As
filed with the Securities and Exchange Commission on
__________
Registration
Number 333-____
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ACCESS
PHARMACEUTICALS,
INC.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
|
3841
(Primary
Standard Industrial
Classification
Code Number)
|
|
83-0221517
(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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
(Check one):
Larger
accelerated
filer
¨
Accelerated
filer
¨
Non-accelerated
filer
¨
Smaller
reporting company
x
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
|
|
11,666,195
(1)
|
|
$
2.01(5)
|
|
$23,449,052
|
|
$922
(5)
|
Common
stock, $0.01 par value per share
|
|
4,149,464
(2)
|
|
$
2.01(5)
|
|
$8,340,423
|
|
$328
(5)
|
Common
stock, $0.01 par value per share
|
|
772,728(
3)
|
|
$
2.01(5)
|
|
$1,553,183
|
|
$61
(5)
|
Common
stock, $0.01 par value per share
|
|
1,582,360
(4)
|
|
$
2.01(5)
|
|
$3,180,544
|
|
$125
(5)
|
Total
common stock, $0.01 par value per share
|
|
18,170,747
|
|
|
|
$36,523,202
|
|
$1,436
|
|
(1)
11,666,195
shares
are issuable
to selling stockholders upon
conversion of Series A Preferred Stock
.
(2)
4,149,464
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) 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.
(4) 1,582,360
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 March 6,
2008.
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 ________, 2008
PROSPECTUS
ACCESS
PHARMACEUTICALS, INC.
18,170,747
Shares of Common Stock
This
Prospectus relates to the offer and sale of up to 18,170,747 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, Edward and Patricia Kelly,
Dennis Lavalle, Lake End Capital LLC, David Luci, 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,
Schroder & Co. Bank AG 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 March 7, 2008, the last reported sale price of our common stock was $1.90
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 10.
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 ________________, 2008.
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Page
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PROSPECTUS
SUMMARY
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1
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EXPLANATORY
NOTE
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1
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ABOUT
ACCESS
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1
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SUMMARY
OF THE
OFFERING
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5
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SUMMARY
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
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6
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RISK
FACTORS
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10
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FORWARD-LOOKING
STATEMENTS
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19
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SELLING
STOCKHOLDERS
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20
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USE
OF
PROCEEDS
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25
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PLAN
OF
DISTRIBUTION
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25
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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27
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DESCRIPTION
OF
BUSINESS
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39
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DESCRIPTION
OF
PROPERTY
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56
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CHANGES
IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
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AND
FINANCIAL
DISCLOSURES
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56
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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57
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LEGAL
PROCEEDINGS
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68
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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68
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TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN
CONTROL PERSONS
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73
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MARKET
FOR OUR
COMMON STOCK
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74
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DESCRIPTION
OF
SECURITIES
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77
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EXPERTS
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79
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LEGAL
MATTERS
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79
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WHERE
YOU CAN
FIND MORE INFORMATION
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79
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FINANCIAL
STATEMENTS
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F-1
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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 10 and our financial
statements and the notes to those financial statements beginning on F-1 before
making an investment decision.
EXPLANATORY
NOTE
Of
the
18,170,747 shares being registered for sale in this offering:
(1)
|
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.
|
(2)
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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 Lake
End
Capital LLC and 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.
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(4)
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6,132,493
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 2,499,998 shares
underlying Series A Preferred Stock and common stock warrants purchased
by
SCO and affiliates and 3,632,495 shares underlying Series A Preferred
Stock and common stock warrants purchased by new investors.
The issuance of such shares occurred in November 7, 2007 with regard
to 4,769,995 shares and February 4, 2008 with regard to 1,362,498
shares.
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(4)
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1,582,360
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 in cash. The
common
stock dividend shares being registered represents anticipated dividends
on
the Series A Preferred Stock over 2 years assuming a fixed market
price of
$2.00 per share for Access’ common
stock.
|
(5)
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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 of 2005 for the aggregate issuance of $1,000,000
of
convertible promissory notes.
|
(6)
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254,417
of
such shares
relate to shares of common stock underlying common stock warrants
paid to
Rodman & Renshaw, LLC, SCO Capital Partners LLC, and Lake End Capital
LLC as placement agent fees pursuant to the sale of the Series
A Preferred
Stock.
|
ABOUT
ACCESS
Company
Overview
Access
Pharmaceuticals, Inc. (“Access” or the “Company”) is a Delaware corporation. We
are an emerging biopharmaceutical company focused on developing products based
upon our nanopolymer chemistry technologies. We currently have one approved
product, two products in Phase 2 clinical trials and five products in
pre-clinical development.
·
|
MuGard™
is our approved product for the management of oral mucositis, a frequent
side-effect of cancer therapy for which there is no established treatment.
The market for mucositis treatment is estimated to be in excess of
US$1
billion world-wide. MuGard, a proprietary nanopolymer formulation,
has
received marketing allowance in the U.S. from the Food & Drug
Administration (“FDA”).
|
·
|
Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. ProLindac is currently in a Phase
2
clinical trial being conducted in the EU in patients with ovarian
cancer.
The DACH-platinum incorporated in ProLindac is the same active moiety
as
that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has sales in
excess
of $2.0 billion.
|
·
|
Pre-clinical
development of Cobalamin™, our proprietary nanopolymer oral drug delivery
technology based on the natural vitamin B12 uptake mechanism. We
are
currently developing a product for the oral delivery of
insulin.
|
·
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Pre-clinical
development of Angiolix®, a humanized monoclonal antibody which acts as an
anti-angiogenesis factor and is targeted to cancer cells, notably
breast,
ovarian and colorectal cancers.
|
·
|
Pre-clinical
development of Prodrax®, a non-toxic prodrug which is activated in the
hypoxic zones of solid tumors to kill cancer
cells.
|
·
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Pre-clinical
development of Alchemix®, a chemotherapeutic agent that combines multiple
modes of action to overcome drug
resistance.
|
·
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Pre-clinical
development of Cobalamin-mediated targeted
delivery.
|
·
|
Phenylbutyrate
(“PB”), an HDAC inhibitor and a differentiating agent, is a Phase 2
clinical candidate being developed in collaboration with Virium
Pharmaceuticals.
|
Products
Access
used its drug delivery technologies to develop the following products and
product candidates:
Access
Drug Portfolio
Compound
|
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Originator
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Technology
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Indication
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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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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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Phase
2
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Phenylbutyrate
(PB)
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National
Institute
of
Health
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Small
molecule
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Cancer
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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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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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Pre-clinical
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Angiolix®
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Immunodex,
Inc.
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Humanized
monoclonal
antibody
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Cancer
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Pre-clinical
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Prodrax®
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Univ
London
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Small
molecule
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Cancer
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Pre-clinical
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Alchemix®
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DeMontford
Univ
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Small
molecule
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Cancer
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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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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.
|
Other
Key Developments
On
February 12, 2008, the Board of Directors of the Company elected Steven H.
Rouhandeh as director and Chairman of the Board effective as of March 4,
2008.
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.5 shares 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 545,000
shares of our common stock, which includes placement agent warrants to purchase
90,883 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
$2,700,000. The shares of Series A Preferred Stock are convertible into common
stock at the initial conversion price of $3.00 per share.
On
January 14, 2008, we announced the signing of a definitive licensing agreement
under which RHEI Pharmaceuticals, Inc. will market and manufacture MuGard in
the
Peoples Republic of China and certain Southeast Asian countries. RHEI will
also
obtain the necessary regulatory approvals for MuGard in the
territory.
On
January 4, 2008 we closed the acquisition of Somanta Pharmaceuticals, Inc.
(“Somanta”). In connection with the merger, Access issued an aggregate of
approximately 1.5 million shares of Access Pharmaceuticals, Inc. common stock
to
the common and preferred shareholders of Somanta as consideration. In addition,
Access exchanged all outstanding warrants of Somanta for warrants to
purchase 191,991 shares of Access common stock at exercise prices ranging
between $18.55 and $69.57 per share.
On
December 26, 2007, Jeffrey B. Davis, Chairman of the Board of Directors was
named Chief Executive Officer. Stephen R. Seiler resigned as President and
Chief
Executive Officer and concurrently resigned from the Board of Directors
effective December 19, 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 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, and 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
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 18,170,747 shares of common stock,
consisting of (1) 11,666,195 shares are issuable to selling stockholders upon
conversion of Series A Preferred Stock, (2) 4,149,464 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 the 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) 1,582,360 shares of Common
Stock that may be issued as dividends on the Series A Preferred
Stock.
In
connection with the Closing, 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.
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:
|
18,170,747
shares, which includes 11,666,195 shares issuable upon conversion
of
Series A Preferred Stock, 4,149,464 issuable upon exercise of warrants,
1,582,360 shares to be issued as dividends and 772,728 issuable upon
exercise of warrants as described
above.
|
Common
stock outstanding:
|
As
of March 6, 2008, 5,623,781 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 $15,566,307 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 $15,566,307 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
|
|
Somanta
We
have
derived the following historical information from Somanta’s audited consolidated
financial statements from inception through the fiscal year ended April 30,
2006
contained in Somanta’s annual reports on Form 10-KSB. The information is
only a summary and should be read in conjunction with Somanta’s consolidated
financial statements and accompanying notes, as well as management’s discussion
and analysis of results of operations and financial condition, all of which
can
be found in publicly available documents, including those incorporated by
reference into this Registration Statement.
|
|
For
the Years Ended April 30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
(In
thousands, except per share data)
|
|
Consolidated
Statement of Operations and Comprehensive Loss Data
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
1
|
|
$
|
1
|
|
$
|
-
|
|
Operating
loss
|
|
|
(4,550
|
)
|
|
(4,108
|
)
|
|
(1,129
|
)
|
Interest
and miscellaneous income
|
|
|
28
|
|
|
17
|
|
|
-
|
|
Interest
and other expense
|
|
|
(2,969
|
)
|
|
(908
|
)
|
|
-
|
|
Income
tax
|
|
|
4
|
|
|
2
|
|
|
-
|
|
Net
loss
|
|
|
(7,496
|
)
|
|
(5,002
|
)
|
|
(1,129
|
)
|
Deemed
dividends on convertible preferred stock
|
|
|
-
|
|
|
(1,522
|
)
|
|
-
|
|
Net
loss applicable to common shareholders
|
|
|
(7,496
|
)
|
|
(6,524
|
)
|
|
(1,129
|
)
|
Comprehensive
loss-foreign currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
(6
|
)
|
Comprehensive
loss
|
|
|
(7,496
|
)
|
|
(6,524
|
)
|
|
(1,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Data:
|
|
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted
common
share
|
|
$
|
(0.56
|
)
|
$
|
(0.47
|
)
|
$
|
(0.20
|
)
|
Weighted
average basic and
diluted
common shares
outstanding
|
|
|
14,278,247
|
|
|
14,274,365
|
|
|
5,576,845
|
|
|
|
|
As
of April 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In
thousands)
|
|
Consolidated Balance
Sheet Data
|
|
|
|
|
Cash,
cash equivalents and short term investments
|
|
$
|
5
|
|
$
|
1,588
|
|
Restricted
cash
|
|
|
2
|
|
|
152
|
|
Total
assets
|
|
|
67
|
|
|
1,859
|
|
Current
liabilities
|
|
|
8,245
|
|
|
3,443
|
|
Total
liabilities
|
|
|
8,245
|
|
|
3,443
|
|
Total
stockholders' equity (deficit)
|
|
|
(8,178
|
)
|
|
(1,585
|
)
|
Selected
Unaudited Pro Forma Condensed Combined Financial Data
The
following unaudited pro forma condensed combined financial statements are based
upon the historical condensed consolidated financial statements and notes
thereto (as applicable) of Access and Somanta, which are included elsewhere
in
this Registration Statement. The financial data gives pro forma effect to the
merger as if the merger had been completed on September 30, 2007 for the
unaudited pro forma condensed combined balance sheet and January 1, 2006 for
the
unaudited pro forma condensed combined statement of operations.
Somanta
preferred and common stockholders received approximately 1,500,000 shares of
Access common stock for Somanta capital stock they owned immediately prior
to the completion of the merger.
The
pro
forma adjustments are based upon available information and certain assumptions
that Access believes are reasonable under the circumstances. A final
determination of fair values relating to the merger, which could not be made
prior to the completion of the merger, may differ materially from the
preliminary estimates and will include management’s final valuation of the fair
value of assets acquired and liabilities assumed. This final valuation will
be
based on the actual net tangible assets of Somanta that existed as of the date
of the completion of the merger. The final valuation may change the allocations
of the purchase price, which could affect the fair value assigned to the assets
and liabilities and could result in a change to the unaudited pro forma
condensed combined financial statements data. These adjustments are more fully
described in the notes to the unaudited pro forma condensed combined financial
statements under the heading “Unaudited Pro Forma Condensed Combined Financial
Statements.” beginning on page F-80.
The
selected unaudited pro forma condensed combined financial data (i) have been
derived from and should be read in conjunction with the unaudited pro forma
condensed combined financial statements and accompanying notes included in
this
Registration Statement as described under “Unaudited Pro Forma Condensed
Combined Financial Statements” beginning on page F-80, and (ii) should be read
in conjunction with the consolidated financial statements of Access and Somanta
and other information filed by Access and Somanta with the SEC and incorporated
by reference into this Registration Statement.
Unaudited
Pro Forma Condensed Combined
Consolidated
Statement of Operations Data:
|
|
|
For
the Twelve
Months
Ended
December
31, 2006
|
|
For
the Nine
Months
Ended
September
30, 2007
|
|
|
|
|
(in
thousands)
|
|
(in
thousands)
|
|
Total
revenues
|
|
$
|
1
|
|
$
|
7
|
|
Total
expenses
|
|
|
9,727
|
|
|
7,531
|
|
Loss
from operations
|
|
|
(9,726
|
)
|
|
(7,524
|
)
|
Interest
and miscellaneous income
|
|
|
322
|
|
|
84
|
|
Interest
and other expenses
|
|
|
(7,436
|
)
|
|
(3,304
|
)
|
Change
in fair value of warrant liabilities
|
|
|
(4,038
|
)
|
|
5,807
|
|
Net
loss before discontinued
operations
and before tax benefit
|
|
|
(20,916
|
)
|
|
(4,939
|
)
|
Income
tax benefit
|
|
|
169
|
|
|
-
|
|
Loss
from continuing operations
|
|
|
(20,747
|
)
|
|
(4,939
|
)
|
Discontinued
operations, net of
taxes
of $173,000
|
|
|
377
|
|
|
-
|
|
Net
loss
|
|
$
|
(20,370
|
)
|
$
|
(4,943
|
)
|
Note
1:
The above statement gives effect to the merger of Access and Somanta, as
if the
merger had occurred on January 1, 2006. Somanta statements used were for
the
twelve months ended April 30, 2007 and the nine month period ended October
31,
2007.
Unaudited
Pro Forma Condensed Combined
Consolidated
Balance Sheet:
|
|
|
As
of September 30, 2007
|
|
|
|
|
|
(in
thousands)
|
|
Cash
and cash equivalents
|
|
|
$
|
663
|
|
Short
term investments, at cost
|
|
|
|
515
|
|
Total
current assets
|
|
|
|
1,361
|
|
Property
and equipment, net
|
|
|
|
170
|
|
Patents
net
|
|
|
|
752
|
|
Total
assets
|
|
|
|
2,308
|
|
Accounts
payables and accrued expenses
|
|
|
|
3,538
|
|
Current
portion of long-term debt net of discount
|
|
|
|
11,406
|
|
Long-term
debt
|
|
|
|
5,500
|
|
Total
liabilities
|
|
|
|
22,921
|
|
Additional
paid-in capital
|
|
|
|
77,172
|
|
Notes
receivable from stockholders
|
|
|
|
(1,045
|
)
|
Accumulated
deficit
|
|
|
|
(96,787
|
)
|
Total
stockholders’ deficit
|
|
|
|
(20,613
|
)
|
Note
1:
The above statement gives effect to the merger of Access and Somanta, as
if the
merger had occurred on January 1, 2006. Somanta statements used were for
the
period ended October 31, 2007.
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 $430,000 per month. Access projects its net cash burn rate
from operations for the next 15 months to be approximately $450,000 per month.
Capital expenditures are forecasted to be minor for the next 15
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 into the
second quarter of 2009. 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 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:
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•
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unanticipated
issues in integrating information, communications and other
systems;
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•
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retaining
key employees;
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|
•
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|
consolidating
corporate and administrative
infrastructures;
|
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•
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|
the
diversion of management’s attention from ongoing business concerns;
and
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•
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coordinating
geographically separate
organizations.
|
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;
|
·
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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
|
·
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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:
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A
mucoadhesive liquid technology product, MuGard™, has received marketing
approval by the FDA.
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ProLindac™
is currently in a Phase 2 trial in
Europe.
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ProLindac™
has been approved for an additional Phase 1 trial in the US by
the
FDA.
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Phenylbutrate
is in planning stage for a Phase 2 trial in the United
States.
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Cobalamin™
mediated delivery technology is currently in the pre-clinical
phase.
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Angiolix®
is currently in the pre-clinical
phase.
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Prodrax®
is currently in the pre-clinical
phase.
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Alchemix®
is currently in the pre-clinical
phase.
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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:
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•
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Antigenics
and Regulon are developing liposomal platinum
formulations;
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•
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Spectrum
Pharmaceuticals and GPC Biotech are
developing
oral
platinum formulations;
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•
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Poniard
Pharmaceuticals is developing both i.v. and oral platinum
formulations;
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Nanocarrier
and Debio are developing micellar nanoparticle platinum formulations;
and
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American
Pharmaceutical
Partners, Cell Therapeutics, Daiichi, and Enzon are developing alternate
drugs in
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combination with polymers and other drug
delivery
systems.
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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.
Companies
working on therapies and formulations that may be competitive with Access’
Sodium Phenylbutyrate are Medicis Pharmaceuticals currently sells Sodium
Phenylbutyrate (Buphenyl
®
)
for the
treatment of a urea cycle disorder, hyperuremia. We are aware of numerous
products in development for brain cancers. We are aware of several products
being developed by academic and commercial organizations targeting
glioblastoma.
We
are
targeting a propriety gene product which is expressed by cancerous
tumors. We are not aware of any other organization developing similar
products targeting this type of protein.
Companies
working on therapies and formulations that may be competitive with Access’
Prodrax are Novocea, Inc., which has exclusively licensed from KuDOS
Pharmaceuticals, a subsidiary of Astra Zeneca, a small molecule prodrug that
is
selectively activated by low oxygen tumors that is similar to our Prodrax,
and
Novocea is developing this small molecule prodrug in a similar fashion to
Prodrax.
We are
not aware of any other organization developing a drug similar to Alchemix.
Several groups are developing agents against p-glycoprotein, which is only
one
of the identified mechanisms of drug resistance within cells, and other groups
are developing agents that have the potential to become chemosensitisers, which
means they will make cancer cells more sensitive to the effects of
chemotherapy.
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 depends
on licenses from third parties and the maintenance of its licenses are
necessary for its success.
Access
has obtained rights to some product candidates through license
agreements with various third party licensors as follows:
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Exclusive
Patent and Know-how Sub-license Agreement between Somanta and
Immunodex, Inc. dated August 18, 2005, as amended;
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•
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Patent
and Know-how Assignment and License Agreement between Somanta and De
Montfort University dated March 20, 2003;
|
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•
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Patent
and Know-how Assignment and License Option Agreement between Somanta
and The School of Pharmacy, University of London dated March 16,
2004, as amended on September 21, 2005; and
|
|
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•
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The
Phenylbutyrate Co-Development and Sublicense Agreement
between Somanta and Virium Pharmaceuticals, Inc. dated
February 16, 2005, as amended.
|
Access
is dependent upon these licenses for its rights to develop and
commercialize its product candidates. While Access believes it is
in compliance with its obligations under the licenses, certain licenses may
be
terminated or converted to non-exclusive licenses by the licensor if Access
breaches the terms of the license. Access cannot guarantee you that the
licenses will not be terminated or converted in the future.
While Access
expects that it will be able to continue to identify licensable product
candidates or research suitable for licensing and commercialization by it,
there
can be no assurance that this will occur. For example, Access is in
discussions with the National Institutes of Health to obtain licenses to certain
patents held by them that will be necessary for the manufacture of its
product candidate Angiolix. Unless Access obtains licenses on terms that
are acceptable to it, Access may not be able to manufacture and obtain
product registrations on Angiolix. On December 5, 2006, NIH provided
Access with proposed terms for a non-exclusive license. Access is in
discussion with NIH on those proposed terms and conditions. On May 15, 2007,
NIH
terminated Access’ non-exclusive license application since it had not
accepted the terms and had not executed the proposed license
agreement.
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
|
·
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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 17 U.S. patents and to 9
U.S.
patent applications now pending, and 5 European patents and 13 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,
|
·
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Phenylbutyrate
between 2011 and 2016,
|
·
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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, Jeffrey B. Davis. 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
Jeffrey B. Davis, 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.
Davis’, 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 69.8%, 31.7%, 21.7%, 15.1% and 11.8%,
respectively, of Access’ common stock as of March 6, 2008. 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 5,623,781 shares of Access common stock that are
outstanding as of March 6, 2008, 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 5,623,781
shares of common stock outstanding as of March 6, 2008, 5,623,781 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 11,666,195
shares issuable upon conversion of our preferred stock and 9,269,734 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 16,588,387 shares
of
our common stock being registered in this offering. That means that up to
16,588,387 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
|
1.4%
|
9,091
|
1.3%
|
Beach
Capital LLC (3)
|
949,496
|
14.4%
|
608,587
|
5.7%
|
Brio
Capital LP (4)
|
75,000
|
1.3%
|
75,000
|
-
|
Catalytix
LDC Life Science
Hedge
AC (5)
|
24,999
|
*
|
24,999
|
-
|
Cobblestone
Asset Mangement LLC (6)
|
155,450
|
2.7%
|
125,000
|
*
|
Cranshire
Capital, LP (7)
|
250,000
|
4.3%
|
250,000
|
-
|
Credit
Suisse Securities (USA) LLC (8)
|
500,000
|
8.2%
|
500,000
|
-
|
Enable
Growth Partners LP (9)
|
249,999
|
4.3%
|
249,999
|
-
|
Howard
Fischer (10)
|
54,545
|
*
|
9,091
|
*
|
Edward
and Patricia Kelly (11)
|
99,999
|
1.8%
|
99,999
|
-
|
Lake
End Capital LLC (12)
|
1,988,784
|
26.1%
|
1,556,166
|
7.1%
|
Dennis
Lavalle (13)
|
45,000
|
*
|
45,000
|
-
|
David
P. Luci (14)
|
37,500
|
*
|
12,500
|
*
|
Midsummer
Investment, Ltd (15)
|
750,000
|
11.8%
|
750,000
|
-
|
Oracle
Institutional Partners LP (16)
|
390,828
|
6.5%
|
380,399
|
*
|
Oracle
Offshore Ltd. (17)
|
76,893
|
1.4%
|
71,886
|
*
|
Oracle
Partners, LP (18)
|
1,622,482
|
23.2%
|
1,374,831
|
4.4%
|
Perceptive
Life Sciences
Master
Fund Ltd (19)
|
999,999
|
15.1%
|
999,999
|
-
|
Rockmore
Investment
Master
Fund Ltd (20)
|
249,999
|
4.3%
|
249,999
|
-
|
Rodman
& Renshaw LLC (21)
|
109,000
|
1.9%
|
109,000
|
-
|
SAM
Oracle Investments, Inc (22)
|
389,169
|
6.5%
|
359,433
|
*
|
Schroder
& Co. Bank AG, Zurich (23)
|
125,000
|
2.2%
|
125,000
|
-
|
SCO
Capital Partners LLC (24)
|
11,033,426
|
66.2%
|
8,033,427
|
34.8%
|
SCO
Capital Partners LP (25)
|
999,999
|
15.1%
|
999,999
|
-
|
|
|
|
|
|
Total:
|
21,258,092
|
|
17,020,705
|
|
--------------------
*
- less
than 1%
(1)
|
Applicable
percentage of ownership is based on 5,623,781 shares of common stock
outstanding as of March 6, 2008, together with securities exercisable
or
convertible into shares of common stock within 60 days of March 6,
2008,
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 5,924,770 shares of Access’ Common
Stock and 7,077,100 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)
|
Edward
and Patricia Kelly are known to beneficially own warrants to purchase
an
aggregate of 33,333 shares of Access’ Common Stock and Series A Preferred
Stock which may be converted into an aggregate of 66,666 shares of
Access’
Common Stock.
|
(12)
|
Lake
End Capital LLC is known to beneficially own warrants to purchase
an
aggregate of 1,195,717 shares of Access’ Common Stock and Series A
Preferred Stock which may be converted into an aggregate of 793,067
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
1,832,357 shares of Access’ Common Stock and 793,067 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.
|
(13)
|
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.
|
(14)
|
David
P. Luci is known to beneficially own warrants and options to purchase
an
aggregate of 29,167 shares of Access’ Common Stock and 8,333 shares of
Common Stock issuable upon conversion of Series A Preferred
Stock.
|
(15)
|
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.
|
(16)
|
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.
|
(17)
|
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.
|
(18)
|
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.
|
(19)
|
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.
|
(20)
|
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.
|
(21)
|
Rodman
& Renshaw LLC is known to beneficially own warrants to purchase an
aggregate of 109,000 shares of Access’ Common
Stock.
|
(22)
|
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.
|
(23)
|
Schroder
& Co. Bank AG, Zurich is known to beneficially own 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.
|
(24)
|
SCO
Capital Partners LLC is known to directly beneficially own warrants
to
purchase an aggregate of 5,156,240 shares of Access’ Common Stock and
Series A Preferred Stock which may be converted into an aggregate
of
5,896,135 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 5,924,770 shares
of
Access’ Common Stock and 7,077,100 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.
|
(25)
|
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 5,924,770 shares of Access’
Common Stock and 7,077,100 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.
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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. Subsequently on February 4, 2008 we entered
into an Amended and Restated Purchase Agreement whereby we issued an additional
200 shares of Series A Preferred Stock and warrants to purchase 333,333 shares
of our common stock on substantially the same terms contained in the Purchase
Agreement and related transaction documents.
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.
On
February 12, 2008, the Board of Directors of the Company elected Steven H.
Rouhandeh as director and Chairman of the Board effective as of March 4,
2008.
Mr. Steven H. Rouhandeh is a
Chief Investment Officer of
SCO Capital Partners, L.P., a New York based life sciences
fund.
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 69.8% of the voting securities of Access. 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
5,924,770 shares of Access’ Common Stock and 7,077,100 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. Steven
H.
Rouhandeh, in his capacity as Chairman of SCO Capital Partners, LLC. has
the
power to direct the vote and disposition of the shares owned by SCO Capital
Partners, LLC.
During
2007 SCO and affiliates were paid $240,000 in placement agent fees relating
to
the issuance of preferred stock and 100,000 warrants to purchase our common
stock. SCO and affiliates also were paid $150,000 in investor relations
fees in
2007. 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.
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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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange
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or
otherwise;
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a
combination of any such methods of sale;
or
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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 focused on developing products based
upon its nanopolymer chemistry technologies. We currently have one approved
product, two products in Phase 2 clinical trials and five products in
pre-clinical development.
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MuGard™
is our approved product for the management of oral mucositis, a frequent
side-effect of cancer therapy for which there is no established treatment.
The market for mucositis treatment is estimated to be in excess of
US$1
billion world-wide. MuGard, a proprietary nanopolymer formulation,
has
received marketing allowance in the U.S. from the Food & Drug
Administration (“FDA”).
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Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. ProLindac is currently in a Phase
2
clinical trial being conducted in the EU in patients with ovarian
cancer.
The DACH-platinum incorporated in ProLindac is the same active moiety
as
that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has sales in
excess
of $2.0 billion.
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·
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Pre-clinical
development of Cobalamin™, our proprietary nanopolymer oral drug delivery
technology based on the natural vitamin B12 uptake mechanism. We
are
currently developing a product for the oral delivery of
insulin.
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Pre-clinical
development of Angiolix®, a humanized monoclonal antibody which acts as an
anti-angiogenesis factor and is targeted to cancer cells, notably
breast,
ovarian and colorectal cancers.
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Pre-clinical
development of Prodrax®, a non-toxic prodrug which is activated in the
hypoxic zones of solid tumors to kill cancer
cells.
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Pre-clinical
development of Alchemix®, a chemotherapeutic agent that combines multiple
modes of action to overcome drug
resistance.
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Pre-clinical
development of Cobalamin-mediated targeted
delivery.
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·
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Phenylbutyrate
(“PB”), an HDAC inhibitor and a differentiating agent, is a Phase 2
clinical candidate being developed in collaboration with Virium
Pharmaceuticals.
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Products
Access
used its drug delivery technologies to develop the following products and
product candidates:
Access
Drug Portfolio
Compound
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Originator
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Technology
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Indication
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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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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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Phase
2
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Phenylbutyrate
(PB)
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National
Institute
of
Health
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Small
molecule
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Cancer
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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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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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Pre-clinical
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Angiolix®
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Immunodex,
Inc.
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Humanized
monoclonal
antibody
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Cancer
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Pre-clinical
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Prodrax®
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Univ
London
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Small
molecule
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Cancer
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Pre-clinical
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Alchemix®
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DeMontford
Univ
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Small
molecule
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Cancer
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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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Pre-clinical
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(1)
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For
more information, see “Government Regulation” for description of clinical
stages.
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(2)
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Licensed
from the School of Pharmacy, The University of London. Subject to
a 1%
royalty and milestone payments on
sales.
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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
February 12, 2008, the Board of Directors of the Company elected Steven H.
Rouhandeh as director and Chairman of the Board effective as of March 4,
2008.
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.5 shares 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 545,000
shares of our common stock, which includes placement agent warrants to purchase
90,883 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
$2,700,000. The shares of Series A Preferred Stock are convertible into common
stock at the initial conversion price of $3.00 per share.
On
January 14, 2008, we announced the signing of a definitive licensing agreement
under which RHEI Pharmaceuticals, Inc. will market and manufacture MuGard in
the
Peoples Republic of China and certain Southeast Asian countries. RHEI will
also
obtain the necessary regulatory approvals for MuGard in the
territory.
On
January 4, 2008 we closed the acquisition of Somanta Pharmaceuticals, Inc.
In
connection with the merger, Access issued an aggregate of approximately 1.5
million shares of Access Pharmaceuticals, Inc. common stock to the common and
preferred shareholders of Somanta as consideration. In addition,
Access exchanged all outstanding warrants of Somanta for warrants to
purchase 191,991 shares of Access common stock at exercise prices ranging
between $18.55 and $69.57 per share.
On
December 26, 2007, Jeffrey B. Davis, Chairman of the Board of Directors was
named Chief Executive Officer. Stephen R. Seiler resigned as President and
Chief
Executive Officer and concurrently resigned from the Board of Directors
effective December 19, 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 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
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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higher
salary and related cost due to the hiring of additional scientific
staff
($30,000); and
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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:
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higher
investor relations expenses ($149,000) due to our increased investor
relations efforts;
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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).
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The
increase in general and administrative spending is partially offset
by:
·
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lower
patent expenses ($90,000);
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·
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lower
professional fees ($59,000); and
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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 minimal funding for operations during
the
quarter ended September 30, 2007. As of February 29, 2008, our cash and cash
equivalents and short-term investments were $6,772,000 and our net cash burn
rate for the nine months ending September 30, 2007 was approximately $430,000
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 February 29, 2008 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
February 29, 2008, 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 into the second quarter of
2009. 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 integrate Somanta Pharmaceuticals, Inc. 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:
(in
thousands)
|
Twelve
Months ended
December
31,
|
Nine
Months ended
September
30,
|
Inception
To
Date
(1)
|
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
DESCRIPTION
OF BUSINESS
Business
Access
Pharmaceuticals, Inc. (“Access” or the “Company”) is a Delaware corporation. We
are an emerging biopharmaceutical company focused on developing products based
upon our nanopolymer chemistry technologies. We currently have one approved
product, two products in Phase 2 clinical trials and five products in
pre-clinical development.
·
|
MuGard™
is our approved product for the management of oral mucositis, a frequent
side-effect of cancer therapy for which there is no established treatment.
The market for mucositis treatment is estimated to be in excess of
US$1
billion world-wide. MuGard, a proprietary nanopolymer formulation,
has
received marketing allowance in the U.S. from the Food & Drug
Administration (“FDA”).
|
·
|
Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. ProLindac is currently in a Phase
2
clinical trial being conducted in the EU in patients with ovarian
cancer.
The DACH-platinum incorporated in ProLindac is the same active moiety
as
that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has sales in
excess
of $2.0 billion.
|
·
|
Pre-clinical
development of Cobalamin™, our proprietary nanopolymer oral drug delivery
technology based on the natural vitamin B12 uptake mechanism. We
are
currently developing a product for the oral delivery of
insulin.
|
·
|
Pre-clinical
development of Angiolix®, a humanized monoclonal antibody which acts as an
anti-angiogenesis factor and is targeted to cancer cells, notably
breast,
ovarian and colorectal cancers.
|
·
|
Pre-clinical
development of Prodrax®, a non-toxic prodrug which is activated in the
hypoxic zones of solid tumors to kill cancer
cells.
|
·
|
Pre-clinical
development of Alchemix®, a chemotherapeutic agent that combines multiple
modes of action to overcome drug
resistance.
|
·
|
Pre-clinical
development of Cobalamin-mediated targeted
delivery.
|
·
|
Phenylbutyrate
(“PB”), an HDAC inhibitor and a differentiating agent, is a Phase 2
clinical candidate being developed in collaboration with Virium
Pharmaceuticals.
|
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
|
Phenylbutyrate
(PB)
|
|
National
Institute
of
Health
|
|
Small
molecule
|
|
Cancer
|
|
Phase
2
|
Oral
Insulin
|
|
Access
|
|
Cobalamin
|
|
Diabetes
|
|
Pre-clinical
|
Oral
Delivery System
|
|
Access
|
|
Cobalamin
|
|
Various
|
|
Pre-clinical
|
Angiolix®
|
|
Immunodex,
Inc.
|
|
Humanized
monoclonal
antibody
|
|
Cancer
|
|
Pre-clinical
|
Prodrax®
|
|
Univ
London
|
|
Small
molecule
|
|
Cancer
|
|
Pre-clinical
|
Alchemix®
|
|
DeMontford
Univ
|
|
Small
molecule
|
|
Cancer
|
|
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.
|
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 the 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. In January 2008 we also signed a definitive licensing
agreement with RHEI Pharmaceuticals, Inc. under which RHEI will market Access’
product MuGard in China and other Southeast Asian countries.
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 generated 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.
A
Phase 2
clinical trial of ProLindac is underway 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. Patients are dosed either
once
every 2 weeks or once every three weeks. As the Phase 1 study involved weekly
dosing, the initial phase of the ovarian cancer monotherapy study involves
some
dose escalation to determine recommended doses using these dosing regimens.
Preliminary results from the dose ranging part of the study were presented
at
AACR-NCI-EORTC conference in San Francisco in October 2007. Significantly,
there
was a reduction of the Ca125 biomarker in five of the six patients in a cohort
receiving of ProLindac on a once every three week dosing schedule. The Ca125
biomarker has been demonstrated to be a reliable indicator of the clinical
progression of ovarian cancer
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.
