EXHIBIT 10.4
 

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CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES
of
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
ACCESS PHARMACEUTICALS, INC.

ACCESS PHARMACEUTICALS, INC., a Delaware corporation (the “Corporation”),
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
does hereby make this Certificate of Designations, Rights and Preferences and
does hereby state and certify that pursuant to the authority expressly vested in
the Board of Directors of the Corporation (the “Board”) by the Certificate of
Incorporation of the Corporation, as amended to date (the “Certificate”), which
authorizes the issuance of 2,000,000 shares of preferred stock, $0.01 par value
per share, in one or more series, the Board duly adopted the following
resolutions, which resolutions remain in full force and effect as of the date
hereof:
 
RESOLVED, that, pursuant to Article V of the Certificate, the Board hereby
authorizes the issuance of, and fixes the designation and preferences and
relative, optional and other special rights, and qualifications, limitations and
restrictions, of a series of preferred stock of the Corporation consisting of
1,000 shares, par value $0.01 per share, to be designated “Series B Cumulative
Convertible Preferred Stock” (hereinafter, the “Series B Preferred Stock”); and
be it
 
RESOLVED, that each share of Series B Preferred Stock shall rank equally in all
respects and shall be subject to the following terms and provisions:
 
1.           Dividends.

(a)           Dividend Payment Dates; Form of Dividend Payments.  Holders shall
be entitled to receive, and the Corporation shall pay, cumulative dividends at
the rate per share of 12% per annum, payable quarterly on March 31, June 30,
September 30 and December 31of each year, beginning on the first such date after
the Original Issue Date and on each Conversion Date (with respect only to Series
B Preferred Stock being converted) (each such date, a “Dividend Payment Date”)
(if any Dividend Payment Date is not a Trading Day, the applicable payment shall
be due on the next succeeding Trading Day) in cash or through an increase in
Stated Value, or a combination thereof.  The form of dividend payments to each
Holder shall be determined at the election of the Majority Holders based upon
the applicable scenario as follows: (i) if funds are legally available for the
payment of cash dividends, in cash or by accreting to and increasing the
outstanding Stated Value per share of Series B Preferred Stock; or (ii) if funds
are not legally available for the payment of cash dividends, by accreting to and
increasing the outstanding Stated Value per share of Series B Preferred
Stock.  On the Original Issue Date, the Corporation shall have notified the
Holders whether or not it may legally pay cash dividends as of the Original
Issue Date.  If the Majority Holders fail to provide written notice to the
Corporation prior to the applicable Dividend Payment Date designating the form
of dividend payment, such payment shall be made (i) in cash, if funds are
legally available, or (ii) by accreting to and increasing the Stated Value per
share of the Series B Preferred Stock, if funds are not legally available.  The
Corporation shall promptly notify the Holders at any time the Corporation shall
become able or unable, as the case may be, to legally pay cash
dividends.  Dividends on the Series B Preferred Stock shall accrue daily
commencing on the Original Issue Date, and shall be deemed to accrue from such
date whether or not earned or declared and whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment of
dividends.  Except as otherwise provided herein, if at any time the Corporation
pays dividends partially in cash and partially in accreted Stated Value, then
such payment shall be distributed ratably among the Holders based upon the
number of shares of Series B Preferred Stock held by each Holder on such
Dividend Payment Date.  Any dividends payable in cash that are not paid within
three Trading Days following a Dividend Payment Date shall continue to accrue
and shall entail a late fee, which must be paid in cash, at the rate of 18% per
annum or the lesser rate permitted by applicable law (such fees to accrue daily,
from the Dividend Payment Date through and including the date of
payment).  Accreting to and increasing the outstanding Stated Value per share of
Series B Preferred Stock hereunder shall not require any declaration or further
action of the Board.
 
 
 
 

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       (b)    Dividend Periods; Dividend Rate; Calculation of Dividends.
 
(i)           Dividend Periods.  The dividend periods (each, a “Dividend
Period”) shall be as follows:  The initial Dividend Period shall begin on the
Date of Original Issue and end on the initial Dividend Payment Date, and each
Dividend Period thereafter shall commence on the day following the last day of
the preceding Dividend Period and shall end on the next Dividend Payment Date.
 
(ii)           Dividend Rate.  The dividend rate on each share of Series B
Preferred Stock (the “Dividend Rate”), to be paid per annum on the Stated Value
(as defined below), shall be 12%.
 
(iii)           Calculation of Dividends.
 
(A)           The amount of dividends per share of Series B Preferred Stock
payable for each Dividend Period or part thereof shall be computed by
multiplying the then-current Stated Value by the Dividend Factor (as defined
below).
 
(B)           The “Dividend Factor” shall be the Dividend Rate multiplied by a
fraction, the numerator of which is the number of days in the applicable
Dividend Period or part thereof on which the share of Series B Preferred Stock
was outstanding, and the denominator of which is 365.
 
“Current Market Price” means, in respect of any share of Common Stock on any
date herein specified:
 
(1) if there shall not then be a public market for the Common Stock, the fair
market value per share of Common Stock as determined in good faith by an
independent appraiser selected by the Holders of a majority of the then
outstanding shares of Series B Preferred Stock (the “Majority Holders”); or
 
 
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(2) if there shall then be a public market for the Common Stock, the average of
the daily market prices for the 20 consecutive trading days immediately before
such date. The daily market price (the “Daily Market Price”) for each such
trading day shall be (i) the closing sale price on such day on the principal
stock exchange (including Nasdaq) on which such Common Stock is then listed or
admitted to trading, or quoted, as applicable, (ii) if no sale takes place on
such day on any such exchange, the last reported closing sale price on such day
as officially quoted on any such exchange (including Nasdaq), (iii) if the
Common Stock is not then listed or admitted to trading on any stock exchange,
the last reported closing sale price on such day by the OTC Bulletin Board or
the OTC Markets Group (formerly 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 or successor firm then engaged in such business, or (v)
if there is no such firm, as furnished by any member of the Financial Industry
Regulatory Authority (“FINRA”) selected mutually by Majority Holders and the
Corporation or, if they cannot agree upon such selection, as selected by two
such members of the FINRA, one of which shall be selected by Majority Holders
and one of which shall be selected by the Corporation.
 
