the Company (the “
Series
A Stock
”)
convertible in to shares of the Company’s common stock, par value $0.01 per
share (the “
Conversion
Shares
”)
in
connection with a proposed new equity financing of the Company and thereafter
none of the Notes shall remain outstanding; and
WHEREAS,
the parties desire to continue SCO’s right to designate two directors of the
Company as more fully set forth herein.
NOW,
THEREFORE, in consideration of the mutual agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the parties hereto agree as follows:
1.
Director
Designees
.
Effective
immediately upon the Note Exchange and continuing for as long as SCO and its
Affiliates (as defined below) hold at least 20% of the aggregate number of
shares of the Series A Stock issued to SCO and its Affiliates in connection
with
the Note Exchange or at least 20% of the Conversion Shares issued upon
conversion of such Series A Stock, (a) SCO shall have the right, from time
to
time, to designate two individuals, in the sole discretion of SCO, to serve
as
directors of the Company (the “
SCO
Director Designees
”),
(b)
the Company shall use its best efforts at all times to cause the number of
directors to be fixed at a sufficient number such that at least two positions
shall be available for the SCO Director Designees (the “
SCO
Board Seats
”),
(c)
the Company shall use its best efforts to cause the SCO Director Designees
to be
nominated and elected for service as directors of the Company at each meeting
of
the Company’s shareholders held for the purpose of electing directors and (d) if
at any time, or from time to time, one or more of the SCO Board Seats is or
becomes vacant for any reason prior to the next annual meeting of shareholders,
the Company shall use its best efforts to cause such vacancy to be filled with
an SCO Director Designee.
2.
Certain
Defined Terms
.
For
purposes of this Agreement, an “
Affiliate
”
means
any Person (as such term is defined below) that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144
under the Securities Act. With respect to any Person, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager of such Person will be deemed to be an Affiliate of such Person. A
“
Person
”
means
any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision of any thereof) or other
entity of any kind.
3.
Counterparts;
Assignment; Amendment
.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original but which together shall constitute one and the same
instrument. The executed signature pages hereto may be delivered by facsimile
or
other means of electronic image transmission, such a copy of any signature
page
hereto shall have the same force an effect as an original thereof. This
Agreement may not be assigned without the written consent of each of the parties
hereto, provided that SCO may assign its rights under this Agreement to any
Affiliate of SCO without the consent of the Company. This Agreement may not
be
amended without the written approval of each of the parties hereto.
4.
Governing
Law
.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of New York (without reference to principles of conflict of
laws).
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties hereto have executed this Director Designation
Agreement as a document under seal as of the date first above
written.
Access
Pharmaceuticals, Inc.
|
By:
|
/s/
Stephen B. Thompson
|
|
Name:
Stephen B. Thompson
|
|
Title:
Vice President, CFO
|
SCO
Capital Partners LLC
|
By:
|
/s/
Steven H. Rouhandeh
|
|
Name:
Steven
H. Rouhandeh
|
|
Title:
Chairman
|
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the inclusion in this Registration Statement on Form SB-2, of
our report dated March 30, 2007, with respect to our audit of the consolidated
balance sheet of Access Pharmaceuticals, Inc. and Subsidiaries, as of December
31, 2006, and the related consolidated statements of operations, changes in
stockholders' deficit, and cash flows for the year then ended, which report
appears in this Prospectus, and is part of this Registration Statement. We
also consent to the reference to our firm under the heading "Experts" in such
Prospectus.
/s/Whitley
Penn LLP
Dallas,
Texas
December
10, 2007
EXHIBIT
23.2
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the inclusion in this Registration Statement on Form SB-2, of our
report dated April 25, 2006, with respect to our audit of the consolidated
balance sheet of Access Pharmaceuticals, Inc. and Subsidiaries, as of December
31, 2005, and the related consolidated statements of operations and
comprehensive loss, stockholders' equity (deficit), and cash flows for each
of
the two years then ended, which report appears in the Registration Statement.
We
also consent to the reference to our firm under the captions "Experts" and
"Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" in such Registration Statement.
/s/
Grant
Thornton LLP
Dallas,
Texas
December
10, 2007