Document:

Exhibit No. 10.30

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

ACCESS
PHARMACEUTICALS, INC.

7.5% SECURED CONVERTIBLE
PROMISSORY NOTE

	
  U.S. $

  	
   

  	
  Dallas, Texas

  
	
  No.: PN-2006-

  	
   

  	
  February 16, 2006

  

 

FOR VALUE RECEIVED, the undersigned, Access Pharmaceuticals, Inc.,
a Delaware corporation (the “Company”), hereby promises to pay to the
order of           
or any future holder of this promissory note (the “Payee”), at the
principal office of the Payee set forth herein, or at such other place as the
holder may designate in writing to the Company, the principal sum of           
Dollars (U.S. $          )
(the “Principal Amount”), or such other amount as may be outstanding
hereunder, together with all accrued but unpaid interest, in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts and in immediately available funds,
as provided in this promissory note (the “Note”).

This Note is one of a duly authorized issue of 7.5%
Secured Convertible Promissory Notes of the Company, in aggregate principal
amount of up to Five Million Dollars ($5,000,000) (the “Promissory Notes”) issued pursuant to the Convertible Note
and Warrant Purchase Agreement of even date herewith (the “Purchase
Agreement”). The Promissory Notes rank equally and ratably without priority
over one another. No payment, including any prepayment, shall be made hereunder
unless payment, including any prepayment, is offered with respect to the other
Promissory Notes in an amount which bears the same ratio to the then unpaid
principal amount of such Promissory Notes as the payment made hereon bears to
the then unpaid principal amount under this Note.

1.             Principal and Interest Payments.

(a)           The Company shall repay in full the
entire principal balance then outstanding under this Note plus all accrued and
unpaid interest on the first to occur (the “Maturity Date”) of: (i) March 31,
2007; (ii) such time as there occurs a Sale Transaction (as 

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defined below) unless the resulting successor or
acquiring entity in such Sale Transaction (if not the Company) and, if an entity different from the successor or
acquiring entity, the entity whose capital stock or assets the holders of the
Common Stock are entitled to receive as a result of such Sale Transaction, (A) assumes
by written instrument all of the obligations of the Promissory Notes and the
Transaction Documents (as defined in the Purchase Agreement) as more fully set
forth in Section 1(d) below and (B) the entity whose securities
into which this Note shall become convertible in such transaction is a publicly
traded corporation whose common stock is listed for trading on the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the
Nasdaq Capital Market, the OTC Bulletin Board or Pink Sheets or (iii) the
acceleration of the obligations as contemplated by this Note.

“Sale Transaction”
shall mean any transaction or series of related transactions which result in
the (i) acquisition by an individual or legal entity or group (as set
forth in Section 13(d) of the Exchange Act) of more than one-half of
the voting rights or equity interests in the Company; or (ii) sale,
conveyance, or other disposition of all or substantially all of the assets,
property or business of the Company or the merger into or consolidation with
any other corporation (other than a wholly owned subsidiary corporation) or
effectuation of any transaction or series of related transactions where holders
of the Company’s voting securities prior to such transaction or series of
transactions fail to continue to hold at least 50% of the voting power of the
Company (or, if other than the Company, the successor or acquiring entity)
immediately following such transaction.

(b)           Interest on the outstanding principal
balance of this Note shall accrue at a rate of seven and one-half percent
(7.5%) per annum, compounded quarterly. Interest on the outstanding principal
balance of the Note shall be computed on the basis of the actual number of days
elapsed and a year of three hundred and sixty (360) days and shall be payable
on the Maturity Date, upon earlier prepayment of this Note or in the form of
shares of common stock, par value $0.01 per share, of the Company (the “Common
Stock”) upon conversion of this note as set forth in Section 8 below. Furthermore,
upon the occurrence of an Event of Default, then to the extent permitted by
law, the Company will pay interest to the Payee, payable on demand, on the
outstanding principal balance of the Note from the date of the Event of Default
until payment in full at the rate of twelve percent (12%) per annum.

(c)           The Company may not prepay the
outstanding principal amount of this Note or the interest thereon prior to the
Maturity Date (a “Prepayment”) without the written consent of the Payee,
unless the Company shall provide at least sixty (60) days, but not more than ninety
(90) days, prior written notice of the date on which the Company intends to
make such Prepayment (a “Prepayment Notice”). Nothing in this Section 1(c) shall
limit the right of the Payee to convert this Note into Common Stock at any time
after receipt of the Prepayment Notice and prior to the time at which such
Prepayment is made. Notwithstanding the limitations in Section 8(g), the
Payee may deliver a Conversion Notice with respect to all of the outstanding
Principal Amount and interest accrued thereon, in which case, to the extent
that Section 8(g) limits the conversion of this Note, this Note shall
not be subject to Prepayment and shall be converted as set forth in Section 8(c)(v).

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(d)           If the Promissory Notes and
Transaction Documents are to be assumed as described in Section 1(a)(ii)(A),
the applicable assuming corporation shall expressly assume the due and punctual
observance and performance of each and every covenant and condition contained
in the Promissory Notes and the Transaction Documents to be performed and
observed by the Company and all the obligations and liabilities thereunder,
subject to such modifications as may be deemed appropriate (as determined by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of the Common Stock into which the Promissory Notes are
convertible which shall be as nearly equivalent as practicable to the
adjustments provided for in Section 8. The provisions of Section 1(a) and
this Section 1(d) shall similarly apply to successive Sale
Transactions.