(c)           No dividends shall be declared or paid or set apart for payment on
the shares of Common Stock or any other class or series of capital stock of the
Corporation for any dividend period unless full cumulative dividends have been
or contemporaneously are declared and paid on the Series B Preferred Stock
through the most recent Dividend Payment Date. Without prejudice to the
foregoing, if full cumulative dividends have not been paid on shares of the
Series B Preferred Stock, all dividends declared on shares of the Series B
Preferred Stock shall be paid pro rata to the holders of outstanding shares of
the Series B Preferred Stock.
 
(d)           The holders of the Series B Preferred Stock shall each be entitled
to receive any dividends or distributions (other than dividends payable solely
in additional Common Stock), declared by the Board and paid to the holders of
Common Stock, out of any assets legally available therefor, pari passu, with the
amount of such dividends to be distributed to the holders of Series B Preferred
Stock on an As-Converted Basis (as defined below) immediately prior to the
declaration of such dividend or distribution.  “As-Converted Basis” means, as of
the time of determination, that number of shares of Common Stock which a holder
of Series B Preferred Stock would hold if all shares of Series B Preferred Stock
held by such holder were converted into shares of Common Stock pursuant to
Section 5 hereof (regardless of Section 5(i) or the number of shares of Common
Stock that the Corporation is then authorized to issue) at the then applicable
Conversion Value (as defined below) regardless of whether such shares of Common
Stock are then authorized for issuance.
 
(e)           The Corporation acknowledges and agrees that the capital of the
Corporation (as such term is used in Section 154 of the Delaware General
Corporation Law) in respect of the Series B Preferred Stock and any future
issuances of the Corporation’s capital stock shall be equal to the aggregate par
value of such Series B Preferred Stock or capital stock, as the case may be, and
that, on or after the date of the Purchase Agreement, it shall not increase the
capital of the Corporation with respect to any shares of the Corporation’s
capital stock issued and outstanding on such date.  The Corporation also
acknowledges and agrees that it shall not create any special reserves under
Section 171 of the Delaware General Corporation Law without the prior written
consent of each Holder.

 
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2.           Voting Rights. Except as otherwise provided herein or as provided
by law, the holders of the Series B Preferred Stock shall have full voting
rights and powers, subject to the Beneficial Ownership Cap as defined in Section
5(i), if applicable, equal to the voting rights and powers of holders of Common
Stock and shall be entitled to notice of any stockholders meeting in accordance
with the Bylaws of the Corporation, and shall be entitled to vote, with respect
to any question upon which holders of Common Stock are entitled to vote,
including, without limitation, the right to vote for the election of directors,
voting together with the holders of Common Stock and any other class of stock
entitled to vote with the holders of the Common Stock, as one class. Each holder
of shares of Series B Preferred Stock shall be entitled to vote on an
As-Converted Basis, determined on the record date for the taking of a vote,
subject to the applicable Beneficial Ownership Cap limitations set forth in
Section 5(i), or, if no record date is established, at the day prior to the date
such vote is taken or any written consent of stockholders is first executed.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Series B Preferred Stock held by each holder could be converted) shall
be rounded to the nearest whole number (with one-half being rounded upward).
 
3.           Rights on Liquidation.
 
(a)           In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a “Liquidation”), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of the Common Stock or
any other class of preferred stock (including the Series A Cumulative
Convertible Preferred Stock (the “Series A Preferred Stock”)), the holders of
Series B Preferred Stock shall be entitled to receive payment out of such assets
of the Corporation in an amount equal to the greater of (i) (A) two times (2x)
the Stated Value for the Series B Preferred Stock, plus any accumulated and
unpaid dividends (whether or not declared) on the Series B Preferred Stock if
such Liquidation takes place prior to the fifth anniversary of the Original
Issue Date or (B) three times (3x) the Stated Value for the Series B Preferred
Stock, plus any accumulated and unpaid dividends (whether or not declared) on
the Series B Preferred Stock if such Liquidation takes place on or after to the
fifth anniversary of the Original Issue Date (as applicable, the “Liquidation
Preference”), or (ii) the cash or other property distributable upon such
Liquidation with respect to the shares of Common Stock into which such shares of
Series B Preferred Stock, including any accrued dividends thereon, could have
been converted immediately prior to such payment. “Stated Value” shall mean
$10,000 per share of Series B Preferred Stock, as it may be increased from time
to time pursuant to Section 1.  If the assets of the Corporation available for
distribution to the holders of Series B Preferred Stock shall not be sufficient
to make in full the payment herein required, such assets shall be distributed
pro-rata among the holders of Series B Preferred Stock based on the aggregate
Liquidation Preferences and other amounts due in respect of the shares of Series
B Preferred Stock held by each such holder.
 
 
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(b)           If the assets of the Corporation available for distribution to
stockholders exceed the aggregate amount of the Liquidation Preferences payable
with respect to all shares of Series B Preferred Stock then outstanding, then,
after the payment required by paragraph 3(a) above shall have been made or
irrevocably set aside and the applicable payment required to be made upon a
Liquidation to the holders of the Series A Preferred Stock shall have been made
or irrevocably set aside, the holders of Common Stock shall be entitled to
receive, payment of a pro rata portion of such remaining assets based on the
aggregate number of shares of Common Stock held by such holder.  For avoidance
of doubt, holders of Series B Preferred Stock shall not, in such capacity,
participate with the holders of Common Stock in any distributions pursuant to
this Section 3(b).
 
(c)           A Change of Control (as defined below) of the Corporation shall
not be deemed a Liquidation, but shall instead be governed by the terms of
Section 7 below.
 
