-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NkqhevNh5rnErb2ils+D/xf2OrusFmeS42B3Nbqbqa40EL3VNIyiFx5JN9Doop/I bbC3Ys9ABTL0qHi7f/w6sw== 0000950136-06-001394.txt : 20060227 0000950136-06-001394.hdr.sgml : 20060227 20060227171725 ACCESSION NUMBER: 0000950136-06-001394 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20060227 DATE AS OF CHANGE: 20060227 GROUP MEMBERS: BEACH CAPITAL LLC GROUP MEMBERS: SCO SECURITIES LLC GROUP MEMBERS: STEVEN H. RONHANDEH SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ACCESS PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000318306 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 830221517 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-33655 FILM NUMBER: 06647535 BUSINESS ADDRESS: STREET 1: 2600 N STEMMONS FRWY STREET 2: STE 176 CITY: DALLAS STATE: TX ZIP: 75207 BUSINESS PHONE: 2149055100 MAIL ADDRESS: STREET 1: 2600 N STEMMONS FRWY STREET 2: STE 176 CITY: DALLAS STATE: TX ZIP: 75207 FORMER COMPANY: FORMER CONFORMED NAME: CHEMEX PHARMACEUTICALS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CHEMEX CORP/WY DATE OF NAME CHANGE: 19831102 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SCO CAPITAL PARTNERS LLC CENTRAL INDEX KEY: 0001225978 IRS NUMBER: 522247879 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS STREET 2: 35TH FL. CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125544158 MAIL ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS STREET 2: 35TH FL. CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D 1 file001.htm FORM SC 13D


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  SCHEDULE 13D
                                 (RULE 13D-101)

             INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
            TO RULE 13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO
                                  RULE 13D-2(A)

                                (Amendment No. )

                          ACCESS PHARMACEUTICALS, INC.
                                (Name of Issuer)

                          COMMON STOCK, PAR VALUE $0.01
                         (Title of Class of Securities)

                                   00431M 20 9

                                 (CUSIP Number)

                               Steven H. Rouhandeh
                            SCO Capital Partners LLC
                     1285 Avenue of the Americas, 35th Floor
                            New York, New York 10019
                                 (212) 554-4158
                  (Name, Address and Telephone Number of Person
                Authorized to Receive Notices and Communications)

                                February 16, 2006
             (Date of Event Which Requires Filing of This Statement)

      If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].

                         (Continued on following pages)


                              (Page 1 of 10 Pages)



  CUSIP NO. 00431M 20 9                13D                  PAGE 2 OF 10 PAGES
- --------------------------------------------------------------------------------
  1.    NAMES OF REPORTING PERSONS
        IRS IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

        SCO Capital Partners LLC
- --------------------------------------------------------------------------------
  2.    CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
                                                                        (a) [_]
                                                                        (b) [X]
- --------------------------------------------------------------------------------
  3.    SEC USE ONLY

- --------------------------------------------------------------------------------
  4.    SOURCE OF FUNDS*

        OO
- --------------------------------------------------------------------------------
  5.    CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
        TO ITEM 2(d) or 2(e)                                              [_]

- --------------------------------------------------------------------------------
  6.    CITIZENSHIP OR PLACE OF ORGANIZATION

        Delaware
- --------------------------------------------------------------------------------
                 7.   SOLE VOTING POWER                   33,181,817

   NUMBER OF   -----------------------------------------------------------------
    SHARES       8.   SHARED VOTING POWER                 0
 BENEFICIALLY
   OWNED BY    -----------------------------------------------------------------
     EACH        9.   SOLE DISPOSITIVE POWER              33,181,817
   REPORTING
  PERSON WITH  -----------------------------------------------------------------
                 10.  SHARED DISPOSITIVE POWER            0

- --------------------------------------------------------------------------------
  11.   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

        33,181,817
- --------------------------------------------------------------------------------
  12.   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
        CERTAIN SHARES*                                                   [_]

- --------------------------------------------------------------------------------
  13.   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

        65.3%
- --------------------------------------------------------------------------------
  14.   TYPE OF REPORTING PERSON*

        PN
- --------------------------------------------------------------------------------

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!


                                        2



  CUSIP NO. 00431M 20 9                13D                  PAGE 3 OF 10 PAGES
- --------------------------------------------------------------------------------
  1.    NAMES OF REPORTING PERSONS
        IRS IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

        Beach Capital LLC
- --------------------------------------------------------------------------------
  2.    CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
                                                                        (a) [_]
                                                                        (b) [X]
- --------------------------------------------------------------------------------
  3.    SEC USE ONLY

- --------------------------------------------------------------------------------
  4.    SOURCE OF FUNDS*

        OO
- --------------------------------------------------------------------------------
  5.    CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
        TO ITEM 2(d) or 2(e)                                              [_]

- --------------------------------------------------------------------------------
  6.    CITIZENSHIP OR PLACE OF ORGANIZATION

        New York
- --------------------------------------------------------------------------------
                 7.   SOLE VOTING POWER                   3,977,272

   NUMBER OF   -----------------------------------------------------------------
    SHARES       8.   SHARED VOTING POWER                 0
 BENEFICIALLY
   OWNED BY    -----------------------------------------------------------------
     EACH        9.   SOLE DISPOSITIVE POWER              3,977,272
   REPORTING
  PERSON WITH  -----------------------------------------------------------------
                 10.  SHARED DISPOSITIVE POWER            0

- --------------------------------------------------------------------------------
  11.   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

        3,977,272
- --------------------------------------------------------------------------------
  12.   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
        CERTAIN SHARES*                                                   [_]

- --------------------------------------------------------------------------------
  13.   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

        18.4%
- --------------------------------------------------------------------------------
  14.   TYPE OF REPORTING PERSON*

        PN
- --------------------------------------------------------------------------------

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!


                                        3



  CUSIP NO. 00431M 20 9                13D                  PAGE 4 OF 10 PAGES
- --------------------------------------------------------------------------------
  1.    NAMES OF REPORTING PERSONS
        IRS IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

        SCO Securities LLC
- --------------------------------------------------------------------------------
  2.    CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
                                                                        (a) [_]
                                                                        (b) [X]
- --------------------------------------------------------------------------------
  3.    SEC USE ONLY

- --------------------------------------------------------------------------------
  4.    SOURCE OF FUNDS*

        OO
- --------------------------------------------------------------------------------
  5.    CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
        TO ITEM 2(d) or 2(e)                                              [_]

- --------------------------------------------------------------------------------
  6.    CITIZENSHIP OR PLACE OF ORGANIZATION

        Delaware
- --------------------------------------------------------------------------------
                 7.   SOLE VOTING POWER                   0

   NUMBER OF   -----------------------------------------------------------------
    SHARES       8.   SHARED VOTING POWER                 0
 BENEFICIALLY
   OWNED BY    -----------------------------------------------------------------
     EACH        9.   SOLE DISPOSITIVE POWER              0
   REPORTING
  PERSON WITH  -----------------------------------------------------------------
                 10.  SHARED DISPOSITIVE POWER            0

- --------------------------------------------------------------------------------
  11.   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

        0
- --------------------------------------------------------------------------------
  12.   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
        CERTAIN SHARES*                                                   [_]

- --------------------------------------------------------------------------------
  13.   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

        0%
- --------------------------------------------------------------------------------
  14.   TYPE OF REPORTING PERSON*

        BD
- --------------------------------------------------------------------------------

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!


                                        4



  CUSIP NO. 00431M 20 9                13D                  PAGE 5 OF 10 PAGES
- --------------------------------------------------------------------------------
   1.   NAMES OF REPORTING PERSONS
        IRS IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

        Steven H. Rouhandeh
- --------------------------------------------------------------------------------
   2.   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
                                                                        (a) [_]
                                                                        (b) [X]
- --------------------------------------------------------------------------------
   3.   SEC USE ONLY

- --------------------------------------------------------------------------------
   4.   SOURCE OF FUNDS*

        OO
- --------------------------------------------------------------------------------
   5.   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
        TO ITEM 2(d) or 2(e)                                              [_]

- --------------------------------------------------------------------------------
   6.   CITIZENSHIP OR PLACE OF ORGANIZATION

        United States
- --------------------------------------------------------------------------------
                 7.   SOLE VOTING POWER                   37,159,089

   NUMBER OF   -----------------------------------------------------------------
    SHARES       8.   SHARED VOTING POWER                 0
 BENEFICIALLY
   OWNED BY    -----------------------------------------------------------------
     EACH        9.   SOLE DISPOSITIVE POWER              37,159,089
   REPORTING
  PERSON WITH  -----------------------------------------------------------------
                 10.  SHARED DISPOSITIVE POWER            0

- --------------------------------------------------------------------------------
  11.   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

        37,159,089
- --------------------------------------------------------------------------------
  12.   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
        CERTAIN SHARES*                                                   [_]

- --------------------------------------------------------------------------------
  13.   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

        67.8%
- --------------------------------------------------------------------------------
  14.   TYPE OF REPORTING PERSON*

        IN
- --------------------------------------------------------------------------------

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!


                                        5



ITEM 1. SECURITY AND ISSUER.

This Schedule 13D ("Schedule 13D") is being filed with respect to the common
stock, par value $.01 per share (the "Common Stock") of Access Pharmaceuticals,
Inc., a Delaware corporation ("Access" or the "Company"). The principal
executive offices of the Company are located at 2600 Stemmons Freeway, Suite
176, Dallas, Texas 75207. The share amounts set forth in this Schedule 13D are
prior to, and do not reflect, the pending 1 for 5 reverse split of the Company's
Common Stock.

This Schedule 13D is being filed pursuant to Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act").

ITEM 2. IDENTITY AND BACKGROUND.

(a)     This Schedule 13D is filed by (i) Steven H. Rouhandeh ("Mr. Rouhandeh"),
(ii) SCO Capital Partners LLC, a limited liability company organized under the
laws of the State of Delaware ("SCO"), (iii) Beach Capital, LLC, a limited
liability company organized under the laws of the State of New York ("Beach"),
and (iv) SCO Securities LLC, a limited liability company organized under the
laws of the State of Delaware ("SCO Securities"). Mr. Rouhandeh, SCO, Beach and
SCO Securities are collectively referred to herein as the "Reporting Persons."

(b)     The Reporting Persons' business address is 1285 Avenue of the Americas,
35th Floor, New York, New York 10019.

(c)     The principal business of Mr. Rouhandeh is to serve as the Chairman and
sole member of SCO, managing member of Beach and sole member of the entity that
serves as sole member of SCO Securities. The principal business of each of SCO
and Beach is to invest in biotechnology companies. The principal business of SCO
Securities is to provide certain broker-dealer services to biotechnology
companies.

(d)     During the last five years, none of the Reporting Persons have been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).

(e)     During the last five years, none of the Reporting Persons have been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction that resulted in a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, Federal or
State securities laws or finding any violation with respect to such laws.

(f)     Mr. Rouhandeh is a United States citizen. SCO and SCO Securities are
each a limited liability company organized under the laws of the State of
Delaware. Beach is a limited liability company organized under the laws of the
State of New York.

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

On February 16, 2006 upon closing of a private placement financing pursuant to
which SCO Securities acted as placement agent (the "Private Placement"), Access
issued to SCO $4,000,000 principal amount of its 7.5% Secured Convertible
Promissory Notes due March 31, 2007 ("Convertible Notes") and warrants to
purchase an aggregate of 13,636,364 shares of Common Stock at an exercise price
of $0.264 per share, for aggregate consideration paid in cash by SCO to the
Company of $4,000,000. The warrants expire six years from the date of issuance.
The issuance of the Convertible Notes and warrants was


                                        6



exempt from registration under Regulation D promulgated under the Securities Act
or Section 4(2) of the Securities Act. The source of funds for the purchased
securities was internal capital of SCO.

In addition, SCO Securities allocated to SCO a warrant to purchase 1,363,635
shares of Common Stock at an exercise price of $0.264 per share to which SCO
Securities was entitled as consideration for services rendered as placement
agent in the Private Placement. The terms of such warrant are the same as the
terms of the warrants issued to the other purchasers in the Private Placement.
The warrants expire six years from the date of issuance. The issuance of these
warrants was exempt from registration under Regulation D promulgated under the
Securities Act or Section 4(2) of the Securities Act. No cash consideration was
paid by SCO or SCO Securities to the Company in connection with the issuance of
these warrants.

On February 16, 2006 upon closing of the Private Placement, Access issued to
Beach $500,000 principal amount of its Convertible Notes and warrants to
purchase an aggregate of 1,704,545 shares of Common Stock at an exercise price
of $0.264 per share, for aggregate consideration paid in cash by Beach to the
Company of $500,000. The warrants expire six years from the date of issuance.
The issuance of the Convertible Notes and warrants was exempt from registration
under Regulation D promulgated under the Securities Act or Section 4(2) of the
Securities Act. The source of funds for the purchased securities was internal
capital of Beach.

ITEM 4. PURPOSE OF TRANSACTION.

Each of the Reporting Persons purchased their Convertible Notes and warrants to
purchase Common Stock for investment purposes. Each of the Reporting Persons may
acquire additional shares of Common Stock from time to time, in open market
purchases, negotiated transactions or otherwise, and may sell any or all of such
shares of Common Stock at any time.

Pursuant to the Convertible Note and Warrant Purchase Agreement, dated February
16, 2006, among the Company and each of the other parties described therein (the
"Purchase Agreement"), the Company agreed to use its best efforts to obtain
stockholder approval for and to effect a 1 for 5 reverse stock split with
respect to its Common Stock as soon as promptly as practicable. All of the share
numbers and warrant exercise prices reported in this Schedule 13D are prior to,
and do not reflect the effectiveness of the 1 for 5 reverse stock split.

For as long as the Promissory Notes remain outstanding, (a) SCO shall have the
right, from time to time, to designate two individuals, in the sole discretion
of SCO, to serve as directors of the Company (the "SCO Director Designees"), (b)
the Company shall use its best efforts at all times to cause the number of
directors to be fixed at a sufficient number such that at least two positions
shall be available for the SCO Director Designees (the "SCO Board Seats"), (c)
the Company shall use its best efforts to cause the SCO Director Designees to be
nominated and elected for service as directors of the Company at each meeting of
the Company's shareholders held for the purpose of electing directors and (d) if
at any time, or from time to time, one or more of the SCO Board Seats is or
becomes vacant for any reason prior to the next annual meeting of shareholders,
the Company shall use its best efforts to cause such vacancy to be filled with
an SCO Director Designee.

Other than as set forth in the preceding paragraphs of this Item 4, each of the
Reporting Persons does not have any plans or proposals which relate to or would
result in any of the matters enumerated in clauses (a) through (j), inclusive,
of Item 4 of Schedule 13D, namely: (a) the acquisition by any person of
additional securities of the Company or the disposition of securities of the
Company; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its


                                        7



subsidiaries; (c) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; (d) any change in the present Board of
Directors or management of the Company, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the
Board; (e) any material change in the present capitalization or dividend policy
of the Company; (f) any other material change in the Company's business or
corporate structure; (g) changes in the Company's charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any person; (h) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association; (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Exchange Act; or (j) any action similar to any of those enumerated above.

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.

(a)     As of the date hereof, (i) SCO owns $4,000,000 principal amount of the
Convertible Notes, which is currently convertible into 18,181,818 shares of
Common Stock, and warrants to purchase an aggregate of 14,999,999 shares of
Common Stock, (ii) Beach owns $500,000 principal amount of the Convertible
Notes, which is currently convertible into 2,272,727 shares of Common Stock, and
warrants to purchase an aggregate of 1,704,545 shares of Common Stock and (iii)
SCO Securities owns no warrants to purchase Common Stock. These securities in
the aggregate represent beneficial ownership of 67.8% of the outstanding Common
Stock of Access as of September 30, 2005 (as set forth in its report on Form
10Q/A filed on January 23, 2006). In his capacity as Chairman and sole member of
SCO and in his capacity as sole managing member of Beach, Mr. Rouhandeh may be
deemed to beneficially own the 20,454,545 shares of Common Stock issuable upon
conversion of Convertible Notes and warrants to purchase 16,704,544 shares of
Common Stock owned directly by SCO and Beach. Each of SCO and Beach have
provided the Company with notice that it does not choose to be governed by the
ownership limitations provided in Section 8(g) of the Convertible Notes and
Section 2.4 of the warrants issued in the Private Placement.

(b)     Mr. Rouhandeh, in his capacity as Chairman and sole member of SCO and in
his capacity as sole managing member of Beach, has the sole power to direct the
vote and disposition of the 20,454,545 shares of Common Stock beneficially owned
by SCO and Beach upon conversion of Convertible Notes and, upon exercise of
warrants, Mr. Rouhandeh has the sole power to direct the vote and disposition of
an additional 16,704,544 shares of Common Stock underlying warrants owned by SCO
and Beach.

(c)     Reference is made to the Reporting Persons' responses to Items 3 and 4.

(d)     Not applicable.

(e)     Not applicable.

ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.

Reference is made to the Reporting Persons' responses to Items 3, 4 and 7.


                                        8



ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.

Exhibit A -Convertible Note and Warrant Purchase Agreement dated February 16,
2006

Exhibit B -Form of 7.5% Secured Convertible Promissory Note

Exhibit C -Form of Common Stock Purchase Warrant

Exhibit D -Investor Rights Agreement dated February 16, 2006

Exhibit E -Security Agreement dated February 16, 2006


                                        9



                                   SIGNATURES

      After reasonable inquiry and to the best of each of our knowledge and
belief, we certify that the information set forth in this statement is true,
complete and correct.

Dated: February 27, 2006

                           SCO CAPITAL PARTNERS LLC


                           By:     /s/ Steven H. Rouhandeh
                               -------------------------------------------
                           Name: Steven H. Rouhandeh
                           Title: Chairman


                           SCO SECURITIES LLC


                           By:     /s/ Jeffrey B. Davis
                               -------------------------------------------
                           Name: Jeffrey B. Davis
                           Title: President


                           BEACH CAPITAL, LLC


                           By:     /s/ Steven H. Rouhandeh
                               -------------------------------------------
                           Name: Steven H. Rouhandeh
                           Title: Managing Member


                                   /s/ Steven H. Rouhandeh
                           -----------------------------------------------
                               Steven H. Rouhandeh


                                       10


EX-99.(A) 2 file002.htm CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT



                                                                       EXHIBIT A

- --------------------------------------------------------------------------------

                 CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT

                                  by and among

                          Access Pharmaceuticals, Inc.