2.             Non-Business Days. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the laws of
the State of Texas, such payment may be due on the next succeeding business day
and such next succeeding day shall be included in the calculation of the amount
of accrued interest payable on such date.

3.             Security.                This Note is secured
pursuant to the terms of a Security Agreement (the “Security Agreement”)
between the Company and the holders of the Promissory Notes of even date
herewith by a security interest in the Collateral (as such term is defined in
the Security Agreement). The Note is subject to the provisions of the Security
Agreement.

4.             Subordination of Future Debt; Payment of Common Stock
Dividends. Any debt incurred after the date hereof to any creditor shall be
subordinated to the indebtedness evidenced by this Note. The Company shall not
declare or pay any dividend or distribution with respect to any common stock of
the Company other than a pro rata dividend payable solely in shares of Common
Stock.

5.             Representations and Warranties of the Company. The
Company represents and warrants to the Payee as follows:

(a)           The Company has been duly
incorporated and is validly existing and in good standing under the laws of the
state of Delaware, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as currently conducted.

(b)           This Note has been duly authorized,
validly executed and delivered on behalf of the Company and is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, subject to limitations on enforcement by general principles of
equity and by bankruptcy or other laws affecting the enforcement of creditors’
rights generally, and the Company has full power and authority to execute and
deliver this Note and to perform its obligations hereunder.

(c)           The execution, delivery and
performance of this Note will not (i) conflict with or result in a breach
of or a default under any of the terms or provisions of, (A) the Company’s
articles of incorporation or by-laws, or (B) any material provision of any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a 

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party or by which it or
any of its material properties or assets is bound, (ii) result in a
violation of any material provision of any law, statute, rule, regulation, or
any existing applicable decree, judgment or order by any court, Federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company, or any of its material properties or assets or (iii) result
in the creation or imposition of any material lien, charge or encumbrance upon
any material property or assets of the Company or any of its subsidiaries
pursuant to the terms of any other agreement or instrument to which any of them
is a party or by which any of them may be bound or to which any of their
property or any of them is subject.

(d)           No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Note.

6.             Events of Default. The occurrence of any of the
following events shall be an “Event of Default” under this Note:

(a)           the Company shall fail to make the
payment of any amount of any principal outstanding for a period of two (2) business
days after the date such payment shall become due and payable hereunder; or

(b)           the Company shall fail to make any
payment of interest for a period of two (2) business days after the date
such interest shall become due and payable hereunder; or

(c)           if default shall be made in the
performance or observance of any representation, warranty, covenant, or
agreement contained in this Note, in the Security Agreement, in the Purchase
Agreement or in the Investor Rights Agreement (as defined in the Purchase
Agreement), or in any other agreement between the Company and the Payee
relating to indebtedness of the Company to the Payee or any of its affiliates
for borrowed money and such default shall have continued for a period of five (5) days
after Company’s receipt of written notice of such default (unless such default
is on account of failure to give a required notice, in which event such 5 day
cure period shall commence with the date of such default); or

(d)           the holder of any indebtedness of the
Company or any of its subsidiaries shall accelerate any payment of any amount
or amounts of principal or interest on any indebtedness (“Indebtedness”)
(other than the Indebtedness hereunder) prior to its stated maturity or payment
date, the aggregate principal amount of which Indebtedness of all such persons
is in excess of $100,000, whether such Indebtedness now exists or shall
hereafter be created, and such accelerated payment entitles the holder thereof
to immediate payment of such Indebtedness which is due and owing and such
indebtedness has not been discharged in full or such acceleration has not been
stayed, rescinded or annulled within five (5) business days of such
acceleration; or

(e)           A judgment or order for the payment
of money shall be rendered against the Company or any of its subsidiaries in
excess of $100,000 in the aggregate (net of any applicable insurance coverage)
for all such judgments or orders against all such persons (treating 

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any deductibles, self
insurance or retention as not so covered) that shall not be discharged, and all
such judgments and orders remain outstanding, and there shall be any period of
sixty (60) consecutive days following entry of the judgment or order in excess
of $100,000 or the judgment or order which causes the aggregate amount
described above to exceed $100,000 during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or

(f)            the Company shall (i) apply for
or consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property or assets, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the United States
Bankruptcy Code (the “Bankruptcy Code”) or under the comparable laws of
any jurisdiction (foreign or domestic), (iv) file a petition seeking to
take advantage of any bankruptcy, insolvency, moratorium, reorganization or
other similar law affecting the enforcement of creditors’ rights generally, (v) acquiesce
in writing to any petition filed against it in an involuntary case under the
Bankruptcy Code or under the comparable laws of any jurisdiction (foreign or
domestic), or (vi) take any action under the laws of any jurisdiction
(foreign or domestic) analogous to any of the foregoing; or