4.           Actions Requiring the Consent of Holders of Series B Preferred
Stock. As long as at least 20% of the shares of Series B Preferred Stock issued
pursuant to the Purchase Agreement (as defined below) remain outstanding, the
consent of the Majority Holders shall be necessary for effecting or validating
any of the following transactions or acts, whether by merger, consolidation or
otherwise (for the avoidance of doubt, no such consent shall be required for the
Corporation to amend the Certificate merely to increase the Corporation’s
authorized shares of Common Stock or undesignated preferred stock):
 
(a)           Any amendment, alteration or repeal of any of the provisions of
this Certificate of Designation;
 
(b)           Any amendment, alteration or repeal of (i) the Certificate or (ii)
the Bylaws of the Corporation that will adversely affect the rights or
preferences of the holders of the Series B Preferred Stock;
 
(c)           The authorization or creation by the Corporation of, or the
increase in the number of authorized shares of, any stock of any class, or any
security convertible into stock of any class, or the authorization or creation
of any new class of preferred stock (or any action which would result in another
series of preferred stock), in each case, ranking in terms of liquidation
preference, redemption rights or dividend rights, pari passu with or senior to,
the Series B Preferred Stock in any manner;
 
(d)           The redemption, purchase or other acquisition, directly or
indirectly, of any shares of capital stock of the Corporation or any of its
subsidiaries or any option, warrant or other right to purchase or acquire any
such shares, or any other such security, other than (A) the redemption of Series
B Preferred Stock pursuant to the terms hereof or (B) pursuant to the repurchase
rights of the Corporation under options or restricted stock grants to directors,
employees or consultants of the Corporation, in each case, granted under equity
incentive plans or agreements approved by the Board;
 
(e)           The declaration or payment of any dividend or other distribution
(whether in cash, stock or other property, but excluding a split or reverse
split with respect to the Common Stock) with respect to the capital stock of the
Corporation or any subsidiary, other than a dividend or other distribution
pursuant to the terms of the Series A Preferred Stock or the Series B Preferred
Stock;
 
 
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(f)           If the Corporation or any of its subsidiaries enters into,
creates, incurs, assumes, guarantees or suffers to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee, on or
with respect to any of its property or assets now owned or hereafter acquired or
any interest therein or any income or profits therefrom, other than such
indebtedness that exists as of the Closing Date (as defined in the Purchase
Agreement);

(g)           If the Corporation or any of its subsidiaries enters into,
creates, incurs, assumes or suffers to exist any liens of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom, other than such liens that
exist as of the Closing Date (as defined in the Purchase Agreement);
 
(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
 
(j)           If the Corporation or any of its subsidiaries enters into any
agreement or understanding with respect to any of the foregoing.

5.           Conversion.
 
(a)           Right to Convert. Subject to the limitations set forth in Section
5(i) hereof, the holder of any share or shares of Series B Preferred Stock shall
have the right at any time, at such holder’s option, to convert all or any
lesser portion of such holder’s shares of Series B Preferred Stock into such
number of fully paid and non-assessable shares of Common Stock as is determined
by dividing (i) the aggregate Stated Value of the shares of Series B Preferred
Stock to be converted plus accrued and unpaid dividends thereon by (ii) the
Conversion Value (as defined below) then in effect for such Series B Preferred
Stock. No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any Series B Preferred Stock. With respect to any
fraction of a share of Common Stock called for upon any conversion, the
Corporation shall pay to the holder an amount in cash equal to such fraction
multiplied by the Current Market Price per share of the Common Stock.
 
(b)           Mandatory Conversion. With the prior written consent of Majority
Holders, 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 B Preferred Stock (the “Notice”) that the Corporation intends to
convert all of the outstanding Series B 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 B 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 Stated Value of the shares of Series B 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 B 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 B
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.
 
 
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“Conversion Triggering Event” shall mean, such time as:
 
(i)           If then required under the Investor Rights Agreement dated on or
about the date this Certificate of Designation is filed with the Secretary of
State of the State of Delaware (the “Filing Date”), by and among the Corporation
and the other parties signatory thereto (the “Investor Rights Agreement”), the
Registration Statement (as hereinafter defined) covering all of the shares of
Common Stock into which the Series B Preferred Stock is convertible and into
which the Warrants issued pursuant to the Purchase Agreement (the “Warrants”)
are exercisable, is effective and sales may be made pursuant thereto (or all of
the shares of Common Stock into which the Series B Preferred Stock is
convertible and into which the Warrants are exercisable may be sold without
restriction pursuant to Rule 144(b)(1) promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
“Securities Act”)); and
 
(ii)           The Daily Market Price of the Common Stock exceeds $5.00 (subject
to adjustment for stock splits, reverse splits, stock dividends and the like) or
more per share and has been at or above such price per share for twenty (20)
consecutive trading days immediately prior to the date on which the Corporation
gives the Notice, and the average daily volume of Common Stock traded on the
applicable stock exchange (including Nasdaq) for the twenty (20) consecutive
trading days immediately prior to the date on which the Corporation gives the
Notice is not less than 200,000 shares (subject to adjustment for stock splits,
reverse splits, stock dividends and the like).
 
“Registration Statement” shall have the meaning established in the Investor
Rights Agreement.
 
(c)           Mechanics of Conversion.
 
(i)           Such right of conversion (other than mandatory conversion) shall
be exercised by the holder of shares of Series B Preferred Stock by delivering
to the Corporation a conversion notice in the form attached hereto as Exhibit A
(the “Conversion Notice”), appropriately completed and duly signed and
specifying the number of shares of Series B Preferred Stock that the holder
elects to convert (the “Converting Shares”) into shares of Common Stock, and by
surrender not later than two (2) business days thereafter of the certificate or
certificates representing such Converting Shares. The Conversion Notice shall
also contain a statement of the name or names (with addresses and tax
identification or social security numbers) in which the certificate or
certificates for Common Stock shall be issued, if other than the name in which
the Converting Shares are registered. Promptly after the receipt of the
Conversion Notice, the Corporation shall issue and deliver, or cause to be
delivered, to the holder of the Converting Shares or such holder’s nominee, a
certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such Converting Shares. Such conversion shall be deemed
to have been effected as of the close of business on the date of receipt by the
Corporation of the Conversion Notice (the “Conversion Date”), and the person or
persons entitled to receive the shares of Common Stock issuable upon conversion
shall be treated for all purposes as the holder or holders of record of such
shares of Common Stock as of the close of business on the Conversion Date.
 