                                       and

              the parties named herein on Schedule 1, as Purchasers


                                February 16, 2006

- --------------------------------------------------------------------------------




      This CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
dated as of February 16, 2006, among Access Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), and the purchasers identified on Schedule 1 hereto
(each a "Purchaser" and collectively the "Purchasers").

      WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to the
Purchasers, and the Purchasers, severally and not jointly, desire to purchase
from the Company (i) up to an aggregate original principal amount of $5,000,000
of Secured Convertible Promissory Notes (the "Notes") and (ii) Common Stock
Purchase Warrants (the "Warrants") entitling the holders thereof to purchase up
to 17,045,454 shares of the Company's Common Stock as more fully set forth
herein.

      NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

                                    ARTICLE I

              DEFINITIONS AND TERMS OF NOTES AND WARRANTS

      1.1     DEFINITIONS.

      In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms have the meanings indicated in
this Section 1.1:

      "Action" shall have the meaning ascribed to such term in Section 3.1(j).

      "Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144. With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.

      "Agreement" shall have the meaning ascribed to such term in the Preamble.

      "Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of Texas are authorized or required by law or other governmental action to
close.

      "Closing" shall have the meaning ascribed to such term in Section 2.1(a).

      "Closing Date" shall have the meaning ascribed to such term in Section
2.1(a).

      "Commission" means the Securities and Exchange Commission.

      "Common Stock" means the common stock of the Company, $0.01 par value per
share, and any securities into which such common stock may hereafter be
reclassified.




      "Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

      "Company" shall have the meaning ascribed to such term in the Preamble.

      "Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.

      "Disclosure Schedules" means the Disclosure Schedules concurrently
delivered herewith.

      "Effective Date" means the date that the Registration Statement is first
declared effective by the Commission.

      "Environmental Laws" shall have the meaning ascribed to such term in
Section 3.1(y).

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "FDC Act" shall have the meaning ascribed to such term in Section 3.1(m).

      "GAAP" shall have the meaning ascribed to such term in Section 3.1(h).

      "Governmental Authorizations" shall have the meaning ascribed to such term
in Section 3.1(m).

      "Hazardous Substances" shall have the meaning ascribed to such term in
Section 3.1(y).

      "Indemnified Party" shall have the meaning ascribed to such term in
Section 5.3.

      "Indemnifying Party" shall have the meaning ascribed to such term in
Section 5.3.

      "Intellectual Property" shall have the meaning ascribed to such term in
Section 3.1(o).

      "Investor Rights Agreement" means the Investor Rights Agreement, dated as
of the date of this Agreement, between the Company and each of the Purchasers,
in the form of Exhibit A hereto.

      "Lien" means a lien, charge, security interest, encumbrance, right of
first refusal or other restriction, except for a lien for current taxes not yet
due and payable and a minor imperfection of title, if any, not material in
nature or amount and not materially detracting from the value or impairing the
use of the property subject thereto or impairing the operations or proposed
operations of the Company.

      "Material Adverse Effect" shall have the meaning ascribed to such term in
Section 3.1(b).


                                        3



      "Notes" shall have the meaning ascribed to such term in the recitals
hereto.

      "Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

      "Placement Agent Warrants" shall mean the common stock purchase warrants
to be issued to SCO Securities LLC and/or its designees as compensation for
services rendered in connection with the transaction set forth herein as
provided on Schedule 1 attached hereto, which warrants shall be in the form of
Exhibit D hereto.

      "Premises" shall have the meaning ascribed to such term in Section 3.1(y).

      "Purchaser" shall have the meaning ascribed to such term in the Preamble.

      "Registration Statement" means a registration statement meeting the
requirements set forth in the Investor Rights Agreement and covering the resale
by the Purchasers of the Conversion Shares and the Warrant Shares.

      "Rights" shall have the meaning ascribed to such term in Section 3.1(o).

      "Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

      "SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).

      "Securities" means the Notes, the Conversion Shares, the Warrants and the
Warrant Shares.

      "Securities Act" means the Securities Act of 1933, as amended.

      "Security Agreement" means the Security Agreement, dated as of the date of
this Agreement, between the Company and each of the Purchasers, in the form of
Exhibit B hereto.

      "Subscription Amount" means, as to each Purchaser, the amount set forth
beside such Purchaser's name on Schedule 1 hereto, in United States dollars and
in immediately available funds.

      "Subsidiary" means, with respect to any entity, any corporation or other
organization of which securities or other ownership interest having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions, are directly or indirectly owned by such entity or
of which such entity is a partner or is, directly or indirectly, the beneficial
owner of 50% or more of any class of equity securities or equivalent profit
participation interests.

      "Trading Day" means (i) a day on which the Common Stock is traded on a
Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a
day on which the Common Stock is traded on the over-the-counter market, as
reported by the OTC Bulletin Board,


                                        4



or (iii) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
Pink Sheets LLC (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.

      "Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market
or the Nasdaq Capital Market.

      "Transaction Documents" means this Agreement, the Notes, the Security
Agreement, the Investor Rights Agreement, the Warrants and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.

      "Warrants" shall have the meaning ascribed to such term in the recitals
hereto. The Placement Agent Warrants shall also constitute "Warrants" for all
purposes hereunder and SCO Securities LLC and/or its designees and such other
persons or entities shall constitute "Purchasers" for all purposes hereunder.

      "Warrant Shares" means the shares of Common Stock issuable upon exercise
of the Warrants.

      1.2     TERMS OF THE NOTES AND WARRANTS. The terms and provisions of the
Notes are set forth in the form of Secured Convertible Promissory Note, attached
hereto as Exhibit C. The terms and provisions of the Warrants are more fully set
forth in the form of Warrant, attached hereto as Exhibit D.

                                   ARTICLE II

                                PURCHASE AND SALE

      2.1     CLOSING.

      (a)     The closing of the transactions contemplated under this
Agreement (the "Closing") will take place upon the execution of this Agreement
by the Company and the Purchasers immediately following satisfaction or waiver
of the conditions set forth in Sections 2.2 and 2.3 (other than those conditions
which by their terms are not to be satisfied or waived until the Closing), at
the offices of Wiggin and Dana LLP, 400 Atlantic Street, Stamford, CT 06901 (or
remotely via exchange of documents and signatures) or at such other place or day
as may be mutually acceptable to the Purchasers and the Company. The date on
which the Closing occurs is the "Closing Date".

      (b)     At the Closing, the Purchasers shall purchase, severally and not
jointly, and the Company shall issue and sell, (i) up to an aggregate original
principal amount of $5,000,000 of Notes and (ii) Warrants to purchase up to
17,045,454 shares of Common Stock. Each Purchaser shall purchase from the
Company, and the Company shall issue and sell to each Purchaser, a Note in such
principal amount and a Warrant to purchase such number of Warrant Shares, in
each case, as is set forth next to such Purchaser's name on Schedule 1. The
Subscription Amount paid by each Purchaser shall be placed in escrow pending the
Closing pursuant to a


                                        5



Closing Escrow Agreement among the Company, SCO Securities LLC and Wiggin and
Dana LLP (the "Escrow Agent"), which agreement shall be in the form attached
hereto as Exhibit E (the "Closing Escrow Agreement").

      2.2     CONDITIONS TO OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING.

      The obligations of each Purchaser to effect the Closing and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, by such Purchaser:

      (a)     At the Closing (unless otherwise specified below) the Company
shall deliver or cause to be delivered to each Purchaser the following:

              (i)    this Agreement, duly executed by the Company;

              (ii)   an original Note for such Purchaser in the principal amount
that is set forth on Schedule 1 hereto next to such Purchaser's name;

              (iii)  an original Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to acquire up
to the number of shares of Common Stock, as set forth next to such Purchaser's
name on Schedule 1 hereto;

              (iv)   the Investor Rights Agreement, duly executed by the
Company;

              (v)    the Security Agreement, duly executed by the Company;

              (vi)   a legal opinion of Bingham McCutchen LLP, counsel to the
Company, in the form of Exhibit F hereto;

              (vii)  a certificate of the Secretary of the Company (the
"Secretary's Certificate"), attaching a true copy of the Certificate of
Incorporation and Bylaws of the Company, as amended to the Closing Date, and
attaching true and complete copies of the resolutions of the Board of Directors
of the Company authorizing the execution, delivery and performance of this
Agreement and the other Transaction Documents; and

              (viii) Evidence satisfactory to the Purchasers that the Board of
Directors of the Company has approved the 1 for 5 Split to become effective as
soon as practicable following receipt of stockholder approval thereof.

      (b)     All representations and warranties of the Company contained
herein shall remain true and correct in all material respects as of the Closing
Date as though such representations and warranties were made on such date
(except those representations and warranties that address matters only as of a
particular date will remain true and correct as of such date).

      (c)     As of the Closing Date, there shall have been no Material
Adverse Effect with respect to the Company since the date hereof.

      (d)     From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any suspension
of trading of limited


                                        6



duration agreed to by the Company, which suspension shall be terminated prior to
the Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States or
New York State authorities.

      (e)     The Company shall have de-listed the Common Stock from the
American Stock Exchange and shall have provided evidence satisfactory to the
Purchasers to such effect.

      2.3.    CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE CLOSING.

      (a)     The obligations of the Company to effect the Closing and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, by the Company. At the Closing, each Purchaser shall
deliver or cause to be delivered to the Company the following:

              (i)    this Agreement, duly executed by such Purchaser;

              (ii)   such Purchaser's Subscription Amount, by wire transfer of
immediately available funds as provided in the Closing Escrow Agreement;

              (iii)  the Investor Rights Agreement, duly executed by such
Purchaser; and

              (iv)   the Security Agreement, duly executed by such Purchaser.

      (b)     All representations and warranties of each of the Purchasers
contained herein shall remain true and correct as of the Closing Date as though
such representations and warranties were made on such date.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      3.1     REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      Except as set forth under the corresponding section of the Disclosure
Schedules delivered concurrently herewith and except as provided in the SEC
Reports, the Company hereby makes the following representations and warranties
as of the date hereof and as of the Closing Date to each Purchaser:

      (A)     SUBSIDIARIES. Except as listed in Schedule 3.1(a), the Company
has no direct or indirect Subsidiaries.

      (B)     ORGANIZATION AND QUALIFICATION. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is in
violation of any


                                        7



of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not have or result in (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the business or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company's ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect").

      (C)     AUTHORIZATION; ENFORCEABILITY. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and rules
of law governing specific performance, injunctive relief, or other equitable
remedies.

      (D)     NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected, except, in the cases of clause
(ii), where such conflict, default or violation would not have or result in a
Material Adverse Effect.

      (E)     FILINGS, CONSENTS AND APPROVALS. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (a) the filing with the Commission of the Registration Statement, the
application(s) to each Trading Market for the listing of the Conversion Shares
and Warrant Shares for trading thereon in the time and manner required thereby,
Form D and applicable Blue


                                        8



Sky filings and (b) such as have already been obtained or such exemptive filings
as are required to be made under applicable securities laws.

      (F)     ISSUANCE OF THE SECURITIES. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction Documents, will
be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens, other than any Liens created by or imposed on the holders thereof through
no action of the Company. The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants.

      (G)     CAPITALIZATION.

              (i)   The authorized and outstanding capitalization of the Company
is set forth on Schedule 3.1(g) hereto. All shares of the Company's issued and
outstanding capital stock have been duly authorized, are validly issued and
outstanding, and are fully paid and nonassessable. No securities issued by the
Company from March 1, 2002 to the date hereof were issued in violation of any
statutory or common law preemptive rights. There are no dividends which have
accrued or been declared but are unpaid on the capital stock of the Company. All
taxes required to be paid by the Company in connection with the issuance and any
transfers of the Company's capital stock have been paid. The holders of the
Company's Common Stock have certain rights under the company's Rights Agreement
dated as of October 31, 2001 by and between the Company and American Stock
Transfer as Rights Agent. All outstanding securities of the Company have been
issued in all material respects in accordance with the provisions of all
applicable securities and other laws.

              (ii)  No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities and except for employee and director stock options
under the Company's equity compensation plans and as set forth on Schedule
3.1(h)(ii) hereto, there are no outstanding options, warrants, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. The issue and sale of the Securities will not obligate the Company
to issue shares of Common Stock or other securities to any Person (other than
the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities.

      (H)     SEC REPORTS; FINANCIAL STATEMENTS; LIABILITIES.

              (i)   The Company has filed all reports required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) of the Exchange Act, for the 12 months preceding the date hereof
(or such shorter period as the Company was required by law to file such
material) (the foregoing materials, including the exhibits thereto, being
collectively referred to herein as the "SEC Reports") on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to


                                        9



the expiration of any such extension. As of their respective filing dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the Commission promulgated thereunder, as applicable, and none of
the SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

              (ii)  The Company's (A) audited financial statements for the
fiscal years ended December 31, 2004 and 2003 included in the Company's annual
reports on Form 10-K filed with the Commission and (B) the financial statements
included in the Company's quarterly reports on Form 10-Q filed with the
Commission for the first three fiscal quarters of 2005 comply with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing of such reports. Such
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States, applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, subject to normal
year-end audit adjustments. Such financial statements fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries, if any, as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments.

              (iii) Except as set forth in the SEC Reports, and except for
liabilities and obligations incurred since September 30, 2005 in the ordinary
course of business, consistent with past practice, as of the date hereof: (i)
the Company and its Subsidiaries do not have any material liabilities or
obligations (absolute, accrued, contingent or otherwise) and (ii) there has not
been any aspect of the prior or current conduct of the business of the Company
or its Subsidiaries which may form the basis for any material claim by any third
party which if asserted could result in a Material Adverse Effect.

      (I)     MATERIAL CHANGES. Except as set forth in the SEC Reports or on
Schedule 3.1(i), since September 30, 2005, the Company has conducted its
business only in the ordinary course, consistent with past practice, and since
such date there has not occurred:

              (i)   any event, occurrence or development that has had or that
could reasonably be expected to result in a Material Adverse Effect on the
Company or any of its Subsidiaries;

              (ii)  any amendments or changes in the charter documents of the
Company and its Subsidiaries;

              (iii) any:

                    (A) incurrence, assumption or guarantee by the Company or
its Subsidiaries of any debt for borrowed money other than (i) equipment leases
made in the ordinary course of business, consistent with past practice and (ii)
any such incurrence, assumption or guarantee with respect to an amount of
$25,000 or less that has been disclosed in the SEC Reports;


                                       10



                    (B) other than as set forth on Schedule 3.1(i)(iii)(A)
hereto, issuance or sale of any securities convertible into or exchangeable for
securities of the Company other than to directors, employees and consultants
pursuant to existing equity compensation or stock purchase plans of the Company;

                    (C) issuance or sale of options or other rights to acquire
from the Company or its Subsidiaries, directly or indirectly, securities of the
Company or any securities convertible into or exchangeable for any such
securities, other than options issued to directors, employees and consultants in
the ordinary course of business, consistent with past practice;

                    (D) issuance or sale of any stock, bond or other corporate
security other than to directors, employees and consultants pursuant to existing
equity compensation or stock purchase plans of the Company;

                    (E) discharge or satisfaction of any material Lien;

                    (F) declaration or making any payment or distribution to
stockholders or purchase or redemption of any share of its capital stock or
other security other than to directors, officers and employees of the Company or
its Subsidiaries as compensation for services rendered to the Company or its
Subsidiary (as applicable) or for reimbursement of expenses incurred on behalf
of the Company or its Subsidiary (as applicable);

                    (G) sale, assignment or transfer of any of its intangible
assets except in the ordinary course of business, consistent with past practice,
or cancellation of any debt or claim except in the ordinary course of business,
consistent with past practice;

                    (H) waiver of any right of substantial value whether or not
in the ordinary course of business;

                    (I) material change in officer compensation, except in the
ordinary course of business and consistent with past practice; or

                    (J) other commitment (contingent or otherwise) to do any of
the foregoing.

              (iv)  other than as set forth on Schedule 3(i)(iv) hereto, any
creation, sufferance or assumption by the Company or any of its Subsidiaries of
any Lien on any asset or any making of any loan, advance or capital contribution
to or investment in any Person, in an aggregate amount which exceeds $25,000
outstanding at any time;

              (v)   any entry into, amendment of, relinquishment, termination or
non-renewal by the Company or its Subsidiaries of any material contract,
license, lease, transaction, commitment or other right or obligation, other than
in the ordinary course of business, consistent with past practice; or

              (vi)  other than as set forth on Schedule 3(i)(vi) hereto, any
transfer or grant of a right with respect to the patents, trademarks, trade
names, service marks, trade secrets, copyrights or other intellectual property
rights owned or licensed by the Company or its Subsidiaries, except as among the
Company and its Subsidiaries.


                                       11



      (J)     LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or, to the knowledge of the Company, investigation pending
nor, to the knowledge of the Company, is any of the above threatened against the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor, to the knowledge of the Company, any director
or officer thereof, is or has been the subject of any Action involving a claim
of violation of or liability under federal or state securities laws or a claim
of breach of fiduciary duty within the past five (5) years. To the knowledge of
the Company, there has not been and there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any Subsidiary under the Exchange Act or the Securities Act
within the past eight (8) years.

      (K)     LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could have or result in a Material Adverse Effect.

      (L)     COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is currently in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business, except in the case of clauses (i) and
(iii) as would not have or reasonably be expected to result in a Material
Adverse Effect.

      (M)     LICENSES; COMPLIANCE WITH FDA AND OTHER REGULATORY REQUIREMENTS.

              (i)   The Company holds all material authorizations, consents,
approvals, franchises, licenses and permits required under applicable law or
regulation for the operation of the business of the Company and its Subsidiaries
as presently operated (the "Governmental Authorizations"). All the Governmental
Authorizations have been duly issued or obtained and are in full force and
effect, and the Company and its Subsidiaries are in material compliance with the
terms of all the Governmental Authorizations. The Company and its Subsidiaries
have not engaged in any activity that, to their knowledge, would cause
revocation or suspension of any such Governmental Authorizations. Neither the
execution, delivery nor performance of this Agreement shall adversely affect the
status of any of the Governmental Authorizations.