Sodium
Penylbutyrate, or PB, is a small molecule that was previously approved by the
FDA for sale as a treatment for a rare genetic disorder in infants known as
hyperuremia. PB has a number of additional mechanisms of action, including
the inhibition of histone deacetylase. Histone deacetylase is a class of
enzymes that remove acetyl groups from the amino acids in DNA. The
inhibition of histone deacetylase allows the body’s cancer suppressing genes to
work as intended. In addition, PB is not toxic to cells. These
characteristics make PB a good candidate to become a chemopotentiator; that
is,
a substance that enhances the activity of a chemotherapeutic agent. As a
result, PB will ideally be administered in conjunction with radiation and/or
chemotherapy.
In
February 2005, we entered into a Phenylbutyrate Co-development and Sublicense
Agreement with Virium Pharmaceuticals, Inc., pursuant to which Virium granted
us
an exclusive, worldwide sublicense to PB, excluding the U.S. and Canada, for
the
treatment of cancer, autoimmune diseases and other clinical indications. We
paid
Virium a license fee of $50,000. Virium has retained all rights with respect
to
PB inside the U.S. and Canada. Access’ single largest stockholder, SCO
Capital Partners, LLC, is also the single largest stockholder of Virium
Pharmaceuticals, Inc.
Virium
is
also a party to a sublicense agreement with VectraMed, Inc. for the rights
to
develop and commercialize PB worldwide for the treatment of cancer, autoimmune
diseases and other clinical indications. VectraMed obtained its rights to the
product under an Exclusive Patent License Agreement dated May 25, 1995 with
the
U.S. Public Health Service, representing the National Institutes of Health.
VectraMed subsequently assigned all its rights to PB to Virium pursuant to
a
novation agreement dated May 10, 2005.
Pursuant
to our agreement with Virium, we are responsible for the conduct of clinical
trials and patent prosecution related to PB outside of the U.S. and Canada.
The
Virium agreement also requires us to pay Virium a royalty on the sales of PB
products until such time as the patents covering such products
expire. These patents expire at various times between 2011 and 2016. Our
agreement with Virium expires upon the expiration of the last to expire of
these
patents in 2016.
Our
agreement with Virium does not fully comply with the sublicensing requirements
set forth in Virium’s agreement with the National Institutes of Health because
it does not expressly incorporate by reference all of the relevant sections
of
Virium’s license with NIH. We are currently seeking to amend its agreement
with Virium to bring it into full compliance with such sublicensing requirements
and to permit us to become a direct licensee of the NIH, should Virium default
on its license with the NIH.
On
October 20, 2006, NIH conditionally consented to the sublicense to us.
However, the NIH conditions include an amendment to the Virium license to
reflect an updated Virium development plan and milestones, the payment of
$216,971 in past due patent expenses and the payment of a $5,000 sublicense
royalty. Based on the information provided by NIH, it appears that about
$200,000 relates to foreign patent expenses for calendar 2005 which would be
our
responsibility under its license agreement with Virium. Of that amount,
approximately $12,000 relates to foreign patent maintenance fees and $197,000
largely relates to foreign patent legal expenses. Somanta accrued $248,300
as
patent annuity and legal expense for the year ended April 30, 2007. Virium
advised us that they satisfied two of the three conditions to obtaining final
NIH approval for our sublicense. Virium is in the process of negotiating an
installment payment plan with respect to the past due patent
expenses.
On
December 6, 2006, we signed a letter of intent (LOI) pertaining to a license
and
collaboration agreement with Virium covering all formulations or drug
combinations where Phenylbutyrate is an active ingredient. Pursuant to the
LOI,
in addition to current worldwide rights, excluding North America, involving
the
current formulation of Phenylbutyrate, we would obtain a participation in any
revenue or royalties derived from sales in the U.S. and Canada. In return,
we
would grant Virium a reciprocal participation in Europe. In the rest of the
world, Access and Virium would share revenues and royalties equally. The LOI’s
terms provide that both companies will, among other things, share data and
jointly undertake the necessary pre-clinical and clinical studies, seek
regulatory approvals and file for patent protection in all territories. It
also
provides for the formation of a joint development committee to oversee all
aspects of the development and commercialization of Phenylbutyrate. Completion
of the transaction contemplated by the LOI remains subject to the negotiation
and execution of a definitive agreement.
Phenylbutyrate
has been the subject of numerous Phase 1 and Phase 2 clinical studies sponsored
by the National Cancer Institute and others demonstrating the safety and
efficacy of PB in cancer, both as a monotherapy and in combination with other
anticancer compounds. To date, we have not been involved in any capacity in
the
conduct of any clinical trial related to PB.
We
believe that PB may be a candidate to become a biological-response modifier
that
acts as a dose-dependent inhibitor of cancer cell proliferation, migration,
and
invasiveness, possibly by inhibition of urokinase and c-myc pathways, which
means that it inhibits the protease activity that irreversibly induces
programmed cell death. In addition, we believe that PB shows potential for
the
treatment of malignant gliomas, which are cancers of the brain. We are aware
of
numerous products in development for brain cancers. We are aware of several
products being developed by academic and commercial organizations targeting
glioblastoma. Medicis Pharmaceuticals currently sells Sodium Phenylbutyrate
(Buphenyl
®
) for
the treatment of a urea cycle disorder, hyperuremia.
There
are
thirteen key use patents related to PB which have been issued as
follows:
|
•
|
|
A
patent covering a method of inhibiting rapid tumor growth issued
in the
U.S. that expires on March 14, 2014 with foreign counterparts in
Austria, Australia, Canada, Germany, European Union, Spain, Israel,
New
Zealand and South Africa;
|
|
•
|
|
A
patent covering a method of treating brain cancer, leukemia, prostate
cancer, breast cancer, skin cancer and non-small cell lung cancer
issued
in the U.S. that expires on June 3, 2014 with foreign counterparts
in
Austria, Australia, Canada, Germany, European Union, Spain, Israel,
Japan,
New Zealand, Portugal and South
Africa;
|
|
•
|
|
A
patent covering a method of treating brain cancer, skin cancer, benign
enlarged prostate and a cervical infection issued in the U.S. that
expires
on February 25, 2014 with foreign counterparts in Austria, Australia,
Canada, Germany, European Union, Spain, Israel, Japan, New Zealand,
Portugal and South Africa;
|
|
•
|
|
A
patent covering a method of inducing the production of TGF alpha
(which
slows the growth of cancer cells) issued in the U.S. that expires
on
January 13, 2015 with foreign counterparts in Austria, Australia,
Canada,
Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal
and
South Africa;
|
|
•
|
|
A
patent covering a pharmaceutical composition for treating or preventing
a
cancerous condition issued in the U.S. that expires on January 20,
2015
with foreign counterparts in Austria, Australia, Canada, Germany,
European
Union, Spain, Israel, Japan, New Zealand, Portugal and South
Africa;
|
|
•
|
|
A
patent covering a method of inducing the differentiation of a cell
issued
in the U.S. that expires on June 3, 2014 with foreign counterparts
in
Austria, Australia, Canada, Germany, European Union, Spain, Israel,
Japan,
New Zealand, Portugal and South
Africa;
|
|
•
|
|
A
patent covering a method of treating brain cancer, non-small cell
lung
cancer, prostate cancer, skin cancer, brain tumors, cancers of the
blood,
lung cancer and breast cancer issued in the U.S. that expires on
August
26, 2014 with foreign counterparts in Austria, Australia, Canada,
Germany,
European Union, Spain, Israel, Japan, New Zealand, Portugal and South
Africa;
|
|
•
|
|
A
patent covering a method of inhibiting the growth of rapidly growing
nonmalignant or malignant tumor cells issued in the U.S. that expires
on
March 2, 2016 with foreign counterparts in Austria, Australia, Canada,
Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal
and
South Africa;
|
|
•
|
|
A
patent covering a method of sensitizing a subject to radiation therapy
or
chemotherapy and a method of treating brain cancer, leukemia, non-small
cell lung cancer, skin cancer, cancers of the blood, lung cancer,
or renal
cancer issued in the U.S. that expires on December 1, 2015 with foreign
counterparts in Austria, Australia, Canada, Germany, European Union,
Spain, Israel, Japan, New Zealand, Portugal and South
Africa;
|
|
•
|
|
A
patent covering a method of treating brain cancer, non-small cell
lung
cancer, prostate cancer, skin cancer, cancers of the blood, breast
cancer,
benign prostate enlargement, cervical infection, bladder cancer,
kidney
cancer, colon cancer, or nose cancer issued in the U.S. that expires
on
March 16, 2016 with foreign counterparts in Austria, Australia, Canada,
Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal
and
South Africa;
|
|
•
|
|
A
patent covering a method of inducing the production of hemoglobin
(blood)
and a method of treating a pathology associated with abnormal hemoglobin
(blood) activity issued in the U.S. that expires on January 27, 2015
with
foreign counterparts in Austria, Australia, Canada, Germany, European
Union, Spain, Israel, Japan, New Zealand, Portugal and South
Africa;
|
|
•
|
|
A
patent covering a method of preventing prostate cancer, brain cancer,
skin
cancer, cancers of the blood, breast cancer, non-small cell lung
cancer,
or renal cancer issued in the U.S. that expires on August 5, 2014
with
foreign counterparts in Austria, Australia, Canada, Germany, European
Union, Spain, Israel, Japan, New Zealand, Portugal and South Africa;
and
|
|
•
|
|
A
patent covering a method of inhibiting the production of cancer in
a cell
issued in the U.S. that expires on March 14, 2011, June 3, 2013 or
March
7, 2014, depending on the subject matter disclosed in the priority
applications with foreign counterparts in Austria, Australia, Canada,
Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal
and
South Africa.
|
Our
co-development partner, Virium advised us that it intends to initiate a Phase
1/2 clinical trial using PB to treat glioblastoma in the near future. We intend
to wait for the results of this Phase 1/2 clinical trial and the re-formulation
of the PB compound to a sustained release version before initiating our own
clinical trial related to PB in Europe. At this time, we do not know when
Virium will initiate such clinical trial or when it will be completed, nor
do we
know when Virium will have completed the re-formulation of the PB compound
to a
sustained release version.
We
also
believe that further studies should be considered to identify a subset of
patients that have tumors sensitive to PB, either as a single agent or in
combination with radiation therapy or other chemotherapeutic agents, and that
we
should focus on this subset of patients in our future clinical trials related
to
PB.
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 and oncology drug development programs. 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
Access
posseses a broad range of technologies and intellectual property in the areas
of
drug delivery and oncology. Our core technologies rely on the use of
nonopolymers for use in the management of oral conditions such as mucositis,
and
in drug delivery. We also have small molecule and monoclonal antibody programs
which also embody the principals of drug delivery and drug
targeting.
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;
|
·
|
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 cleared from the body via the kidneys. 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 hypoxic 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 coadministering the protein or peptide with permeation enhancers, which
assist in passive transit through the gut wall or by 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 which 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 vitamin-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 receptors on cancer cells,
which makes them more sensitive to treatment regimes that target these cell
surface receptors 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.
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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.
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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 receptor 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 certain 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.
Angiolix®
Angiolix
(huMc-3 mAB) is a humanized monoclonal antibody targeting a protein known as
Lactadherin. Lactadherin promotes the growth of new blood vessels (angiogenesis)
to support tumor growth. Angiolix, by blocking Lactadherin, has the potential
to
induce programmed cell death, or apoptosis, in blood vessels supporting tumors.
Angiolix was sublicensed from Immunodex, Inc., who licensed the product from
Cancer Research Institute of Contra Costa Under that agreement, we
are required to meet certain development targets, and make certain payments
including an annual license maintenance fee and milestone payments.
We
believe that Angiolix has a large market potential in the treatment of cancer.
Avastin
®
is a
marketed anti-angiogenesis monoclonal antibody that is effective by using a
similar mechanism to that of Angiolix, and is used in the treatment of
colorectal and other cancer types. Angiolix is unique in that it
targets a propriety
gene product which is expressed by cancerous tumors. We are not aware of
any other organization developing similar products targeting this
protein. The key patent relating to Angiolix has been issued in the U.S.
and Australia. In general, it covers the composition of matter and various
aspects of the binding to applicable antigens as well as the manufacture of
Angiolix. We also have foreign counterparts to this patent pending in the
European Union and Canada.
Angiolix
is a humanized monoclonal antibody. Humanization is a process by which genetic
material from a mouse cell is made tolerable to humans, using a patented
technology developed by the National Institutes of Health. The NIH
previously granted to the Cancer Research Institute of Contra Costa a license
to
the applicable humanization technology. Pursuant to the Immunodex agreement,
Immunodex and the Cancer Research Institute of Contra Costa are seeking to
obtain for us the NIH’s consent to a sublicense to us of the Cancer Research
Institute of Contra Costa right to use the NIH humanization
technology.
We
have
an agreement with an academic investigator for the development of Angiolix.
We
intend to complete preclinical development of Angiolix through the contributions
of this investigator and through a contract manufacturer and contract testing
laboratories, such that we are able to begin a Phase 1 clinical study of
Angiolix in 2009.
Prodrax®
Prodrax
is a small molecule anticancer prodrug that is non-toxic in normally oxygenated
healthy tissue but becomes highly toxic in low oxygen tumors where it becomes
irreversibly converted to its toxic form which binds to the DNA in tumor cells,
resulting in tumor cell death. The chemical structure of Prodrax is a
di-N-oxides of chloroethylaminoanthraquinone. We have an license to this
technology from the University of London School of Pharmacy.
Prodrax
is inert in normally oxygenated cells and becomes toxic in low oxygen areas,
enabling it to kill tumor cells. Many solid tumors have a low oxygen area that
is resistant to radiation and conventional chemotherapy. These cells repopulate
the tumor with additional radiation- and conventional chemotherapy-resistant
cells. These cells are often referred to as quiescent.
Prodrax
becomes irreversibly converted to its toxic form in low oxygen tumor cells
where
it remains localized. When the surrounding oxygenated cells are killed by
radiotherapy or chemotherapy, these Prodrax-containing quiescent cells move
closer to the oxygen source and attempt to resume more active
replication. It is in this state that they are killed by Prodrax, through
potent DNA damage.
When
given in conjunction with radiotherapy or chemotherapy we expect Prodrax to
result in significant improvement of tumor clearance and to reduce the
likelihood of tumor repopulation, improving disease free survival. It is
estimated that over 50% of all solid tumors exhibit clinically significant
hypoxia, or low oxygenation, and that over two million people in the U.S. and
Europe suffer from solid tumor cancers. If successful, Prodrax could improve
the
prognosis for a significant number of cancer sufferers in a wide range of tumor
types.
In
March
2006, we entered into a two year agreement with the University of Bradford
to
perform pre-clinical studies. The Prodrax technology allows for the modification
of various drugs to make them inert until they are activated by a low oxygen
environment. Varieties of analogues have been developed and are being tested
by
researchers at the University of Bradford for the purpose of enabling us to
select the lead compound to take forward into clinical development. We expect
to
select a lead compound in 2008.
Alchemix®
Alchemix,
is a small molecule that is toxic to cancer cells. Alchemix attacks cancers
cells through at least two modes of action and is intended to interrupt all
phases of the cancer cell growth cycle o overcome drug resistant tumors. We
believe that Alchemix is toxic to cancer cells due to its selective inhibition
of many DNA processing enzymes and that it is as well tolerated in animals
as a
number of classes of approved chemotherapeutic drugs such as epirubicin and
cisplatin, .
The
Alchemix platform technology is licensed from De Montfort University in the
UK.
Although we are not obligated to make any royalty payments to De Montfort based
on the sale of any product that is based on Alchemix, we are obligated to pay
De
Montfort certain milestone payments based on the achievement of agreed upon
clinical milestones. Our agreement with De Montfort expires in 2015, upon the
expiration of the last to expire of the Alchemix patents in 2015. The key patent
relating to Alchemix has been issued in the U.S, the European Union and in
Australia. In general, it covers composition of matter. We have entered into
a
research and development collaboration with the University of Bradford. The
initial goal for this collaboration is to select one molecule for preclinical
development. We have prepared a detailed pre-clinical and clinical development
plan related to Alchemix. We intend to manufacture, undertake pre-clinical
studies and, based on the results of these studies, to initiate a Phase1/2
clinical trial with respect to Alchemix within the next 12-24
months.
In
August
2004, we entered into a Research Collaboration and License Agreement with
Advanced Cardiovascular Devices, LLC. Under this agreement, we granted Advanced
Cardiovascular Devices an exclusive, worldwide license to Alchemix solely for
use in the treatment of vascular disorders or proliferations using stents and
other medical devices. The term of this agreement expires when the underlying
patent expires in 2015. Pursuant to this agreement, Advanced Cardiovascular
Devices paid Somanta an upfront fee of $10,000. In addition, Advanced
Cardiovascular Devices is obligated to develop a product based on Alchemix
pursuant to an agreed upon timetable. If Advanced Cardiovascular Devices fails
to achieve any of the agreed upon milestones, we would then have the right
to
terminate the agreement; provided, however, that Advanced Cardiovascular Devices
could prevent us from so terminating the agreement with respect to the
applicable failure by paying us a fee not to exceed $500,000 to reinstate its
rights under the agreement. In addition, Advanced Cardiovascular Devices is
also
obligated to pay us a royalty based on net sales, if any, of products based
on
Alchemix. Either party may terminate this agreement on thirty (30) days advance
notice for breach by the other party if the breach is not cured within such
thirty (30) day period. In addition, Advance Cardiovascular Devices may
terminate the agreement upon written notice to us and without any further
obligation to us if the licensed technology does not perform to the reasonable
satisfaction of Advanced Cardiovascular Devices or cannot be commercialized
because of safety or efficacy reasons or because Advanced Cardiovascular Devices
is unable to raise the funds necessary to develop a product based on the
licensed technology.
Other
Key Developments
On
February 12, 2008, the Board of Directors of the Company elected Steven H.
Rouhandeh as director and Chairman of the Board effective as of March 4,
2008.
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.5 shares 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 545,000
shares of our common stock, which includes placement agent warrants to purchase
90,883 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
$2,700,000. The shares of Series A Preferred Stock are convertible into common
stock at the initial conversion price of $3.00 per share.
On
January 14, 2008, we announced the signing of a definitive licensing agreement
under which RHEI Pharmaceuticals, Inc. will market and manufacture MuGard in
the
Peoples Republic of China and certain Southeast Asian countries. RHEI will
also
obtain the necessary regulatory approvals for MuGard in the
territory.
On
January 4, 2008 we closed the acquisition of Somanta Pharmaceuticals, Inc.
In
connection with the merger, Access issued an aggregate of approximately 1.5
million shares of Access Pharmaceuticals, Inc. common stock to the common and
preferred shareholders of Somanta as consideration. In addition, Access
exchanged all outstanding warrants of Somanta for warrants to purchase 191,991
shares of Access common stock at exercise prices ranging between $18.55 and
$69.57 per share.
On
December 26, 2007, Jeffrey B. Davis, Chairman of the Board of Directors was
named Chief Executive Officer. Stephen R. Seiler resigned as President and
Chief
Executive Officer and concurrently resigned from the Board of Directors
effective December 19, 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 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, and 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.
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
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:
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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;
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–
|
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
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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
|
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
March 6, 2008, 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 2008. Adjacent space may be available
for
expansion which Access believes would accommodate growth for the foreseeable
future.
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.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS ABD CONTROL PERSONS
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:
Name
Age
Title
Steven
H. Rouhandeh
|
50
|
Chairman
of the Board
|
Jeffrey
B.
Davis
|
44
|
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.
Steven H. Rouhandeh
became a director and Chairman of the Board on March 4, 2008. He is a
Chief Investment Officer
of SCO Capital Partners, L.P., a New York based life sciences fund. Mr.
Rouhandeh also is a founder of SCO Financial Group LLC, a highly successful
value-oriented healthcare group with an 11-year track record in this sector
(advisory, research, banking and investing). He possesses a diverse
background in financial services that includes experience in asset management,
corporate finance, investment banking and law. He has been active
throughout recent years as an executive in venture capital and as a founder
of
several companies in the biotech field. His experience also includes
positions as Managing Director of a private equity group at Metzler Bank, a
private European investment firm and Vice President, Investment Banking at
Deutsche Morgan Grenfell. Mr. Rouhandeh was also a Corporate
Attorney at New York City-based Cravath, Swaine & Moore. Mr. Rouhandeh holds
a J.D., from Harvard Law School, Harvard University and B.A. Government,
Economics, from Southern Illinois University.
Mr.
Jeffrey B. Davis
became a
director in March 2006. Mr. Davis became Chief Executive Officer of the Company
on December 26, 2007. Previously, Mr. Davis was 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.
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)
|
Jeffrey
B. Davis became Access’ Chief Executive Officer on December 26, 2007 and
is not included in this table. Stephen R. Seiler was Access’ President and
Chief Executive Officer effective January 4, 2007 through December
19,
2007 and is not included in this
table.
|
Employment
Agreements
President
and Chief
Executive Officer
Access
is
a party to an employment arrangement with Jeffrey B. Davis, who was named by
the
Board as Access’ Chief Executive Officer, effective as of December 26, 2007. Mr.
Davis agreement was effective January 4, 2007 (the “Effective Date”) and is paid
an annual salary of $335,000 and was granted stock options to purchase 600,000
shares of Common Stock with an exercise price equal to the closing price of
Common Stock on the day preceding the Effective Date. Mr. Davis' options vest
25% on January 4, 2008 and monthly thereafter over a period of 24 months. The
stock options are granted under Access’ 2005 Equity Incentive Plan. Mr. Davis is
entitled to similar employee benefits as Access’ other executive
officers.
Access
was 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") and resigned December
16,
2007. Mr. Seiler was paid an annual salary of $350,000 and was granted stock
options to purchase 125,000 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 vested 25% on December 16, 2007. The stock options are
granted under Access’ 2005 Equity Incentive Plan and the 2007 Special Stock
Option Plan. Mr. Seiler was entitled to similar employee benefits as Access’
other executive officers.
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 7, 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 $5,000 above the statutory limit. Under the
plan, each participant is fully vested in his or her deferred salary
contributions, including any matching contributions by us, when contributed.
Participant contributions are held and invested by the participants in the
plan's investment options. The plan also permits Access to make discretionary
contributions and matching contributions, subject to established limits and
a
vesting schedule. In 2006, Access matched 100% of participant contributions
up
to the first two percent of eligible compensation. Access matched participant
contributions at the first four percent of eligible compensation in
2007.
Outstanding
Equity Awards at December 31, 2006
The
following table sets forth certain information regarding outstanding equity
awards held by Access’ named executive officers at December 31,
2006.
|
Option
Awards
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
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)
|
Jeffrey
B. Davis became Access’ Chief Executive Officer on December 26, 2007 and
is not included in this table. Stephen R. Seiler was Access’ President and
Chief Executive Officer effective January 4, 2007 through December
19,
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 committee was dissolved on February
12, 2008.
The
Audit
and Finance Committee is currently comprised of David P. Luci (chairman) and
John J. Meakem, Jr. All of the current members of the Audit and Finance
Committee are 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.
The
Nominating and
Corporate Governance Committee is currently comprised of John J. Meakem, Jr.
(chairman), Mark Ahn, PhD and Mark J. Alvino. 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 March 6, 2008 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
|
Steven
H. Rouhandeh
(2)
|
-
|
*
|
Jeffery
B. Davis
(3)
|
30,820
|
*
|
Mark
J. Ahn, Ph. D.
(4)
|
25,000
|
*
|
Mark
J. Alvino
(5)
|
80,525
|
1.4%
|
Esteban
Cvitkovic, M.D.
(6)
|
50,000
|
*
|
Stephen
B. Howell, M.D.
(7)
|
53,839
|
*
|
David
P. Luci
(8)
|
37,500
|
*
|
Rosemary
Mazanet, M.D., Ph.D.
(9)
|
279,251
|
4.7%
|
John
J. Meakem, Jr.
(10)
|
53,536
|
*
|
David
P. Nowotnik, Ph.D.
(11)
|
175,349
|
3.0%
|
Phillip
S. Wise
(12)
|
100,000
|
1.8%
|
Stephen
B. Thompson
(13)
|
143,167
|
2.5%
|
SCO
Capital Partners LLC, SCO Capital Partners LP, and Beach Capital
LLC
(14)
|
13,001,870
|
69.8%
|
Larry
N. Feinberg
(15)
|
2,479,372
|
31.7%
|
Lake
End Capital LLC
(16)
|
1,556,966
|
21.7%
|
Perceptive
Life Sciences
Master
Fund, Ltd.
(17)
|
999,999
|
15.1%
|
Midsummer
Investment, Ltd.
(18)
|
750,000
|
11.8%
|
All
Directors and Executive
Officers
as a group
(consisting
of 12 persons)
(19)
|
1,028,987
|
15.6%
|
*
- 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
March 6,
2008.
|
(2)
|
Steven
H. Rouhandeh is Chairman of SCO Securities LLC. a wholly-owned subsidiary
of SCO Financial Group LLC. His address is c/o SCO Capital Partners
LLC,
1285 Avenue of the Americas, 35th 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
5,924,770 shares of Access’ Common Stock and 7,077,100 shares of Common
Stock are issuable to them upon conversion of Series A Preferred
Stock.
Mr. Rouhandeh disclaims beneficial ownership of all such shares except
to
the extent of his pecuniary interest
therein.
|
(3)
|
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
LLC. His address is c/o SCO Capital Partners LLC, 1285 Avenue of
the
Americas, 35th 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 5,924,770 shares
of
Access’ Common Stock and 7,077,100 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.
|
(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 5,924,770 shares of Access’ Common Stock and 7,077,100
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 50,000 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
warrants to purchase an aggregate of 4,167 shares of Access’ Common Stock,
8,333 shares of Common Stock are issuable to him upon conversion
of Series
A Preferred Stock and 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 273,251 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 100,000 shares
of
Access’ Common Stock pursuant to the 2005 Equity Incentive Plan and 57,833
shares of Access’ Common Stock pursuant to the 1995 Stock Option
Plan.
|
(12)
|
Includes
presently exercisable options for the purchase of 100,000 shares
of
Access’ Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(13)
|
Includes
presently exercisable options for the purchase of 100,000 shares
of
Access’ Common Stock pursuant to the 2005 Equity Incentive Plan and 33,646
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 5,924,770 shares of Access’ Common
Stock and 7,077,100 shares of Common Stock issuable to them upon
conversion of Series A Preferred Stock. Each of Mr. Rouhandeh. Mr.
Davis
and Mr. Alvino, Access’ directors and Mr. Rouhandeh and Mr. Davis a
executives with SCO Capital Partners LLC, disclaim beneficial ownership
of
such shares except to the extent of their 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 1,195,717 shares of Access’
Common Stock and 793,067 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.
|
(19)
|
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 1,539,136 options or rights
under
this plan as of March 6, 2008. The balance of the options outstanding as of
March 6, 2008 is 135,864. 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 are 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
Categorty
|
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 of which 112,500 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. The granted options in the Plan expire in January
2009.
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.
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
On
February 12, 2008, the Board of Directors of the Company elected Steven H.
Rouhandeh as director and Chairman of the Board effective as of March 4,
2008.
David
P.
Luci, one of our directors, participated in the February 2008 sale of our
preferred stock. Mr. Luci purchased 2.5 preferred shares for $25,000 and
warrants to purchase 4,167 shares of our common stock.
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 currently receives $20,000 per month plus $2,500
for
office expenses. During 2007 Dr. Cvitkovic received $75,000. 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 69.8% of the voting securities of Access. During
2007 SCO and affiliates were paid $240,000 in placement agent fees relating
to
the issuance of preferred stock and 100,000 warrants to purchase our common
stock. SCO and affiliates also were paid $150,000 in investor relations fees
in
2007. 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 and 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.
Lake
End
Capital LLC is known to beneficially own warrants to purchase an aggregate
of
1,195,717 shares of Access’ Common Stock and Series A Preferred Stock which may
be converted into an aggregate of 793,067 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 1,832,357 shares of Access’ Common Stock and 793,067
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.
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 2007 and 2006 and as the most recent date of the first quarter
2008. 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 7, 2008
|
|
|
$
|
3.60
|
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
$
|
10.66
|
|
|
$
|
2.50
|
|
Second
quarter
|
|
|
|
6.75
|
|
|
|
4.30
|
|
Third
quarter
|
|
|
|
5.16
|
|
|
|
2.10
|
|
Fourth
quarter
|
|
|
|
4.48
|
|
|
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Holders
The
number of record holders of Access common stock at March 7, 2008 was
approximately 3,000. On March 7, 2008, the closing price for the common stock
as
quoted on the OTCBB was $1.90. There were 5,623,781 shares of common stock
outstanding at March 7, 2008.
Options
and Warrants
There
are
9,269,734 outstanding warrants and 1,814,053 outstanding options to purchase
Access’ common equity as of March 7, 2008.
Shares
Eligible for Future Sales
Access
has issued 5,623,781 shares of its common stock as of March 7, 2008. 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.
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 March 6, 2008 there were 5,623,781 shares of Access’
common stock outstanding and held of record by approximately 3,000 stockholders,
and there were 3,449.8617 shares of its preferred stock outstanding convertible
into 11,666,195 shares of common stock.
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.
Disclosure
of Commission Position on Indemnification For Securities Act
Liabilities
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, 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.
EXPERTS
The
consolidated financial statements for the year ended December 31, 2006 included
in this prospectus, and included by reference in the Registration Statement,
were audited by Whitley Penn LLP, an independent registered public
accounting firm, as stated in their report appearing with the consolidated
financial statements herein and incorporated 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.
The
consolidated financial statements for the years ended April 30, 2006 and
April
30, 2007 included in this prospectus, and included by reference in the
Registration Statement, were audited by Stonefiled Josephson, Inc., an
independent registered public accounting firm, as stated in their report
appearing with the consolidated financial statements herein and incorporated
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.
FINANCIAL
STATEMENTS
ACCESS
PHARMACEUTICALS, INC.
|
PAGE
|
|
|
Report
of Independent Registered Public Accounting
Firm
|
F-2
|
|
|
Consolidated
Balance Sheets at December 31, 2006 and 2005
|
F-3
|
|
|
Consolidated
Statements of Operations and Comprehensive Loss for 2006, 2005 and
2004
|
F-4
|
|
|
Consolidated
Statement of Stockholders' Equity (Deficit) for 2006, 2005 and
2004
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for 2006, 2005 and
2004
|
F-6
|
|
|
Notes
to Consolidated Financial Statements (Three years ended December
31,
2006)
|
F-7
|
|
|
Condensed
Consolidated Balance Sheets at September 30, 2007
(unaudited)
|
F-24
|
|
|
Condensed
Consolidated Statements of Operations for September 30, 2007 and
2006
(unaudited)
|
F-25
|
|
|
Condensed
Consolidated Statements of Cash Flows for September 30, 2007 and
2006
(unaudited)
|
F-26
|
|
|
Notes
to Condensed Consolidated Financial Statements (Nine Months Ended
September 30, 2007 and 2006) (unaudited)
|
F-27
|
|
|
Note
Regarding Financial Statements
The
financial statements included in this Registration Statement do not include
the
audit opinion and consent of the auditors for the Company’s 2005 financial
statements. The Company does not plan to request that the
Registration Statement be declared effective until after it has filed its
Form
10-K for the year ended December 31, 2007, which will include the audit opinion
and consent of Whitely Penn LLP for the years ended 2006 and
2007. The Company plans to file a pre-effective amendment to this
Registrations Statement to include audited financial statements for the year
ended December 31, 2007 and other financial and business information for
the
year then ended.
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
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.
See
note
regarding financial statements on page F-1.
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.
See
note
regarding financial statements on page F-1.
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.
See
note
regarding financial statements on page F-1.
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.
See
note
regarding financial statements on page F-1.
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
February 21, 2007 we announced we had entered into a non-binding letter of
intent to acquire Somanta Pharmaceuticals, Inc. Pursuant to the terms of
the
non-binding letter of intent, upon consummation of the acquisition, Somanta’s
preferred and common shareholders would receive an aggregate of 1.5 million
shares of Access’ common shares which would represent approximately 13% of the
combined company assuming the conversion of Access’ existing convertible debt
under existing terms of conversion. The closing of the transaction is subject
to
numerous conditions including the execution of a definitive Merger Agreement,
receipt of necessary approvals as well as completion of our due diligence
investigation. There can be no assurance that the transaction will be
consummated or if consummated, that it will be on the terms described
herein.
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.
INDEX
TO SOMANTA FINANCIAL STATEMENTS
SOMANTA
PHARMACEUTICALS, INC. AND SUBSIDIARIES
Report
of Independent Registered Public Accounting Firm
|
F-32
|
|
|
Consolidated
Balance Sheet as of April 30, 2007
|
F-33
|
|
|
Consolidated
Statements of Operations for the years ended April 30, 2007 and
2006 and
for the period from inception of operations (April 19, 2001)
to April 30,
2007
|
F-34
|
|
|
Consolidated
Statements of Stockholders’ Deficit for the period from inception of
operations (April 19, 2001) to April 30, 2007
|
F-35
|
|
|
Consolidated
Statements of Cash Flows for the years ended April 30, 2007 and
2006 and
for the period from inception of operations (April 19, 2001)
to April 30,
2007
|
F-37
|
|
|
Notes
to Consolidated Financial Statements as of April 30, 2007
|
F-38
|
|
|
Condensed
Consolidated Balance Sheets at October 31, 2007
(unaudited)
|
F-63
|
|
|
Condensed
Consolidated Statements of Operations for the Three and Six
Months Ended
October 31, 2007 and 2006 and for the Period from Inception
of Operations
(April 19, 2001) to October 31, 2007 (unaudited)
|
F-64
|
|
|
Condensed
Consolidated Statement of Stockholders’ Deficit for the Period from
Inception of Operations (April 19, 2001) to October 31, 2007
(unaudited)
|
F-66
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended
October 31,
2007 and 2006 and for the Period from Inception of Operations
(April 19,
2001) to October 31, 2007 (unaudited)
|
F-69
|
|
|
Notes
to Condensed Consolidated Financial Statements as of October
31,
2007
|
F-70
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors of Somanta Pharmaceuticals, Inc.
Irvine,
California
We
have
audited the accompanying consolidated balance sheet of Somanta Pharmaceuticals,
Inc., formerly Hibshman Optical Corp. (a development stage company) as
of April
30, 2007, and the related consolidated statements of operations and consolidated
stockholders’ deficit and consolidated cash flows for the years ended April 30,
2007 and 2006, and for the period from inception of operations (April 19,
2001)
to April 30, 2007. These consolidated 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 audits 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 audits 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 includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes 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 financial position of Somanta Pharmaceuticals,
Inc. as of April 30, 2007, and the results of its operations and its cash
flows
for the years ended April 30, 2007 and 2006, and for the period from inception
of operations (April 19, 2001) to April 30, 2007, 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 1 to
the
consolidated financial statements, the Company’s operating losses, negative
working capital and stockholders’ deficit raise substantial doubt about its
ability to continue as a going concern. Management’s plans regarding those
matters also are described in Note 1. The consolidated financial statements
do
not include any adjustments that might result from the outcome of this
uncertainty.
As
discussed in Note 2 to the consolidated financial statements, in 2006 the
Company adopted Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payments.
/s/ STONEFIELD
JOSEPHSON, INC.
|
|
Irvine,
California
|
|
June
27, 2007
|
|
Somanta
Pharmaceuticals,
Inc.
(Formerly
Hibshman Optical
Corp.)