 
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(ii)           The Corporation shall issue certificates representing the shares
of Common Stock to be received upon conversion of the Series B Preferred Stock
(the “Conversion Shares”) (and certificates for unconverted Series B Preferred
Stock) within three (3) business days of the Conversion Date and shall transmit
the certificates by messenger or reputable overnight delivery service to reach
the address designated by such holder within three (3) business days after the
receipt by the Corporation of such Conversion Notice (the third business day,
the “Share Delivery Date”).  If certificates evidencing the Conversion Shares
are not received by the holder within five (5) business days of the Conversion
Notice, then the holder will be entitled to revoke and withdraw its Conversion
Notice, in whole or in part, at any time prior to its receipt of those
certificates.  In lieu of delivering physical certificates representing the
Conversion Shares or in payment of dividends hereunder, provided the
Corporation’s transfer agent is participating in the Depository Trust Company
(“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the
holder, the Corporation shall use its best efforts to cause its transfer agent
to electronically transmit the Common Stock issuable upon conversion or dividend
payment to the holder, by crediting the account of the holder’s prime broker
with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.  The
time periods for delivery described above, and for delivery of Common Stock in
payment of dividends hereunder, shall apply to the electronic transmittals
through the DWAC system.  Such holder and the Corporation agree to coordinate
with DTC to accomplish this objective.  The person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares at the close of
business on the Conversion Date.  If the conversion has not been rescinded in
accordance with this paragraph and the Corporation fails to deliver to the
holder such certificate or certificates (or shares through DTC) pursuant to this
Section 5 (free of any restrictions on transfer or legends, if such shares have
been registered) in accordance herewith, prior to the seventh trading day after
the Conversion Date (assuming timely surrender of the Series B Preferred Stock
certificates), as the remedy for such failure, the Corporation shall pay to such
holder, in cash, on a per diem basis, an amount equal to 1% of the Stated Value
plus accrued and unpaid dividends thereon of all Series B Preferred Stock
elected to be converted into Conversion Shares by such holder and with respect
to which the Conversion Shares have not been so timely delivered, per month
until such delivery takes place.  Payment of such amount as the remedy for such
failure shall not limit the obligation of the Corporation to deliver such
Conversion Shares or the right of the holder to take any action that such holder
deems necessary or appropriate to enforce such obligation.
 
 
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(iii)           The Corporation’s obligation to issue Common Stock upon
conversion of Series B Preferred Stock in accordance with this Certificate of
Designation shall be absolute, is independent of any covenant of any holder of
Series B Preferred Stock, and shall not be subject to:  (A) any offset or
defense; or (B) any claims against the holders of Series B Preferred Stock
whether pursuant to this Certificate of Designation, the Preferred Stock and
Warrant Purchase Agreement (the “Purchase Agreement”) entered into among the
Corporation and the purchasers of the Series B Preferred Stock on or about the
Original Issue Date, the Investor Rights Agreement, the Warrants or otherwise.
 
(iv)           Subject to the provisions of Section 5(i), in the event that a
Conversion Triggering Event has occurred and the Corporation has given the
Notice as required by Section 5(b) and the other conditions in Section 5(b) have
been satisfied, all the shares of Series B Preferred Stock shall be converted on
the Mandatory Conversion Date as if the holders thereof had delivered a
Conversion Notice with respect to such shares on such date. Promptly thereafter,
the holders of the Series B Preferred Stock shall deliver their certificates
evidencing the Series B Preferred Stock to the Corporation or its duly
authorized transfer agent, and upon receipt thereof, the Corporation shall issue
or cause its transfer agent to issue certificates evidencing the Common Stock
into which the shares Series B Preferred Stock have been converted.
 
(v)           If the Corporation fails to deliver to a Holder the applicable
certificate or certificates by the Share Delivery Date pursuant to Section
5(c)(ii), and if after such Share Delivery Date such Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise), or the
Holder’s brokerage firm purchases, shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which such Holder
was entitled to receive upon the conversion relating to such Share Delivery Date
(a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in
addition to any other remedies available to or elected by such Holder) the
amount by which (x) such Holder’s total purchase price (including any brokerage
commissions) for the shares of Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder was
entitled to receive from the conversion at issue multiplied by (2) the actual
sale price at which the sell order giving rise to such purchase obligation was
executed (including any brokerage commissions) and (B) at the option of such
Holder, either reissue (if surrendered) the shares of Series B Preferred Stock
equal to the number of shares of Series B Preferred Stock submitted for
conversion or deliver to such Holder the number of shares of Common Stock that
would have been issued if the Corporation had timely complied with its delivery
requirements under Section 5(c)(ii). For example, if a Holder purchases shares
of Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of shares of Series B Preferred Stock with
respect to which the actual sale price (including any brokerage commissions)
giving rise to such purchase obligation was a total of $10,000 under clause (A)
of the immediately preceding sentence, the Corporation shall be required to pay
such Holder $1,000. The Holder shall provide the Corporation written notice
indicating the amounts payable to such Holder in respect of the Buy-In and, upon
request of the Corporation, evidence of the amount of such loss. Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Corporation’s
failure to timely deliver certificates representing shares of Common Stock upon
conversion of the shares of Series B Preferred Stock as required pursuant to the
terms hereof.