              (ii)  Without limiting the generality of the representations and
warranties made in sub-paragraph (i) above, the Company represents and warrants
that (i) the Company and each of its Subsidiaries is in material compliance with
all applicable provisions of the United States


                                       12



Federal Food, Drug, and Cosmetic Act and the rules and regulations promulgated
thereunder (the "FDC Act") and equivalent laws, rules and regulations in
jurisdictions outside the United States in which the Company or its Subsidiaries
do business, (ii) its products and those of each of its Subsidiaries that are in
the Company's control are not adulterated or misbranded and are in lawful
distribution, (iii) all of the products marketed by and within the control of
the Company comply in all material respects with any conditions of approval and
the terms of the application by the Company to the appropriate Regulatory
Authorities, (iv) no Regulatory Authority has initiated legal action with
respect to the manufacturing of the Company's products, such as seizures or
required recalls, and the Company is in compliance with applicable good
manufacturing practice regulations, (v) its products are labeled and promoted by
the Company and its representatives in substantial compliance with the
applicable terms of the marketing applications submitted by the Company to the
Regulatory Authorities and the provisions of the FDC Act and foreign
equivalents, (vi) all adverse events that were known to and required to be
reported by Company to the Regulatory Authorities have been reported to the
Regulatory Authorities in a timely manner, (vii) neither the Company nor any of
its Subsidiaries is, to their knowledge, employing or utilizing the services of
any individual who has been debarred under the FDC Act or foreign equivalents,
(viii) all stability studies required to be performed for products distributed
by the Company or any of its Subsidiaries have been completed or are ongoing in
material compliance with the applicable Regulatory Authority requirements, (ix)
any products exported by the Company or any of its Subsidiaries have been
exported in compliance with the FDC Act and (x) the Company and its Subsidiaries
are in compliance in all material respects with all applicable provisions of the
Controlled Substances Act. For purposes of this Section 3.1(m), "Regulatory
Authority" means any governmental authority in a country or region that
regulates the manufacture or sale of Company's products, including, but not
limited to, the United States Food and Drug Administration.

      (N)     TITLE TO ASSETS. The Company and the Subsidiaries do not own any
real property, and have good and marketable title to all personal property owned
by them that is material to the business of the Company and the Subsidiaries,
taken as a whole, in each case free and clear of all Liens, except those, if
any, reflected in the Company's financial statements or incurred in the ordinary
course of business consistent with past practice or which would not cause a
Material Adverse Effect. Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases (subject to laws of general application relating to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and rules of law governing specific
performance, injunctive relief, or other equitable remedies) with which the
Company and the Subsidiaries are in material compliance.

      (O)     INTELLECTUAL PROPERTY.

              (i)   The Company or a Subsidiary thereof has the right to use or
is the sole and exclusive owner of all right, title and interest in and to all
material foreign and domestic patents, patent rights, trademarks, service marks,
trade names, brands and copyrights (whether or not registered and, if
applicable, including pending applications for registration) owned, used or
controlled by the Company and its Subsidiaries (collectively, the "Rights") and
in and to each material invention, software, trade secret, technology, product,
composition, formula and method of process used by the Company or its
Subsidiaries (the Rights and such other items, the "Intellectual Property"),
and, to the Company's knowledge, has the right to use the same, free


                                       13



and clear of any claim or conflict with the rights of others (subject to the
provisions of any applicable license agreement) except as would not cause a
Material Adverse Effect;

              (ii)  other than as set forth in the SEC Reports and except as
in the ordinary course of business, no royalties or fees (license or otherwise)
are payable by the Company or its Subsidiaries to any Person by reason of the
ownership or use of any of the Intellectual Property;

              (iii) there have been no written claims made against the
Company or its Subsidiaries asserting the invalidity, abuse, misuse, or
unenforceability of any of the Intellectual Property, and, to the best of the
Company's knowledge, there are no reasonable grounds for any such claims which
would cause a Material Adverse Effect;

              (iv)  neither the Company nor its Subsidiaries have made any
claim of any violation or infringement by others of its rights in the
Intellectual Property, and to the best of the Company's knowledge, no reasonable
grounds for such claims exist; and

              (v)   neither the Company nor its Subsidiaries have received
written notice that it is in conflict with or infringing upon the asserted
rights of others in connection with the Intellectual Property which would cause
a Material Adverse Effect.

      (P)     INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. All of the insurance policies of the
Company and its Subsidiaries are in full force and effect and are valid and
enforceable in accordance with their terms, and the Company and its Subsidiaries
have complied with all material terms and conditions thereof. Neither the
Company nor any Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.

      (Q)     TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as provided in
the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, other than (a) for payment of salary or consulting fees for services
rendered, (b) reimbursement for expenses incurred on behalf of the Company and
(c) for other employee benefits, including stock option agreements and other
stock awards under any equity compensation plan of the Company.

      (R)     INTERNAL ACCOUNTING CONTROLS. The Company and each of the
Subsidiaries maintains a system of internal accounting controls sufficient in
the judgment of the Company's management to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset


                                       14



accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that the Company is able to collect
the information that it is required to disclose in the reports it files with the
Commission and to process, summarize and disclose this information in the time
periods specified in the Commission's rules. The Company's certifying officers
have evaluated the effectiveness of the Company's controls and procedures as of
September 30, 2005. The Company presented in its Form 10-Q for the quarter ended
September 30, 2005, the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of September 30, 2005. Since September 30, 2005, there have been
no significant changes in the Company's internal control over financial
reporting (as such term is defined in Exchange Act Rule 13a-15) or, to the
Company's knowledge, in other factors that could significantly affect the
Company's internal controls.

      (S)     CERTAIN FEES. Except for fees payable to SCO Securities LLC, no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.

      (T)     PRIVATE PLACEMENT; INTEGRATED OFFERING. Assuming the accuracy of
the Purchasers representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The issuance
and sale of the Securities hereunder does not contravene the rules and
regulations of the Trading Market. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act and would as a result require registration under the
Securities Act or trigger any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.

      (U)     CHARTER, BYLAWS AND CORPORATE RECORDS. The minute books of the
Company and its Subsidiaries contain in all material respects complete and
accurate records of all meetings and other corporate actions of the board of
directors, committees of the board of directors, incorporators and stockholders
of the Company and its Subsidiaries from the date of incorporation of each such
entity to the date hereof. All material corporate decisions and actions have
been validly made or taken. All corporate books, including without limitation
the share transfer register, comply in all material respects with applicable
laws and regulations and have been regularly updated.


                                       15



      (V)     REGISTRATION RIGHTS. Except as set forth in Schedule 3.1(v), no
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.

      (W)     LISTING AND MAINTENANCE REQUIREMENTS. Except as set forth on
Schedule 3(w), the Company has not, in the 12 months preceding the date hereof,
received notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements.

      (X)     TAXES. All tax returns and tax reports required to be filed with
respect to the income, operations, business or assets of the Company and its
Subsidiaries have been timely filed (or appropriate extensions have been
obtained) with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed, and all of the
foregoing as filed are, in all material respects, correct and complete and, in
all material respects, reflect accurately all liability for taxes of the Company
and its Subsidiaries for the periods to which such returns relate, and all
amounts shown as owing thereon have been paid. All income, profits, franchise,
sales, use, value added, occupancy, property, excise, payroll, withholding,
FICA, FUTA and other taxes (including interest and penalties), if any,
collectible or payable by the Company and its Subsidiaries or relating to or
chargeable against any of its material assets, revenues or income or relating to
any employee, independent contractor, creditor, stockholder or other third party
through the Closing Date, were fully collected and paid by such date if due by
such date or provided for by adequate reserves in the financial statements
contained in the SEC Reports as of and for the periods ended September 30, 2005
(other than taxes accruing after such date) and all similar items due through
the Closing Date will have been fully paid by that date or provided for by
adequate reserves, whether or not any such taxes were reported or reflected in
any tax returns or filings. No taxation authority has sought to audit the
records of the Company or any of its Subsidiaries for the purpose of verifying
or disputing any tax returns, reports or related information and disclosures
provided to such taxation authority, or for the Company's or any of its
Subsidiaries' alleged failure to provide any such tax returns, reports or
related information and disclosure. No material claims or deficiencies have been
asserted against or inquiries raised with the Company or any of its Subsidiaries
with respect to any taxes or other governmental charges or levies which have not
been paid or otherwise satisfied, including claims that, or inquiries whether,
the Company or any of its Subsidiaries has not filed a tax return that it was
required to file, and, to the best of the Company's knowledge, there exists no
reasonable basis for the making of any such claims or inquiries. Neither the
Company nor any of its Subsidiaries has waived any restrictions on assessment or
collection of taxes or consented to the extension of any statute of limitations
relating to taxation.

      (Y)     ENVIRONMENTAL MATTERS. None of the premises or any properties
owned, occupied or leased by the Company or its Subsidiaries (the "Premises")
has been used by the Company or the Subsidiaries or, to the Company's knowledge,
by any other Person, to manufacture, treat, store, or dispose of any substance
that has been designated to be a "hazardous substance" under applicable
Environmental Laws (hereinafter defined) ("Hazardous Substances") in violation
of any applicable Environmental Laws. To its knowledge, the Company has not
disposed of, discharged, emitted or released any Hazardous Substances which
would require, under applicable Environmental Laws, remediation, investigation
or similar


                                       16



response activity. No Hazardous Substances are present as a result of
the actions of the Company or, to the Company's knowledge, any other Person, in,
on or under the Premises which would give rise to any liability or clean-up
obligations of the Company under applicable Environmental Laws. The Company and,
to the Company's knowledge, any other Person for whose conduct it may be
responsible pursuant to an agreement or by operation of law, are in compliance
with all laws, regulations and other federal, state or local governmental
requirements, and all applicable judgments, orders, writs, notices, decrees,
permits, licenses, approvals, consents or injunctions in effect on the date of
this Agreement relating to the generation, management, handling, transportation,
treatment, disposal, storage, delivery, discharge, release or emission of any
Hazardous Substance (the "Environmental Laws"). Neither the Company nor, to the
Company's knowledge, any other Person for whose conduct it may be responsible
pursuant to an agreement or by operation of law has received any written
complaint, notice, order, or citation of any actual, threatened or alleged
noncompliance with any of the Environmental Laws, and there is no proceeding,
suit or investigation pending or, to the Company's knowledge, threatened against
the Company or, to the Company's knowledge, any such Person with respect to any
violation or alleged violation of the Environmental Laws, and, to the knowledge
of the Company, there is no basis for the institution of any such proceeding,
suit or investigation.

      (Z)     DISCLOSURE. The Company confirms that neither the Company nor
any other Person acting on its behalf and at the direction of the Company, has
provided any of the Purchasers or their agents or counsel with any information
that in the Company's reasonable judgment, at the time such information was
furnished, constitutes material, non-public information. The Company understands
and confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company are true and correct in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.

      (AA)    NO ADDITIONAL REPRESENTATIONS. Each Purchaser acknowledges and
agrees that the Company does not make and has not made any representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in this Section 3.1 or in any Transaction Document.

      (BB)    POISON PILL. The Company and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under this Agreement and the Transaction Documents,
including without limitation the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.


                                       17



      3.2     REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.

      Each Purchaser hereby, for itself and for no other Purchaser, represents
and warrants as of the date hereof and as of the Closing Date to the Company as
follows:

      (A)     ORGANIZATION; AUTHORITY; ENFORCEABILITY. Such Purchaser (other
than individuals) is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with full power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations thereunder.
The execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement has been duly authorized by all necessary
corporate or similar action on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and rules of law
governing specific performance, injunctive relief, or other equitable remedies.

      (B)     GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.

      (C)     NO PUBLIC SALE OR DISTRIBUTION. Such Purchaser is (i) acquiring
the Notes and Warrants and (ii) upon conversion of the Notes or exercise of the
Warrants will acquire the Conversion Shares or Warrant Shares, as applicable,
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof; provided, however, that by making
the representations herein, such Purchaser does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.

      (D)     ACCREDITED INVESTOR STATUS. Such Purchaser is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.

      (E)     RESIDENCY. Such Purchaser is a resident of the jurisdiction set
forth below such Purchaser's name on Schedule 1 attached hereto.

      (F)     RELIANCE ON EXEMPTIONS. Such Purchaser understands that the
Notes and Warrants are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Common Stock and Warrants.


                                       18



      (G)     INFORMATION. Such Purchaser and its advisors, if any, have been
furnished with all publicly available materials (or such materials have been
made available to such Purchaser) relating to the business, finances and
operations of the Company and such other publicly available materials relating
to the offer and sale of the Notes and Warrants as have been requested by such
Purchaser, including without limitation the Company's Form 10-K for the period
ended December 31, 2004, Forms 10-Q for the periods ended March 31, 2005, June
30, 2005 and September 30, 2005 and Forms 8-K filed by the Company since January
1, 2005. Each Purchaser acknowledges that it has read and understands the risk
factors set forth in such Form 10-K, Forms 10-Q and Forms 8-K. Neither such
review nor any other due diligence investigations conducted by such Purchaser or
its advisors, if any, or its representatives shall modify, amend or affect such
Purchaser's right to rely on the Company's representations and warranties
contained herein. Such Purchaser understands that its investment in the Notes
and Warrants involves a high degree of risk.

      (H)     NO GOVERNMENTAL REVIEW. Such Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Notes and
Warrants or the fairness or suitability of the investment in the Notes and
Warrants, nor have such authorities passed upon or endorsed the merits of the
offering of the Notes and Warrants.

      (I)     EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters, including investing in companies
engaged in the business in which the Company is engaged, so as to be capable of
evaluating the merits and risks of the prospective investment in the Notes and
Warrants, and has so evaluated the merits and risks of such investment. Such
Purchaser is able to bear the economic risk of an investment in the Notes and
Warrants and, at the present time, is able to afford a complete loss of such
investment.

      The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

                                   ARTICLE IV

                         OTHER AGREEMENTS OF THE PARTIES

      4.1     TRANSFER RESTRICTIONS.

      (a)     The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement, to the Company, to an
Affiliate of a Purchaser (who is an accredited investor and executes a customary
representation letter) or in connection with a pledge as contemplated in Section
4.1(b), the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor and reasonably satisfactory to
the Company (it being understood that Wiggin and Dana LLP is reasonably
satisfactory), the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act, provided,
however, that in the case of a transfer pursuant to Rule 144, no opinion shall
be


                                       19



required if the transferor provides the Company with a customary seller's
representation letter, and if such sale is not pursuant to subsection (k) of
Rule 144, a customary broker's representation letter and a Form 144. Any such
transferee that agrees in writing to be bound by the terms of this Agreement and
the Investor Rights Agreement shall have the rights of a Purchaser under this
Agreement and the Investor Rights Agreement. Except as required by federal
securities laws and the securities law of any state or other jurisdiction within
the United States, the Securities may be transferred, in whole or in part, by
any of the Purchasers at any time. The Company shall reissue certificates
evidencing the Securities upon surrender of certificates evidencing the
Securities being transferred in accordance with this Section 4.1(a).

      (b)     The Purchasers agree to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in substantially the
following form:

      THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, SUCH COUNSEL AND THE SUBSTANCE OF SUCH OPINION
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. UNLESS PROHIBITED BY APPLICABLE
LAW, RULE OR REGULATION, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.

      The Company acknowledges and agrees that, unless prohibited by applicable
law, rule or regulation, a Purchaser may from time to time pledge pursuant to a
bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an
"accredited investor" as defined in Rule 501(a) under the Securities Act and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such a pledge
or transfer would not be subject to approval of the Company and no legal opinion
of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith; provided, however, that such Purchaser shall provide the
Company with such documentation as is reasonably requested by the Company to
ensure that the pledge is pursuant to a bona fide margin agreement with a
registered broker-dealer or a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in Rule
501(a) under the Securities Act. The Company will execute and deliver such
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.


                                       20



      (c)     Certificates evidencing the Conversion Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section 4.1(b)),
(i) following any sale of such Conversion Shares or Warrant Shares pursuant to
Rule 144, or (ii) if such Conversion Shares or Warrant Shares are eligible for
sale under Rule 144(k) (and the holder of such Conversion Shares or Warrant
Shares has submitted a written request for removal of the legend indicating that
the holder has complied with the applicable provisions of Rule 144), or (iii) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of
the Commission) (and the holder of such Conversion Shares or Warrant Shares has
submitted a written request for removal of the legend indicating that the holder
has complied with the applicable provisions of Rule 144). The Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly upon the occurrence of any of the events in clauses (i), (ii) or (iii)
above to effect the removal of the legend hereunder and shall also cause its
counsel to issue a "blanket" legal opinion to the Company's transfer agent
promptly after the Effective Date, if required by the Company's transfer agent,
to allow sales pursuant to an effective Registration Statement. The Company
agrees that at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a certificate
representing Conversion Shares or Warrant Shares, as the case may be, issued
with a restrictive legend, deliver or cause to be delivered to such Purchaser a
certificate representing such Securities that is free from all restrictive and
other legends; provided that the holder of such Conversion Shares or Warrant
Shares has submitted a written request for removal of the legend indicating that
the holder has complied with the applicable provisions of Rule 144. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company that enlarge the restrictions on transfer set forth in this
Section.

      (d)     Each Purchaser, severally and not jointly, agrees that the removal
of the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company's reliance on, and the
Purchaser's agreement that, and each Purchaser hereby agrees that, the Purchaser
will not sell any Securities except pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

      4.2     FURNISHING OF INFORMATION.

      As long as any Purchaser owns Securities, the Company covenants to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act. Upon the request of any such holder of
Securities, the Company shall deliver to such holder a written certification of
a duly authorized officer as to whether it has complied with the preceding
sentence. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c), such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.


                                       21



      4.3     INTEGRATION.

      The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.

      4.4     LIMITATION ON FUTURE FINANCING.

      From the date hereof until the earlier of 60 calendar days after the
Closing Date or 15 calendar days after the Effective Date, the Company shall not
effect an issuance of its Common Stock or Common Stock Equivalents.
Notwithstanding anything to the contrary herein, this Section 4.4 shall not
apply to the following: (a) the granting of options or other equity compensation
awards or the issuance of Common Stock or Common Stock Equivalents to employees,
independent contractors, officers and directors of the Company pursuant to any
equity compensation plan duly adopted by a majority of the non-employee members
of the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose (and the
exercise of such options or Common Stock Equivalents), or (b) the exercise of
any security issued by the Company in connection with the offer and sale of the
Company's securities pursuant to this Agreement, or (c) the exercise of or
conversion of any convertible securities, options, warrants or rights issued and
outstanding on the date hereof, or (d) the issuance of Common Stock or Common
Stock Equivalents in connection with acquisitions or strategic investments,
partnerships, business relationship or joint venture, the primary purpose of
which is not to raise capital, or (e) the issuance of securities pursuant to a
stock split or stock dividend or similar capital modification, or (f) the
issuance of securities upon the authorization of the Company's Board of
Directors in connection with business conducted by the Company with vendors,
lessors or financial institutions in connection with financing transactions.