(A
Development Stage
Company)
Consolidated
Balance
Sheet
April 30,
2007
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
|
$
|
5,385
|
|
Prepaid
expenses
|
|
|
43,308
|
|
Total
current assets
|
|
|
48,693
|
|
Office
equipment
,
net of accumulated depreciation of $6,750
|
|
|
16,560
|
|
Other
assets:
|
|
|
|
|
Restricted
funds
|
|
|
2,000
|
|
Deposits
|
|
|
73
|
|
Total
other assets
|
|
|
2,073
|
|
Total
assets
|
|
$
|
67,326
|
|
Liabilities
and Stockholders’
Deficit
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
774,022
|
|
Due
to related parties
|
|
|
241,874
|
|
Accrued
expenses
|
|
|
811,539
|
|
Accrued
research and development expenses
|
|
|
554,733
|
|
Note
payable
|
|
|
33,462
|
|
Liquidated
damages related to Series A preferred stock and warrants
|
|
|
35,200
|
|
Deferred
revenue
|
|
|
7,143
|
|
Warrant
liabilities
|
|
|
5,786,844
|
|
Total
current liabilities
|
|
|
8,244,817
|
|
Stockholders’
deficit:
|
|
|
|
|
Preferred
stock,$0.001 par value, 20,000,000 shares authorized Series
A Convertible
Preferred Stock, $0.001 par value, 2,000 shares designated,
591.6318
shares issued and outstanding
|
|
|
1
|
|
Common
Stock, $0.001 par value, 100,000,000 shares authorized, 14,292,603
shares
issued and outstanding
|
|
|
14,293
|
|
Additional
paid-in capital
|
|
|
7,604,360
|
|
Deficit
accumulated during the development stage
|
|
|
(15,796,145
|
)
|
Total
stockholders’ deficit
|
|
|
(8,177,491
|
)
|
Total
liabilities and
stockholders’ deficit
|
|
$
|
67,326
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Somanta
Pharmaceuticals, Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
Consolidated
Statements of
Operations
Years
ended April 30, 2007 and
2006 and for the Period from Inception of Operations
(April
19, 2001) to April 30,
2007
|
|
|
|
|
|
From
Inception
of
Operations
(April
19,
2001)
to
April
30,
2007
|
|
|
|
|
|
|
|
|
|
Year
ended April
30,
|
|
|
|
2007
|
|
2006
|
|
Revenue
|
|
$
1,429
|
|
$
1,428
|
|
$
2,857
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
General
and
administrative
|
|
(3,312,660
|
)
|
(2,845,634
|
)
|
(7,337,118
|
)
|
Research
and
development
|
|
|
(1,239,146
|
)
|
|
(1,264,225
|
)
|
|
(3,100,647
|
)
|
Loss
from
operations
|
|
|
(4,550,377
|
)
|
|
(4,108,431
|
)
|
|
(10,434,908
|
)
|
Other
income
(expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
28,084
|
|
|
12,348
|
|
|
40,432
|
|
Interest
expense
|
|
|
(54
|
)
|
|
(1,016,020
|
)
|
|
(1,016,074
|
)
|
Liquidated
damages
|
|
|
(35,200
|
)
|
|
—
|
|
|
(35,200
|
)
|
Change
in fair value of warrant
liabilities
|
|
|
(2,931,118
|
)
|
|
137,543
|
|
|
(2,793,575
|
)
|
Gain
on settlement of
debt
|
|
|
—
|
|
|
5,049
|
|
|
5,049
|
|
Currency
translation
loss
|
|
|
(3,255
|
)
|
|
(30,241
|
)
|
|
(33,496
|
)
|
Loss
before income
taxes
|
|
|
(7,491,920
|
)
|
|
(4,999,752
|
)
|
|
(14,267,772
|
)
|
Income
taxes
|
|
|
(3,717
|
)
|
|
(2,339
|
)
|
|
(6,056
|
)
|
Net
loss
|
|
|
(7,495,637
|
)
|
|
(5,002,091
|
)
|
|
(14,273,828
|
)
|
Deemed
dividends on convertible
preferred stock
|
|
|
—
|
|
|
(1,522,317
|
)
|
|
(1,522,317
|
)
|
Net
loss applicable to common
shareholders
|
|
$
|
(7,495,637
|
)
|
$
|
(6,524,408
|
)
|
$
|
(15,796,145
|
)
|
Net
loss per share—basic and
diluted
|
|
$
|
(0.56
|
)
|
$
|
(0.47
|
)
|
$
|
(1.24
|
)
|
Weighted
average number of
shares outstanding—basic and diluted
|
|
|
14,278,247
|
|
|
14,274,365
|
|
|
13,247,052
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Somanta
Pharmaceuticals, Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
Consolidated
Statement of
Stockholders’ Deficit—(Continued)
For
the Period from Inception of
Operations (April 19, 2001) to April 30, 2006
|
|
Peferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Shares
to be
|
|
Subscription
|
|
Deferred
Equity-
Based
|
|
Accumulated
Other
Comprehensive
Loss-foreign
Currency
|
|
Deficit
Accumulated
During
Development
|
|
Total
Stockholders'
Equity/
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Issued
|
|
Receivable
|
|
Expense
|
|
Translation
|
|
Stage
|
|
(Deficit)
|
|
Balance
at April 19, 2001
(Inception)
|
|
-
|
|
$
-
|
|
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
-
|
|
Shares
issued for cash at $.0326
|
|
|
|
|
|
4,299,860
|
|
4,300
|
|
135,680
|
|
|
|
(97,245)
|
|
|
|
|
|
|
|
42,735
|
|
Shares
issued for services at $.0139
|
|
|
|
|
|
514,674
|
|
515
|
|
11,801
|
|
|
|
|
|
(11,177)
|
|
|
|
|
|
1,139
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
521
|
|
Comprehensive
loss—foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,905
|
|
|
|
29,905
|
|
Net
loss for the period from inception to April 30, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,901
)
|
|
(95,901)
|
|
Balance
at April 30, 2002
|
|
—
|
|
—
|
|
4,814,534
|
|
4,815
|
|
147,481
|
|
—
|
|
(97,245)
|
|
(10,656)
|
|
29,905
|
|
(95,901)
|
|
(21,601)
|
|
Shares
issued for cash at $1.0677
|
|
|
|
|
|
14,601
|
|
15
|
|
15,575
|
|
|
|
|
|
|
|
|
|
|
|
15,590
|
|
Shares
issued for services at $.0214
|
|
|
|
|
|
219,010
|
|
219
|
|
4,472
|
|
|
|
|
|
(3,127)
|
|
|
|
|
|
1,564
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,808
|
|
|
|
|
|
3,808
|
|
Receipt
of cash for subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,517
|
|
|
|
|
|
|
|
91,517
|
|
Comprehensive
loss—foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,534
|
|
|
|
1,534
|
|
Net
loss for the year ended April 30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111,456)
|
|
(111,456)
|
|
Balance
at April 30, 2003
|
|
—
|
|
—
|
|
5,048,145
|
|
5,049
|
|
167,528
|
|
—
|
|
(5,728)
|
|
(9,975)
|
|
31,439
|
|
(207,357)
|
|
(19,044)
|
|
Shares
issued for cash at $1.2479
|
|
|
|
|
|
350,164
|
|
350
|
|
436,637
|
|
|
|
(81,464)
|
|
|
|
|
|
|
|
355,523
|
|
Shares
issued for services at $1.2587
|
|
|
|
|
|
|
|
|
22,233
|
|
|
22
|
|
|
27,962
|
|
|
|
|
|
|
|
|
(25,216
|
)
|
|
|
|
|
|
|
|
2,768
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,691
|
|
|
|
|
|
|
|
|
7,691
|
|
Exchange
for loan payment and compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,371
|
|
|
|
|
|
2,909
|
|
|
|
|
|
|
|
|
|
|
|
184,280
|
|
Comprehensive
loss—foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,651
|
)
|
|
|
|
|
(51,651
|
)
|
Net
loss for the year ended April 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439,453
|
)
|
|
(439,453
|
)
|
Balance
at April 30, 2004
|
|
|
—
|
|
|
—
|
|
|
5,420,542
|
|
|
5,421
|
|
|
813,498
|
|
|
—
|
|
|
(84,283
|
)
|
|
(27,500
|
)
|
|
(20,212
|
)
|
|
(646,810
|
)
|
|
40,114
|
|
Shares
issued for cash at $1.3218
|
|
|
|
|
|
|
|
|
374,073
|
|
|
374
|
|
|
494,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494,443
|
|
Shares
issued for services at $1.2308
|
|
|
|
|
|
|
|
|
21,901
|
|
|
22
|
|
|
26,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,955
|
|
3,650
shares to be issued for service at $1.4973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,465
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,939
|
|
|
|
|
|
|
|
|
26,939
|
|
Receipt
of cash for subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,283
|
|
|
|
|
|
|
|
|
|
|
|
84,283
|
|
Options
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,515
|
|
Comprehensive
loss—foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,719
|
)
|
|
|
|
|
(5,719
|
)
|
Net
loss for the year ended April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,129,290
|
)
|
|
(1,129,290
|
)
|
Balance
at April 30, 2005
|
|
|
—
|
|
|
—
|
|
|
5,816,516
|
|
|
5,817
|
|
|
1,592,015
|
|
|
5,465
|
|
|
—
|
|
|
(561
|
)
|
|
(25,931
|
)
|
|
(1,776,100
|
)
|
|
(199,295
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Somanta
Pharmaceuticals, Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
Consolidated
Statement of
Stockholders’ Deficit—(Continued)
For
the Period from Inception of
Operations (April 19, 2001) to April 30, 2007
|
|
Preferred
|
|
Stock
|
|
Common
|
|
Stock
|
|
Additional
Paid-in
|
|
Shares
to
be
|
|
Subscription
|
|
Deferred
Equity
Based-
|
|
A
ccumulated
other
Comprehensive
Loss-Foreign
Currency
Translation
|
|
Deficit
Accumulated
During
Development
|
|
Total
Stockholders'
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Issued
|
|
Receivable
|
|
Expense
|
|
Adjustments
|
|
Stage
|
|
(Deficit)
|
|
Write
off foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,931
|
|
|
|
25,931
|
|
Shares
issued for cash at $1.5656
|
|
|
|
|
|
12,669
|
|
13
|
|
19,821
|
|
|
|
|
|
|
|
|
|
|
|
19,834
|
|
Shares
issued for prior service
|
|
|
|
|
|
3,650
|
|
3
|
|
5,462
|
|
(5,465
|
)
|
|
|
|
|
|
|
|
|
—
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561
|
|
|
|
|
|
561
|
|
Options
issued for services
|
|
|
|
|
|
|
|
|
|
300,616
|
|
|
|
|
|
|
|
|
|
|
|
300,616
|
|
Recapitalization
with Bridge Oncology
|
|
|
|
|
|
7,865,000
|
|
7,865
|
|
(92,335
|
)
|
|
|
|
|
|
|
|
|
|
|
(84,470
|
)
|
Beneficial
conversion feature associated with convertible debt
financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,721
|
|
Convertible
Series A Preferred Stock issued for cash at $10,000 (net
of issuance costs
of $544,169)
|
|
|
464.0000
|
|
|
0.464
|
|
|
|
|
|
|
|
|
4,095,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,095,830
|
|
Convertible
Series A Stock issued on conversion of notes payable
|
|
|
128.6318
|
|
|
0.1286
|
|
|
|
|
|
|
|
|
1,286,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,286,318
|
|
Deemed
dividend on account of beneficial conversion feature associated
with
issuance of Convertible Series A Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,522,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,522,317
|
)
|
|
—
|
|
Issuance
costs on warrants issued to placement agent in connection
with the
Convertible Series A Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(429,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(429,757
|
)
|
Discount
on warrant issued with Convertible Series A Preferred
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,048,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,048,531
|
)
|
Recapitalization
with Hibshman Optical Corp.
|
|
|
|
|
|
|
|
|
576,700
|
|
|
577
|
|
|
(7,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,131
|
)
|
Warrant
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,689
|
|
Net
loss for the year ended April 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,002,091
|
)
|
|
(5,002,091
|
)
|
Balance
at April 30, 2006
|
|
|
592.6318
|
|
$
|
0.5926
|
|
|
14,274,534
|
|
$
|
14,275
|
|
$
|
6,701,458
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(8,300,508
|
)
|
$
|
(1,584,775
|
)
|
Options
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,000
|
|
Warrant
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,920
|
|
Conversion
of preferred stock
|
|
|
(1.000
|
)
|
|
(.0010
|
)
|
|
18,069
|
|
|
18
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Net
loss for the year ended April 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,495,637
|
)
|
|
(7,495,637
|
)
|
Balance
at April 30, 2007
|
|
|
591.6318
|
|
$
|
0.5916
|
|
|
14,292,603
|
|
$
|
14,293
|
|
$
|
7,604,360
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(15,796,145
|
)
|
$
|
(8,177,492
|
)
|
Somanta
Pharmaceuticals, Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
Consolidated
Statements of Cash
Flows
Years
ended April 30, 2007 and 2006
and for the Period from Inception of Operations
(April
19, 2001) to April 30,
2007
|
|
Year
ended April
30,
|
|
From
Inception
of
operations
(April
19, 2001)
to
|
|
|
|
2007
|
|
2006
|
|
April
30,
2007
|
|
Cash
flows provided by (used
for) operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,495,637
|
)
|
$
|
(5,002,091
|
)
|
$
|
(14,273,828
|
)
|
Adjustments
to reconcile net
loss to net cash provided by (used for) operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,462
|
|
|
1,496
|
|
|
6,994
|
|
Gain
on sale of equipment
|
|
|
(622
|
)
|
|
—
|
|
|
(622
|
)
|
Amortization
of stock based expense
|
|
|
—
|
|
|
561
|
|
|
39,520
|
|
Write
off foreign currency translation adjustment
|
|
|
—
|
|
|
25,931
|
|
|
25,931
|
|
Change
in fair value of warrant liabilities
|
|
|
2,931,118
|
|
|
(137,543
|
)
|
|
2,793,575
|
|
Shares
issued for services and compensation
|
|
|
—
|
|
|
—
|
|
|
219,262
|
|
Gain
on settlement of debts
|
|
|
—
|
|
|
(5,049
|
)
|
|
(5,049
|
)
|
Options
expense
|
|
|
739,000
|
|
|
300,616
|
|
|
1,297,131
|
|
Warrant
expense
|
|
|
163,920
|
|
|
92,689
|
|
|
256,609
|
|
Interest
expense related to beneficial conversion feature on
convertible
note
|
|
|
—
|
|
|
364,721
|
|
|
364,721
|
|
Interest
expense related to warrants issued on convertible note
|
|
|
—
|
|
|
514,981
|
|
|
514,981
|
|
Changes
in assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in
assets—
|
|
|
|
|
|
|
|
|
|
|
VAT
receivable
|
|
|
1,628
|
|
|
61,952
|
|
|
3,444
|
|
Restricted
funds
|
|
|
150,048
|
|
|
(152,048
|
)
|
|
(2,000
|
)
|
Prepaid
expenses
|
|
|
47,767
|
|
|
(82,166
|
)
|
|
(43,037
|
)
|
Deposits
|
|
|
2,627
|
|
|
(2,700
|
)
|
|
(73
|
)
|
Increase
(decrease) in
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
516,222
|
|
|
199,086
|
|
|
776,723
|
|
Accrued
liabilities
|
|
|
1,052,994
|
|
|
137,846
|
|
|
1,354,412
|
|
Liquidated
damages
|
|
|
35,200
|
|
|
—
|
|
|
35,200
|
|
Deferred
revenue
|
|
|
(1,429
|
)
|
|
8,572
|
|
|
7,143
|
|
Due
to officer and related party
|
|
|
233,874
|
|
|
(186,263
|
)
|
|
95,980
|
|
Net
cash used for operating activities
|
|
|
(1,617,828
|
)
|
|
(3,859,409
|
)
|
|
(6,532,983
|
)
|
Cash
flows used for investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
—
|
|
|
(21,391
|
)
|
|
(24,824
|
)
|
Sale
of equipment
|
|
|
2,000
|
|
|
—
|
|
|
2,000
|
|
Net
cash used for investing activities
|
|
|
2,000
|
|
|
(21,391
|
)
|
|
(22,824
|
)
|
Cash
flows provided by
financing activities:
|
|
|
|
|
|
|
|
|
|
|
Loan
payable—related party
|
|
|
—
|
|
|
—
|
|
|
79,402
|
|
Loan
payment—related party
|
|
|
—
|
|
|
—
|
|
|
(7,367
|
)
|
Proceeds
from convertible note-related party
|
|
|
—
|
|
|
1,250,000
|
|
|
1,250,000
|
|
Proceeds
from note payable - related party
|
|
|
33,462
|
|
|
—
|
|
|
33,462
|
|
Proceeds
from issuance of common stock
|
|
|
—
|
|
|
19,834
|
|
|
928,125
|
|
Proceeds
from issuance of preferred stock
|
|
|
—
|
|
|
4,095,831
|
|
|
4,095,831
|
|
Cash
received for subscription receivable
|
|
|
—
|
|
|
—
|
|
|
175,801
|
|
Net
cash provided by financing activities
|
|
|
33,462
|
|
|
5,365,665
|
|
|
6,555,254
|
|
Effect
of exchange rate changes
on cash
|
|
|
—
|
|
|
—
|
|
|
5,938
|
|
Increase
(decrease) in
cash
|
|
|
(1,582,366
|
)
|
|
1,484,865
|
|
|
5,385
|
|
Cash
,
beginning of year
|
|
|
1,587,750
|
|
|
102,885
|
|
|
—
|
|
Cash
,
end of year
|
|
$
|
5,385
|
|
$
|
1,587,750
|
|
$
|
5,385
|
|
Supplemental
disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
54
|
|
$
|
1,016,020
|
|
$
|
1,016,074
|
|
Income
tax paid
|
|
$
|
3,717
|
|
$
|
2,339
|
|
$
|
6,056
|
|
Supplemental
disclosure of
non-cash operating and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Loan
reduction with shares
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,909
|
|
Issuance
of warrants in conjunction with convertible preferred
stock
|
|
$
|
—
|
|
$
|
2,341,785
|
|
$
|
2,341,785
|
|
Deemed
dividends related to convertible preferred stock
|
|
$
|
—
|
|
$
|
1,522,317
|
|
$
|
1,522,317
|
|
Conversion
of note and accrued interest
|
|
$
|
—
|
|
$
|
1,286,318
|
|
$
|
1,286,318
|
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
Somanta
Pharmaceuticals,
Inc.
(Formerly
Hibshman Optical
Corp.)
(A
Development Stage
Company)
Notes
to Consolidated Financial
Statements
1.
ORGANIZATION,
BASIS OF PRESENTATION
AND NATURE OF OPERATIONS
Organization
Somanta
Pharmaceuticals, Inc. is a Delaware corporation that was formed
for the purpose
of effecting the reincorporation of Hibshman Optical Corp., a New
Jersey
corporation, into the State of Delaware and for the purpose of
consummating a
business combination via a reverse merger of Somanta Incorporated
and Hibshman
Optical Corp. Pursuant to this reverse merger, Somanta Incorporated became
the wholly-owned subsidiary of Somanta Pharmaceuticals, Inc. and
the sole
operating subsidiary of Somanta Pharmaceuticals, Inc. For financial
reporting purposes, this transaction has been reflected in the
accompanying
financial statements as a recapitalization of Somanta Incorporated
and the
financial statements of Somanta Pharmaceuticals, Inc. reflect the
historical
financial information of Somanta Incorporated. References herein to the
“Company” or “Somanta” are intended to refer to each of Somanta Pharmaceuticals,
Inc. and its wholly owned subsidiary Somanta Incorporated, as well
as Somanta
Incorporated’s wholly-owned subsidiary Somanta Limited.
Hibshman
Optical Corp. was originally incorporated in the State of New Jersey
in 1991
under the name PRS Sub I, Inc. The name was subsequently changed to Service
Lube, Inc., then to Fianza Commercial Corp. and then to Hibshman
Optical
Corp. The business plan since that time had been to seek to enter into
a
business combination with an entity that had ongoing operations
through a
reverse merger or other similar type of transaction.
Somanta
Incorporated was incorporated as Somantis Limited under the laws
of England and
Wales on April 19, 2001. Somantis Limited changed its name to Somanta
Limited on March 14, 2005, and performed business as a United Kingdom
entity through the fiscal year ending April 30, 2005. On
August 22, 2005, Somanta Limited became a wholly owned subsidiary of Bridge
Oncology Products, Inc. (“BOPI”), a privately held Delaware corporation,
pursuant to a share exchange with BOPI.; however, Somanta Limited
was deemed the
accounting acquirer in this share exchange transaction. On August 24,
2005, the name of BOPI was changed to Somanta Incorporated.
Somanta
Pharmaceuticals, Inc. is a development stage biopharmaceutical
company engaged
in the development of products for the treatment of cancer. The
Company has
in-licensed five product development candidates from academic and
research
institutions in the United States and Europe designed for use in
anti-cancer
therapy in order to advance them along the regulatory and clinical
pathways
toward commercial approval. The Company intends to obtain approval
from the
United States Food and Drug Administration (“FDA”) and from the European
Medicines Evaluation Agency (“EMEA”) for the products.
Somanta
is a development stage enterprise since the Company has not generated
revenue
from the sale of its products, and its efforts have been principally
devoted to
identification, licensing and clinical development of its products
as well as
raising capital through April 30, 2007. Accordingly, the financial
statements have been prepared in accordance with the provisions
of Statement of
Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by
Development Stage Enterprises.”
Basis
of
Presentation
The
preparation of financial statements in conformity with generally
accepted
accounting principles requires management to make estimates and
assumptions that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. In the
opinion of management, all adjustments (consisting solely of normal
recurring
adjustments) considered necessary for a fair presentation have
been
included.
Going
Concern
The
Company reported a net loss and net loss applicable to common shareholders
of
$7,495,637 for the year ended April 30, 2007. The net loss from date of
inception, April 19, 2001 to April 30, 2007, totaled $14,273,828 (net
loss applicable to common shareholders of $15,796,145). The Company’s operating
activities have used cash since its inception. These losses raise
substantial
doubt about the Company’s ability to continue as a going concern.
On
April
18, 2007, the Company, Somanta Incorporated, a wholly-owned
subsidiary of the
Company and Somanta Limited, a wholly-owned subsidiary
of Somanta Incorporated,
and Access Pharmaceuticals, Inc. (“Access”) and Somanta Acquisition Corporation
(“Merger Sub”), a wholly-owned subsidiary of Access and a Delaware
corporation,
entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant
to the terms and subject to the conditions set forth
in the Merger Agreement,
Merger Sub will merge with and into Somanta, with Somanta
continuing as the
surviving corporation and becoming a wholly-owned subsidiary
of Access (the
“Merger”). The Board of Directors of Somanta has approved the
Merger and the
Merger Agreement.
In
connection with the Merger, all of Somanta’s common stock that is outstanding at
the effective time of the Merger (the “Effective Time”) will be converted into
500,000 shares of Access common stock. No fractional
shares of Access common
stock will be issued as a result of the Merger. In addition,
all of Somanta’s
preferred stock, included accrued and unpaid dividends,
that is outstanding at
the Effective Time of the Merger will be converted into
1,000,000 shares of
Access’ common stock. No shares of Access preferred stock will
be issued as a
result of the Merger.
On
April
26, 2007, the Company entered into a Note Purchase Agreement,
a Security
Agreement, a Patent Collateral Assignment and Security
Agreement and a Trademark
Collateral Security and Pledge Agreement (collectively,
the “Loan Documents”)
with Access Pharmaceuticals, Inc. as more fully described
in Note 15. Under the
terms of the Loan Documents, Access initially loaned
the Company $33,462.
Access, in its sole discretion, may from time to time
advance additional loan
amounts to the Company. All amounts loaned to the Company
by Access are secured
by substantially all of the assets of the Company pursuant
to the terms of the
Loan Documents. The Note bears interest at 10% and is
repayable at the earlier
of: (i) August 31, 2007, or (ii) the date of the termination
of the Agreement
and Plan of Merger dated as of August 18, 2007 between
the Company and
Access.
If
the
merger fails to close, the Company expects that it will
no longer be able to
operate its business and will not have the resources
to repay the
loan.
The
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 possible inability of
the Company to continue as a going concern.
Reclassifications
For
comparative purposes, prior periods’ consolidated financial statements have been
reclassified to conform with report classifications of
the current
period.
2.
Significant
Accounting
Policies
Cash
and Cash
Equivalents
The
Company considers all highly liquid financial instruments
with a maturity of
three months or less when purchased to be cash equivalents.
At April 30,
2007, there were no cash equivalents.
Office
Equipment
Office
equipment is recorded at cost, net of accumulated depreciation.
Depreciation on
equipment is calculated using the straight-line method
over the estimated useful
lives of the assets, five years. The Company recorded
depreciation expense for
the years ended April 30, 2007 and 2006 of $5,462 and $1,496,
respectively.
Intangible
Assets—Patents and
Licenses
All
patent and license costs are charged to expense when
incurred.
Revenue
Recognition
The
Company recognizes revenue from licensing its proprietary
technology in
accordance with SEC staff Accounting Bulletin No. 104 (“SAB 104”). SAB 104
requires revenue to be recognized when all of the following
criteria are met:
persuasive evidence of an arrangement exists, delivery
has occurred or services
have been rendered, the price is fixed or determined,
and collection is
reasonably assured. Licensing fees, including upfront
payments upon execution of
a new agreement, are recognized ratably over the license
term of such
agreement.
Research
and
Development
All
research and development costs consist of expenditures
for royalty payments,
licensing fees, contracted research by third parties
and the fees and expense of
consultants to manage the research and development
efforts.
Stock
Based
Compensation
On
December 16, 2004, the FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment” (SFAS 123R). SFAS 123R eliminates the alternative
of
applying the intrinsic value measurement provisions
of APB 25 to stock
compensation awards issued to employees. Rather,
the new standard requires
enterprises to measure the cost of employee services
received in exchange for an
award of equity instruments based on the grant-date
fair value of the award.
That cost will be recognized over the period during
which an employee is
required to provide services in exchange for the
award, known as the requisite
service period (usually the vesting period). On April 14, 2005, the
Securities and Exchange Commission announced the
adoption of a rule that defers
the required effective date of SFAS 123R. The SEC
rule provides that SFAS 123R
is now effective for registrants as of the beginning
of the first fiscal year
beginning after June 15, 2005.
Effective May 1,
2006, the Company adopted SFAS 123R and accordingly has adopted the
modified prospective application method. Under this
method, SFAS 123R is applied
to new awards and to awards modified, repurchased,
or cancelled after the
effective date. Additionally, compensation cost for
the portion of awards that
are outstanding as of the date of adoption for which
the requisite service has
not been rendered (such as unvested options) is recognized
over a period of time
as the remaining requisite services are rendered.
The amounts recorded as
expense in the years ended April 30, 2007 and 2006
was $739,000 and $300,615,
respectively. As of April 30, 2007, there were 3,483,163 options
outstanding.
Prior
to May 1, 2006, the Company accounted for its employee stock option
plan in accordance with the provisions of SFAS No. 123, “
Accounting
for Stock-Based
Compensation,
”
and
SFAS No. 148, “
Accounting
for Stock-Based
Compensation - Transition and Disclosure
.”
Translation
of Foreign Currency in
Financial Statements
From
inception through the fiscal year ended April 30, 2005, the functional
currency of the Company was the United Kingdom pound
and its reporting currency
was United States dollar.
Assets
and liabilities of foreign operations where the functional
currency is other
than the U.S. dollar are translated at fiscal year-end
rates of exchange, and
the related revenue and expense amounts are translated
at the weighted average
rates of exchange during the fiscal year. Translation
adjustments arising from
differences in exchange rates from these transactions
are reported as
accumulated other comprehensive loss—foreign currency translation adjustment in
the statement of stockholders’ deficit. The currency exchange rate as of
April 30, 2005 was $1.9122.
On
August 22, 2005, the Company, then known as Somanta Limited,
took part in a
share exchange with Bridge Oncology Products, Inc.,
a Delaware company, and
became a subsidiary of Bridge Oncology Products,
Inc. (Note 10). As a
result of this transaction, Somanta Limited became
a wholly owned subsidiary of
a U.S. entity and accordingly changed its functional
currency to the U.S. dollar
as of the fiscal year beginning May 1, 2005.
Use
of Estimates
The
preparation of financial statements in conformity
with accounting principles
generally accepted in the United States of America
requires management to make
estimates and assumptions that affect the reported
amounts of assets and
liabilities at the date of the consolidated financial
statements and the
reported amounts of revenues and expenses during
the reporting period. Actual
results could differ from those estimates.
Income
Taxes
Deferred
taxes are provided for on a liability method for
temporary differences between
the financial reporting and tax basis of assets and
liabilities that will result
in taxable or deductible amounts in the future. Deferred
tax assets are reduced
by a valuation allowance when, in the opinion of
management, it is more likely
than not that some portion or all of the deferred
tax assets will be
realized.
Income
taxes are calculated in accordance with the tax laws
of the United States for
the years ended April 30, 2007 and April 30, 2006. Since the Company
had net losses for the years ended April 30, 2007 and 2006, provisions for
income taxes in the financial statements include only
state minimum taxes for
the year ended April 30, 2007.
Segment
Reporting
The
Company has adopted SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information.” Since the Company operates in one business
segment dedicated to development of therapeutic candidates
for the treatment of
cancers, segment disclosure has not been presented.
Fair
Value of Financial
Instruments
Statement
of Financial Accounting Standard No. 107, Disclosures about Fair Value of
Financial Instruments, requires that the company disclose
estimated fair values
of financial instruments. The carrying amounts reported
in the balance sheets
for current assets and current liabilities qualifying
as financial instruments
are a reasonable estimate of fair value.
Basic
and diluted net loss per
share
Net
loss
per share is calculated in accordance with the Statement
of Financial Accounting
Standards No. 128 (SFAS No. 128), Basic net loss per share is based
upon the weighted average number of common shares outstanding.
Diluted net loss
per share is based on the assumption that all potential
dilutive convertible
shares and stock options or warrants were converted
or exercised. The
calculation of diluted net loss per share excludes
potential common stock
equivalents if the effect is anti-dilutive. The Company’s weighted common shares
outstanding for basic and dilutive were the same since
the effect of common
stock equivalents was anti-dilutive.
The
Company has the following dilutive convertible shares,
stock options and
warrants as of April 30, 2007 and 2006 which were excluded from the
calculation since the effect is anti-dilutive.
|
2007
|
2006
|
Convertible
preferred stock
|
9,859,125
|
9,877,194
|
Stock
options
|
3,483,163
|
3,825,249
|
Warrants
|
7,102,838
|
6,952,838
|
Total
|
20,445,126
|
20,655,281
|
The
Company’s undeclared dividend on it’s Preferred Stock amounting to $115,604 was
included in the computation of net loss per share in
accordance with SFAS
No. 129 for the year ended April 30, 2006.
The
Company’s undeclared dividends on its Preferred Stock amounting
to $474,104 for
the year ended April 30, 2007 was included in the computation
of net loss per
share in accordance with SFAS No. 129.
Aggregate
undeclared dividends on Preferred Stock amounting to
$589,708 are included in
the computation of net loss per share for the period
from inception (April 19,
2001) to April 30, 2007.
Recent
Accounting
Pronouncements
In
February 2006, the FASB issued SFAS 155 “
Accounting
for Certain Hybrid
Financial
Instruments
,”
an
amendment of FASB Statements No. 133 and in February 2006, the FASB issued
SFAS 155, “Accounting for Certain Hybrid Financial Instruments,” an amendment of
FASB Statements No. 133 and 140. This Statement amends FASB Statements
No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
and No. 140, “Accounting for Transfers and Servicing of Financial
Assets
and Extinguishments of Liabilities”. This Statement resolves issues addressed in
Statement 133 Implementation Issue No. D1, Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets.
This
Statement:
|
a.
|
Permits
fair value remeasurement for any hybrid financial
instrument that contains
an embedded derivative that otherwise would
require
bifurcation;
|
|
|
|
|
b.
|
Clarifies
which interest-only strips and principal-only
strips are not subject to
the requirements of Statement
133;
|
|
c.
|
Establishes
a requirement to evaluate interests in
securitized financial assets to
identify interests that are freestanding
derivatives or that are hybrid
financial instruments that contain an embedded
derivative requiring
bifurcation;
|
|
|
|
|
d.
|
Clarifies
that concentrations of credit risk in the
form of subordination are not
embedded derivatives; and
|
|
|
|
|
e.
|
Amends
Statement 140 to eliminate the prohibition
on a qualifying special-purpose
entity from holding a derivative financial
instrument that pertains to a
beneficial interest other than another
derivative financial
instrument.
|
This
Statement is effective for all financial instruments
acquired or issued after
the beginning of an entity’s first fiscal year that begins after
September 15, 2006. The fair value election provided for in
paragraph 4(c)
of this Statement may also be applied upon adoption
of this Statement for hybrid
financial instruments that had been bifurcated under
paragraph 12 of Statement
133 prior to the adoption of this Statement. Earlier
adoption is permitted as of
the beginning of an entity’s fiscal year, provided the entity has not yet issued
financial statements, including financial statements
for any interim period for
that fiscal year. Provisions of this Statement may
be applied to instruments
that an entity holds at the date of adoption on an
instrument-by-instrument
basis. The Company is currently evaluating the impact
of SFAS
155.
In
March
2006, the FASB issued SFAS No. 156 (“FAS 156”), “
Accounting
for Servicing
of
Financial
Assets-An Amendment of
FASB Statement No. 140
.”
Among
other requirements, FAS 156 requires a company to
recognize a servicing asset or
servicing liability when it undertakes an obligation
to service a financial
asset by entering into a servicing contract under
certain situations. Under FAS
156 an election can also be made for subsequent fair
value measurement of
servicing assets and servicing liabilities by class,
thus simplifying the
accounting and providing for income statement recognition
of potential
offsetting changes in the fair value of servicing
assets, servicing liabilities
and related derivative instruments. The Statement
will be effective beginning
the first fiscal year that begins after September 15, 2006. The Company
does not expect the adoption of FAS 156 will have
a material impact on the
financial position or results of operations.
In
June
2006, the FASB issued FASB Interpretation (FIN) No. 48, “
Accounting
for Uncertainty
in
I
ncome
Taxes
”
that
provides guidance on the accounting for uncertainty
in income taxes recognized
in financial statements. The interpretation will
be adopted by us on May 1,
2007. We are currently evaluating the impact of adopting
FIN 48; however, we do
not expect the adoption of this provision to have
a material effect on our
financial position, results of operations or cash
flows.
In
July
2006, the FASB issued FASB Staff Position (FSP) No.
FAS 13-2, “
Accounting
for a Change or Projected
Change in the Timing of Cash Flows Relating to Income
Taxes Generated by a
Leveraged
Lease
Transaction
,”
that
provides guidance on how a change or a potential
change in the timing of cash
flows relating to income taxes generated by a leveraged
lease transaction
affects the accounting by a lessor for the lease.
This staff position will be
adopted by us on May 1, 2007. The Company is currently evaluating the
impact of adopting this FSP; however, the Company
does not expect the adoption
of this provision to have a material effect on the
financial position, results
of operations or cash flows.
In
September 2006, the FASB issued Statement No. 157, “
Fair
Value
Measurements
”
(SFAS
157). This Statement defines fair value, establishes
a framework for measuring
fair value in generally accepted accounting principles
(GAAP), and expands
disclosures about fair value measurements. This Statement
applies under other
accounting pronouncements that require or permit
fair value measurements, the
Board having previously concluded in those accounting
pronouncements that fair
value is the relevant measurement attribute. Accordingly,
this Statement does
not require any new fair value measurements. However,
for some entities, the
application of this Statement will change current
practice. This Statement is
effective for financial statements issued for fiscal
years beginning after
November 15, 2007, and interim periods within those fiscal
years. The
Company does not expect the adoption of SFAS No. 157 to have a material
impact on the consolidated financial statements.