 
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(d)           [intentionally omitted]
 
(e)           Beneficial Ownership Cap. To the extent that any shares of Series
B Preferred Stock are not automatically converted upon the occurrence of a
Mandatory Conversion on account of the application of Section 5(i), such shares
of Series B Preferred Stock shall be deemed converted automatically under this
Section 5 at the first moment thereafter when Section 5(i) would not prevent
such conversion. Notwithstanding the preceding sentence, upon the occurrence of
the Mandatory Conversion, the right to: (a) accrue dividends on Series B
Preferred Stock (other than dividends pursuant to Section 1(d) hereof); (b) the
Liquidation Preference of the Series B Preferred Stock, including, without
limitation, the right to be treated as holders of Series B Preferred Stock in
the event of a merger or consolidation; (c) the veto rights described in Section
4 hereof; and (d) the redemption rights in Section 13 hereof, shall cease
immediately.
 
(f)           Conversion Value. The initial conversion value for the Series B
Preferred Stock shall be $0.50 per share, such value to be subject to adjustment
in accordance with the provisions of this Section 5. Such conversion value in
effect from time to time, as adjusted pursuant to this Section 5, is referred to
herein as a “Conversion Value.” All of the remaining provisions of this Section
5 shall apply separately to each Conversion Value in effect from time to time
with respect to Series B Preferred Stock.
 
(g)           Stock Dividends, Subdivisions and Combinations.  If at any time
while the Series B Preferred Stock is outstanding, the Corporation shall:
 
(i)           cause the holders of its Common Stock to be entitled to receive a
dividend payable in, or other distribution of, additional shares of Common
Stock,
 
(ii)           subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
 
(iii)           combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
 
then in each such case the Conversion Value shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
Paragraph 5(g) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clauses (ii) or (iii) of this Paragraph 5(g)
shall become effective immediately after the effective date of such subdivision
or combination. If any event requiring an adjustment under this paragraph occurs
during the period that a Conversion Value is calculated hereunder, then the
calculation of such Conversion Value shall be adjusted appropriately to reflect
such event.
 
 
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(h)           Certain Other Distributions. If at any time while the Series B
Preferred Stock is outstanding the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive any
dividend or other distribution of:
 
(i)           cash,
 
(ii)           any evidences of its indebtedness, any shares of stock of any
class or any other securities or property or assets of any nature whatsoever
(other than cash or additional shares of Common Stock as provided in Section
5(g) hereof), or
 
(iii)           any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property or assets of any nature whatsoever (in each case set
forth in subparagraphs 5(h)(i), 5(h)(ii) and 5(h)(iii) hereof, the “Distributed
Property”),
 
then, except to the extent that the holder of Series B Preferred Stock has
previously received such Distributed Property pursuant to Section 1(d) hereof,
upon any conversion of Series B Preferred Stock that occurs after such record
date, the holder of Series B Preferred Stock shall be entitled to receive, in
addition to the Conversion Shares, the Distributed Property that such holder
would have been entitled to receive in respect of such number of Conversion
Shares had the holder been the record holder of such Conversion Shares as of
such record date. Such distribution shall be made whenever any such conversion
is made. In the event that the Distributed Property consists of property other
than cash, then the fair value of such Distributed Property shall be as
determined in good faith by the Board and set forth in reasonable detail in a
written valuation report (the “Valuation Report”) prepared by the Board. The
Corporation shall give written notice of such determination and a copy of the
Valuation Report to all holders of Series B Preferred Stock, and if the Majority
Holders object to such determination within twenty (20) business days following
the date such notice is given to all of the holders of Series B Preferred Stock,
the Corporation shall submit such valuation to an investment banking firm of
recognized national standing selected by the Majority Holders and acceptable to
the Corporation in its reasonable discretion, whose opinion shall be binding
upon the Corporation and the Series B Preferred Stockholders. A reclassification
of the Common Stock (other than a change in par value, or from par value to no
par value or from no par value to par value) into shares of Common Stock and
shares of any other class of stock shall be deemed a distribution by the
Corporation to the holders of its Common Stock of such shares of such other
class of stock within the meaning of this Section 5(h) and, if the outstanding
shares of Common Stock shall be changed into a larger or smaller number of
shares of Common Stock as a part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the outstanding
shares of Common Stock within the meaning of Section 5(g).
 
 
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(i)           Blocking Provision.
 
(i)           Except as provided otherwise in this Section 5(i)(i), the number
of Conversion Shares that may be acquired by any holder, and the number of
shares of Series B Preferred Stock that shall be entitled to voting rights under
Section 2 hereof, shall be limited to the extent necessary to insure that,
following such conversion (or deemed conversion for voting purposes), the number
of shares of Common Stock then beneficially owned by such holder and its
Affiliates and any other persons or entities whose beneficial ownership of
Common Stock would be aggregated with the holder’s for purposes of Section 13(d)
of the Exchange Act (including shares held by any “group” of which the holder is
a member, but excluding shares beneficially owned by virtue of the ownership of
securities or rights to acquire securities that have limitations on the right to
convert, exercise or purchase similar to the limitation set forth herein) does
not exceed 4.99% of the total number of shares of Common Stock of the
Corporation then issued and outstanding (the “Beneficial Ownership Cap”). For
purposes hereof, “group” has the meaning set forth in Section 13(d) of the
Exchange Act and applicable regulations of the Securities and Exchange
Commission, and the percentage held by the holder shall be determined in a
manner consistent with the provisions of Section 13(d) of the Exchange Act.
Except as set forth in the preceding sentence, for purposes of this Section, the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining, nonconverted
portion of the Series B Preferred Stock beneficially owned by the Holder or any
of its Affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any Series A Preferred Stock and warrants) subject to a limitation
on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates.  For purposes of this
Section, in determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y)
a more recent public announcement by the Company or (z) any other notice by the
Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding.  As used herein, the term “Affiliate” means any person
or entity that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a person or entity,
as such terms are used in and construed under Rule 144 under the Securities Act.
With respect to a holder of Series B Preferred Stock, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such holder will be deemed to be an Affiliate of such holder. Each
delivery of a Conversion Notice by a holder of Series B Preferred Stock will
constitute a representation by such Holder that it has evaluated the limitation
set forth in this paragraph and determined, subject to the accuracy of
information filed under the Securities Act and the Exchange Act by the
Corporation with respect to the outstanding Common Stock of the Corporation,
that the issuance of the full number of shares of Common Stock requested in such
Conversion Notice is permitted under this paragraph. This paragraph shall be
construed and administered in such manner as shall be consistent with the intent
of the first sentence of this paragraph. Any provision hereof which would
require a result that is not consistent with such intent shall be deemed severed
herefrom and of no force or effect with respect to the conversion contemplated
by a particular Conversion Notice.
 