(g)           a proceeding or case shall be
commenced in respect of the Company or any of its subsidiaries without its
application or consent, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets or (iii) similar relief in respect of it
under any law providing for the relief of debtors, and such proceeding or case
described in clause (i), (ii) or (iii) shall continue undismissed, or
unstayed and in effect, for a period of thirty (30) consecutive days or any
order for relief shall be entered in an involuntary case under the Bankruptcy
Code or under the comparable laws of any jurisdiction (foreign or domestic)
against the Company or any of its subsidiaries or action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing shall be
taken with respect to the Company or any of its subsidiaries and shall continue
undismissed, or unstayed and in effect for a period of thirty (30) consecutive
days;

(h)           the failure of the Company to
implement the 1 for 5 Split (as defined in the Purchase Agreement) on or prior
to June 30, 2006;

(i)            the suspension from listing or the
failure of the Company’s common stock to be listed on any of the Pink Sheets,
OTC Bulletin Board, American Stock Exchange, New York Stock Exchange, Nasdaq National
Market or Nasdaq Capital Market for a period of five (5) consecutive
trading days;

(j)            the declaration or payment by the
Company of any dividend or distribution with respect to its common stock other
than a pro rata dividend payable solely in shares of Common Stock; or

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(k)           the failure by the Company to comply
with the requirements of Section 4.14 of the Purchase Agreement.

7.             Remedies Upon An Event of Default. If an Event of
Default shall have occurred and shall be continuing, the Payee of this Note may
at any time at its option, (a) declare the entire unpaid principal balance
of this Note, together with all interest accrued hereon, due and payable, and
thereupon, the same shall be accelerated and so due and payable; provided,
however, that upon the occurrence of an Event of Default described in (i) Sections
6(f) and (g), without presentment, demand, protest, or notice, all of
which are hereby expressly unconditionally and irrevocably waived by the
Company, the outstanding principal balance and accrued interest hereunder shall
be automatically due and payable, and (ii) Sections 6(a) through (e) and
Sections 6(h) through (j), the Payee may exercise or otherwise enforce any
one or more of the Payee’s rights, powers, privileges, remedies and interests
under this Note or applicable law. No course of delay on the part of the Payee
shall operate as a waiver thereof or otherwise prejudice the right of the Payee.
No remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereafter available at law, in equity, by statute or
otherwise.

8.             Conversion.

(a)           Optional Conversion. Subject
to the limitations set forth in Sections 8(g) hereof, the holder of this
Note shall have the right at any time, at such holder’s option, to convert all
or any lesser portion of the Principal Amount plus accrued and unpaid interest
thereon into such number of fully paid and non-assessable shares of Common
Stock as is determined by dividing (i) the portion of the Principal Amount
to be converted plus accrued and unpaid interest thereon by (ii) the
Conversion Rate (as defined below) then in effect for this Note. The initial
conversion rate shall be $0.          ,
such rate to be subject to adjustment in accordance with the provisions of this
Section 8. Such conversion rate in effect from time to time, as adjusted
pursuant to this Section 8, is referred to herein as a “Conversion Rate.”
All of the remaining provisions of this Section 8 shall apply separately
to each Conversion Rate in effect from time to time with respect to this Note.

(b)           Mandatory Conversion. If a
Conversion Triggering Event (as defined below) shall occur and within 5
business days following such occurrence, the Company shall deliver a written
notice to the holders of the Promissory Notes (the “Notice”) that the
Company intends to convert all of the outstanding Promissory Notes into Common
Stock, then, subject to the limitations set forth in Section 8(g) hereof,
as of the date that is sixty-five days following the date that such Notice is given
(the “Mandatory Conversion Date”), this Note shall be converted into
such number of fully paid and non-assessable shares of Common Stock as is
determined by dividing (i) the Principal Amount plus accrued and unpaid
interest thereon by (ii) the Conversion Rate then in effect (the “Mandatory
Conversion”). Nothing in this Section 8(b) shall be construed so
as to limit the right of a holder of this Note to convert pursuant to Section 8(a) at
any time. If the Maturity Date occurs after the Notice is duly delivered to the
Payee, but prior to the Mandatory Conversion Date or the earlier conversion in
full of this Note, then the Company shall not be obligated to repay in cash the
Principal Amount, together with all accrued and unpaid interest thereon, and
this Note shall remain outstanding, as more fully described in Section 8(c)(v),
until such time as it is fully converted.

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“Conversion Triggering
Event” shall mean, such time as:

(i)            The Registration Statement (as
defined below) covering all of the shares of Common Stock into which this Note
is convertible is effective and sales may be made pursuant thereto (or all of
the shares of Common Stock into which this Note is convertible may be sold
without restriction pursuant to Rule 144(k) promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the “Securities Act”));

(ii)           The Daily Market Price of the Common
Stock is at least $1.50 (subject to adjustment for stock splits, reverse
splits, stock dividends and the like, including, without limitation, the 1 for
5 Split as such term is defined in the Purchase Agreement) for any period of 20
consecutive trading days; and

(iii)          The Company has a sufficient number of
authorized and unissued shares of Common Stock reserved for issuance upon the
conversion of the Promissory Notes to convert all of the Promissory Notes in
full.

“Registration
Statement” shall have the meaning established in the Investor Rights
Agreement dated on or about the date hereof, by and among the Company and the other
parties signatory thereto.

(c)           Mechanics of Conversion.