In
September 2006, the FASB issued Statement No. 158, “
Employers’
Accounting
for Defined
Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements
No. 87, 88, 106, and 132(R)
”
(SFAS
158). This Statement improves financial reporting
by requiring an employer to
recognize the over funded or under funded status
of a defined benefit
postretirement plan (other than a multiemployer plan)
as an asset or liability
in its statement of financial position and to recognize
changes in that funded
status in the year in which the changes occur through
comprehensive income of a
business entity or changes in unrestricted net assets
of a not-for-profit
organization. This Statement also improves financial
reporting by requiring an
employer to measure the funded status of a plan as
of the date of its year-end
statement of financial position, with limited exceptions.
This Statement is
effective as of the end of the fiscal year ending
after December 15, 2006.
The Company does not have any defined benefit plans,
or other post-retirement
plans. Therefore, the Company does not expect SFAS
No. 158 to have any
impact on the consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159,
“The
Fair Value Option for Financial
Assets and Financial Liabilities”.
The
objective of this statement is to improve financial
reporting by providing
entities with the opportunity to mitigate volatility
in reported earnings caused
by measuring related assets and liabilities differently
without having to apply
complex hedge accounting provisions. This Statement
is expected by the Board to
expand the use of fair value measurement, consistent
with the Board’s long-term
measurement objectives for accounting for financial
instruments. This statement
is effective for fiscal years beginning after November
15, 2007. The Company is
currently evaluating the impact of adopting this
statement; however, the Company
does not expect the adoption of this provision
to have a material effect on its
financial position, results of operations or cash
flow.
3.
ACCRUED
EXPENSES
Accrued
expenses consist of the following at April 30, 2007:
Payroll
& vacation
|
|
$
|
472,014
|
|
Accounting
& legal
|
|
|
326,325
|
|
Consultant
|
|
|
13,200
|
|
|
|
$
|
811,539
|
|
4.
WARRANT
LIABILITIES
The
Company issued 6,792,852 warrants in conjunction
with convertible note (Note 10)
and private placement (Note 11). These warrants
have registration rights for the
underlying shares. EITF 00-19 provides that contracts
that include any provision
that could require net-cash settlement cannot be
accounted for as equity of the
Company. The warrant agreements require net cash
settlement, at the option of
the holders, in the event the Company fails to
issue and deliver common stock on
exercise of the warrants within three business
days of receipt of a written
exercise notice by a holder. Pursuant to EITF 00-19,
the fair value of the
warrants revalued at April 30, 2007 was recorded as a warrant liability
amounting $5,786,844. The change in fair value
of warrant liabilities from April
30, 2006 to April 30, 2007 in the amount of $2,931,118
was recorded as other
expense in the consolidated statements of operations
for the year ended April
30, 2007. The change in fair value from the issuance
date to April 30, 2006 in
the amount of $137,543 was recorded as other income
in the consolidated
statements of operations for the year ended April
30, 2006.
In
the
year ended April 30, 2007, the Company issued warrants
to non-employees to
purchase up to 150,000 common shares over a period
of six years at a price of
$.01. The Company recorded $163,920 to permanent
equity as, pursuant to EITF
00-19, no criteria were met requiring liability
classification.
5.
RELATED
PARTY
TRANSACTIONS
Fees
Paid to Related
Parties
Pursuant
to a financial advisory agreement dated March 2005
between Bridge Oncology and
SCO Financial Group LLC (SCO), which the Company
has assumed, the Company
compensates SCO with a monthly fee of $12,500 and
an annual grant of warrants
(Note 4) to purchase 150,000 shares of Company
common stock at an exercise price
of $.01 for the term of the agreement for financial
advisory services.
The
Company recorded advisory service fees totaling
$150,000 and $112,500 to SCO for
the years ended April 30, 2007 and 2006, respectively.
The Company recorded
non-cash advisory service fees to SCO related to
the warrant grants totaling
$163,920 (Note 4) and $88,734 for the years ended
April 30, 2007 and 2006,
respectively.
The
Company recorded board of director fees of $76,000
and $38,187 for the years
ended April 30, 2007 and 2006, respectively.
Agreement
with Related
Party
Virium
Pharmaceuticals,
Inc.
The
Company entered into an exclusive co-development
and sublicense agreement in
February 2005 with a related entity, Virium Pharmaceuticals,
Inc. These two
entities share a common director and their largest
single shareholder, SCO
Capital Partners LLC. On May 19, 2005, the Company paid $50,000 to this
related party to in-license phenylbutyrate and
expensed this
amount.
6.
LEASES
The
lease
on the Company’s London office space of approximately 500 sq.
ft. for its United
Kingdom operations is an operating lease which
expired on May 16, 2007.
Lease expense for the years ended April 30, 2007 and 2006 were $22,370 and
$26,724, respectively.
7.
INCOME
TAXES
The
significant components of the Company’s income tax provision (benefit) at
April 30, 2007 and April 30, 2006 are as follows:
|
|
April
30,
2007
|
|
April
30,
2006
|
|
Current
Taxes:
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
$
|
—
|
|
State
|
|
|
3,717
|
|
|
2,339
|
|
Foreign
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
3,717
|
|
$
|
2,339
|
|
Deferred
Taxes:
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
—
|
|
State
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
—
|
|
|
—
|
|
The
principal components of the Company’s deferred tax assets at April 30, 2007
and April 30, 2006 are as follows:
|
|
|
April
30,
2007
|
|
|
April
30,
2006
|
|
US
Net Operating Loss Carryforwards
at statutory rate
|
|
$
|
2,602,000
|
|
$
|
1,107,000
|
|
UK
Net Operating Loss Carryforwards
at statutory rate
|
|
|
703,000
|
|
|
703,000
|
|
Total
|
|
|
3,305,000
|
|
|
1,810,000
|
|
Less
Valuation Allowance
|
|
|
(3,305,000
|
)
|
|
(1,810,000
|
)
|
Net
Deferred Tax assets
|
|
$
|
—
|
|
$
|
—
|
|
A
reconciliation of the provision (benefit) for income
taxes to the amount
computed by applying the statutory income tax rate
to the loss before income
taxes is as follows:
|
|
|
April
30,
2007
|
|
|
April
30,
2006
|
|
Income
tax (benefit) expense at statutory
rate
|
|
$
|
(2,549,000
|
)
|
|
(1,701,000
|
)
|
Non
Deductible Expenses at statutory rate
|
|
|
1,050,000
|
|
|
335,000
|
|
Change
in valuation allowance at statutory
rate
|
|
|
1,495,000
|
|
|
1,348,000
|
|
|
|
$
|
-
|
|
$
|
|
|
The
Company has established a valuation allowance against
its deferred tax asset,
due to the uncertainty of the realization of the
asset. Management periodically
evaluates the recoverability of the deferred tax
asset. At such time as it is
determined that it is more likely than not that
deferred tax assets are
realizable, the valuation allowance will be reduced.
At
April 30, 2007 and 2006, the Company had US net operating
loss
carryforwards of approximately $7,652,000 and $3,256,000
respectively, which may
be available to offset future taxable income for
tax purposes. These net
operating loss carryforwards expire through 2026.
At April 30, 2007 and
2006, the Company also had UK net operating loss
carryforwards of approximately
$2,696,000.
The
Internal Revenue Code limits the availability of
net operating losses that arose
prior to certain cumulative changes in a corporation’s ownership resulting in a
change of control of the Company. The Company’s use of $167,000 of its prior net
operating loss carryforwards will be significantly
limited, because the Company
underwent “ownership changes” during the fiscal year ended April 30, 2006.
Further, the use of UK net operating loss carryforwards
may be
limited.
8.
STOCKHOLDERS’
TRANSACTIONS
Common
Stock
From
inception through April 30, 2003, the Company financed its operations
through the sale of 4,314,461 shares of common
stock to individual investors at
prices in United Kingdom Pounds translated into
US Dollars ranging from
approximately $0.03, to $1.10, for a total of $155,570.
Of this total, $5,728
remained unpaid at the end April 30, 2003 and was recorded as subscription
receivable. In addition, 733,684 shares were issued
at $0.03 for the services of
consultants, for a total of $17,007. Of this total, $9,975 was recorded to
deferred equity-based expense, because some services
were performed in the
subsequent years. The services were accounted for at the fair value
of the
common stock issued, measured at the dates the
commitments for service were
reached with the contractors. The fair value of these shares was determined
as equal to the value at which shares were being
sold to unaffiliated investors
at the times of the commitments for service.
For
the
year ending April 30, 2004, the Company completed additional sales
of
350,164 shares of common stock at approximately
$1.23 for a total of $436,987.
At the end of April 30, 2004, the amount remaining unpaid for all prior
equity sales was $84,283 and was recorded as subscription
receivable. The
Company issued 22,233 shares of common stock at
approximately $1.23 for the
services of a consultant, for a total of $27,985. Of this total, $25,216
was recorded as deferred equity-based expense.
During the year ended
April 30, 2004, 146,007 issued shares were purchased
by the President and
Chief Executive Officer of the Company from an
individual who had not paid for
the shares. The fair value of these shares was determined as
equal to the
value at which shares were being sold to all other
unaffiliated investors at the
time of this share purchase. The Company recorded
the difference between the
purchase price and the fair value of the shares
as compensation expense
amounting to $181,371.
For
the
year ending April 30, 2005, the Company sold 374,074 shares to individual
investors at approximately $1.33, for a total of
$494,443. In this period,
21,901 shares of common stock were issued at approximately
$1.23 per share for
the services of a consultant, for a total of $26,955.
During
the year ended April 30, 2006, the Company sold 12,669 shares to an
individual investor at approximately $1.57, for
a total of $19,834. In this
period, 3,650 shares of common stock were issued
at approximately $1.50 in
satisfaction of the shares to be issued at April 30, 2005 for a balance of
$5,465.
Stock-Based
Compensation
The
Board
of Directors adopted and the stockholders approved
the 2005 Equity Incentive
Plan in June 2005. The plan was adopted to recognize the contributions
made
by the Company’s employees, officers, consultants, and directors,
to provide
those individuals with additional incentive to
devote themselves to its future
success, and to improve the Company’s ability to attract, retain and motivate
individuals upon whom the Company’s growth and financial success
depends. Under the plan, stock options may be granted as
approved by the
Board of Directors or the Compensation Committee. There are 8,000,000
shares reserved for grants of options under the
plan, of which 2,204,701 have
been issued as substitutions with the exact same
terms for the 2,204,701
previously issued options outstanding as of April 30, 2005. Stock options
vest pursuant to individual stock option agreements. No options granted
under the plan are exercisable after the expiration
of ten years (or less in the
discretion of the Board of Directors or the Compensation
Committee) from the
date of the grant. The plan will continue in effect until terminated
or
amended by the Board of Directors or until expiration
of the plan on
August 31, 2015.
On
April
13, 2007, the Company’s Board of Directors approved a merger agreement
with
Access Pharmaceuticals, Inc, as more fully described
in Note 15. Under the terms
of that agreement Access will not assume, or provide
a substitute option, for
any of the Company’s stock options. Rather, all of the outstanding options
to purchase Company common stock issued pursuant
to the Company’s 2005 Equity
Incentive Plan will be cancelled prior to the closing
of the transaction in
accordance with Section 11.3(d) of the Equity Incentive
Plan. As a result,
pursuant to the terms of Section 11.3(d) of the
Equity Incentive Plan, the
Company’s Board of Directors has resolved to: (i) allow
the immediate and
accelerated vesting of all of the options granted,
and (ii) allowed the exercise
of the option in whole or in part until May 31,
2007. Based on FAS 123(R), no
incremental expense was recorded for these options
with accelerated vesting as
the fair value of the modified options was less
than the fair value of the
original options calculated immediately before
the terms were modified. None of
the options were exercised thru May 31, 2007. Additional
expenses of $507,284
was due to the acceleration of the vesting.
FAS
123(R) requires the use of a valuation model to
calculate the fair value of each
stock-based award. Since May 1, 2003, the Company has used the
Black-Scholes model to estimate the fair value
of stock options granted. For the
valuation of stock-based awards granted in the
years ended April 30, 2007 and
2006, respectively, the Company used the following
significant
assumptions:
Compensation
Amortization
Period
.
All
stock-based compensation is amortized over the
requisite service period of the
options, which is generally the same as the vesting
period of the options. For
all stock options, the Company amortizes the
fair value on a straight-line basis
over the service periods.
Expected
Term or
Life
.
The
expected term or life of stock options granted
or stock purchase rights issued
represents the expected weighted average period
of time from the date of grant
to the estimated date that the stock option would
be fully exercised. To
calculate the expected term, the Company used
the total of one-half of the
option term and one-half of the vesting periods.
Expected
Volatility
.
Expected volatility is a measure of the amount
by which the Company’s stock
price is expected to fluctuate. The Company’s stock is currently traded on the
over-the -counter bulletin board under the trading
symbol “SMPM”. The Company
estimated the expected volatility of the stock
options at grant date using the
daily stock price of three comparable companies
over a recent historical period
equal to the Company’s expected term.
Risk-Free
Interest Rate.
The
risk-free interest rate used in determining the
fair value of our stock-based
awards is based on the implied yield on U.S.
Treasury zero-coupon issues with
remaining terms equivalent to the expected term
of our stock-based
awards.
Expected
Dividends.
The
Company has never paid any cash dividends on
common stock and does not
anticipate paying any cash dividends in the foreseeable
future. Consequently,
the Company used an expected dividend yield of
zero in valuation
models.
Expected
Forfeitures.
As
stock-based compensation expense recognized in
the consolidated statements of
operations for year ended April 30, 2007 is based
on awards that are ultimately
expected to vest, it should be reduced for estimated
forfeitures.
FAS 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. Pre-vesting forfeitures were
estimated to be 0% for stock
options granted for the year ended April 30,
2007 based upon historical
forfeitures.
Summary
of Significant Assumptions
of the Valuation of Stock-Based Awards.
The
weighted-average estimated fair value of stock
options granted during the year
ended April 30, 2007 and 2006 was $0.43 and $0.42
per share, respectively. The
fair value for these stock options was estimated
at the date of grant with the
following weighted-average assumptions for the
years ended April 30, 2007 and
April 30, 2006, respectively:
|
Year
ended
April
30,
|
|
2007
|
2006
|
Expected
volatility
|
80.17
to 81.38%
|
101.80%
|
Weighted-average
volatility
|
80.41%
|
101.80%
|
Expected
dividend yield
|
0%
|
0%
|
Expected
term in years
|
6.0
|
6.0
to 7.0
|
Risk-free
interest rate
|
4.8%
to 5.1%
|
4.1%
to 4.6%
|
During
the years ended April 30, 2007 and 2006, the
Company recognized compensation
costs related to stock options of $739,000 and
$300,615,
respectively.
The
following table summarizes activity for stock
options issued to employees,
consultants and directors for the years ended
April 30, 2007 and
2006:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at April 30, 2005
|
|
|
2,204,701
|
|
$
|
1.23
|
|
|
7.6
|
|
$
|
44,094
|
|
Granted
|
|
|
1,781,170
|
|
|
0.60
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(160,622
|
)
|
|
1.23
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at April 30, 2006
|
|
|
3,825,249
|
|
|
0.94
|
|
|
7.9
|
|
$
|
65,696
|
|
Granted
|
|
|
122,500
|
|
|
0.60
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(339,417
|
)
|
|
0.60
|
|
|
|
|
|
|
|
Expired
|
|
|
(125,169
|
)
|
|
1.15
|
|
|
|
|
|
|
|
Outstanding
at April 30, 2007
|
|
|
3,483,163
|
|
$
|
0.95
|
|
|
0.1
|
|
$
|
1,040,399
|
|
Exercisable
at April 30, 2007
|
|
|
3,483,163
|
|
$
|
0.95
|
|
|
0.1
|
|
$
|
1,040,399
|
|
The
aggregate intrinsic value represents the difference
between the stock price on
the last day of the fiscal year, April 30,
2007, which was $1.25, and the
exercise price multiplied by the number of
options outstanding.
The
following table summarizes information about
non-vested Company stock options as
of April 30, 2007 (unaudited):
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Non-vested
at April 30, 2006
|
|
|
1,849,128
|
|
$
|
0.43
|
|
Granted
|
|
|
122,500
|
|
$
|
0.43
|
|
Vested
|
|
|
(1,632,211
|
)
|
$
|
0.48
|
|
Forfeited
|
|
|
(339,417
|
)
|
$
|
0.18
|
|
Non-vested
at April 30, 2007
|
|
|
-0-
|
|
|
|
|
Stock
Warrants
Through
the year ended April 30, 2005, the Company issued no warrants. During
the
year ended April 30, 2006, the Company issued warrants to non-employees
to
purchase up to 6,952,838 common shares over
periods ranging from 5 to 7 years at
prices ranging from $0.01 to $2.25. Included
in the warrants issued were
warrants to a non-employee to purchase up to
9,987 common shares over a five
year period at a price of $2.25. In the year
ended April 30, 2007, the Company
issued warrants to non-employees to purchase
up to 150,000 common shares over a
period of six years at a price of $.01 (Note
4). In accordance with EITF 96-18,
the Company determined that the fair value
of the equity instrument issued was
more reliably measured because it was difficult
to determine the value of the
services performed. In accordance with FASB
Statement No. 123R, the Company
has expensed the fair value of all the warrants
issued during the year. The fair
value was estimated using the Black-Scholes
valuation method. The assumptions
utilized in the valuation model were a dividend
yield of zero, volatility
factors ranging from 76.5 to 97.2%, the risk-free
interest rates prevailing at
the warrant issuance dates, which ranged from
4.1 to 4.9%, and expected warrant
lives ranging from 2.5 to 3.5 years. The fair
market value of the warrants used
in the Black-Scholes valuation model was equal
to the most recent value at which
shares were being sold to unaffiliated investors.
The
following table summarizes the activity for warrants
issued during the years
ended April 30, 2007 and 2006.
|
|
|
Shares
|
|
|
Wtd.
Avg.
Exercise
Price
|
|
Outstanding
April 30,
2005
|
|
|
—
|
|
|
|
|
Granted
|
|
|
6,952,838
|
|
$
|
.62
|
|
Exercised
|
|
|
—
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
|
Outstanding
April 30, 2006
|
|
|
6,952,838
|
|
$
|
.62
|
|
Granted
|
|
|
150,000
|
|
$
|
.01
|
|
Exercised
|
|
|
—
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
|
Outstanding
April 30, 2007
|
|
|
7,102,838
|
|
$
|
.61
|
|
The
following table summarizes information about warrants
outstanding as of
April 30, 2007:
Warrants
Outstanding
|
Warrants
Exercisable
|
Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Wtd.
Avg
Remaining
Contr.
Life
|
|
|
Wtd.
Avg
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Wtd.
Avg
Exercise
Price
|
|
$
0.01
|
|
|
1,166,534
|
|
|
5.8
years
|
|
$
|
0.01
|
|
|
1,166,534
|
|
$
|
0.01
|
|
$
0.60
|
|
|
987,720
|
|
|
4.8
years
|
|
$
|
0.60
|
|
|
987,720
|
|
$
|
0.60
|
|
$
0.75
|
|
|
4,938,597
|
|
|
4.8
years
|
|
$
|
0.75
|
|
|
4,938,597
|
|
$
|
0.75
|
|
$
2.25
|
|
|
9,987
|
|
|
3.1
years
|
|
$
|
2.25
|
|
|
9,987
|
|
$
|
2.25
|
|
9.
SHARE
EXCHANGE AGREEMENT AND PLAN OF
MERGER AGREEMENT
On
August 22, 2005, Somanta Limited, a company organized
under the laws of
England and Wales, became a wholly-owned subsidiary
of Bridge Oncology Products,
Inc. (“BOPI”), a privately held Delaware corporation pursuant
to a share
exchange with BOPI. BOPI was formed in February 2005, and its only
operation was to in-license a product development
candidate for development
outside the United States and Canada.
Under
the
terms of a Share Exchange Agreement by and among
BOPI, Somanta Limited, and the
shareholders and option holders of Somanta Limited,
BOPI (i) issued
5,832,834 shares of BOPI to the twenty-five holders
of 79,898,686 ordinary
shares of Somanta Limited and (ii) issued substitute options to purchase
2,032,166 shares of BOPI to the eleven holders
of Somanta Limited options
covering 27,836,800 ordinary shares of Somanta
Limited. The exchange ratio in
the share exchange was 1 share of BOPI for each
13.698 shares of Somanta
Limited. As a result of this share exchange, the
shareholders of Somanta Limited
owned 50% of the fully diluted ownership of BOPI,
and the holders of BOPI owned
the remaining 50%.
Somanta
Limited options were all priced at 5 pence pursuant
to Somanta Limited’s Board
resolution dated May 18, 2005. These option grant prices were converted
into US dollars at the exchange rate on June 13, 2005, to $0.09 per
share. After the exchange ratio from the share exchange
was applied, these
options now have an exercise price of $1.232828
per share for each BOPI option
issued in the share exchange.
The
acquisition was accounted for as a recapitalization,
as described in FASB 141,
17-3. This transaction is treated as a capital
transaction in substance, rather
than a business combination. That is, the transaction
is equivalent to Somanta
Limited issuing stock for the net monetary assets
of BOPI, accompanied by a
recapitalization. The assets of BOPI were recorded
at the historical value. The
intangible asset on BOPI’s books was written off to the income statement
on the
date of the acquisition (August 22, 2005). Accordingly, the historical
financial statements of Somanta Limited became
the historical financial
statements of BOPI after this transaction. In accounting
for this transaction,
since Somanta Limited is deemed to be the purchaser
and surviving company, its
net assets have been included in the consolidated
balance sheets at their
historical book values.
On
August 24, 2005, the name of BOPI was changed to Somanta
Incorporated
(“SI”).
On
September 7, 2005, SI entered into a letter of intent to
effect a merger
with Hibshman Optical Corp (“Hibshman”), a New Jersey corporation, and a public
reporting company that did not have a market
for its common stock. Hibshman
was formed in 1991 under the name PRS Sub I,
Inc., as a subsidiary of People
Ridesharing Systems, Inc. (“PRS”), a public corporation that had filed for
Bankruptcy in 1989. In March 1992, the name of
PRS Sub I was changed to Service
Lube, Inc., in anticipation of becoming an operating
business. In April 1992 the
name was changed to Fianza Commercial Corp. Again
in April 1992 the name was
changed to Hibshman. Hibshman never had an operating
business, its stock never
traded publicly, and its shareholders never received
stock
certificates.
On
September 27, 2005, Hibshman, pursuant to an action taken
by the written
consent of its board and shareholders, adopted
an Agreement and Plan of Merger
to effect the reincorporation of Hibshman into
Delaware prior to the merger with
SI. Hibshman formed a new Delaware corporation
which was a wholly owned
subsidiary of Hibshman (“Delaware NewCo”). At the closing of the
reincorporation, Hibshman merged into Delaware
NewCo and each outstanding
Hibshman share was exchanged for .01305340
of Delaware NewCo shares with each
registered holder of a fractional share being
issued 50 Delaware NewCo shares in
lieu of such fractional share. Delaware NewCo was the surviving entity and
the successor issuer under the Exchange Act
and had 576,700 outstanding
shares. Delaware NewCo was named “Somanta Pharmaceuticals,
Inc.”
On
January 31, 2006, pursuant to an Agreement and Plan
of Merger by and among
Delaware NewCo, SI, and Somanta Merger Sub
(“Merger Sub”), a wholly-owned
subsidiary of Delaware NewCo, SI merged with
Merger Sub and became a
wholly-owned subsidiary of Delaware NewCo. In connection with this merger
transaction, Delaware NewCo issued to the holders
of SI capital stock an
aggregate of 13,697,834 shares of Delaware
NewCo common stock and assumed the SI
2005 Equity Incentive Plan and all options
outstanding thereunder which options
became options to purchase 3,831,864 shares
of Delaware NewCo common stock. As a
result, (i) the shareholders and optionholders of SI owned
approximately
97% of the total outstanding common stock of
Delaware NewCo on a fully diluted
basis, (ii) Delaware NewCo assumed the SI 2005 Equity Incentive
Plan and
reserved 8,000,000 common shares for issuance
under the Plan, and
(iii) Delaware NewCo changed its name to Somanta
Pharmaceuticals,
Inc.
The
acquisition was accounted for as a recapitalization,
as described in FASB 141,
17-3. This transaction is treated as a capital
transaction in substance, rather
than a business combination. That is, the transaction
is equivalent to Somanta
Incorporated issuing stock for the net monetary
assets of Hibshman Optical
Corp., accompanied by a recapitalization. Accordingly,
the historical financial
statements of Somanta Incorporated became the
historical financial statements of
Hibshman Optical Corp. after this transaction.
In accounting for this
transaction, since Somanta Incorporated is
deemed to be the purchaser and
surviving company, its net assets have been
included in the consolidated balance
sheets at their historical book values. Somanta
Pharmaceuticals, Inc., elected
to change the fiscal year end from December 31 to April 30 of Somanta
Incorporated.
10.
CONVERTIBLE
NOTE
On
August 23, 2005, Bridge Oncology Products, Inc. (“BOPI”) issued a
$1,000,000 secured convertible note to SCO
Capital Partners LLC
(“SCO”). The note was secured by BOPI’s assets, carries an annual interest
rate of 7.5%, and was due at the earlier of
(i) BOPI’s completion of a
qualified equity financing of at least $10,000,000
or (ii) August 23,
2006. SCO had the option to be repaid in cash or
to convert the debt into
the shares of a qualified equity financing
at the lowest price paid by
institutional investors.
On
November 7, 2005, SCO agreed to expand its secured convertible
note to SI
from $1,000,000 up to $1,250,000. Under the
terms of the revised arrangement
with SI, the security and interest rate remained
unchanged. The terms were
amended to require repayment at the earlier
of (i) SI’s completion of an
equity financing of at least $5,000,000 or
(ii) February 28,
2006. Consistent with the secured convertible note
above, SCO had the
option to be repaid in cash or to convert the
debt into the shares of a
qualified equity financing at the lowest price
paid by institutional
investors.
In
addition, for each $50,000 borrowed on the
additional $250,000 line of credit,
the Company agreed to issue a six-year warrant
to purchase 173,307 shares of
common stock in the amount of 1% of the Company’s fully diluted common shares
outstanding at an exercise price of $0.01 per
share. SI has drawn an
additional $250,000 under this arrangement,
for a total amount outstanding of
$1,250,000 and has issued warrants to purchase
a total of 866,534 shares of
common stock to SCO. These warrants are immediately
exercisable upon issuance
and expire on November 8, 2012. The fair market value of these warrants,
as
discussed further below, was estimated to be
$0.59 per share at the issuance
date and re-measured at $0.59 as of April 30, 2006. The assumptions used in
the Black-Scholes model were risk-free interest
rate of 4.5% at the time of
issuance and 4.95% at April 30, 2006, volatility factors of 97.24% at the
issuance and 76.63% at April 30, 2006, calculated as the weighted average
of the stock price volatility of ranked comparable
public companies, and
contractual terms equal to the exercise periods
of the respective warrants. The
fair value of the common stock as used in this
calculation was $.60 per share,
as negotiated between the Company and the Series
A Convertible Preferred Stock
investors. None of these warrants have been
exercised as of April 30,
2007.
These
warrants have registration rights for the
underlying shares. The investor rights
agreement for the warrant requires the Company
pay a penalty in cash as
liquidated damages if the underlying shares
are not registered in a Registration
Statement and such Registration Statement
is not declared effective on or prior
to the 90
th
day
following the initial closing date. The Company
will be required to pay, in
cash, liquidated damages for such failure,
equal to 1% of the holder’s
subscription amount. Pursuant to Emerging Issues Task Force (EITF)
No.
00-19,
Accounting
for Derivative Financial
Instruments Indexed to, and Potentially Settled
in, a Company’s Own
Stock
,
the
fair value of the warrants at the issuance
was recorded as a warrant liability,
as 1) the shares are required to be registered
and 2) net cash settlement could
occur. EITF 00-19 provides that contracts that include
any
provision that could require net-cash settlement
cannot be accounted for as
equity of the Company. The warrant agreements
require net cash settlement, at
the option of the holders, in the event the
Company fails to issue and deliver
common stock on exercise of the warrants
within three business days of receipt
of a written exercise notice by a holder
and the holder purchases shares of
common stock to deliver in satisfaction of
a sale of the shares of warrants
stock which the holder anticipated to receive
upon exercise.
In
accordance with Statement of Financial Accounting
Standards No. 133,
Accounting
for Derivative
Instruments and Hedging Activities
,
(“FASB
133”), the Company determined that the conversion
feature of the notes did not
meet the criteria for bifurcation of the
conversion option, as the debt met the
definition of “conventional convertible debt”, as defined under EITF 00-19, and
therefore the conversion feature of the debt
did not need to be bifurcated and
accounted for as a derivative.
In
accordance with EITF No. 00-27,
Application
of Issue No. 98-5
to Certain Convertible Instruments,
which
provides guidance on the calculation of a
beneficial conversion feature on a
convertible instrument, the Company has determined
that the convertible note
payable had a non-cash beneficial conversion
feature of $364,721, which was
determined once the qualified equity financing
was finalized. The beneficial
conversion feature was calculated on the
note commitment date but recognized
when the contingency of conversion was resolved
and was determined based on the
difference between the calculated conversion
value after the allocation of the
full fair value of the warrants of $514,981
to the debt as debt discount and the
fair value of the Company’s common stock of $0.60 per share. The value of
the Company’s common stock of $0.60 per share was based
on the value of common
stock obtained through negotiation for independent
sales of common stock to
unaffiliated investors. After the allocation of proceeds between
the debt
and warrants are made, conversion price of
$0.425 was calculated based on the
allocated amount to debts divided by 2,083,333,
the total number of shares into
which the note is convertible. The calculated
amount of $0.175, the difference
of the fair value of the common stock of
$0.60 and the effective conversion
price of $0.425, represents the beneficial
value per share. This beneficial
value was applied to the total shares into
which the note is convertible, to
calculate the beneficial conversion feature.
The proceeds of $1,250,000 on the
note were recorded net of the discount of
$364,721 on account of the beneficial
conversion feature and discount of $514,981
on account of the full fair value of
the warrants. In conjunction with the private
placement (Note 12), the debt and
accrued interest was converted into 128.6318
shares of Series A Convertible
Preferred Stock. The discounts on account
of the beneficial conversion feature
and fair value of the warrants have been
recognized as additional interest
expense on conversion.
11.
PRIVATE
PLACEMENT
On
January 31, 2006, Somanta Pharmaceuticals, Inc. completed a private
placement of 592.6318 shares of its Series A Convertible Preferred
Stock (“Series A Preferred”) at a price of $10,000 per share, including
six-year
warrants to purchase an additional 4,938,598
shares of its common
stock. The Series A Preferred shares consisted of
464 shares purchased by
investors which are convertible into 7,733,333
shares of common stock and
128.6318 shares that gave effect to the conversion
amount of $1,286,318,
representing the value of the converted note
of $1,250,000 (Note 11) and the
associated accrued interest of $36,318. The total 592.6318 preferred shares
are convertible into 9,877,197 common shares.
Gross proceeds to Somanta were
$4,640,000, including $3,671,209 in cash,
payments to various vendors amounting
$968,791, which included cash payment of
$624,105 to SCO Securities, LLC, its
placement agent.
The
Series A Preferred is initially convertible
into 9,877,197 shares of the
Company’s common stock at a conversion price of $0.60
per share. The conversion
value is subject to adjustment. The exercise
price for the warrants is $0.75 per
share and they are immediately exercisable
upon issuance. The fair market value
of these warrants, as discussed further below,
was estimated to be $0.41 per
share at the issuance date. The warrants expire on January 31,
2012. None of the warrants have been exercised
as of April 30,
2007.
Holders
of the Series A Preferred stock are entitled
to receive dividends at 8% per
annum. Dividends will accrue and will be
cumulative from the date of issuance,
whether or not earned or declared by the
Board of Directors. Dividends can be
paid at the Company’s option either in cash or shares of the
Company’s common
stock on April 30 and October 31 of each year. The holders of the
Series A Preferred stock have full voting
rights and powers, subject to the
Beneficial Ownership Cap, equal to the voting
rights and powers of the Common
stock holders.
The
Series A Preferred stockholders have a
liquidation preference, in the event of
any voluntary or involuntary liquidation,
dissolution or winding up of the
Corporation, senior to the holders of common
stock in an amount equal to $10,000
per share of preferred stock plus any accumulated
and unpaid dividends on the
preferred stock. In the alternative, the holders of the
Series A Preferred
may elect to receive the amount per share
that would be distributed among the
holders of the preferred stock and common
stock pro rata based on the number of
shares of the common stock held by each
holder assuming conversion of all
preferred stock, if such amount is greater
than the amount such holder would
receive pursuant to the liquidation preference.
A change of Control of the
Corporation will not be deemed a liquidation.
The
Series A Preferred Stock is not redeemable
for cash. The holder of any
share or shares of Series A Preferred can,
at the holder’s option, at any time
convert all or any lesser portion of such
holder’s shares of Series A Preferred
stock into such number of shares of common
stock as is determined by dividing
the aggregate liquidation preference of
the shares of preferred stock to be
converted plus accrued and unpaid dividends
thereon by the conversion value then
in effect for such Preferred Stock (“Conversion Value”). The Company can, on the
occurrence of a conversion triggering event,
elect to convert all of the
outstanding preferred stock into common
stock. A conversion triggering event is
(i) a time when the registration statement
covering the shares of common
stock into which the Series A Preferred
is convertible is effective and sales
may be made pursuant thereto or all of
the shares of common stock into which the
Series A Preferred is convertible may be
sold without restriction pursuant to
Rule 144(k) promulgated by the SEC and
the daily market price of the common
stock, after adjusting for stock splits,
reverse splits, stock dividends and the
like is $5 or more for a period of 30 of the immediately preceding
60
consecutive trading days and the volume
of common stock traded on the applicable
stock exchange on each such trading day
is not less than 100,000 shares, or
(ii) a time when the Company consummates a sale
of common stock in a firm
commitment underwritten public offering
in which the offering price before
deduction of expenses of the common stock
is greater than 200% of the Conversion
Value and the aggregate gross proceeds
of the offering to the Company are
greater than $25 million.
All
the
outstanding preferred stock will be automatically
converted to common stock upon
an occurrence of a qualified change of
control provided that upon consummation
of a qualified change of control the holders
of the shares issuable on automatic
conversion shall be entitled to receive
the same per share consideration as the
qualified change of control transaction
consideration. The holders of the Series
A Preferred may require the Company to
redeem the shares upon the Company’s
failure or refusal to convert any shares
of Preferred Stock in accordance with
the terms of issue, or by providing a written
notice to that
effect.
The
Series A Preferred has been classified
as equity, as the Series A Preferred
stock is not redeemable. In accordance with EITF No. 00-27,
Application
of Issue No. 98-5
to Certain Convertible Instruments,
the
Company has determined that the Series
A Preferred had a beneficial conversion
feature of $1,522,317 as of the date of
issuance. As such, the Company recorded
a non-cash deemed dividend of $1,522,317
resulting from the difference between
the conversion price determined after allocation
of the full fair value of the
warrants of $0.41 at the issuance date,
revalued at $0.78 as of April 30,
2007, and the fair value of common stock
of $0.60. The carrying value of the
Series A Preferred of $5,926,318 was recorded
net of the deemed dividend of
$1,522,317 and a discount of $2,048,531
at the issuance date. The change in fair
value of the warrants was recorded as other
income in the consolidated statement
of operations for the year ended April 30, 2007.