      4.5     PUBLICITY.

      The Company shall, within two Business Days following the Closing Date,
file a Current Report on Form 8-K, disclosing the transactions contemplated
hereby and make such other filings and notices in the manner and time required
by the Commission. The Company and SCO Securities LLC shall consult with each
other in issuing any press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser nor SCO
Securities LLC shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser or SCO Securities LLC, or without the prior
consent of SCO Securities LLC, with respect to any press release of the Company,
except if such disclosure is required by applicable law, rule or regulation, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication.

      4.6     NON-PUBLIC INFORMATION.

      The Company covenants and agrees that neither it nor any other Person
acting on its behalf will provide any Purchaser or its agents or counsel with
any information that the


                                       22



Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

      4.7     USE OF PROCEEDS.

      The Company covenants and agrees that the proceeds from the sale of the
Common Stock and Warrants shall be used by the Company for working capital and
general corporate purposes; under no circumstances shall any portion of the
proceeds be applied to:

              (i)   accelerated repayment of debt existing on the date hereof
                    (other than payment of trade payables in the ordinary course
                    of the Company's business and consistent with prior
                    practices;

              (ii)  the payment of dividends or other distributions on any
                    capital stock of the Company;

              (iii) the purchase of debt or equity securities of any Person for
                    cash, including the Company and its Subsidiaries, except in
                    connection with investment of excess cash in high quality
                    (A1/P1 or better) money market instruments having maturities
                    of one year or less;

              (iv)  any expenditure not directly related to the business of the
                    Company; or

              (v)   the redemption of any Company equity or equity-equivalent
                    securities.

      4.8     RESERVATION OF COMMON STOCK.

      As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Common Stock for the purpose of enabling the
Company to issue the maximum number of Conversion Shares issuable upon
conversion of the Notes and Warrant Shares issuable upon exercise of the
Warrants.

      4.9     LISTING OF COMMON STOCK.

      The Company hereby agrees that, from time to time, if the Company applies
to have the Common Stock traded on any Trading Market, it will include in such
application the Conversion Shares and the Warrant Shares, and will take such
other action as is necessary to cause the Conversion Shares and Warrant Shares
to be listed on such Trading Market as promptly as possible.

      4.10    BUSINESS OPERATIONS. Until the earlier of: (i) the third year
anniversary of the Closing Date and (ii) the date that the Purchasers own less
than 50% of the Notes originally issued pursuant to this Agreement or Conversion
Shares issuable upon conversion thereof, the Company shall comply with the
following covenants:


                                       23



      (A)     INSURANCE. The Company and its Subsidiaries shall maintain
insurance policies such that the representations contained in the first sentence
of Section 3.1(p) hereof continue to be true and correct and shall, from time to
time upon the written request of the Purchasers, promptly furnish or cause to be
furnished to the Purchasers evidence, in form and substance reasonably
satisfactory to the Purchasers, of the maintenance of all insurance maintained
by it.

      (B)     CORPORATE EXISTENCE; LICENSES. The Company shall preserve and
maintain and cause its Subsidiaries to preserve and maintain their corporate
existence and good standing in the jurisdiction of their incorporation and the
rights, privileges and franchises of the Company and its Subsidiaries (except,
in each case, in the event of a merger or consolidation in which the Company or
its Subsidiaries, as applicable, is not the surviving entity) in each case where
the failure to so preserve or maintain could have a Material Adverse Effect on
the financial condition, business or operations of the Company and its
Subsidiaries taken as a whole. The Company shall, and shall cause its
Subsidiaries to, maintain at all times all material licenses or permits
necessary to the conduct of its business and as required by any governmental
agency or instrumentality thereof, including without limitation all Food and
Drug Administration clearances and approvals.

      (C)     TAXES AND CLAIMS. The Company and its Subsidiaries shall duly pay
and discharge (a) all taxes, assessments and governmental charges upon or
against the Company or its properties or assets prior to the date on which
penalties attach thereto, unless and to the extent that such taxes are being
diligently contested in good faith and by appropriate proceedings, and
appropriate reserves therefor have been established, and (b) all lawful claims,
whether for labor, materials, supplies, services or anything else which might or
could, if unpaid, become a lien or charge upon the properties or assets of the
Company or its Subsidiaries, unless and to the extent only that the same are
being contested in good faith and by appropriate proceedings and appropriate
reserves therefor have been established.

      (D)     AFFILIATE TRANSACTIONS. Except for transactions approved by the
Company's Audit Committee or a majority of the disinterested members of the
board of directors of the Company, neither the Company nor any of its
Subsidiaries shall enter into any transaction with any (i) director, officer,
employee or holder of more than 5% of the outstanding capital stock of any class
or series of capital stock of the Company or any of its Subsidiaries, (ii)
member of the immediate family of any such person, or (iii) corporation,
partnership, trust or other entity in which any such person, or member of the
immediate family of any such person, is a director, officer, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof.

      4.11    SECURITIES LAW COMPLIANCE.

      (A)     SECURITIES ACT. The Company shall timely prepare and file with the
Securities and Exchange Commission the form of notice of the sale of securities
pursuant to the requirements of Regulation D regarding the sale of the Common
Stock and Warrants under this Agreement.

      (B)     STATE SECURITIES LAW COMPLIANCE -- SALE. The Company shall timely
prepare and file such applications, consents to service of process (but not
including a general consent to service of process) and similar documents and
take such other steps and perform such further acts as shall be required by the
state securities law requirements of each jurisdiction where a


                                       24



Purchaser resides, as indicated on Schedule 1, with respect to the sale of the
Common Stock and Warrants under this Agreement.

      (C)     STATE SECURITIES LAW COMPLIANCE --RESALE. Beginning no later than
30 days following any date, from time to time, on which the Common Stock is no
longer a "covered security" under Section 18(b)(1)(A) of the Securities Act and
continuing until either (i) the Purchasers have sold all of their Conversion
Shares and Warrant Shares under a registration statement pursuant to the
Investor Rights Agreement or (ii) the Common Stock becomes a "covered security"
under Section 18(b)(1)(A) of the Securities Act, the Company shall maintain
within either Moody's Industrial Manual or Standard and Poor's Standard
Corporation Descriptions (or any successors to these manuals which are similarly
qualified as "recognized securities manuals" under state Blue Sky laws) an
updated listing containing (i) the names of the officers and directors of the
Company, (ii) a balance sheet of the Company as of a date that is at no time
older than eighteen months and (iii) a profit and loss statement of the Company
for either the preceding fiscal year or the most recent year of operations.

      4.12    REVERSE STOCK SPLIT. The Company shall use its best efforts to
obtain stockholder approval for a 1 for 5 reverse stock split with respect to
its Common Stock (the "1 for 5 Split") and to effect such 1 for 5 Split, in each
case, as promptly as practicable following the Closing Date. The number of
authorized shares of Common Stock of the Company shall not be reduced in
connection with the 1 for 5 Split.

      4.13    POISON PILL. From time to time, for as long as any Purchaser
holds any Securities, the Company and its Board of Directors shall take all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under this Agreement and the Transaction Documents,
including without limitation the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.

      4.14    DIRECTOR DESIGNEES. For as long as the Notes issued pursuant to
this Agreement remain outstanding, (a) SCO Capital Partners LLC shall have the
right, from time to time, to designate two individuals, in the sole discretion
of SCO Capital Partners LLC, to serve as directors of the Company (the "SCO
Director Designees"), (b) the Company shall use its best efforts at all times to
cause the number of directors to be fixed at a sufficient number such that at
least two positions shall be available for the SCO Director Designees (the "SCO
Board Seats"), (c) the Company shall use its best efforts to cause the SCO
Director Designees to be nominated and elected for service as directors of the
Company at each meeting of the Company's shareholders held for the purpose of
electing directors and (d) if at any time, or from time to time, one or more of
the SCO Board Seats is or becomes vacant for any reason prior to the next annual
meeting of shareholders, the Company shall use its best efforts to cause such
vacancy to be filled with an SCO Director Designee.


                                       25



                                    ARTICLE V

                    INDEMNIFICATION, TERMINATION AND DAMAGES

      5.1     SURVIVAL OF REPRESENTATIONS.

      Except as otherwise provided herein, the representations and warranties of
the Company and the Purchasers contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing Date
and shall continue in full force and effect for a period of one (1) year from
the Closing Date. The Company's and the Purchasers' warranties and
representations shall in no way be affected or diminished in any way by any
investigation of (or failure to investigate) the subject matter thereof made by
or on behalf of the Company or the Purchasers.

      5.2     INDEMNIFICATION.

      (a)     The Company agrees to indemnify and hold harmless the Purchasers,
their Affiliates, each of their officers, directors, employees and agents and
their respective successors and assigns, from and against any losses, damages,
or expenses which are caused by or arise out of (i) any breach or default in the
performance by the Company of any covenant or agreement made by the Company in
this Agreement or in any of the Transaction Documents; (ii) any breach of
warranty or representation made by the Company in this Agreement or in any of
the Transaction Documents; and/or (iii) any and all third party actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees and expenses) incident to any of the foregoing.

      (b)     The Purchasers, severally and not jointly, agree to indemnify and
hold harmless the Company, its Affiliates, each of their officers, directors,
employees and agents and their respective successors and assigns, from and
against any losses, damages, or expenses which are caused by or arise out of (A)
any breach or default in the performance by the Purchasers of any covenant or
agreement made by the Purchasers in this Agreement or in any of the Transaction
Documents; (B) any breach of warranty or representation made by the Purchasers
in this Agreement or in any of the Transaction Documents; and (C) any and all
third party actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees and expenses) incident to any of the
foregoing; provided, however, that a Purchaser's liability under this Section
5.2(b) shall not exceed the Purchase Price paid by such Purchaser hereunder.

      5.3     INDEMNITY PROCEDURE.

      A party or parties hereto agreeing to be responsible for or to indemnify
against any matter pursuant to this Agreement is referred to herein as the
"Indemnifying Party" and the other party or parties claiming indemnity is
referred to as the "Indemnified Party". An Indemnified Party under this
Agreement shall, with respect to claims asserted against such party by any third
party, give written notice to the Indemnifying Party of any liability which
might give rise to a claim for indemnity under this Agreement within sixty (60)
Business Days of the receipt of any written claim from any such third party, but
not later than twenty (20) days prior to the date any answer or responsive
pleading is due, and with respect to other matters for which the


                                       26



Indemnified Party may seek indemnification, give prompt written notice to the
Indemnifying Party of any liability which might give rise to a claim for
indemnity; provided, however, that any failure to give such notice will not
waive any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are materially prejudiced.

      The Indemnifying Party shall have the right, at its election, to take over
the defense or settlement of such claim by giving written notice to the
Indemnified Party at least fifteen (15) days prior to the time when an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, it may conduct the defense of such claim
through counsel of its choosing (subject to the Indemnified Party's approval of
such counsel, which approval shall not be unreasonably withheld or delayed),
shall be solely responsible for the expenses of such defense and shall be bound
by the results of its defense or settlement of the claim. The Indemnifying Party
shall not settle any such claim without prior notice to and consultation with
the Indemnified Party, and no such settlement involving any equitable relief or
which might have an adverse effect on the Indemnified Party may be agreed to
without the written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed). So long as the Indemnifying Party is
diligently contesting any such claim in good faith, the Indemnified Party may
pay or settle such claim only at its own expense and the Indemnifying Party will
not be responsible for the fees of separate legal counsel to the Indemnified
Party, unless the named parties to any proceeding include both parties or
representation of both parties by the same counsel would be inappropriate in the
reasonable opinion of counsel to the Indemnified Party, due to conflicts of
interest or otherwise. If the Indemnifying Party does not make such election, or
having made such election does not, in the reasonable opinion of the Indemnified
Party proceed diligently to defend such claim, then the Indemnified Party may
(after written notice to the Indemnifying Party), at the expense of the
Indemnifying Party, elect to take over the defense of and proceed to handle such
claim in its discretion and the Indemnifying Party shall be bound by any defense
or settlement that the Indemnified Party may make in good faith with respect to
such claim. In connection therewith, the Indemnifying Party will fully cooperate
with the Indemnified Party should the Indemnified Party elect to take over the
defense of any such claim. The parties agree to cooperate in defending such
third party claims and the Indemnified Party shall provide such cooperation and
such access to its books, records and properties (subject to the execution of
appropriate non-disclosure agreements) as the Indemnifying Party shall
reasonably request with respect to any matter for which indemnification is
sought hereunder; and the parties hereto agree to cooperate with each other in
order to ensure the proper and adequate defense thereof.

      With regard to claims of third parties for which indemnification is
payable hereunder, such indemnification shall be paid by the Indemnifying Party
upon the earlier to occur of: (i) the entry of a judgment against the
Indemnified Party and the expiration of any applicable appeal period, or if
earlier, five (5) days prior to the date that the judgment creditor has the
right to execute the judgment; (ii) the entry of an unappealable judgment or
final appellate decision against the Indemnified Party; or (iii) a settlement of
the claim. Notwithstanding the foregoing, the reasonable expenses of counsel to
the Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party. With regard to other claims for which indemnification is payable
hereunder, such indemnification shall be paid promptly by the Indemnifying Party
upon demand by the Indemnified Party.


                                       27



                                   ARTICLE VI

                                  MISCELLANEOUS

      6.1     FEES AND EXPENSES.

      The Company shall be responsible for the payment of the Purchasers'
reasonable and documented legal fees and other third-party expenses relating to
the preparation, negotiation and execution of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated herein.

      6.2     ENTIRE AGREEMENT.

      The Transaction Documents, together with the exhibits and schedules
thereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.

      6.3     NOTICES.

      Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified on
the signature pages attached hereto prior to 5:00 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:00 p.m. (New York City time) on any Trading Day, (c) the Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:

      If to the Purchasers, at each Purchaser's address set forth under
its name on Schedule 1 attached hereto, or with respect to the Company,
addressed to:

                    Access Pharmaceuticals, Inc.
                    2600 Stemmons Freeway, Suite 176
                    Dallas, Texas 75207
                    Attention: President
                    Facsimile No.: (214) 905-5101

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Company shall be sent to:

                    Bingham McCutchen LLP
                    150 Federal Street


                                       28



                    Boston, Massachusetts 02110
                    Attention:  John J. Concannon, III
                    Facsimile No.: (617) 951-8736

Copies of notices to any Purchaser shall be sent to the addresses, if any,
listed on Schedule 1 attached hereto.

      6.4     AMENDMENTS; WAIVERS.

      No provision of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and each
Purchaser or, in the case of a waiver, by the party against whom enforcement of
any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

      6.5     CONSTRUCTION.

      The headings herein are for convenience only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

      6.6     SUCCESSORS AND ASSIGNS.

      This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser. Any Purchaser may assign any or all of its rights
under this Agreement to any Person, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the Purchasers.

      6.7     NO THIRD-PARTY BENEFICIARIES.

      This Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Article V.

      6.8     GOVERNING LAW.

      All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof.


                                       29



      6.9     JURISDICTION; VENUE; SERVICE OF PROCESS.

      This Agreement shall be subject to the exclusive jurisdiction of the
Federal District Court, Southern District of New York and if such court does not
have proper jurisdiction, the State Courts of New York County, New York. The
parties to this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of New York by
virtue of a failure to perform an act required to be performed in the State of
New York and irrevocably and expressly agree to submit to the jurisdiction of
the Federal District Court, Southern District of New York and if such court does
not have proper jurisdiction, the State Courts of New York County, New York for
the purpose of resolving any disputes among the parties relating to this
Agreement or the transactions contemplated hereby. The parties irrevocably
waive, to the fullest extent permitted by law, any objection which they may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, or any judgment entered by any
court in respect hereof brought in New York County, New York, and further
irrevocably waive any claim that any suit, action or proceeding brought in
Federal District Court, Southern District of New York and if such court does not
have proper jurisdiction, the State Courts of New York County, New York has been
brought in an inconvenient forum. Each of the parties hereto consents to process
being served in any such suit, action or proceeding, by mailing a copy thereof
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this Section 6.9 shall affect or limit
any right to serve process in any other manner permitted by law.

      6.10    EXECUTION.

      This Agreement may be executed in two or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.

      6.11    SEVERABILITY.

      If any provision of this Agreement is held to be invalid or unenforceable
in any respect, the validity and enforceability of the remaining terms and
provisions of this Agreement shall not in any way be affected or impaired
thereby and the parties will attempt to agree upon a valid and enforceable
provision that is a reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.

      6.12    REPLACEMENT OF SECURITIES.

      If any certificate or instrument evidencing any of the Securities is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof, or in
lieu of and substitution therefor, a new certificate or instrument, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or


                                       30



destruction and customary and reasonable indemnity (but no bond shall be
required), if requested by the Company.

      6.13    REMEDIES.

      In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Purchasers and the
Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.

      6.14    PAYMENT SET ASIDE.

      To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall, to the extent
permissible under applicable law, be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.

      6.15    INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS.

      The obligations of each Purchaser under any Transaction Document are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through Wiggin
and Dana LLP, but such counsel does not represent any of the Purchasers in this
transaction other than SCO Securities LLC. The Company has elected to provide
all Purchasers with the same terms and Transaction Documents for the convenience
of the Company and not because it was required or requested to do so by the
Purchasers.


                                       31



      6.16    WAIVER OF TRIAL BY JURY.

      THE PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

      6.17    FURTHER ASSURANCES.

      Each party agrees to cooperate fully with the other parties and to execute
such further instruments, documents and agreements and to give such further
written assurances as may be reasonably requested by any other party to better
evidence and reflect the transactions described herein and contemplated hereby
and to carry into effect the intents and purposes of this Agreement, and further
agrees to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
law to consummate and make effective the transactions contemplated hereby, to
obtain all necessary waivers, consents and approvals, to effect all necessary
registrations and filings, and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement.