(i)            Such right of conversion shall be
exercised by the Payee by delivering to the Company a conversion notice in the
form attached hereto as Exhibit A (the “Conversion Notice”),
appropriately completed and duly signed, and by surrender not later than two (2) business
days thereafter of this Note. The Conversion Notice shall also contain a
statement of the name or names (with addresses and tax identification or social
security numbers) in which the certificate or certificates for Common Stock
shall be issued, if other than the name in which this Note is registered.
Promptly after the receipt of the Conversion Notice, the Company shall issue
and deliver, or cause to be delivered, to the Payee or such Payee’s nominee, a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion. Such conversion shall be deemed to have been effected as
of the close of business on the date of receipt by the Company of the Conversion
Notice (the “Conversion Date”), and the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the holder or holders of record of such shares of Common
Stock as of the close of business on the Conversion Date. If the Payee has not
converted the entire amount of the Note pursuant to the Conversion Notice, then
the Company shall execute and deliver to the Payee a new Note instrument
identical in terms to this Note, but with a principal amount reflecting the
unconverted portion of this Note. The new Note instrument shall be delivered
subject to the same timing terms as the certificates for the Common Stock.

(ii)           The Company shall effect such
issuance of Common Stock within three (3) trading days following the
Conversion Date and shall transmit the certificates by messenger or reputable
overnight delivery service to reach the address designated by such holder
within 

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three (3) trading
days after the receipt by the Company of such Conversion Notice. Provided that
the holder complies with all of the provisions of this Note relating to the
conversion hereof, if certificates evidencing the Common Stock are not received
by the holder (through no fault or negligence of the holder) within five (5) Business
Days following the Conversion Date, then the holder will be entitled to revoke
and withdraw its Conversion Notice, in whole or in part, at any time prior to
its receipt of those certificates. If the conversion has not been rescinded in
accordance with this paragraph and the Company fails to deliver to the holder
such certificate or certificates pursuant to this Section 8 in accordance
herewith, prior to the seventh (7th) Business Day after the Conversion Date
(assuming timely surrender of the Note and compliance with the other provisions
of this Note that relate to the conversion hereof), the Company shall pay to
such Payee, in cash, on a per diem basis, an amount equal to 0.2% of the
principal amount and all interest accrued thereon of the Note until such
delivery takes place and interest shall continue to accrue as provided in Section 2
as if no Conversion Notice had been delivered.

(iii)          The parties acknowledge that as of the
date of this Note, the Company does not have sufficient number of authorized
and unissued shares of Common Stock to fully convert all of the Promissory
Notes. Subject to approval by the Company’s shareholders, the Company will have
sufficient number of authorized and unissued shares of Common Stock following
the effectiveness of the 1 for 5 Split. The Company’s obligation to issue
Common Stock upon conversion of this Note shall be absolute, is independent of
any covenant of any Payee, and shall not be subject to:  (i) any offset or defense; or (ii) any
claims against the holders of the Promissory Notes whether pursuant to this
Note, the Certificate of Incorporation of the Company, the Purchase Agreement,
the Investor Rights Agreement (as defined in the Purchase Agreement), the
Warrants (as defined in the Purchase Agreement) or otherwise.

(iv)          Subject to the provisions of Section 8(g),
in the event that a Conversion Triggering Event has occurred and the Company
has given the Notice as required by Section 8(b), this Note shall be
converted in full on the Mandatory Conversion Date as if the holder hereof had
delivered a Conversion Notice with respect to this Note on such date. Promptly
thereafter, the holder of this Note shall deliver this Note to the Company or
its duly authorized transfer agent, and upon receipt thereof, the Company shall
issue or cause its transfer agent to issue certificates evidencing the Common
Stock into which this Note has been converted.

(v)           Beneficial Ownership Cap. To
the extent that (A) all of the outstanding principal and interest due on
this Note is not automatically converted in full upon the occurrence of a
Mandatory Conversion on account of the application of Section 8(g), (B) a
Notice has been duly delivered to the Payee and the Maturity Date has occurred
prior to the Mandatory Conversion Date specified in such Notice or (C) the
Payee elects to convert all of the outstanding principal and interest due on
this Note following a Prepayment Notice and prior to Prepayment, but all of
such amounts are not converted in full on account of the application of Section 8(g) (each
of the events referred to in clauses (A), (B) and (C), a “Limited
Conversion”), this Note shall remain outstanding with respect to the
amounts of unpaid principal and unpaid interest remaining and such amounts
remaining shall be deemed converted automatically under this Section 8 at
the first moment thereafter either when the Mandatory Conversion Date occurs in
the case of a Limited Conversion pursuant to clause (B) above (except that
such conversion shall remain subject to Section 8(g), and if Section 8(g) applies,
such conversion shall become a

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clause (A) Limited
Conversion following the Mandatory Conversion Date), or, in all other cases, when
Section 8(g) would not prevent such conversion. Notwithstanding the
preceding sentence, upon the occurrence of the Limited Conversion, the rights
of the Payee pursuant to Sections 1, 2, 3, 4, 5, 6 and 7, including, without
limitation, the right to be repaid principal and interest in cash, shall be
terminated immediately and all other rights and obligations (including, without
limitation, the rights hereunder to adjustments to the Conversion Rate) shall
remain in full force and effect (the “Remaining Rights”); provided that,
upon the occurrence of a Sale Transaction, the resulting successor or acquiring
entity in such Sale Transaction (if not the Company) and, if an entity
different from the successor or acquiring entity, the entity whose capital
stock or assets the holders of the Common Stock are entitled to receive as a
result of such Sale Transaction, shall assume by written instrument all of the
Remaining Rights (but not the rights that have been terminated as provided
above) under the Promissory Notes and all of the rights and obligations of the
Company under Transaction Documents.