The
holders of the Series A Preferred and warrants
have registration rights which
obligate the Company to file a registration
statement with the Securities and
Exchange Commission (“SEC”) covering the resale of the common stock
issuable
upon conversion of the Series A Preferred
and the common stock issuable upon
exercise of the warrants (as well as certain
other securities of the Company)
within 30 days after the closing of the
private placement. In the event the
registration statement is not filed within
such thirty day period or if the
registration statement is not effective
within 120 days after the date it is
filed, or a registration statement, once
declared effective ceases to remain
effective during the period that the securities
covered by the agreement are not
sold, the Company will be required to pay,
in cash, liquidated damages for such
failure, equal to 1% of the holders of
the Series A Preferred investment amount
for each thirty day period in which the
registration statement is not filed or
effective, or maintained effective, as
the case may be. This penalty obligation
expired on January 31, 2007 since the SEC declared the Registration
Statement effective on August 10, 2006.
In
accordance with EITF Issue 05-4,
The
Effect of a Liquidated Damages
Clause on a Freestanding Financial Instrument
Subject to Issue No.
00-19
,
the
Company believes that the effect of the
liquidated damages should be treated
under the first view (View A), which states
that a registration rights agreement
should be treated as a combined unit together
with the underlying financial
instruments, warrants and derivative debenture
and evaluated as a single
instrument under EITF Issue 00-19 and FAS
133. The Company concluded that this
view is the most appropriate for the transaction. The Registration Rights
Agreement and the financial instruments
to which it pertains (the warrants and
the preferred stock) were considered a
combined instrument and accounted for
accordingly. The SEC declared the Registration Statement
effective on
August 10, 2006. As a result, during the quarter
ended July 31, 2006,
the Company accrued a liability of liquidated
damages of $120,502. During the
quarter ended October 31, 2006 an agreement was reached with
SCO on the
liquidated damages matter. The agreement
concluded that since the securities
owned by SCO Capital
Partners,
LLC were not registered because SCO voluntarily
withdrew them from the
Registration because of the resale restrictions
required by the SEC, the Company
is not obligated for any liquidated damages
pertaining specifically to SCO
Capital Partners, LLC. Accordingly, the
Company reversed out $85,302 of
liquidated damages in the prior quarter
ended October 31,
2006.
The
Company also issued six year warrants
to its placement agent to purchase 987,720
common shares at $0.60 per share to SCO
Securities LLC, as part of the success
fees of 10% of the aggregate value of
the transaction at sales price of common
stock. These warrants are immediately
exercisable upon issuance. The fair value
of these warrants at the date of issuance
was estimated to be $0.44 per share
and revalued at $0.41 as of April 30, 2006 and has been recorded as
issuance costs and offset against the
proceeds of the Series A Preferred. On
February 27, 2007, the Company issued
a six year warrant to SCO Financial Group
to purchase 150,000 common shares at
$.01 per share.
The
fair
value of warrants issued in connection
with the issue of convertible debt and
convertible preferred stock, including
the agent warrants, was estimated at
the
date of grant and revalued at April 30,
2007 using a Black Scholes option
pricing model with the following assumptions:
a risk free interest rate of
approximately 4.5% at the issuance date
and 4.6% on April 30, 2007, no dividend
yield, volatility factors of 81.89% to
97.24% at the issuance date
and 50.89% to 60.56% at April 30, 2007, contractual
terms of 6 and 7 years
and expected terms based upon the formula
prescribed in SEC Staff Accounting
Bulletin 107 of 3 years and 3.5 years. These assumptions use the interest
rate prevailing at the time of issuance,
volatility factors calculated as the
weighted average of the stock price volatility
of ranked comparable public
companies, and contractual terms equal
to the exercise periods of the respective
warrants. The fair value of the common
stock as used in this calculation was
$.60 per share at the issuance date,
as negotiated between the Company and
unaffiliated third party Series A investors,
and $1.25 on April 30, 2007. The
change in fair value of the warrants
for the year ended April 30, 2007 of
$2,931,118 was reported in other expense
and disclosed in the financial
statements.
The
fair
value of the above warrants has been
classified as a liability pursuant to
EITF
00-19 as described in Note 4 for the
years ended April 30, 2007.
The
fair
value of the warrants was reassessed
at the end of the fiscal year 2007 with
changes in fair value recorded in other
income (expense) and disclosed in the
financial statements.
The
holders of the Series A Preferred Stock
are entitled to receive, when, if and
as
declared by the Board, dividends at 8% per annum cumulative from the date
of issuance of the shares of Preferred
Stock. The board did not declare the
dividends as of April 30 2007. Therefore, a dividend of $589,708
and
$115,604 for the year ended April 30,
2007 and 2006, respectively,
on the Preferred Stock has not been recorded
in the consolidated financial
statements, but in accordance with SFAS
No. 129, the dividend amount has
been included in the calculation of net
loss per share.
12.
SECURED
NOTE
On
April
26, 2007, the Company entered into a
Note Purchase Agreement, a Security
Agreement, a Patent Collateral Assignment
and Security Agreement and a Trademark
Collateral Security and Pledge Agreement
(collectively, the “Loan Documents”)
with Access Pharmaceuticals, Inc. (“Access”). Under the terms of the Loan
Documents, Access initially loaned the
Company $33,462. Access, in its sole
discretion, may from time to time advance
additional loan amounts to the
Company. All amounts loaned to the Company
by Access are secured by
substantially all of the assets of the
Company pursuant to the terms of the
Loan
Documents. The Note bears interest at
10% and is repayable at the earlier of:
(i) August 31, 2007, or (ii) the date
of the termination of the Agreement and
Plan of Merger dated as of August 18,
2007 between the Company and
Access.
13.
COMMITMENTS—EMPLOYMENT
AND CONSULTING
AGREEMENTS
In
January 2006, the Company entered into
employment agreements with the Company’s
President and Chief Executive Officer
(“CEO”), and with the Company’s Executive
Chairman, for one year terms. These agreements
were automatically renewed for an
additional on year term on January 31,
2007. Under these agreements, the
President and Executive Chairman are
to be paid annual base salaries of $275,000
and $248,000, respectively. Both officers
are eligible to receive annual bonuses
and additional stock option grants at
the discretion of the Company’s board of
directors. In July 2006, the Company’s CEO and Executive Chairman agreed to
defer 50% of their base salaries until
the completion of the Company’s next fund
raising at which time the deferred amounts
would be repaid and the deferrals
would cease. Effective October 1, 2006, the Company’s CEO and Executive
Chairman agreed to defer 100% of their
base salaries until the completion of
the
Company’s next fund raising, or the completion
of a merger or other
consolidation with another company, at
which time the deferred amounts would
be
repaid and the deferrals would cease.
Effective June 30, 2006, our
Executive Chairman was appointed by our
Board to be our Chief Financial Officer,
Secretary and Treasurer.
In
January 2006, the Company entered into
an employment agreement with the
Company’s Chief Financial Officer (“CFO”). Under the agreement, the CFO was
to be paid an annual base salary of $215,000
and also entitled to receive an
annual bonus and additional stock option
grants at the discretion of the
Company’s board of directors. In June 2006, the
Company’s CFO resigned. The
Company is not obligated to pay him any
severance or other payments as the
result of his departure; however, the
board agreed to amend the terms of his
stock option agreement to immediately
vest him in twenty five percent
(25%) of the shares covered by the option,
or 101,668 shares, and enable
him to exercise such option until June 30, 2007. Based on FAS 123R, no
incremental expense was recorded for
these options with accelerated vesting
as
the fair value of the modified options
was less than the fair value of the
original options calculated immediately
before the terms were
modified.
In
November 2005, the Company entered into
two consulting agreements: (i) a
Service Provision Agreement with Pharma
Consultancy Limited, a UK company
controlled by Luiz Porto, one of the
Company’s stockholders pursuant to which
the Company will pay Dr. Porto approximately $278,000 per year,
for
services rendered by Dr. Porto to the Company as an independent
consultant
in connection with the management of
the Company’s clinical activities, that
will terminate on December 31, 2006 unless extended by a mutual
written
agreement of the parties and may be terminated,
with or without cause, by giving
the other party thirty (30) days’ prior written notice; and (ii) a
Service Provision Agreement with Gary Bower pursuant
to which the Company
will pay Mr. Bower approximately $156,000 per year
for services rendered by
Mr. Bower to the Company as an independent
consultant in connection with
the pre-clinical activities related to
the manufacturing of the Company’s
product candidates, that will terminate
on December 31, 2006 unless
extended by a mutual written agreement
of the parties and that may be
terminated, with or without cause, by
giving the other party thirty
(30) days’ prior written notice.
The
agreement with Mr. Bower was amended in April 2006 to include
GTE
Consultancy Limited, a company organized
under the laws of United Kingdom and
owned by Mr. Bower, as the service provider pursuant
to the agreement. With
the approval of the Company’s board of directors, both Dr. Porto and
Mr. Bower may also be granted cash bonuses
and stock options in the future.
In July 2006, Pharma Consultancy Limited
and GTE Consultancy Limited amended
their agreements to reduce, effective
September 1, 2006, their consulting
services to the Company by 33%, which
in turn, will reduce the Company’s
payments by approximately $91,000 and
$51,000, respectively, on an annualized
basis. Both agreements expired by there
terms on December 31, 2006 and were not
renewed.
The
Company’s former CFO resigned in August 2005,
in connection with the closing of
the share exchange agreement with Bridge
Oncology. In January 2006, he
entered into a consulting arrangement
with the Company under which he is paid
$5,000 per month retroactive to June
2005. Effective June 1, 2006, the
former CFO agreed to modify his consulting
arrangement to provide his services
for $100 per hour in lieu of a fixed
retainer and was granted options to acquire
25,000 of the Company’s common stock at $.60 per share vesting
quarterly over
twenty four months. Those options expired as of May 31, 2007.
14.
SIGNIFICANT
CONTRACTS AND
LICENSES
IN-LICENSING
AGREEMENTS
De
Montfort
University
In
November 2001, the Company entered into
a Patent and Know-how Assignment and
License Agreement with De Montfort University
of Leicester, England, pursuant to
which De Montfort University agreed to
assign to the Company the key patent
related to chloroethylaminoanthraquinone,
a cytotoxic small molecule and to
exclusively license to the Company certain
know-how related to this molecule for
use in field of the treatment of cancer.
In March 2003, the Company amended and
restated that agreement to extend the
time period in which the assignment and
license would be triggered. In October
2005, De Montfort University formally
assigned the patent that covers the molecule
to the Company. Pursuant to the
agreement with De Montfort University,
the Company paid De Montfort an initial
assignment fee of $42,815 in March 2004
and issued 219,010 shares of common
stock to De Montfort valued at $4,677
in December 2001. The Company is not
obligated to make any royalty payments
to De Montfort based on the sale of any
product that is based on this small molecule,
but it is obligated to pay De
Montfort certain milestone payments based
on the achievement of agreed upon
clinical milestones. If the Company successfully
achieves each of these
milestones, it would be obligated to
pay De Montfort a total aggregate amount
of
milestone payments of GBP 250,000, or
approximately $500,000. The Company is
obligated to use its commercial best
efforts to achieve these agreed upon
clinical milestones. The Company has
the right to terminate its agreement
with
De Montfort on 90 days advance notice,
and either party has the right to
terminate the agreement for breach by
the other party upon 90 days advance
notice (60 days for payment failures),
if such breach is not cured within the
notice period.
Immunodex,
Inc.
On
January 25, 2002, the Company entered into
a Patent Know-How and License
Option Agreement with Immunorex, Inc.
(later renamed Immunodex, Inc.) giving
it
a worldwide, exclusive sublicense,
with the right to further sublicense,
to all
human radioimmunotherapy applications
of certain patents on BrE3 and Mc3
monoclonal antibodies for use in breast
cancer and other types of cancer.
Pursuant to this agreement, the Company
paid Immunodex an initial license fee
of
$10,000 and sold 292,012 shares of
common stock to Immunodex for $5,638.
On
August 16, 2005, the Company entered
into a Patent and Know-how Exclusive
Sublicense Agreement with Immunodex,
Inc. which had essentially the same
terms
and conditions as the 2002 agreement
and which superseded that agreement.
It
also superseded prior agreements dated
March 1, 2002 and September 17,
2002 related to the same subject matter.
Pursuant to this August 2005 agreement,
the Company paid Immunodex an initial
license fee of $300,000. In addition,
the
Company is obligated to pay Immunodex
$150,000 upon the delivery by Immunodex
of
each cell line that is necessary to
manufacture each of the BrE3 and Mc3
monoclonal antibodies. The Company
is further obligated to pay Immunodex
annual
license maintenance fees and all costs
and expenses associated with the
prosecution and maintenance of each
of the patents licensed to the Company
under
the agreement. The Company’s obligation to pay this fee is reduced
at such time
as it begins to sell a product based
on either of the antibodies, and terminates
in its entirety at such time as the
Company is selling products based on
both
antibodies. As noted below, on November
3, 2006 we terminated our license with
respect on one of the monoclonal antibodies
(huBrE-3 mAb), and continue to
develop on Angiolix.
Assuming
that we begin to sell products based
on Angiolix fifteen (15) years after
the
date of the August 2005 agreement,
or August 2020, which is our anticipated
development timetable, we would have
to pay to Immunodex an additional
$2,600,000 in maintenance fees during
that time period. In addition, we are
obligated to pay Immunodex a royalty
based on the net sales, if any, of
products
based on Angiolix. Further, we are
obligated to develop Angiolix on an
agreed
upon timetable. If we fail to achieve
any of the agreed upon clinical
development and regulatory milestones,
Immunodex would then have the right
to
terminate the August 2005 agreement,
and if such a termination occurs, we
would
be obligated to pay Immunodex a termination
fee of up to $500,000. We are also
entitled to terminate the agreement
with respect to Angiolix upon ninety
(90)
days advance notice to Immunodex. If
we do so without cause, we would also
be
required to pay a termination fee of
up to $500,000. Notwithstanding the
foregoing, we do not have to pay a
termination fee with respect to Angiolix
if
the agreement is terminated due to:
(i) negative results of toxicity testing
for
the applicable drug candidate that
the FDA indicates would preclude further
testing of such drug candidate, (ii)
a third party being granted orphan
drug
status by the FDA for a drug that would
preclude us from receiving orphan drug
status with respect to the applicable
drug candidate, or (iii) our inability
to
achieve commercially viable yields
with respect to the manufacture of
the
applicable drug candidate.
If
we
sublicense our rights with respect
to Angiolix, we would be obligated
to pay to
Immunodex a sublicensing fee not to
exceed $1,000,000 for each such sublicense
granted based on payments received
from each such sublicensee.
The
term
of the August 2005 agreement expires
on the latter to occur of: (i) the
expiration of the last to expire licensed
patent, or (ii) fifteen (15) years
after the first commercial sale of
a product covered by the licensed patents.
The August 2005 agreement superseded
prior agreements with Immunodex dated
January 25, 2002, March 1, 2002 and September 17, 2002, in
each case
related to the same subject matter.
In
February 2006, the Company made a deposit
of $150,000 into an escrow account
pursuant to the agreement. This amount
was released on November 7,
2006.
Effective
November 3, 2006, the Company entered into a
Side Amendment to Patent and
Know-how Exclusive Sublicense Agreement
with Immunodex and the Cancer Research
Institute of Contra Costa (“CRICC”) (the “Side Amendment”). Pursuant to the
Side Amendment, the Company has agreed
with Immunodex and CRICC to reduce
the
amount of the annual maintenance fee
under the License Agreement from $250,000
to $200,000 and to defer the annual
maintenance fee that was due in August
2006
until the earlier of (i) the closing of a fundraising resulting
in gross
proceeds to us of at least $5,000,000,
or (ii) January 31, 2007 (the
“2006 Annual Maintenance Fee”). If the Company is unable to timely
pay the 2006
Annual Maintenance Fee, the annual
maintenance fee due under the License
Agreement would revert to $250,000.
The
Company has retained its rights with
respect to huMc-3 mAb and its product
candidate Angiolix; however, the Company
has agreed to suspend the development
of Angiolix until such time as the
Company has paid the 2006 Annual Maintenance
Fee. In addition, each of the product
development milestones with respect
to
Angiolix set forth in the License Agreement
has been reset to begin at such time
as we make the 2006 Annual Maintenance
Fee payment.
In
addition, the Company agreed to reimburse
Immunodex for certain out of pocket
expenses in the aggregate amount of
approximately $21,000, which amount
was
payable upon the execution of the Side
Amendment.
On
January 18, 2007 the Company entered
into an Amendment to the Side Amendment
which defers the amounts due on January
31, 2007, including the 2006 Annual
Maintenance Fee, until July 31, 2007.
In consideration for the deferral,
the
Company will pay $12,000 for each
month of the deferral. In addition,
the
Company paid $2,050 of patent annuity
payments.
On
November 8, 2006, the Company made application
to the National Institutes
of Health for a non-exclusive license
to certain patents held by NIH related
to
the humanization of Angiolix (huMc-3
mAb). On December 5, 2006 NIH
provided the Company with proposed
terms for a non-exclusive license.
On May 15,
2007, the NIH terminated Somanta’s non-exclusive license application
since
Somanta had not accepted the terms
and had not executed the proposed license
agreement.
The
School of Pharmacy, University
of London (SOP)
In
March
2004, the Company entered into a Patent
and Know-how Assignment and License
Option Agreement with The School of
Pharmacy, University of London. The
Agreement granted to the Company an
option to acquire the rights to the
key
patent application related to di-N-oxides
of chloroethylaminoanthraquinone as
a
bioreductive prodrug and an exclusive
worldwide license to the related know-how
for development and commercialization
in the field of the treatment of cancer.
Pursuant to this agreement, the Company
paid an initial option fee of $44,575
and issued 131,505 shares of common
stock valued at $2,630 to The School
of
Pharmacy. In September 2005, The School
of Pharmacy formally assigned to the
Company the rights to the key patent
application and the relevant know-how
in
the field of the treatment of cancer.
The Agreement obligate the Company
to pay
The School of Pharmacy certain milestone
payments based on the achievement of
agreed upon clinical milestones with
respect to the prodrug. If the Company
successfully achieve each of these
milestones, it would be obligated to
pay The
School of Pharmacy a total aggregate
amount of milestone payments of
GBP 275,000, or approximately $550,000.
The Company is obligated to use its
commercial best efforts to achieve
these agreed upon clinical milestones.
If the
Company fails to achieve any of these
agreed upon clinical milestones, The
School of Pharmacy would have the right
to terminate the know-how license under
the agreement. In addition, the Company
is obligated to pay The School of
Pharmacy a royalty on net sales, if
any, of products based on the prodrug.
The
Company has the right to terminate
the agreement with the The School of
Pharmacy
on 90 days advance notice, and either
party has the right to terminate the
agreement for breach by the other party
upon 90 days advance notice (60 days
for
payment failures), if such breach is
not cured within the notice period.
In
February, 2006, SOP waived the condition
in the agreement that the Company
assign the patent back to SOP if the
Company was unable to complete a
substantial funding by December 31, 2005.
Virium
Pharmaceuticals, Inc.
(Virium)
In
February 2005, Bridge Oncology Products,
Inc. (BOPI), entered into a
Phenylbutyrate Co-development and Sublicense
Agreement with Virium
Pharmaceuticals, Inc. covering the
worldwide rights, excluding the United
States
and Canada, for the treatment of cancer,
autoimmune diseases and other clinical
indications. BOPI paid an upfront license
fee of $50,000. As a result of the
exchange agreement with BOPI, the Company
has succeeded to the rights and
obligations under this Agreement. The
Company’s single largest stockholder, SCO
Capital Partners, LLC, is also the
single largest stockholder of Virium
Pharmaceuticals, Inc., and the companies
share a common director.
Virium
is
also a party to a sublicense agreement
with VectraMed, Inc. for the rights
to
develop and commercialize PB worldwide
for the treatment of cancer, autoimmune
diseases and other clinical indications.
In turn, VectraMed has obtained its
rights to the product under an Exclusive
Patent License Agreement dated
May 25, 1995 with the U.S. Public Health
Service (“PHS”) representing the
National Institutes of Health. VectraMed
subsequently assigned all its rights
to
PB to Virium pursuant to a novation
agreement dated May 10, 2005. Virium is
in the process of obtaining PHS approval
for this agreement.
The
Company is responsible for the conduct
of clinical trials and patent prosecution
outside the United States and Canada
and payment of royalties to Virium
on net
product sales until such time as the
patents covering such products
expire. These patents expire at various times
between 2011 and
2016.
The
Company’s agreement with Virium does not fully
comply with the sublicensing
requirements set forth in Virium’s agreement with the National Institutes
of
Health because it does not expressly
incorporate by reference all of the
relevant sections of Virium’s license with NIH. The Company is currently
seeking to amend its agreement with
Virium to bring it into full compliance
with
such sublicensing requirements and
to permit the Company to become a direct
licensee of the NIH, should Virium
default on its license with the
NIH.
On
October 20, 2006, NIH conditionally consented
to the sublicense to the
Company. However, the NIH conditions
include an amendment to the Virium
license
to reflect an updated Virium development
plan and milestones, the payment of
$216,971 in past due patent expenses
and the payment of a $5,000 sublicense
royalty. Based on the information provided
by NIH, it appears that about
$200,000 relates to foreign patent
expenses for calendar 2005 which would
be the
Company’s responsibility under its license
agreement
with Virium. Of that amount, approximately
$12,000 relates to foreign patent
maintenance fees and $197,000 largely
relates to foreign patent legal
expenses. Somanta accrued an additional approximately
$38,700 as patent
annuity and legal expense for the year
ended April 30, 2007. Virium advised
Somanta that they satisfied two of
the three conditions to obtaining final
NIH
approval for Somanta’s sublicense. Virium is in the process
of negotiating an
installment payment plan with respect
to the past due patent
expenses.
On
December 6, 2006, the Company signed
a letter of intent (LOI) pertaining
to a
license and collaboration agreement
with Virium covering all formulations
or
drug combinations where Phenylbutyrate
is an active ingredient. Pursuant
to the LOI, in addition to current
worldwide rights, excluding North
America,
involving the current formulation
of Phenylbutyrate, Somanta would
obtain a
participation in any revenue or royalties
derived from sales in North
America. In return, we would grant Virium
a reciprocal participation in
Europe. In the rest of the world, Somanta
and Virium would share revenues
and royalties equally. The LOI’s terms provide that both companies
will, among
other things, share data and jointly
undertake the necessary pre-clinical
and
clinical studies, seek regulatory
approvals and file for patent protection
in
all territories. It also provides
for the formation of a joint development
committee to oversee all aspects
of the development and commercialization
of
Phenylbutyrate. Completion of the
transaction contemplated by the LOI
remains
subject to the negotiation and execution
of a definitive agreement.
COLLABORATIONS
Cancer
Research Institute of Contra
Costa (CRICC)
In
August
2005, the Company entered into an
Agreement Regarding Academic Clinical
Study
with the Cancer Research Institute
of Contra Costa to provide financial
support
for an on-going Phase I-II clinical
trial of patients with recurrent,
metastatic
breast cancer using the humanized
monoclonal antibody BrE-3, labeled
with
Yttrium-90. In this trial, the antibody
is being administered to patients
in
combination with the chemotherapeutic
drug, Xeloda
®
.
This
agreement superseded a similar agreement
signed in October 2003, which related
to the same subject matter. Pursuant
to this agreement, the Company is
obligated
to reimburse the Cancer Research
Institute of Contra Costa over the
twenty-four
moths after the date of the agreement
for the costs associated with the
treatment of at least 10 patients
with recurrent, metastatic breast
cancer that
are enrolled in the current Phase
I/II clinical trial of Phoenix, which
is being
conducted at New York University/Bellevue
Hospital. The Company does not expect
these reimbursement payments to exceed
$300,000 in the aggregate.
Effective
November 3, 2006, the Company entered into
a Side Amendment to Patent and
Know-how Exclusive Sublicense Agreement
with Immunodex and the Cancer Research
Institute of Contra Costa (“CRICC”) (the “Side Amendment”). Pursuant to the
Side Amendment, the Company elected
to terminate the License Agreement
with
respect to huBrE-3 mAb product candidate.
As a result, the Company has
terminated all development activities
with respect to huBrE-3 mAb and returned
the related cell lines to Immunodex.
In connection therewith, the Company
has
terminated its financial support
of the clinical trial currently being
conducted
at New York University with respect
to huBrE-3 mAB (the “huBrE-3 mAb Clinical
Trial”). The Company has agreed to pay
a total of $31,400 to CRICC for the
two
patients that were dosed in the huBrE-3
mAb Clinical Trial, which amount
shall
become due and payable at the time
the Company becomes obligated to
make the
2006 Annual Maintenance Fee payment.
University
of Bradford
(“UoB”)
On
March 1, 2006, the Company entered into
an agreement with the University
of
Bradford, Leeds, United Kingdom for
the Company to fund a two-year research
and
development project staffed by UoB
scientists to evaluate di-N-oxides
of
chloroethylaminoanthraquinones as
a bioreductive prodrug and to evaluate
and
provide data on chloroethylaminoanthraquinones
to support the requirements to
initial clinical trials. The Company
paid $84,835 and accrued $180,000
for
project costs based on this agreement
as of April 30, 2007. In May 2007,
UoB
threaten suit for non-payment of
the amounts owed.
Imperial
College of Science,
Technology and Medicine (“Imperial College”)
On
July 27, 2006, the Company entered into
an agreement with Imperial College
and a post-graduate student for the
Company to fund a three-year pre-clinical
research project staffed by Imperial
College scientists to evaluate Angiolix
(huMc-3 mAb) for anti-vascular cancer
therapy. The Company has accrued
$10,000
for the project costs in the year
ended April 30, 2007.
OUT-LICENSING
AGREEMENT
Advanced
Cardiovascular Devices LLC
(ACD)
On
August 31, 2004, the Company entered into
a research collaboration and
license agreement with ACD. Under
the agreement Somanta granted to
ACD an
exclusive license to use Somanta’s intellectual property, including
the licensed
patent and know-how related to
chloroethlylaminoanthraquinone
(see De Montfort
University), a cytotoxic small
molecule, in the field of vascular
disorders
using stents and devices in that
field. The term of this agreement
expires when
the underlying patent expires in
2015. ACD agreed to pay Somanta
a licensing fee
at such time as ACD had received
funding, plus milestones, and royalties
on
future product sales. In August,
2005, ACD paid the Company a non-refundable
licensing fee of $10,000. In addition,
ACD is obligated to develop a product
based on the small molecule pursuant
to an agreed-upon timetable. If
ACD fails
to achieve any of the agreed upon
milestones, the Company would have
the right
to terminate the agreement; provided,
however, that ACD could prevent
the
Company from so terminating the
agreement with respect to the applicable
failure
by paying the Company a fee not
to exceed $500,000 to reinstate
its rights under
the agreement. In addition, ACD
is also obligated to pay the Company
a royalty
based on net sales, if any, of
products based on the small molecule.
Either
party may terminate this agreement
on 30 days advance notice for breach
by the
other party if the breach is not
cured within such 30 day period.
In addition,
ACD may terminate the agreement
upon written notice to the Company
and without
any further obligation if the licensed
technology does not perform to
the
reasonable satisfaction of ACD
or cannot be commercialized because
of safety or
efficacy reasons or because ACD
is unable to raise the funds necessary
to
develop a product based on the
licensed technology.
15.
MERGER
AGREEMENT
On
April
18, 2007, the Company, Somanta
Incorporated, a wholly-owned subsidiary
of the
Company and Somanta Limited, a wholly-owned subsidiary of Somanta
Incorporated, and Access Pharmaceuticals,
Inc. (“Access”) and Somanta
Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of
Access and
a Delaware corporation, entered
into an Agreement and Plan of Merger
(the
“Merger Agreement”). Pursuant to the terms and subject
to the conditions set
forth in the Merger Agreement,
Merger Sub will merge with and
into Somanta, with
Somanta continuing as the surviving
corporation and becoming a wholly-owned
subsidiary of Access (the “Merger”). In addition, Access has received
voting
agreements with certain executive
officers, directors and affiliates
of Somanta
representing approximately 81%
of Somanta’s outstanding common and approximately
60% of its outstanding preferred
shares under which the parties,
subject to
certain limited exceptions, have
granted an irrevocable proxy to
Access to vote
their shares in favor of the merger.
In
connection with the Merger, all
of Somanta’s common stock that is outstanding
at
the effective time of the Merger
(the “Effective Time”) will be converted into
500,000 shares of Access common
stock. No fractional shares of
Access common
stock will be issued as a result
of the Merger. In addition, all
of Somanta’s
preferred stock, including accrued
and unpaid dividends, that is outstanding
at
the Effective Time of the Merger
will be converted into 1,000,000
shares of
Access’ common stock. No shares of Access
preferred stock will be issued
as a
result of the Merger.
As
of
April 18, 2007, there were (i)
15,459,137 shares of Somanta’s common stock
outstanding, including 1,166,534
shares issuable upon the exercise
of warrants
that are expected to be exercised
prior to the Effective Time, and
(ii) 591.6
shares of Somanta’s preferred stock outstanding.
Also as of April 18, 2007,
there were outstanding warrants
to purchase 5,936,304 shares of
Somanta’s common
stock that are not expected to
be exercised prior to the Effective
Time and are
expected to be converted into warrants
to purchase approximately 192,000
shares
of Access’ common stock (subject to adjustment
as provided in the Merger
Agreement).
The
completion of the Merger is subject
to various conditions to closing,
including,
without limitation, obtaining the
approval of the Somanta stockholders.
The
Merger is intended to qualify as
reorganization for federal income
tax
purposes.
Somanta
Pharmaceuticals,
Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
(Unaudited)
October
31, 2007
|
|
(Audited)
April
30,
2007
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,424
|
|
$
|
5,385
|
|
Prepaid
expenses
|
|
|
25,391
|
|
|
43,308
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
26,815
|
|
|
48,693
|
|
Office
equipment
, net of
accumulated depreciation of
$9,441 and $6,750 for the period
ended October
31, 2007 and April 30, 2007,
respectively
|
|
|
13,870
|
|
|
16,560
|
|
Other
assets:
|
|
|
|
|
|
|
|
Restricted
funds
|
|
|
—
|
|
|
2,000
|
|
Deposits
|
|
|
73
|
|
|
73
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
73
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
40,758
|
|
$
|
67,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,027,819
|
|
$
|
774,022
|
|
Due
to related parties
|
|
|
281,335
|
|
|
241,874
|
|
Accrued
expenses
|
|
|
969,121
|
|
|
811,539
|
|
Accrued
research and development expenses
|
|
|
354,733
|
|
|
554,733
|
|
Note
payable
|
|
|
822,712
|
|
|
33,462
|
|
Liquidated
damages related to Series A
preferred stock and warrants
|
|
|
35,200
|
|
|
35,200
|
|
Deferred
revenue
|
|
|
6,429
|
|
|
7,143
|
|
Warrant
liabilities
|
|
|
117,636
|
|
|
5,786,844
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,614,985
|
|
|
8,244,817
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
Preferred
stock - $0.001 par value, 20,000,000
shares authorized Series A
Convertible Preferred Stock,
$0.001 par value, 2,000 shares
designated,
591.6318 issued and outstanding
as of October 31, 2007 and
April 30,
2007
|
|
|
1
|
|
|
1
|
|
Common
stock, $0.001 par value, 100,000,000
shares authorized, 15,459,137
shares
issued and outstanding as of
October 31, 2007 and April
30,
2007
|
|
|
15,460
|
|
|
14,293
|
|
Additional
paid-in capital
|
|
|
7,614,859
|
|
|
7,604,360
|
|
Deficit
accumulated during development
stage
|
|
|
(11,204,549
|
)
|
|
(15,796,145
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(3,574,229
|
)
|
|
(8,177,491
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
40,756
|
|
$
|
67,326
|
|
|
|
|
|
|
|
|
|
Somanta
Pharmaceuticals, Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
Three
Months and Six Months Ended October 31,
2007 and 2006 and for the
Period
from
Inception of Operations
(April
19, 2001) to October 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Inception
of
Operations
(April 19, 2001) to
October 31,
2007
|
|
|
|
Three
Months Ended
October 31,
|
|
Six
Months Ended
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
357
|
|
$
|
357
|
|
$
|
714
|
|
$
|
714
|
|
$
|
3,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
(293,809
|
)
|
|
(874,810
|
)
|
|
(726,685
|
)
|
|
(1,700,359
|
)
|
|
(8,063,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
(269,688
|
)
|
|
(583,318
|
)
|
|
(321,827
|
)
|
|
(901,352
|
)
|
|
(3,422,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(563,140
|
)
|
|
(1,457,771
|
)
|
|
(1,047,798
|
)
|
|
(2,600,997
|
)
|
|
(11,482,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
—
|
|
|
11,475
|
|
|
5
|
|
|
28,554
|
|
|
40,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(20,181
|
)
|
|
—
|
|
|
(27,316
|
)
|
|
—
|
|
|
(1,043,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidated
damages
|
|
|
—
|
|
|
85,302
|
|
|
—
|
|
|
(35,200
|
)
|
|
(35,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of warrant liabilities
|
|
|
88,157
|
|
|
119,762
|
|
|
5,669,206
|
|
|
394,324
|
|
|
2,875,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on settlement of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation loss
|
|
|
(589
|
)
|
|
(768
|
)
|
|
(710
|
)
|
|
(2,002
|
)
|
|
(34,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(495,753
|
)
|
|
(1,242,000
|
)
|
|
4,593,387
|
|
|
(2,215,321
|
)
|
|
(9,674,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(1,600
|
)
|
|
—
|
|
|
(1,791
|
)
|
|
(250
|
)
|
|
(7,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(497,353
|
)
|
|
(1,242,000
|
)
|
|
4,591,596
|
|
|
(2,215,571
|
)
|
|
(9,682,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividends on convertible preferred
stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,522,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to
common shareholders
|
|
$
|
(497,353
|
)
|
$
|
(1,242,000
|
)
|
$
|
4,591,596
|
|
$
|
(2,215,571
|
)
|
$
|
(11,204,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share-basic
|
|
$
|
(0.03
|
)
|
$
|
(0.09
|
)
|
$
|
0.31
|
|
$
|
(0.16
|
)
|
$
|
(0.84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding—basic
|
|
|
14,630,402
|
|
|
14,274,534
|
|
|
14,630,402
|
|
|
14,274,534
|
|
|
13,364,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share-diluted
|
|
$
|
(0.03
|
)
|
$
|
(0.09
|
)
|
$
|
0.19
|
|
$
|
(0.16
|
)
|
$
|
(0.84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding—diluted
|
|
|
14,630,402
|
|
|
14,274,534
|
|
|
23,889,527
|
|
|
14,274,534
|
|
|
13,364,892
|
|
The
accompanying notes to condensed consolidated
financial statements are an
integral part of these statements.