                            [Signature pages follow.]


                                       32



IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

                              COMPANY:

                              ACCESS PHARMACEUTICALS, INC.


                              By: /s/ Stephen B. Thompson
                                  ----------------------------------
                              Name:  Stephen B. Thompson
                              Title: Vice President, CFO


                                       33



                              PURCHASERS:


                              Print Exact Name:   SCO Capital Partners LLC
                                               --------------------------------


                              By:           /s/ Steven H. Rouhandeh
                                 ----------------------------------------------
                              Name:  Steven H. Rouhandeh
                              Title: Chairman

                              Address: 1285 Avenue of the Americas, 35th Floor
                                      -----------------------------------------

                                       New York, NY 10019
                              -------------------------------------------------

                              _________________________________________________

                              Telephone:_______________________________________

                              Facsimile:_______________________________________

                              Email:___________________________________________

                              SSN/EIN:_________________________________________


                              Amount of Investment:$  4,000,000
                                                   ----------------------------

       [Omnibus Access Pharmaceuticals, Inc. Convertible Note and Warrant
                       Purchase Agreement Signature Page]


                                       34



                              PURCHASERS:

                              Print Exact Name:  Beach Capital LLC
                                               --------------------------------


                              By:            /s/ Steven H. Rouhandeh
                                 ----------------------------------------------
                              Name:  Steven H. Rouhandeh
                              Title: Managing Member

                              Address: 1285 Avenue of the Americas, 35th Floor
                                      -----------------------------------------

                                       New York, NY 10019
                              -------------------------------------------------

                              _________________________________________________

                              Telephone:_______________________________________

                              Facsimile:_______________________________________

                              Email:___________________________________________

                              SSN/EIN:_________________________________________


                              Amount of Investment:$  500,000
                                                   ----------------------------

       [Omnibus Access Pharmaceuticals, Inc. Convertible Note and Warrant
                       Purchase Agreement Signature Page]


                                       35




                              PURCHASERS:

                              Print Exact Name:   Lake End Capital LLC
                                               --------------------------------


                              By:        /s/ Jeffrey B. Davis
                                 ----------------------------------------------
                              Name:  Jeffrey B. Davis
                              Title: Managing Member

                              Address:    33 Tall Oaks Drive
                                      -----------------------------------------

                                          Summit, New Jersey 07501
                              -------------------------------------------------

                              _________________________________________________

                              Telephone:_______________________________________

                              Facsimile:_______________________________________

                              Email:___________________________________________

                              SSN/EIN:_________________________________________


                              Amount of Investment:$  500,000
                                                   ----------------------------

       [Omnibus Access Pharmaceuticals, Inc. Convertible Note and Warrant
                       Purchase Agreement Signature Page]

                                       36




                                   SCHEDULE 1

               TO CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT

               PURCHASERS, PRINCIPAL AMOUNT OF NOTES AND WARRANTS



- -----------------------------------------------------------------------------------------------------------------------------
                                                                             Principal       Common Stock
     Name, Address and Fax Number                                            Amount of        Underlying
             of Purchaser                      Copies of Notices to       Notes Purchased      Warrants      Purchase Price
- -----------------------------------------------------------------------------------------------------------------------------

SCO Capital Partners LLC                    Michael Grundei, Esq.
1285 Avenue of the Americas, 35th Floor     Wiggin and Dana LLP
New York, NY 10019                          400 Atlantic Street
Attn: Jeffrey B. Davis                      Stamford, CT  06901             $4,000,000        13,636,364        $4,000,000
T: 212-554-4158                             Tel: 203-363-7630
F: 212-554-4058                             Fax: 203-363-7676
Email: JDavis@SCOGroup.com                  Email: mgrundei@wiggin.com

- -----------------------------------------------------------------------------------------------------------------------------

Beach Capital LLC
1285 Avenue of the Americas, 35th Floor
New York, NY 10019
Telephone: (212) 554-4158                                                     $500,000         1,704,545          $500,000
Fax: (212) 554-4058
contact: Steven H. Rouhandeh
e-mail: srouhandeh@scogroup.com

- -----------------------------------------------------------------------------------------------------------------------------



                                       37





- -----------------------------------------------------------------------------------------------------------------------------
                                                                             Principal       Common Stock
     Name, Address and Fax Number                                            Amount of        Underlying
             of Purchaser                      Copies of Notices to       Notes Purchased      Warrants      Purchase Price
- -----------------------------------------------------------------------------------------------------------------------------

Lake End Capital LLC
33 Tall Oaks Drive
Summit, New Jersey 07501                                                      $500,000         1,704,545          $500,000
Attn: Jeffrey B. Davis
T: (212) 554-4158
F: (212) 554-4058

- -----------------------------------------------------------------------------------------------------------------------------

TOTALS:                                                                     $5,000,000        17,045,454         $5,000,000

- -----------------------------------------------------------------------------------------------------------------------------



                                       38





- -----------------------------------------------------------------------------------------------------------------------------
                                                                                             Common Stock
                                                                                              Underlying
                                                                                              Placement
                                                                                                Agent
       PLACEMENT AGENT WARRANTS                Copies of Notice to                             Warrants
- -----------------------------------------------------------------------------------------------------------------------------

SCO Capital Parnters LLC                    Michael Grundei, Esq.
1285 Avenue of the Americas, 35th Floor     Wiggin and Dana LLP
New York, NY 10019                          400 Atlantic Street
Attn: Jeffrey B. Davis                      Stamford, CT 06901                                 1,363,635
T: 212-554-4158                             Tel: 203-363-7630
F: 212-554-4058                             Fax: 203-363-7676
Email: JDavis@SCOGroup.com                  Email: mgrundei@wiggin.com

- -----------------------------------------------------------------------------------------------------------------------------

Lake End Capital LLC
33 Tall Oaks Drive
Summit, New Jersey 07501                                                                         454,546
Attn: Jeffrey B. Davis
T: (212) 554-4158
F: (212) 554-4058

- -----------------------------------------------------------------------------------------------------------------------------

Howard Fischer
SCO Securities LLC
1285 Avenue of the Americas, 35th Floor                                                          227,273
New York, NY 10019
Telephone: (212) 554-4235
Fax: (212) 554-4058

- -----------------------------------------------------------------------------------------------------------------------------



                                       39





- -----------------------------------------------------------------------------------------------------------------------------

Mark Alvino
c/o SCO Securities LLC
1285 Avenue of the Americas, 35th Floor                                                          227,273
New York, NY 10019
Telephone: (212) 554-4235
Fax: (212) 554-4058

- -----------------------------------------------------------------------------------------------------------------------------

TOTALS:                                                                                        2,272,727

- -----------------------------------------------------------------------------------------------------------------------------



                                       40





EX-99.(B) 3 file003.htm FORM OF 7.5% SECURED CONVERTIBLE PROMISSORY NOTE



                                                                       EXHIBIT B

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




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).


                                        2



                  (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


                                        3



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


                                        4



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


                                        5



                  (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 $0.22, 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.


                                        6



            "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


                                        7



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


                                        8



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

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

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

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

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


                                        9



            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


                                       10



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:__________________________

__________________________________


                                       18



Tax ID #:_________________________


__________________________________
Name of Holder


By:_______________________________
Name:
Title:


                                       19








EX-99.(C) 4 file004.htm FORM OF COMMON STOCK PURCHASE WARRANT



                                                                       EXHIBIT C

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


                                       2



by two such members of the NASD, one of which shall be selected by holder of
this Warrant and 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]


                                       15



      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:


                                       20







EX-99.(D) 5 file005.htm INVESTOR RIGHTS AGREEMENT



                                                                       EXHIBIT D

                            INVESTOR RIGHTS AGREEMENT

      This Investor Rights Agreement (this "Agreement") is made and entered into
as of February 16, 2006 among Access Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), and each of the purchasers executing this Agreement
and listed on Schedule 1 attached hereto (collectively, the "Purchasers").

      This Agreement is being entered into pursuant to the Convertible Note and
Warrant Purchase Agreement, dated as of the date hereof, by and among the
Company and the Purchasers (the "Purchase Agreement").

      The Company and the Purchasers hereby agree as follows:

      1.    Definitions.

      Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:

      "Advice" shall have the meaning set forth in Section 3(m).

      "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.

      "AMEX" shall mean the American Stock Exchange.

      "Blackout Period" shall have the meaning set forth in Section 3(n).

      "Board" shall have the meaning set forth in Section 3(n).

      "Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
Texas generally are authorized or required by law or other government actions to
close.

      "Commission" means the Securities and Exchange Commission.

      "Common Stock" means the Company's Common Stock, par value $0.01 per
share.

      "Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes purchased by the Purchasers pursuant to the Purchase
Agreement.

      "Effectiveness Period" shall have the meaning set forth in Section 2.

      "Event" shall have the meaning set forth in Section 7(e).




      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Filing Date" means March 31, 2006.

      "Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities, including without limitation the
Purchasers and their assignees.

      "Indemnified Party" shall have the meaning set forth in Section 5(c).

      "Indemnifying Party" shall have the meaning set forth in Section 5(c).

      "Losses" shall have the meaning set forth in Section 5(a).

      "Notes" means the Secured Convertible Promissory Notes issued to the
Purchasers pursuant to the Purchase Agreement.

      "Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

      "Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

      "Prospectus" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.

      "Registrable Securities" means (a) the Conversion Shares and the Warrant
Shares (without regard to any limitations on beneficial ownership contained in
the Note or the Warrants) or other securities issued or issuable to each
Purchaser or its transferee or designee (i) upon conversion of the Notes and/or
upon exercise of the Warrants, or (ii) upon any dividend or distribution with
respect to, any exchange for or any replacement of such Notes, Conversion
Shares, Warrants or Warrant Shares or (iii) upon any conversion, exercise or
exchange of any securities issued in connection with any such distribution,
exchange or replacement; (b) securities issued or issuable upon any stock split,
stock dividend, recapitalization or similar event with respect to the foregoing;
and (c) any other security issued as a dividend or other distribution with
respect to, in exchange for, in replacement or redemption of, or in reduction of
the liquidation value of, any of the securities referred to in the preceding
clauses; provided, however, that such securities shall cease to be Registrable
Securities when such securities have been sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction or
when such securities


                                        2



may be sold without any restriction pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent to such effect as described in Section 2 of this
Agreement.

      "Registration Statement" means the registration statements and any
additional registration statements contemplated by Section 2, including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference in such registration
statement.

      "Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

      "Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

      "Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

      "Securities Act" means the Securities Act of 1933, as amended.

      "Special Counsel" means Wiggin and Dana LLP.

      "Warrants" means the Common Stock purchase warrants issued pursuant to the
Purchase Agreement, including, without limitation the Placement Agent Warrants.

      "Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants (including, without limitation, the Placement Agent
Warrants) issued or to be issued to the Purchasers or their assignees or
designees in connection with the offering consummated under the Purchase
Agreement.

      2.    Registration. As soon as possible following the Closing Date (but
not later than the Filing Date), the Company shall prepare and file with the
Commission a "shelf" Registration Statement covering all Registrable Securities
for a secondary or resale offering to be made on a continuous basis pursuant to
Rule 415. The Registration Statement shall be on Form S-3 (or if such form is
not available to the Company on another form appropriate for such registration
in accordance herewith). The Company shall use its reasonable best efforts to
cause the Registration Statement to be declared effective under the Securities
Act not later than ninety (90) days after the Closing Date (including filing
with the Commission a request for acceleration of effectiveness in accordance
with Rule 461 promulgated under the Securities Act within five (5) Business Days
of the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement


                                        3



will not be "reviewed," or not be subject to further review) and to keep such
Registration Statement continuously effective under the Securities Act until
such date as is the earlier of (x) the date when all Registrable Securities
covered by such Registration Statement have been sold or (y) with respect to
such Holder, such time as all Registrable Securities held by such Holder may be
sold without any restriction pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent to such effect (the "Effectiveness Period"). For
purposes of the obligations of the Company under this Agreement, no Registration
Statement shall be considered "effective" with respect to any Registrable
Securities unless such Registration Statement lists the Holders of such
Registrable Securities as "Selling Stockholders" and includes such other
information as is required to be disclosed with respect to such Holders to
permit them to sell their Registrable Securities pursuant to such Registration
Statement, unless any such Holder is not included as a "Selling Stockholder"
pursuant to Section 3(m). Such Registration Statement also shall cover, to the
extent allowable under the Securities Act and the Rules promulgated thereunder
(including Securities Act Rule 416), such indeterminate number of additional
shares of Common Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities.

      3.    Registration Procedures.

      In connection with the Company's registration obligations hereunder, the
Company shall:

      (a)   Prepare and file with the Commission on or prior to the Filing Date,
a Registration Statement on Form S-3 (or if such form is not available to the
Company on another form appropriate for such registration in accordance
herewith) (which shall include a Plan of Distribution substantially in the form
of Exhibit A attached hereto), and cause the Registration Statement to become
effective and remain effective as provided herein; provided, however, that not
less than three (3) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto, the
Company shall (i) furnish to the Special Counsel, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the review of such Special Counsel, and (ii) at
the request of any Holder cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of counsel to such Holders, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities or the Special Counsel shall reasonably object within
three (3) Business Days after their receipt thereof. In the event of any such
objection, the Holders shall provide the Company with any requested revisions to
such prospectus or supplement within two (2) Business Days of such objection.

      (b)   (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and to the extent any
Registrable Securities are not included in such


                                        4



Registration Statement for reasons other than the failure of the Holder to
comply with Section 3(m) hereof, shall prepare and file with the Commission such
amendments to the Registration Statement or such additional Registration
Statements in order to register for resale under the Securities Act all
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
reasonably practicable, and in no event later than ten (10) Business Days to any
comments received from the Commission with respect to the Registration Statement
or any amendment thereto and as promptly as reasonably practicable provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement, but not, without the prior
written consent of the Holders, any comments that would result in the disclosure
to the Holders of material and non-public information concerning the Company;
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders thereof set
forth in the Registration Statement as so amended or in such Prospectus as so
supplemented.

      (c)   Notify Holders of Registrable Securities to be sold and the Special
Counsel as promptly as reasonably practicable (A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed (but in no event in the case of this subparagraph (A),
less than three (3) Business Days prior to date of such filing); (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement; and (C) with respect to the Registration Statement or
any post-effective amendment, when the same has become effective, and after the
effectiveness thereof: (i) of any request by the Commission or any other Federal
or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (iv) if the financial statements included in the Registration
Statement become ineligible for inclusion therein or of the occurrence of any
event that makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
Without limitation to any remedies to which the Holders may be entitled under
this Agreement, if any of the events described in Section 3(c)(C)(i),
3(c)(C)(ii), 3(c)(C)(iii) or 3(c)(C)(iv) occur, the Company shall use its
reasonable best efforts to respond to and correct the event.


                                        5



      (d)   Use its reasonable best efforts to avoid the issuance of, or, if
issued, use reasonable best efforts to obtain the withdrawal of, (i) any order
suspending the effectiveness of the Registration Statement or (ii) any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
time.

      (e)   If requested by any Holder of Registrable Securities, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the Company reasonably agrees should
be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as reasonably practicable
after the Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment.

      (f)   Furnish to each Holder and the Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, and all exhibits to the
extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

      (g)   Promptly deliver to each Holder and the Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

      (h)   Prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the selling
Holders and the Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.

      (i)   Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to a Registration Statement, which certificates shall be free, to the extent
permitted by applicable law and the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any Holder may request at least two (2) Business
Days prior to any sale of Registrable Securities. In connection therewith,


                                        6



the Company shall promptly after the effectiveness of the Registration Statement
cause an opinion of counsel to be delivered to and maintained with its transfer
agent, together with any other authorizations, certificates and directions
required by the transfer agent, which authorize and direct the transfer agent to
issue such Registrable Securities without legend upon sale by the Holder of such
shares of Registrable Securities under the Registration Statement.

      (j)   Following the occurrence of any event contemplated by Section
3(c)(C)(iv), as promptly as possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

      (k)   Cause all Registrable Securities relating to such Registration
Statement to be listed on any United States securities exchange, quotation
system, market or over-the-counter bulletin board on which similar securities
issued by the Company are then listed.

      (l)   Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earnings statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 3-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.

      (m)   Request each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law or the Commission to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who fails to furnish such information within a reasonable time
prior to the filing of each Registration Statement, supplemented Prospectus
and/or amended Registration Statement.

      If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.

      Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv), or
3(n), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended


                                        7



Registration Statement contemplated by Section 3(j), or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.

      (n)   If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may (i) postpone or suspend
filing or effectiveness of a registration statement or (ii) notify the Holders
that the Registration Statement may not be used in connection with any sales of
the Company's securities, in each case, for a period not to exceed 30
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 60 days in the aggregate during
any 12 month period (each, a "Blackout Period").

      4.    Registration Expenses.

      All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with AMEX and
each other securities exchange, quotation system, market or over-the-counter
bulletin board on which Registrable Securities are required hereunder to be
listed, (B) with respect to filings required to be made with the Commission, and
(C) in compliance with state securities or Blue Sky laws (including, without
limitation, reasonable and documented fees and disbursements of Special Counsel
in connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing or photocopying prospectuses), (iii) messenger, telephone and delivery
expenses, (iv) Securities Act liability insurance, if the Company so desires
such insurance, (v) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement, including, without limitation, the Company's independent public
accountants (including, in the case of an underwritten offering, the expenses of
any comfort letters or costs associated with the delivery by independent public
accountants of a comfort letter or comfort letters) and legal counsel, and (vi)
reasonable and documented fees and expenses of the Special Counsel in connection
with any Registration Statement hereunder. In addition, the Company shall be
responsible for all of its internal


                                        8



expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.

      5.    Indemnification.

      (a)   Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained or incorporated by reference in
the Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any Prospectus or form of prospectus or amendment or supplement thereto, in the
light of the circumstances under which they were made) not misleading, except to
the extent, but only to the extent, that (i) such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, which information was
reasonably relied on by the Company for use therein or to the extent that such
information relates to (x) such Holder and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of prospectus or in any amendment or supplement thereto
or (y) such Holder's proposed method of distribution of Registrable Securities
as set forth in Exhibit A (or as such Holder otherwise informs the Company in
writing); or (ii) in the case of an occurrence of an event of the type described
in Section 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder
of an outdated or defective Prospectus after the delivery to the Holder of
written notice from the Company that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section 3(m);
provided, however, that the indemnity agreement contained in this Section 5(a)
shall not apply to amounts paid in settlement of any Losses if such settlement
is effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld. The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of an Indemnified Party (as defined in
Section 5(c) to this Agreement) and shall survive the transfer of the
Registrable Securities by the Holders.