(d)           Fractional Shares. The Company
shall not be required to issue a fractional share of Common Stock upon
conversion of this Note. As to any fraction of a share which the holder of this
Note would otherwise be entitled to acquire upon such conversion, the Company
shall pay an amount in cash equal to the Current Market Price (as defined
below) per share of Common Stock on the date of conversion, multiplied by such
fraction.

“Current Market Price”
means, in respect of any share of Common Stock on any date herein specified:

(1)           if there shall not then be a public
market for the Common Stock, the higher of (a) the book value per share of
Common Stock at such date, and (b) the fair market value per share of
Common Stock as determined in good faith by the Board, or

(2)           if there shall then be a public
market for the Common Stock, the average of the daily market prices for the 20
consecutive trading days immediately before such date. The daily market price
for each such trading day shall be (i) the closing bid price on such day
on the principal stock exchange (including Nasdaq) on which such Common Stock
is then listed or admitted to trading, or quoted, as applicable, (ii) if
no sale takes place on such day on any such exchange, the last reported closing
bid price on such day as officially quoted on any such exchange (including
Nasdaq), (iii) if the Common Stock is not then listed or admitted to
trading on any stock exchange, the last reported closing bid price on such day
in the over-the-counter market, as furnished by the National Association of
Securities Dealers Automatic Quotation System or the Pink Sheets LLC, (iv) if
neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National
Association of Securities Dealers, Inc. (the “NASD”) selected
mutually by holders of a majority in interest of the 

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Promissory
Notes and the Company or, if they cannot agree upon such selection, as selected
by two such members of the NASD, one of which shall be selected by holders of a
majority in interest of the Promissory Notes and one of which shall be selected
by the Company (as applicable, the “Daily Market Price”).

(e)           Stock Dividends, Subdivisions and
Combinations. If at any time while the this Note is outstanding, the
Company shall:

(i)            cause the holders of its Common
Stock to be entitled to receive a dividend payable in, or other distribution
of, additional shares of Common Stock,

(ii)           subdivide its outstanding shares of
Common Stock into a larger number of shares of Common Stock, or

(iii)          combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock,

then in each such case
the Conversion Rate shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after
such event. Any adjustment made pursuant to clause (i) of this Section 8(e) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clauses (ii) or (iii) of this Section 8(e) shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that a Conversion Rate is calculated hereunder, then the
calculation of such Conversion Rate shall be adjusted appropriately to reflect
such event.

(f)            Certain Other Distributions.
If at any time while this Note is outstanding the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
any dividend or other distribution of:

(i)            cash,

(ii)           any evidences of its indebtedness,
any shares of stock of any class or any other securities or property or assets
of any nature whatsoever (other than cash or additional shares of Common Stock
as provided in Section 8(e) hereof), or

(iii)          any warrants or other rights to
subscribe for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property or assets of any nature
whatsoever (in each case set forth in subparagraphs 8(f)(i), 8(f)(ii) and
8(f)(iii) hereof, the “Distributed Property”),

then upon any conversion
of this Note that occurs after such record date, the holder of this Note shall
be entitled to receive, in addition to the Conversion Shares, the Distributed
Property that such holder would have been entitled to receive in respect of
such number of Conversion Shares had the holder been the record holder of such
Conversion Shares as of such record date. Such distribution shall be made
whenever any such conversion is made. In the event that the 

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Distributed Property
consists of property other than cash, then the fair value of such Distributed
Property shall be as determined in good faith by the Board and set forth in
reasonable detail in a written valuation report (the “Valuation Report”)
prepared by the Board. The Company shall give written notice of such
determination and a copy of the Valuation Report to the holder of this Note, and
if the holder objects to such determination within twenty (20) business days
following the date such notice is given, the Company shall submit such
valuation to an investment banking firm of recognized national standing
selected by the holder of this Note and acceptable to the Company in its
reasonable discretion, whose opinion shall be binding upon the Company and the
holder of this Note. A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this Section 8(f) and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be,
of the outstanding shares of Common Stock within the meaning of Section 8(e).

(g)           Blocking Provision.