Somanta
Pharmaceuticals, Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
For
the Period from Inception of Operations
(April 19, 2001) to October 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Shares
to
be
Issued
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 19, 2001 (Inception)
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Shares
issued for cash at $.0326
|
|
|
|
|
|
|
|
|
4,299,860
|
|
|
4,300
|
|
|
135,680
|
|
|
—
|
|
Shares
issued for services at $.0139
|
|
|
|
|
|
|
|
|
514,674
|
|
|
515
|
|
|
11,801
|
|
|
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss—foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period from inception
to April 30, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 30, 2002
|
|
|
—
|
|
|
—
|
|
|
4,814,534
|
|
|
4,815
|
|
|
147,481
|
|
|
—
|
|
Shares
issued for cash at $1.0677
|
|
|
|
|
|
|
|
|
14,601
|
|
|
15
|
|
|
15,575
|
|
|
|
|
Shares
issued for services at $.0214
|
|
|
|
|
|
|
|
|
219,010
|
|
|
219
|
|
|
4,472
|
|
|
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt
of cash for subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss—foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended April
30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 30, 2003
|
|
|
—
|
|
|
—
|
|
|
5,048,145
|
|
|
5,049
|
|
|
167,528
|
|
|
—
|
|
Shares
issued for cash at $1.2479
|
|
|
|
|
|
|
|
|
350,164
|
|
|
350
|
|
|
436,637
|
|
|
|
|
Shares
issued for services at $1.2587
|
|
|
|
|
|
|
|
|
22,233
|
|
|
22
|
|
|
27,962
|
|
|
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
for loan payment and compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,371
|
|
|
|
|
Comprehensive
loss—foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended April
30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 30, 2004
|
|
|
—
|
|
|
—
|
|
|
5,420,542
|
|
|
5,421
|
|
|
813,498
|
|
|
—
|
|
Shares
issued for cash at $1.3218
|
|
|
|
|
|
|
|
|
374,073
|
|
|
374
|
|
|
494,069
|
|
|
|
|
Shares
issued for services at $1.2308
|
|
|
|
|
|
|
|
|
21,901
|
|
|
22
|
|
|
26,933
|
|
|
|
|
3,650
shares to be issued for service
at $1.4973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,465
|
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt
of cash for subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,515
|
|
|
|
|
Comprehensive
loss—foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended April
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 30, 2005
|
|
|
—
|
|
|
—
|
|
|
5,816,516
|
|
|
5,817
|
|
|
1,592,015
|
|
|
5,465
|
|
Write
off foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $1.5656
|
|
|
|
|
|
|
|
|
12,669
|
|
|
13
|
|
|
19,821
|
|
|
|
|
Shares
issued for prior service
|
|
|
|
|
|
|
|
|
3,650
|
|
|
3
|
|
|
5,462
|
|
|
(5,465
|
)
|
Amortization
of deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,616
|
|
|
|
|
Recapitalization
with Bridge Oncology
|
|
|
|
|
|
|
|
|
7,865,000
|
|
|
7,865
|
|
|
(92,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature associated
with convertible debt
financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,721
|
|
|
|
|
Convertible
Series A Preferred shares issued
for cash at $10,000
(net
of issuance costs of $544,169)
|
|
|
464
|
|
|
0.464
|
|
|
|
|
|
|
|
|
4,095,830
|
|
|
|
|
Convertible
Series A Shares issued on conversion
of notes payable
|
|
|
128.6318
|
|
|
0.1286
|
|
|
|
|
|
|
|
|
1,286,318
|
|
|
|
|
Deemed
dividend on account of beneficial
conversion feature associated
with
issuance of Convertible Series
A Preferred Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,522,317
|
|
|
|
|
Issuance
costs on warrants issued to
placement agent in connection
with the
Convertible Series A Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(429,757
|
)
|
|
|
|
Discount
on warrant issued with Convertible
Series A Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,048,531
|
)
|
|
|
|
Recapitalization
with Hibshman Optical Corp.
|
|
|
|
|
|
|
|
|
576,700
|
|
|
577
|
|
|
(7,708
|
)
|
|
|
|
Warrant
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,689
|
|
|
|
|
Net
loss for the year ended April
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 30, 2006
|
|
|
592.6318
|
|
|
.5926
|
|
|
14,274,535
|
|
|
14,275
|
|
|
6,701,458
|
|
|
—
|
|
Options
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,000
|
|
|
|
|
Warrant
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,920
|
|
|
|
|
Conversion
of preferred stock
|
|
|
(1.000
|
)
|
|
(.0010
|
)
|
|
18,069
|
|
|
18
|
|
|
(18
|
)
|
|
|
|
Net
loss for the year ended April
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at April 30, 2007
|
|
|
591.6318
|
|
|
.5916
|
|
|
14,292,604
|
|
|
14,293
|
|
|
7,604,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somanta
Pharmaceuticals, Inc.
(Formerly
Hibshman Optical Corp.)
(A
Development Stage Company)
Six
Months Ended October 31, 2007 and 2006
and for the Period from Inception of
Operations
(April
19, 2001) to October 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
Inception of
Operations
(April
19, 2001) to
October
31, 2007
|
|
|
|
Six
Months Ended October 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used for)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
4,591,596
|
|
$
|
(2,215,571
|
)
|
$
|
(9,682,232
|
)
|
Adjustments
to reconcile net loss to net
cash provided by (used for)
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,690
|
|
|
2,770
|
|
|
9,684
|
|
Gain
on sale of equipment
|
|
|
—
|
|
|
(622
|
)
|
|
(622
|
)
|
Amortization
of stock based expense
|
|
|
—
|
|
|
—
|
|
|
39,520
|
|
Write
off foreign currency translation
adjustment
|
|
|
—
|
|
|
—
|
|
|
25,931
|
|
Change
in fair value of warrant liabilities
|
|
|
(5,669,206
|
)
|
|
(394,324
|
)
|
|
(2,875,631
|
)
|
Shares
issued for services and compensation
|
|
|
—
|
|
|
—
|
|
|
219,262
|
|
Gain
on settlement of debts
|
|
|
—
|
|
|
—
|
|
|
(5,049
|
)
|
Options
expense
|
|
|
—
|
|
|
124,376
|
|
|
1,297,131
|
|
Warrants
expense
|
|
|
—
|
|
|
—
|
|
|
256,609
|
|
Interest
expense related to beneficial
conversion feature on convertible
note
|
|
|
—
|
|
|
—
|
|
|
364,721
|
|
Interest
expense related to warrants
issued on convertible note
|
|
|
—
|
|
|
—
|
|
|
514,981
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in assets -
|
|
|
|
|
|
|
|
|
|
|
VAT
receivable
|
|
|
—
|
|
|
1,628
|
|
|
3,444
|
|
Other
receivable
|
|
|
—
|
|
|
(22,509
|
)
|
|
—
|
|
Restricted
funds
|
|
|
2,000
|
|
|
(2,269
|
)
|
|
—
|
|
Prepaid
expenses
|
|
|
17,917
|
|
|
33,093
|
|
|
(25,120
|
)
|
Deposits
|
|
|
—
|
|
|
—
|
|
|
(73
|
)
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
229,784
|
|
|
214,931
|
|
|
1,012,445
|
|
Accrued
liabilities
|
|
|
(42,418
|
)
|
|
783,221
|
|
|
1,311,994
|
|
Liquidated
damages
|
|
|
—
|
|
|
35,200
|
|
|
35,200
|
|
Deferred
revenue
|
|
|
(714
|
)
|
|
(714
|
)
|
|
6,429
|
|
Due
to officers and related parties
|
|
|
75,140
|
|
|
152,003
|
|
|
171,120
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used for operating activities
|
|
|
(793,211
|
)
|
|
(1,288,787
|
)
|
|
(7,320,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows used for investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
—
|
|
|
—
|
|
|
(24,824
|
)
|
Proceeds
from sale of equipment
|
|
|
—
|
|
|
2,000
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used for investing activities
|
|
|
—
|
|
|
2,000
|
|
|
(22,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Loan
payable—related party
|
|
|
—
|
|
|
—
|
|
|
79,402
|
|
Loan
payment-related party
|
|
|
—
|
|
|
—
|
|
|
(7,367
|
)
|
Proceeds
from convertible note-related
party
|
|
|
—
|
|
|
—
|
|
|
1,250,000
|
|
Proceeds
from note payable
|
|
|
789,250
|
|
|
—
|
|
|
822,712
|
|
Proceeds
from issuance of common stock
|
|
|
—
|
|
|
—
|
|
|
928,125
|
|
Proceeds
from issuance of preferred
stock
|
|
|
—
|
|
|
—
|
|
|
4,095,831
|
|
Cash
received for subscription receivable
|
|
|
—
|
|
|
—
|
|
|
175,801
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing
activities
|
|
|
789,250
|
|
|
—
|
|
|
7,344,504
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on
cash
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash
|
|
|
(3,961
|
)
|
|
(1,286,787
|
)
|
|
1,424
|
|
Cash,
beginning of
period
|
|
|
5,385
|
|
|
1,587,751
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of
period
|
|
$
|
1,424
|
|
$
|
300,964
|
|
$
|
1,424
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax paid
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash operating
and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Loan
reduction with shares
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,909
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
from issuance of convertible
stock
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants in conjunction
with convertible preferred
stock
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,341,785
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividends related to convertible
preferred stock
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,522,317
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of note and accrued interest
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,286,318
|
|
Accrued
issuance costs related to convertible
stock
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes to condensed consolidated
financial statements are an
integral part of these statements.
SOMANTA
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
1.
|
ORGANIZATION,
BASIS OF PRESENTATION, AND
NATURE OF
OPERATIONS
|
Organization
Somanta
Pharmaceuticals, Inc. is a Delaware corporation
that was formed for the purpose
of effecting the reincorporation of Hibshman
Optical Corp., a New Jersey
corporation, into the State of Delaware
and for the purpose of consummating a
business combination via a reverse merger
of Somanta Incorporated and Hibshman
Optical Corp. Pursuant to this reverse
merger, Somanta Incorporated became the
wholly-owned subsidiary of Somanta Pharmaceuticals,
Inc. and the sole operating
subsidiary of Somanta Pharmaceuticals,
Inc. For financial reporting purposes,
this transaction has been reflected in
the accompanying financial statements
as
a recapitalization of Somanta Incorporated
and the financial statements of
Somanta Pharmaceuticals, Inc. reflect
the historical financial information
of
Somanta Incorporated. References herein
to the “Company” or “Somanta” are
intended to refer to each of Somanta
Pharmaceuticals, Inc. and its wholly
owned
subsidiary Somanta Incorporated, as well
as Somanta Incorporated’s wholly-owned
subsidiary Somanta Limited.
Hibshman
Optical Corp. was originally incorporated
in the State of New Jersey in 1991
under the name PRS Sub I, Inc. The name
subsequently changed to Service Lube,
Inc., then to Fianza Commercial Corp.
and then to Hibshman Optical Corp. The
business plan since that time had been
to seek to enter into a business
combination with an entity that had ongoing
operations through a reverse merger
or other similar type of transaction.
Somanta
Incorporated was incorporated as Somantis
Limited under the laws of England and
Wales on April 19, 2001. Somantis Limited
changed its name to Somanta Limited on
March 14, 2005, and performed business
as a United Kingdom entity through the
fiscal year ending April 30, 2005. On
August 22, 2005, Somanta Limited became
a
wholly owned subsidiary of Bridge Oncology
Products, Inc. (“BOPI”), a privately
held Delaware corporation, pursuant to
a share exchange with BOPI; however,
Somanta Limited was deemed the accounting
acquirer in this share exchange
transaction. On August 24, 2005, the
name of BOPI was changed to Somanta
Incorporated.
Somanta
Pharmaceuticals, Inc. is a development
stage biopharmaceutical company engaged
in the development of products for the
treatment of cancer. The Company has
in-licensed four product development
candidates from academic and research
institutions in the United States and
Europe designed for use in anti-cancer
therapy in order to advance them along
the regulatory and clinical pathways
toward commercial approval. The Company
intends to obtain approval from the
United States Food and Drug Administration
(“FDA”) and from the European
Medicines Evaluation Agency (“EMEA”) for the products.
Somanta
is a development stage enterprise since
the Company has not generated revenue
from the sale of its products, and its
efforts have been principally devoted
to
identification, licensing and clinical
development of its products as well as
raising capital through October 31, 2007.
Accordingly, the financial statements
have been prepared in accordance with
the provisions of Statement of Financial
Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development
Stage Enterprises.”
Basis
of Presentation
The
accompanying unaudited condensed interim
consolidated financial statements have
been prepared in accordance with accounting
principles generally accepted in the
United States of America for interim
financial information and with the
instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly, they
do not include all of the information
and footnotes required by accounting
principles generally accepted in the
United States of America for complete
financial statements. These condensed
consolidated financial statements should
be read in conjunction with the consolidated
financial statements and notes for
the years ended April 30, 2007 and 2006.
The
preparation of financial statements in
conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the amounts reported in the financial
statements and accompanying notes.
Actual results could differ from those
estimates. In the opinion of management,
all adjustments (consisting solely of
normal recurring adjustments) considered
necessary for a fair presentation have
been included. Operating results for
the
six months ended October 31, 2007 are
not necessarily indicative of the results
that may be expected for the full fiscal
year ending April 30,
2008.
The
Company reported a net income and net
income applicable to common stockholders
of $4,591,596 for the six month period
ended October 31, 2007. The net loss
from
date of inception, April 19, 2001 to
October 31, 2007, totaled $9,682,232
(net
loss applicable to common stockholders
of $11,204,549). The Company’s operating
activities have used cash since its inception.
These losses raise substantial
doubt about the Company’s ability to continue as a going concern.
On
April 18, 2007, the Company, Somanta
Incorporated, a wholly-owned subsidiary
of
the Company and Somanta Limited, a wholly-owned
subsidiary of Somanta
Incorporated, and Access Pharmaceuticals,
Inc. (“Access”) and Somanta
Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of Access
and
a Delaware corporation, entered into
an Agreement and Plan of Merger (the
“Merger Agreement”). Pursuant to the terms and subject
to the conditions set
forth in the Merger Agreement, Merger
Sub will merge with and into Somanta,
with
Somanta continuing as the surviving corporation
and becoming a wholly-owned
subsidiary of Access (the “Merger”). The Board of Directors of Somanta
has
approved the Merger and the Merger Agreement.
On August 17, 2007 the Company’s
stockholders approved the merger.
In
connection with the Merger, all of Somanta’s common stock that is outstanding at
the effective time of the Merger (the
“Effective Time”) will be converted into
500,000 shares of Access common stock.
No fractional shares of Access common
stock will be issued as a result of the
Merger. In addition, all of Somanta’s
preferred stock, included accrued and
unpaid dividends, that is outstanding
at
the Effective Time of the Merger will
be converted into 1,000,000 shares of
Access’ common stock. No shares of Access preferred
stock will be issued as a
result of the Merger.
On
April 26, 2007, the Company entered into
a Note Purchase Agreement, a Security
Agreement, a Patent Collateral Assignment
and Security Agreement and a Trademark
Collateral Security and Pledge Agreement
(collectively, the “Loan Documents”)
with Access Pharmaceuticals, Inc. as
more fully described in Note 7. Under
the
terms of the Loan Documents, Access initially
loaned the Company $33,462
($822,712 at October 31, 2007). Access,
in its sole discretion, may from time
to
time advance additional loan amounts
to the Company. All amounts loaned to
the
Company by Access are secured by substantially
all of the assets of the Company
pursuant to the terms of the Loan Documents.
The Note bears interest at 10% and
is repayable at the earlier of: (i) August
31, 2007, or (ii) the date of the
termination of the Agreement and Plan
of Merger dated as of August 18, 2007
between the Company and Access. No demand
for repayment has been made by Access.
To date the Merger has not closed since
the Company has not been able to meet
one of the key closing conditions.
If
the merger fails to close, the Company
expects that it will no longer be able
to
operate its business and will not have
the resources to repay the
loan.
The
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 possible inability
of
the Company to continue as a going concern.
Reclassifications
For
comparative purposes, prior periods’ consolidated financial statements have
been
reclassified to conform with report classifications
of the current period. The
Company has reclassified certain expenses
related to the in-licensing of product
candidates, milestone and license maintenance
payments and patent expense from
general and administrative expense to
research and development
expense.
Share-Based
Compensation
On
December 16, 2004, the FASB issued SFAS
No. 123 (revised 2004), “Share-Based
Payment” (SFAS 123R). SFAS 123R eliminates the
alternative of applying the
intrinsic value measurement provisions
of APB 25 to stock compensation awards
issued to employees. Rather, the new
standard requires enterprises to measure
the cost of employee services received
in exchange for an award of equity
instruments based on the grant-date fair
value of the award. That cost will be
recognized over the period during which
an employee is required to provide
services in exchange for the award, known
as the requisite service period
(usually the vesting period). On April
14, 2005, the Securities and Exchange
Commission announced the adoption of
a rule that defers the required effective
date of SFAS 123R. The SEC rule provides
that SFAS 123R is now effective for
registrants as of the beginning of the
first fiscal year beginning after June
15, 2005.
Effective
May 1, 2006, the Company adopted SFAS
123R and accordingly has adopted the
modified prospective application method.
Under this method, SFAS 123R is applied
to new awards and to awards modified,
repurchased, or cancelled after the
effective date. Additionally, compensation
cost for the portion of awards that
are outstanding as of the date of adoption
for which the requisite service has
not been rendered (such as unvested options)
is recognized over a period of time
as the remaining requisite services are
rendered.
Prior
to May 1, 2006, the Company accounted
for its employee stock option plan in
accordance with the provisions of SFAS
No. 123, “
Accounting
for Stock-Based
Compensation
,” and SFAS No. 148, “
Accounting
for Stock-Based
Compensation – Transition and Disclosure
.”
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standard No.
107, Disclosures About Fair Value of
Financial Instruments, requires that
the company disclose estimated fair values
of financial instruments. The carrying
amounts reported in the balance sheets
for current assets and current liabilities
qualifying as financial instruments
are a reasonable estimate of fair value.
Basic
and diluted net income (loss) per share
Net
income (loss) per share is calculated
in accordance with the Statement of
Financial Accounting Standards No. 128
(SFAS No. 128). Basic net income (loss)
per share is based upon the weighted
average number of common shares
outstanding. Diluted net income (loss)
per share is based on the assumption
that
all potential dilutive convertible shares
and stock options or warrants were
converted or exercised.
The
Company has the following dilutive convertible
shares, stock options and
warrants as of October 31, 2007 and 2006
which were excluded from the
calculation for the six months ended
October 31, 2007 and from inception to
date
since the effect is anti-dilutive. For
the six months ended October 31, 2007,
the convertible preferred stock have
been included.
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
Three
Months
Ended
October 31
|
|
Six
Months
Ended
October 31
|
|
2006
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
9,859,125
|
|
|
9,859,125
|
|
|
9,877,194
|
|
Stock
options
|
|
|
—
|
|
|
—
|
|
|
3,642,747
|
|
Warrants
|
|
|
5,936,304
|
|
|
7,102,838
|
|
|
6,952,838
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,795,429
|
|
|
16,961,963
|
|
|
20,472,779
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company’s undeclared dividends on its Preferred
Stock amounting to $115,605 for
the three months ended October 31, 2007
are included in the computation of net
income per share for the period ended
October 31, 2007 in accordance with SFAS
No. 129.
Aggregate
undeclared dividends on Preferred Stock
amounting to $820,918 are included in
the computation of net loss per share
for the period from inception (April
19,
2001) to October 31, 2007.
Recent
Accounting Pronouncements
In
February 2006, the FASB issued SFAS 155
“Accounting for Certain Hybrid Financial
Instruments,” an amendment of FASB Statement No. 133
and in February 2006, the
FASB issued SFAS 155, “Accounting for Certain Hybrid Financial
Instruments,” an
amendment of FASB Statements No. 133
and 140. This Statement amends FASB
Statements No. 133, “Accounting for Derivative Instruments
and Hedging
Activities,” and No. 140, “Accounting for Transfers and Servicing
of Financial
Assets and Extinguishments of Liabilities”. This Statement resolves issues
addressed in Statement 133 Implementation
Issue No. D1, Application of Statement
133 to Beneficial Interests in Securitized
Financial Assets. This
Statement:
|
|
|
|
a.
|
Permits
fair value remeasurement for
any hybrid financial instrument
that contains
an embedded derivative that
otherwise would require
bifurcation;
|
|
|
|
|
b.
|
Clarifies
which interest-only strips
and principal-only strips are
not subject to
the requirements of Statement
133;
|
|
|
|
|
c.
|
Establishes
a requirement to evaluate interests
in securitized financial assets
to
identify interests that are
freestanding derivatives or
that are hybrid
financial instruments that
contain an embedded derivative
requiring
bifurcation;
|
|
|
|
|
d.
|
Clarifies
that concentrations of credit
risk in the form of subordination
are not
embedded derivatives; and
|
|
|
|
|
e.
|
Amends
Statement 140 to eliminate
the prohibition on a qualifying
special-purpose
entity from holding a derivative
financial instrument that pertains
to a
beneficial interest other than
another derivative financial
instrument.
|
This
Statement is effective for all financial
instruments acquired or issued after
the beginning of an entity’s first fiscal year that begins after
September 15,
2006. The fair value election provided
for in paragraph 4(c) of this Statement
may also be applied upon adoption of
this Statement for hybrid financial
instruments that had been bifurcated
under paragraph 12 of Statement 133 prior
to the adoption of this Statement. Earlier
adoption is permitted as of the
beginning of an entity’s fiscal year, provided the entity has
not yet issued
financial statements, including financial
statements for any interim period for
that fiscal year. Provisions of this
Statement may be applied to instruments
that an entity holds at the date of adoption
on an instrument-by-instrument
basis. The Company has no new instruments
impacted by SFAS 155.
In
March 2006, the FASB issued SFAS No.
156 (“FAS 156”), “Accounting for Servicing
of Financial Assets-An Amendment of FASB
Statement No. 140.” Among other
requirements, FAS 156 requires a company
to recognize a servicing asset or
servicing liability when it undertakes
an obligation to service a financial
asset by entering into a servicing contract
under certain situations. Under FAS
156 an election can also be made for
subsequent fair value measurement of
servicing assets and servicing liabilities
by class, thus simplifying the
accounting and providing for income statement
recognition of potential
offsetting changes in the fair value
of servicing assets, servicing liabilities
and related derivative instruments. The
Statement will be effective beginning
the first fiscal year that begins after
September 15, 2006. The Company does
not
expect the adoption of FAS 156 will have
a material impact on the financial
position or results of operations.
In
June 2006, the FASB issued FASB Interpretation
(FIN) No. 48, “Accounting for
Uncertainty in Income Taxes,” that provides guidance on the accounting
for
uncertainty in income taxes recognized
in financial statements. The
interpretation was adopted by us on May
1, 2007. Because of the Company’s
operating losses, adoption of this provision
does not have material effect on
the financial position, results of operations
or cash flows.
In
July 2006, the FASB issued FASB Staff
Position (FSP) No. FAS 13-2, “Accounting
for a Change or Projected Change in the
Timing of Cash Flows Relating to Income
Taxes Generated by a Leveraged Lease
Transaction,” that provides guidance on how
a change or a potential change in the
timing of cash flows relating to income
taxes generated by a leveraged lease
transaction affects the accounting by
a
lessor for the lease. This staff position
was adopted by us on May 1, 2007. The
Company does not expect the adoption
of this provision to have a material
effect
on the financial position, results of
operations or cash flows.
In
September 2006, the FASB issued Statement
No. 157, “
Fair
Value Measurements
”
(SFAS 157). This Statement defines
fair value, establishes a framework for
measuring fair value in generally accepted
accounting principles (GAAP), and
expands disclosures about fair value
measurements. This Statement applies
under
other accounting pronouncements that
require or permit fair value measurements,
the Board having previously concluded
in those accounting pronouncements that
fair value is the relevant measurement
attribute. Accordingly, this Statement
does not require any new fair value measurements.
However, for some entities,
the application of this Statement will
change current practice. This Statement
is effective for financial statements
issued for fiscal years beginning after
November 15, 2007, and interim periods
within those fiscal years. The Company
does not expect the adoption of SFAS
No. 157 to have a material impact on
the
consolidated financial statements.
In
September 2006, the FASB issued Statement
No. 158, “
Employers’
Accounting
for Defined
Benefit Pension and Other Postretirement
Plans—an amendment of FASB Statements
No. 87, 88, 106, and 132(R)
” (SFAS 158). This Statement improves
financial reporting by requiring an employer
to recognize the over funded or
under funded status of a defined benefit
postretirement plan (other than a
multiemployer plan) as an asset or liability
in its statement of financial
position and to recognize changes in
that funded status in the year in which
the
changes occur through comprehensive income
of a business entity or changes in
unrestricted net assets of a not-for-profit
organization. This Statement also
improves financial reporting by requiring
an employer to measure the funded
status of a plan as of the date of its
year-end statement of financial position,
with limited exceptions. This Statement
is effective as of the end of the fiscal
year ending after December 15, 2006.
The Company does not have any defined
benefit plans, or other post-retirement
plans. Therefore, the Company does not
expect SFAS No. 158 to have any impact
on the consolidated financial
statements.
In
February 2007, the FASB issued SFAS No.
159,
“The
Fair Value Option for Financial
Assets and Financial Liabilities”.
The objective of this statement
is to
improve financial reporting by providing
entities with the opportunity to
mitigate volatility in reported earnings
caused by measuring related assets and
liabilities differently without having
to apply complex hedge accounting
provisions. This Statement is expected
by the Board to expand the use of fair
value measurement, consistent with the
Board’s long-term measurement objectives
for accounting for financial instruments.
This statement is effective for fiscal
years beginning after November 15, 2007.
The Company is currently evaluating the
impact of adopting this statement; however,
the Company does not expect the
adoption of this provision to have a
material effect on its financial position,
results of operations or cash flow.
In
December 2007, the FASB issued SFAS No.
141 (Revised 2007),
“Business
Combinations”.
The
objective of this statement will significantly
change the accounting for
business combinations. Under Statement
141R, an acquiring entity will be
required to recognize all the assets
acquired and liabilities assumed in a
transaction at the acquisition –date fair value will limited exceptions.
Statement 141 applies prospectively to
business combinations for which the
acquisition date is on or after the beginning
of the first annual reporting
period beginning on or after December
15, 2008. The Company does not expect
the
adoption of SFAS No. 141R to have a material
impact on the consolidated
financial statements.
In
December 2007, the FASB issued SFAS No.
160,
“Noncontrolling
Interests in
Consolidated Financial Statements-An
Amendment of ARB No. 51".
The
objective of this statement is to establish
new accounting and reporting
standards for the Noncontrolling interest
in a subsidiary and for the
deconsolidation of a subsidiary.. Statement
160 is effective for fiscal years,
and interim periods within those fiscal
years, beginning on or after December
15, 2008. The Company does not expect
the adoption of SFAS No. 160 to have
a
material impact on the consolidated financial
statements.
In
late 2007, the Emerging Issues Task Force
(“EITF”) added two new issues to their
agenda. These include EITF Issue No.
07-1,
“Accounting
for Collaborative
Arrangements Relating to the Development
and Commercialization of Intellectual
Property”,
and EITF Issue No. 07-3,
“Accounting
for Nonrefundable
Payments for Goods or Services to be
Used in Future Research and Development
Activities”.
The Company expects that its
activities will be subject to
the EITF’s determination on these matter.
On
January 31, 2006, Somanta Pharmaceuticals,
Inc. completed a private placement of
592.6318 shares of its Series A Convertible
Preferred Stock (“Series A
Preferred”) at a price of $10,000 per share, including
six-year warrants to
purchase an additional 4,938,598 shares
of its common stock. The Series A
Preferred shares consisted of 464 shares
purchased by investors which are
convertible into 7,733,333 shares of
common stock and 128.6318 shares that
gave
effect to the conversion amount of $1,286,318,
representing the value of the
converted note of $1,250,000 and the
associated accrued interest of $36,318.
The
total 592.6318 preferred shares are convertible
into 9,877,197 common shares.
Gross proceeds to Somanta were $4,640,000,
including $3,671,209 in cash,
payments to various vendors amounting
$968,791, which included cash payment
of
$624,105 to SCO Securities, LLC, its
placement agent.
The
Series A Preferred is initially convertible
into 9,877,197 shares of the
Company’s common stock at a conversion price
of $0.60 per share. The conversion
value is subject to adjustment. The exercise
price for the warrants is $0.75 per
share and they are immediately exercisable
upon issuance. The fair market value
of these warrants, as discussed further
below, was estimated to be $0.41 per
share. The warrants expire on January
31, 2012. None of the warrants have been
exercised as of October 31, 2007.
Holders
of the Series A Preferred stock are entitled
to receive dividends at 8% per
annum. Dividends will accrue and will
be cumulative from the date of issuance,
whether or not earned or declared by
the Board of Directors. Dividends can
be
paid at the Company’s option either in cash or shares of
the Company’s common
stock on April 30 and October 31 of each
year. The holders of the Series A
Preferred stock have full voting rights
and powers, subject to the Beneficial
Ownership Cap, equal to the voting rights
and powers of the Common stock
holders. The Board of Directors did not
declare the dividends as of October 31,
2007. Therefore, a dividend of $115,605
for the quarter ended October 31, 2007,
and $820,918 for the period from inception
(April 19, 2001) to October 31, 2007
on the Preferred Stock have not been
recorded in the consolidated financial
statements, but in accordance with SFAS
No. 129, the dividend amount has been
included in the calculation of the net
income per share.
The
Series A Preferred stockholders have
a liquidation preference, in the event
of
any voluntary or involuntary liquidation,
dissolution or winding up of the
Corporation, senior to the holders of
common stock in an amount equal to $10,000
per share of preferred stock plus any
accumulated and unpaid dividends on the
preferred stock. In the alternative,
the holders of the Series A Preferred
may
elect to receive the amount per share
that would be distributed among the
holders of the preferred stock and common
stock pro rata based on the number of
shares of the common stock held by each
holder assuming conversion of all
preferred stock, if such amount is greater
than the amount such holder would
receive pursuant to the liquidation preference.
A change of control of the
Corporation will not be deemed a liquidation.
The
Series A Preferred Stock is not redeemable
for cash. The holder of any share or
shares of Series A Preferred can, at
the holder’s option, at any time convert
all or any lesser portion of such holder’s shares of Series A Preferred Stock
into such number of shares of common
stock as is determined by dividing the
aggregate liquidation preference of the
shares of preferred stock to be
converted plus accrued and unpaid dividends
thereon by the conversion value then
in effect for such Preferred Stock (“Conversion Value”). The Company can, on the
occurrence of a conversion triggering
event, elect to convert all of the
outstanding preferred stock into common
stock. A conversion triggering event
is
(i) a time when the registration statement
covering the shares of common stock
into which the Series A Preferred is
convertible is effective and sales may
be
made pursuant thereto or all of the shares
of common stock into which the Series
A Preferred is convertible may be sold
without restriction pursuant to Rule
144(k) promulgated by the SEC and the
daily market price of the common stock,
after adjusting for stock splits, reverse
splits, stock dividends and the like
is $5 or more for a period of 30 of the
immediately preceding 60 consecutive
trading days and the volume of common
stock traded on the applicable stock
exchange on each such trading day is
not less than 100,000 shares, or (ii)
a
time when the Company consummates a sale
of common stock in a firm commitment
underwritten public offering in which
the offering price before deduction of
expenses of the common stock is greater
than 200% of the Conversion Value and
the aggregate gross proceeds of the offering
to the Company are greater than $25
million.
All
the outstanding preferred stock will
be automatically converted to common
stock
upon an occurrence of a qualified change
of control provided that upon
consummation of a qualified change of
control the holders of the shares issuable
on automatic conversion shall be entitled
to receive the same per share
consideration as the qualified change
of control transaction consideration.
The
holders of the Series A Preferred may
require the Company to redeem the shares
upon the Company’s failure or refusal to convert any shares
of Preferred Stock
in accordance with the terms of issue,
or by providing a written notice to that
effect.
The
Series A Preferred has been classified
as equity, as the Series A Preferred
stock is not redeemable. In accordance
with EITF No. 00–27,
Application
of Issue No. 98–5 to
Certain Convertible Instruments,
the Company has determined that
the
Series A Preferred had a beneficial conversion
feature of $1,522,317 as of the
date of issuance. As such, the Company
recorded a non-cash deemed dividend of
$1,522,317 resulting from the difference
between the conversion price determined
after allocation of the full fair value
of the warrants of $0.41 and the fair
value of common stock of $0.60. The carrying
value of the Series A Preferred of
$5,926,318 was recorded net of the deemed
dividend of $1,522,317 and a discount
of $2,048,531 on account of the full
fair value of the warrants at the issuance
date.
The
fair value of the above warrants has
been classified as a liability pursuant
to
EITF 00-19.
|
|
3.
|
LIQUIDATED
DAMAGES AND WARRANT LIABILITIES
|
In
connection with the additional $250,000
line of credit drawn pursuant to a
convertible note which was converted
into Series A Preferred on January 31,
2006
(Note 4), the Company issued warrants
to purchase a total of 866,534 shares
of
common stock at an exercise price of
$0.01 per share to SCO. The warrants
are
immediately exercisable upon issuance
and expire on November 8, 2012. The fair
market value of these warrants, as discussed
further below, was estimated to be
$0.59 per share. The assumptions used
in the Black-Scholes model were risk-free
interest rate of 4.5% at the time of
issuance, volatility factors of 97.24%
calculated as the weighted average of
the stock price volatility of ranked
comparable public companies, and contractual
terms equal to the exercise periods
of the respective warrants. The fair
value of the common stock as used in
this
calculation was $.60 per share, as negotiated
between the Company and the Series
A Convertible Preferred Stock investors.
These warrants were exercised on August
20, 2007 by a partial forgiveness of
$11,666 of debt owed by the Company to
SCO
Financial Group.
The
holders of the Series A Preferred and
warrants have registration rights which
obligate the Company to file a registration
statement with the Securities and
Exchange Commission (“SEC”) covering the resale of the common stock
issuable
upon conversion of the Series A Preferred
and the common stock issuable upon
exercise of the warrants (as well as
certain other securities of the Company)
within 30 days after the closing of the
private placement. In the event the
registration statement is not filed within
such thirty day period or if the
registration statement is not effective
within 120 days after the date it is
filed, or a registration statement, once
declared effective ceases to remain
effective during the period that the
securities covered by the agreement are
not
sold, the Company will be required to
pay, in cash, liquidated damages for
such
failure, equal to 1% of the holders of
the Series A Preferred investment amount
for each thirty day period in which the
registration statement is not filed or
effective, or maintained effective, as
the case may be. The SEC declared the
Registration Statement effective on August
10, 2006.
In
accordance with EITF Issue 05-4,
The
Effect of a Liquidated Damages
Clause on a Freestanding Financial Instrument
Subject to Issue No. 00-19
,
the Company believes that the effect
of the liquidated damages should be treated
under the first view (View A), which
states that a registration rights agreement
should be treated as a combined unit
together with the underlying financial
instruments, warrants and derivative
debenture and evaluated as a single
instrument under EITF Issue 00-19 and
FAS 133. The Company concluded that this
view is the most appropriate for the
transaction. The Registration Rights
Agreement and the financial instruments
to which it pertains (the warrants and
the preferred stock) were considered
a combined instrument and accounted for
accordingly. The SEC declared the Registration
Statement effective on August 10,
2006. As a result, during the quarter
ended July 31, 2006, the Company accrued
a
liability of liquidated damages of $120,502.
During the quarter ended October
31, 2006 an agreement was reached with
SCO on the liquidated damages matter.
The
agreement concluded that since the securities
owned by SCO Capital Partners, LLC
were not registered because SCO voluntarily
withdrew them from the Registration
because of the resale restrictions required
by the SEC, the Company is not
obligated for any liquidated damages
pertaining specifically to SCO Capital
Partners, LLC. Accordingly, the Company
reversed out $85,302 of liquidated
damages in the prior quarter ended October
31, 2006.