 
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(ii)           In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of any restrictions or prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization, the Corporation shall as soon as
possible seek the approval of its stockholders and take such other action to
authorize the issuance of the full number of shares of Common Stock issuable
upon the full conversion of the then outstanding shares of Series B Preferred
Stock.
 
(iii)           Notwithstanding the foregoing provisions of Section 5(i), any
holder of Series B Preferred Stock shall have the right prior to the Original
Issue Date upon written notice to the Corporation, or after the Original Issue
Date upon (x) 61 days prior written notice to the Corporation or (y) upon a
Change of Control the terms of which require the conversion of the Series B
Preferred Stock into Common Stock, to choose not to be governed by the
Beneficial Ownership Cap provided herein.
 
(j)           Common Stock Reserved. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock, solely for
issuance upon the conversion of shares of Series B Preferred Stock as herein
provided, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series B Preferred Stock at
the time outstanding (without regard to any ownership limitations provided in
Section 5(i)).
 
6.           Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments of the number of
shares of Common Stock into which the Series B Preferred Stock is convertible
and the current Conversion Value provided for in Section 5:
 
(a)           When Adjustments to Be Made. The adjustments required by Section 5
shall be made whenever and as often as any specified event requiring an
adjustment shall occur, except that any adjustment to the Conversion Value that
would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for in
Section 5(g)) up to, but not beyond the Conversion Date if such adjustment
either by itself or with other adjustments not previously made adds or subtracts
less than 1% of the shares of Common Stock into which the Series B Preferred
Stock is convertible immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by Section 5 and not
previously made, would result in a minimum adjustment or on the Conversion Date.
For the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.
 
(b)           Fractional Interests. In computing adjustments under Section 5,
fractional interests in Common Stock shall be taken into account to the nearest
1/100th of a share.
 
 
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(c)           When Adjustment Not Required. If the Corporation undertakes a
transaction contemplated under Section 5(h) and as a result takes a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights or other benefits
contemplated under Section 5(h) and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights or other benefits
contemplated under Section 5(h), then thereafter no adjustment shall be required
by reason of the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
 
(d)           Escrow of Stock. If after any property becomes distributable
pursuant to Section 5 by reason of the taking of any record of the holders of
Common Stock, but prior to the occurrence of the event for which such record is
taken, a holder of the Series B Preferred Stock either converts the Series B
Preferred Stock or there is a Mandatory Conversion during such period, or in
either case such holder is unable to convert shares pursuant to Section 5(i),
such holder of Series B Preferred Stock shall continue to be entitled to receive
any shares of Common Stock issuable upon conversion under Section 5 by reason of
such adjustment (as if such Series B Preferred Stock were not yet converted) and
such shares or other property shall be held in escrow for the holder of the
Series B Preferred Stock by the Corporation to be issued to holder of the Series
B Preferred Stock upon and to the extent that the event actually takes place.
Notwithstanding any other provision to the contrary herein, if the event for
which such record was taken fails to occur or is rescinded, then such escrowed
shares shall be canceled by the Corporation and escrowed property returned to
the Corporation.
 
7.           Merger, Consolidation or Disposition of Assets.
 
(a)           If, after the Original Issue Date and while any share or shares of
Series B Preferred Stock are outstanding, there occurs, other than as a result
of the sale of securities pursuant to the Purchase Agreement: (i) an acquisition
by an individual or legal entity or group (as set forth in Section 13(d) of the
Exchange Act) of more than 50% of the voting rights or equity interests in the
Corporation, whether in one transaction or in a series of related transactions
or (ii) a merger or consolidation of the Corporation where the holders of the
Corporation’s voting securities prior to such transaction fail to continue to
hold at least 50% of the voting power of the Corporation or (iii) a sale,
transfer or other disposition of a material portion of the Corporation’s
property, assets or business to another corporation and such transaction is
approved by the Board (which such transaction, for avoidance of doubt, may take
the form of a sale, transfer, license, sublicense, encumbrance or other
disposition of any material portion of the Corporation’s intellectual property,
including, without limitation, patents, trademarks, service marks, copyrights,
trade secrets, technologies, compounds and trade names) (each, a “Change of
Control”), and, pursuant to the terms of such Change of Control, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation (“Other Property”), are
to be received by the Corporation or received by or distributed to the holders
of Common Stock of the Corporation then, at the direction of the Majority
Holders (i) the Corporation shall provide for payment of the Liquidation
Preference to the Holders of the Series B Preferred Stock, which shall be prior
to any payments or distribution of assets of the Corporation made to or set
apart for the holders of the Common Stock or any other class of preferred stock
(including the Series A Preferred Stock) or (ii) the successor or acquiring
corporation (if other than the Corporation) shall assume the Series B Preferred
Stock pursuant to Section 7(b) below.
 
 
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(b)           In case of any such Change of Control in which the Majority
Holders have elected that the successor or acquiring corporation (if other than
the Corporation) shall assume the Series B Preferred Stock, the successor or
acquiring corporation (if other than the Corporation) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition contained in this Certificate of Designation to be performed and
observed by the Corporation and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate (as determined by
resolution of the Board) in order to provide for adjustments of shares of the
Common Stock into which the Series B Preferred Stock is convertible which shall
be as nearly equivalent as practicable to the adjustments provided for in
Section 5. For purposes of Section 5, common stock of the successor or acquiring
corporation shall include stock of such corporation of any class which is not
preferred as to dividends or assets on liquidation over any other class of stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities which
are convertible into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such stock.
 
(c)           The foregoing provisions of this Section 7 shall similarly apply
to successive Change of Control transactions.
 