(i)            Except as provided otherwise in this
Section 8(g)(i), the number of Conversion Shares that may be acquired by
any holder shall be limited to the extent necessary to insure that, following
such conversion, the number of shares of Common Stock then beneficially owned
by such holder and its Affiliates and any other persons or entities whose
beneficial ownership of Common Stock would be aggregated with the holder’s for
purposes of Section 13(d) of the Exchange Act (including shares held
by any “group” of which the holder is a member, but excluding shares
beneficially owned by virtue of the ownership of securities or rights to
acquire securities that have limitations on the right to convert, exercise or
purchase similar to the limitation set forth herein) does not exceed 4.99% of
the total number of shares of Common Stock of the Company then issued and
outstanding (the “Beneficial Ownership Cap”). For purposes hereof, “group”
has the meaning set forth in Section 13(d) of the Exchange Act and
applicable regulations of the Securities and Exchange Commission, and the
percentage held by the holder shall be determined in a manner consistent with
the provisions of Section 13(d) of the Exchange Act. As used herein,
the term “Affiliate” means any person or entity that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with a person or entity, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to the
holder of this Note, any investment fund or managed account that is managed on
a discretionary basis by the same investment manager as such holder will be
deemed to be an Affiliate of such holder. Each delivery of a Conversion Notice
by the holder of this Note will constitute a representation by such holder that
it has evaluated the limitation set forth in this paragraph and determined,
subject to the accuracy of information filed under the Securities Act and the
Exchange Act of 1934, as amended (the “Exchange Act”) by the Company
with respect to the outstanding Common Stock of the Company, that the issuance
of the full number of shares of Common Stock requested in such Conversion
Notice is permitted under this paragraph. This paragraph shall be construed and
administered in such manner as shall be 

 11
  
 

 

consistent
with the intent of the first sentence of this paragraph. Any provision hereof
which would require a result that is not consistent with such intent shall be
deemed severed herefrom and of no force or effect with respect to the
conversion contemplated by a particular Conversion Notice.

(ii)           In the event the Company is
prohibited from issuing shares of Common Stock as a result of any restrictions
or prohibitions under applicable law or the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization, the Company shall as soon as possible seek the approval of its
stockholders and take such other action to authorize the issuance of the full
number of shares of Common Stock issuable upon the full conversion of the
Promissory Notes.

(iii)          Notwithstanding the foregoing
provisions of Section 8(g), any holder of Promissory Notes shall have the
right prior to the time of the Closing (as defined in the Purchase Agreement)
upon written notice to the Company, or after the time of the Closing upon (x) 61
days prior written notice to the Company or (y) upon a Sale Transaction,
to choose not to be governed by the Beneficial Ownership Cap provided herein.

(h)           Common Stock Reserved. The
Company shall at all times reserve and keep available out of its authorized but
unissued Common Stock, solely for issuance upon the conversion of the
Promissory Notes, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all the Promissory Notes at the time
outstanding (without regard to any ownership limitations provided in Section 8(g));
provided, that on the date of original issue of the Promissory Notes and prior
to the effective date of the 1 for 5 Split, the parties acknowledge that the
Company does not and will not have sufficient authorized Common Stock to allow
for the conversion in full of the Promissory Notes and the exercise in full of
the warrants issued pursuant to the Purchase Agreement.

9.             Other Provisions Applicable to Adjustments. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock into which this Note is convertible and the
current Conversion Rate provided for in Section 8:

(a)           When Adjustments to Be Made.
The adjustments required by Section 8 shall be made whenever and as often
as any specified event requiring an adjustment shall occur, except that any
adjustment to the Conversion Rate that would otherwise be required may be
postponed (except in the case of a subdivision or combination of shares of the
Common Stock, as provided for in Section 8(e)) up to, but not beyond the
Conversion Date if such adjustment either by itself or with other adjustments
not previously made adds or subtracts less than 1% of the shares of Common
Stock into which this Note is convertible immediately prior to the making of
such adjustment. Any adjustment representing a change of less than such minimum
amount (except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments required by Section 8
and not previously made, would result in a minimum adjustment or on the
Conversion Date. For the purpose of any adjustment, any specified event shall
be deemed to have occurred at the close of business on the date of its
occurrence.

 12
  

(b)           Fractional Interests. In
computing adjustments under Section 8, fractional interests in Common
Stock shall be taken into account to the nearest 1/100th of a share.

(c)           When Adjustment Not Required.
If the Company undertakes a transaction contemplated under Section 8(f) and
as a result takes a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or distribution or subscription or
purchase rights or other benefits contemplated under Section 8(f) and
shall, thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution, subscription or
purchase rights or other benefits contemplated under Section 8(f), then
thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.

(d)           Escrow of Stock. If after any
property becomes distributable pursuant to Section 8 by reason of the
taking of any record of the holders of Common Stock, but prior to the
occurrence of the event for which such record is taken, a holder of this Note
converts the Note during such period or such holder is unable to convert
pursuant to Section 8(g), the holder of this Note shall continue to be
entitled to receive any shares of Common Stock issuable upon conversion under Section 8
by reason of such adjustment (as if this Note were not yet converted) and such
shares or other property shall be held in escrow for the holder of this Note by
the Company to be issued to holder of this Note upon and to the extent that the
event actually takes place. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be canceled by the Company and
escrowed property returned to the Company.

10.           Replacement. Upon receipt of a
duly executed, notarized and unsecured written statement from the Payee with
respect to the loss, theft or destruction of this Note (or any replacement
hereof), and, if requested by the Company, an indemnity bond customary in the
industry, or, in the case of a mutilation of this Note, upon surrender and
cancellation of such Note, the Company shall issue a new Note, of like tenor
and amount, in lieu of such lost, stolen, destroyed or mutilated Note.

11.           Parties in Interest,
Transferability. This Note shall be binding upon the Company and its
successors and permitted assigns and the terms hereof shall inure to the benefit
of the Payee and its successors and assigns. This Note may be transferred or
sold, subject to the provisions of Section 19 of this Note, or pledged,
hypothecated or otherwise granted as security by the Payee.