      (b)   Indemnification by Holders. Each Holder shall, severally and not
jointly,


                                        9



indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents and employees of such controlling Persons, to the fullest
extent permitted by applicable law, from and against all Losses, as incurred,
arising solely out of or based solely upon any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that (i) such untrue statement or omission is contained in
or omitted from any information so furnished in writing by such Holder to the
Company specifically for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the Company
for use in the Registration Statement, such Prospectus, or in any amendment or
supplement thereto, or to the extent that such information relates to (x) such
Holder and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus, or such form
of prospectus or in any amendment or supplement thereto or (y) such Holder's
proposed method of distribution of Registrable Securities as set forth in
Exhibit A (or as such Holder otherwise informs the Company in writing), (ii) in
the case of an occurrence of an event of the type described in Section
3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an
outdated or defective Prospectus after the delivery to the Holder of written
notice from the Company that the Prospectus is outdated or defective and prior
to the receipt by such Holder of the Advice contemplated in Section 3(m) or
(iii) such Holder's failure to comply with the Prospectus delivery requirements
of the Securities Act through no fault of the Company; provided, however, that
the indemnity agreement contained in this Section 5(b) shall not apply to
amounts paid in settlement of any Losses if such settlement is effected without
the prior written consent of the Holder, which consent shall not be unreasonably
withheld. Notwithstanding anything to the contrary contained herein, the Holder
shall be liable under this Section 5(b) for only that amount as does not exceed
the net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such Registration Statement.

      (c)   Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall have the right to assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all reasonable fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.

      An Indemnified Party shall have the right to employ separate counsel in
any such


                                       10



Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
in writing by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the reasonable expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding and does not
impose any monetary or other obligation or restriction on the Indemnified Party.

      All reasonable fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party, which notice shall be delivered no more frequently than on a
monthly basis (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).

      (d)   Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the


                                       11



limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms. Notwithstanding anything to the
contrary contained herein, the Holder shall be required to contribute under this
Section 5(d) for only that amount as does not exceed the net proceeds to such
Holder as a result of the sale of Registrable Securities pursuant to such
Registration Statement.

      The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

      The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties. The indemnity and contribution agreements herein are in
addition to and not in diminution or limitation of any indemnification
provisions under the Purchase Agreement.

      6.    Rule 144.

      As long as any Holder owns Notes, Conversion Shares, Warrants or Warrant
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of
the Exchange Act. As long as any Holder owns Notes, Conversion Shares, Warrants
or Warrant Shares, if the Company is not required to file reports pursuant to
Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Holders and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
such Person to sell Notes, Conversion Shares, Warrants and Warrant Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
compliance with the provisions of the Purchase Agreement relating to the
transfer of the Notes, Conversion Shares, Warrants and Warrant Shares. Upon the
request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with
such requirements.

      7.    Miscellaneous.

      (a)   Remedies. In the event of a breach by the Company or by a Holder, of
any of


                                       12



their obligations under this Agreement, each Holder or the Company, as the case
may be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

      (b)   No Inconsistent Agreements. Except as otherwise disclosed in the
Purchase Agreement, neither the Company nor any of its subsidiaries is a party
to an agreement currently in effect, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Without limiting the generality of the foregoing, other than with respect to the
rights of the holders of the Company's currently outstanding convertible notes
and the common stock underlying such convertible notes and shares of common
stock issued under the Standby Equity Distribution Agreement with Cornell
Capital and its affiliates and shares of common stock issued to Cornell Capital
and its affiliates in connection with such transaction, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the rights of the
Holders set forth herein, and are not otherwise in conflict with the provisions
of this Agreement.

      (c)   Notice of Effectiveness. Within two (2) Business Days after the
Registration Statement which includes the Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Holders whose Registrable Securities are included
in such Registration Statement) confirmation that the Registration Statement has
been declared effective by the Commission in the form attached hereto as Exhibit
B.

      (d)   Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering all of the Registrable Securities, the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans and other than with
respect to the rights of the holders of the Company's currently outstanding
warrants and convertible notes and the common stock underlying such warrants and
convertible notes and the Company's currently effective registration statement
on Form S-1 relating to its Standby Equity Distribution Agreement with Cornell
Capital, as it may be amended from time to time, the Company shall send to each
Holder of Registrable Securities written notice of such determination and, if
within seven (7) Business Days after receipt of such notice, any such


                                       13



Holder shall so request in writing (which request shall specify the Registrable
Securities intended to be disposed of by the Holder), the Company will cause the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the Holder, to the extent required
to permit the disposition of the Registrable Securities so to be registered,
provided that if at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to such Holder and, thereupon, (i) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay expenses in accordance with Section 4 hereof), and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities being registered pursuant to this Section 7(d) for the
same period as the delay in registering such other securities. The Company shall
include in such registration statement all or any part of such Registrable
Securities such Holder requests to be registered. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).

      (e)   Failure to File Registration Statement and Other Events. The Company
and the Holders agree that the Holders will suffer damages if the Registration
Statement is not filed on or prior to the Filing Date and maintained in the
manner contemplated herein during the Effectiveness Period. The Company and the
Holders further agree that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if (i) the Registration Statement is
not filed on or prior to the Filing Date, or (ii) the Company fails to file with
the Commission a request for acceleration in accordance with Rule 461
promulgated under the Securities Act within five (5) Business Days of the date
that the Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (iii) the Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective as to
all Registrable Securities at any time prior to the expiration of the
Effectiveness Period, without being succeeded immediately by a subsequent
Registration


                                       14



Statement filed with the Commission, except as otherwise permitted by this
Agreement, including pursuant to Section 3(n), or (iv) trading in the Common
Stock shall be suspended or if the Common Stock is delisted from each securities
exchange, quotation system, market or over-the-counter bulletin board on which
Registrable Securities are required hereunder to be listed (each an "Exchange"),
without immediately being listed on any other Exchange, for any reason for more
than five (5) Business Days, other than pursuant to Section 3(n), or (v) the
Company refuses or fails to effect any conversion of the Notes into Conversion
Shares or any exercise of Warrants into Warrant Shares in accordance with the
terms of the Notes and Warrants for any reason without the consent of the
particular Holder (any such failure or breach being referred to as an "Event"),
the Company shall pay in cash as liquidated damages for such failure and not as
a penalty to each Holder an amount equal to two percent (2%) of such Holder's
Subscription Amount for the initial thirty (30) day period until the applicable
Event has been cured, which shall be pro rated for such periods less than thirty
(30) days and two percent (2%) of such Holder's Subscription Amount for each
subsequent thirty (30) day period until the applicable Event has been cured
which shall be pro rated for such periods less than thirty days (the "Periodic
Amount"). Payments to be made pursuant to this Section 7(e) shall be due and
payable immediately upon demand in immediately available cash funds. The parties
agree that the Periodic Amount represents a reasonable estimate on the part of
the parties, as of the date of this Agreement, of the amount of damages that may
be incurred by the Holders if the Registration Statement is not filed on or
prior to the Filing Date and maintained in the manner contemplated herein during
the Effectiveness Period or if any other Event as described herein has occurred.
Notwithstanding the foregoing, the Company shall remain obligated to cure the
breach or correct the condition that caused the Event, and the Holder shall have
the right to take any action necessary or desirable to enforce such obligation.
Each Holder of Registrable Securities acknowledges that, notwithstanding any
provision of this Agreement, no damages shall be payable in connection with the
Company's imposition of a Blackout Period in accordance with Section 3(n) of
this Agreement.

      (f)   Specific Enforcement, Consent to Jurisdiction.

            (i)   The Company and the Holders acknowledge and agree that
      irreparable damage would occur in the event that any of the provisions of
      this Agreement were not performed in accordance with their specific terms
      or were otherwise breached. It is accordingly agreed that the parties
      shall be entitled to an injunction or injunctions to prevent or cure
      breaches of the provisions of this Agreement and to enforce specifically
      the terms and provisions hereof, this being in addition to any other
      remedy to which any of them may be entitled by law or equity.

            (ii)  Each of the Company and the Holders (i) hereby irrevocably
      submits to the exclusive jurisdiction of the state and federal courts
      located in New York City, New York for the purposes of any suit, action or
      proceeding arising out of or relating to this Agreement and (ii) hereby
      waives, and agrees not to assert in any such suit, action or proceeding,
      any claim that it is not personally subject to the jurisdiction of such
      court, that the suit, action or proceeding is brought in an inconvenient
      forum or that the venue of the suit, action or proceeding is improper.
      Each of the Company and the Holders consents to process being served in
      any such suit, action or proceeding


                                       15



      by mailing a copy thereof to such party at the address in effect for
      notices to it under this Agreement and agrees that such service shall
      constitute good and sufficient service of process and notice thereof.
      Nothing in this Section 7(f) shall affect or limit any right to serve
      process in any other manner permitted by law.

      (g)   Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of at least a majority of the Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.

      (h)   Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the next Business Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Business Day or later than 5:00
p.m., New York City time, on any date and earlier than 11:59 p.m., New York City
time, on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service such as Federal Express
or (iv) actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be with respect to each Holder at
its address set forth under its name on Schedule 1 attached hereto, or with
respect to the Company, addressed to:

                  Access Pharmaceuticals, Inc.
                  2600 Stemmons Freeway, Suite 176
                  Dallas, Texas 75207
                  Attention: President
                  Facsimile No.: (214) 905-5101

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Company shall be sent to:

                  Bingham McCutchen LLP
                  150 Federal Street
                  Boston, Massachusetts 02110
                  Attention: John J. Concannon, III
                  Facsimile No.: (617) 951-8736

Copies of notices to any Holder shall be sent to the addresses, if any, listed
on Schedule 1


                                       16



attached hereto.

      (i)   Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns;
provided, that the Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of each Holder; and
provided, further, that each Holder may assign its rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.

      (j)   Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any transferee of such Holder of all
or a portion of the Notes, the Warrants or the Registrable Securities if: (i)
the Holder agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section 7(j),
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions of this Agreement, and (v) such transfer shall have been made
in accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.

      The Company may require, as a condition of allowing such assignment in
connection with a transfer of Notes, Warrants or Registrable Securities (i) that
the Holder or transferee of all or a portion of the Notes, the Warrants or the
Registrable Securities as the case may be, furnish to the Company a written
opinion of counsel that is reasonably acceptable to the Company to the effect
that such transfer may be made without registration under the Securities Act,
(ii) that the Holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company and (iii) that
the transferee be an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act.

      (k)   Counterparts; Facsimile. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by electronic means or
facsimile transmission, such signature shall create a valid binding obligation
of the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the original
thereof.

      (l)   Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts


                                       17



of law thereof.

      (m)   Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

      (n)   Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable in any respect, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

      (o)   Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

      (p)   Registrable Securities Held by the Company and its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or its Affiliates (other than any Holder or transferees or successors or
assigns thereof if such Holder is deemed to be an Affiliate solely by reason of
its holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.

      (q)   Obligations of Purchasers. The Company acknowledges that the
obligations of each Purchaser under this Agreement, are several and not joint
with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. The decision of each Purchaser to enter into to
this Agreement has been made by such Purchaser independently of any other
Purchaser. The Company further acknowledges that nothing contained in this
Agreement, and no action taken by any Purchaser pursuant hereto, shall be deemed
to constitute the Purchasers as a partnership, an association, a joint venture
or any other kind of entity, or create a presumption that the Purchasers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated hereby. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation, the
rights arising out of this Agreement, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.

      Each Purchaser was introduced to the Company by SCO Securities LLC which
has acted solely as agent for the Company and not for any Purchaser (other than
itself). Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of this Agreement and with respect to the
transactions contemplated hereby. For reasons of administrative convenience
only, this Agreement has been prepared by Special


                                       18



Counsel (counsel for SCO Securities LLC) and the Special Counsel will perform
certain duties under this Agreement. Such counsel does not represent all of the
Purchasers but only SCO Securities LLC. The Company has elected to provide all
Purchasers with the same terms and Agreement for the convenience of the Company
and not because it was required or requested to do so by the Purchasers. The
Company acknowledges that such procedure with respect to this Agreement in no
way creates a presumption that the Purchasers are in any way acting in concert
or as a group with respect to this Agreement or the transactions contemplated
hereby or thereby.

                            [signature page follows]


                                       19



      IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.

COMPANY:

ACCESS PHARMACEUTICALS, INC.

By: /s/ Stephen B. Thompson
    ----------------------------
Name:  Stephen B. Thompson
Title: Vice President, CFO


                                       20



PURCHASERS:

Print Exact Name:   SCO Capital Partners LLC
                 ------------------------------------


By:        /s/ Steven H. Rouhandeh
   --------------------------------------------------
Name:  Steven H. Rouhandeh
Title: Chairman


 [Omnibus Access Pharmaceuticals, Inc. Investor Rights Agreement Signature Page]


                                       21



                                                                       EXHIBIT D

PURCHASERS:

Print Exact Name:    Beach Capital LLC
                 -----------------------------------


By:        /s/ Steven H. Rouhandeh
   -------------------------------------------------
Name:  Steven H. Rouhandeh
Title: Managing Member


 [Omnibus Access Pharmaceuticals, Inc. Investor Rights Agreement Signature Page]


                                       22




                                                                       EXHIBIT D

PURCHASERS:

Print Exact Name:     Lake End Capital LLC
                 ----------------------------------


By:        /s/ Jeffrey B. Davis
   -------------------------------------------------
Name:  Jeffrey B. Davis
Title: Managing Member

 [Omnibus Access Pharmaceuticals, Inc. Investor Rights Agreement Signature Page]


                                       23




                                   SCHEDULE 1

                                   PURCHASERS

- --------------------------------------------------------------------------------
           Name and Address                         Copy of Notice to:
- --------------------------------------------------------------------------------
SCO Capital Partners LLC                  Wiggin and Dana LLP
1285 Avenue of the Americas, 35th Floor   400 Atlantic Street
New York, NY 10019                        Stamford, CT 06901
Attn: Jeffrey B. Davis                    Telephone: (203) 363-7630
T: 212-554-4158                           Facsimile: (203) 363-7676
F: 212-554-4058                           Attn: Michael Grundei, Esq.
Email: JDavis@SCOGroup.com

- --------------------------------------------------------------------------------

Beach Capital LLC
1285 Avenue of the Americas, 35th Floor
New York, NY 10019
Telephone: (212) 554-4158
Fax: (212) 554-4058
contact: Steven H. Rouhandeh
e-mail: srouhandeh@scogroup.com

- --------------------------------------------------------------------------------

Lake End Capital LLC
33 Tall Oaks Drive
Summit, New Jersey 07501
Attn: Jeffrey B. Davis
T: (212) 554-4158
F: (212) 554-4058

- --------------------------------------------------------------------------------


                                       24



                                    EXHIBIT A

                              PLAN OF DISTRIBUTION

      We are registering the shares of common stock on behalf of the selling
security holders. Sales of shares may be made by selling security holders,
including their respective donees, transferees, pledgees or other
successors-in-interest directly to purchasers or to or through underwriters,
broker-dealers or through agents. Sales may be made from time to time on the
________________, any other exchange or market upon which our shares may trade
in the future, in the over-the-counter market or otherwise, at market prices
prevailing at the time of sale, at prices related to market prices, or at
negotiated or fixed prices. The shares may be sold by one or more of, or a
combination of, the following:

o     a block trade in which the broker-dealer so engaged will attempt to sell
      the shares as agent but may position and resell a portion of the block as
      principal to facilitate the transaction (including crosses in which the
      same broker acts as agent for both sides of the transaction);

o     purchases by a broker-dealer as principal and resale by such
      broker-dealer, including resales for its account, pursuant to this
      prospectus;

o     ordinary brokerage transactions and transactions in which the broker
      solicits purchases;

o     through options, swaps or derivatives;

o     in privately negotiated transactions;

o     in making short sales or in transactions to cover short sales; and

o     put or call option transactions relating to the shares.

      The selling security holders may effect these transactions by selling
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. These broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling security holders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
selling security holders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities.

      The selling security holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with those
transactions, the broker-dealers or other financial institutions may engage in
short sales of the shares or of securities convertible into or exchangeable for
the shares in the course of hedging positions they assume with the selling
security holders. The selling security holders may also enter into options or
other


                                       25



transactions with broker-dealers or other financial institutions which require
the delivery of shares offered by this prospectus to those broker-dealers or
other financial institutions. The broker-dealer or other financial institution
may then resell the shares pursuant to this prospectus (as amended or
supplemented, if required by applicable law, to reflect those transactions).

      The selling security holders and any broker-dealers that act in connection
with the sale of shares may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, and any commissions received by
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals may be deemed to be underwriting discounts or commissions
under the Securities Act. The selling security holders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares against liabilities, including liabilities arising under the
Securities Act. We have agreed to indemnify each of the selling security holders
and each selling security holder has agreed, severally and not jointly, to
indemnify us against some liabilities in connection with the offering of the
shares, including liabilities arising under the Securities Act.

      The selling security holders will be subject to the prospectus delivery
requirements of the Securities Act. We have informed the selling security
holders that the anti-manipulative provisions of Regulation M promulgated under
the Securities Exchange Act of 1934 may apply to their sales in the market.

      Selling security holders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of Rule 144.

      Upon being notified by a selling security holder that a material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this prospectus, if required pursuant to Rule 424(b) under the Securities Act,
disclosing:

o     the name of each such selling security holder and of the participating
      broker-dealer(s);

o     the number of shares involved;

o     the initial price at which the shares were sold;

o     the commissions paid or discounts or concessions allowed to the
      broker-dealer(s), where applicable;

o     that such broker-dealer(s) did not conduct any investigation to verify the
      information set out or incorporated by reference in this prospectus; and

o     other facts material to the transactions.


                                       26



      In addition, if required under applicable law or the rules or regulations
of the Commission, we will file a supplement to this prospectus when a selling
security holder notifies us that a donee or pledgee intends to sell more than
500 shares of common stock.