8.           Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action in respect of its Common
Stock, other than the payment of dividends permitted by Section 5 or any other
action described in Section 5, then, unless such action will not have a
materially adverse effect upon the rights of the holder of Series B Preferred
Stock, the number of shares of Common Stock or other stock into which the Series
B Preferred Stock is convertible and/or the purchase price thereof shall be
adjusted in such manner as may be equitable in the circumstances; provided, that
the mere authorization or issuance of additional shares of capital stock of the
Corporation (other than pursuant to a stock dividend) shall not be considered
any action in respect of its Common Stock for purposes of this Section 8.
 
9.           Certain Limitations. Notwithstanding anything herein to the
contrary, the Corporation agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the current Conversion Value to
be less than the par value per share of Common Stock.
 
10.           Consents and Waivers.  Any consent of the Holders of the Series B
Preferred Stock required or contemplated pursuant to this Certificate of
Designations, Rights and Preferences of Series B Cumulative Convertible
Preferred Stock shall be provided pursuant to a written instrument signed by the
Majority Holders.  In addition, any provision of this Certificate of
Designations, Rights and Preferences of Series B Cumulative Convertible
Preferred Stock may be waived pursuant to a written instrument signed by the
Majority Holders; provided, however that any such waiver providing for a
disproportionately adverse treatment of any Holder shall require the consent of
such Holder.  No such waiver with respect to any provision, condition or
requirement hereof 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.
 
 
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11.           Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Value, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series B
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series B Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Value at the time in effect for the Series B Preferred Stock (iii)
the then-current Stated Value, and (iv) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of Series B Preferred Stock owned by such holder (without regard
to the ownership limitations set forth in Section 5(i)).
 
12.           Notices of Record Date. In the event of any fixing by the
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend or a dividend set forth in Section 1
hereof) or other distribution, any shares of Common Stock or other securities,
or any right to subscribe for, purchase or otherwise acquire, or any option for
the purchase of, any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series B Preferred Stock at least twenty (20) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or rights, and the
amount and character of such dividend, distribution or right.
 
    13.           Redemption.
 
(a)           Redemption at the Holders’ Elections. If a Redemption Triggering
Event (as defined below) has occurred, and a Holder has so elected, the
Corporation shall redeem the Series B Preferred Stock of any Holder who gives a
Demand for Redemption (as defined below). The Corporation shall, promptly
thereafter, redeem the shares of Series B Preferred Stock as set forth in the
Demand for Redemption. The Corporation shall effect such redemption on the
Redemption Date by paying in cash for each such share to be redeemed an amount
equal to the greater of (i) the Redemption Price (as defined below) or (ii) the
total number of shares of Common Stock into which such Series B Preferred Stock
is convertible multiplied by the Current Market Price at the time of the
Redemption Triggering Event.  “Redemption Triggering Event” means the
Corporation’s willful failure or refusal to convert any shares of Series B
Preferred Stock in accordance with Section 5 hereof, or the Corporation’s
providing of written notice to such effect.  “Redemption Price” means (i) all
accrued but unpaid dividends as of the date of Demand for Redemption with
respect to each share to be redeemed, plus (ii) 100% of the then-applicable
Liquidation Preference of each share to be redeemed.
 
 
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(b)           Demand for Redemption. A Holder desiring to elect a redemption as
herein provided shall deliver a notice (the “Demand for Redemption”) to the
Corporation while such Redemption Triggering Event continues specifying the
following:
 
(i)           The approximate date and nature of the Redemption Triggering
Event;
 
(ii)           The number of shares of Series B Preferred Stock to be redeemed;
and
 
(iii)           The address to which the payment of the Redemption Price shall
be delivered, or, at the election of the holder, wire instructions with respect
to the account to which payment of the Redemption Price shall be required.
 
A Holder may deliver the certificates evidencing the Series B Preferred Stock to
be redeemed with the Demand for Redemption or under separate cover. Payment of
the Redemption Price shall be made not later than two (2) business days after
the date on which a Holder has delivered a Demand for Redemption and the
certificates evidencing the shares of Series B Preferred Stock to be redeemed.
 
(c)           Status of Redeemed or Purchased Shares. Any shares of the Series B
Preferred Stock at any time purchased, redeemed or otherwise acquired by the
Corporation shall not be reissued and shall be retired.
 
(d)           Status of Authorized, but Unissued Shares Preferred Stock.  Shares
of Series B Preferred Stock shall be issued only pursuant to the terms of the
Purchase Agreement.  Any attempt of the Corporation to issue shares of Series B
Preferred Stock other than in accordance with the Purchase Agreement shall be
null and void.
 
14.           Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (Eastern Time) on a business day,
(b) the next business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a business day or later than 5:00 p.m.
(Eastern Time) on any business day, or (c) the business day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service such
as Federal Express. The address for such notices and communications shall be as
follows: (i) if to the Corporation, to Access Pharmaceuticals, Inc., 2600
Stemmons Freeway, Suite 176, Dallas, Texas 75207, Attention: President,
Facsimile No.: (214) 905-5101, or (ii) if to a holder of Series B Preferred
Stock, to the address or facsimile number appearing on the Corporation’s
stockholder records or, in either case, to such other address or facsimile
number as the Corporation or a holder of Series B Preferred Stock may provide to
the other in accordance with this Section.
 