12.           Amendments. This Note may not
be modified or amended in any manner except in writing executed by the Company
and the Payee.

13.           Notices. Any notice, demand,
request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand
delivery by telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following 

 13
 

 

the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur. The
Company will give written notice to the Payee at least twenty (20) days prior
to the date on which dissolution, liquidation or winding-up will take place and
in no event shall such notice be provided to the Payee prior to such
information being made known to the public. Notices to the Payee shall be made
to the address set forth in the Purchase Agreement. Notices to the Company
shall be made to the following:

	
  Address of the Company:

  	
   

  	
  Access Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  2600 Stemmons
  Freeway, Suite 176

  
	
   

  	
   

  	
  Dallas, Texas
  75207

  
	
   

  	
   

  	
  Attention:
  President

  
	
   

  	
   

  	
  Facsimile No.:
  (214) 905-5101

  
	
  with a copy to:

  	
   

  	
  Bingham McCutchen LLP

  
	
   

  	
   

  	
  150 Federal
  Street

  
	
   

  	
   

  	
  Boston,
  Massachusetts 02110

  
	
   

  	
   

  	
  Attention: John
  J. Concannon, III

  
	
   

  	
   

  	
  Facsimile No.:
  (617) 951-8736

  

 

14.           Governing Law. This Note shall
be governed by and construed in accordance with the internal laws of the State
of New York, without giving effect to the choice of law provisions. This Note
shall not be interpreted or construed with any presumption against the party
causing this Note to be drafted.

15.           Headings. Article and
section headings in this Note are included herein for purposes of convenience
of reference only and shall not constitute a part of this Note for any other
purpose.

16.           Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies provided in this
Note shall be cumulative and in addition to all other remedies available under
this Note, at law or in equity (including, without limitation, a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a Payee’s right to pursue actual
damages for any failure by the Company to comply with the terms of this Note. Amounts
set forth or provided for herein with respect to payments and the like (and the
computation thereof) shall be the amounts to be received by the Payee and shall
not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof). The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable and material
harm to the Payee and that the remedy at law for any such breach may be
inadequate. Therefore the Company agrees that, in the event of any such breach
or threatened breach, the Payee shall be entitled, in addition to all other
available rights and remedies, at law or in equity, to such equitable relief,
including but not limited to an 

 14
  
 

 

injunction restraining
any such breach or threatened breach, without the necessity of showing economic
loss and without any bond or other security being required.

17.           Failure or Indulgence Not Waiver.
No failure or delay on the part of the Payee in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.

18.           Enforcement Expenses. The
Company agrees to pay all costs and expenses of enforcement of this Note,
including, without limitation, reasonable attorneys’ fees and expenses.

19.           Compliance with Securities Laws.
The Payee of this Note acknowledges that this Note is being acquired solely for
the Payee’s own account and not as a nominee for any other party, and for
investment, and that the Payee shall not offer, sell or otherwise dispose of
this Note other than in compliance with the laws of the United States of
America and as guided by the rules of the Securities and Exchange
Commission. This Note and any Note issued in substitution or replacement
therefore shall be stamped or imprinted with a legend in substantially the
following form:

“THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”

20.           Severability. The provisions
of this Note are severable, and if any provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall not in any manner affect such provision in any other
jurisdiction or any other provision of this Note in any jurisdiction.

21.           Consent to Jurisdiction. Each
of the Company and the Payee (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New
York county for the purposes of any suit, action or proceeding arising out of
or relating to this Note and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Payee consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address set forth in Section 13 hereof and agrees
that such service shall constitute good and sufficient service of process and
notice 

 15
  
 

 

thereof. Nothing in this Section 21
shall affect or limit any right to serve process in any other manner permitted
by law.

22.           Company Waivers. Except as
otherwise specifically provided herein, the Company and all others that may
become liable for all or any part of the obligations evidenced by this Note,
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands and notices in connection with the delivery, acceptance, performance
and enforcement of this Note, and do hereby consent to any number of renewals
of extensions of the time or payment hereof and agree that any such renewals or
extensions may be made without notice to any such persons and without affecting
their liability herein and do further consent to the release of any person liable
hereon, all without affecting the liability of the other persons, firms or
Company liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.

(a)           No delay or omission on the part of
the Payee in exercising its rights under this Note, or course of conduct
relating hereto, shall operate as a waiver of such rights or any other right of
the Payee, nor shall any waiver by the Payee of any such right or rights on any
one occasion be deemed a waiver of the same right or rights on any future
occasion.

(b)           THE COMPANY ACKNOWLEDGES THAT THE
TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND
TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND
HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE PAYEE OR ITS
SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 16
  
 

 

IN WITNESS WHEREOF, the Company has executed and delivered this
Promissory Note as of the date first written above.