The
Company also issued six year warrants
to its placement agent to purchase 987,720
common shares at $0.60 per share to SCO
Securities LLC, as part of the success
fees of 10% of the aggregate value of
the transaction at sales price of common
stock. These warrants are immediately
exercisable upon issuance. The fair value
of these warrants at the date of issue
was estimated to be $0.44 per share and
has been recorded as issuance costs and
offset against the proceeds of the
Series A Preferred.
The
fair value of warrants issued in connection
with the issue of convertible debt
and convertible preferred stock, including
the agent warrants, was estimated at
the date of grant and revalued at October
31, 2007 using a Black Scholes option
pricing model with the following assumptions:
a risk free interest rate of
approximately 4.5% at the issuance date
and 3.94% on October 31, 2007, no
dividend yield, volatility factors of
81.89% to 97.24% at the issuance date
and
53.6% at October 31, 2007, contractual
terms of 6 and 7 years and expected terms
based upon the formula prescribed in
SEC Staff Accounting Bulletin 107 of
2.1
years and years. These assumptions use
the interest rate prevailing at the time
of issuance, volatility factors calculated
as the weighted average of the stock
price volatility of ranked comparable
public companies, and contractual terms
equal to the exercise periods of the
respective warrants. The fair value of
the
common stock as used in this calculation
was $.60 per share at the issuance
date, as negotiated between the Company
and unaffiliated third party Series A
investors, and $0.17 on October 31, 2007.
The change in fair value of the
warrants for the three months ended October
31, 2007 of $88,157, was reported in
other income and disclosed in the financial
statements.
The
following table summarizes the activity
for warrants issued during the six month
period ended October 31, 2007.
On
August 20, 2007, SCO Capital Partners
LLC exercised warrants on 1,166,534 shares
of common stock at $.01 per share by
foregiving $11,666 owed by the Company
to
SCO Financial Group LLC.
|
|
|
|
|
|
|
|
|
|
Number
of
shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
Balance—April
30, 2007
|
|
|
7,102,838
|
|
|
0.61
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
1,166,534
|
|
|
0.001
|
|
Forfeited
|
|
|
—
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance—October
31, 2007
|
|
|
5,936,304
|
|
|
0.61
|
|
|
|
|
|
|
|
|
|
The
following table summarizes information
about warrants outstanding as of October
31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding
|
|
|
|
|
Warrants
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Prices
|
|
|
Number
Outstanding
|
|
Wtd.
Avg
Remaining
Contr.
Life
|
|
Wtd.
Avg
Exercise
Price
|
|
Number
Exercisable
|
|
Wtd.
Avg
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.60
|
|
|
|
987,720
|
|
|
4.2
years
|
|
$
|
0.60
|
|
|
987,720
|
|
$
|
0.60
|
|
$
|
0.75
|
|
|
|
4,938,597
|
|
|
4.2
years
|
|
$
|
0.75
|
|
|
4,938,597
|
|
$
|
0.75
|
|
$
|
2.25
|
|
|
|
9,987
|
|
|
2.5
years
|
|
$
|
2.25
|
|
|
9,987
|
|
$
|
2.25
|
|
|
|
4.
|
EMPLOYMENT
AND CONSULTING AGREEMENTS
|
In
January 2006, the Company entered into
employment agreements with the Company’s
President and Chief Executive Officer
(“CEO”), and with the Company’s Executive
Chairman, for one year terms. These agreements
were automatically renewed for an
additional oneyear term on January 31,
2007. Under these agreements, the
President and Executive Chairman are
to be paid annual base salaries of $275,000
and $248,000, respectively. Both officers
are eligible to receive annual bonuses
and additional stock option grants at
the discretion of the Company’s board of
directors. In July 2006, the Company’s CEO and Executive Chairman agreed to
defer 50% of their base salaries until
the completion of the Company’s next fund
raising at which time the deferred amounts
would be repaid and the deferrals
would cease. Effective October 1, 2006,
the Company’s CEO and Executive Chairman
agreed to defer 100% of their base salaries
until the completion of the
Company’s next fund raising, or the completion
of a merger or other
consolidation with another company, at
which time the deferred amounts would
be
repaid and the deferrals would cease.
Effective June 30, 2006, our Executive
Chairman was appointed by our Board to
be our Chief Financial Officer, Secretary
and Treasurer.
|
|
5.
|
STOCK-
BASED COMPENSATION
|
The
Board of Directors adopted and the stockholders
approved the 2005 Equity
Incentive Plan in June 2005. The plan
was adopted to recognize the contributions
made by the Company’s employees, officers, consultants, and
directors, to
provide those individuals with additional
incentive to devote themselves to its
future success, and to improve the Company’s ability to attract, retain and
motivate individuals upon whom the Company’s growth and financial success
depends. Under the plan, stock options
may be granted as approved by the Board
of Directors or the Compensation Committee.
There are 8,000,000 shares reserved
for grants of options under the plan,
of which 2,204,701 have been issued as
substitutions with the exact same terms
for the 2,204,701 previously issued
options outstanding as of April 30, 2005.
Stock options vest pursuant to
individual stock option agreements. No
options granted under the plan are
exercisable after the expiration of ten
years (or less in the discretion of the
Board of Directors or the Compensation
Committee) from the date of the grant.
The plan will continue in effect until
terminated or amended by the Board of
Directors or until expiration of the
plan on August 31, 2015.
On
April 13, 2007, the Company’s Board of Directors approved a merger
agreement
with Access Pharmaceuticals, Inc, as
more fully described in Note 15. Under
the
terms of that agreement Access will not
assume, or provide a substitute option,
for any of the Company’s stock options. Rather, all of the outstanding
options
to purchase Company common stock issued
pursuant to the Company’s 2005 Equity
Incentive Plan will be cancelled prior
to the closing of the transaction in
accordance with Section 11.3(d) of the
Equity Incentive Plan. As a result,
pursuant to the terms of Section 11.3(d)
of the Equity Incentive Plan, the
Company’s Board of Directors has resolved to:
(i) allow the immediate and
accelerated vesting of all of the options
granted, and (ii) allowed the exercise
of the option in whole or in part until
May 31, 2007. Based on FAS 123(R), no
incremental expense was recorded for
these options with accelerated vesting
as
the fair value of the modified options
was less than the fair value of the
original options calculated immediately
before the terms were modified. None
of
the options were exercised thru May 31,
2007. Additional expense of $507,284
was
recorded in the year ended April 30,
2007 due to the acceleration of the
vesting. There is no stock-based compensation
expense for the three months ended
October 31, 2007.
|
|
6.
|
RELATED
PARTY TRANSACTIONS
|
Fees
Paid to Related Parties
Pursuant
to a financial advisory agreement dated
March 2005 between Bridge Oncology and
SCO Financial Group LLC (SCO), which
the Company has assumed, the Company
compensates SCO with a monthly fee of
$12,500 and an annual grant of warrants
to
purchase 150,000 shares of Company common
stock at an exercise price of $.01 for
the term of the agreement for financial
advisory services. The Company recorded
advisory service fees totaling $75,000
and $75,000 to SCO for the six months
ended October 31, 2007 and 2006, respectively.
Agreement
with Related Party
Virium
Pharmaceuticals, Inc.
The
Company entered into an exclusive co-development
and sublicense agreement in
February 2005 with a related entity,
Virium Pharmaceuticals, Inc. These two
entities share a common director and
their largest single shareholder, SCO
Capital Partners LLC. On May 19, 2005,
the Company paid $50,000 to this related
party to in-license phenylbutyrate and
expensed this amount.
On
April 26, 2007, the Company entered into
a Note Purchase Agreement, a Security
Agreement, a Patent Collateral Assignment
and Security Agreement and a Trademark
Collateral Security and Pledge Agreement
(collectively, the “Loan Documents”)
with Access Pharmaceuticals, Inc. (“Access”). Under the terms of the Loan
Documents, Access initially loaned the
Company $33,462 ($822,712 at October
31,
2007). Access, in its sole discretion,
may from time to time advance additional
loan amounts to the Company. All amounts
loaned to the Company by Access are
secured by substantially all of the assets
of the Company pursuant to the terms
of the Loan Documents. The Note bears
interest at 10% and is repayable at the
earlier of: (i) August 31, 2007, or (ii)
the date of the termination of the
Agreement and Plan of Merger dated as
of August 18, 2007 between the Company
and
Access. To date the Merger has not closed
since the Company has not been able to
meet one of the key closing conditions.
No demand for repayment has been
received from Access.
On
April 18, 2007, the Company, Somanta
Incorporated, a wholly-owned subsidiary
of
the Company and Somanta Limited, a wholly-owned
subsidiary of Somanta
Incorporated, and Access Pharmaceuticals,
Inc. (“Access”) and Somanta
Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of Access
and
a Delaware corporation, entered into
an Agreement and Plan of Merger (the
“Merger Agreement”). Pursuant to the terms and subject
to the conditions set
forth in the Merger Agreement, Merger
Sub will merge with and into Somanta,
with
Somanta continuing as the surviving corporation
and becoming a wholly-owned
subsidiary of Access (the “Merger”). In addition, Access has received voting
agreements with certain executive officers,
directors and affiliates of Somanta
representing approximately 81% of Somanta’s outstanding common and approximately
60% of its outstanding preferred shares
under which the parties, subject to
certain limited exceptions, have granted
an irrevocable proxy to Access to vote
their shares in favor of the merger.
In
connection with the Merger, all of Somanta’s common stock that is outstanding at
the effective time of the Merger (the
“Effective Time”) will be converted into
500,000 shares of Access common stock.
No fractional shares of Access common
stock will be issued as a result of the
Merger. In addition, all of Somanta’s
preferred stock, including accrued and
unpaid dividends, that is outstanding
at
the Effective Time of the Merger will
be converted into 1,000,000 shares of
Access’ common stock. No shares of Access preferred
stock will be issued as a
result of the Merger.
As
of April 18, 2007, there were (i) 15,459,137
shares of Somanta’s common stock
outstanding, including 1,166,534 shares
issuable upon the exercise of warrants
that are expected to be exercised prior
to the Effective Time, and (ii) 591.6
shares of Somanta’s preferred stock outstanding. Also as
of April 18, 2007,
there were outstanding warrants to purchase
5,936,304 shares of Somanta’s common
stock that are not expected to be exercised
prior to the Effective Time and are
expected to be converted into warrants
to purchase approximately 192,000 shares
of Access’ common stock (subject to adjustment as
provided in the Merger
Agreement). On August 17, 2007, the Company’s stockholders approved the Merger.
On August 20, 2007, SCO Capital Partners
LLC exercised warrants on 1,166,534
shares of common stock at $.01 per share
by forgiving $11,622 owed by the
Company to SCO Financial Group LLC
The
completion of the Merger is subject to
various conditions to closing, including,
without limitation, obtaining the approval
of the Somanta stockholders. The
Merger is intended to qualify as reorganization
for federal income tax purposes.
To date the Merger has not closed since
the Company has not been able to meet
one of the key closing conditions.
As
of December 19, 2007, the Company had
borrowed $856,064 from Access under the
Secured Note (Footnote 7).
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
The
following unaudited pro forma condensed
combined financial statements apply to
the merger between Somanta, a Delaware
corporation, and Access, a Delaware
corporation, by which Somanta became
a wholly owned subsidiary of Access,
and
are based upon the historical condensed
consolidated financial statements and
notes thereto (as applicable) of Access
and Somanta, which are incorporated by
reference into this Registration Statement.
The unaudited pro forma condensed
combined balance sheet gives pro forma
effect to the merger as if the merger
had
been completed on September 30, 2007
and combines Access’s September 30, 2007
audited consolidated balance sheet with
Somanta’s October 31,
2007 audited consolidated balance sheet. The
unaudited pro forma condensed
combined statement of operations gives
pro forma effect to the merger as if
it
had been completed on January 1, 2006
and combines Access’
audited consolidated statement of operations
for the year ended December
31, 2006, with Somanta’s audited consolidated statement of operations
for the
twelve months ended April 30, 2007.
Somanta
preferred and common stockholders are
expected to receive 1,500,000 shares
of
Access common stock for Somanta common
stock they own at the completion of the
merger.
The
pro
forma adjustments are based upon available
information and certain assumptions
that Access believes are reasonable under
the circumstances. A final
determination of fair values relating
to the merger, which cannot be made prior
to the completion of the merger, may
differ materially from the preliminary
estimates and will include management’s final valuation of the fair value of
assets acquired and liabilities assumed.
This final valuation will be based on
the actual net tangible assets of Somanta
that exist as of the date of the
completion of the merger. The final valuation
may change the allocations of the
purchase price, which could affect the
fair value assigned to the assets and
liabilities and could result in a change
to the unaudited pro forma condensed
combined financial statements data.
These
unaudited pro forma condensed combined
financial statements should be read in
conjunction with the historical consolidated
financial statements and related
notes contained in the annual, quarterly
and other reports filed by Access and
Somanta with the SEC.
Pro
Forma Condensed Combined Balance Sheet
As
of September 30, 2007
(Unaudited)
Historical
|
|
Access
|
|
Somanta
|
|
Pro
Forma
Adjustments
|
|
|
|
Pro
Forma
Combined
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
661,000
|
|
$
|
2,000
|
|
|
|
|
|
|
|
$
|
663,000
|
|
Short
term investments, at cost
|
|
|
515,000
|
|
|
-
|
|
|
|
|
|
|
|
|
515,000
|
|
Receivables
|
|
|
861,000
|
|
|
-
|
|
|
(823
,000
|
)
|
|
(d
|
)
|
|
38,000
|
|
Prepaid
expenses and other current
expenses
|
|
|
530,000
|
|
|
25,000
|
|
|
(410,000
|
)
|
|
(c
|
)
|
|
145,000
|
|
Total
current assets
|
|
|
2,567,000
|
|
|
27,000
|
|
|
|
|
|
|
|
|
1,361,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
156,000
|
|
|
14,000
|
|
|
|
|
|
|
|
|
170,000
|
|
Patents
net
|
|
|
752,000
|
|
|
-
|
|
|
|
|
|
|
|
|
752,000
|
|
Other
assets
|
|
|
25,000
|
|
|
-
|
|
|
|
|
|
|
|
|
25,000
|
|
Total
assets
|
|
$
|
3,500,000
|
|
$
|
41,000
|
|
|
|
|
|
|
|
$
|
2,308,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payables and accrued expenses
|
|
$
|
1,595,000
|
|
$
|
2,353,000
|
|
|
(410,000
|
)
|
|
(c,d
|
)
|
$
|
3,538,000
|
|
Due
to related parties
|
|
|
-
|
|
|
281,000
|
|
|
|
|
|
|
|
|
281,000
|
|
Liquidated
damages related to Series A
|
|
|
-
|
|
|
35,000
|
|
|
(35,000
|
)
|
|
(b
|
)
|
|
-
|
|
Accrued
interest payable
|
|
|
1,023,000
|
|
|
-
|
|
|
|
|
|
|
|
|
1,023,000
|
|
Deferred
revenues
|
|
|
1,167,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
1,173,000
|
|
Warrant
liabilities
|
|
|
-
|
|
|
118,000
|
|
|
(118,000
|
)
|
|
(b
|
)
|
|
-
|
|
Current
portion of long-term debt
net
of discount
|
|
|
11,406,000
|
|
|
823,000
|
|
|
(823,000
|
)
|
|
(d
|
)
|
|
11,406,000
|
|
Total
current liabilities
|
|
|
15,191,000
|
|
|
3,616,000
|
|
|
|
|
|
|
|
|
17,421,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
5,500,000
|
|
|
-
|
|
|
|
|
|
|
|
|
5,500,000
|
|
Total
liabilities
|
|
|
20,691,000
|
|
|
3,616,000
|
|
|
|
|
|
|
|
|
22,921,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
Common
stock
|
|
|
36,000
|
|
|
15,000
|
|
|
15,000
(15,000
|
)
|
|
(a
(b
|
)
)
|
|
51,000
|
|
Additional
paid-in capital
|
|
|
69,687,000
|
|
|
7,615,000
|
|
|
7,485,000
(7,615,000
|
)
|
|
(a
(b
|
)
)
|
|
77,172,000
|
|
Notes
receivable from stockholders
|
|
|
(1,045,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
(1,045,000
|
)
|
Treasury
stock, at cost
|
|
|
(4,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
Accumulated
deficit
|
|
|
(85,865,000
|
)
|
|
(11,205,000
|
)
|
|
(7,500,000
|
)
|
|
(a
|
)
|
|
(96,787,000
|
)
|
|
|
|
|
|
|
|
|
|
(3,422,000
11,205,000
|
)
|
|
(b
(b
|
)
)
|
|
|
|
Total
stockholders’ deficit
|
|
|
(17,191,000
|
)
|
|
(3,575,000
|
)
|
|
|
|
|
|
|
|
(20,613,000
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
3,500,000
|
|
$
|
41,000
|
|
|
|
|
|
|
|
$
|
2,308,000
|
|
See
accompanying Notes to Pro Forma Condensed Combined Balance Sheet
Notes
to Pro Forma Condensed Combined Balance Sheet
|
Note
1: The above statement gives effect to the following pro forma adjustments
necessary to reflect the merger of Access and Somanta, as if the
transaction had occurred September 30, 2007. Somanta statements used
were October 31, 2007.
|
|
a)
|
To
record the exchange, for accounting purposes, by Somanta shareholders
of
their common stock (valued at $7,500,000) for 1,500,000 shares of
Access
(or 1,500,000 shares valued at the estimated stock price of $5.00
per
share) and record $1,000,000 in new warrant liability. The value
placed on
the shares was determined based on negotiation between the companies
of
the amount of Access shares to issue to Somanta shareholders and
the
estimated stock price of $5.00 per share. The excess purchase price
over
the fair value of Somanta's assets acquired is being charged to
deficit.
|
|
b)
|
To
eliminate the shareholders equity section and warrant liabilities
of
Somanta in connection with the merger and credit the net equity to
combined deficit.
|
|
c)
|
Accrual
of $410,000 of estimated legal, accounting and other professional
fees
relating to the merger.
|
|
d)
|
Eliminate
intercompany notes receivable and payable of
$823,000.
|
After
the
consummation of the transactions described herein, Access will have 100,000,000
common shares authorized, approximately 5,075,114 common shares issued and
outstanding, 2,000,000 preferred shares authorized and no preferred shares
issued.
Pro
Forma Condensed Combined Statement of Operations
For
the Nine Months Ended September 30, 2007
(Unaudited)
Historical
|
|
Access
|
|
Somanta
|
|
Pro
Forma
Combined
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,000
|
|
$
|
1,000
|
|
$
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,532,000
|
|
|
568,000
|
|
|
2,100,000
|
|
General
and administrative
|
|
|
3,252,000
|
|
|
1,969,000
|
|
|
5,221,000
|
|
Depreciation
and amortization
|
|
|
210,000
|
|
|
-
|
|
|
210,000
|
|
Total
expenses
|
|
|
4,994,000
|
|
|
2,537,000
|
|
|
7,531,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,988,000
|
)
|
|
(2,536,000
|
)
|
|
(7,524,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and miscellaneous income
|
|
|
72,000
|
|
|
12,000
|
|
|
84,000
|
|
Interest
and other expenses
|
|
|
(3,277,000
|
)
|
|
(27,000
|
)
|
|
(3,304,000
|
)
|
Change
in fair value of warrant liabilities
|
|
|
-
|
|
|
5,807,000
|
|
|
5,807,000
|
|
Currency
translation loss
|
|
|
-
|
|
|
(2,000
|
)
|
|
(2,000
|
)
|
|
|
|
(3,205,000
|
)
|
|
5,790,000
|
|
|
2,585,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(8,193,000
|
)
|
|
3,254,000
|
|
|
(4,939,000
|
)
|
Income
Tax
|
|
|
-
|
|
|
-
|
|
|
(4,000
|
)
|
Net
loss
|
|
$
|
(8,193,000
|
)
|
$
|
3,254,000
|
|
$
|
(4,943,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per
common
share
|
|
$
|
(2.31
|
)
|
$
|
0.22
|
|
$
|
(0.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic and
diluted
common shares outstanding
|
|
|
3,544,181
|
|
|
14,630,402
|
|
|
5,044,181
|
|
Notes
to
Pro Forma Condensed Combined Statement of Operations
Note
1:
The above statement gives effect to the merger of Access and Somanta, as if
the
merger had occurred on January 1, 2006. Somanta statements used were for the
nine months ended October 31, 2007.
Note
2:
The pro forma combined-weighted average number of common outstanding shares
is
based on the weighted average number of shares of common stock of Access during
the period plus those shares to be issued in conjunction with the merger. A
reconciliation between Access' historical weighted average shares outstanding
and pro forma weighted average shares outstanding and pro forma weighted average
shares outstanding is as follows:
Historical
|
|
3,544,181
|
Somanta
equivalent shares giving effect to the merger
|
|
1,500,000
|
Total
|
|
5,044,181
|
.
Pro
Forma Condensed Combined Statement of Operations
For
the Twelve Months Ended December 31, 2006
(Unaudited)
Historical
|
|
Access
|
|
Somanta
|
|
Pro
Forma
Combined
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
$
|
1,000
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,053,000
|
|
|
1,239,000
|
|
|
3,292,000
|
|
General
and administrative
|
|
|
2,813,000
|
|
|
3,313,000
|
|
|
6,126,000
|
|
Depreciation
and amortization
|
|
|
309,000
|
|
|
-
|
|
|
309,000
|
|
Total
expenses
|
|
|
5,175,000
|
|
|
4,552,000
|
|
|
9,727,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(5,175,000
|
)
|
|
(4,551,000
|
)
|
|
(9,726,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and miscellaneous income
|
|
|
294,000
|
|
|
28,000
|
|
|
322,000
|
|
Interest
and other expenses
|
|
|
(7,436,000
|
)
|
|
-
|
|
|
(7,436,000
|
)
|
Liquidated
damages
|
|
|
-
|
|
|
(35,000
|
)
|
|
(35,000
|
)
|
Change
in fair value of warrant liabilities
|
|
|
(1,107,000
|
)
|
|
(2,931,000
|
)
|
|
(4,038,000
|
)
|
Currency
translation loss
|
|
|
-
|
|
|
(3,000
|
)
|
|
(3,000
|
)
|
|
|
|
(8,249,000
|
)
|
|
(2,941,000
|
)
|
|
(11,190,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before discontinued
operations
and before tax benefit
|
|
|
(13,424,000
|
)
|
|
(7,492,000
|
)
|
|
(20,916,000
|
)
|
Income
tax benefit
|
|
|
173,000
|
|
|
(4,000
|
)
|
|
169,000
|
|
Loss
from continuing operations
|
|
|
(13,251,000
|
)
|
|
(7,496,000
|
)
|
|
(20,747,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations, net of
taxes
of $173,000
|
|
|
377,000
|
|
|
-
|
|
|
377,000
|
|
Net
loss
|
|
$
|
(12,874,000
|
)
|
$
|
(7,496,000
|
)
|
$
|
(20,370,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
|
|
|
|
|
Loss
from continuing operations
allocable
to common stockholders
|
|
$
|
(3.75
|
)
|
$
|
(0.52
|
)
|
$
|
(4.12
|
)
|
Discontinued
operations
|
|
|
0.10
|
|
|
-
|
|
|
0.07
|
|
Net
loss allocable to common stockholders
|
|
$
|
(3.65
|
)
|
$
|
(0.52
|
)
|
$
|
(4.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic and
diluted
common shares outstanding
|
|
|
3,531,934
|
|
|
14,274,534
|
|
|
5,031,934
|
|
Notes
to
Pro Forma Condensed Combined Statement of Operations
Note
1:
The above statement gives effect to the merger of Access and Somanta, as if
the
merger had occurred on January 1, 2006. Somanta statements used were for the
twelve months ended April 30, 2007.
Note
2:
The pro forma combined-weighted average number of common outstanding shares
is
based on the weighted average number of shares of common stock of Access during
the period plus those shares to be issued in conjunction with the merger. A
reconciliation between Access' historical weighted average shares outstanding
and pro forma weighted average shares outstanding and pro forma weighted average
shares outstanding is as follows:
Historical
|
|
3,531,934
|
Somanta
equivalent shares giving effect to the merger
|
|
1,500,000
|
Total
|
|
5,031,934
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. 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
14. 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
15: Recent Sales of Unregistered Securities
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.5 shares 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 545,000
shares of our common stock, which includes placement agent warrants to purchase
90,883 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
$2,700,000. The shares of Series A Preferred Stock are convertible into common
stock at the initial conversion price of $3.00 per share.
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.
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 November 15, 2007 and warrants to purchase an
aggregate of 3,863,634 shares of common stock of Access. Net proceeds to Access
were $4.557 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
16. 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
|
Amendment
to Rights Agreement, dated as of November 9, 2007 between us and
American
Stock Transfer & Trust Company as Rights
Agent
|
10.11*
|
2001
Restricted Stock Plan (Incorporated by reference to Appendix A of
our
Proxy Statement filed on April 16,
2001)
|
10.12*
|
2005
Equity Incentive Plan (Incorporated by reference to Exhibit 1 of
our Proxy
Statement filed on April 18, 2005
(2)
|
10.13*
|
Employment
Agreement, dated as of June 1, 2005 by and between us and Stephen
B.
Thompson (1)
|
10.14
|
Asset
Sale Agreement, dated as of October 12, 2005, between us and Uluru,
Inc.
(1)
|
10.15
|
Amendment
to Asset Sale Agreement, dated as of December 8, 2006, between us
and
Uluru, Inc. (3)
|
10.16
|
License
Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
|
10.17
|
Form
of Warrant, dated February 16, 2006, issued by us to certain Purchasers
(2)
|
10.18
|
Form
of Warrant, dated October 24, 2006, issued by us to certain Purchasers
(3)
|
10.19
|
Form
of Warrant, December 6, 2006, issued by us to certain Purchasers
(3)
|
10.20*
|
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)
|
10.21*
|
Employment
Agreement, dated January 4, 2007 by and between us and Stephen R.
Seiler,
President and Chief Executive Officer
(4)
|
10.22
|
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)
|
10.23
|
Preferred
Stock and Warrant Purchase Agreement, dated November 7, 2007, between
us
and certain Purchasers
|
10.24
|
Investor
Rights Agreement, dated November 10, 2007, between us and certain
Purchasers
|
10.25
|
Form
of Warrant Agreement dated November 10, 2007, between us and certain
Purchasers
|
10.26
|
Board
Designation Agreement, dated November 15, 2007, between us and SCO
Capital
Partners LLC
|
10.27
|
Amendment
and Restated Purchase Agreement, dated February 4, 2008 between us
and
certain Purchasers
|
10.28
|
Amended
and Restated Investor Rights Agreement, dated February 4, 2008 between
us
and certain Purchasers
|
10.29
|
Employment
Agreement, dated January 4, 2008 between us and Jeffrey B.
Davis
|
23.1
|
Consent
of Whitley Penn LLP
|
23.2
|
Consent
of Stonefield Josephson, Inc.
|
23.3
|
Opinion
of Bingham McCutchen LLP regarding the legality of the securities
to be
filed with amendment to this Registration
Statement
|
*
|
[Management
contract or compensatory plan required to be filed as an Exhibit
to this
Form pursuant to Item 15(c) of the
report.]
|
**
|
To
be filed with Amendment to this Registration
Statement
|
(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-K for the year ended December 31,
2006.
|
(4)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2007.
|
Item
17. Undertakings
The
undersigned Registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made 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 percent 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 S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on this 8th day of March, 2008.
ACCESS
PHARMACEUTICALS,
INC.
Date
March 8
,
2008
By:
/s/ Jeffrey
B.
Davis
Jeffrey
B. Davis
Chief
Executive Officer
Date
March 8,
2008
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 Jeffrey B. Davis 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 S-1 has been signed below by the following persons in the
capacities and on the dates indicated:
Date
March 8,
2008
By:
/s/ Mark
J.
Ahn
Mark
J. Ahn, Director
Date
March 8,
2008
By:
/s/ Mark
J.
Alvino
Mark
J. Alvino, Director
Date
March 8,
2008
By:
/s/ Esteban
Cvitkovic
Esteban
Cvitkovic,
Director
Date
March 8,
2008
By:
/s/ Jeffrey
B.
Davis
Jeffrey
B. Davis,
Director,
Chief
Executive Officer
Date
March 8,
2008
By:
/s/ Stephen
B.
Howell
Stephen
B. Howell,
Director
Date
March 8,
2008
By:
/s/ David
P.
Luci
David
P. Luci, Director
Date
March 8,
2008
By:
/s/ Rosemary
Mazanet
Rosemary
Mazanet,
Director
Date
March 8,
2008
By:
/s/ John
J.
Meakem
John
J. Meakem, Jr.,
Director
Date
March 8,
2008
By:
/s/ Steven
H.
Rouhandeh
Steven
H. Rouhandeh, Chairman
of
the
Board
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
|
Amendment
to Rights Agreement, dated as of November 9, 2007 between us and
American
Stock Transfer & Trust Company as Rights
Agent
|
10.11*
|
2001
Restricted Stock Plan (Incorporated by reference to Appendix A of
our
Proxy Statement filed on April 16,
2001)
|
10.12*
|
2005
Equity Incentive Plan (Incorporated by reference to Exhibit 1 of
our Proxy
Statement filed on April 18, 2005
(2)
|
10.13*
|
Employment
Agreement, dated as of June 1, 2005 by and between us and Stephen
B.
Thompson (1)
|
10.14 Asset
Sale Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
10.15
|
Amendment
to Asset Sale Agreement, dated as of December 8, 2006, between us
and
Uluru, Inc. (3)
|
10.16 License
Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
10.17
|
Form
of Warrant, dated February 16, 2006, issued by us to certain Purchasers
(2)
|
10.18
|
Form
of Warrant, dated October 24, 2006, issued by us to certain Purchasers
(3)
|
10.19
|
Form
of Warrant, December 6, 2006, issued by us to certain Purchasers
(3)
|
10.20*
|
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)
|
10.21*
|
Employment
Agreement, dated January 4, 2007 by and between us and Stephen R.
Seiler,
President and Chief Executive Officer
(4)
|
10.22
|
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)
|
10.23
|
Preferred
Stock and Warrant Purchase Agreement, dated November 7, 2007, between
us
and certain Purchasers
|
10.24
|
Investor
Rights Agreement, dated November 10, 2007, between us and certain
Purchasers
|
10.25
|
Form
of Warrant Agreement dated November 10, 2007, between us and certain
Purchasers
|
10.26
|
Board
Designation Agreement, dated November 15, 2007, between us and SCO
Capital
Partners LLC
|
10.27
|
Amendment
and Restated Purchase Agreement, dated February 4, 2008 between us
and
certain Purchasers
|
10.28
|
Amended
and Restated Investor Rights Agreement, dated February 4, 2008 between
us
and certain Purchasers
|
10.29
|
Employment
Agreement, dated January 4, 2008 between us and Jeffrey B.
Davis
|
23.1 Consent
of Whitley Penn LLP
23.2 Consent
of Stonefield Josephson, inc.
23.3 Opinion
of Bingham McCutchen LLP regarding the legality of the securities to be filed
with amendment to this Registration Statement
*
|
[Management
contract or compensatory plan required to be filed as an Exhibit
to this
Form pursuant to Item 15(c) of the
report.]
|
**
|
To
be filed with Amendment to this Registration
Statement
|
(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-K for the year ended December 31,
2006.
|
(4)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2007.
|
EXHIBIT
10.23
_____________________________________________________________________________
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
10.24
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
10.25
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
10.26
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
10.27
_____________________________________________________________________________
AMENDED
AND RESTATED
PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
by
and
among
Access
Pharmaceuticals, Inc.
and
the
parties named herein on Schedule 1, as Purchasers
February
4, 2008
_____________________________________________________________________________
This
AMENDED
AND RESTATED PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
(this “
Agreement
”) is dated
as of
February 4, 2008, 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 4,000 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 6,666,700
shares of the Company’s
Common Stock as more fully set forth herein.
WHEREAS,
the Company and certain
Purchasers (the “
Original
Purchasers
”) have entered into a Preferred Stock and Warrant Purchase
Agreement dated as of November 7, 2007 (the “
Original Purchase Agreement
”)
and consummated the Initial Closing (as defined below) on November 10, 2007
and
the Company, Original Purchasers holding not less than the requisite amount
of
Securities necessary to amend the Original Purchase Agreement wish to amend
and
restate the Original Purchase Agreement and certain additional Purchasers wish
to execute this Agreement in connection with the Additional Closing (as defined
below) as 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 termin Section 3.1(j).
“
Additional
Closing
” shall
have the meaning ascribed to such term in Section 2.1(c).
“
Additional
Closing Escrow
Agreement
” shall have the meaning ascribed to such term in Section
2.1(b).
“
Additional
Purchasers
” shall
have the meaning ascribed to such term in Section 2.1(c).
“
Additional
Securities
” shall
have the meaning ascribed to such term in Section 2.1(c).
“
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.
“
Initial
Closing
” shall have
the meaning ascribed to such term in Section 2.1(a).
“
Initial
Closing Date
” shall
have the meaning ascribed to such term in Section 2.1(a).
“
Intellectual
Property
” shall
have the meaning ascribed to such term in Section 3.1(o).
“
Investor
Rights Agreement
”
means the Amended and Restated 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 SCO
Securities LLC and Rodman & Renshaw, LLC.
“
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.
“
Series
A Certificate of
Amendment
” means the Certificate of Amendment to the Certificate of
Designations, Rights and Preferences of the Series A Cumulative Convertible
Preferred Stock of the Company, in the form attached hereto as
Exhibit
G
.
“
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, Rights and Preferences Series A Cumulative 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
(
Exhibit
D
in the case
of the Placement Agent Warrants and
Exhibit H
in case
of
Warrants to be issued in Additional Closings).
1.3
Purchases
and Sales
.
On the terms
and
subject to the conditions set forth in this Agreement, at the Initial Closing,
the Company sold and each of the Purchasers in the Initial Closing purchased
the
Preferred Stock in the amounts set forth on
Schedule 1
hereto. In addition, the Company sold and each Purchaser purchased at
the Initial Closing Warrants to purchase the number of shares of Common Stock
set forth on
Schedule
1
hereto. At the Additional Closings, the Company will sell
and each of the Additional Purchasers will purchase the Additional Securities
set forth next to the name of such Additional Purchaser on
Schedule 1
as such
schedule is supplemented pursuant to Section 2.2(c).
ARTICLE
II
PURCHASE
AND
SALE
2.1
Closing
.
(a) The
initial closing of the transactions contemplated under this Agreement (the
“
Initial Closing
”) took
place on November 10, 2007. The date on which the Initial Closing
occurred is the “
Initial
Closing Date
”. Any Additional Closing (as defined below) will take place
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
and on such date as may be mutually acceptable to the Purchasers in such
Additional Closing and the Company. The date on which the Additional
Closing occurs is the “
Additional Closing
Date.
” The term “
Closing
” shall refer
to the
Initial Closing and any Additional Closing, the term “
Closing Date
” shall refer to
the Initial Closing Date or the Additional Closing Date, as
applicable.