      We are paying all expenses and fees customarily paid by the issuer in
connection with the registration of the shares. The selling security holders
will bear all brokerage or underwriting discounts or commissions paid to
broker-dealers in connection with the sale of the shares.


                                       27



                                    EXHIBIT B

            FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT

[Name and Address of Transfer Agent]

Re: Access Pharmaceuticals, Inc.

Dear [______]:

      We are counsel to Access Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), and have represented the Company in connection with that
certain Convertible Note and Warrant Purchase Agreement (the "Purchase
Agreement") dated as of __________________, 2006 by and among the Company and
the buyers named therein (collectively, the "Holders") pursuant to which the
Company issued to the Holders its secured convertible promissory notes (the
"Notes") convertible into shares of its Common Stock, par value $0.01 per share
(the "Common Stock"), and warrants to purchase shares of the Common Stock (the
"Warrants"). Pursuant to the Purchase Agreement, the Company has also entered
into an Investor Rights Agreement with the Holders (the "Investor Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the shares of Common Stock issuable upon conversion of the Notes and
upon exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Investor
Rights Agreement, on ____________ ___, 2006, the Company filed a Registration
Statement on Form S-__ (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names each of the Holders as a selling
securityholder thereunder.

      In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

Very truly yours,

By:__________________________________
cc: [LIST NAMES OF HOLDERS]


                                       28







EX-99.(E) 6 file006.htm SECURITY AGREEMENT



                                                                       EXHIBIT E

                               SECURITY AGREEMENT

      This SECURITY AGREEMENT is made as of February 16, 2006 between the
lenders listed on the signature page hereto (hereinafter, collectively, the
"SECURED PARTIES") and Access Pharmaceuticals, Inc., a Delaware corporation with
its chief executive office located at 2600 Stemmons Freeway, Suite 176, Dallas,
Texas 75207, Attention: President (the "DEBTOR").

                              W I T N E S S E T H:

      WHEREAS, on the date hereof, the Debtor has issued in favor of each of the
Secured Parties, promissory notes (each a "NOTE" and collectively the "NOTES"),
in the aggregate principal amount of Five Million Dollars ($5,000,000); such
Notes have been issued pursuant to the terms of a Convertible Note and Warrant
Purchase Agreement (the "PURCHASE AGREEMENT") of even date herewith between the
Debtor and the Secured Parties; and

      WHEREAS, it is a condition precedent to the Secured Parties' making any
loans under Purchase Agreement and the Notes or otherwise extending credit to
the Debtor that the Debtor execute and deliver to the Lenders this Security
Agreement;

      NOW, THEREFORE, in consideration of the premises and to induce the Secured
Parties to extend the loans to the Debtor pursuant to the Notes, the Debtor
hereby agrees with the Secured Parties as follows:

      1.    DEFINED TERMS.

      (a)   Unless otherwise defined herein, terms, which are defined in the
      Note and used herein, shall have the meanings ascribed to such terms in
      the Note.

      (b)   The following terms which are defined in Article 9 are used herein
      as so defined: Accessions, Accounts, Chattel Paper, Commercial Tort
      Claims, Deposit Accounts, Documents, Equipment, General Intangibles,
      Goods, Instruments, Inventory, Investment Property, Letters of Credit,
      Letter-of-Credit Rights, Payment Intangibles, Proceeds, Promissory Notes,
      Software and Supporting Obligations.

      (c)   The following terms shall have the following meanings:

      "ARTICLE 9" means Article 9 of the Code as in effect from time to time.

      "CODE" means the Uniform Commercial Code as from time to time in effect in
      the State of New York, including, specifically, Article 9.

      "COLLATERAL" shall have the meaning assigned to it in Section 2 of this
      Security Agreement.


                                        1



      "CONTRACTS" means the separate contracts between the Debtor and third
      parties (including without limitation its customers), as the same may from
      time to time be amended, supplemented or otherwise modified, including,
      without limitation, (a) all rights of the Debtor to receive moneys due and
      to become due to it thereunder or in connection therewith, (b) all rights
      of the Debtor to damages arising out of, or for, breach or default in
      respect thereof and (c) all rights of the Debtor to perform and to
      exercise all remedies thereunder; but excluding any contracts, the
      assignment or hypothecation of which, for collateral purposes, would
      result in a default or require, or cause, a forfeiture or permit a
      revocation of material rights under such contract.

      "COPYRIGHTS" means (a) all copyrights of the United States or any other
      country, (b) all copyright registrations filed in the United States or in
      any other country, and (c) all Proceeds thereof.

      "COPYRIGHT LICENSE" means any Contract providing for the grant by Debtor
      of any right to use any Copyright.

      "CUSTOMER CONTRACTS" means Contracts between the Debtor and its customers.

      "ENCUMBRANCE" or "ENCUMBRANCES" means any security interest, mortgage,
      pledge, lien, claim, charge, encumbrance, title retention agreement,
      lessor's interest under a financing lease or any analogous arrangements in
      any of properties or assets of Debtor, intended as, or having the effect
      of, security.

      "EVENT OF DEFAULT" as defined in each Note.

      "GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign court,
      commission or tribunal, or governmental, administrative or regulatory
      agency, department, authority, instrumentality or other body.

      "MATERIAL ADVERSE EFFECT" means a material adverse effect on the condition
      (financial or otherwise), assets, liabilities, business, results of
      operations or prospects of the Debtor, taken as a whole.

      "OBLIGATIONS" means all principal, interest, fees, charges, collateral
      protection expenses, enforcement costs and other sums (in each case
      whether pre-or-post petition) due or to become due and payable by Debtor
      to any of the Secured Parties under the Notes, this Agreement or the
      Purchase Agreement.

      "PATENTS" means (a) all patents of the United States and all reissues and
      extensions thereof, (b) all applications for patents of the United States
      and all divisions, continuations and continuations-in-part thereof or any
      other country, and (c) all Proceeds thereof.

      "PATENT LICENSE" means any Contract providing for the grant by Debtor of
      any right to manufacture, use or sell any invention covered by a Patent.


                                        2



      "PERMITTED ENCUMBRANCES" means any of the following Encumbrances that
      exist or that the Debtor may create or incur or suffer to be created or
      incurred or to exist : (i) liens to secure taxes, assessments and other
      government charges in respect of obligations not overdue or liens on
      properties to secure claims for labor, material or supplies in respect of
      obligations not overdue; (ii) deposits or pledges made in connection with,
      or to secure payment of, workmen's compensation, unemployment insurance,
      old age pensions or other social security obligations; (iii) liens of
      carriers, warehousemen, mechanics and materialmen, and other like liens on
      properties in existence less than 180 days from the date of creation
      thereof in respect of obligations not overdue; (iv) encumbrances on real
      estate consisting of easements, rights of way, zoning restrictions,
      restrictions on the use of real property and defects and irregularities in
      the title thereto, landlord's or lessor's liens under leases to which the
      Debtor is a party, and other minor liens or encumbrances none of which in
      the opinion of the Debtor interferes materially with the use of the
      property affected in the ordinary conduct of business of the Debtor, which
      defects do not individually or in the aggregate have a Material Adverse
      Effect; (v) purchase money security interests in or purchase money
      mortgages on real or personal property to secure purchase money
      indebtedness, incurred in connection with the acquisition of such
      property, which security interests or mortgages cover only the real or
      personal property so acquired or (vi) security interests in the sale and
      lease back of real and personal property, the aggregate value of which
      does not exceed $500,000 during the term of the Note (such aggregate value
      limitation to include any encumbrances on the assets of any subsidiary of
      the Company pursuant to Section 5(e)(vi) of the Note).

      "PERSON" means an individual, partnership, corporation, limited liability
      company, business trust, joint stock company, trust, unincorporated
      association, joint venture or other entity of whatever nature, whether
      public or private.

      "REQUIREMENT OF LAW" means any requirement of law, rule, regulation or
      guideline of any Governmental Authority.

      "SECURITY AGREEMENT" means this Security Agreement, as amended,
      supplemented, restated or otherwise modified from time to time.

      "SOFTWARE LICENSE" means any agreement, written or oral, providing for the
      grant by Debtor of any right to use any Software.

      "SOURCE CODE" means all source code and all updates, releases and/or new
      versions of the Software.

      "TRADEMARKS" means (a) all trademarks, trade names, corporate names,
      company names, business names, fictitious business names, trade styles,
      service marks, logos and other source or business identifiers and the
      goodwill associated therewith, now existing or hereafter adopted or
      acquired, all registrations and recordings thereof, and all applications
      in connection therewith, whether registered in the United States Patent
      and Trademark Office or in any similar office or agency of the United
      States, any State thereof or any


                                        3



      other country or any political subdivision thereof or otherwise, (b) all
      renewals thereof, and (c) all Proceeds thereof, including the goodwill of
      the business connected with the use of and symbolized by the Trademarks.

      "TRADEMARK LICENSE" means any Contract providing for the grant by Debtor
      of any right to use any Trademark.

      2.    GRANT OF SECURITY INTEREST.

      (a)   As collateral security for the prompt and complete payment and
      performance when due of the Obligations, the Debtor hereby grants to each
      of the Secured Parties a security interest in all properties, assets and
      rights of the Debtor now owned or at any time hereafter acquired by the
      Debtor or in which the Debtor now has or at any time in the future may
      acquire any right, title or interest, wherever located or situated and
      however defined or classified under Article 9, including, without
      limitation, all of the property described in clause (b) below
      (collectively, the "COLLATERAL").

      (b)   Without limitation of the foregoing, the Collateral includes all of
      Debtor's right, title and interest in the following at all times:

                     (i)      all Accounts;

                    (ii)      all Chattel Paper;

                   (iii)      all Commercial Tort Claims;

                    (iv)      all Contracts;

                     (v)      all Copyrights;

                    (vi)      all Copyright Licenses;

                   (vii)      all Deposit Accounts;

                  (viii)      all Documents;

                    (ix)      all Equipment;

                     (x)      all General Intangibles;

                    (xi)      all Goods;

                   (xii)      all Instruments;

                  (xiii)      all Inventory;


                                        4



                   (xiv)      all Investment Property;

                    (xv)      all Letter-of-Credit Rights;

                   (xvi)      all Letters of Credit;

                  (xvii)      all Patents;

                 (xviii)      all Patent Licenses;

                   (xix)      all Payment Intangibles;

                    (xx)      all Promissory Notes;

                   (xxi)      all Software (including, without limitation, any
                              Source Code thereto, all Software Licenses and any
                              Patents or Copyrights associated therewith);

                  (xxii)      all Supporting Obligations;

                 (xxiii)      all Trademarks;

                  (xxiv)      all Trademark Licenses;

                   (xxv)      all Proceeds, all Accessions and additions thereto
                              and all substitutions and replacements therefor
                              and products of any and all of the foregoing.

      3.    RIGHTS OF SECURED PARTIES; LIMITATIONS ON SECURED PARTIES'
OBLIGATIONS.

      (a)   Debtor Remains Liable under Accounts and Contracts. Anything herein
      to the contrary notwithstanding, the Debtor shall remain liable under each
      of the Accounts and Contracts to observe and perform all the conditions
      and obligations to be observed and performed by it thereunder, all in
      accordance with the terms of any agreement giving rise to each such
      Account and in accordance with and pursuant to the terms and provisions of
      each such Contract. None of the Secured Parties shall have any obligation
      or liability under any Account (or any agreement giving rise thereto) or
      under any Contract by reason of or arising out of this Security Agreement
      or the receipt by any Secured Party of any payment relating to such
      Account or Contract pursuant hereto, nor shall any Secured Party be
      obligated in any manner to perform any of the obligations of the Debtor
      under or pursuant to any Account (or any agreement giving rise thereto) or
      under or pursuant to any Contract, to make any payment, to make any
      inquiry as to the nature or the sufficiency of any payment received by it
      or as to the sufficiency of any performance by any party under any Account
      (or any agreement giving rise thereto) or under any Contract, to present
      or file any claim, to take any action to enforce any performance or to


                                        5



      collect the payment of any amounts which may have been assigned to it or
      to which it may be entitled at any time or times.

      (b)   Notice to Account Debtors and Contracting Parties. At any time after
      the occurrence of an Event of Default, upon the request of any Secured
      Party, the Debtor shall notify account debtors on the Accounts and parties
      to the Contracts that the Accounts and the Contracts have been assigned to
      the Secured Parties, and that payments in respect thereof shall be made
      directly to them. Upon the occurrence of an Event of Default, the Secured
      Parties, may in its own name or in the name of others communicate with
      account debtors on the Accounts and parties to the Contracts to verify
      with them to the Secured Parties' reasonable satisfaction the existence,
      amount and terms of any Accounts or Contracts.

      4.    REPRESENTATIONS AND WARRANTIES. The Debtor hereby represents and
warrants to the Secured Parties that (a) it is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
(b) it has the corporate power and authority to own or hold under lease the
Collateral, to transact the business it transacts and proposes to transact, to
execute and deliver this Security Agreement and to perform the provisions
hereof, (c) this Security Agreement has been duly authorized by all necessary
corporate action on the part of the Debtor and constitutes a legal, valid and
binding obligation of the Debtor enforceable against the Debtor in accordance
with its terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), (d) the execution, delivery and
performance by the Debtor of this Security Agreement will not (i) to the
knowledge of the Debtor, contravene, result in any breach of, or constitute a
default under, or result in the creation of any lien (other than those provided
for in this Security Agreement) in respect of any property of the Debtor under,
any indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, the Debtor's articles of incorporation or bylaws, or any other material
agreement or instrument to which the Debtor is a party or by which the Debtor or
any of its properties may be bound or affected; (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Debtor, or (iii) to the knowledge of the Debtor, violate any provision of
any statute or other rule or regulation of any Governmental Authority applicable
to the Debtor, (e) except for the Encumbrances granted pursuant to this Security
Agreement and Permitted Encumbrances, the Debtor owns each item of the
Collateral free and clear of any and all Encumbrances or claims of others, and
(f) except in connection with Permitted Encumbrances, no security agreement,
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as may
have been filed in favor of the Secured Parties.

      5.    COVENANTS. The Debtor covenants and agrees with the Secured Parties
that, from and after the date of this Security Agreement until the Obligations
are paid in full:

      (a)   Further Documentation; Pledge of Instruments and Chattel Paper. Upon
      the written request of the Secured Parties, and at the sole expense of the
      Debtor, the Debtor


                                        6



      will promptly and duly execute and deliver such further instruments and
      documents and take such further action as the Secured Parties may
      reasonably request for the purpose of obtaining or preserving the full
      benefits of this Security Agreement and of the rights and powers herein
      granted, including, without limitation, the filing of any financing or
      continuation statements under the Uniform Commercial Code in effect in any
      jurisdiction with respect to the Encumbrances created hereby. The Debtor
      also hereby authorizes the Secured Parties to file any such financing or
      continuation statement. A carbon, photographic or other reproduction of
      this Security Agreement shall be sufficient as a financing statement for
      filing in any jurisdiction. If any amount payable under or in connection
      with any of the Collateral shall be or become evidenced by any Instrument
      or Chattel Paper, such Instrument or Chattel Paper shall be delivered to
      the Secured Parties (if requested by the Secured Parties), duly endorsed
      in a manner satisfactory to the Secured Parties to be held as Collateral
      pursuant to this Security Agreement.

      (b)   Indemnification. Following the occurrence of any Event of Default,
      in any suit, proceeding or action brought by any Secured Party under any
      Account or Contract for any sum owing thereunder, or to enforce any
      provisions of any Account or Contract, the Debtor will save, indemnify and
      keep the Secured Parties harmless from and against all expense, loss or
      damage suffered by reason of any defense, setoff, counterclaim, recoupment
      or reduction or liability whatsoever of the account debtor or obligor
      thereunder, arising out of a breach by the Debtor of any obligation
      thereunder or arising out of any other agreement, indebtedness or
      liability at any time owing to or in favor of such account debtor or
      obligor or its successors from the Debtor.

      (c)   Maintenance of Records. The Debtor will keep and maintain at its own
      cost and expense satisfactory and complete records of the Collateral,
      including, without limitation, a record of all payments received and all
      credits granted with respect to the Accounts. The Debtor will mark its
      books and records pertaining to the Collateral to evidence this Security
      Agreement and the security interests granted hereby. The Secured Parties
      shall have a security interest in all of the Debtor's books and records
      pertaining to the Collateral, and the Debtor shall make any such books and
      records available to the Secured Parties or to their representatives
      during normal business hours for their review at the request of the
      Secured Parties upon reasonable prior notice.

      (d)   Right of Inspection. The Secured Parties shall at all times but no
      more than once every six (6) months and upon reasonable prior notice have
      full and free access during normal business hours to all the books,
      correspondence and records of the Debtor, and the Secured Parties or their
      respective representatives may examine the same, take extracts therefrom
      and make photocopies thereof, and the Debtor agrees to render to the
      Secured Parties, at the Debtor's cost and expense, such clerical and other
      assistance as may be reasonably requested with regard thereto. The Secured
      Parties and their representatives shall at any reasonable time, but no
      more than once every six (6) months, and upon reasonable prior notice also
      have the right to enter into and upon any premises where any of the
      Inventory or Equipment is located for the purpose of inspecting the same,
      observing its use or otherwise protecting its interests-therein.


                                        7



      (e)   Compliance with Laws, etc. The Debtor will comply in all material
      respects with all Requirements of Law applicable to the Collateral or any
      part thereof or to the operation of the Debtor's business; provided,
      however, that the Debtor may contest any Requirement of Law in any
      reasonable manner which shall not, in the opinion of the Secured Parties,
      adversely affect the Secured Parties' rights or the priority of its
      Encumbrances on the Collateral.

      (f)   Compliance with Terms of Contracts, etc. The Debtor will perform and
      comply in all material respects with all its obligations under the
      Contracts and all its other contractual obligations relating to the
      Collateral except where such nonperformance and noncompliance could not
      reasonably be expected to have a Material Adverse Effect.

      (g)   Payment of Obligations. The Debtor will pay promptly when due all
      taxes, assessments and governmental charges or levies imposed upon the
      Collateral or in respect of its income or profits therefrom, as well as
      all claims of any kind (including, without limitation, claims for labor,
      materials and supplies) against or with respect to the Collateral, except
      that no such charge need be paid if (i) the validity thereof is being
      contested in good faith by appropriate proceedings, (ii) such proceedings
      do not involve any material danger of the sale, forfeiture or loss of any
      of the Collateral or any interest therein and (iii) such charge is
      adequately reserved against on the Debtor's books in accordance with
      generally accepted accounting principles.