	
  

  	
   

  	
  ACCESS PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
  Title: 

  	
   

  

 17
  

EXHIBIT A

FORM OF
CONVERSION NOTICE

(To be executed by
the registered holder in order to convert the Note)

The undersigned hereby
irrevocably elects to convert the 7.5% Secured Convertible Promissory Note (the
“Note”) of Access Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), due March 31, 2007 held
by the undersigned into shares of Common Stock, according to the terms and
conditions of the Note and the conditions hereof, as of the date written below.
The undersigned hereby requests that certificates for the shares of Common
Stock to be issued to the undersigned pursuant to this Conversion Notice be
issued in the name of, and delivered to, the undersigned or its designee as indicated
below. If the shares of Common Stock are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. A copy of the Note being converted is attached hereto
(and the original Note shall be transmitted to the Company pursuant to the
terms thereof). All capitalized terms used in this Conversion Notice, but not
otherwise defined herein shall have the meanings assigned in the Note.

	
  

  

Date of Conversion (Date
of Notice)

	
  

  

Principal Amount of Note
to be Converted

	
  

  

Principal Amount of Note
not to be Converted (Principal Amount Remaining after Conversion)

	
  

  

Amount of accumulated and
unpaid interest on principal amount of Note to be Converted

	
  

  

Number of shares of
Common Stock to be Issued (including conversion of accrued but unpaid interest
on Notes to be Converted)

	
  

  	
   

  

Applicable Conversion
Value

Conversion
Information:[NAME OF HOLDER]

	
  

  	
   

  

Address of Holder:

	
  

  	
   

  
	
   

  	
   

  

Issue Common Stock to (if
different than above):

	
  Name:

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  

 

 

 

	
  Tax ID #:

  	
   

  	
   

  

 

	
  

  	
   

  

Name of Holder

	
  By:

  	
   

  	
   

  

Name:

Title:Exhibit No. 10.31

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                         
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 $0.264 per share, 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:

“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) of more than one-half
of the voting rights or 

 

equity interests in the
Company; or (ii) sale, conveyance, or other disposition of all or
substantially all of the assets, property or business of the Company or the
merger into or consolidation with any other corporation (other than a wholly
owned subsidiary corporation) or effectuation of any transaction or series of
related transactions where holders of the Company’s voting securities prior to
such transaction or series of transactions fail to continue to hold at least
50% of the voting power of the Company (or, if other than the Company, the
successor or acquiring entity) immediately following such transaction.

“Closing Date”
means February 16, 2006.

“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 4.3.

“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
five (5) consecutive trading days immediately before such date. The daily
market price for each such trading day shall be (i) the closing bid price
on such day on the principal stock exchange (including Nasdaq) on which such
Common Stock is then listed or admitted to trading, or quoted, as applicable, (ii) if
no sale takes place on such day on any such exchange, the last reported closing
bid price on such day as officially quoted on any such exchange (including
Nasdaq), (iii) if the Common Stock is not then listed or admitted to
trading on any stock exchange, the last reported closing bid price on such day
in the over-the-counter market, as furnished by the National Association of
Securities Dealers Automatic Quotation System or the Pink Sheets LLC, (iv) if
neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the NASD
selected mutually by the holder of this Warrant and the Company or, if they
cannot agree upon such selection, as selected by two such members of the NASD,
one of which shall be selected by holder of this Warrant and 

 2
 

 

one of which shall be
selected by 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 $0.264
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 February 16, 2012.

“GAAP” means
generally accepted accounting principles in the United States of America as
from time to time in effect.

“NASD” means the
National Association of Securities Dealers, Inc., or any successor
corporation thereto.

“Other Property”
has the meaning set forth in Section 4.3.

“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).

“Purchase Agreement”
means that certain Convertible Note and Warrant Purchase Agreement dated as of February 16,
2006 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 is open for trading.

“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.

 3
 

 

“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.

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, (ii) payment of the Warrant Price as provided herein, and
(iii) this Warrant. 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. 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. 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 this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock, deliver to the Holder a
new Warrant evidencing the rights of the Holder to purchase the unpurchased
shares of Common Stock called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant, or at the request of the
Holder, appropriate notation may be made on this Warrant and the same returned
to the Holder.

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 

 4
 

 

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.

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. 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

 5
 

 

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, 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.

 6
 

 

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.

 7
 

 

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.          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.

4.3.          Reorganization, Reclassification,
Merger, Consolidation or Disposition of Assets.

 8
 

 

(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).

(b)  In case of any
such Change of Control described in Section 4.3(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.

4.4.          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.

4.5.          Certain Limitations.
Notwithstanding anything herein to the contrary, the

 9
 

 

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.

4.6.          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 

 10
 

 

“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.

 11

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 

 12
 

 

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, 

 13
 

 

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.

 14
 

 

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.

[Signature Page Follows]

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IN WITNESS WHEREOF,
Access Pharmaceuticals, Inc. has caused this Warrant to be executed by its
duly authorized officer and attested by its Secretary.

Dated: February 16, 2006

	
   

  	
   

  	
  ACCESS PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
  Title: 

  	
   

  

 

Attest:

	
  By: 

  	
   

  	
   

  
	
  Name: 

  	
   

  
	
  Title: Secretary

  	
   

  

 16
 

 

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:

	
  

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Address)

  	
   

  

 

[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.

 17
 

 

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.

 18
 

 

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.

 19
 

 

IN WITNESS WHEREOF, the Holder has caused this
Investment Representation Letter to be executed this           
day of                     
200    .

[Name]

	
  By: 

  	
   

  	
   

  
	
  Name: 

  	
   

  
	
  Title: Secretary

  	
   

  

 

 20

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