 
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15.           Stock Transfer Taxes. The issue of stock certificates upon
conversion of the Series B Preferred Stock shall be made without charge to the
converting holder for any tax in respect of such issue; provided, however, that
the Corporation shall be entitled to withhold any applicable withholding taxes
with respect to such issue, if any. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares in any name other than that of the holder of
any of the Series B Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
 
16.           Definitions. Capitalized terms used and not otherwise defined
herein that are defined in the Purchase Agreement shall have the meanings given
such terms in the Purchase Agreement. In addition, for the purposes hereof, the
following terms shall have the following meanings:

“Change of Control Transaction” means the occurrence after the date hereof of
any of (i) an acquisition after the date hereof by an individual, legal entity
or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act), other than SCO Capital Partners LLC and its Affiliates, of effective
control (whether through legal or beneficial ownership of capital stock of the
Corporation, by contract or otherwise) of in excess of 50% of the voting
securities of the Corporation (other than by means of conversion or exercise of
the Series A Preferred Stock, the Series B Preferred Stock and the warrants
issued together with the Series A Preferred Stock or the Series B Preferred
Stock), or (ii) the Corporation merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Corporation and,
after giving effect to such transaction, the stockholders of the Corporation
immediately prior to such transaction own less than 66% of the aggregate voting
power of the Corporation or the successor entity of such transaction, or (iii)
the Corporation sells or transfers all or substantially all of its assets to
another Person and the stockholders of the Corporation immediately prior to such
transaction own less than 66% of the aggregate voting power of the acquiring
entity immediately after the transaction, or (iv) a replacement at one time or
within a one year period of more than one-half of the members of the
Corporation’s board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date hereof), or
(v) the execution by the Corporation of an agreement to which the
Corporation  is a party or by which it is bound, providing for any of the events
set forth in clauses (i) through (iv) above.

“Common Stock” means the Corporation’s common stock, par value $0.01 per share,
and stock of any other class of securities into which such securities may
hereafter be reclassified or changed into.
 

 
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    “Equity Conditions” means, during the period in question, (i) the
Corporation shall have duly honored all conversions scheduled to occur or
occurring by virtue of one or more Conversion Notices of the applicable Holder
on or prior to the dates so requested or required, if any, (ii) the Corporation
shall have paid all liquidated damages and other amounts owing to the applicable
Holder in respect of the Series B Preferred Stock, (iii) if required under the
Investor Rights Agreement, there is an effective Registration Statement pursuant
to which the Holders are permitted to utilize the prospectus thereunder to
resell all of the shares of Common Stock issuable pursuant to the Transaction
Documents (and the Corporation believes, in good faith, that such effectiveness
will continue uninterrupted for the foreseeable future) or all of the shares of
Common Stock issuable pursuant to the Transaction Documents may be sold without
restriction pursuant to Rule 144(b)(1), (iv) the Common Stock is trading on a
Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on such Trading Market (and the Corporation
believes, in good faith, that trading of the Common Stock on a Trading Market
will continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized, but unissued and otherwise unreserved, shares
of Common Stock for the issuance of all of the shares of Common Stock issuable
pursuant to the Transaction Documents, (vi) there is no existing Redemption
Triggering Event or no existing event which, with the passage of time or the
giving of notice, would constitute a Redemption Triggering Event, (vii) there
has been no public announcement of a pending or proposed Change of Control
Transaction that has not been consummated, (viii) the applicable Holder is not
in possession of any information that constitutes, or may constitute, material
non-public information.

“Holder” means any holder of shares of Series B Preferred Stock.

“Original Issue Date” means the date of the first issuance of any shares of the
Series B Preferred Stock regardless of the number of transfers of any particular
shares of Series B Preferred Stock and regardless of the number of certificates
which may be issued to evidence such Series B Preferred Stock.

 

 
[signature page follows]
 

 
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IN WITNESS WHEREOF, the undersigned being a duly authorized officer of the
Corporation, does file this Certificate of Designations, Rights and Preferences,
hereby declaring and certifying that the facts stated herein are true and
accordingly has hereunto set his hand this 24th day of October 2012.
 
ACCESS PHARMACEUTICALS, INC.

By:  /s/ Stephen B. Thompson
Name: Stephen B. Thompson
Title: Vice President, Chief Financial Officer, Treasurer and Secretary

 
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EXHIBIT A

FORM OF CONVERSION NOTICE

(To be executed by the registered Holder in order to convert shares of Series B
Preferred Stock)

The undersigned hereby irrevocably elects to convert the number of shares of
Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”)
indicated below into shares of common stock, par value $0.01 per share (the
“Common Stock”), of Access Pharmaceuticals, Inc., a Delaware corporation (the
“Corporation”), according to the Certificate of Designations, Rights and
Preferences of the Series B Preferred Stock and the conditions hereof, as of the
date written below. The undersigned hereby requests that certificates for the
shares of Common Stock to be issued to the undersigned pursuant to this
Conversion Notice be issued in the name of, and delivered to, the undersigned or
its designee as indicated below. If the shares of Common Stock are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. A copy of the certificate
representing the Series B Preferred Stock being converted is attached hereto,
the original of which will be delivered to the Corporation promptly following
the date hereof.
 
______________________________________________________________________________
 Date of Conversion (Date of Notice)
______________________________________________________________________________
Number of shares of Series B Preferred Stock owned prior to Conversion
______________________________________________________________________________
Number of shares of Series B Preferred Stock to be Converted
______________________________________________________________________________
Stated Value of Series B Preferred Stock to be Converted
______________________________________________________________________________
Amount of accumulated and unpaid dividends on shares of Series B Preferred Stock
to be Converted
______________________________________________________________________________
Number of shares of Common Stock to be Issued (including conversion of accrued
but unpaid dividends
on shares of Series B Preferred Stock to be Converted)
______________________________________________________________________________
Applicable Conversion Value
______________________________________________________________________________
Number of shares of Series B Preferred Stock owned subsequent to Conversion

Conversion Information:[NAME OF HOLDER]

___________________________________

 
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Address of Holder:
___________________________________
___________________________________
Issue Common Stock to (if different than above):
Name:_______________________________
Address:____________________________
____________________________
Tax ID #:_____________________

[IF APPLICABLE] The undersigned represents, subject to the accuracy of
information filed under the Securities Act and the Exchange Act by the
Corporation with respect to the outstanding Common Stock of the Corporation, as
of the date hereof that, after giving effect to the conversion of Preferred
Shares pursuant to this Conversion Notice, the undersigned will not exceed the
“Beneficial Ownership Cap” contained in Section 5(i) of the Certificate of
Designation of the Series B Preferred Stock.
 

________________________________________________
Name of Holder

By:_____________________________________________
Name:
Title:

 
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