(b) At
the Initial Closing, the Purchasers purchased, severally and not jointly, and
the Company issued and sold, in the aggregate, 3,227.3617 shares of Preferred
Stock and Warrants to purchase 3,440,882 shares of Common Stock on the Initial
Closing Date. At the Initial Closing and any Additional Closing, each Purchaser
has purchased or shall purchase (as the case may be) from the Company, and
the
Company has issued and sold or shall issue and sell (as the case may be) 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(e), the Subscription Amount paid by each Purchaser in the Initial
Closing was placed in escrow pending the Initial Closing pursuant to a Closing
Escrow Agreement among the Company, SCO Capital Partners LLC and Wiggin and
Dana
LLP (the “
Escrow
Agent
”), which agreement was in the form attached hereto as
Exhibit E
(the
“
Closing
Escrow
Agreement
”). Subscription Amounts paid by Purchasers in any
Additional Closing shall be placed in escrow pending such Additional Closing
pursuant to an escrow agreement in a form substantially similar to the Closing
Escrow Agreement and attached hereto as
Exhibit I
, with such
changes as may be necessary or appropriate to account for the Additional Closing
(the “
Additional Closing
Escrow Agreement
”).
(c) After
the Initial Closing, the Company may sell up to 772.6383 additional shares
of
Preferred Stock and additional Warrants to purchase up to 1,287,740 shares
of
Common Stock (subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common
Stock
that occur after the Initial Closing and prior to the applicable Additional
Closing) (the “
Additional
Securities
”), to one or more purchasers (the “
Additional Purchasers
”) as
are mutually agreed upon by the Company and SCO Capital Partners LLC, provided
that (i) all such subsequent sale(s) (each an “
Additional Closing
”) are
consummated prior to 30 days after the date hereof or at such later time as
mutually agreed to by the Company and SCO Capital Partners LLC and (ii) each
Additional Purchaser shall become a party to this Agreement and the Investor
Rights Agreement, by executing and delivering a counterpart signature page
hereto and thereto.
Schedule 1
to this
Agreement shall be supplemented to reflect the number of Additional Securities
purchased at each such Additional Closing and to reflect the parties purchasing
such Additional Securities.
(d) The
Purchasers party to this Agreement hereby (i) irrevocably waive any preemptive
rights, rights of first offer, rights of first refusal, participation rights,
anti-dilution rights or other similar rights they may possess now or hereafter,
pursuant to the terms of any agreement with the Company or otherwise, with
respect to sales of Additional Securities made pursuant to this Agreement and
(ii) consent to the joinder of any Additional Purchasers to this
agreement.
(e) 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 any Closing and the transactions contemplated by this Agreement shall
be
subject to the satisfaction at or prior to such 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(e)), 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;
(vi)
a certificate of the Secretary
of the Company (the “
Secretary’s Certificate
”), as
of the date of the applicable Closing, attaching a true copy of the Certificate
of Incorporation and Bylaws of the Company, as amended to such applicable
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, or the Additional
Closing Escrow Agreement, as applicable.
(c) All
representations and warranties of the Company contained herein shall remain
true
and correct as of such applicable 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) In
connection with the Initial Closing, all of the Promissory Notes referenced
in
Schedule 1 hereto shall have been surrendered for cancellation in partial or
complete payment, as applicable, of the Subscription Amount for the Purchasers
holding such notes;
(e) As
of the applicable 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 applicable 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 such applicable
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) In
connection with the Initial Closing, all Purchasers surrendering Promissory
Notes for cancellation in payment of any portion of their Subscription Amount
shall have executed this Agreement (which shall be deemed to have taken place
by
virtue of such Purchasers’ execution of the Original Purchase
Agreement).
(h) In
connection with the Initial Closing, the minimum aggregate cash Subscription
Amount hereunder shall be $7,500,000.
(i) Prior
to any Additional Closing, the Company shall have provided evidence satisfactory
to the Additional Purchasers that the Board of Directors of the Company has
approved the Series A Certificate of Amendment to become effective as soon
as
practicable following receipt of stockholder approval thereof.
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 or Additional Closing Escrow Agreement
(as applicable) 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(e);
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,
except that the Series A Certificate of Amendment must be duly approved by
the
Company’s shareholders and the necessary filings must be made with the
Commission in connection with such approval and with the Secretary of State
of
the State of Delaware. 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, (iii) the filing of appropriate documents with the Commission in
connection with the shareholder approval of the Series A Certificate of
Amendment and (iv) the filing of the Series A Certificate of Amendment 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 that has not been either complied with or waived. 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 three 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 for the transactions contemplated by this
Agreement and 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, or as
contemplated by this Agreement, 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.
Except
as set forth on Schedule 3.1(ee) 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 Initial Closing Date or the Additional Closing Date, as applicable, 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, June 30, 2007, and September
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 of each
Closing, issue a press release disclosing the material terms of the transactions
contemplated hereby, and within two Business Days following such 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)
Other
than the issuance of Securities in Additional Closings pursuant to the terms
of
this Agreement, or the issuance of any equity securities issued in connection
with the Agreement and Plan of Merger by and among Access, Somanta Acquisition
Corporation, Somanta Pharmaceuticals, Inc., Somanta Incorporated and Somanta
Limited dated as of April 18, 2007, 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.
(b)
Other
than the issuance of Securities in Additional Closings pursuant to the terms
of
this Agreement, 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.
4.15
Amendment
to Series A Preferred Stock.
The Company
shall use
its best efforts to obtain stockholder approval for the Series A Certificate
of
Amendment and to cause the amendments to the Certificate of Designation
contemplated thereby to become effective, in each case, as promptly as
practicable following the date hereof.
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. Notwithstanding the
foregoing, this Agreement may be amended by the Company without the consent
of
the Purchasers (other than SCO Capital Partners LLC, which must agree pursuant
to Section 2.1(c)) by supplementing
Schedule 1
with
respect to Purchasers in any Additional Closing and by adding any such
Purchasers as parties to this Agreement in accordance with Sections 2.1(c)
and
(d).
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 applicable
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 B.
Thompson
Name:
Stephen B. Thompson
Title:
Vice President, Chief Financial Officer
Schedule
G
ACCESS
PHARMACEUTICALS, INC.
CERTIFICATE
OF AMENDMENT
TO
CERTIFICATE
OF DESIGNATIONS, RIGHTS AND PREFERENCES
OF
SERIES
A CUMULATIVE CONVERTIBLE PREFERRED STOCK
Pursuant
to Section 242 of the
General
Corporation Law of the State of Delaware
Access
Pharmaceuticals, Inc., a
corporation organized and existing under the laws of the State of Delaware
(the
“
Corporation
”), hereby certifies that the following resolutions (a) were
duly adopted by the Board of Directors of the Corporation pursuant to authority
conferred upon the Board of Directors by the provisions of the Certificate
of
Incorporation of the Corporation, as amended (the “
Certificate of
Incorporation
”), which authorizes the issuance of up to 2,000,000 shares of
preferred stock, $0.01 par value per share, at a meeting of the Board of
Directors held on December 18, 2007, (b) was consented to by holders of more
than 66% of the outstanding shares of the Series A Cumulative Convertible
Preferred Stock, par value $0.01 per share, of the Corporation (the “
Series A
Preferred Stock
”) and (c) was consented to by holders of more than 50% of
the voting power of the common stock, par value $0.01 per share, of the
Corporation (the “
Common Stock
”).
RESOLVED,
that effective upon the filing of this Certificate of Amendment to
Certificate of Designations, Rights and Preferences of Series A Cumulative
Convertible Preferred Stock (this “
Certificate of Amendment
”), the
Certificate of Designations, Rights and Preferences of Series A Cumulative
Convertible Preferred Stock dated and filed with the Delaware Secretary of
State
on November 9, 2007 (the “
Certificate of Designation
”), be amended as
follows:
1. The
first paragraph of Section 4 of the Certificate of Designation is hereby deleted
in its entirety and replaced with the following:
“4. Actions
Requiring the Consent of Holders of Series A Preferred Stock. As long
as at least 20% 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):”
2. Existing
Section 4(h) of the Certificate of Designation is hereby re-numbered as Section
4(j) and the following new Sections 4(h) and 4(i) are inserted after existing
Section 4(g):
“(h)
any
Change of Control or any liquidation, winding up or dissolution of the
Corporation or any subsidiary thereof, whether in one transaction or a series
of
transactions, or adoption of any plan for the same;
(i)
in a
transaction or series of related transactions involving aggregate potential
consideration in excess of $20 million, any sale, transfer, license, sublicense,
encumbrance or other disposition of any of the Corporation’s intellectual
property, including, without limitation, patents, trademarks, service marks,
copyrights, trade secrets, technologies, compounds and trade names, whether
owned outright by the Corporation or licensed from another person or entity,
whether in registered or unregistered form, and whether or not an application
for registration has been filed; or”
3. Existing
Section 5(b) of the Certificate of Designation is hereby deleted in its entirety
(except that the existing defined terms “Conversion Triggering Event” and
“Registration Statement” contained in Section 5(b) are not deleted and remain in
full force and effect) and replaced with the following:
“(b)
Mandatory
Conversion
. With the prior written consent of holders of not less than a
majority of the Series A Preferred Stock at such time outstanding, 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.”
4. Existing
Section 5(c)(iii) of the Certificate of Designation is hereby deleted in its
entirety and replaced with the following:
“(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 entered into among the Corporation and the purchasers
of the Series A Preferred Stock on or about the Filing Date (as amended or
amended and restated from time to time, the “Purchase Agreement”), the Investor
Rights Agreement, the Warrants or otherwise.”
RESOLVED,
that
the Certificate of Designation shall remain in full force and effect except
as
expressly amended hereby.
[Signature
page follows.]
THE
UNDERSIGNED, being a duly
authorized officer of the Corporation, does file this Certificate of Amendment
to Certificate of Designations, Rights and Preferences of Series A Cumulative
Convertible Preferred Stock, hereby declaring and certifying that the facts
herein stated are true and accordingly has hereunto set his hand this _____
day
of ________________, 2007.
ACCESS
PHARMACEUTICALS, INC.
By:___
______
Name:
Title:
EXHIBIT 10.28
AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT
This
Amended and Restated Investor Rights Agreement (this “
Agreement
”) is made and
entered into as of February 4, 2008, 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, as amended. The Company and certain of the Purchasers
(such Purchasers, the “
Original Purchasers
”) entered
into an Investor Rights Agreement, dated as of November 10, 2007 (the “
Original Investor Rights
Agreement
”) in connection with entering into a Preferred Stock and
Warrant Purchase Agreement dated as of November 7, 2007 (the “
Original Purchase
Agreement
”). On the date hereof, the Company, the requisite
Original Purchasers and certain additional Purchasers have amended and restated
the Original Purchase Agreement (the Original Purchase Agreement, as so amended
and restated, the “
Purchase
Agreement
”), and, in connection therewith, the Company and the Purchasers
hereby amend and restate the Original Investor Rights Agreement as set forth
below.
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:
“
Additional
Closing
” shall
have the meaning assigned in Section 2.1(c)
of the Purchase
Agreement.
“
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 60
th
calendar day following the Filing Date (or, in the event of a “review” by the
Commission, the 90th calendar day following the Filing Date) 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
earlier of (i) the 30th day following the first Additional Closing Date and
(ii)
the 45
th
day
following the date hereof 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. For
purposes of this Agreement, the holder or holders of Preferred Stock and
Warrants shall be deemed to be holders of that number of shares of Registrable
Securities into which such Preferred Stock and Warrants are convertible at
the
applicable time.
“
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, whether at the Initial Closing or an Additional Closing.
“
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 and including, without limitation, Conversion Shares and Warrant Shares
issued or issuable upon conversion or exercise (as applicable) of the Preferred
Stock and Warrants issued in connection with an Additional Closing) 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, whether
at
the Initial Closing or an Additional Closing, 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 first Additional 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. Notwithstanding the foregoing,
this Agreement may be amended by the Company with the consent of SCO Capital
Partners LLC and without the consent of the other Purchasers by supplementing
Schedule 1
with
respect to Purchasers in any Additional Closing pursuant to Section 2.1 of
the
Purchase Agreement and by adding any such Purchaser as a party to this
Agreement, provided that any such Purchaser agrees to be bound by this Agreement
by executing a counterpart signature page to this Agreement.
(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 Amended and Restated
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, Chief Financial Officer
PURCHASERS:
Print
Exact Name:
Name:
Title:
[Omnibus
Access Pharmaceuticals, Inc. Amended and Restated
Investor
Rights Agreement (2008) Signature Page]
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 Amended and
Restated
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 Amended and Restated
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 Amended and
Restated Investor 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
|
(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:
|
|
(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:
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (“
Agreement
”) is made
and effective as of this 4
th
day of
January, 2007, between ACCESS Pharmaceuticals, Inc., a Delaware Corporation
with
a place of business at 2600 Stemmons Freeway, Suite 176, Dallas, Texas
75207-2107 (“
Company
”), and
Jeffrey B. Davis, an individual who resides at 33 Tall Oaks Drive, Summit,
New
Jersey 07901 (“
Executive
”).
WHEREAS
the Company desires to employ Executive and Executive desires to be employed
by
the Company, on terms set forth herein;
NOW,
THEREFORE, in consideration of the mutual agreements set forth herein, the
parties agree as follows:
1.
Term
of Employment
.
Executive’s employment under this Agreement shall commence on January 4, 2007
(“
Effective
Date
”) and shall end on the third anniversary of the Effective Date
(“
Expiration
Date
”)
or such
earlier date on which Executive’s employment terminates in accordance with
Section 4 of this Agreement. On the Expiration Date and each
anniversary thereof, the Expiration Date shall be extended by one year unless
(a) the Agreement has been earlier terminated under Section 4 or (b) either
party gives written notice not less than 90 days prior to the then Expiration
Date that the Agreement will not be extended. Notwithstanding any extension
of
the Expiration Date, Executive’s employment may terminate at any time in
accordance with Section 4, below.
2.
Nature
of Duties
. Executive
shall during his employment hereunder be the Company’s Chief Executive Officer
(“
CEO
”). As
such, Executive shall devote substantially all of his business time and effort
to the performance of his duties for the Company, which he shall perform
faithfully and to the best of his ability. Executive shall have all of the
customary powers and duties associated with his position. Executive
shall be subject to the Company’s policies, procedures, and approval practices,
as generally in effect from time to time for all employees of the Company.
Executive will report directly to the Company’s board of directors (the “
Board
”). Notwithstanding
the foregoing, nothing contained herein shall preclude the Executive from
(a)
serving on the boards of directors of other companies or organizations with
the
approval of the Board (not to be unreasonably withheld) or serving on the
boards
of directors of not-for-profit companies or organizations without the approval
of the Board, (b) investing in and managing passive investments, or (c) pursuing
his personal, financial and legal affairs provided that such activity does
not
materially interfere with the performance of the Executive's obligations
hereunder.
|
3.
|
Compensation
and Related
Matters
.
|
(a)
Base
Salary
. The Company shall
pay Executive minimum base salary at an annual rate of
$335,000. Executive’s base salary shall be paid in conformity with
the Company’s salary payment practices generally applicable to similarly
situated Company employees.
(b)
Discretionary
Bonuses
.
Executive shall be covered by the cash bonus plan maintained from time to
time
by the Company and during each year of the term shall be afforded the
opportunity thereunder to receive a target award of up to 50% of Executive’s
annual base salary then in effect to be awarded upon the achievement of
reasonable performance goals established by the Board within thirty (30)
days of
the beginning of such year, which bonus, if any, shall be payable in accordance
with the cash bonus plan but in no event later than ninety (90) days of the
end
of such year. Upon the occurrence of a Change of Control during the
term, Executive shall receive a pro rata annual bonus for that portion of
the
year within which the Change of Control occurs in addition to other compensation
due to Executive upon a Change of Control (as hereinafter defined) as provided
in this Agreement.
(c)
Stock
Options
. Upon
commencement of employment, Executive shall be granted an option (the “Option”)
to purchase 600,000 shares of the Company’s common stock. The
exercise price of the Option shall be equal to the fair market value of the
Company’s common stock on the date of grant, which the Company has determined to
be the closing price of the Company’s common stock as of January 3, 2008
($3.15), which is the last trading day preceding the date of
grant. The Option shall vest 25% on the one year anniversary of the
date hereof and monthly thereafter over a period of 24 months, and otherwise
shall be subject to the terms of option agreements which shall provide, among
other standard provisions:
(i)
that
the Option shall be comprised of (A) an incentive stock option for the number
of
shares the Company’s common stock available for issuance under the Company’s
2005 Equity Incentive Plan as of the date hereof, and (B) a non-statutory
stock
option for the balance of the shares issuable upon exercise of the Option;
and
(ii) for
acceleration of the Option upon or following the occurrence of a Change of
Control (as defined below) or upon a discharge other than for Cause (as provided
in Section 4 below).
(d)
Tax
Benefits
. If a Change of Control occurs during the term
which prevents any Option which has Incentive Stock Option (“ISO”) designation,
or any other annual ISO option grant to Executive during the term, from
receiving favorable tax treatment under Section 422 of the Internal Revenue
Code
of 1986, as amended, Executive shall receive a complete tax make-whole from
the
Company or its successor and shall be held harmless from the loss of favorable
tax treatment. Further, upon a Change of Control, Executive
shall receive a complete tax make-whole for any and all excise taxes due
or
payable under Section 4999 of the Internal Revenue Code of 1986, as amended,
and
any state and/or local taxes payable under similar provisions of state and/or
local law, in each case, with any interest and/or penalties payable with
respect
thereto.
(e)
Standard
Benefits
. During his
employment, Executive shall be entitled to participate in all employee benefit
plans and programs to the same extent generally available to similarly situated
employees of the Company, in accordance with the terms of those plans and
programs.
(f)
Vacation
.
Executive shall be
entitled to four (4) weeks paid vacation per year, which shall be pro-rated
for
partial years. Unused vacation days will carry over pursuant to the terms
set
forth in the Company’s Employee Handbook. Notwithstanding anything herein to the
contrary, Executive may not take more than two (2) weeks vacation during
any
twelve (12) week period without the Company’s prior written
permission.
(g)
Expenses
.
Executive shall be
entitled to receive prompt reimbursement for all reasonable and customary
travel
and business expenses he incurs in connection with his employment, but he
must
incur and account for those expenses in accordance with the policies and
procedures established by the Company.
(g)
Place
of Performance
. In
connection with his employment by the Company, unless otherwise agreed by
the
Executive, the Executive shall be based at an office of the Company in New
York
City, except for travel reasonably required for Company business (the "Place
of
Performance").
(h)
Rights
and Duties
. If
Executive’s employment is terminated he shall be entitled to the amounts or
benefits shown on the applicable row of the following table, subject to the
balance of this Section 4, beyond which the Company and Executive shall have
no
further obligations to each other, except Executive’s confidentiality and other
obligations under Section 6, the parties’ mutual arbitration obligations under
Section 7, as otherwise set forth in this Agreement or as set forth in any
written agreement the parties subsequently enter into.
DISCHARGE
FOR CAUSE
|
Payment
when due of any unpaid base salary, expense reimbursements, and
vacation
days accrued prior to termination of employment. Executive shall
forfeit
all vested and unvested stock options issued or issuable under
Section
3(c) of this Agreement, pursuant to the terms of the Option Award
Agreement.
|
DISCHARGE
OTHER THAN FOR CAUSE
|
Same
as for “Discharge For Cause” EXCEPT that, in exchange for Executive’s
execution of a release in accordance with this Section 4, Executive
shall
be entitled to the following special benefits: (A) a lump sum in
cash,
payable within ten (10) business days after the effective date
of such
event, equal to two times the sum of Executive’s then-current base salary,
plus his then average annual bonus for the preceding two years
(or, if
applicable, using the annual bonus target for such occurrences
prior to
receipt of the first annual bonus), pursuant to Section 3 of this
Agreement, and (B) all of Executive’s outstanding stock options issued or
issuable under Section 3(c) of this Agreement, shall immediately
vest and
become exercisable and Executive shall have the full term of the
option to
exercise any of his stock options, pursuant to the terms of the
Option
Award Agreement.
|
RESIGNATION
WITHOUT GOOD REASON
|
Same
as for “Discharge for Cause.”
|
RESIGNATION
WITH GOOD REASON
|
Same
as for “Discharge Other Than For Cause.”
|
DISABILITY
|
Same
as for “Discharge For Cause” EXCEPT that salary continuation will be
reduced by any amounts received by Executive under any Company-sponsored
disability benefits plan, and in exchange for Executive’s execution of a
release in accordance with this Section 4, all of Executive’s outstanding
vested stock options shall be exercisable pursuant to the terms
of the
Option Award Agreement.
|
DEATH
|
Same
as for “Discharge for Cause” EXCEPT that, in exchange for the execution of
a release by Executive’s estate in accordance with this Section 4,
continuation of Executive’s base salary for six (6) months after the date
of termination and Executive’s outstanding vested stock options shall be
exercisable pursuant to the terms of the Option Award
Agreement.
|
(i)
Discharge
for Cause
. The
Company may terminate Executive’s employment at any time if it believes in good
faith that it has Cause to terminate his employment. “Cause” shall
mean:
(i)
Fraud
and Dishonesty
.
Executive’s commission of a willful act of fraud or dishonesty, the purpose or
effect of which materially and adversely affects the Company or its subsidiaries
and affiliates (“
Group
”).
(ii)
Unlawful
Conduct
. Executive’s
engaging in conduct that is unlawful.
(iii)
Reckless
Conduct
. Executive’s
engaging in intentional or reckless misconduct or gross negligence in connection
with any property or activity of the Group, the purpose or effect of which
materially and adversely affects the Group.
(iv)
Breach
of Agreement
.
Executive’s material breach of any of his obligations under this Agreement
(other than by reason of physical or mental illness, injury, or
condition).
(v)
Failure
to Perform Duties
.
Executive’s continued failure or refusal to attempt in good faith to perform his
job duties under this Agreement or to follow the reasonable directions of
the
Board (other than by reason of physical or mental illness, injury, or condition)
after having received thirty (30) days’ notice from the Board of his failure to
do so and an opportunity to cure.
(vi)
Barred
from Office
.
Executive’s becoming barred or prohibited by the U.S. Securities and Exchange
Commission from holding his position with the Company.
(j)
Termination
for Disability
.
Except as prohibited by applicable law, the Company may terminate Executive’s
employment on account of Disability, or may transfer him to inactive employment
status, which shall have the same effect under this Agreement as a discharge
“other than for Cause.” “
Disability
”
means a
physical or mental illness, injury, or condition that prevents Executive
from
performing substantially all of his duties under this Agreement for at least
90
consecutive calendar days or for at least 120 calendar days, whether or not
consecutive, in any 365 calendar day period.
(k)
Discharge
Other Than for
Cause
. The Company may terminate Executive’s employment at any time for
any reason, and without advance notice. If Executive is discharged by the
Company for a reason “other than for Cause”, for “death” or for “Disability”, he
will only receive the special benefits provided for such events under Section
4(a) if he (or his estate, as the case may be) signs a separation agreement
and
general release in a form supplied by the Company within 60 days after his
employment ends and he does not thereafter properly revoke the
release.
(l)
Resignation
.
Executive
promises not to resign his employment without providing the Company at least
sixty (60) days advance written notice. If Executive resigns “other
than for Good Reason”, the Company may accept his resignation effective on the
date set forth in his notice or any earlier date. If Executive
resigns for Good Reason, his employment will end on his last date of work
and he
will receive the benefits to which he is entitled under Section 4(a), but
he
only will receive special benefits conditioned on his signing a separation
agreement and general release in a form supplied by the Company within 60
days
after his employment ends and he does not thereafter properly revoke the
release. “
Good
Reason
” means that, without his express written consent, one or more of
the following events occurred after his execution of this
Agreement:
(i)
Demotion
.
Executive’s duties
or responsibilities are substantially and adversely diminished from those
in
effect immediately before such event other than merely as a result of the
Company ceasing to be a public company.
|
(ii)
|
Pay
Cut
. Executive’s
annual base salary is reduced.
|
(iii)
Breach
of Promise
. The Company
materially breaches this Agreement or fails to pay Executive any present
or
deferred compensation within 7 days after it is due.
(iv)
Change
of Control
. There
occurs a “
Change of
Control
,” which means the occurrence of any of the following: (i) the
acquisition, directly or indirectly, by any individual or entity or group
(as
such term is used in Section 13(d)(3) of the Exchange Act) of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act, except that such
individual or entity shall be deemed to have beneficial ownership of all
shares
that any such individual or entity has the right to acquire without the
happening or failure to happen of a material condition or contingency, other
than the passage of time) of more than 50% of the aggregate outstanding voting
power of capital stock of the Corporation in respect of the general power
to
elect directors; or (ii) (A) the Corporation consolidates with or merges
into
another entity or sells all or substantially all of its assets to any individual
or entity, or (B) any corporation consolidates with or merges into the
Corporation, which in either event (A) or (B) is pursuant to a transaction
in
which the holders of the Corporation's voting capital stock in respect of
the
general power to elect directors immediately prior to such transaction do
not
own, immediately following such transaction, at least a majority of the voting
capital stock in respect of the general power to elect directors of the
surviving corporation or the person or entity which owns the assets so
sold.
(v)
Notice
of Prospective Action
.
Executive is officially notified (or it is officially announced) that the
Company will take any of the actions listed above during the term of this
Agreement.
However,
an event that is or would constitute Good Reason shall cease to be Good Reason
if: (1) Executive does not terminate employment within ten (10) days after
the
event occurs with knowledge of Executive (except for a Change of Control);
or
(2) the Company reverses the action or cures the default that constitutes
Good
Reason within 30 days after Executive notifies it
in
writing that Good Reason exists before Executive terminates employment If
Executive has Good Reason to terminate employment, he may do so even if he
is on
a leave of absence due to physical or mental illness or any other reason,
but he
must do so before his actual or constructive Disability termination as defined
herein.
(m)
Disputes
Under This Section
.
All disputes relating to this Agreement, including disputes relating to this
Section 4, shall be resolved by final and binding arbitration under Section
7.
4.
No
Other Termination
Compensation
. Except as specifically provided in this Agreement or the
Option Agreement to be entered into between the parties or any future amendment
or restatement of either agreement, upon termination of this Agreement for
any
reason Executive shall not be entitled to any severance pay or to any other
compensation or payments (by way of salary, damages or otherwise) of any
nature
relating to this Agreement or otherwise relating to or arising out of his
employment by the Company.
5.
Confidentiality
.
During the
term of Executive’s employment, in exchange for his promises to use such
information solely for the Company’s benefit, the Company will provide Executive
with Confidential Information concerning, among other things, its business,
operations, customers, vendors, owners, investors, and business partners.
“
Confidential
Information
” refers to information not generally known by others in the
form in which it is used by the Company, and which gives the Company a
competitive advantage over other companies which do not have access to this
information, including secret, confidential, or proprietary information or
trade
secrets of the Company and its subsidiaries and affiliates, conveyed orally
or
reduced to a tangible form in any medium, including information concerning
the
operations, future plans, customers, business models, strategies, and business
methods of the Company and its subsidiaries and affiliates, as well as
information about the Company’s customers, clients and business partners and
their respective operations and confidential information. “Confidential
Information” does not include information that (i) Executive knew prior to his
employment with the Company or any predecessor company, (ii) subsequently
came
into Executive’s possession other than through his work for the Company or any
predecessor company and not as a result of a breach of any duty owed to the
Company, (iii) is generally known within the relevant industry; or (d) any
prior
knowledge, information or know-how which Executive legally obtained from
a
source other than the Company
(a)
Promise
Not to Disclose
.
Executive promises never to use or disclose any Confidential Information
before
it has become generally known within the relevant industry through no fault
of
Executive. Notwithstanding this paragraph, Executive may disclose Confidential
Information (i) during his employment for the benefit of the Company, (ii)
as
required to do so by court order, subpoena, or otherwise as required by law,
provided that upon receiving such order, subpoena, or request and prior to
disclosure, to the extent permitted by law Executive shall provide written
notice to the Company of such order, subpoena, or request and of the content
of
any testimony or information to be disclosed and shall cooperate fully with
the
Company to lawfully resist disclosure of the information, and (iii) to an
attorney for the purpose of securing professional advice.
(b)
Promise
Not to Solicit
.
Executive agrees that, during his employment with the Company and for twelve
(12) months after his termination for any reason
(together,
the “
Restricted
Period
”): (1) as to any client or business partner of the Company with
whom Executive had dealings or about whom Executive acquired confidential
information during his employment, Executive will not solicit, attempt to
solicit, assist others to solicit, or accept any unsolicited request from
the
client or business partner to do business with any person or entity other
than
the Company or its affiliates; and (2) Executive will not solicit, attempt
to
solicit, assist others to solicit, hire, or assist others to hire for employment
any person who is, or within the preceding twelve (12) months was, an officer,
manager, employee, or consultant of the Company. Executive agrees that the
restrictions set forth in this paragraph do not and will not prohibit his
from
engaging in his livelihood and do not foreclose his working with clients
or
business partners not identified in this paragraph.
(c)
Promise
Not to Engage in Certain
Employment
. Executive agrees that, during the Restricted Period, he will
not, without the prior written consent of the Company, accept any employment;
provide any services, advice or information; or assist or engage in any activity
(whether as an employee, consultant, or in any other capacity, whether paid
or
unpaid) with any business or other entity in the business, directly or
indirectly, for profit or not, of developing, with a majority of its revenue
derived from distributing or marketing compounds or technologies for the
treatment of cancer in the United States.
(d)
Return
of Information
. When
Executive’s employment with the Company ends, he will promptly deliver to the
Company, or, at its written instruction, destroy, all documents, data, drawings,
manuals, letters, notes, reports, electronic mail, recordings, and copies
thereof, of or pertaining to it or any other Group member in his possession
or
control. Notwithstanding the foregoing, Executive may retain his personal
effects, files, benefit information, or other property to the extent such
materials do not contain any of the Company’s Confidential Information. In
addition, during his employment with the Company or the Group and thereafter,
Executive agrees to meet with Company personnel and, based on knowledge or
insights he gained during his employment with the Company and the Group,
answer
any question they may have related to the Company or the Group as reasonably
requested.
(e)
Intellectual
Property
.
Intellectual property (including such things as all ideas, concepts, inventions,
plans, developments, software, data, configurations, materials (whether written
or machine-readable), designs, drawings, illustrations, and photographs,
that
may be protectable, in whole or in part, under any patent, copyright, trademark,
trade secret, or other intellectual property law), developed, created,
conceived, made, or reduced to practice during Executive’s employment with the
Company (except intellectual property that has no relation to the Group or
any
Group customer that Executive developed, etc., purely on his own time and
at his
own expense), shall be the sole and exclusive property of the Company, and
Executive hereby assigns all rights, title, and interest in any such
intellectual property to the Company.
(f)
Enforcement
of This Section
.
This section shall survive the termination of this Agreement or Executive’s
employment for any reason. Executive acknowledges that (a) this section’s terms
are reasonable and necessary to protect the Company’s legitimate interests, (b)
this section’s restrictions will not prevent his from earning or seeking a
livelihood, (c) this section’s restrictions shall apply wherever permitted by
law, and (d) the violation of any of this section’s terms would irreparably harm
the Company. Accordingly,
Executive
agrees that, if she violates any of the provisions of this section, the Company
or any Group member shall be entitled to, in addition to other remedies
available to it, an injunction to be issued by any court of competent
jurisdiction restraining Executive from committing or continuing any such
violation, without the need to prove the inadequacy of money damages or post
any
bond or for any other undertaking.
6.
Arbitration
of Disputes
.
Except as expressly prohibited by law and except for the Company’s right to seek
injunctive relief as set forth in Section 6(f), all disputes between the
Company
and Executive (“
Arbitrable Disputes
”)
are to be resolved by final and binding arbitration in accordance with this
Section 7. This section shall remain in effect after the termination of this
Agreement or Executive’s employment.
(a)
Scope
of Agreement
. This
arbitration agreement applies to, among other things, disputes concerning
Executive’s employment with and/or termination from the Company; the validity,
interpretation, enforceability or effect of this Agreement or alleged violations
of it; claims of discrimination under federal or state law; or other statutory
or common law claims.
(b)
The
Arbitration
. The
arbitration shall take place under the auspices of the American Arbitration
Association (“
AAA
”) in its
office
nearest to the location where Executive last worked for the Company and
conducted in accordance with the AAA’s National Rules for the Resolution of
Employment Disputes then in effect before an experienced employment law
arbitrator licensed to practice law in that jurisdiction who has been selected
in accordance with such rules. The arbitrator may not modify or change this
Agreement in any way except as expressly set forth herein. The arbitration
shall
be governed by the substantive law of the State of New York (excluding where
it
mandates the use of another jurisdiction’s laws).
(c)
Fees
and Expenses
. Regardless
of which party initiates the arbitration, the non-prevailing party in any
dispute between the Company and Executive shall promptly pay the prevailing
party for any and all reasonable costs and expenses of such dispute upon
the
parties’ receipt of the final and binding resolution of such
dispute.
(d)
Exclusive
Remedy
. The
arbitration in this manner shall be the exclusive remedy for any Arbitrable
Dispute.
(e)
Judicial
Enforcement
. Nothing
in this Section 7 shall preclude any party to this agreement from seeking
judicial enforcement of an arbitrator’s award. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction.
7.
Amendment
.
No provisions of
this Agreement may be modified, waived, or discharged except by a written
document signed by a duly authorized Company officer and
Executive.
A waiver of any conditions or provisions of this Agreement in a given instance
shall not be deemed a waiver of such conditions or provisions at any other
time
in the future.
8.
Notices
.
For all purposes of
this Agreement, all communications, including, without limitation, notices,
consents, request or approvals, required or permitted to be given hereunder
will
be in writing and will be deemed to have been duly given when hand delivered
or
dispatched by electronic facsimile transmission (with receipt thereof
confirmed), or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
or
three business days after having been sent by a nationally recognized overnight
courier service such as Federal Express or UPS, addressed to the Company
(to the
attention of the Secretary of the Company) at its principal executive offices
and to Executive at his principal residence, or to such other address as
any
party may have furnished to the other in writing and in accordance herewith,
except that notices of changes of address shall be effective only upon
receipt.
9.
Choice
of Law
. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of New York (excluding any that mandate
the
use of another jurisdiction’s laws).
10.
Successors
.
This Agreement
shall be binding upon, and shall inure to the benefit of, Executive and his
estate, but Executive may not assign or pledge this Agreement or any rights
arising under it, except to the extent permitted under the terms of the benefit
plans in which she participates. Without Executive’s consent, the Company may
assign this Agreement to any affiliate or to a successor to substantially
all
the business and assets of the Company.
11.
Taxes
.
The Company shall
withhold taxes from payments it makes pursuant to this Agreement as it
reasonably determines to be required by applicable law.
12.
Validity
.
The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which
shall
remain in full force and effect.
13.
Counterparts
.
This Agreement
may be executed in one or more counterparts, each of which shall be deemed
to be
an original but all of which together shall constitute the same
instrument.
14.
Entire
Agreement
. All oral or
written agreements or representations, express or implied, with respect to
the
subject matter of this Agreement are set forth in this Agreement. All prior
written employment agreements between Executive and the Company are hereby
declared null and void, and of no further effect.
Date:
January 4, 2007
|
ACCESS
PHARMACEUTICALS, INC.
|
|
Title:
Director, Chairman of Compensation
Committee
|
Date:
January 4, 2007
|
/s/
Jeffrey B.
Davis
|
EXHIBIT
23.1
CONSENT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in this
Registration Statement on Form S-1, 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
March 10, 2008
EXHIBIT
23.2
CONSENT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in this
Registration Statement on Form S-1, of our report dated June 27, 2007,
with
respect to our audit of the consolidated balance sheet of Somanta
Pharmaceuticals, Inc. and Subsidiaries, as of April 30, 2007, and the related
consolidated statements of operations, stockholders' deficit, and cash
flows for
the two years ended April 30, 2007 and 2006, and for the period from inception
of operation (April 19, 2001) to April 30, 2007, 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/ Stonefield Josephson, Inc.
Irvine, California