      (h)   Limitation on Encumbrances on Collateral. The Debtor will not
      create, incur or permit to exist, will defend the Collateral against, and
      will take such other action as is necessary to remove, any Encumbrance or
      claim on or to the Collateral, other than the Encumbrances created hereby
      or Permitted Encumbrances, and will defend the right, title and interest
      of the Secured Parties in and to any of the Collateral against other
      claims and demands of all Persons whomsoever.

      (i)   Limitations on Dispositions of Collateral. The Debtor will not sell,
      transfer, lease or otherwise dispose of any of the Collateral, or attempt,
      offer or contract to do so except for (x) sales of Inventory in the
      ordinary course of its business and (y) so long as no Event of Default has
      occurred, the disposition in the ordinary course of business of property
      not material to the conduct of its business.

      (j)   Limitations on Modifications, Waivers, Extensions of Contracts and
      Agreements Giving Rise to Accounts. The Debtor will not (i) amend, modify,
      terminate or waive any provision of any Contract or any agreement giving
      rise to an Account in any manner which could reasonably be expected to
      materially adversely affect the value of all Contracts and Accounts as
      Collateral when examined in the aggregate or (ii) fail to exercise
      promptly and diligently each and every material right which it may have
      under each Contract and each agreement giving rise to an Account where
      such failure could reasonably be expected to have a Material Adverse
      Effect on the value of all Contracts and Accounts when examined in the
      aggregate.


                                        8



      (k)   Maintenance of Equipment. The Debtor will maintain each item of
      Equipment in good operating condition, ordinary wear and tear and
      immaterial impairments of value and damage by the elements excepted, and
      will provide all maintenance, service and repairs necessary for such
      purpose except where the failure to maintain such Equipment could not
      reasonably be expected to have a Material Adverse Effect.

      (l)   Further Identification of Collateral. The Debtor will furnish to the
      Secured Parties from time to time, but no more than once per year,
      statements and schedules further identifying and describing the Collateral
      and such other reports in connection with the Collateral as the Secured
      Parties may reasonably request, all in reasonable detail.

      (m)   Notices. The Debtor will advise the Secured Parties promptly, in
      reasonable detail, (i) of any Encumbrance (other than Encumbrances created
      hereby or Permitted Encumbrances) on, or claim asserted against, any of
      the Collateral, (ii) of any notice sent by a Secured Party of the
      occurrence of an Event of Default under such Secured Party's Note and
      (iii) of the occurrence of any other event which could reasonably be
      expected to have a Material Adverse Effect on the aggregate value of the
      Collateral or on the Encumbrances created hereunder.

      (o)   Changes in Locations, Name, etc. The Debtor shall provide Secured
      Parties with at least thirty (30) days prior written notice in the event
      of either (i) a change the location of its chief executive office/chief
      place of business or jurisdiction of incorporation or remove its books and
      records from such location, or (ii) change its name, identity or corporate
      structure to such an extent that any financing statement filed by the
      Secured Parties in connection with this Security Agreement would become
      seriously misleading.

      (p)   Patents, Copyrights, Software, Trademarks and General Intangibles.

            (i)     Whenever Debtor shall file an application for the
            registration of any Patent, Software or Trademark with the United
            States Patent and Trademark Office or any Copyright or Software with
            the United States Copyright Office or any similar office or agency
            in any other country or any political subdivision thereof, Debtor
            shall report such filing to the Secured Parties within five (5)
            business days after the last day of the fiscal quarter in which such
            filing occurs.

            (ii)    The Debtor shall execute and deliver any and all agreements,
            instruments, documents, and papers as the Secured Parties may
            reasonably request to evidence the Secured Parties' security
            interest in any Patent, Copyright, Software, General Intangible or
            Trademark and the goodwill of Debtor relating thereto or represented
            thereby, and Debtor hereby constitutes the each of the Secured
            Parties as its attorney-in-fact to execute and file all such
            writings for the foregoing purposes, all acts of such attorney being
            hereby ratified and confirmed; such power being coupled with an
            interest is irrevocable until the Obligations are paid in full.


                                        9



            (iii)   The Debtor will take all reasonable and necessary steps,
            including, without limitation, in any proceeding before the United
            States Patent and Trademark Office, or any similar office or agency
            in any other country or any political subdivision thereof, to
            maintain and pursue each application (and to obtain the relevant
            registration) and to maintain each registration of any registered
            Patents, Copyrights, Software, General Intangibles or Trademarks,
            including, without limitation, filing of applications for renewal,
            affidavits of use and affidavits of incontestability.

            (iv)    In the event that any material Patent, Copyright, Software,
            General Intangible or Trademark included in the Collateral is
            infringed, misappropriated or diluted by a third party, Debtor shall
            promptly notify the Secured Parties after it learns thereof and
            shall, unless Debtor shall reasonably determine that such Patent,
            Copyright, Software, General Intangible or Trademark is of
            negligible economic value to Debtor, promptly sue for infringement,
            misappropriation or dilution, to seek injunctive relief where
            appropriate and to recover any and all damages for such
            infringement, misappropriation or dilution, or take such other
            actions as Debtor shall reasonably deem appropriate under the
            circumstances to protect such Patent, Copyright, Software, General
            Intangible or Trademark.

      (q)   Commercial Tort Claims. The Debtor shall promptly notify the Secured
      Parties in writing upon incurring or otherwise obtaining a Commercial Tort
      Claim against any third party, and upon request of the Secured Parties,
      promptly enter into an amendment to this Security Agreement and do such
      other acts or things deemed appropriate by the Secured Parties to give the
      Secured Parties a security interest in any such Commercial Tort Claim.

      6.    SECURED PARTIES' APPOINTMENT AS ATTORNEY-IN-FACT.

      (a)   Powers. During the existence of an Event of Default, the Debtor
      hereby irrevocably constitutes and appoints each of the Secured Parties
      with full power of substitution, as its true and lawful attorney-in-fact
      with full irrevocable power and authority in the place and stead of Debtor
      and in the name of Debtor or in its own name, from time to time in the
      Secured Parties' discretion, for the purpose of carrying out the terms of
      this Security Agreement, to take any and all appropriate action and to
      execute any and all documents and instruments which may be necessary or
      desirable to accomplish the purposes of this Security Agreement, and,
      without limiting the generality of the foregoing, Debtor hereby gives each
      of the Secured Parties the power and right, on behalf of Debtor, without
      notice to or assent by Debtor, to do the following: to pay or discharge
      taxes and Encumbrances (other than Permitted Encumbrances) levied or
      placed on the Collateral, to effect any repairs or any insurance called
      for by the terms of this Security Agreement and to pay all or any part of
      the premiums therefor and the costs thereof; and during the existence of
      an Event of Default and only upon written instruction of the Secured
      Parties, (A) to direct any party liable for any payment under any of the
      Collateral to make payment of any and all moneys due or to become due
      thereunder directly to the Secured Parties or as the Secured Parties shall
      direct; (B) to ask or demand for, collect, receive payment of and receipt
      for, any and all moneys, claims and other


                                       10



      amounts due or to become due at any time in respect of or arising out of
      any Collateral; (C) to sign and endorse any invoices, freight or express
      bills, bills of lading, storage or warehouse receipts, drafts against
      debtors, assignments, verifications, notices and other documents in
      connection with any of the Collateral; (D) to commence and prosecute any
      suits, actions or proceedings at law or in equity in any court of
      competent jurisdiction to collect the Collateral or any thereof and to
      enforce any other right in respect of any Collateral; (E) to defend any
      suit, action or proceeding brought against Debtor with respect to any
      Collateral; (F) to settle, compromise or adjust any suit, action or
      proceeding described in clause (E) above and, in connection therewith, to
      give such discharges or releases as the Secured Parties may deem
      appropriate; (G) to assign any Patent, Copyright, Software, General
      Intangible or Trademark (along with the goodwill of the business to which
      any such Trademark pertains), throughout the world for such term or terms,
      on such conditions, and in such manner, as the Secured Parties shall
      determine; and (H) generally, to sell, transfer, pledge and make any
      agreement with respect to or otherwise deal with any of the Collateral as
      fully and completely as though the Secured Parties were the absolute owner
      thereof for all purposes, and to do, at the Secured Parties' option and
      Debtor's expense, at any time, or from time to time, all acts and things
      which the Secured Parties deem necessary to protect, preserve or realize
      upon the Collateral and the Secured Parties' Encumbrances thereon and to
      effect the intent of this Security Agreement, all as fully and effectively
      as Debtor might do. The Debtor hereby ratifies all that said attorneys
      shall lawfully do or cause to be done by virtue hereof. This power of
      attorney is a power coupled with an interest and shall be irrevocable.

      (b)   Other Powers. The Debtor also authorizes the Secured Parties, at any
      time and from time to time, to execute, in connection with the sale
      provided for in Section 9 hereof, any endorsements, assignments or other
      instruments of conveyance or transfer with respect to the Collateral.

      (c)   No Duty on Secured Parties' Part. The powers conferred on the
      Secured Parties hereunder are solely to protect Secured Parties' interests
      in the Collateral and shall not impose any duty upon the Secured Parties
      to exercise any such powers. The Secured Parties shall be accountable only
      for amounts that it actually receives as a result of the exercise of such
      powers, and none of them nor any of their officers, directors, or
      employees shall be responsible to Debtor for any act or failure to act
      hereunder, except for its own gross negligence or willful misconduct.

      7.    PERFORMANCE BY SECURED PARTY OF DEBTOR'S OBLIGATIONS. If Debtor
fails to perform or comply with any of its agreements contained herein and the
Secured Parties shall itself perform or comply, or otherwise cause performance
or compliance, with such agreement, the reasonable expenses of the Secured
Parties incurred in connection with such performance or compliance, together
with interest thereon at a rate per annum equal to 12%, shall be payable by
Debtor to the Secured Parties on demand and shall constitute Obligations secured
hereby.

      8.    PROCEEDS. In addition to the rights of the Secured Parties specified
in Section 3 with respect to payments of Accounts, it is agreed that during the
existence of an Event of


                                       11



Default (a) all Proceeds received by the Debtor consisting of cash, checks and
other near-cash items shall be held by the Debtor in trust for the Secured
Parties, segregated from other funds of the Debtor, and shall, forthwith upon
receipt by the Debtor, be turned over to the Secured Parties in the exact form
received by the Debtor (duly endorsed by the Debtor to the Secured Parties), and
(b) any and all such Proceeds received by the Secured Parties (whether from the
Debtor or otherwise) may, in the sole discretion of the Secured Parties, be held
by the Secured Parties as collateral security for, and/or then or at any time
thereafter may be applied by the Secured Parties, pro ratably against, the
Obligations or in such order as the Secured Parties may elect. Any balance of
such Proceeds remaining after the Obligations shall have been paid in full,
shall be paid over to the Debtor or to whomsoever may be lawfully entitled to
receive the same.

      9.    REMEDIES. Upon the occurrence of an Event of Default, the Required
Secured Parties may exercise, in addition to all other rights and remedies
granted to it in this Security Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Secured Parties, during the existence of an Event of Default
and without further demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon Debtor or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of any of the Secured Parties or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Each purchaser at any such sale shall hold the Collateral sold absolutely free
from any claim or right on the part of the Debtor, and Debtor hereby waives (to
the extent permitted by law) all rights of redemption, stay, or appraisal that
it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Each of the Secured Parties shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in Debtor,
which right or equity is hereby waived or released, and in connection herewith
to credit bid the Obligations with the proceeds that would otherwise be payable
to such Secured Party. The Secured Parties shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The Secured
Parties may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the extent
permitted by law, Debtor hereby waives any claims against the Secured Parties
arising because the price at which any Collateral may have been sold at a
private sale was less than the price that might have been obtained at a public
sale. The Debtor further agrees, at the Secured Parties' request to assemble the
Collateral and make it available to the Secured Parties at places, which the
Secured Parties shall reasonably select, whether at Debtor's premises or
elsewhere. The Secured Parties shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way


                                       12



relating to the Collateral or the rights of the Secured Parties hereunder,
including, without limitation, reasonable attorneys' fees and disbursements, to
the payment in whole or in part of the Obligations, in such order as the Secured
Parties may elect, and only after such application and after the payment by
Secured Parties of any other amount required by any provision of law, including,
without limitation, any provision of the Code, need the Secured Parties account
for the surplus, if any, to Debtor. To the extent permitted by applicable law,
Debtor waives all claims, damages and demands it may acquire against any Secured
Party arising out of the exercise by any Secured Party of any of its rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least ten (10) days before such sale or other disposition. The Debtor
shall remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the obligations and the
fees and disbursements of any attorneys employed by any Secured Party to collect
such deficiency. Debtor hereby agrees that any sale or other disposition of the
Collateral conducted in conformity with reasonable commercial practices of
banks, insurance companies, or other financial institutions in the city and
state where any Secured Party is located in disposing of property similar to the
Collateral shall be deemed to be commercially reasonable.

      10.   LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL. The
Secured Parties' sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Article 9 or otherwise,
shall be to deal with it in the same manner as any Secured Party deals with
similar property for its own account. None of the Secured Parties nor any of
their respective directors, officers, agents or employees shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of Debtor or otherwise.

      11.   POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.

      12.   SEVERABILITY. Any provision of this Security Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. All covenants and other
agreements contained in this Security Agreement by or on behalf of any of the
parties hereto bind and inure to the benefit of their respective successors and
assigns whether so expressed or not.

      13.   PARAGRAPH HEADINGS. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
This Security Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.


                                       13



      14.   NO WAIVER; CUMULATIVE REMEDIES. The Secured Parties shall not, by
any act (except by a written instrument), delay, indulgence, omission or
otherwise, be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of any
of the Secured Parties, any right, power or privilege hereunder shall operate as
a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by any Secured Party of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy that the Secured Parties would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law. THIS SECURITY AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH
STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER
THAN SUCH STATE.

      15.   JURISDICTION; VENUE; SERVICE OF PROCESS. This Agreement shall be
subject to the exclusive jurisdiction of the Federal District Court, Southern
District of New York and if such court does not have proper jurisdiction, the
State Courts of New York County, New York. The parties to this Agreement agree
that any breach of any term or condition of this Agreement shall be deemed to be
a breach occurring in the State of New York by virtue of a failure to perform an
act required to be performed in the State of New York and irrevocably and
expressly agree to submit to the jurisdiction of the Federal District Court,
Southern District of New York and if such court does not have proper
jurisdiction, the State Courts of New York County, New York for the purpose of
resolving any disputes among the parties relating to this Agreement or the
transactions contemplated hereby. The parties irrevocably waive, to the fullest
extent permitted by law, any objection which they may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Agreement, or any judgment entered by any court in respect hereof
brought in New York County, New York, and further irrevocably waive any claim
that any suit, action or proceeding brought in Federal District Court, Southern
District of New York and if such court does not have proper jurisdiction, the
State Courts of New York County, New York has been brought in an inconvenient
forum. Each of the parties hereto consents to process being served in any such
suit, action or proceeding, by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 15 shall affect or limit any right to serve
process in any other manner permitted by law.

      16.   NOTICES. Notices hereunder shall be given to the Debtor and each
Secured Party in the manner set forth in the Purchase Agreement of even date
herewith between the Debtor and each of the Secured Parties and at the addresses
set forth therein.

      17.   TERMINATION. Upon the repayment in full of all Obligations, this
Security Agreement shall terminate, the Secured Parties shall deliver any
release of the Encumbrances created under this Security Agreement that Debtor
may reasonably request (at the cost of the Debtor), and the Secured Parties
shall return to the Debtor all Collateral then in its possession,


                                       14



custody, or control, and this Security Agreement shall terminate without further
action by the Party and be of no further force and effect.

               [intentionally left blank - signature page follows]

      IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed and delivered as of the date first above written.



                                 ACCESS PHARMACEUTICALS, INC.


                                 By: /s/ Stephen B. Thompson
                                     -------------------------------------------
                                     Name:  Stephen B. Thompson
                                     Title: Vice President, CFO


                                       15



                            OMNIBUS SIGNATURE PAGE TO
                          ACCESS PHARMACEUTICALS, INC.
                               SECURITY AGREEMENT

The undersigned, as a Secured Party, hereby executes and delivers the Security
Agreement to which this signature page is attached, which, together with all
counterparts of the Security Agreement and signature pages of the other parties
named in said Security Agreement, shall constitute one and the same document in
accordance with the terms of the Security Agreement.


                                 Print Name:   SCO Capital Partners LLC
                                            ------------------------------------


                                 By:           /s/ Steven H. Rouhandeh
                                            ------------------------------------
                                 Name:         Steven H. Rouhandeh
                                            ------------------------------------
                                 Title:        Chairman
                                            ------------------------------------


                                       16



                            OMNIBUS SIGNATURE PAGE TO
                          ACCESS PHARMACEUTICALS, INC.
                               SECURITY AGREEMENT

The undersigned, as a Secured Party, hereby executes and delivers the Security
Agreement to which this signature page is attached, which, together with all
counterparts of the Security Agreement and signature pages of the other parties
named in said Security Agreement, shall constitute one and the same document in
accordance with the terms of the Security Agreement.


                                 Print Name:   Beach Capital LLC
                                            ------------------------------------


                                 By:           /s/ Steven H. Rouhandeh
                                            ------------------------------------
                                 Name:         Steven H. Rouhandeh
                                            ------------------------------------
                                 Title:        Managing Member
                                            ------------------------------------


                                       17




                            OMNIBUS SIGNATURE PAGE TO
                          ACCESS PHARMACEUTICALS, INC.
                               SECURITY AGREEMENT

The undersigned, as a Secured Party, hereby executes and delivers the Security
Agreement to which this signature page is attached, which, together with all
counterparts of the Security Agreement and signature pages of the other parties
named in said Security Agreement, shall constitute one and the same document in
accordance with the terms of the Security Agreement.


                                 Print Name:   Lake End Capital LLC
                                            ------------------------------------


                                 By:           /s/ Jeffrey B. Davis
                                            ------------------------------------
                                 Name:         Jeffrey B. Davis
                                            ------------------------------------
                                 Title:        Managing Member
                                            ------------------------------------


                                       18






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